Small business and Asean integration

You’re probably familiar with the 80-20 rule, which says that 80 percent of outcomes can be attributed to (the top) 20 percent of the players. In the Philippine enterprise sector, the interesting numbers are not 80-20 but 68-0.4. That is, 68 percent of our economy’s total output can be attributed just to the largest 0.4 percent of Philippine enterprises, or 3,023 out of a total 777,687 firms counted in 2010. The rest—the 99.6 percent composed of microenterprises (making up 91.6 percent) and small and medium enterprises or SMEs (comprising 8 percent)—account for less than a third (32 percent) of our gross domestic product (GDP).

I recently cited figures from a 2008 study that showed Philippine microenterprises and SMEs contributing a smaller share to GDP than those of our neighbors, with the share reaching up to 57 percent in Indonesia. The same holds for contribution to total jobs: Philippine SMEs account for 61 percent, versus 68 percent in Singapore, 73 percent in Cambodia, 77 percent in Thailand, 81 percent in Laos, and 97 percent in Indonesia. These comparisons show that great scope remains for strengthening the role of SMEs in the Philippine economy, if we could only help them overcome traditional hurdles in access to finance, technology, raw materials and markets.

I have long maintained that widening and strengthening the SME sector is key to overcoming the Philippines’ long-standing lack of inclusive economic growth. The problem is tied to our economy’s persistent struggle with “jobless growth,” clearly reflected in last year’s 7.2-percent GDP growth that came with a meager 0.17-percent growth in jobs. The only way this can change is to have SMEs more prominently propel growth and job creation, not rely primarily on large investments and enterprises especially of the capital-intensive kind. It stands to reason that where workers are in abundance and capital is limited, we must strive to generate employment where it costs less to create a job—and that is in the SME sector. The onset of the Asean Economic Community (AEC) makes the task even more challenging, as SMEs must find proper positioning in a more closely integrated regional economy, with all its peculiar opportunities and challenges.

The foremost and seemingly intractable challenge is in providing financing for our SMEs. Bank financing is estimated to account for only 11 to 21 percent of capital raised by Philippine SMEs, much lower than the 30-percent international benchmark seen in other developing countries like Thailand and India. The SME Policy Index recently developed by the Economic Research Institute for Asean and East Asia rated the Philippines lowest among the original Asean-5 in terms of SMEs’ access to finance. The index considers factors such as collateral and provisioning requirements, credit guarantee schemes, credit bureau/registries, availability of risk capital (including venture capital, private equity funds and “business angels”), and access to the stock market. There is much to learn just by looking at what our neighbors have done on SME finance.

But enabling SMEs to take on the opportunities and challenges of AEC is not a task for government alone. SMEs have to do their homework too. Basic to this is putting their business planning and management and financial record-keeping in order. It’s a common lament that banks do not lend enough to SMEs despite a great abundance of loanable funds in the system. But one can’t fault the banks when small firms that seek their loans are unable to demonstrate a minimum of responsible business and financial management. Targeted capacity-building in these areas for SMEs would be a worthy service that government (especially local governments) and nongovernment organizations (including banks themselves) could provide, as direct contribution to inclusive growth. I’d also like to see organizations of bookkeepers and accountants provide time-bound, free or discounted accounting services to struggling SMEs as a public service, which could after all turn into sustained business relationships later.

More stable SMEs ready to expand their horizons would do well to invest time and effort to study the particular documentary procedures and requirements for taking advantage of trade and investment concessions under the AEC. The Department of Trade and Industry conducts seminars on these all around the country through their Doing Business in Free Trade Areas program, targeting particularly the SMEs. These have already helped boost the level of utilization and availment by Philippine firms of trading privileges under our various free trade agreements, including the AEC.

SMEs also need to be prepared to cluster together, team up and unite, as no single small firm can meet the volume orders that inevitably come from export buyers. A businessman friend once shared with me his experience when he secured a sizable order for his product from overseas; the order was too large for him to fill all by himself. So he invited his known competitors to team up with him to collectively meet the large order. To his utter frustration, no one was willing to do so, all preferring to go it alone. He lost the order, and with it, the opportunity of establishing a foothold in the export market. This seeming propensity for individualism is incompatible with the wealth of export opportunities that the much larger Asean market would present, and is something our SMEs must learn to overcome if they are to reap the benefits of the AEC.

The AEC, after all, was never meant to benefit only the big guys.

* * *

E-mail: cielito.habito@gmail.com

By Cielito F. Habito |Philippine Daily Inquirer

12:06 am | Tuesday, September 30th, 2014

ASEAN sees global threat from terror groups in Iraq, Syria

THE RISE of violence and brutality committed by terrorist groups in Iraq and Syria poses a threat to the Middle East and, if left unchecked, the world, according to the Association of South East Asian Nations.

“Asean denounces all acts of destruction, violence and terror in all its forms and manifestations,” the organization of 10 Southeast Asian member states said in a statement posted on its website yesterday. “Asean renews its commitment to work with the international community to fight against extremism, radicalism and terrorism and address its root causes.”

The U.S. expanded its bombing of militants from Islamic State, an al-Qaeda breakaway group from Iraq to Syria, this week. The strikes, backed by the broadest Arab-U.S. military coalition since the 1991 Gulf War, seek to rein in militants who have rampaged through Syria and threatened to ignite a civil war in Iraq.

Asean supports the United Nations Security Council resolutions, which call on the international community to suppress the flow of foreign terrorist fighters and financing of such groups, the bloc said in the statement. Asean comprises Indonesia, Malaysia, Singapore, Philippines, Laos, Cambodia, Myanmar, Thailand, Vietnam and Brunei.

Misguided Leaders

As many as 200 Indonesians and at least 30 Malaysians have traveled to Syria to fight with the Islamic State and other rebel groups via countries such as Egypt and Turkey, according to a report last month by New York-based Soufan Group, which provides strategic analysis to governments. This raises the risk they will return to carry out attacks in their home countries, Soufan Group said in the report.

“Governments and Muslim community organizations must maintain vigilance against attempts by misguided leaders to spread propaganda to recruit Muslim youth to extremism and violence,” said Rohan Gunaratna, head of the International Centre for Political Violence and Terrorism Research at Nanyang Technological University in Singapore. “Governments should criminalize by law its nationals advocating, supporting or participating in fighting overseas.”

Should there be an Islamic State strike in Malaysia, it will be along the Sulu Straits, between Sabah on the island of Borneo and the southern Philippines, The Star reported today, citing Malaysian Defense Minister Hishammuddin Hussein. A meeting will be held with Prime Minister Najib Razak to discuss allocating funds to safeguard the country’s waters, Hishammuddin told the Kuala Lumpur-based newspaper.

The Philippines government has been alerted to the possible entry of Islamic State operatives into the country, the Philippine Daily Inquirer reported today, citing President Benigno Aquino’s spokesman Abigail Valte. Authorities are tapping into the Moro Islamic Liberation Front, which has signed a peace treaty with the government, to gather and share information, according to the report. -- Bloomberg

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Homegrown franchises see ASEAN as challenge

Homegrown Filipino franchisers should view the full Asean economic integration in 2015 as a challenge rather than as purely competition in nature.

“It is really an awakening for us to level up. It is more of a challenge than a competition,” said Milkin’ Corp. president and chief executive officer Richie Z. Cuna during a press conference for the 2014 Filipino Franchise Show slated on October 3-5 at the World Trade Center to help promote this sector.

Cuna said that with the regional economic integration, entry of foreign franchises cannot be prevented anymore, in the same manner that Filipino franchisers are also expanding overseas.

“At least a dozen of our members have already opened franchises abroad. We are going global,” said Cuna, who is the chairman of this year’s franchise show.

To help the existing franchisees gear up for ASEAN 2015, AFFI is also organizing the 1st Franchisee’s Conference on October 1 with the theme “Turning Your Franchise Investment to Success”.

The conference envisions existing franchisees to develop business synergy and networking with other franchisees. It will assist them as they manage their own franchise branches.

The conference shall serve as a learning opportunity for franchisees as they listen to other franchisees talk about their successes as well as their challenges.

Part of the conference will also be a walk through with franchisees on the basics of franchising. This discussion will eliminate the franchisees misconceptions and myths they have on franchising. Basics of franchising will set the record straight on what really is franchising.

A discussion will also focus on international franchisees benchmarks for success.  An appreciation of these benchmarks will allow franchisees an opportunity to put their own benchmarks to higher levels.

Speakers of the 1st Franchisee Conference are franchisees themselves who have been franchisees for over 20 years. They will share their experiences and their stories will surely encourage franchisees become successful in their own franchise branches.

AFFI groups a total of 118 homegrown small and medium Filipino franchising companies which have a total of 19,312 stores in the country employing 135,184 people.

The most affordable AFFI franchises are engaged in food court business with investments range of between P300,000 to P350,000. Financing support from the Bank of Philippine Islands only shows that banks have faith in the franchising sector as one of the most successful business models.

AFFI is expected to grow 20 percent this year from both in terms of sales and number of franchises. In 2013, the 118 AFFI members reported estimated combined total sales of P63.4 billion.

sourcE:  Manila Bulletin

Challenges with the coming ASEAN 2015

ASEAN integration in 2015 will spur greater demand for both skilled and unskilled workers and help create up to 14 million additional jobs by 2025, says a joint study by the Asian Development Bank and the International Labour Organization (ILO).  Some 3 million new jobs will be found in the Philippines.

However, the associated gains may not be distributed evenly and could result in deeper inequality. Because competition over talent will intensify and push wages upwards, workers who are high-skilled and well-educated will be in a better position to benefit — a situation that could see millions of unskilled workers wage and welfare decline.

In the Philippines, laborers and unskilled workers in the labor force account for the biggest portion of the employed — some 12.5 million or 32.3 percent as of April 2014.  They are the ones compelled by circumstances to accept vulnerable, even informal, employment arrangements, characterized by lower wages and unsafe working conditions.

Filipino unskilled workers are also among the least productive in the world, according to a 2014 World Bank study.  Mandatory annual minimum wage increases have not been accompanied by workers’ increased productivity.  World Bank economists point to decades of underinvestment in education and skills training as the culprit.

Several educational reforms have been introduced recently, including the Early Years Act, Universal Kindergarten Education Act and the Enhanced Basic Education Act (K to 12). Successive increases in the national budget for public education have been made.   However, among ASEAN countries, the Philippines still holds the dubious distinction of having the highest proportion of children, at 11.3 percent, out of school.

Even more disturbing — and a major cause of the high drop out rate — is the fact that almost 37% of children five years and under are malnourished.

These are some of the challenges the nation faces on the eve of ASEAN 2015.

 E-mail: angara.ed@gmail.com

Benefit from ASEAN integration? Forget it

THIS IS MY SECOND article on the upcoming 2015 ASEAN integration (see ASEAN Integration, March 14, 2014). Many still express concern about it, although most of the perceived issues are really off, arising from two misconceptions: the first is that the ASEAN Economic Community (AEC) will lead to a common market in the mold of the European Union, and the second is that the Philippines needs to prepare for 2015. Both are incorrect.

The AEC is not envisioned as an Asian version of the European Union. The AEC, at best, would be one of continuing evolution. As pointed out by Coraline Goron: “The ASEAN Economic Blueprint presents two main objectives: to transform ASEAN into a single market and production base and make it a competitive economic region. One should be aware, however, that despite the bold language, the ideas put forward in this document remain significantly lower than the economic integration in the EU. Notably, no customs union and no single currency are envisaged.”

By the way, a “customs union” focuses on uniform external tariffs, which is different from a free trade agreement or FTA (which also has lowered tariffs but maintains separate external trade policies).

Finally, the idea that integration will take place next year is not exactly accurate. ASEAN integration has long begun. In fact, we have long been living in an integrated ASEAN. The truth is that many of the provisions of the ASEAN integration plans are already in place: from the lowered tariffs, to increased FTA activity, to the smoothening of customs procedures.

As of 2012, Philippine compliance with ASEAN integration is at 76.9%. Many members are at more than 80%. But Vietnam is still at 79.6%, Cambodia 76.6% and Brunei 75.5% (lower than the Philippines).

In other words, intra-ASEAN trade is already virtually duty-free, providing a relative advantage (price-wise) on the cost of goods when compared to other countries. Plus, note the various FTAs that ASEAN has with other countries

Having said that, there is certainly work to be done. The question really is not the dangers that ASEAN integration can bring (if there are any) but rather if the Philippines itself is ready to take advantage of it or be left again in the dust.

One challenge for the Philippines is to realize and manage the transition from a negotiations-based system to a more legal, rule-oriented paradigm. As far as legalities are concerned, the main source of Philippine obligations is found in Article 5.2 of the ASEAN Charter: “Member States shall take all necessary measures, including the enactment of appropriate legislation, to effectively implement the provisions of this Charter and to comply with all obligations of membership.”

Incidentally, Article 24 states that all disputes “relating to specific ASEAN instruments shall be settled through the mechanisms and procedures provided for in such instruments.”

With such general-sounding obligations, our government is nevertheless mandated to review Philippine laws to determine compliance on matters relating to: tariff and non-tariff barriers, rules of origin, customs integration, professional and employment qualifications, investment laws, capital markets, securities standards, intellectual property, taxation, competition policy, and the like. Our courts and administrative agencies must now be brought up to speed on the demands of ASEAN.

Incidentally, the foregoing also highlights the need for lawyers not only with professed international law capabilities but also business orientation and ASEAN competence. Emphatically, there is a necessity now for our lawyers to develop an “international” outlook. Which is inevitable, what with international law forming part of the laws of the Philippines.

But this globalization of our lawyers’ mindsets must also be based on pragmatic considerations, including particularly our nation’s interests. The decision of some local law schools to favor World Trade Organization or international commercial arbitration courses (or even that of the European Commission), for example, has sadly come at the expense of lawyers being completely unfamiliar with the legal systems of our neighboring trading partners in ASEAN and the Asia-Pacific Economic Community.

Finally, to reiterate what I wrote the last time, what is the point of opened markets if we don’t have the know-how and capacity to satisfy those markets? And what is the point of opening up the country for investments if the environment does not make it attractive for investors?

Our use of the ASEAN FTA benefits continues to hover at a mere 20%. This low rate has never been resolved, and even up to now a lot of Philippine firms are still baffled by the mechanics of FTAs.

Despite reported improvements in the area of competitiveness, our foreign direct investments, ease of doing business, power, transport, productivity, infrastructure, education, and rule of law protection lag behind most other ASEAN countries. Our worsening traffic, rather than a sign of progress, allegedly costs the country an amount equal to 7% of the GDP.

So, really: the best way to deal with ASEAN integration is to forget about it. And instead focus on improving ourselves.

Jemy Gatdula specializes in international economic law (WTO and ASEAN), and teaches international law and legal philosophy at the UA&P School of Law and Governance.

jemygatdula@yahoo.com

www.jemygatdula.blogspot.com

source:  Businessworld

Nobel laureate: Philippines is our inspiration

THE PHILIPPINES is a model of nationhood.

That’s according to former Timor-Leste president Jose Ramos-Horta.

Mr. Ramos-Horta, who also won a Nobel Peace Prize (with fellow Timorese, Roman Catholic bishop Carlos Filipe Ximenes Belo) in 1996, said he looks to the Philippines for inspiration.

“I don’t know whether the Philippines has anything to learn [from us].... If anything, the Philippines is very inspiring to us,” Mr. Ramos-Horta told BusinessWorld on the sidelines of the two-day Asian Forum on Corporate Social Responsibility which began on Tuesday.

Mr. Ramos-Horta was the keynote speaker in that conference, whose theme, “Building Resilient Communities,” is echoed by Timor-Leste’s own narrative.

During the interview, Mr. Ramos-Horta also looked back to another distinct chapter in modern history -- “the fall of a dictatorship [and] the People Power Movement in the Philippines,” which he said “inspired us tremendously.”

Mr. Ramos-Horta also commended the Philippine government for entering into a final peace agreement with the Moro Islamic Liberation Front called the Comprehensive Agreement on the Bangsamoro five months ago.

NEW NATION
There are parallels between the quest for self-determination among Muslim Filipinos and the rocky road to nationhood for the predominantly Catholic Timorese -- whose rejection of Indonesian rule in a 1999 referendum provoked a violent backlash that finally led to the intercession of UN peace-keepers.

After 25 years of Indonesian occupation in which an estimated 100,000 Timorese died, Timor-Leste achieved independence in 2002 -- “the first new nation of the [21st] century,” said BBC.

“Fourteen years ago, we started literally from the ashes,” Mr. Ramos-Horta said in his speech, as he looked back to the tumultuous events of 1989 to 2000 in Timor-Leste.

“There was no rule of law, no functioning ports, no private sector, no electricity... To illustrate the destruction, 95% of schools were destroyed in ’99,” he said.

“Much has been achieved since then and much is still to be achieved.”

After its bloody experience with occupation, Timor-Leste had to rely much on foreign assistance, primarily by the UN (where he now serves as an envoy). Mr. Ramos-Horta had the surprising candor to point out that some of the aid were misdirected.

“I would urge donor countries [and] development partner-countries to focus more.... on sustainable rural development,” he said in his interview with BusinessWorld.

This means not so much physical infrastructures as “bringing clean water and renewable energy, health care, basic education to the... disenfranchised people, because that’s where poverty lies.”

Mr. Ramos-Horta also candidly recommended that aid be spent “less on studies and evaluations, because many of the donor countries, they waste so much money on [these studies].”

MEMBERSHIP
In the forum and in this interview, Mr. Ramos-Horta took the opportunity to highlight his country’s bid, since 2011, to join the Association of Southeast Asian Nations (ASEAN).

The organization, once derided as a dictators’ club, has been criticized for this delay in the nation’s membership -- which Laos and Singapore, in particular, are opposing.

On the other hand, Indonesia supports Timor-Leste’s bid for membership, as Mr. Ramos-Horta himself noted. In recent years, both countries have taken steps toward reconciliation.

As he talked about ASEAN, Mr. Ramos-Horta again showed a candor that also befits his background in the Timorese resistance.

“Is ASEAN a community of traders, of shipping, or a community of peoples with values -- values of solidarity, helping each other by bridging the social-economic divide? If ASEAN is a community of peoples with values, then ASEAN should have [accepted] Timor-Leste right away, many years ago,” he said.

Mr. Ramos-Horta also said the requirements for membership in the European Union and African Union are not too rigid.

“In ASEAN, it seems that one should be [like] Singapore and then [you’ll be able] to join,” he said.

“If Indonesia actively supports [our membership], then why would anyone oppose?”

But all things considered, Mr. Ramos-Horta said he is confident that Timor-Leste will be a member of ASEAN by 2015.

source:  Businessworld

Mindanao sets sights on ASEAN integration

GENERAL SANTOS CITY -- Actions speak louder than words.

At the opening of the 23rd Mindanao Business Conference here yesterday, President Benigno S. C. Aquino III failed to attend after “equally important commitments have rendered him unable,” according to Secretary Luwalhati R. Antonino, chair of the Mindanao Development Authority.

Ms. Antonino, nonetheless, stressed that “President Aquino remains solidly committed to our collective Mindanao development agenda.”

The President, in a speech read by Ms. Antonino, said, “My administration has recognized the importance of Mindanao development to our overall march for national progress. It is just timely and relevant that we endeavor to put Mindanao at the forefront of our efforts to achieve inclusive growth.”

While business leaders and other participants in the annual event, organized by the Philippine Chamber of Commerce and Industry (PCCI), declined to verbalize their disappointment over the President’s absence, majority in the conference were lined up at the lunch buffet table as Ms. Antonino delivered the speech.

ASEAN INTEGRATION
The business sector is focusing on positioning Mindanao in the regional market as the Association of South East Asian Nations (ASEAN) prepares for economic integration by end-2015, with discussions yesterday focused on efforts to make firms more competitive in the advent of the ASEAN Economic Community.

PCCI President Alfredo M. Yao said it is crucial to “make sure that the business community is involved in the integration process.”

The first day of the conference was dedicated to plenary sessions that tackled free trade agreements and the ASEAN market. These discussions will continue today, and will touch on connectivity options with ASEAN neighbors.

Mr. Yao yesterday cited the opening of the Davao City-General Santos City-Tahuna-Bitung cargo service route that is expected to boost trade between Mindanao and North Sulawesi in Indonesia The roll-on roll-off ferry will start plying the route by Oct. 1.

Mr. Aquino, in his speech, recognized the initiative: “I commend the efforts of the Chambers of Commerce of Davao, General Santos, and North Sulawesi for working for the establishment of shipping services... this route certainly augurs well for achieving greater economic interchange between Mindanao and North Sulawesi, Indonesia...”

PCCI’s Mr. Yao also pointed to the need to work on the government’s economic policies and regulatory framework.

Earlier, Mindanao business leaders called on government for more liberalized banking and land ownership policies following consultation rounds in various parts of the southern island conducted by PCCI-Mindanao in the run-up to the conference.

Rey L. Billena, chair of the conference and director of the business chamber for Region 12, said investors in Mindanao believe that more open banking and land ownership rules are key to drawing more foreign investors and allowing growth for micro, small and medium enterprises.

POWER SUPPLY
Stable power supply and efficient energy use was another main point of discussion during the conference yesterday as Mindanao continues to cope with the shortage that is expected to be addressed in the short term by coal-fired plants being constructed by private companies.

Mindanao leaders are pushing for reforms in the management of the Pulangi and Agus power complexes, both government-run, which account for about half of Mindanao’s power requirement.

One of the proposals is the formation of a new power company, and the exemption of these two plants from the required privatization of state’s power generating capacities under the Energy Power Industry Reform Act.

Both plants require extensive rehabilitation work and the government has yet to decide on what to do with the facilities and its management set up in the future.

In his speech, Mr. Aquino vowed to make sure that Mindanao will not suffer from power supply shortages even beyond his term.

He did not specify measures.

“The Department of Energy and the Mindanao Development Authority had spearheaded efforts to ensure that both immediate and long-term measures are pursued to resolve the power situation in Mindanao,” the President said.

“Specific measures were also laid down help accelerate investments in power generation, including renewable energy projects, with the end goal of boosting supply to address surging energy demand of the growing Mindanao economy,” Mr. Aquino said.

However, the new coal-fired plants that are expected to go online starting the end of this year are not expected to meet growing power supply demand beyond 2020. -- Marifi S. Jaraand Carmelito Q. Francisco

source:  Businessworld