There needs to be a closer relationship between micro-, small- and medium-sized enterprises (MSMEs) and large firms in the Philippines, a new report published by the Asian Development Bank (ADB) says.
There is also a need to improve the accessibility and quality of infrastructure by promoting public-private partnerships (PPPs).
The ADB report, "Philippines: Private Sector Assessment," outlines constraints and strategies that can boost the private sector in the country. One of these constraints is a disconnect between large companies–mostly in the export industry–and domestic small and medium enterprises, many of which do not prosper due to lack of capital, unreliable supply chains, and weak demand for their output.
The report urges the government to help MSMEs by lowering the cost of doing business. This can be done by improving infrastructure; streamlining and removing excess administrative procedures; and creating a fair competitive environment through antitrust laws and good business practices.
“The inability of MSMEs to provide efficient and cost-effective support to large firms on the one hand, and the lack of demand from large firms for such support from MSMEs, on the other hand, present a vicious cycle that debilitates the sector,” the report said.
The vertical integration of MSMEs into large enterprises has been less successful in the Philippines than in countries like Germany and Japan.
"Effective PPP implementation can boost the country's competitiveness, as it results in better infrastructure quality and technical expertise of people. More importantly, it contributes to efficient delivery of public services," says the author of the report, Cayetano Paderanga, a former professor at the University of the Philippines' School of Economics.
In the Philippines, PPPs have typically been shunned by business because of unclear policy and regulatory frameworks, a cumbersome government approval process, and a lack of bankable projects. Other impediments, such as controversial judicial decisions, have also constrained PPP growth.
To encourage partnerships, the government should improve transparency in PPP project selection, provide better accounting of revenues and expenditures, and have a higher-profile anti-corruption drive, the report says.
“The success of reforms in both rules and administrative processes and infrastructure support is expected to result in higher foreign direct investments and an increase in fixed capital,” it added.
“This forward-looking assessment makes concrete proposals to realize the potential contribution of the private sector to inclusive economic growth in the Philippines,” says Neeraj Jain, ADB’s Country Director for the Philippines. “We are gratified that these proposals have contributed to the policy directions embedded in the Philippines Development Plan for 2011-2016.”
The report recommends that ADB help the Philippines to focus on private sector growth and increasing synergy between the public and private sectors.