As expected, a number of business groups and organized employers have opposed any kind of across-the-board legislated wage hike. The statement of the business groups projected images of widespread begging and business closures. One headline read, “Wage hike plan to send 42 million begging for ayuda,” referring to the billions in direct dole outs given by the Rodrigo Duterte administration during the pandemic.
Reports stated that “the business groups asked the Senate to scrap a bill that grants workers an across-the-board P150 wage hike, warning the move could lead to price increases, job losses and eventual shutdown of small enterprises.”
The group showed its concern for what are called MSMEs by adding that “98% of businesses in the county are micro-, small- and medium-sized enterprises, most of which would have to absorb additional costs anew just a year after suffering from the financial impact of the pandemic.” The group warned that “if the proposal for increased wages is approved, these employers may have to further increase the prices of their products, reduce the number of their workers, or simply close down.”
How’s that for a doomsday scenario that could effectively kill the middle class and eventually the democracy that depends on a vibrant middle class.
We failed to see any alternatives or counter proposals by the trade groups which presumably account for 2% of businesses in the country and are therefore not MSMEs. If there was a counter alternative, we did not get a hold of it as we started doing this piece.
Be that as it may, such concern for the 98% is indeed laudable and encouraging. Certainly far better than policies of traditional banking and financial services towards MSMEs who have to deal with high interest rates and who have to additionally grudgingly cope with collection problems created by the 2% and the hard collateral requirements of banks. All these parties use the pandemic for unilateral policy changes and for delays in settling payables to MSMEs which, because they are MSMEs, have small margins and are vulnerable to national emergencies. But, again, thanks to trade groups for being concerned with the plight of small business if there’s a wage hike proposal.
In contrast, the Foundation for Economic Freedom (FEF) opposes the Senate bill on different grounds: that the proposed bill(s) do not take into consideration the varying local and industry conditions. A noted economist, Romeo Bernardo, says that beyond the respected FEF’s stand, he believes that the wage boards should be empowered to act speedily in adjusting wages.
Based on its statement objecting to the legislated wake hike, big business groups have decided to champion the cause of MSMEs and some 42 million Filipinos, pointing out the dire impact on and disastrous consequences of the P150 increase. The present daily minimum wage rate for the non-agriculture sector is P570 and if the P150 increase is approved, the new total is P720 which translates to about P18,720 for a 26-day work month.
Before we go any further, it may be worthwhile to define what is meant by MSMEs. The Philippine Statistics Authority (PSA) employs two criteria in operationally defining MSMEs, namely employment and asset size. The PSA classifies an enterprise as micro if it has less than 10 employees, small if it has 10-99 employees, medium with 100-199 employees, and large if it has 200 or more employees.
The strategic focus of the business groups on MSMEs as the principal victims of any substantial wage increase brings entrepreneurship and entrepreneurs to center stage. Entrepreneurs are responsible for setting up businesses and advocacies. They marshal the funds to finance a business opportunity, use their creativity, employ the basic tools of business, put in the long hours, and assume all the risks and alleviate these risks by being smart in business risk management. All businesses were created by entrepreneurs on that business’ birthday. Some become big and become members of business groups that have now taken the cudgels for MSMEs. Many have fallen by the wayside as they suffer from poor cash flow created by collection problems, which was a common occurrence during and after the pandemic.
Banks of all types and categories were of little or no help, demanding hard collateral from enterprises which did not have such assets. This is one area where big business can use its muscle — to convince banks (some of which are members of these business groups) to modify their lending policies if they really want to be some kind of a second to these MSMEs in the business ring. They could play that important role and go beyond subcontracting MSMEs with very slim margins or accrediting MSMEs as suppliers only to delay payments by anywhere from six months to one year.
What is the state of entrepreneurship in the Philippines, in Asia, in the world? What are the drivers of entrepreneurship? What challenges and obstacles do entrepreneurs face?
A search of the most recent publicly available data on entrepreneurs and entrepreneurship led us to an article, “Entrepreneurship: an emerging Career Path for Filipinos.” Although the article, put together by gemwconsortium.ns-client.xyz, was dated 2014, it does offer some insights on MSMEs which is the concern of our big business groups. The data presented are however validated by many MSMEs’ actual experience here and now in 2023.
The paper states that 6.2% of the adult population of the Philippines are established business owners and 18.4% are engaged in early-stage entrepreneurship (TEA). The country’s TEA rate is far higher than the average for Asia and Oceania (13%).
On the other hand, the country’s business discontinuance rate (12.6%) far exceeds the ASEAN average (4.8%). Poor profitability and a lack of access to capital are the major reasons for the business closure, a statement which applies to MSMEs in a post pandemic era: banks tightened up credit, in some cases changing amortization schedules and imposing more stringent collateral requirements to otherwise good accounts. It is ironic that the bank themselves helped create the successful performance of these same accounts only to abandon them when the MSMEs badly and urgently needed support. Most of these MSMEs were reeling from delayed payments of accounts payable of big businesses, with the delays in payment serving as some kind of free working capital for big business at the expense of the MSMEs which they are now so worried about.
More than half (52%) of Filipino entrepreneurs are in the 18-44 age group. Eighty-three percent of entrepreneurs are involved in retail trade, hotels, and restaurants, while only 3% are involved in the transformative sector — manufacturing, construction, and transportation. Four percent are in agriculture, forestry, fishing. Notably there are more women (56%) in entrepreneurship at the early stage as well as in established business (55%).
With respect to the state of Philippine entrepreneurship relative to the rest of Asia, Dr. Federico HH Frederick states in his article, “Top Ten countries for Asia-Pacific Entrepreneurs,” that “In these challenging times, entrepreneurs can take advantage of opportunities in the Asia-Pacific region… Just consider the potential in the top Asian countries with combined populations of 2.5 billion. Add to that another 1.7 billion in South Asia, a whopping East Asia and Pacific GDP of $22 trillion.” Frederick identifies indicators of entrepreneurship and ranks countries on the presence or extent of development of such indicators in 13 Asian countries and territories. Among these indicators are: people can identify opportunities; people have skills to start a business; and capital is available from investors.
What about the global situation? Writer Usha Gwale says, “As the home of Silicon Valley and global success stories from Google to Apple, the United States tops the global ranking of the best country to be an entrepreneur.”
As more discussions are triggered by the proposed legislated across-the-board wage hike and alternatives are offered by informed thinking groups, other corollary issues may emerge, and every sector will be asked how they can contribute to alleviating the problem. And these issues usually revolve around debt and equity capital availability. And whether you like it or not, the role of banks and financial institutions in helping MSMEs come into play.
A seasoned businessman who heads a conglomerate and whom we presume would have no problem with banks and financial institutions said, “Banks provide us with umbrellas but when strong and continuous rains come, the umbrellas cannot and do not open to protect us from the rain.”
Philip Ella Juico’s areas of interest include the protection and promotion of democracy, free markets, sustainable development, social responsibility and sports as a tool for social development. He obtained his doctorate in business at De La Salle University. Dr. Juico served as secretary of Agrarian Reform during the Corazon C. Aquino administration.