August 26, 2009

Size isn’t Everything: Economic Forum on Role of Small and Medium Enterprises

Siegfried Herzog

SunStar newspaper, in cooperation with the Philippine Economic Society and the Friedrich Naumann Foundation for Liberty (FNF), held an economic forum on 26 August 2009 in Cebu City. The forum looked at what opportunities might arise for the small and medium enterprise (SME) sector in Cebu as the world emerges from recession.

Dr. Cayetano Paderanga, economics professor at the University of the Philippines Diliman, started the discussion with an overview of the financial crisis. He talked about the cheap money policy of the U.S. Federal Reserve and the unsustainably high U.S. current account deficit. He also looked at the Philippine economy in the context of the crisis, pointing out the country has weathered the storm better than expected. This is especially due to the remittances of overseas Filipinos that did not contract as expected but instead continued to grow slightly.

Philippine Institute for Development Studies Senior Research Fellow Rafaelita Aldaba, Ph.D, focused on the role of SMEs in Philippine manufacturing. She explained the structure of the sector and the challenges it faces. Dr. Aldaba outlined the key constrains as: lack of access to finance, technology and skills and supply chain problems. However, she also pointed out the programs undertaken by government and the private sector to help overcome these limitations.

Siegfried Herzog, FNF resident representative, provided a look at the success factors that have turned the German SME sector into the backbone of the economy. He used the Global Competitiveness Report of the World Economic Forum as an analytical framework and illustrated it with some examples from globally operating SMEs. “One critical insight is that the most important task of the government is to get the basics right. Reliable institutions that implement the rule of law, good infrastructure, basic education and healthcare are keys to development,” Herzog said. “As long as these are not tackled, money spent on special promotional programs will not make much of a difference. Good infrastructure will allow SMEs to emerge all over the place,” he added. “Vocational training is an area with huge potential, but it should be run by the private sector, maybe with some financial help from the government, because the private sector knows what the training needs really are.”

Please click here to view Siegfried Herzog’s presentation.