Q2 2017 – Encouraging Entrepreneurship
by IRIS C. GONZALES
Entrepreneurship advocate and now DTI chief Ramon Lopez touts big opportunities
in small - and medium- enterprises
An intricately handcrafted wood conference table occupies the office of Department of Trade and Industry (DTI) Secretary Ramon Lopez. This furniture piece holds together many of the other furnishings: rattan chairs, mother-of-pearl frames, and an antique wall cabinet, all clearly and proudly Philippine-made.
The conference room is a showcase to the workmanship and ingenuity of which Filipino workers and entrepreneurs are capable. Lopez hopes these very qualities will drive more growth here and overseas for local businesses, growth that he believes will help address the persistent income inequality in the Philippines.
Hand-holding more startups
Data from the World Bank shows 16,143 new registered in the Philippines in 2012, compared to 11,714 in 2010 and 12,591 in 2011. New businesses are defined as firms registered in the current year of reporting.
The total number of establishments across the country reached 219,184 in 2012, according to the latest Census of Philippine Business and Industry conducted by the Philippine Statistics Authority. That’s 57.3 percent higher than the 2006 count of 139,318 establishments.
Yet both the World Bank and its unit, the International Finance Corp., note that doing business in the Philippines remains challenging, due to hurdles that range from difficult credit access to pervasive red tape. Starting up a business requires a staggering 16 procedures that take an average 36 days to complete.
President Rodrigo R. Duterte’s administration aims to resolve these issues and increase the number of new businesses registered in the country every year. Last January 17, he met with some of the country’s wealthiest business leaders to hear their concerns and solicit their support for the government’s projects.
Lopez, meanwhile, meets regularly with foreign investors and assures them that the country’s fundamentals remain sound and its investment environment continues to be attractive.
Rooting for the small players
At the World Economic Forum held in Davos, Switzerland in January, Lopez was the lone Philippine government official. To advance the Philippines’s trade interests and highlight the country’s growth story, he met with his counterparts such as Indonesian Trade Minister Enggartiasto Lukita, Canadian Trade Minister François-Philippe Champagne, and European Union (EU) Trade Commissioner Cecilia Malmström.
He brought with him a list of qualifications and a lifetime of experience. He holds a master’s degree in Development Economics from Williams College in Massachusetts, worked as a top executive at RFM Corp. for 22 years, and held down an earlier post at the DTI.
“I was with the group of (businessman and former Trade Minister Roberto) Ongpin, involved in industry development,” he recounts. Ongpin was trade minister during the Marcos administration, and held the post for six years starting in 1979. “We started the liberalization process, against all odds,” Lopez recalls, “and we’re now seeing the fruits of that. Now, I am back in government and happy to see that many things have moved forward.”
His intimate familiarity with the ebb and flow of local enterprise stems from 11 years, prior to joining the current cabinet, as executive director of the Philippine Center for Entrepreneurship (PCE)-Go Negosyo.
The non-stock, nonprofit PCE promotes a culture of enterprise among Filipinos, helps entrepreneurs succeed, and seeks to address poverty through its advocacy, Go Negosyo. This in turn was founded by businessman Jose “Joey” Concepcion III, the president and chief executive officer of food and beverage giant RFM Corp. (see “Christmas with the Concepcions” in the Power Club Q4 2014 issue).
One of the major corporations helping promote Go Negosyo is the Manila Electric Co. (Meralco), which has sought to empower entrepreneurs to engage in B2B (business-to-business) and B2B2C (business-to-business-to-customer) transactions. It is also working on a program to secure Philippine Contractors Accreditation Board licensing for accredited Meralco contractors.
Empowering the other 99 percent
In the course of his work in Go Negosyo, Lopez met then- Mayor Duterte of Davao City. “We invited him to one of our seminars in Davao,” he explains. “That’s how he knew I have this MSME (micro-, small-, and medium-enterprises) advocacy.”
When President Gloria Macapagal-Arroyo appointed Concepcion in 2005 as the Presidential Consultant for Entrepreneurship, Go Negosyo was set up to promote a positive and enterprising mindset among Filipinos and help them move up in life.
The advocacy neither endorses nor promotes particular businesses or franchises, as it brings together entrepreneurs and provides access to funding sources and training programs.
Lopez insists this kind of support is crucial in the face of government statistics that reveal MSMEs remarkably account for 99 percent of all businesses in the Philippines, and for at least 60 percent of employment.
“We tell MSMEs that they must always try to innovate,” he adds, “to have a competitive product. This is the best way to invite investments that would create jobs.”
Aiming high
While encouraging small enterprises, the DTI under Lopez’s leadership remains committed to developing larger industries that play a significant role in creating much-needed jobs.
To support the capital-intensive automotive industry, in May 2015, President Benigno S. Aquino III signed Executive Order No. 182, the Comprehensive Automotive Resurgence Strategy Program. It offers incentives to car-industry players that commit to locally produce 200,000 units in five years, and fuel much-needed growth in electric vehicles and mass transport.
As he vouches for the government’s continued support for the automotive industry, Lopez also urges local manufacturing to, literally, spread its wings: “Do you know that we have an aerospace industry in the country?” he reveals.
The DTI estimates that the domestic aerospace manufacturing industry contributed a marginal 0.15-percent share to the economy’s output in 2013, but projects this modest figure to climb to 0.57 percent by 2022.
The domestic aerospace industry is just one of the sectors on which the DTI wants to shine a spotlight.
Priorities in place
As such, a new Investment Priorities Plan (IPP) launched by the administration offers a shot in the arm to large industrial businesses. The 2017 to 2019 plan earmarks industries that qualify for tax incentives. IPP projects are classified as pioneer, for a six- to eight-year income tax holiday, and non-pioneer, for a four- to six-year equivalent.
The IPP aligns with the goals, priorities and strategies of the government’s 10-point socioeconomic agenda, Lopez points out. Approved by Malacañang last February 28 and issued under Memorandum No. 12, the IPP provides a list of “preferred investments areas” concerned with manufacturing, including agro-processing; agriculture, fishery, and forestry; strategic services such as the design of integrated circuits; infrastructure and logistics, including local government unit public-private partnerships; healthcare services, including drug rehabilitation; mass housing; inclusive business models; environment and climate change; innovation drivers; and energy.
Other priority investment areas are: export activities including services exports and activities in support of exporters; activities based on special laws granting incentives (such as tourism); and wide-ranging activities and enterprises that will support the economic development of the Autonomous Region of Muslim Development.
“The broadened coverage of the IPP aims to encourage and attract new capital in sectors and regions that can help address the inequality of growth and the jobs gap,” said Lopez in his foreword to the investment plan. “Using experience from developing industry roadmaps and implementing the new industrial policy, the IPP seeks to transform both the manufacturing and agricultural sectors by expanding their forward and backward linkages, particularly with MSMEs.”
Struggling with ʽendo’
One important linchpin in the Duterte administration’s pro-poor policies concerns the abolition of labor contractualization, colloquially referred to as “endo” to stand for “end of contract.”
Viewed from a labor-rights perspective, endo ensures workers are contracted for five months to circumvent labor laws that provide job security and benefits (see “Seeking an End to Endo” on page 4).
It’s a contentious subject among some employers, since many companies, including foreign manufacturers in special economic zones, depend on contractual labor to keep costs down and remain competitive.
Lopez admits that forcing companies to regularize their employment practices may create industrial disruption and factory closures, and lead to job losses.
The DTI is working out what it calls a win-win solution, where endo is used as an incentive. “If you remove that now, what jobs are we talking about?” Lopez asks. “Let the investments come in first, so people will have jobs.”
Eventually, he wants workers to be hired as regulars and to receive full benefits.
With each move of the Duterte administration subject to the keen scrutiny of the business community, the DTI certainly has its work cut out. Lopez is up for it, confident that the time has come for Filipino industries of every size to become as big as they can possibly be.
“You really have to create employment and entrepreneurship opportunities,” he declares. “If these are available for all Filipinos, you address inequality and create prosperity for all. That is my personal mission here at the DTI.”