Wanted: More small firms
Between December 2024 and December 2025 alone, we lost over half a million small firms, with our labor force data reporting 559,000 fewer workers in the “employer in own family farm/business” category. The same data show that we lost a total of 758,000 jobs. We lost jobs and livelihoods massively, even as our economy continued to grow, albeit more slowly. These numbers suggest that we have returned to the same “jobless growth” that we found ourselves in around 20 years ago, when I used to describe our economy’s growth as “narrow, shallow, and hollow.”
Considering that we gain around one million new jobseekers every year, jobs ought to be growing by as much, not declining as they actually are. In a country where workers are plentiful and capital is scarce, we should be generating more employment where it takes much less capital to create a job, and that’s in the micro, small, and medium enterprise (MSME) sector. After all, large job-creating investments keep eluding us.
The first M in the MSME acronym stands for firms with less than 10 workers and that operate on no more than P3 million in capital, and these comprise more than 90 percent of all our firms. But such firms—most of which belong to the informal, or “underground” economy—are not necessarily where we’d like to get the kind of jobs we want for our workers in the longer term. Just as it’s said that we have a thin middle class, we also have a thin SME sector to speak of. Statistics (as of 2023) show that 90.4 percent of our enterprises are of the micro category, while only around 8.8 percent are small (10-99 workers, with up to P15 million in capital), and a slim 0.4 percent are medium (100-199 workers, up to P100 million in capital). Large enterprises, or those with over P100 million in assets and 200 or more workers, make up the remaining 0.4 percent of the total, or 4,400 out of the 1.1 million enterprises counted.
With various laws and policies in place, you’d think that small businesses receive ample support from the government. We have a Micro, Small and Medium Enterprise Development Council and a Small Business Guarantee and Finance Corp. to address and support small business needs. We even have a Magna Carta for MSMEs, originally enacted in 1991 and amended in 1997 and 2008. With all these, it’s a puzzle why we’ve actually lost hundreds of thousands of small firms over the years.
With microenterprises dominating the scene, much of Philippine employment is informal and unstable. Those jobs are usually insecure, even sporadic, and don’t come with the usual social security, health, and leave benefits. Indeed, our labor force statistics show that about a third of employed Filipino workers are either unpaid family workers or self-employed—the kind of jobs mostly seen in the microenterprise sector. These are not the jobs that will attract our overseas workers home and keep their families intact. In fact, it is having to settle for these kinds of jobs at home that push an estimated 7,000 Filipinos to leave every day to seek better employment overseas.
Four areas of concern have traditionally hampered SME development in the country: access to finance, technology, inputs, and markets. The problem with finance has not so much been a lack of funds, but the difficulty of access to them by small firms/farms. Much of the special lending programs supported by the government and donor agencies are directed more to “livelihood” and microenterprise projects, not SMEs, and are more in the nature of social assistance for the poor, rather than enterprise development. Start-up SMEs require longer-term funds to match the long-gestating nature of their businesses, but because lenders insist on a track record of at least two years to be willing to extend financing, those start-ups are trapped from the start. What we need are more venture capital and equity funds, still a rare commodity in a country of “seguristas,” where risk-taking borders on heroism.
Most SMEs in the country are held back by low levels of technology, with production methods that are generally not very efficient, even wasteful. The result is inconsistent product quality and slow processes, rendering them uncompetitive. And in this digital age, access to digital technology is crucial, especially to improve production processes and access wider markets via e-commerce. But digital technology remains elusive to small firms for many reasons, not the least of which is limited and costly connectivity, especially in the countryside.
But what we commonly hear to be the biggest obstacle to SME development is the government itself, which I’ve often described as having made an art of throwing as many obstacles as it can on our way, in often unreasonable rules, processes, and paperwork. Meanwhile, the only other job category that actually increased, besides informal sector jobs, was—guess what: government jobs.
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cielito.habito@gmail.com
