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THE ROLE OF SMALL AND MEDIUM ENTERPRISES INPHILIPPINE RURAL DEVELOPMENT
BY: ALEX C. ROLDAN,
 
MBA, D 
i 
DevStud 
 
Introduction
 The development of the Philippine countryside is seen as a vitalarea in alleviating the economic condition of the country. Strategies fordevelopment evolved over the years since the country’s de-colonizationfrom America in the middle of the 20
th
century. However until recently,60% of the population living in the rural areas remain economicallydepressed compared to its urban counterpart.Small and Medium Rural Enterprises (SMRE) are continuallypresent throughout the period, but their existence were not in any waylinked to the effort of improving poverty situation in the countryside. Itoperates independently on the basis of the availability of tradable goodsand resources, and its sustainability depends heavily on the ability of theagricultural sector to produce the materials and income surplus. This seemingly indifferent behavior by the SMRE’s in the Philippineeconomic structure can be directly linked to the country’s economichistory. A review of the past policies and development directions of thecountry, showed that the industrial and agricultural sectors weredeveloped independently, and that SMRE’s who could have bridged thegap were left without any assumed role in the middle. This paper will attempt to show the potential’s of SMRE’s inassisting the development of the country’s rural areas, its role in theeconomic structure, and the form that it is capable of doing to effectivelyrespond to the present national development directions. The discussion will show a broader perspective of the country’s development directionand come up with recommendations on the issues of economicdevelopment that can be viably responded by SMRE’s.
I. The Philippine Rural Development Imperatives
 The importance of the rural sector in the Philippines may beillustrated by the fact that approximately 60% or about more than 36million, of the more than 60.5 million Filipinos reside in the rural areas(Sison & Valera, 1992, p.5). Poverty incidence, defined as percentagehouseholds living below poverty threshold, has been consistently higherin the rural areas. Researchers have identified two major causes of ruralpoverty: a) inherent and persistent socio-economic and political structure
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 which exclude the poorest segment of the rural population fromparticipating in productive economic activity, and b) government policiesin support to the post-war development strategy which were generallybiased against agriculture. The World Bank (1980) reported that from 1971 to 1975, ruralfamilies living in absolute poverty increased by 23%. Sixty one percent of all Filipino families living below poverty lines had agriculture as theirmain source of livelihood.Against this background, there is an urgent need to develop aneffective and sustainable strategy for rural development in thePhilippines. It was suggested that increasing the production levels of farmers could respond to their poverty problem. Unfortunately, theexperiences of several countries and recent Philippine experienceindicated that “increased production is not sufficient to guaranteesustained development in agricultural sector”(Bautista, 1987, p.13).With these experiences, several solutions or approaches wereidentified to respond to the problem. The approaches can be classifiedthrough the following; agro-industrial interphase, science andtechnology, credit and cooperative, marketing and infrastructure and,agriculture education and manpower training (UPLB Study Team, 1991). The identified approaches in the alleviation of the povertyconditions in the countryside showed the critical role of the promotion of agriculture related enterprises to this endeavor. This is due to the fact,that agricultural development is enhanced by stimulating the volumeand value of transactions flowing along the linkages backward toagriculture and forward to the final consumers through agro-industryand rural enterprises (Kinsey, 1987). There is a substantial potential forincreasing the productivity and labor absorption capacity of agriculturethrough a combination of modern technology and careful crophusbandry in conjunction with related rural industries. The critical role of the agricultural sector in providing a basis forstable growth in the Philippine economy was emphasized in acomprehensive program for agriculture launched by the government in1984. One of the specific objectives was still in line with the past effort“of increasing agriculture’s contribution to the balance of paymentsthrough expanded exports and import substitution” (Bello, et.al. 1981,p.14). The political turmoil and economic crisis beginning on August1983 further decreased agricultural activity. The World Bank (1981)revealed that the government’s effort since 1974 aimed at increasing the
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participation of small businesses in the countryside development failedto create significant changes as shown by the fact that the rural sectorcontinued to remain disadvantaged compared to their urban counterpart. The government of Corazon C. Aquino has gone further, moving quicklyto announce in mid-1986, the adoption of an “employment-orientedagricultural and rural growth as the centerpiece of an ‘Agenda for PeoplePowered Development’ in raising farm productivity and rural incomes”(Bautista, 1987, p.14).
II. Common Issues and Problems Faced by SMRE’s.
Several attempts were made by the Philippine government andother private sectors to promote the development of the SMRE’s in thecountryside to hasten he development process. The most known of theseare the MASICAP Program (World Bank, 1980), the Kilusang Kabuhayanat Kaunlaran or KKK in the 1970’s up to the late 80’s, the promulgationof laws exempting small businesses to wage and tax regulations, and inthe recent years – the creation of the cooperative development authority.However, it is still evident today that urban-based entrepreneursstill dominate the bulk of the business with the rural areas particularlythose activities that have direct link to agriculture such as trading. Localbusinessmen are limited to smaller investments like selling householdcommodities and the like. Semi-processing of products are either madein urban centers or operated in the locality by few large urbanbusinessmen who apply market-led business strategies whose operationsare usually seasonal or temporary in nature.Aside from the aforementioned observations, the failure of localSMRE’s to dominate the countryside in recent studies cited the followingconstraints of their growth;a. Government Policies – the promulgation of laws that exemptsmall enterprises with no more than 20 employees fromminimum wage regulations and tax incentives (Montes, 1988),has instead limits the growth of SMRE’s. Experiences showedthat small businesses tend to prohibit expansion of theirbusiness ventures to avoid taxation and high wage payments,thus, limiting the benefits of the enterprise to the locality.Another thing that discourages local residents to involve inbusiness is the difficulty of following burdensome rules andregulations that often consumes valuable time.b. Management Expertise – although small firm’s operation appearto be straightforward, most of the entrepreneurs are faced withthe difficulties in dealing with the other technicalities of 
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hakeanete

eloo..i downloaded your article for the completion of my subject..

reply09 / 28 / 2009
JNica

Hi. I downloaded this article. What year was this published?

reply07 / 10 / 2009
a_sugiri

Hi Alex, I just downloaded you interesting article. Many thanks. a_sugiri

reply03 / 09 / 2009
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