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HARNESSING TECHNOLOGY FOR POVERTY REDUCTION THROUGH

PRIMING UP MSME’s IN THE RURAL AREAS IN THE PHILIPPINES
(Final Exam)

INTRODUCTION

Trade has been recognized as an engine for inclusive economic process and
poverty reduction within the 2030 Agenda for Sustainable Development. It strengthened
the evidence that trade has played a critical role in poverty reduction which the further
integration of developing countries into an open global economy is going to be vital for
achieving the goal of ending extreme poverty by 2030, (World Bank and the World Trade
Organization, 2018). With this said, the role of Micro, small, and medium enterprises
(MSMEs) has a very important role in developing the Philippine economy. An MSME in
the Philippines is defined as any business action or enterprise involved in the industry,
agri-business, and/or services that have: an asset size of up to PhP100 million and with
less than 200 employees, (Senate Economic Planning Office, 2012). As an entrepreneur,
I have observed the rapid increase in the technological adoption of MSMEs through
digitization. Through this, MSMEs can help reduce poverty by creating jobs for our
country's growing labor force. It can stimulate economic development in rural and far-
flung areas and serve as valuable partners to large enterprises as suppliers and providers
of support services. Furthermore, they also serve as the breeding ground for new
entrepreneurs and large corporations that are responsible for the technology transfer of
new methods and sciences involving the production of goods.

According to the United Nations, poverty is the inability of having choices and
opportunities, a lack of basic capacity to participate effectively in society, not having
enough to feed and clothe a family, a school or clinic to go to and land on to grow one's
food or a job to earn one's living. Based on IFAD (2017), poverty is higher among the
country's 55 million rural inhabitants (35%) than among the 45 million living in urban areas
(13%); and is more pronounced in the southern island of Mindanao. Due to the increasing
poverty rate in rural areas, the government has explicitly signaled its intent to strengthen
the country's weak infrastructure expand social spending and pursue marginalized zones
and under-resourced development initiatives in earnest. There is an opportunity to
improve the competitiveness and dynamism of the MSMEs since the government has
prioritized MSMEs as a key pillar of its economic program. It emphasizes increasing the
access MSMEs, to production networks, and to finance to align it in helping eliminate
poverty and reducing urban/rural divide. According to Senate Economic Planning Office
(2012), a vibrant MSME sector is thus an indication of a thriving and growing economy.
The government's focus on the MSMEs sector stem from its important role in the
economy. It makes up 99.6 percent of all registered businesses in the Philippines and
employs over 70 percent of the working population (Fong, 2018).

Trough technological advances, the rise of digital technologies and platform-based

start-ups are encouraging existing MSMEs to become more competitive as well as create
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entirely new and innovative forms of businesses as seen by the recent spurt of start-ups
in the Philippines, (Garcia, 2019). The interest in small and medium enterprises comes
from the awareness of their potential to absorb excess human resource and their low
investment requirements, two factors which are extremely favored by newly developing
countries where capital is scarce, and underemployment and unemployment are high,
(M. Salazar, 1997). This research investigates the importance of MSMEs for poverty
alleviation and the challenges it faces in harnessing technology to its operations. The
technology transfer from creating businesses backed up by our local scientists, industry
experts, government agencies, private company-sponsored programs offered to our
entrepreneurs empowers MSMEs in helping alleviate the poverty-stricken rural areas in
the Philippines. This in return gives a promising advantage to our beneficiary communities
to gain employment and opportunity for our economy to benefit from its success. This will
sustainably increase the incomes of small farmers and unemployed rural women and men
across selected value chains and provide strategic enabling conditions for the sustained
growth of MSMEs in agricultural goods with reasonable advantage, market demand,
growth potential, backward linkages to small farmers, and job creation effects.

Promising Economic Growth Through Technology Transfer with MSMEs.

Many countries attempting to achieve wider participation in economic development,

both by income class and by regions, are increasingly looking towards the rapid growth
of small and medium enterprises to increase the upward mobility of the poor. Usually,
poverty is more pronounced in the countryside and most of the natural resources too.
Because of this, the need to promote rural-based small and medium enterprises utilizing
the indigenous raw materials has been recognized by most developing countries, (The
World Bank Group and The World Trade Organization, 2015). The present government
has enunciated the policy of improving the economic conditions of the rural population,
(M. Salazar, 1997). According to the Department of Trade and Industry (DTI) statistics,
MSMEs generate more than a third of the country's GDP and employ 60% of the labor
force. Amid the 950,000 businesses registered in 2014, the majority (852,000, or 90%)
are micro-enterprises, while 87 000 (9%) are small enterprises. These two categories
account for 60% of all jobs generated by business establishments and contribute 25% of
GDP. The Government has placed a significant focus on streamlining MSMEs processes,
and the country has progressed from a rank of 14Th in 2011 Doing Business Index to
99th in 2017, (IFAD, 2017).

The Philippines invests significant public resources to support policy intervention

programs to handle market failures faced by MSMEs. Constraints facing MSMEs vary
along the firm life cycle because the early-stage entrepreneurs may face different needs
than firms at a later stage of maturity. This successively affects the instruments to support
MSMEs. Firms using new technologies and business models will become increasingly
important, within the backdrop of the worldwide shifts and technological advances.
Recognizing the opportunities and challenges, the government has prioritized
strengthening the ecosystem – through policy and regulatory environment as well as
introducing new mechanisms to support technopreneurs, and startups in its strategic
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plans (Garcia, 2019).To help underpin the private sector dynamism, the government has
increased its efforts to support startups through various policies and programs. According
to MSMED Plan 2011-2016 Accomplishment Report (2016), it was a great success as it
resulted in the generation of 3 million new jobs, 150% more than the plan's target of
producing 2 million jobs, supported 710,908 current MSMEs in their operations and
development. As the national agency in authority for making a globally competitive and
innovative industry and services sector, the Department of Trade and Industry (DTI)
encourages the development and scaling up of the home-grown start-ups through its
Startup Ecosystem Development Program 2016-2021, (SEDP).

Additionally, repatriating Filipinos can also be a source of knowledge transfer to

improve the knowledge base and skills of the workforce. Repatriating citizens are part of
a migration community that often holds some of the top talents, and they contribute to
startup and job creation in the local environment. According to Umali (2018), on 15 June
2018, Philippine President Rodrigo Duterte signed Republic Act No. 11035 or the "Act
Institutionalising the Balik Scientist Program". This law would give more incentives to
returning Filipino experts, scientists, inventors, and engineers who would share their
expertise in the country returning scientists can participate in the Department of Science
and Technology's (DOST) Grants-in-Aid R& made possible by the Balik Scientist Law.
The Bill aims to spur scientific and technological advancements in the country, contribute
to nation-building, and nurture inclusive growth of which MSMEs testing for the benefit of
the underprivileged rural areas in the Philippines.

Focused Participation of MSME's in Poverty Reduction through Government

Programs and Policies.

Internationally, the small-scale industries are well-known for their enormous

contributions to poverty reduction, development process, and as engines of economic
growth, diversifying output, and increasing employment. In supporting productive and
innovative MSMEs, the government considers entrepreneurship as an important channel
for infusing competitiveness. Entrepreneurship can be promoted through the entry of new
enterprises that are "growth-oriented" or "innovative" entrepreneurs or through
competitiveness in existing MSMEs (Garcia, 2019). Based on the benchmark of United
Nations Educational, Scientific and Cultural Organisation (UNESCO), about 1% of a
country's gross domestic product (GDP) is the suggested amount that should be spent
for R&D. The country is spending only about 0.2% or 1/5 of the suggested 1% of GDP on
R&D. Also, there is a prerequisite to addressing hard and soft infrastructures as well as
volume development of human resources and organizations as they are harmonizing
factors to R&D investments. Addressing them will improve the country's readiness for the
4th Industrial Revolution, (Umali, 2018). Though the government is exerting its effort in
supporting the emerging startup ecosystem in the Philippines, it is not enough. Private
MSMEs sectors are needed to continue the progress of technology transfer which is
highly beneficial to our rural communities who can be sponsored by the programs. At
present and without fully utilizing the existing technology, the economy is growing at about
6%, what more if it did, (DTI, 2018 MSME STATISTICS, 2018).
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There are three promising strategies and policies for the development of MSEs for
poverty reduction in the rural areas of the Philippines. The first one is the Philippines'
framework governing the policy for MSME development enshrined in the Magna Carta for
Micro, Small and Medium Enterprises (RA No. 6977), the Barangay Micro Business
Enterprises Act of 2002 (RA No. 9178), the Youth Entrepreneurship Act (RA No. 10679)
and the Go Negosyo Act (RA No. 10644). Said laws work to provide an all-inclusive
approach in setting strategic actions that involve a wide range of pertinent sectors under
the purview of MSME development, (MSMED C., 2017). This is the landmark legislation
that has defined national policies for MSME development to this day and has led to the
creation of the Small and Medium Enterprise Development Council. Overseen by the
Department for Trade and Industry (DTI), the Council is a public-private platform in charge
of the promotion, growth, and development of MSMEs in partnership with related
Government agencies. In the agriculture sector, DTI promotes a value chain approach in
seven priority 'industry clusters' that have the most potential for growth especially in rural
areas', job generation, and poverty reduction. DTI's priority industry groups include: (i)
cocoa; (ii) coffee; (iii) processed fruits and nuts, (e.g. banana, kalamansi, mango, chili
and cashew); (iv) coconut; (v) bamboo; (vi) rubber; and (vii) wearables and home styles
(mostly local fibers). For each of these clusters, DTI has enabled the development of
value chain roadmaps, which pursue to promote growth. The main focus of these
strategies is for job creation, promotion of industry and employment creation especially in
the rural areas or provinces which gives less emphasis for the economic contribution
because of difficulty of knowing the exact contribution of Micro and Small Enterprises to
the GDP, (MSMED C., 2017).

Another strategy the implementation of "MSME Development Plan 2017-2022"

which is the sectoral plan for the growth and advancement of the MSME sector. It was
established in consultation with several stakeholders from the private sector, academia,
and government agencies. It's affiliated with the government's initiative of increasing
employment, business, and livelihood or "Trabaho, Negosyo, Kabuhayan" translating to
"Malasakit", "Pagbabago", at "Patuloy na Pag-unlad" of the Philippine Development Plan
(PDP) 2017-2022. The proposal envisions for " MSMEs that are locally united, resilient,
sustainable, innovative, and more globally competitive thus carrying out as key drivers of
inclusive Philippine economic process, (MSMED C., 2017). Lastly, thanks to digitization,
DTI introduced the program of "Go Lokal!", a market access platform for MSMEs as one
with select retail partners for product management and acceleration. The program's
principal goal is to assist MSMEs to enter the mainstream market via the free services
offered by DTI like merchandise development assistance to supply commercially viable
products for the market and market access to stores/spaces provided by retail partners.
Buy Local, Go Lokal! sends a powerful message to our countrymen to support Philippine
MSMEs by buying fresh produce and made goods locally. The campaign likewise will help
stimulate and boost domestic travel, while encouraging Filipino consumers to patronize
Philippine owned and operated facilities and services, (DTI, n.d.).
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Positive Effects of MSMEs Adoption of Technology in Rural communities

Based in the studies of World Bank and the World Trade Organization, (2018),
residing in a rural area decreases the probabilities of being able to partake effectively in
trading activities, as access to markets can be difficult, and human and physical capital
are usually lower than in other more developed areas. Informal workers are also likely to
be more vulnerable to trade shocks, as their social protection is lower than for formal
workers, and the micro-enterprises that control the informal sector are forced to the extent
to which they can benefit from trade. Finally, the limitations faced by women make it
tougher for them to take advantage of trade-related opportunities than for men. However,
economic growth will remain the key driver of poverty reduction globally, and trade will
continue to be a critical driver of growth. As per the Philippine Statistics Authority (2010),
the rural population are numbered 50.5 million and accounted for 54.7 percent of the total
population, (MSMED C., 2017). Since poverty and unemployment rate are considerably
higher in third world countries like the Philippines, MSMEs can play a role in improving
the socio-economic condition of the poor by enabling them through generating their
income access for socio-economic merits such as education, better health condition,
good housing, and nutrition, (Ephrem, 2010).

MSMEs are set up with the goal of poverty alleviation. This initiative has a very
important and effective role in both developed and developing countries because it is
considered the backbone of their economies. This shows that without the creation of the
MSMEs, no nation can achieve a feasible economic growth or the reduction of
poverty,(Geremewe, 2018). Moreover, MSMEs are long recognized as important vehicles
of economic diversification, income generation, and distribution, and accelerating the
economy of a country (Munira, 2012). MSMEs can help accomplish a more reasonable
distribution of benefits of economic growth and thus help alleviate problems related to
irregular income distribution, industrial and rural development, poverty reduction, and job
creation. Also, to identify and exploit market opportunities, and export growth to provide
the basis for medium and large-scale enterprises (Zemenu and Mohamed, 2014).

Micro and small-scale business enterprises are considered as one of the most
important alternative sectors in promoting socio-economic developments and the
reduction of poverty in both established and developing countries. It is the chief sector to
achieve the goal through creating employment, improve saving and wealth, and
improvement of living standards. This is another avenue through which trade can spur
economic growth is by increasing the pace of innovation by firms. First, trade liberalization
increases the size of the market and the incentives to innovate. Second, to the extent that
technical knowhow is embodied in products, trade liberalization makes possible
knowledge spillovers through improved access to imports. Third, a surge in the degree of
openness of an economy will naturally enhance product market competition. The increase
in productivity means more output or income can be obtained by society, and therefore
also by the poor, from a given amount of resources. (World Bank and the World Trade
Organization, 2018).
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CONCLUSION

Based on my investigation on the importance of MSEs for poverty alleviation and

the challenges of micro and small-scale enterprises for the operation of MSEs, technology
transfer by empowering MSMEs will help a lot in improving the state of poverty-stricken
rural areas in the Philippines. As mentioned by The World Bank Group and The World
Trade Organization, (2015), further efforts to integrate markets are critical to unlocking
the economic growth needed for poverty reduction and creating new trade opportunities
for the poor. An enabling environment is essential for trade to contribute to growth. At the
local level, numerous research has confirmed that key elements of policy strategies for
sustained and inclusive growth include; continuous investment in education, health, and
infrastructure; effective capital markets; labor market reform, nurturing competition and
innovation in the domestic economy and enabling shifts from less to more competitive
economic activities; safeguarding macroeconomic stability; effective governance, and
protect property rights. As a recommendation, the private sectors should continue
supporting MSMEs through programs and our scientists should dedicate more time to
improving our country's research and development processes and implementation of
technology transfer to MSMEs. This will give a great advantage to our fellow countrymen
residing in rural areas. This allows learning, adapt to the new ways of doing business,
and creating products which are uniquely ours. Be it in retail or product creations, the
government laid out programs and policies are ready to support start-up entrepreneurs.
Rural communities that have so much to offer in terms of human resource, production, or
supply of raw materials or as benefactors will greatly benefit from these programs.

Trade can help the poor by stimulating economic growth. Sustained economic
growth is the most powerful tool for poverty alleviation, (World Bank and the World Trade
Organization, 2018). Micro and Small-scale enterprises are commonly viewed as the
engine of economic growth, poverty reduction, and equitable income distribution in
developing economies like the Philippines. It is the largest employment producing sector.
It has been playing an important role for achieving its development goals, greater
utilization of local raw materials, increase tax revenue of the government, adoption of
appropriate technology, increasing revenues, increase saving or income to the individual,
promotion of gender empowerment, increasing socio-economic growth, enhanced
standard of living, innovation, development of entrepreneurship, linkages with bigger
industries. Due to these significances, the Philippine government is focusing on these
enterprises better than in other sectors. More importantly, without MSMEs, no nation can
achieve a viable economic growth and reduction of poverty. Inadequate credit assistance,
lack of access to start-up finance, the problem of skilled manpower, high interest for
borrowing and lack of production/marketplace are the major factor which hinders for the
expansion of micro and small enterprises. With this, attention should be given to these
problems to improve the establishment and role of MSMEs for poverty mitigation.
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