Growth opportunities not for all ____________________________ By Michael Arcatomy H. Guarin Increased investments in the country The Philippine economy is in a very enviable position. The papers a few weeks ago reported that the approved investments by PEZA and the BOI as of the first semester of this year, have grown by 30 percent to P130 billion compared to P100 billion in the same period last year. This consists of local investments amounting to P65.7 billion, with the balance coming from foreign investments. If we are to use these figures, which were presented by Secretary Peter Favila of the Department of Trade and Industry as an indicator, then we can say that the Philippines is now an attractive investment target for local and foreign businesses. These businesses see value in investing in the country. It should be noted that these investments are focused not only on a few sectors in the economy. Investments have been made in a wide range of economic sectors, namely: manufacturing, infrastructure, real estate, electricity, gas and water supply and the information technology (IT) service sector. Foreign investors have been in the headlines lately with their investments in several big-named companies and entities. Farallon Capital Management, a US-based investment fund, recently invested $10 million in Philweb for an approximate share of 5.96 percent in the company. SBMA on the other hand, has received investment commitments in the aggregate amount of $1.383 billion in the first half of this year. This is quite remarkable, considering that SBMA’s 2007 target is only $1 billion. Who are affected The increased investments from local and foreign companies are not exclusively for the big and well-known Philippine companies. Every organization in the Philippine economy, from small and medium enterprises (SMEs) up to the top 500 Philippine corporations, can utilize the recent investment trend to help their organization expand. Everyone should see these recent developments as opportunities for them to find much needed financing to develop their business and contribute even more to the economy’s growth. Funds may come in from private investors and/or banks. Regular investors / private equity Regular investors and private equity companies have been actively investing in Asian countries such as Thailand, Indonesia, Malaysia, and Vietnam and China. Given the improved outlook on the Philippine economy, these companies have gradually stepped up their efforts to invest in the Philippines and are allocating more of their funds to the country. These companies have holding periods ranging from three to 10 years. Within this period, they plan to exit from the company and generate a return on investment in the range of 20 percent. This of course, varies from company to company. Banks In a recent briefing for example, several Philippine banks indicated the heightened attention they are placing on financing SMEs. For some banks, loans to SMEs account for 15 percent to 20 percent of their total loan portfolio. This share may increase this year because of the improvement of the Philippine business conditions. As the economy becomes bullish, SMEs become more attractive for banks. Banks have moved to increase their loan portfolios which had stagnated as a result of the problems caused by the Asian financial crisis. However, with the sale of these banks’ non-performing assets, they now have the leeway to actively increase their loan portfolios. Government initiatives The Philippine government is cognizant of the fact that SMEs play a crucial role in the sustainability of the country’s economic growth. SMEs represent more than 95 percent of all registered businesses in the country and employ close to 70 percent of the total Philippine labor force. As a result of this, the government has continuously extended support to SMEs by creating an environment that is suitable for SMEs to maximize their value. There are two major laws which govern the promotion of SMEs and show the government’s support for their growth in the country. There are several other initiatives that are in place. Republic Act (RA) 6977 or the Magna Carta for Small Enterprises, as amended by RA 8289 requires the government to help SMEs by creating a conducive business environment where SMEs can survive and grow; improving access to financing; providing adequate business support; providing training on entrepreneurship and worker skills; providing linkages between SMEs and large companies; and strengthening government-private sector partnership in SME development. RA 9178, otherwise known as the Barangay Micro Business Enterprises (BMBE) Act of 2002, encourages the formation and growth of BMBEs, (asset size of less than P3 million) by granting them fiscal and non-fiscal incentives and other benefits. What can SMEs do Firstly, SMEs should start formalizing their business processes. This will include setting up the proper accounting and financial reporting system that can accurately record the company’s business transactions. This is the first step because banks and investors alike will initially look at the financial statements of the company before they consider a company as a potential investment opportunity. Secondly, SMEs that are intending to grow should have an exhaustive and well-researched business plan. Exhaustive in the sense that, it should cover the major business processes such as the revenue process, operating expenditure plan, capital expenditures, information technology, and human resources. Potential investors must feel confident that the company they are investing in has value that can be realized upon their entry. Thirdly, SMEs should be seen in the market. They should look for advisors who can assist them in looking for investors who can fit well into their financing and growth plans. Investors may have the funds to invest, but not all of them have the capability to scan, identify, and screen all potential targets. SMEs should present themselves to the market and take the bull by the horns. Being proactive is the key. Lastly, nothing beats doing your homework. These companies should look around and identify all the organizations, public or private, which they think can help them with their financing needs and business growth plan. All they need to make is a phone call. Moving forward These are indeed exciting times for the Philippine economy and the companies operating in it. There are funds available, waiting to be invested. There are government policies in place intended to assist companies grow. Growth is not for all. It is a reality only to those who work hard to achieve it. |