Strengthening MSMEs key to boosting national productivity, says ADB

Azlan Othman

The dynamics of Brunei Darussalam’s micro, small and medium-sized enterprises (MSMEs) should be strengthened to boost national productivity, according to a new report from the Asian Development Bank (ADB) released on October 22.

MSMEs’ innovation and internationalisation are keys to revitalising Southeast Asian economies including Brunei Darussalam devastated by the COVID-19 pandemic, the report stated.

MSMEs are a critical driving force in Southeast Asian economies, accounting for an average of 97 per cent of all enterprises and 69 per cent of the national labour force from 2010 to 2019. They contributed an average of 41 per cent of each country’s gross domestic product (GDP) over the same period.

ADB’s report on Brunei Darussalam said the number of registered MSMEs is small but growing.

According to ADB, Brunei Vision 2035 offers a long-term national development which help to achieve a dynamic and sustainable economy by 2035. MSME development is a government policy priority to help meet its goal of economic diversification where a national MSME task force will be part of the government’s upcoming Industry Roadmap.

The Brunei Government is trying to diversify the economy toward a more sustainable economic growth. It recognises the role MSMEs play as a driver of growth. In 2017, MSMEs accounted for 97.2 per cent of enterprises and employed 57.3 per cent of the workforce. In 2018, they contributed 35.5 per cent of GDP. Most MSMEs belong to the services sector and are dominated by traditional wholesale and retail trade.

Job absorption by formal MSMEs is limited. Most workers are in the informal sector or engaged in informal household businesses. The MSME contribution to GDP is limited, however, the government has worked to enhance market access for MSMEs by promoting agricultural value chains and participation in government projects.

Digital technology continues to create business opportunities for domestic enterprises and start-ups while e-commerce is expanding rapidly, though largely led by foreign service providers. Autonomous business communities support MSME and entrepreneurship development by promoting business linkages, networking, and incubation programmes. Promoting youth and women entrepreneurs is also important to support the MSME sector, the report added.

Strategies on digital payments and cybersecurity have been launched separately as fintech is a core component of the Financial Sector Blueprint 2016–2025.

Key elements of a financial inclusion strategy are incorporated in the blueprint, aligned with the long-term national development plan.

The report noted that it would be worth considering the creation of a holistic and comprehensive strategy for effective policy support on inclusive finance.

Meanwhile, ADB Chief Economist Yasuyuki Sawada said “MSMEs in Southeast Asian economies mainly focus on domestic markets and their level of entrepreneurship remains suboptimal. Supporting the development of MSMEs, particularly in technology adoption and participation in global supply chains, will contribute to inclusive growth and aid in recovery efforts from COVID-19.

“We’re confident that this report, Asia Small and Medium-Sized Enterprise Monitor (ASM) 2020, which provides data and analyses on MSME development in Southeast Asia pre-COVID-19 pandemic, would become a benchmark in helping design feasible government assistance for MSMEs amid a new normal in the region.”

The first volume of ASM 2020, released lastThursday at a virtual launch attended by ADB Vice-President for Knowledge Management and Sustainable Development Bambang Susantono, presented a detailed assessment of financial and non-financial issues facing MSMEs in Southeast Asia at both the country and regional levels. It also analysed policies and regulations surrounding MSME development and access to finance in Southeast Asia.

Key findings from the report’s second volume, released recently based on rapid surveys conducted from March to May this year, examines the impact of COVID-19 on MSMEs in Indonesia, the Lao People’s Democratic Republic, the Philippines, and Thailand.

The challenges faced by MSMEs in the region have been exacerbated by COVID-19, with demand for MSME products and services declining.

This has resulted in layoffs, reduced business operations, and a depressed outlook for the sector.

The report explores policy approaches that could support MSMEs during and after the pandemic.

ASM 2020’s remaining two volumes will be released by 2020 end. They comprise a thematic chapter analysing the impact of fintech-based loans to tricycle drivers in the Philippines; and a technical assessment that will present ADB’s new Small and Medium-Sized Enterprise Development Index.

ADB is committed to achieve a prosperous, inclusive, resilient, and sustainable Asia and the Pacific, while sustaining its efforts to eradicate extreme poverty.

Established in 1966, it is owned by 68 members—49 from the region.