CONTEMPORARY ECONOMIC ISSUES FACING THE FILIPINO
ENTREPRENEUR
INTRODUCTION
“It is widely accepted that small and medium
enterprises play a very important and significant
role in the economic and social development of a
country”. This is an acknowledgment by the
Philippine government itself, through the
Department of Trade and Industry (DTI) in its
2004-2010 SME Development Plan.
INTRODUCTION
Indeed, SMEs (small and medium enterprises, which also
encompasses micro enterprises) have an overwhelming
presence in the Philippine economy. Medium enterprises,
as defined by the SMED Council, are those with total
assets (excluding land) of P15M to P100M, or not less than
200 employees. Small enterprises are those with total
assets (excluding land) of P3M to P15M, with 10 to 99
employees. Micro enterprises are those with total assets
(excluding land) of P3M or less, with 1 to 9 employees.
INTRODUCTION
The report indicates that in 2001, over 99.7% of all firms
are SMEs, which also accounts for 69.1% of employment.
Micro enterprises comprise 91.7% of all firms and has an
employment share 35%. In terms of enterprises share, small
enterprises come second (7.6%), followed by medium
enterprises (0.4%) and large enterprises (0.3%). In terms of
employment, large enterprises come second (31%), followed
by small enterprises (24%) and medium enterprises (7%).
These figures confirm, according to the report, the “increased
importance” of micro and small enterprises
SOME OF THE IDENTIFIED “CHALLENGES,” AN
ENTREPRENEURIAL EUPHEMISM FOR “PROBLEMS”
OR ROADBLOCKS, INCLUDE:
1. Productivity limitations, including outmoded
or less productive operational assets/methods,
insufficient technology, limited room for efficient
operational levels, insufficient management and
professional know-how, insufficient incentives
and inability to meet regulatory procedures, and
insufficient access to information.
SOME OF THE IDENTIFIED “CHALLENGES,” AN
ENTREPRENEURIAL EUPHEMISM FOR
“PROBLEMS” OR ROADBLOCKS, INCLUDE:
2. Limitations relating to funding sources. There is limited access to capital, with
majority of SMEs relying mainly on owners’ savings and personal loans from family and
friends. This is particularly true during the initial stage of the business. The use of
institutional debt financing is minimal due to the inability of SMEs to qualify for lack of
collateral, as well as the lack of knowledge on credit sources and processes.
This is made worse, according to the report, by extended repayment terms (e.g., 90 to
120 days credit) exploited by supermarket, malls and marketing service networks.
Entrepreneurs have a hard time sourcing capital and get paid, without interest, after 90
to 120 days.
The logical result of insufficient or inaccessible funding resources is the inability of
entrepreneurs to acquire efficient production capacity level, which, in turn, results in low
or marginal profitability. Lack of financing also results to the use of low-technology
manufacturing which, again, restricts growth.
SOME OF THE IDENTIFIED “CHALLENGES,” AN
ENTREPRENEURIAL EUPHEMISM FOR
“PROBLEMS” OR ROADBLOCKS, INCLUDE:
3. Inadequate knowledge about, and inaccessibility of, market opportunities. Most SMEs
sell locally, to final consumers, usually individuals and households from the poor and middle
classes. Only a few sell to main outlets such as supermarkets, department stores and market
services because of, among other reasons, the inability to meet volume requirements and the
unfavorable terms exacted by these volume buyers. Only a few SMEs can reach inter-
regional, national and foreign markets.
During his second SONA, the President spoke of unemployment, the mismatch between
workers’ skills and industry needs, and of economic growth. The absence of SMEs in the
speech is surprising given the huge employment contribution of SMEs and the “increased
importance” they play in the Philippine economy. Of course, the President cannot
accommodate everything in his speech. Just because there is no mention of SMEs in the
speech doesn’t mean that it will not be given sufficient attention. Hopefully this is the case.
WHAT IS AN INVESTMENT?
An investment is an asset or item acquired with
the goal of generating income or appreciation. In
an economic sense, an investment is the purchase
of goods that are not consumed today but are used
in the future to create wealth. In finance, an
investment is a monetary asset purchased with the
idea that the asset will provide income in the future
or will later be sold at a higher price for a profit.
KEY TAKEAWAYS
Investment is the act of putting money to work to start or
expand a business or project or the purchase of an asset,
with the goal of earning income or capital appreciation.
Investment is oriented toward future returns, and thus
entails some degree of risk.
Common forms of investment include financial markets
(e.g. stocks and bonds), credit (e.g. loans or bonds), assets
(e.g. commodities or artwork), and real estate.
INVESTMENT AND ECONOMIC GROWTH
Economic growth can be encouraged through the use of
sound investments at the business level. When a
company constructs or acquires a new piece of
production equipment in order to raise the total output
of goods within the facility, the increased production
can cause the nation’s gross domestic product (GDP) to
rise. This allows the economy to grow through
increased production based on the previous equipment
investment.
WHAT IS AN INTEREST RATE?
The interest rate is the amount a lender charges
for the use of assets expressed as a percentage of
the principal. The interest rate is typically noted on
an annual basis known as the
annual percentage rate (APR). The assets
borrowed could include cash, consumer goods, or
large assets such as a vehicle or building.
KEY TAKEAWAYS
The interest rate is the amount charged on top of the principal by a lender to
a borrower for the use of assets.
Most mortgages use simple interest. However, some loans use compound
interest, which is applied to the principal but also to the accumulated interest
of previous periods.
A loan that is considered low risk by the lender will have a lower interest rate.
A loan that is considered high risk will have a higher interest rate.
Consumer loans typically use an APR, which does not use compound interest.
The APY is the interest rate that is earned at a bank or credit union from a
savings account or certificate of deposit (CD). Savings accounts and CDs use
compounded interest.
WHEN ARE INTEREST RATES APPLIED?
Interest rates apply to most lending or borrowing
transactions. Individuals borrow money to purchase
homes, fund projects, launch or fund businesses, or
pay for college tuition. Businesses take loans to fund
capital projects and expand their operations by
purchasing fixed and long-term assets such as land,
buildings, and machinery. Borrowed money is repaid
either in a lump sum by a pre-determined date or in
periodic installments.
The money to be repaid is usually more than the
borrowed amount since lenders require compensation
for the loss of use of the money during the loan period.
The lender could have invested the funds during that
period instead of providing a loan, which would have
generated income from the asset. The difference
between the total repayment sum and the original loan
is the interest charged. The interest charged is applied
to the principal amount.
For example, if an individual takes out a $300,000 mortgage from the
bank and the loan agreement stipulates that the interest rate on the
loan is 15%, this means that the borrower will have to pay the bank
the original loan amount of $300,000 + (15% x $300,000) = $300,000 +
$45,000 = $345,000.
If a company secures a $1.5 million loan from a lending institution
that charges it 12%, the company must repay the principal $1.5
million + (12% x $1.5 million) = $1.5 million + $180,000 = $1.68 million.
Simple Interest Rate
The examples above are calculated based on the annual
simple interest formula, which is:
Simple interest = principal x interest rate x time
The individual that took out a mortgage will have to pay
$45,000 in interest at the end of the year, assuming it was only
a one-year lending agreement. If the term of the loan was for
20 years, the interest payment will be:
•Simple interest = $300,000 x 15% x 20 = $900,000
An annual interest rate of 15% translates into an annual
interest payment of $45,000. After 20 years, the lender would
have made $45,000 x 20 years = $900,000 in interest payments,
which explains how banks make their money.
RENTALS
A property from which the owner receives
payment from the occupant(s), known as tenants,
in return for occupying or using the property.
Rental properties may be either residential or
commercial. The owner of rental property may be
allowed to take certain tax deductions such as
mortgage interest and depreciation.
MINIMUM WAGE
A minimum wage is the lowest wage per
hour that a worker may be paid, as
mandated by federal law. It is a legally
mandated price floor on hourly wages,
below which non-exempt workers may
not be offered or accept a job.
UNDERSTANDING MINIMUM WAGE
Minimum wage laws were first introduced in
Australia and New Zealand in an attempt to raise
the income of unskilled workers. Nowadays, most
modern developed economies, as well as many
underdeveloped economies, enforce a national
minimum wage. Exceptions include Sweden,
Denmark, Norway, Switzerland, and Singapore.
WHAT IS THE PHILIPPINES MINIMUM WAGE?
Philippines' Minimum Wage is the lowest amount a worker can
be legally paid for his work. Most countries have a nation-wide
minimum wage that all workers must be paid.
The Philippines' minimum wage ranges from PhP466 a day for
agricultural workers in the Mimaropa Region to PhP491 a day for
nonagricultural workers in the National Capital Region. The
Phillipines' minimum wage is set by tripartite regional wage
boards. Philippines' minimum wage was last changed in 2-Jun-
2016.
HOW DOES PHILIPPINES' MINIMUM WAGE
COMPARE TO THE MINIMUM WAGE IN OTHER
COUNTRIES?
Philippines' yearly minimum wage is $2,053.00 in International
Currency. International Currency is a measure of currency based on
the value of the United States dollar in 2009. There are 75
countries with a higher Minimum Wage then Philippines, and
Philippines is in the top 38 percent of all countries based on the
yearly minimum wage rate.
Facts and statistics about Philippines
Philippines is a country located in the Southeast Asia region with a
population of 75,967,000 and an average life span of 67.5 years.
WHAT ARE TAXES?
Taxes are involuntary fees levied on individuals
or corporations and enforced by a government
entity—whether local, regional or national—in
order to finance government activities. In
economics, taxes fall on whomever pays the
burden of the tax, whether this is the entity
being taxed, such as a business, or the end
consumers of the business's goods.
UNDERSTANDING TAXES
To help fund public works and services—and to build and
maintain the infrastructures used in a country—the
government usually taxes its individual and corporate
residents. The tax collected is used for the betterment of the
economy and all living in it. In the U.S. and many other
countries in the world, taxes are applied to some form of
money received by a taxpayer. The money could be income
earned from salary, capital gains from investment
appreciation, dividends received as additional income,
payment made for goods and services, etc.
UNDERSTANDING TAXES
A percentage of the taxpayer’s earnings or money is
taken and remitted to the government. Payment of
taxes at rates levied by the state is compulsory, and
tax evasion—the deliberate failure to pay one's full
tax liabilities—is punishable by law. Most
governments use an agency or department to
collect taxes; in the United States, this function is
performed by the Internal Revenue Service (IRS).
HERE ARE SEVERAL VERY COMMON TYPES
OF TAXES:
Income Tax —a percentage of individual earnings filed to the federal
government
Corporate Tax—a percentage of corporate profits taken as tax by the
government to fund federal programs.
Sales Tax—taxes levied on certain goods and services
Property Tax—based on the value of land and property assets
Tariff—taxes on imported goods imposed in the aim of strengthening
internal businesses
Estate tax—rate applied to the fair market value of property in a person's
estate at the time of death
