Necessity Entrepreneurs Not Enough for Philippines
Entrepreneurship evangelists often see their work in some parts of the world as a war on poverty. This week, President Barack Obama will visit Philippines’ President Benigno Aquino III as part of his Asian tour. While the Philippines is the second-best performing economy in Asia, growing at an average of 6 percent since 2012, poverty incidence affects more than 20 percent of its population. For President Aquino, now is the time to look beyond necessity-driven entrepreneurship and address his country’s challenges in helping high-growth firms start and scale.
The country’s 1987 Constitution formally recognizes entrepreneurship as an engine for economic growth, productivity and quality of life improvement. More recently, its Development Plan (PDP) reinforced the importance of entrepreneurs for job creation and economic prosperity. Demonstrating that entrepreneurship is more than just an economic term, the country climbed 25 positions since last year in the World Bank’s 2014 Doing Business ranking.
However, a bottleneck seems to be limiting the entrepreneurial energy in the country. As the Center for International Private Enterprise (CIPE) highlighted last November, almost all (99.6%) of business enterprises in the Philippines are classified as micro, small, and medium-sized enterprises (MSME). Job creation stemming from these businesses represents only 38 percent of total job growth. Clearly, entrepreneurs have difficulty scaling their ventures.
The challenge seems to be leveraging the entrepreneurial energy beyond necessity-driven business creation. In this regard, strengthening property rights and the judicial system is key. For example, most MSMEs struggle to comply with collateral and documentation requirements to access capital. At the same time, widespread corruption and cronyism suppress entrepreneurial risk-taking.
Improved access to and quality of education, a proven poverty-reduction tool, could yield even faster and more powerful results if an experiential entrepreneurship component is included in the curriculum, such as GEW’s recently announced Mindset Project. Civil society efforts in fact have already been bidding to help Filipinos fight poverty using the entrepreneurship model to teach them how to be job generators and wealth creators.
Another wave of opportunity entrepreneurship could come if the government enables more competition. According to the Index of Economic Freedom report, the government subsidizes state-owned or controlled corporations in the power, food, health care, and agriculture sectors.
In terms of funding, foreign risk capital has taken steps to better navigate the market for startups. An Australian group of angel investors, for example, reached out to the local angel investment community to form Manila Angels. This private network of angel investors exposes opportunities for angels through due diligence and relationship leveraging.
The entrepreneurship ecosystem is maturing well with various stakeholders adopting new methodologies and initiatives. Incubators such as the nonprofit IdeaSpace, and communities such as GoNeGosyo, which enables linkages between academia, businesses and the government, are already producing a stream of high-potential startup ventures. Large businesses are also lending support. IdeaSpace, for example, has the support of local corporations in the telecom, health and infrastructure industries.
All these organizations collaborated last November with the Young Entrepreneurs Society (YES) to connect the Philippines to the Global Entrepreneurship Week movement for the first time, despite the challenging aftermath of the country's deadliest typhoon ever. Immediately, the world turned its eyes to the possibilities in the Philippines. The World Startup Wiki, for example, launched in March with a blueprint focused on the Filipino ecosystem. Its crowdsourced Philippines guide now includes more than 1,000 data points and numerous graphs, charts and maps.
The next step for President Benigno Aquino is to gather and partner with these groups and take note of the data from the World Startup Wiki that has identified the gaps to improving the infrastructure and streamlining the regulatory environment. For example, despite the country’s significant improvement in the overall ease of doing business, it stands at a disappointing 170th position on the more specific pillar, the ease of starting a business.
Addressing widespread poverty is a pressing policy issue for the Philippines. Enabling a friendlier entrepreneurship environment can obviously help startups grow and provide a strong impetus for the economy to tackle this social challenge. The Philippines has a clear challenge ahead: turning the poverty-driven surge in entrepreneurship into a poverty-relief strategy. President Aquino has a unique opportunity this week to gather ideas to make this happen from the author of another national startup campaign -- President Obama. I hope he asks.
Photo Credit: World Bank Photo Collection
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