The Philippines is a difficult environment for starting and growing a new business. It ranks as only the 76th best ecosystem for entrepreneurs globally and 14th in the Asia-Pacific according to the Global Entrepreneurship Index.
Its population, on the other hand, is one of the world’s most entrepreneurial — the country has the 10th most entrepreneurs per head globally and nearly 60% of Filipinos plan to open their own business in the coming three years. This is significantly higher than in my home country Sweden — the home to the largest number of unicorns (or private startups with a valuation of at least $1 billion) per capita in the world — and the United States, the country most associated with entrepreneurs.
A high rate of entrepreneurship, however, is typical for many developing economies as there is high unemployment and few well-paying jobs, so citizens turn to entrepreneurship to earn their livelihoods. This can be seen in countries such as Uganda, the world’s most entrepreneurial nation, and in neighboring countries such as Thailand and Vietnam. Considering the high interest in entrepreneurship, what can be done to create a better ecosystem for small businesses and further encourage their contribution to the economy?
Research suggests that the answer lies in helping entrepreneurs move from founding easy-to-replicate businesses for self-employment to the type of innovative, highly-productive and fast-growing ventures that result in real economic growth. On one hand, they need the right culture that celebrates the importance of entrepreneurs and accepts failure, and on the other hand institutions that will support them such as a well-educated workforce, access to finance, infrastructure and a strong legal framework.
Whereas the United States is the epitome of entrepreneurial culture and Sweden has access to very strong institutions (universal free education and 95% have access to fiber internet) I would suggest that the most significant barriers for entrepreneurs in the Philippines are institutional.
In particular, the lack of access to finance for small business, poor infrastructure, limited competition in many sectors and low investment in education are holding Filipino entrepreneurs back. To improve access to finance I would urge policymakers to impose e-invoicing for all businesses, allowing the government to track business transactions, providing lenders with data for credit assessment and reducing tax evasion. Such initiatives in Latin America have significantly increased tax revenue and drastically improved small businesses’ access to finance as traditional and non-traditional lenders (including fintechs) have been able to extend credit on the basis of digitized invoices.
In the Philippines, the resulting increased tax revenue would enable significantly increased investment in education and infrastructure as a share of GDP to support human capital formation and strengthen competitiveness. Further, removing barriers to entry in the form of policies and regulations that favor incumbent firms would create competitive markets that foster innovation and lower prices for consumers.
I am confident that if the strong entrepreneurial nature of Filipinos is combined with a stronger institutional environment, we will be astounded by the results in terms of inclusive growth and increased prosperity.
Axel Regnström is a graduate of the London School of Economics and Political Science and is the vice-president of growth at First Circle, a financial technology company providing funding to small businesses in the Philippines. To know more about how you can accelerate your business with First Circle, visit www.firstcircle.ph or call 580-3200.