Chapter 3. Overview of key findings
This assessment suggests that ASEAN countries have made significant progress in the area of SME policy since the first such assessment was conducted in 2014. In particular, they have made notable efforts to build up the institutional framework for SME policies, enhance the provision of business development services and increase SME access to e-commerce. Productivity enhancement is now a key policy priority, although many countries still focus on improving the policy environment for micro enterprises, which are often informal, and often do so through subsidies. Measures to support the development of social enterprises and inclusive SMEs remain limited. The sophistication of the policy framework for SMEs generally correlates with overall income levels and institutional capacities across most ASEAN member states (AMS).
Overall key findings
MSMEs operate mainly in wholesale and retail trade, with high levels of informality
Across ASEAN, the industrial sector is dominated by large enterprises, notably in the extractive industries and manufacturing, while MSMEs dominate the service sector (with the exception of banking, finance and telecommunications), where they can leverage on their flexibility and capacity to cater for consumer needs. On average, more than 70% of formal MSMEs in ASEAN countries are engaged in labour-intensive services, with only 10-15% engaged in manufacturing. The exception here is Viet Nam, where a high share of formal MSMEs are engaged in manufacturing and integrated into global value chains (GVCs). Informal and unregistered enterprises account for a very large share of micro enterprises in ASEAN, particularly in lower-income countries. While there are no exact figures on enterprise informality in the region, data on employment informality, both in formal and informal enterprises, suggest that informal practices are widespread.
Data gaps and the lack of a common SME definition complicate policy making
While some general observations can be made about the MSME population in ASEAN, accurate and comprehensive data for most countries are missing. Only half of AMS conduct a regular enterprise census, and few calculate a comprehensive set of performance indicators such as SME contribution to GDP. The comparability of data across ASEAN is further hindered by the fact that member countries have not adopted a harmonised MSME definition. The metrics used to classify firms by size vary widely across ASEAN, both in terms of thresholds and the indicator used, and in some countries different criteria are also applied by sector.
MSME policy priorities and tools differ widely across the region
All AMS pursue a pro-active MSME development policy. As of 31 October 2017, seven of the ten ASEAN countries had adopted multi-year SME strategies, while the remaining three were exploring the development of such strategies. Where strategies are in place, they largely reflect the goals of the 2016-2025 ASEAN Strategic Action Plan for SME Development (SAP SMED), albeit with significant variation in the prioritisation of these goals. Most AMS now regard SME policy as a tool for increasing overall competitiveness. In Indonesia and the Philippines, SME policy is also a pillar of poverty reduction efforts, and these countries therefore place a greater emphasis than other AMS on supporting micro enterprises. The region as a whole scores highest, on a scale of 1 to 6, on measures to enhance access to markets and internationalisation (4.55), promotion of entrepreneurial education and skills (4.27), and institutional framework (4.20) (all scores represent the ASEAN median). The region scores lowest on measures to promote social enterprises and inclusive SMEs (2.77), a relatively new policy area for ASEAN countries. These aggregate results, however, mask significant cross-country variation. The standard deviation, an indicator of dispersion around the ASEAN median, is well above 1 for all policy dimensions, with the interesting exception of the “social enterprises and inclusive SMEs” dimension. This suggests that while performance is more limited in this area, all countries are starting from a similar base.
Significant progress can be observed since the 2014 assessment, although methodological changes limit the comparability of scores. There has been particular progress in provision of business development services, SME access to e-commerce and GVC integration.
The level of MSME policy development correlates with overall development
Singapore and Malaysia have reached an advanced stage of policy development in a significant number of policy areas (seven for Singapore and five for Malaysia). This indicates that their SME policies and programmes in most areas are aligned with internationally recognised good practice and are adequately resourced, well run and effectively monitored. Indonesia, Thailand and the Philippines, all middle-income countries with moderate institutional capacity, are identified as mid-level performers in most policy areas. This indicates that their SME policy is well elaborated and adequately implemented, though some limitations remain, often in monitoring and evaluation. Brunei Darussalam and Viet Nam are relatively new to SME policy, but they are rapidly catching up with their peers. In these countries, there have been significant improvements over recent years, particularly in the institutional framework for SME policy. Cambodia, Lao PDR and Myanmar are generally at an early stage of developing SME policies and programmes, and this tends to reflect overall institutional capacity challenges. Of the three, Lao PDR is relatively advanced in the development of an institutional framework for SME policy, and Cambodia and Lao PDR are undertaking measures to inculcate good regulatory practices and enhance their business environments. Myanmar has made substantial advances in streamlining company registration procedures and is in the process of setting up an SME development agency.
Key findings by dimension
Dimension 1: Productivity, technology and innovation
AMS have made considerable progress in this dimension, especially in developing relevant policies and business development services, but they face a number of challenges. With production becoming increasingly complex, productivity performance of enterprises in ASEAN has varied across sectors, and there has been some evidence of faster growth in lower-productivity sectors in recent years. Stronger implementation instruments focused on SME productivity growth, and stronger support services and innovation performance, will not only help the ASEAN region to strengthen its performance in global value chains but also boost both regional trade and the overall economic development of the region as a whole.
Dimension 2: Environmental policies and SMEs
The greening of SMEs is a new area of policy development for most AMS, and few environmental policies target SMEs. For many AMS, unfamiliarity with green-growth principles was evident during the ASPI’s information-gathering phase and in subsequent discussions. In almost all cases, even in AMS with green-growth strategies that support greener practices for SMEs, there remains a disconnect between the agencies supporting SMEs and those supporting greener practices for SMEs.
Dimension 3: Access to finance
The majority of AMS have undergone a wave of institution-building over the past five years. The bulk of public subsidy programmes in this area are targeted at increasing SME access to bank loans. A common instrument across AMS is the provision of an SME-specialised development bank and/or a refinancing scheme for selected commercial banks. AMS have stepped up efforts to improve access to microfinance and to bring MFIs and rural credit operators into the formal financial system. To stimulate bank financing, most AMS provide a mix of programmes, notably refinancing, credit-guarantee and export-financing schemes.
Dimension 4: Access to market and internationalisation
The region as a whole is already quite advanced on this dimension, but variation is high across AMS, both overall and in the five sub-dimensions. This suggests wide differences in the policies implemented by AMS and indicates that, although considerable efforts have been made, several ASEAN countries might still face difficulties in designing policies to move SMEs into the next stage of trading across borders. The low score for trade facilitation suggests that the region has considerable room for improvement in this area. Many AMS are promoting e-commerce and have designed policies to enhance the use of e-commerce among SMEs.
Dimension 5: Institutional framework
Development of institutional and policy frameworks varies considerably among the AMS. Given high levels of informality, a number of AMS have started systematically to address the issue of enterprise informality, but less developed AMS are still at an early stage of policy elaboration.
Dimension 6: Legislation, regulation and tax
All AMS have adopted an SME policy approach that combines horizontal actions with targeted or vertical policies directed at specific segments of the SME population or specific sectors. A number of AMS have established inter-ministerial committees to ensure improvement in their Doing Business ranking. Horizontal policies that benefit all classes of enterprises include establishing effective channels of public-private dialogue, implementing broad-based regulatory reform programmes, reducing entry barriers by reforming the process of starting a business, simplifying tax filing procedures and introducing digital government services. These policies are highly relevant for SMEs, which tend to experience a heavier administrative burden than larger enterprises.
Dimension 7: Entrepreneurial education and skills
The variation in country scores for this dimension suggests a development gap among AMS. While Singapore and Indonesia have developed relatively advanced policies for their entrepreneurial ecosystems, Cambodia, Lao PDR, Myanmar and Viet Nam are still in the early stage of developing and including the relevant programmes in their policy frameworks. Entrepreneurial learning has not yet been fully integrated into the national education systems of all AMS.
Dimension 8: Social enterprises and inclusive entrepreneurship
Dispersion is greatest in the sub-dimension on social enterprise, possibly because it is a relatively new policy area in most AMS. In the sub-dimension on inclusive entrepreneurship, policies to support women’s entrepreneurship show the greatest variation, reflecting the fact that several countries have more advanced policy measures than others. Interestingly, women’s entrepreneurship is the area where countries have achieved the most progress overall under this dimension. Since inclusive entrepreneurship is a relatively new policy area, policy makers might want to consider focusing more on policies and instruments to stimulate activity in this area.
This section presents the 2018 assessment scores by country for each dimension, sub-dimension and thematic block, as well as the overall median, standard deviation and weights used for each element. Scores range between 1 and 6, with a higher score indicating a more advanced level of policy development and implementation. For the detailed methodology of the assessment, please see Annex A.