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    Asia Small and Medium-Sized Enterprise Monitor 2020: Volume I: Country and Regional Reviews
    Asia Small and Medium-Sized Enterprise Monitor 2020: Volume I: Country and Regional Reviews
    Asia Small and Medium-Sized Enterprise Monitor 2020: Volume I: Country and Regional Reviews
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    Asia Small and Medium-Sized Enterprise Monitor 2020: Volume I: Country and Regional Reviews

    By Asian Development Bank

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    The development of micro, small, and medium-sized enterprises (MSMEs) remains key to promoting inclusive growth in developing economies in Asia and the Pacific. The Asia Small and Medium-Sized Enterprise Monitor (ASM) provides data and analysis as a resource for evidence-based policy design on MSME development. The ASM 2020 focuses on Southeast Asia and this first volume reviews the financial and non-financial conditions of MSMEs at country and regional level. In future years, the ASM will expand its country coverage to other regions.
    LanguageEnglish
    PublisherAsian Development Bank
    Release dateOct 1, 2020
    ISBN9789292624224
    Asia Small and Medium-Sized Enterprise Monitor 2020: Volume I: Country and Regional Reviews

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      Asia Small and Medium-Sized Enterprise Monitor 2020 - Asian Development Bank

      Regional Review

      Overview

      Southeast Asian economy⁴ has been underpinned by micro, small, and medium-sized enterprises (MSMEs). They stimulate domestic demand, job creation, innovation, and competition. The region’s slowing economic growth can be recovered by strengthening dynamics of MSMEs. Based on national firm classifications, MSMEs in Southeast Asia accounted for an average 97.2% of all enterprises, 69.4% of the total workforce, and 41.1% of a country’s gross domestic product (GDP) during 2010–2019. The share of MSMEs to total enterprises slightly declined across the region, dropping at a compound annual rate of 0.3%. Meanwhile, the share of MSME employees to total employees rose by 0.8%, and MSMEs’ contribution to GDP expanded by 2.3% at a compound annual rate. During 2010–2018, MSMEs contributed 20.4% of a country’s export value on average (a compound annual decline of 0.05%).

      Access to finance is essential for MSMEs to grow further. But their access to formal financial services is limited—a structural problem in most countries. Across Southeast Asia, bank lending to MSMEs was equivalent to an average 14.8% of a country’s GDP and 16.9% of total bank lending during 2010–2019 (a compound annual decline of 1.3% and 0.3%, respectively). The MSME credit market is small with sluggish growth, the result of slowing national economic growth. The MSME nonperforming loans (NPLs) accounted for an average 4.1% of total MSME bank loans, above the overall bank average NPL ratio of 2.0%. Yet both declined over the period—MSME NPL ratio fell at a compound annual rate of 2.5% against 0.7% for total bank loans.

      The nonbank finance industry is small but growing. While nonbank finance institutions (NBFIs)—which include microfinance institutions, credit cooperatives, finance companies, pawnshops, and leasing companies—do not clearly target MSMEs as major clients, they are a viable substitute for banks in financing MSME working capital. During 2010–2019, NBFI financing accounted for an average 3.9% of a country’s GDP (a compound annual growth of 13.1%) and 8.6% of total bank lending (3.2%). The share of nonperforming financing to total NBFI financing averaged a negligible 0.8% (yet it rose slightly at a compound annual growth of 0.7%).

      Equity markets that MSMEs can tap are small but expanding gradually in Southeast Asia. A dedicated MSME stock market has been created in several countries such as Indonesia, Malaysia, the Philippines, and Thailand as an alternative funding source for viable and innovative small firms. Their market capitalization averaged 8.1% of the country’s GDP during 2010–2019 (a compound annual growth of 1.0%). Digital financial services (DFS) have spread widely across the region and should help fill some of the unmet demand from MSMEs. Financial authorities have begun regulating peer-to-peer (P2P) lending platforms and equity crowdfunding.

      MSME development is a policy priority for governments as they seek economic diversification and inclusive growth. In Southeast Asia, most countries have long-term strategies for MSME development in line with their national economic development strategies and goals. Central banks promote financial inclusion as part of national inclusive growth strategies, helping organize DFS solutions for MSMEs.

      The 10 Association of Southeast Asian Nations (ASEAN) members created an ASEAN Economic Community (AEC) in 2015 to accelerate a regional economic integration.⁵ The AEC holds the ASEAN Coordinating Committee on Micro, Small and Medium Enterprises and the Working Committee on Financial Inclusion to promote MSME development and financial inclusion in the region, respectively. ASEAN’s long-term MSME development strategy (2016–2025) has five goals: (i) promote productivity, technology, and innovation; (ii) increase access to finance; (iii) enhance market access and internationalization; (iv) enhance the policy and regulatory environment; and (v) promote entrepreneurship and human capital development. Along with this regional strategy, Southeast Asian countries offer a relatively good policy coordination mechanism for MSME development and access to finance at national and regional levels.

      1. MSME Development

      Micro, Small, and Medium-Sized Enterprises in Southeast Asia, 2010–2019

      GDP = gross domestic product; MSME = micro, small, and medium-sized enterprise. Reporting countries only.

      * 2010–2018.

      Scale of MSMEs

      In Southeast Asia, MSMEs are classified using a combination of four criteria: number of employees, net or total assets, annual sales turnover, and capital invested. All 10 countries covered use an employment threshold to classify MSMEs, either as stipulated by law or for statistical purposes—seven countries use sales turnover, five use assets, and two use invested capital (Table 2.1). In defining MSMEs, the level of employment, assets, turnover, and capital differs by country and by industrial sector (Cambodia, the Lao PDR, Malaysia, Myanmar, Thailand, and Viet Nam). This makes it difficult to discuss MSMEs across countries due to the lack of a standardized definition. This report relies upon national definitions of MSMEs. Myanmar and Singapore do not classify microenterprises, but this chapter collectively uses MSME throughout.

      MSMEs dominate the business environment. In Southeast Asia, MSMEs accounted for an average 97.2% of a country’s total enterprises during 2010–2019. The share of MSMEs to total enterprises declined slightly (a negligible compound annual decline of 0.3%). By country, the number of MSMEs increased sharply in Viet Nam (a compound annual growth of 13.8%), followed by Cambodia (6.4%), Myanmar (5.0%), and Malaysia (4.3%) (Figure 2.1A).⁶ Within the region, only Myanmar (89.9%) had less than 97% of its enterprises MSMEs.

      Table 2.1: MSME Definitions in Southeast Asia

      MSME = micro, small, and medium-sized enterprise; SME = small and medium-sized enterprise.

      Source: Compilation from Country Reviews of Asia SME Monitor 2020.

      By sector, the majority of MSMEs are engaged in services, especially wholesale and retail trade. In Southeast Asia, 61%–89% of MSMEs by country belong to the services sector—which combines wholesale and retail trade with other services such as accommodation and food services—while manufacturing (which includes food processing) accounted for just 5%–17% of MSMEs by country (Figure 2.1B).⁷ Most MSMEs in Southeast Asia are typically low-technology businesses operating in domestic markets, and their business owners tend to be less growth oriented.⁸ A small fraction of MSMEs in the region involve young entrepreneurs, start-ups, and technology-based firms. They are more growth oriented, innovative, and often aim to join global markets. It is essential to promote these MSMEs to build more resilient and inclusive growth at the national level.

      MSMEs are spread widely outside of the country’s capital. In Southeast Asia, 72%–85% of MSMEs operate in rural areas with the remaining 15%–28% based in capital cities (Figure 2.1C).⁹ The spread of local MSMEs is critical to diversify national economies. In many countries, a lack of basic infrastructure (such as electricity and transportation) is the primary barrier to rural business development. Digital infrastructure (such as broadband internet) is also lacking in most rural areas, access to which is critical for developing innovative rural-based businesses.

      Figure 2.1: Number of MSMEs

      BRU = Brunei Darussalam; CAM = Cambodia; INO = Indonesia; LAO = Lao PDR; MAL = Malaysia; MSME = micro, small, and medium-sized enterprise; MYA = Myanmar; PHI = Philippines; SIN = Singapore; THA = Thailand; VIE = Viet Nam.

      Notes: For Figure 2.1A, data refer to the latest available year (end-of-year): 2014 for CAM; 2015 for MAL; 2017 for BRU; 2018 for INO, LAO, PHI, THA, and VIE; 2019 for MYA (March) and SIN. MSME growth (%) refers to compound annual growth during past and latest available data. Data covers: 2009–2014 for CAM; 2003–2015 for MAL; 2010–2017 for BRU; 2006–2018 for LAO and PHI; 2007–2018 for THA and VIE; 2010–2018 for INO; 2006–2019 for MYA (fiscal year); 2014–2019 for SIN. For Figure 2.1B, data refer to the latest available year (end-of-year): 2014 for CAM; 2015 for MAL; 2016 for INO; 2017 for BRU; 2018 for LAO, PHI, THA, and VIE. Wholesale and retail trade in MAL includes transportation and storage, telecommunication, and real estate. For Figure 2.1C, data refer to the latest available year (end-of-year): 2014 for CAM; 2015 for MAL; 2018 for LAO, PHI, and THA; 2019 for MYA (March).

      Source: ADB Asia SME Monitor 2020 database.

      Gender data of MSMEs is not available in Southeast Asia, except for Malaysia, where 2015 census data found that a relatively small 20% of MSMEs were owned by women. Throughout the region, many MSMEs remain unregistered and operate informally, creating barriers to business development, particularly globally (footnote 8). Business formalization is a critical agenda for MSME development at the national level. Countries such as the Lao PDR and Viet Nam have reformed their business registration systems to encourage more MSMEs to join.

      Employment

      The employment by MSMEs accounted for an average 69.4% of a country’s workforce during 2010–2019 in Southeast Asia. The share of MSME employees to the total has grown slightly (a compound annual growth of 0.8%). By country, MSME employees sharply increased in Viet Nam (a compound annual growth of 6.4%), followed by the Lao PDR (5.9%), the Philippines (4.6%), Thailand (4.2%), and Cambodia (4.1%) (Figure 2.2A).¹⁰ In 2018, Indonesian MSMEs accounted for 97.0% of the workforce, the highest among Southeast Asian countries, followed by Thailand (85.5%) and the Lao PDR (82.4%). MSMEs in Viet Nam absorbed just 38.0%.

      Figure 2.2: Employment by MSMEs

      BRU = Brunei Darussalam; CAM = Cambodia; INO = Indonesia; LAO = Lao PDR; MAL = Malaysia; MSME = micro, small, and medium-sized enterprise; PHI = Philippines; SIN = Singapore; THA = Thailand; VIE = Viet Nam.

      Notes: For Figure 2.2A, data refer to the latest available year (end-of year): 2014 for CAM; 2017 for BRU; 2018 for INO, LAO, PHI, THA, and VIE; 2019 for SIN. MSME employees growth (%) refers to compound annual growth during past and latest available data. Data covers: 2009–2014 for CAM; 2010–2017 for BRU; 2006–2018 for LAO and PHI; 2007–2018 for THA and VIE; 2010–2018 for INO; 2014–2019 for SIN. For Figure 2.2B, data refer to the latest available year (end-of-year): 2013 for LAO; 2014 for CAM; 2016 for INO; 2017 for BRU; 2018 for MAL, PHI, THA, and VIE. Wholesale and retail trade in MAL includes transportation and storage, telecommunication, and real estate. For Figure 2.2C, data refer to the latest available year (end-of-year): 2014 for CAM, 2015 for MAL, 2018 for PHI and THA.

      Source: ADB Asia SME Monitor 2020 database.

      By sector, the majority of MSME workers are in services, especially wholesale and retail trade, which makes sense given the large number of MSMEs in the services sector. In Southeast Asia, 44%–85% of MSME employees by country work in services, while manufacturing accounted for 10%–26% of MSMEs by country in the region (Figure 2.2B) (footnote 7). In Viet Nam, manufacturing is the largest employer with more than 25% of the workforce.

      By domestic region, MSME employees are spread widely outside the capital, similar to the spread of MSMEs in rural areas. Across the region, 70%–84% of MSME employees by country work in rural areas with the remaining 16%–30% in the capital (Figure 2.2C) (footnote 9). Given that local MSMEs hold much promise in creating new jobs, they are critical in absorbing the unemployed or informal workers. Improving basic rural infrastructure such as electricity, internet access, and transportation will attract better skilled workers to new and innovative local businesses outside the capital.

      The share of female employees to total MSME workers remained small in Malaysia (33.6%) in 2015 (Census 2016), while they held a relatively large share in Cambodia (54.0%) in 2014 (Census 2014). Gender data is not available for other countries, but given the share of female employees to total employees (ranging from 31% to 47%), it is unlikely to be large.

      Business Productivity

      As a region, Southeast Asia’s economic growth slowed from 5.3% in 2017 to 5.1% in 2018 and 4.4% in 2019, as global trade tensions and global economic uncertainty increased. In 2020, the novel coronavirus disease (COVID-19) caused major disruptions to global, regional, and national economies—Southeast Asia’s economy is expected to contract 2.7% in 2020.¹¹ MSMEs are the backbone of national economies, but they are highly susceptible to external shocks. This report (Volume I) analyzes MSMEs as of the end of 2019. A more definitive description of the COVID-19 impact on MSMEs will appear in the 2021 edition.

      In Southeast Asia, MSMEs contributed an average 41.1% of a country’s gross domestic product (GDP) during 2010–2019.¹² MSME contributions to GDP have expanded moderately (a compound annual growth of 2.3%). Indonesian MSMEs contributed a relatively high 61.1% to GDP in 2018, increasing at a 14.2% compound annual growth rate during 2010–2018 (Figure 2.3A).¹³ MSMEs in Brunei Darussalam, Malaysia, Thailand, and Singapore contributed 35%–45% of the country’s GDP (a compound annual growth ranging from 2.8%–9.1%). The share of MSME GDP to a country’s GDP has gradually increased over time in Indonesia, Thailand, and Malaysia (Figure 2.3B). It fell in Singapore, while it generally increased in Brunei Darussalam. In US dollar terms, Indonesian MSMEs recorded $592 billion in 2018, followed by Thailand ($216 billion), Singapore ($149 billion), and Malaysia ($126 billion) (Figure 2.3C).¹⁴

      By sector, services (including wholesale and retail trade and other services) was the major contributor of MSME GDP, ranging 60%–71% of a country’s MSME GDP in 2018, followed by manufacturing (19%–27%) (Figure 2.3D). In Malaysia, MSMEs in agriculture accounted for 10% of MSME GDP in 2018.

      Figure 2.3: MSME Contribution to Gross Domestic Product

      BRU = Brunei Darussalam; GDP = gross domestic product; INO = Indonesia; MAL = Malaysia; MSME = micro, small, and medium-sized enterprise; SIN = Singapore; THA = Thailand.

      Notes: For Figure 2.3A, data refer to the latest available year (end-of-year): 2018 for BRU, INO, MAL, and THA; 2019 for SIN. MSME GDP growth (%) refers to compound annual growth during past and latest available data. Data covers: 2003–2018 for MAL; 2007–2018 for THA; 2010–2018 for BRU and INO; 2014–2019 for SIN. For Figure 2.3B, data for SIN are until 2019 and, data for other countries are until 2018. For BRU, data in 2014 is not available. For Figure 2.3C, exchange rates of local currency to US dollar refer to end-of-year currency rates from the International Monetary Fund International Financial Statistics in designated years. For Figure 2.3D, data refer to the latest available year (end-of-year): 2006 for PHI; 2016 for INO; 2018 for MAL and THA. Wholesale and retail trade in MAL includes transportation and storage, telecommunication, and real estate.

      Source: ADB Asia SME Monitor 2020 database.

      Market Access

      Most Southeast Asian MSMEs operate within small domestic markets in relatively stable businesses such as wholesale and retail trade, accommodation, and restaurants. They normally use their own market channels with few links to other businesses or business partners. Only a small portion of MSMEs are exposed to global markets. MSME participation in global value chains is limited for each country observed. Access to markets remains a major challenge for MSMEs in the region.

      On average, MSMEs contributed 20.4% of a country’s export value during 2010–2018—the share has been largely stable (a compound annual contraction of 0.05%).¹⁵ By country, MSMEs in Thailand accounted for 28.7% of export value in 2018, followed by Malaysia (17.3%) and Indonesia (14.4%). While MSME exports remain small in scale, they grew at a compound annual rate of 7.7% in Indonesia, followed by Malaysia (4.9%) and Thailand (3.6%) (Figure 2.4A).¹⁶ The share of MSME export to total export value has been relatively stable, though with a slight decline since 2017 (Figure 2.4B). Exports in the region remain volatile, affected by shifting foreign demand. Escalating trade tensions between the United States (US) and the PRC have skewed or weakened foreign demand. In US dollars, MSMEs in Thailand exported a high of $72 billion in 2018, followed by Malaysia ($42 billion) and Indonesia ($20 billion) (Figure 2.4C) (footnote 14).

      Figure 2.4: MSME Exports

      INO = Indonesia; MAL = Malaysia; MSME = micro, small, and medium-sized enterprise; THA = Thailand.

      Notes: For Figure 2.4A, MSME export growth (%) refers to compound annual growth during past and latest available data. Data covers: 2010–2018 for INO and MAL, 2007–2018 for THA. For Figure 2.4C, exchange rates of local currency to US dollar refer to end-of-year currency rates from the International Monetary Fund International Financial Statistics in designated

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