Speech at the Regional Workshop and Meeting with a Special Focus on the Informal Economy & SMEs

Nov 11, 2014

Opening Remarks by Mr. James George Chacko. Assistant Resident Representative, United Nations Development Programme for Malaysia, Singapore and Brunei Darussalam


Mr. Denis Nkala, Chief, Regional South-South Unit, Asia Pacific, UNOSSC

Ms. Mami Yamada, Assistant Director, Partnership and Triangular Cooperation, UNOSSC

Mr. Ghazali Yunos, Senior General Manager, SIRIM Berhad

Distinguished guests, Ladies and Gentlemen,

Good morning and a warm welcome to all of you. Selamat datang ke Malaysia. Welcome to Malaysia!

On behalf of UNDP Malaysia, Singapore and Brunei Darussalam, I would like to thank all of you for your participation in this three-day Regional Workshop for Small and Medium Enterprises (SME), with a Special Focus on Informal Economy and SMEs. This workshop is part of a larger project on “South-South and Triangular Cooperation for SME Development in Asia”, which our Country Office has been spearheading since 2010 with the aim to support the strengthening of SME policy formulation and institutional reform as well as institutional support for training, technological exchanges and market access in this region.

I would also like to welcome all participants from government agencies and local chambers of commerce for attending this regional workshop. Today, we have thirty members of government bodies, local chambers of commerce, and private sector organizations from fifteen Asian countries gathered here in Kuala Lumpur to take part in this workshop on SME development, where we expect to have good dialogue.

Ladies and gentlemen,

Asia is a region of contrasts. The region as a whole has achieved unprecedented growth and development in recent decades. The general picture, however, hides a great diversity of economies, development experiences, and challenges. Asia is increasingly playing the role of a global growth pole, and is fast emerging as a manufacturing and information technology hub of the world economy. Yet there are still millions of people who still live in extreme poverty, now defined as less than $1.25 a day. Asia is the home of China and India, giants that are reshaping international business and the global economy through, among other things, the operations of internationally competitive enterprises. However, such giants also coexist with a large number of traditional, local micro- and small enterprises. There are also wide disparities in the region between the bigger economies and the Least Developed Countries (LDCs).

One characteristic of this vast and diverse region is the presence and importance of a large SME sector comprising the majority of enterprises in all the region’s economies. Indeed, SMEs can be considered the backbone of our national economies. Not only do they constitute a major source of employment, but they generate significant domestic and export earnings. As such, SME development emerges as a key instrument in poverty reduction efforts.

Ladies and Gentlemen,

We are gathered here today to discuss SMEs, human development and its link to the informal sector. One of the goals of this workshop is to reflect on approaches to the informal sector and understand the significance of policy and design choices, to strengthen the linkages between informal processes, SME policies and development outcomes.

The informal sector, or the non-observed economy, stands as an important part of the economy, particularly for SMEs and the labor market in many developing countries. It also plays a major role in employment creation, production and income generation.

Defining the informal sector is not an easy thing, and we will discuss during this workshop the challenges of defining and measuring it. For example, in Malaysia it can be categorized as:

1.    Not registered with the Companies Commission of Malaysia or any other professional bodies, including the Local Authority,

2.    Where all or at least one goods or services produced are meant for sale or barter transactions, and

3.    The size in terms of employment is less than 10 persons and is not registered under specific form of national legislation.

Today, 60% of the workforce in the Asia Pacific Region operates in the informal sector, which will significantly expand in the future with continuing explosive growth of urban population and increases in service sector employment. People end up working for the informal economy either because they cannot find an entry into the formal sector, or because they deem the formal workforce as being ‘unsustainable’ and hence resolve to expand the scope of informal work for efficiency and sustainability.

However, while the informal sector is a flexible and convenient avenue for many workers, employers find a lack of standardization of labor regulations, leaving many workers unprotected and vulnerable. Although it is difficult to generalize the quality and nature of informal employment, characteristics include:

1.    A lack of protection for non-payment of wages

2.    Retrenchment without notice or compensation

3.    Unsatisfactory occupational health and safety conditions

4.    An absence of social benefits such as pensions, sick pay and health insurance

There are also pertinent development dimensions that come alongside the informal economy, such as the role of women, migrant workers, and the poor; provision of adequate healthcare and other social protection benefits.

All these need to be holistically addressed to improve human development outcomes. Possible avenues that can be explored to ameliorate the coverage of those in the informal economy would include strengthening the scope and outreach of labor laws, policies and practices by building on the processes of the informal sector. Moreover, and what is of interest to us today, what SME policymakers can do in the context of South-South Cooperation in enhancing outreach and development.

Ladies and Gentlemen,

The contribution of the informal sector to the economy needs to be recognized and appreciated. Participants in the sector must be involved in reconceptualizing economics altogether, both in theory and practice. As mentioned earlier, some constraints include:

  • Lack of infrastructure
  • Difficulty in accessing investment capital
  • Lack of potential to attract investment
  • Lack of knowledge to exploit resources
  • Low levels of literacy and labor skills
  • Poor access to communications and technology

Irrespective of the level of development of an economy, a significant proportion of micro and small enterprises are found in the “shadow economy”.

It is now recognized that SMEs contribute significantly to economic growth, with SME's share of GDP ranging from 20 percent to 50 percent in the majority of Asia Pacific economies. In low-income countries, the contribution of SMEs to employment and GDP is less than that of the informal sector, where the great majority of the poorest of the poor make a subsistence level of living. Therefore, an important policy priority in developing countries should be to reform the policies that build an understanding of these informal processes, so as to enable the poor to participate in markets and to engage in higher value added business activities. In middle-income countries, formal SMEs contribute about 20% more to employment and GDP than the informal enterprises. Thus, in these countries, eliminating factors that discourage informal enterprises from entering the formal SME sector would also bring about gains in economic terms.

Local government authorities and community organizations are key contact points for informal economy actors to access social and economic development services. Their functions enable them to deliver local economic and social development strategies offering opportunities for multifaceted and comprehensive approaches to upgrading informal economy workers and economic units. Municipalities have several means available to support the move out of informality for the populations within their territory, e.g.:

  • Setting up basic infrastructure
  • Supporting SME development
  • Fostering public-private partnerships
  • Targeting support to the especially disadvantaged
  • Facilitating employment creation etc.

Such measures must ideally address social dialogue and inclusion, economic development, employment promotion and social protection.

Ladies and Gentlemen,

This three-day workshop has the specific purpose to:

1.    Provide a forum for knowledge sharing and problem-solving amongst participants;

2.    Gain an overview of some of the challenges in defining and measuring the informal sector;

3.    Reflect on approaches to the informal sector and understanding the significance of policy and design choices to strengthen the linkages between informal processes, SME polices and development outcomes;

4.    Explore innovative methods and tools that can be used to study the informal economy and how they can be used to effectively inform SME and development policies;

5.    Further South-South cooperation through the sharing of resources and expertise.

This workshop serves as a strategic common platform to strengthen South-South Cooperation through experience sharing, open dialogue and simulated learning. It is hoped that, over the next three days, we will discuss these issues, as well as share our common experience and knowledge in order to better tackle them. We hope the discussion will help you to refine innovative ideas to adapt international practices into your local realities.

Thank you.

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