Asia to boost smaller firms

August 26, 2009

, SINGAPORE, Aug 26 – Asian governments should look to boost domestic demand to help the region return to strong economic growth, the Asian Development Bank (ADB) said on Wednesday.

With a weak global outlook limiting Asian exports the bank said countries had to speed up measures to bolster expansion at home, adding that the best way to achieve this is to provide help for small and medium-sized businesses.

"While the global economy will no doubt recover from the current crisis, a return to a fast-growing developing Asia will require some rebalancing of growth toward domestic demand in the region as a whole," it said in a report released here.

"Fostering dynamism among Asian enterprises, especially SMEs, will be important to this effort."

Small and medium enterprises (SMEs) are businesses that employ fewer than 200 workers and are key employers in Asia, the ADB said, adding that in manufacturing alone they account for between 50 and 90 percent of employment.

"It is precisely because SMEs employ so many of Asia\’s workers that their productivity, and the earnings and wages they generate become crucial in determining living standards of many Asians," the report said.

Vibrant SMEs are crucial to the development of a large Asian middle class, seen as an important driver for domestic demand, the Manila-based bank said.

It urged Asian governments to remove several constraints it said prevented the growth of such businesses.

Among the limits it says are hindering the firms are weak access to financing and new technologies that will help them become more innovative.

The report also cited infrastructure problems such as poor transportation systems and lack of access to stable electricity supply.

While Asia is recovering from the global crisis faster than the United States and other Western economies, this is largely due to government stimulus measures, which are likely to have a short-term impact, ADB chief economist Jong-Wha Lee said at a news briefing in Singapore.

The crisis is an opportunity to look at longer-term issues to sustain Asia\’s economic rise, he said, adding however that the process of rebalancing growth may take more than 10 years.

"Public policy has an important role to play," the report said.

"The design of policy needs to be based on a clear understanding of the different types of enterprises in the region, how they are linked with one another and their potential for growth."

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