ASIA-PACIFIC FINANCE FORUM

THE TOQQA INITIATIVE: PROGRESS

REPORT

JULY 2021

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INTRODUCTION The TOQQA Initiative started as a program of work in collaboration with the APEC Business Advisory Council (ABAC) Brunei and as part of the MSMEE Working Group in 2020. The TOQQA Initiative focuses specifically on the Micro and Small Enterprise segment of the MSME sector, recognising that this segment has unique needs and faces challenges that require distinct responses in the form of policy and structural reforms that cannot be accommodated within the same suite of reforms that would be valuable to larger, better resourced and more capitalised Medium Enterprises. The COVID-19 pandemic that emerged at the start of 2020 exposed the extreme vulnerability of the Micro and Small Enterprise segment to shock events and highlighted that reforms that deliver increased protections and sustainability are an imperative. The reality is that COVID-19 has crushed Micro and Small Enterprises, destroying livelihoods and creating setbacks to development and progress that may be irretrievable. Accordingly, the 2020 TOQQA Initiative program of work was documented as a four-part policy series addressing key policy issues governments and policy makers need to address to build and develop more sustainability across the Micro and Small Enterprise segment. Importantly, the program of work focussed on the concept of a 'living laboratory', adopting an in-market pilot approach to testing solutions that deliver improved outcomes across the value chain of Micro and Small Enterprise operations. A year on, while the Covid-19 pandemic continues to rage, its ‘shock events’ present in new and varied forms as do the associated shadow pandemics that it has exacerbated or triggered. For the world’s Micro and Small enterprises, little has changed excepting the deepening impacts of the crisis; the existential risk arising from systemic social and economic fragility is even more acutely experienced and will continue to be so well into the future Accordingly, the TOQQA Initiative 2021 work program continues to elaborate on the 2020 insights, where critical learnings and insights into pragmatic and grounded recommendations that can assist key stakeholders, including our ABAC and APEC stakeholders, continue to be developed and tested. The TOQQA Initiative continues to be an opportunity for greater shared value to be realised via the ABAC policy work, and where ABAC's focus on policy creation and harmonisation can be evaluated, interrogated, understood and adopted by the representative economies, providing better outcomes for these vital Micro and Small Enterprises. Ensuring the resilience and sustainability of the world’s small enterprises has never been a more vital concern than it is today; nor is the need for action more imperative. The authors hope that the recommendations contained herein provide a unique contribution to the dialogue on Micro and Small Enterprise digital transformation and that the recommendations articulate a compelling case to accelerate required and urgent action. MICHELLE CURRY AND HAFIMI ABDUL HAADII – JULY 2021

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2020 POLICY PAPERS The 2020 Policy Series “Defining Resilient Futures for Micro and Small Enterprises Through Digital Transformation” explored the vast but latent potential for micro and small enterprises to build sustainable and resilient enterprises through entry into, and greater participation in, global value chains. Reflecting on their substantial representation across all APEC economies (on average more than 90% of all enterprises across APEC economies are defined as micro and small enterprises), their contribution to economic growth and localised productivity innovation is material. Focussing on the need for Micro and Small Enterprises to become holistically entrenched in the opportunities of the digital age, the 2020 Policy Series advanced the position that providing enterprises with end to end digital capabilities is what is required to not just keep them in the game but to enable them to become sustainable and resilient players; hopefully one day major players. The 2020 Policy Series papers variously and collectively argued that a shift beyond incrementalism and the embracing of eco-systems thinking would lift and change the prospects for micro and small enterprises with concomitant approaches to policy reforms and improved institutional frameworks providing enabling conditions for their greater success. The papers documented the outcomes of a BIMP-EAGA pilot, engaging micro and small enterprises in a digital commerce application to test their responses to the usefulness and effectiveness of end to end digital commerce capabilities on key measures of:

- productivity of their enterprises - entrepreneurs perceptions of increased growth prospects:

• increased market presence in existing markets • expansion into new markets • expansion into new products

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- competitive positioning through: • connectivity to customers driving relationships and insights into customer demands • access to broader supplier base (locally, nationally, internationally)

- streamlined digital payments capabilities The findings of the pilot were compelling in that firstly, the ability to access such digital capabilities was unknown, the recognition of the need for such capabilities was unanimous, the understanding of the positive influence of such capabilities on productivity and expansion prospects was unanimous, as was conversely sentiments of low digital capabilities and anti-trust sentiments linked to a disinclination to adopt the solution the pilot provided. The majority of the micro and small enterprise pilot respondents stated that customer demand for digitalisation would drive their transition to digital commerce as opposed to any intrinsic desire on their part to do so.

We should not yet move on from the topics covered in the 2020 Policy Papers; many of the findings and policy recommendations have not yet been brought to their appropriate conclusions. As we wrote at the time “unsurprisingly, the work so far reveals the extent of the complexity, but also has uncovered the very important and significant opportunities that are latent across all economies, and where Micro and Small Enterprises are in many ways well placed, and braced, for better participation and engagement. These opportunities go well beyond the issues of more formalised financial and economic participation, social inclusivity and Micro and Small Enterprise digitisation. These opportunities target the need to optimise supply across all industry sectors - primary, secondary and tertiary - and the need to identify, assimilate and connect sources, producers and providers of that supply in smarter and more efficient ways, shaping demand through the innovations this can create. Achieving this in the absence of connectivity, participation, engagement and inclusion of this eco-system will not be possible.”

The 2021 Policy Series is in the process of being drafted and will be available later in the year.

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APEC 2021 – PEOPLE, PLACE AND PROSPERITY: TANGATA, TAIAO, ME TE TAURIKURA The focus and activities of the TOQQA Initiative are closely aligned with the three priority areas of APEC New Zealand 2021:

1. Economic and trade policies that strengthen recovery, with a focus on the right macroeconomic, microeconomic and trade policy choices; 2. Increasing inclusion and sustainability for recovery by building a better society for all people and generating a green recovery; and 3. Pursuing innovation and a digitally enabled recovery by accelerating the APEC region’s work in these areas.

The TOQQA Initiative addresses these three priority areas by focussing on driving outcomes as follows:

APEC 2021 Priorities TOQQA Focus

Economic and trade policies that strengthen recovery

As economies hunt for new sources of growth in increasingly economically challenging circumstances, realising the latent growth potential of micro and small enterprises seems an obvious, if not straightforward, pursuit. Enabling micro and small enterprise productivity innovation and incentivising its paths to market will create unparalleled economic opportunities for all economies. Increasing access to, and participation in, global value chains is a vital enabler of micro and small enterprise sustainability.

Increasing inclusion and sustainability for recovery building

Advancing the need for micro and small enterprises to have digital capabilities, to have access to regionalised and/or internationalised expansion, the ability to trade via mechanisms other than foot traffic and cash, are financially included with access to an array of financial mechanisms such as digital payments, working capital, formal lending and insurance.

Pursuing innovation and a digitally enabled recovery

Capturing the full benefits of productivity innovation is only possible through digital transformation and digital inclusion, because modern global value chains rely upon digital capabilities and participation. Micro and small enterprises however struggle to improve productivity due to their small size, relative inexperience in business management principles and capabilities and varying levels of innate entrepreneurial flair or learned entrepreneurial practices.

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UN Sustainable Development Goals being progressed through the TOQQA Initiative

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Recommendations #1, 2 and 3: Regionalisation / Internationalisation of Micro and Small Enterprises

OPPORTUNITY POLICY RECOMMENDATIONS KEY ACTIONS TOQQA INITIATIVE

• ~USD1T in increased economic activity through the inclusion of Micro and Small Enterprises in expanded trade opportunities

1. Review and where necessary reform Standards, Interoperability and Regulations that limit commerce and trade

• With a lens on the unique limitations of Micro and Small Enterprises, address regulations that are anti-competitive to this segment and in parallel put in place programs and incentives that enable their access to cross-border trade opportunities

• Collaborating with government agencies involved in increasing Micro and Small Enterprise resiliency through promoting greater digital inclusivity to facilitate acquisition of new markets and customers

• Ongoing research to identify intermediary trade pathways for Micro and Small Enterprises in order to provide tangible access to regionalisation or internationalisation commerce opportunities

• Piloting the response and uptake of

digital access to end to end source to pay capabilities that fully automate operations and enable participation in global value chains

• Aligns to APEC NZ Priority # 1

• Aligns to SDGs #8, 9, 10, 17

2. Review and address policies with a view to integrating Micro and Small Enterprises into GVCs and address trade constraints through continued trade facilitation

• Identify and implement programs to promote local, regional and international production and supply chain linkages

3. Determine clear pathways for Micro and Small Enterprises to engage in direct and indirect trade opportunities as part of a national strategy to increase competitive positioning regionally and internationally for emerging micro-Multinationals

• Understand the direct and indirect trade landscape demand aligned to each economy’s capabilities and resources and define incentives for Micro and Small Enterprises to leverage commercial advantages and engage in intermediary trade opportunities

• Ensure eCommerce is a leveraged opportunity for aspirational micro-multinationals through attractive e-Commerce trade conditions

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Recommendations #4 and 5: Productivity Innovation Driving Long-Term Resiliency

OPPORTUNITY POLICY RECOMMENDATIONS KEY ACTIONS TOQQA INITIATIVE

• New sources of economic growth can be sourced from the productivity innovation of Micro and Small Enterprises and the translation of that innovation into commerce and trade performance and outcomes

4. Review and where necessary revise economy policies and investments in innovation to encourage and enable increased innovation in Micro and Small Enterprise segments

• Source and share next practices in innovation and disseminate to Micro and Small Enterprises to increase knowledge and information about the relationship between innovation and enterprise growth

• Provide clear incentives for Micro and Small Enterprises to engage in new innovations – e.g. tax offsets for defined periods

• Ongoing sectoral-specific research in to tangible productivity innovation interventions that are associated with increasing enterprise resiliency o This is a relatively nascent field of

research but where insights will be able to drive targeted improvements to enterprise performance through innovation levers – eg digitisation of specific production processes increasing labour productivity, competitive differentiation, new market acquisition etc

• Aligns to APEC NZ Priority # 1, 2 and 3

• Aligns to SDGs #1-5, 8-10, 17

5. Market innovation relies on digital connectivity across the value chain – ongoing investment in digital infrastructure and data/connectivity affordability, particularly to underserved rural areas

• Align the business case for infrastructure investment to the long term macro and micro economic gains of Micro and Small Enterprises being able to conduct effective commerce nationally and internationally

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Recommendations #6 and 7: Promote Creation of, and Access to, Productive Ecosystems

OPPORTUNITY POLICY RECOMMENDATIONS KEY ACTIONS TOQQA INITIATIVE

• Resource constraints of Micro and Small Enterprises can be ameliorated through leverage of ecosystems which are accessible via use of enhanced digital capabilities

6. Increasingly smart technologies and interconnectivity creates opportunities for collective efficiencies – policy and regulation should enable these ecosystems to flourish with appropriate regulation

• Promote the advantages of collective efficiencies within and across ecoystems whilst providing the right policy and regulatory oversight to prevent gouging and other anti-competitive behaviours

• Reflective ecosystems must ensure pronounced enablement, sustainability and inclusion in Building Back Better

• Ecosystem connectivity and enablement is at the heart of the TOQQA design principles to effect the resiliency and sustainability of Micro and Small Enterprises – collaborating with APEC governments to implement or evolve ecosystems model of thinking for Micro and Small Enterprise segment

• Aligns to APEC NZ Priority # 2 and 3

• Aligns to SDGs #4, 8, 10, 13 and 17

7. Warehousing geomatics, and smart logistics solutions (e.g drop shipping) create unparalleled commercial opportunities through of leverage ecosystem efficiencies for Micro and Small Enterprises – policies need to ensure import and export constraints that exclude Micro and Small Enterprises are revised

• Sustained trade facilitation is required to remove anti-competitive barriers and also to be inclusive of the requirements of smaller enterprises seeking to maximise opportunities of GVCs, eCommerce or other commerce and trade activities

• Leverage Beyond Bogor and the KL Declaration to reset supply chain networks to ensure inclusion and fair trade

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Recommendation #8: Beyond Basic Digitalisation, Accessing Benefits of New Technologies

OPPORTUNITY POLICY RECOMMENDATIONS KEY ACTIONS TOQQA INITIATIVE

• Smart automation and big data

are driving greater insights into commerce and trade, the convergence of social networks, customer insights driving better demand forecasting and geographical and sectoral demand placement

8. Platforms can create enterprise specific insights on existing customers but also on new commercial horizons – policy and regulation on data security needs to address the rights of Micro and Small Enterprises to access commercial insights that will drive greater productivity and expansion opportunities

• Data sovereignty and governance are ongoing concerns for policy makers and regulators with larger firms better able to circumvent restrictive policies by making larger investments in data management. Micro and Small Enterprises need collective access to the same insights and policies need to be reformed to consider the needs of this segment.

• Collaborating with government on the data opportunities for Micro and Small Enterprises to promote their greater competitive interests and enable them to have better access to not just the rudimentary benefits of the digital age but to its richer and commercially beneficial capabilities

• Aligns to APEC NZ Priority # 1 and 3

• Aligns to SDGs #1-5, 8-10, 17

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Womenpreneurs and Digitisation Eight recommendations were provided in the 2020 Policy Series fourth paper called #womenpreneurs presented to and endorsed by the ABAC Members in November 2020. The full report can be found on at www.toqqaglobal.com. The 8 Recommendations provided above are inclusive of the needs of women but it is worthwhile to report here again the specific requirements involved in women’s engagement with and uptake of digital capabilities for further contemplation in the Progress Report Drafting exercise: 1. Embed in digital solutions features that enable womenpreneur networking, advocate and facilitate more connectivity to other women and the sharing of experiences and knowledge. Such networking features also allow the creation of digital networking groups, where increased commercial exchanges across the groups supports women’s enterprises and increases trade opportunities. 2. Embed in digital solutions features that provide access to targeted learning content delivered via different media to account for literacy or connectivity issues and where the content is designed specifically to address the challenges womenpreneurs face in starting and growing their enterprises 3. Embed convenience features that are time saving, and which provide seamless integration across value chains 4. Define pricing models that are not just affordable but which enable womenpreneurs to personalise their spending approaches based on three main factors:

• Where they perceive best return on investment to lie • Their week to week financial circumstances • Embedded features that provide the ability to set goals, create plans and monitor targets which help provide visibility and enable budgeting

activities and decisions 5. Assistance to achieve direct and tangible increases in income and customers by using digital capabilities (for example small grants to obtain digitisation assets) 6. Embedded features which improve both front and back end productivity to reduce downtime spent in otherwise manual and time-consuming activities and which impact the time spent on marketing and sales 7. Provide womenpreneurs with the ability to offer loyalty features to their customers and establish commercially attractive arrangements with preferred suppliers, thereby creating a digitally interconnected ecosystem based on exchanges of personalised and explicit value 8. Provide womenpreneurs with access to data about where their individual enterprise lies in the ability to leverage digitisation to create new customer channels and bring new customers from new geographies buying new and expanding products and services and where the integration of intelligence about supply and demand drives expanded enterprises and helps create new ones. This is resilience.