No Better Time to Innovate and Open a Startup Than Today

Two new laws passed last April 2019 show that today is the best time to become a technopreneur in the Philippines.

Republic Act No. 11293, otherwise known as “Philippine Innovation Act” and Republic Act No. 11337, also known as “Innovative Startup Act,” provide new regimes that encourage local research and development as well as promoting a business mindset for Filipino researchers, scientists, and engineers.

Whole-Government Approach to Innovation

Prior to RA 11293, each government agency had its own strategy of promoting innovation in their respective spheres of expertise. For instance, the Department of Science and Technology (DOST), mandated by law to “provide central direction, leadership and coordination of scientific and technological efforts and ensure that the results therefrom are geared and utilized in areas of maximum economic and social benefits for the people,” just mentioned commercialization twice in its 94-page Harmonized National Research and Development Agenda for 2017-2022.

Reorganized in 1987 to be the government’s primary coordinative, promotive, facilitative, and regulatory arm for the country’s trade, industry, and investment activities, the Department of Trade and Industry (DTI) partnered only in 2016 with Ideaspace Foundation (established in 2012), DOST’s Philippine Council for Industry, Energy, and Emerging, Technology Research and Development (PCIEERD), and J.P. Morgan to create a public-private innovation hub for start-ups dubbed QBO, a  play on the Filipino term “bahay kubo” or nipa hut.

(While the DOST is represented in QBO through PCIEERD, its two other councils, the Philippine Council for Agriculture, Aquatic and Natural Resources Research and Development [PCAARRD] and Philippine Council for Health Research and Development [PCHRD] have yet to show institutional collaborative interest in the same platform. At least two startups from Ideaspace, Cropital and Arthrologic, are actively engaged in the agriculture and the health sectors, respectively.)

On the other hand, the Department of Information Communications Technology (DICT), the newest government agency, is tasked to be the primary policy, planning, coordinating, implementing, and administrative entity that will plan, develop, and promote the national information communications technology development agenda under Republic Act No. 10844, which was signed into law in 2016. The DICT, in particular, seeks  to “support the promotion of trade and investment opportunities in the ICT and ICT- enabled services sectors, in coordination with the DTI and other relevant government agencies and the private sector.”

A lawmaker who sponsored the bill that later became RA 11293 confirmed the “highly fragmented formal governance system where numerous agencies are charged with their respective parts of the innovation mandate.” In order to help create an innovation ecosystem that “addresses and delivers on various policy areas, including MSME development, education, trade, investment, finance, agriculture, sustainable energy and climate change,” RA 11291 requires a “whole of government approach” that should result  in “policy coherence, alignment of priorities, and effective coordination” among all the various departments and agencies. To do this, a National Innovation Council (NIC) is established under RA 11293 comprising almost all the Cabinet secretaries and the Director General of the Intellectual Property Office (IPOPHL), plus 7 executive members to be appointed by the President coming from business, entrepreneurs, academe, MSME sector, and the scientific community.

To implement the “whole of government approach” that RA 11293 seeks to establish in promoting the innovation ecosystem, the DTI and DOST are now required to “collaborate in ensuring complementation of and coherence in programs that provide innovation-related services to MSMEs and innovators.” These programs should “build links between tertiary institutions, research institutions, and industry towards creating avenues for knowledge diffusion and capacity building.” RA 11293 also requires “Government-Academic-Business research collaborations to foster future innovations.”

The National Innovation Agenda and Strategy Document (NIASD)

Among the various duties of the NIC is to draft a NIASD, with at least a 10-year horizon, which provides “vision and long-term goals for innovation and provide a road map and the strategies for improving innovation governance through clear-cut delineation and complementation of innovation efforts across agencies; deepening and accelerating innovation efforts, including inclusive innovation programs that are targeting the poorest of the poor; and integrating and fostering public-private partnerships, including those with large businesses, MSMEs, academe, and R&D and extension institutions.” All departments and agencies under RA 11293 are enjoined to comply with the NIASD as soon as it is issued by the NIC.

In drafting the NIASD, RA 11293 requires the NIC to consult with all government agencies, Regional Development Councils (RDCs), LGUs, and other stakeholders. Moreover, NIC should come out with the NIASD within six (6) months from the effectivity of said law.

Priority Area for Innovation

The NIC, in identifying the priority areas for innovation under RA 11293, must consider the issues and challenges in the following areas, among others:

  • Food security and sustainable agriculture;
  • The blue economy;
  • Education and the academe;
  • Health;
  • Secure, clean and reliable energy;
  • Climate change and disaster resilience;
  • Resource efficiencies;
  • National and community-based comparative advantages in the context of global value chains;
  • Comparative strengths and advantages of sectors and communities;
  • Potentials for innovation of traditional knowledge, traditional cultural expressions, and genetic resources;
  • Infrastructure needs;
  • Governance;
  • Development of human capital;
  • Digital economy; and
  • Transportation services.

For the IPOPHL, it is required by the new law to “streamline and rationalize administrative and registration procedures and undertake programs to assist MSMEs in the registration of patents, trademarks, copyrights, industrial designs and geographical indications” and report all the reforms it has undertaken to the NIC within six months from the effectivity of RA 11293, and every year thereafter.

With all these layers of bureaucracy being put up by RA 11293, how will all these moving parts operate?

P1 Billion Revolving Fund

RA 11293 seeks to keep everything afloat with a P1 Billion revolving fund from which grants will be issued for programs that will “strengthen entrepreneurship and enterprises engaged in developing innovative solutions benefiting the poorest of the poor.” Known as the “Innovation Fund,” it shall be administered by the NIC who will then have to screen and approve qualified proposals.

Aside from this initial source of funding, the NIC is required to consider other revenue sources such as bilateral and multilateral funds and to explore public-private partnerships like QBO.

All banking institutions are also required by RA 11293 to set aside at least four percent (4%) of their total loanable funds for an innovation development credit. Non-compliance may merit administrative sanctions and other penalties by the Bangko Sentral ng Pilipinas.

These interventions appear “Big Government” to a researcher, scientist or inventor interested in using the R&D that she developed. So, what happens on the here and now?

 Jumpstarting the Ecosystem

Barely 10 days after the passage of RA 11293, the Innovative Startup Act (RA 11337) was signed. The senator who sponsored the bill that became the basis of the Innovative Startup Act noted that, although laws had been enacted promoting job generation and inclusive growth through the development of MSME’s (RA 10644) and promoting entrepreneurship and financial education among Filipino youth (RA 10679), not enough support has been given to innovative and technology startups. The result: startups that were established to promote new technology and innovation for solving technical problems continue to face the same barriers to success that challenge big businesses, without the necessary capital and human resources that enable their competitors to overcome these same concerns.

To level the playing field and encourage the growth of more technology-based businesses, the government deemed it proper to provide financial subsidies like tax breaks and grants; remove red tape in business registration; and open more technical assistance and training programs for startups. All of these will be these initiatives will be covered by a Philippine Startup Development Program to be developed jointly by the DOST, DTI and DICT, in consultation with other government agencies, non-government organizations and stakeholders in the startup ecosystem.

The DTI has been tasked to come up with a Startup Investment Development Plan to develop the short, medium, and long-term strategies to spur investment in startups.

Startup Benefits

Among the immediate benefits that will be given to startups that qualify the selection and application process are:

  • Full or partial subsidy for the registration and cost in the application and processing of permits and certificates required for the business registration and operation of an enterprise with the appropriate national and local government agency;
  • Endorsement of the host agency for the expedited or prioritized processing of applications with other government agencies;
  • Full or partial subsidy for the use of facilities, office space, equipment, and/or services provided by the government or private enterprises or institutions;
  • Full or partial subsidy in the use of repurposed government spaces and facilities of the host agency as the registered business address of the startup;
  • Grants-in-aid for research, development, training, and expansion projects;
  • Endorsement of the host agency for the expedited or prioritized processing of travel documents of startup members for the purpose of joining startup events and competitions abroad;
  • Full or partial subsidy for fees and charges incurred in applying for travel documents;
  • Full or partial subsidy for baggage allowance for materials, equipment, and products required for the participation in local and international startup events;
  • Full or partial subsidy for airfare; and
  • Per diem allowance.

PEZA Participation

The Philippine Economic Zone Authority (PEZA) is also tasked under RA 11337 to pursue and promote the creation of Philippine Startup Ecozones in consultation and coordination with DOST, DTI and DICT. In turn, the law requires these host agencies to promote and facilitate the registration of qualified startups in PEZA’s Ecozones. Investment promotions agencies are likewise authorized to extend applicable benefits to startups under their respective rules.

More Funding

Under RA 11337, startups can take advantage of additional funding through a Startup Grant Fund that will be made available separately through the DOST, DTI and DICT. Moreover, the DTI, in coordination with the National Development Company, shall administer a Startup Venture Fund. The SVF will be used to match private sector investments in Philippine startups.

Startup Visas

A new set of visas under the Department of Foreign Affairs is also established through RA 11337. Owners and employees of startups registered in the Philippines will be eligible for their respective startup visas when endorsed by host agencies. The startup visas will be valid for 5 years and may be renewed or extended for another 3.

For prospective startup owners and investors, the DFA may issue multiple entry startup visas, subject to the endorsement of host agencies. Bearers of the startup visas will be exempted from securing Alien Employment Permits from the Department of Labor and Employment.

Private Sector Participation

RA 11337 envisions the close participation of the private sector in creating the startup ecosystem. This can be seen providing almost the same benefits to startup enablers, which are persons or entities that provide goods, services or capital crucial in the operation and growth of startups. These enablers are also required to register with the host agencies in order to avail of the benefits.             With the ease of creating one-person corporations already established by the Securities and Exchange Commission, it is anticipated that Filipino scientists, researchers, and engineers will be able to leverage these government facilities and establish their own startups in the very near future.