Despite the leading role of the private sector in the Philippine economy, its potential remains significantly underutilized. This translates into fewer jobs for the fast-growing population than there can be. Fast-growing and so far successfully evolving industries such as the business process outsourcing industry are unlikely to absorb surplus labor and drive productivity-based economic growth. Private sector development is not benefiting from the abundance of capital in the economy: significant savings are either "locked" in the banking system or are exported. Within the private sector there is insufficient synergy between the small and medium-sized enterprises (SMEs), as suppliers of inputs, and the large firms, as clients for the inputs of SMEs. Drawing on nationwide consultations with the private sector, this publication identifies inefficient state processes and inadequate business environment as the major reasons for such insufficient synergy. It proposes measures to address the inefficiency of state processes. It also provides suggestions on how ADB could support private sector development through its public and private sector operations.