PHL bristles at ‘doing business’ findings

October 29, 2015 at 16:30

THE PHILIPPINES slipped in the World Bank’s annual ranking of countries with the easiest environment for small- and medium-scale enterprises (SMEs), drawing criticism from the Finance department (DoF) and the public-private sector group that tracks and pushes improvements in national competitiveness.

The country slid in nine of the 10 indicators used in the survey, with the biggest drop recorded in starting a business and dealing with construction permits.

Getting electricity was the only bright spot.

Motoo Konishi, the World Bank’s Philippine country director, said in a briefing yesterday in Bonifacio Global City that the report is “probably one of the most covered and most discussed” among those it releases.

And indeed it was, drawing a pointedly critical reaction from the DoF which described the methodology used as “erratic” and “unsound.”

The DoF said in a statement that the “survey methodology of collecting sample data from only one or two cities makes it inappropriate to present the report as reflective of the state of doing business for an entire economy.”

Moreover, the department said, while the report assesses regulations affecting domestic SMEs, “unintentionally, its immediate audience is, in fact, offshore businesses planning to set up an enterprise in the economies covered in the report.”

“Finally, the erratic methodological changes year after year, affecting even the findings of the past reports (as seen most recently in revisions applied retroactively to the 2015 report), severely threatens the report’s credibility as a reliable global measure of competitiveness,” the department said in its statement.

“Without listening to its very own stakeholders, the… report may risk being seen as another document in which developing countries are evaluated and judged by people sitting in comfortable offices too far away to fully understand contexts and appreciate reforms being undertaken,” it added.

“The Philippines fears the… report may emerge to mirror the symptoms and hallmarks of past international development failures spawned by tone-deaf prescriptions and interventions incongruent with realities on the ground.”

In separate remarks sent via text message later in the day, the DoF said it is scheduled to meet World Bank and International Finance Corp. (IFC) representatives today, adding: “Also, next week the World Bank board visit to the Philippines will take place, and we plan to raise and discuss these issues.”

Guillermo M. Luz, private sector co-chairman of the National Competitiveness Council, also questioned the accuracy of the report, noting the methodology has undergone four changes in the last five years. “With the methodological changes and recalculations, we begin to ask ourselves how much do we depend on these numbers,” he said in the same briefing.

Roberto Galang, operations officer of the World Bank’s IFC, qualified that the report does not measure all aspects of the business environment, adding that indicators used focus on regulations that apply to SMEs and based on the most populated city in each country: Quezon City in the case of the Philippines.

He said that, this year, the development economics team of the bank included measures on the quality of implementation, rather than just the presence of the regulations themselves.

Among others, for instance, the quality of judicial process is now measured by looking into whether there is good case management and whether there is an alternative dispute resolution process. “We hope to expand our support going forward to [Mr. Luz] and his team, and we work towards completing the opportunities for improving doing business in the Philippines,” he said.

REGIONAL COMPARISONS
In Southeast Asia, the Philippines is one of four countries whose ranking dropped, the others being Malaysia, Thailand and Vietnam. Singapore stayed at the top, while Brunei Darussalam climbed two notches past the Philippines and Vietnam. Indonesia, Cambodia and Laos were the other climbers. No ranking was given for Myanmar.

The report noted starting a business in the Philippines requires 16 procedures — the worst in Southeast Asia — and takes 29 days to complete, which is better only than in Laos, Cambodia and Indonesia.

Mr. Galang noted that business registration in the country requires the cooperation of several government agencies, including the Bureau of Internal Revenue (BIR), the local government units, Social Security System, PhilHealth, Securities and Exchange Commission, and the Home Development Mutual Fund. “By combining the steps, we can facilitate the entry of new enterprises into the formal sector,” he said.

In terms of facility of paying taxes, the Philippines is better only than Cambodia and Indonesia, with a total of 36 payments required each year and taking a total of 193 hours. “The reason why we are not doing well in this indicator is that we are requiring up to 36 payments per year, costing our SMEs 193 man hours of work. The reason for this high level of tax payments is that the BIR and our other contributors require monthly payments — multiplying the tax payments by 12 for each single payment,” he said.

Mr. Galang attributed the low ranking for enforcing contracts to the time it takes to do so. “Contract disputes take more than two years to complete. This happens despite our judicial quality index being of relatively similar level relative to our ASEAN (Association of Southeast Asian) neighbors. If we concentrate our resources on speeding up our contract disputes for small claims, we could improve the way our companies operate in the country.”

He enumerated areas that need improvement, including greater consolidation of inter-agency procedures in business registration, as well as the use of automation and risk management systems on border operations.

Mr. Galang also said reforms were needed in securing construction permits, getting credit, protecting minority investors and enforcing contracts. — with inputs from Melissa Luz T. Lopez