Like It Is

It’s hard to start a business, honestly

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09:28 PM July 31st, 2013

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By: Peter Wallace, July 31st, 2013 09:28 PM

I am pleased to see that President Benigno Aquino has created a task force to make it easy to start and do business in the Philippines. But it seems the task force has no chance to succeed. Simply because it’s not a separate, independent body of full-time members. It’s just a group of representatives from 12 government agencies, and for them the task force will be an occasional chore that they might have to do to address an aspect that make for the Philippines’ lack of competitiveness. So I can only hope this task force won’t just be engaging in more “talkfests” as many task forces had ended up in the past. And the past looks pretty bad.

In the latest edition (2013) of the “Ease of Doing Business” report released by the World Bank and its private sector investment arm, the International Finance Corp. (IFC), the Philippines is ranked 138th out of 185 economies, down from 136th in 2012. The country also trails its Asean neighbors, ranking seventh out of eight countries. Only Laos ranks worse (163rd). The Philippines is outranked by Singapore (1st), Malaysia (12th), Brunei (79th), Vietnam (99th), Indonesia (128th), and even Cambodia (133rd). It’s no longer startling that these countries (aside from Cambodia and Brunei) also surpass the Philippines in terms of foreign direct investment (FDI) inflows:  From 2000 to 2012, Singapore attracted some $376 billion in FDIs, Thailand $90 billion, Indonesia $79 billion, Malaysia $74 billion, Vietnam $59 billion. The Philippines had a paltry $22 billion.

In terms of starting a business, the Philippines is ranked 161st out of 185 countries. In 2010 it was ranked 162nd. Obviously the improvements that were promised have yet to materialize.

It takes 36 days to register a business in the Philippines. It’s six days in Malaysia, three in Singapore, and one in New Zealand. It’s the same with the other indicators. It’s either the Philippines’ ranking worsened—paying taxes (143rd in 2013 from 135th in 2010), resolving insolvency (165th from 153rd), getting credit (129th from 127th), and registering property (122nd from 102nd); or it improved negligibly—enforcing contracts (111th from 118th), protecting investors (128th from 132nd), and dealing with construction permits (100th from 111th).

The report emphasizes that “while the Philippines continues to improve its macroeconomic environment and sets pace-setting growth in gross domestic product, it lags in the implementation of regulatory reforms that would make it easier for local entrepreneurs to conduct their businesses.”

And starting a business is what creates jobs.

The report is based on survey findings, and these are bad. And the reality can be even worse.

Here’s one actual example of a company that tried to start a business earlier this year. The company is of modest size only; it’s in the food-importing business. The company had to go to 12 different agencies and took 203 days to complete the requirements. Admittedly, 120 of those days were spent to get FDA (Food and Drug Administration) approvals, but FDA is still government. Even if you take out those 120 FDA days from the equation, the remaining 83 days are still far in excess of what the government claims. We’re still a long way from Singapore’s standard of “3 procedures-3 days and 1 agency”—a standard to aim for.

For the government to be successful in implementing “Ease of Doing Business” reforms, it needs the cooperation of various national and local agencies, particularly at the local level where, I have heard, most of the difficulties in starting and doing business are encountered. This is a problem area where President Aquino can use his massive political capital. He must encourage, even coerce local government officials to streamline business registration and bring down the cost of doing business. And that cost includes corruption.

Too frequently I hear stories of foreign and local investors having to bribe local officials just to get business permits. To combat this, government needs the active participation of the Office of the Ombudsman and civil society organizations. But the practical question is: How do you report local  officials soliciting bribe money without suffering “sneaky repercussions”? And how would you prove your “case.” I’ve heard many businessmen complaining about this problem, but no one is prepared to come out with their experience for fear of the unpleasant repercussions.

The President has done a good job in addressing some of the major corruption issues in the country, something Transparency International has recognized. But for the Philippines to break into the top 1/3 of countries covered by the global anticorruption survey, government must aggressively push for the passage of the Freedom of Information (FOI) bill and other anticorruption measures—and call for the immediate resolution of tax evasion cases. Do you know that of the nearly 300 such cases filed since July 2010, not one erring firm or individual has been convicted? Whether the fault lies with the executive (the prosecutors) or with the judiciary (the judges), I don’t know. My guess is, it lies with both, the delaying tactics of unscrupulous defense lawyers aggravating the mess. Anyway, one thing is clear: There’s need for some fixing here.

As things now stand, it seems that the corrupt do not have to worry about going to jail. Corruption still appears to be a risk-free enterprise where one can easily make money.

But let’s not forget, foreign businesses will go where starting a business is simpler. And can be more honestly done. That’s the reality Mr. President. Let’s not talk about it, let’s fix it.

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