Big jump forward

Around this time last year, the economic managers of the Duterte administration were assailing the World Bank for the supposedly flawed methodology of its annual Doing Business report, which ranks countries according to the ease by which entrepreneurs can set up their own firms. For 2018, under that methodology, the Philippines’ ranking fell 11 notches from 113th to 124th.

That big decline was alarming, because both foreign and local investors look at these reports carefully when deciding whether to commit their resources into a business undertaking. And feedback like this from an impartial international arbiter can spell the difference between higher investments or weaker economic growth.

What a difference a year makes.

Last week, the multilateral lender released the latest edition of its Doing Business report, and it offered a rosier picture of the Philippines. The country jumped up the global rankings by 29 slots to 95th place, out of 190 surveyed countries.

In particular, the report found that the Philippines showed marked improvements in the ease of starting a business; dealing with construction permits; and protecting minority investors. This placed the country with a smaller group of only 42 economies that made it easier to do business in terms of at least three out of the 10 areas or criteria used in the report.

To a large degree, this improvement was made possible by the diligent work performed by the Department of Trade and Industry and the Department of Finance which, apart from working on the required reforms, also made sure that the World Bank was “updated” on at least 53 reforms and
“data corrections” related to the annual report.

The World Bank report was a heartening piece of good news after a slew of reports showing Manila, the Philippines’ capital, ranking the lowest among its Asian peers in a so-called smart cities index, and a decline in the overall global competitiveness ranking earlier this month.

Credit is due the Duterte administration for passing the Ease of Doing Business Act last year, which improved on the decade-old Anti-Red Tape Act that had failed to make significant progress in simplifying citizens’ transactions with government.

The new law requires government agencies to act on applications within three days for simple transactions, one week for complex ones and 20 days for the “highly technical” ones.

It also mandates unified application processes for local tax and building clearances, and sanitary and zoning clearances, while one-stop shops need to be established in every city or town. Local government units are encouraged to automate their permit and license processing systems.

For the country to build on its improved ranking, however, it must also see this as a reminder for all stakeholders in the public and private sectors that much more needs to be done. Specifically, policymakers need to address a key issue that was cited as the main reason for the country’s demotion in the rankings two years ago: access to credit.

It’s the country’s biggest challenge, according to the World Bank report, with the Philippines ranked 132nd (itself already an improvement from the previous year’s rank of 184th).

Despite the proliferation of banks, as well as the increasing number of alternative lending schemes (both legitimate and shady), the average businessperson still counts finding financing as perhaps his or her biggest hurdle hereabouts. The government has offered a remedy in the form of the Personal Property Security Act that was passed last year, but its implementing rules and regulations have yet to see the light of day.

In theory, the law will allow micro, small and medium enterprises to register their “movable assets” with the authorities and use them as collateral for loans. Finance Secretary Carlos Dominguez III said this simple reform can improve the local business climate substantially and empower small entrepreneurs — a change that could result in an even better World Bank ranking next year which, in turn, could trigger a virtuous cycle of many more improvements.

The 29-slot jump in the Philippines’ rank can only indicate momentum for the country; the challenge for the Duterte administration is sustaining and growing it, and, most crucially, ensuring that the fruits of such progress are eventually enjoyed by all, especially those that need them the most.