Business-friendly

Efforts to make it easier for investors to do business in the Philippines are finally starting to pay off. The World Bank and its investment arm, International Finance Corp., released last week the 2014 Doing Business global rankings, with the Philippines posting the most significant jump among the 189 countries covered by the study—30 rungs, from 138th in the 2013 rankings to 108th in the latest.

This remarkable rise is attributed to key reforms that made it easier for businesses to get credit, pay their taxes and resolve insolvency, among others. It is also the biggest for any of the 189 countries covered by the report. “The Philippines was the top performer among top performers. This is the most the Philippines has moved in the 11 years that the ‘Doing Business’ survey has existed,” World Bank senior financial sector specialist Natalya Mylenko said.

The country’s rank is the average of its score in 10 indicators tracked by the World Bank, showing improvements in seven of the 10—a turnaround from last year’s performance when it slipped in seven. It scored most in the Resolving Insolvency indicator, where it jumped over 65 spots to 100th in the world. Gains were also seen in indicators for Getting Credit, Electricity, Paying Taxes, Cross-Border Trading, Dealing with Construction Permits, and Registering Property.

However, there are other crucial parameters that the Philippines still has a lot to work on to further improve its ranking in the Doing Business report. Declines were reported in the indicators for Starting a Business and Enforcing Contracts. And the country’s rank for the indicator on Investor Protection was unchanged.

The very important Starting a Business indicator saw the Philippines slip in the 2014 rankings—from 161 in the 2013 list to 170—as the country requires 15 procedures for a business to start as against the East Asia average of seven and the developed economies’ five. As we have heard, business registration and renewal of various permits remain an area that needs major improvements. In Malaysia, one needs only six days and three steps to register a business; in the Philippines, 15 steps and 35 days.

“An effective electronic platform for business registration would not only reduce costs but improve transparency and accountability of the various agencies responsible for each step in business registration,” suggested Motoo Konishi, World Bank’s country director for the Philippines.

The sector that suffers the most from this long and complicated process is the SME sector. “The key measure is to look at how easy it is for small-to-medium enterprises (SMEs) to get started. Big companies have their consultants who can help them do that work. SMEs cannot afford [the same] so they need to do it themselves. If we make it easier for them, we make it easier for all,” added Guillermo Luz, chair of the National Competitiveness Council, which leads the multisectoral effort to improve the ease of doing business in the country.

The World Bank estimates that the Philippines needs to generate about 10 million jobs a year. Today, more than 95 percent of the workers in the Philippines are either self-employed or work in micro, small and medium enterprises, with many working in very small firms. The World Bank notes that creating an environment that helps micro and small enterprises to grow is essential to creating jobs in the economy.

World Bank’s Konishi sums it thus: “We need an environment where various permits and licenses are rationalized, where compliance with rules and regulations does not create unreasonable burden, where rules and regulations are clear and transparent, where creditworthy firms can obtain financing even if they do not have real estate to offer as a collateral, and where disputes are resolved efficiently, fairly and at low cost.”

The rise in the country’s latest ranking puts the Philippines in sixth place among Southeast Asian countries, ahead of Indonesia, Cambodia and Laos. However, in world rankings, the country still lags far behind Singapore (first), Malaysia (sixth) and Thailand (18th). Brunei and Vietnam were also ahead at 59th and 99th, respectively. Overtaking these countries should be the country’s next hurdle.