Repeal laws and lower cost of doing business

SINCE MID-2012, the National Competitiveness Council (NCC) has been working to lower the cost of doing business in the Philippines. It is one of our larger projects and it is based on the results of the annual Ease of Doing Business report of the World Bank-International Finance Corp. (IFC). Two years ago, the Philippines was ranked No. 138 out of 189 countries in the world, and one of the lowest in Asean. As a result of our Gameplan 1.0, which outlined areas for improvement and recommended action steps, the country improved to No. 108, recording the largest improvement in the world.

We have since established Gameplan 2.0 and are deep into its implementation. As in Gameplan 1.0, the basic elements of the plan are a series of videoconferences with IFC analysts in Washington and brainstorming and problem-solving workshops with various government agencies involved in improving the 10 processes covered in the Doing Business report.

What lessons did we learn from the success of Gameplan 1.0, and what do we hope to improve in Gameplan 2.0?

The first lesson was that benchmarking is a very useful exercise. We started the exercise by comparing how the Philippines performed in all 10 processes as against the rest of Asean. We then picked out which Asean country we wanted to match or beat (usually the first- or second-ranking) and analyzed what we should do. This helped agencies focus on goals which were meaningful and which had impact for businesses and entrepreneurs.

The second lesson was to aim high. There’s no sense in setting targets too modestly because almost the same amount of effort is needed to move the needle. Setting the targets high created a sense of urgency for all agencies concerned and, for the most part, they responded.

But we found out other things as well.

While automation and online procedures are one obvious solution, the more immediate step is to closely study the sequence of the procedures that the government makes businesses go through to get a permit or license or to make a payment. Not only are procedures so manual, they also involve a lot of moving back and forth from one national agency to a local government unit and then back to another national agency. Sometimes, adjusting the sequence to organize certain steps can result in reducing multiple steps into one using a single form. After that happens, automation makes things move even faster.

Another thing we found out was that even if some process improvements had been installed by a government agency, many in the private sector were unaware of the change. Moreover, the agency’s frontline staff occasionally implemented the process improvement in varying ways. This suggested that public information campaigns to announce the change had to be conducted more aggressively, and that customers (e.g., businesses) had to actually be trained in how to use new systems. This suggested as well that agencies needed to invest more in training their own staff. The NCC has decided that it would team up with agencies to help design and undertake stronger communications programs and train customers in new processes so take-up rates can improve. We would recommend that agencies also train their frontline staff so service delivery can be made more consistent.

Finally, while there are still many improvements that can be brought about through executive action by national government agencies (and equivalent action by local government units), it is becoming quite obvious that legislative amendments will be needed on many fronts to reduce, simplify, or modernize procedures.

The conventional wisdom is that this will take too long to accomplish. Not necessarily so. It really depends on how one looks at the context of the overall objective. If the objective is to lower the cost of compliance for entrepreneurs and businesses and thereby create impetus for new business growth and expansion, then one approach is to repeal or eliminate laws to create the overall effect of lowering the cost of doing businesses.

Other countries including Korea, Vietnam, Cambodia, Mexico, and Australia have done precisely this. Korea has cleared about 6,000 laws off its books. Cambodia has just started. Vietnam has set up a special task force to review 5,400 “administrative procedures”; it has simplified 88 percent of those in the last three years.

The latest, and most ambitious, program I have come across is Australia’s. The new government has established two Repeal Days a year in Parliament when laws are wiped off the books in bulk. Australia’s goal is to reduce the cost of compliance for businesses by A$1 billion a year. The first Repeal Day was last March 26, when over 10,000 laws and over 50,000 pages of regulation were eliminated in the single largest bulk repeal in its history. This cuts the cost of compliance by A$700 million. The cuts are made in three lines: Cut duplication between and across agencies; streamline onerous and costly procedures; and take a common-sense approach to regulations. The whole point is to cut unnecessary legislation and costly regulations and reduce the cost of doing business.

Isn’t this something we should be thinking about?

Guillermo M. Luz (gm.luz@competitive.org.ph) is private-sector co-chair of the National Competitiveness Council.