Doing business in PH

"The World Bank surveyed how business is started in Quezon City and how many percent of adult Filipinos have access to credit or loans. The Philippines fared badly in both." 

Finance Secretary Sonny Dominguez and Trade and Industry Secretary Ramon Lopez have jointly protested the World Bank’s downgrading of the Philippines’ ranking in Ease of Doing Business, the international lender’s annual survey that covers 190 countries.

In this year’s study for the 2019 rankings, the Philippines ranks a disappointing 124th, down a crucial 11 rungs from its already disappointing 113thfor 2018. When President Duterte became president, the Philippines was ranked 99th. In two years, the country went down 25 places. Or 25 other countries improved their business rules, procedures, and costs, and the Philippines did not.

Yet, 99th was already a bad ranking. A total of 190 countries are studied. One half of that is 95. At 99th, the Philippines was below the global average as an easy place for doing business. Since 2016, our ranking has kept getting worse, which means as the years go on, it keeps getting more difficult to do business in the Philippines.

For the Philippine ranking, among ten factors, the World Bank surveyed how business is started in Quezon City and how many percent of adult Filipinos have access to credit or loans. The Philippines fared badly in both. 

For starting a business, Quezon City ranked 166thamong 190 cities of the world. As a place to get credit, the Philippines ranked 184th, out of 190. This means we are one of the worst places on earth to start a business (in the lowest 15 percent) and to obtain a loan (in the lowest 5 percent).

You want to get a loan? You won’t get it. Only 2.7 percent of potential borrowers are covered by the credit bureau, which means only three of every 100 could borrow from their bank. In depth of credit information, the Philippines has a grade of 0 (the worst) out of 8 (the best). The best in depth of credit information -- UK and Ecuador: 8.

According to the World Bank, a potential software entrepreneur in Canada would take just two procedures, one and a half days and less than one percent of income per capita to start her business in Toronto. 

First, she would need to file for federal incorporation and provincial registration online via Industry Canada’s Electronic Filing Centre; this costs 200 Canadian dollars ($159) and is completed within a day. Second, she would need to register online for value added tax; this costs nothing and is completed within half a day.

If the same entrepreneur applied in Quezon City, the business incorporation process would require 13 procedures, take 31 days and cost around 20.3 percent of income per capita. She would need to make 14 different tax and contribution payments and visit multiple agencies in person. 

Further, the Filipino enterprise would be expected to pay 42.9 percent of its commercial profits in taxes and contributions annually. “Cumbersome business regulatory structures such as these constrain the ability of entrepreneurs to transform their ideas into viable businesses,” laments the 2018 World Bank study of 190 countries in ease of doing business.

Among 190 countries, the best in starting a business is New Zealand. Only one step and you get your permit in half a day. In Quezon City, a permit takes at least 13 steps and 31 days (since there is no work on weekends, 31 days is actually 40 days). 

The world best in construction permits is 5 steps and 26 days. In the Philippines, a construction permit takes 23 steps and 122 days or at least four months.

To get electricity, a Filipino takes four steps, 37 days, and 21.7 percent of his income per capita.  It takes 18 days to get electricity in Korea and UAE (the global best).  It costs zero in China, Japan, and UAE.

To register property, the Filipino must endure nine steps and 35 days and pay 4.3 percent of the value of the property. The global best for registering property: one step (Norway, Portugal, Sweden), one day (New Zealand); and zero cost (Saudi Arabia).

EODB matters. When the rules for doing business are easy, red tape-free, graft free and less costly, people with some money want to do business. They create companies, put up projects, employ people. In this country, 99 percent of enterprises are small or medium, with capital of P20 million or less. Investments are about jobs. This country has at least 7 million unemployed or underemployed. To create one job, it takes P2 million. If the government makes it difficult for you to do business, you are better off parking your P2 million in some other place.

Explains the World Bank: “An economy cannot thrive without a healthy private sector. When local businesses flourish, they create jobs and generate income that can be spent and invested domestically. Any rational government that cares about the economic well-being and advancement of its constituency pays special attention to laws and regulations affecting local small and medium-size enterprises (SMEs). Effective business regulation affords micro and small firms the opportunity to grow, innovate and, when applicable, move from the informal to the formal sector of an economy.”

One of Rodrigo Duterte’s charming qualities as president is that he hates red tape.   Indeed, one distinctive quality in his nearly 23 years as mayor of Davao City is the ease with which businessmen could do business in Davao City. Walang red tape. Walang lagay.

In June this year, Republic Act (RA) 11032, the Ease of Doing Business and Efficient Government Service Delivery Act of 2018, was enacted. “It  would make doing business easier in the country,” enthused Trade and Industry Secretary Ramon Lopez in a speech then.

In his State of the Nation Address July 23, 2018, Duterte likened red tape to stealing money from government. He said:

“Ease of Doing Business [Act], [applause] which is a significant fight against corruption and improving service delivery. We need to sustain our momentum. And I hereby direct all [local] government units—making sana kayo—and government agencies to faithfully implement this law and simply simplify the process. Hinihingi ko ho ‘yan sa lahat ng nasa gobyerno under my control and supervision. Huwag ho kayong magkamali.”

The relief promised by the Ease of Doing Business and Efficient Government Service Delivery Act of 2018 (Republic Act 1102) to people who do business with government offices may suffer additional delay, said Raul Palabrica in his Inquirer column Oct. 30, 2018.

To-date, President Duterte has not appointed any of the ARTA officials, notes Palabrica. Deadline was Oct. 22, 2018.

By the way, have you done business with the Securities and Exchange Commission? People there have not heard of Duterte’s dictum of no red tape.

It takes eight months to incorporate, which means your capital lies idle in a bank while the SEC takes its time registering your articles of incorporation. You cannot collect because strictly, you are not a legal personality.

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Topics: Sonny Dominguez , Ramon Lopez , Ease of Doing Business , Efficient Government Service Delivery Act , Raul Palabrica , World Bank
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