The World Bank said the Philippines will attract an additional P5 billion to P10 billion worth of investments annually, if business regulations are simpler.
“We are seeing anywhere from at least P5 billion to P10 billion in new investments that can come in, if we have simpler regulations,” World Bank country economist for the Philippines Karl Kendrick Chua said over the weekend.
“These indicative estimates suggest that the high cost of doing business is clearly a toll on the country’s inclusive growth agenda. When taking all other doing business indicators into account, for instance, securing construction permit, getting electricity and trading externally, the overall cost of doing business, both direct cost and opportunity cost, could be several times higher,” Chua said.
The World Bank said in the recent Philippine Economic Update the country was losing P40 billion worth of potential investments, as people who could have started a business decided not to do so, because the cost of starting a business was “not reasonable.”
“Probably, we’ll see a much bigger change [in the economy if people are not discouraged to start businesses]. We don’t have exact numbers, these are indicative estimates, but simplifying business regulations can unleash the potential of the private sector,” Chua said.
The World Bank estimated that small businesses were paying fees equivalent to 17 percent to 36 percent of per capita income, or around P21,000 to P45,000, when starting a business.
Chua also said this could account for foregone employment of around 60,000, or equivalent to about 5 percent of new labor force entrants every year.
“In particular, small and micro businesses are important contributors and beneficiaries of inclusive growth. Business regulations tend to be cumbersome, they limit the growth of innovative entrepreneurship and investments, contribute to large scale informality, which cover 75 percent of employment, and hence prevent the country from creating more and better jobs that can reduce poverty at a faster rate,” he said.
Chua said that aside from the fees small businesses needed to pay in starting a business, they also spent considerable amount of time moving from one agency to another, and waiting in line to process documents.
“[This is] often resulting in significant loss of productive time and income,” Chua said.
Another P100 billion was lost annually in the form of foregone income, taxes and spending, according to the World Bank.
“There are close to one million corporations and sole proprietors who have to go through the system every year, through the renewal process, paying taxes almost every month, compared to only around 50,000 entrants every year, of which around 5,000 to 10,000 are corporates.
So in terms of the first number, the P100 billion, the impact is very small, around less than P5 billion, because the bulk are already in the system, going through the process every year,” Chua said.
“Reforms to reduce these costs would free up substantial resources to make growth more inclusive,” he said.
The Philippines fell six places to 103rd spot in the 13th edition of Ease of Doing Business Report from the 97th revised ranking a year ago.