ANALYSIS: How government can energize business

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A prospective investor in the Philippines usually takes 28 days to get a permit to open a business, going through 16 different procedures and paying various fees equivalent to $565.65 which is about 15.8 percent of the gross national income (GNI) per capita.

In Thailand, one can get a business permit in 4.5 days, passing through 5 procedures and spending about $350 (6.2 percent of GNI per capita). In Vietnam, 22 days and 9 procedures, with estimated application costs of $133.25 (6.5 percent of GNI), are the comparable numbers.

These are only a few of the factors that, according to findings in the latest World Bank annual “Doing Business” study, determine the pace of business activity and help create more jobs and lift people out of poverty in a country. The annual reports focus on promoting reform in about 41 different aspects of business regulation grouped into 10 indicator sets.

The 10 categories are: starting a business; dealing with construction permits; getting electricity; registering property; getting credit; protecting minority investors; paying taxes; trading across borders; enforcing contracts, and resolving insolvency. World Bank teams and consultants, using a complex formula, score and rank the regulatory performance of economies covered in the study.

Not in the annual review’s scope are such factors as macroeconomic stability and its impact on business, development of the financial system and market size, the incidence of bribery and corruption, and the quality of the labor force.

113th among 190 nations

The Philippines landed on 113th place among 190 states and economies covered in the 2018 report released this week. This marked a drop of 14 places from its rank in last year’s report, and down 10 places from the 2016 list.

During the year under review (data as of June 1 this year), the Philippines scored high in reducing the time to get an electricity connection by implementing a new asset management system and by creating a new scheduling and planning office. For these moves, the Philippine regulatory status in “getting electricity” ranked 31st worldwide, which was still a downgrade, however, from the 22nd place the previous year in this same category.

Another major reform initiated by the Philippines, making it easier for businesses to pay taxes through a new electronic system for payment and collection of housing development fund contributions, pushed the country to No. 105 worldwide in the “paying taxes” category, marking an upgrade from its 115th position the previous year.

But the Philippines remains a laggard in the other key areas of business regulation: 173rd in “starting a business” (noted in the first paragraph of this article), 149th in “enforcing contracts” (enforcement takes up to 962 days, 146th in “protecting minority investors” (low ratings on shareholder rights, discosure and director liability), 142nd in “getting credit”—all lower compared to the 2017 rankings.

A saving grace is that in a Doing Business measure of a country’s “distance to frontier” (which compares the country’s score against those of the best performers), the Philippines’ 58.74 points represented a positive change of +0.42, interpreted by the World Bank analysts as “an improvement in the overall business environment” over the year in review.

How neighbors fared

Among the 10 member-states of the Association of Southeast Asian Nations (ASEAN), the Philippines was ahead of Cambodia which was on 135, Laos 141, and Myanmar 171. Cambodia and Laos had no known business-friendly reforms implemented during the period. Myanmar had one each in “registering property” and “getting credit”.

Singapore, which maintained its No. 2 position overall, was the region’s leader in making it easier to do business. Although it has been ahead for many years, Singapore still continues to initiate reforms to further make its policy framework attractive for business. In the latest study, Singapore got high marks for making exporting and importing easier by improving infrastructure and electronic equipment at the port, and making resolving insolvency easier by setting up a new scheme of arrangement procedure with features of the debtor-in-possession reorganization regime and introducing provisions applicable to prepackaged restructurings.

Indicating the progress of their reforms in improving regulatory environment for local entrepreneurs, Thailand surged ahead by 20 steps to land on 26th spot, Indonesia climbed 19 positions up at No. 72, while Brunei and Vietnam moved up by 16 positions to No. 56 and 14 places to No. 68, respectively.

Thailand and Brunei compiled the largest number of business regulation reforms among ASEAN nations—8 each across the 10 indicator groups—while Indonesia implemented 7 reforms. Thailand also made it to the top 10 improvers worldwide.

For example, in the “starting a business” framework, Thailand has abolished the requirement to obtain a company’s seal and eliminated the need for company work regulations approval from the Labor Department. Thailand has also strengthened minority investor protections by making it easier to sue directors in case of prejudicial related-party transactions, increasing shareholder rights and role in major corporate decisions.

It is interesting to note that in the case of Thailand, despite its government being installed through a military takeover in 2014 and strict restrictions on certain activities and democratic freedoms, reforms toward making doing business easier have still been pursued.

Thailand has recently announced a plan to launch in 2019 a “comprehensive Doing Business portal to provide easier and faster services to business owners.” Its gains in making doing business easier, according to analysts, could translate into a “strong business environment and more good jobs” for its people.

The World Bank Doing Business report is the third global scorecard where Vietnam has overtaken the Philippines. In the United Nations’ Human Development Index released in March this year, the Philippines’ rank sustained a drop (the only country in the region to post a decline) while Vietnam moved up strongly to land on top of the Philippines. In September, in the World Economic Forum’s Global Competitiveness Report, Vietnam also improved its attractiveness to investors and, along with Brunei, outscored the Philippines in the rankings.

 



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