PH drops in World Bank ranking on doing business

(ShutterStock image)

MANILA – The Philippines slips six notches from 97th to 103rd place among 189 countries in the 2016 edition of the World Bank-International Finance Corporation’s (IFC) annual “Doing Business” report, which gauges economies in terms of ease of doing business in a country for small and medium enterprises (SMEs).

The Doing Business report measures and tracks regulatory quality and efficiency based on detailed diagnostics on the business regulations affecting 10 areas in the life cycle of a business, namely: 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.

Below is the Philippines’ standing on the aforementioned indicators:

Source: 2016 World Bank-IFC Doing Business Report
Note: 2015 rankings shown are not last year’s published rankings but comparable rankings for 2015 that capture the effects of such factors as data revisions and changes to the methodology.
Note: *DTF shows the distance of each economy to the frontier, which represents the best performance observed on each of the indicators across all economies in the sample since 2005. It is scaled from 0-100, with a higher number signifying improvement.
See more at www.doingbusiness.org

Despite the government’s efforts to expedite ways of starting businesses and drive inclusive growth within the country, the Philippines still lags behind due to low DTF scores in the indicators and the increasing competitiveness of other countries.

PH slips in ASEAN ranking as well

Previously at the 5th place among the Association of Southeast Asian Nations (ASEAN) members, the decline in the 2016 rankings also pulled the Philippines down to the 6th spot.

Singapore, on the other hand, topped the ease of doing business list for the 10th consecutive year. It is followed by Malaysia (18th), Thailand (49th), Brunei (84th), and Vietnam (90th) which comprised the top five ASEAN economies where doing business is easier compared to its neighboring countries.

Other East Asia nations Indonesia, Cambodia and Laos also improved, while the Philippines becomes one of the lowest in the region.

Stable position, tougher competition

The World Bank report, however, does not measure all aspects of the business environment such as corruption, level of labor skills, proximity to markets, macroeconomic stability, and regulations specific to foreign investment or financial markets, according to IFC operations officer Roberto Galang.

Moreover, World Bank Country Director for the Philippines Motoo Konishi stresses that despite the drop, the Philippines “is increasingly characterized by strong economic growth, low inflation, healthy current account surplus, more than adequate international reserves and a sustainable fiscal position – a combination never before seen in history.”

Konishi notes that the country remains in a stable position in terms of doing business but needs to step up further its game to address the tougher competition and be at par with its neighboring countries.

“[The Philippines is] now in a much tougher, much competitive environment. Even Hong Kong which is third ranked had four reforms last year. The top is moving all the time, therefore we have to move faster for the Philippines to gain ground,” he says.

“The Philippines has been doing reforms, it simply needs to accelerate to compete with others in the neighborhood,” he adds.

Galang believes it will be easier for the Philippines to concentrate on regulatory reforms that do not entail the passage of new laws as it would only take an increase of 7 DTF points to put the country into the top third of countries.

The IFC operations officer also mentions that a specific area that can be improved is tax collections as the mandatory 36 payments annually cost SMEs 193 hours of work.

“Without reducing any taxes, we could make life easier for SMEs by simply asking for annual payment for VAT or for PhilHealth,” he says.

NCC expresses disappointment, questions report

The National Competitiveness Council (NCC), for its part, disputes the results of the World Bank’s latest Doing Business report, asserting that the report has undergone methodological changes in four of the last five years which made it confusing and unreliable for measuring change. The council also claims that the report fails to reflect some of the on-going changes due to reforms in business regulations announced earlier this year.

“Despite our efforts to introduce reform projects to improve the ease of doing business in the Philippines, IFC shows different sets of scores and rankings every year due to a change in methodology,” NCC head Guillermo Luz says in a statement.

“The changes are applied retroactively so even prior years’ results are changed without our knowledge. This makes it difficult to tell whether we are on the right track or not using this instrument. It has become unreliable,” he adds.

Through its Gameplan for the Ease of Doing Business, the NCC makes improvements by streamlining processes and introducing reforms across the indicators under starting a business.

Two reforms have already been implemented to impact the indicators. One is a simpler and easier process in starting a business. From the previous course of 16 steps over 34 days, entrepreneurs now only have to undergo six steps over eight days. With this reform, the SEC is currently able to process 13.182 filings daily – an increase of 24 percent for the April-September 2015 period as compared to the number of filings processed in the same period last year. Another reform is with regards to paying taxes.  As part of the e-government initiatives, PhilHealth and Pag-ibig payroll-related payments can now be transacted online and the E-Court system provides access to court employees and judges also via the internet.

“We have done so much to improve doing business in the Philippines. However, the Doing Business report doesn’t capture these initiatives and the constant methodology change and recalculation of ranking every year is of no help. We need consistency in the diagnostic tool to monitor ourselves, and better measure our performance,” Luz says. “What we need is a tool that tells us accurately if we did well or worse.”

“We recognize we need to continue introducing reforms and improvements in the ease of doing business and will continue to do so. Continuous improvement will take place through high levels of collaboration and cooperation across government agencies and between the public and private sectors,” he adds.

It can be noted that the Philippines has gained a total of 45 spots in the last five years. It has been ranked at 95th place from the original report published last year but has been revised to 97th after adjusting for data revisions and the changes in methodology.

Luz then compares the Doing Business report with the World Economic Forum (WEF) Global Competitiveness Index which has only been through five changes in the past 20 years.

“They’re shooting themselves in the foot because the report loses credibility as a result because the numbers and the rankings keep changing… It’s a serious problem because while they may be just changing measurements, we are in fact instituting reforms in order to improve based on these metric which takes a lot of effort and time,” he says in a report.

“We have a lot to fix, and we will continue to do so, but how do we measure what to fix? This tool is starting to become unreliable and maybe we need a different tool,” he adds.

Purisima backs NCC

Finance Secretary Cesar Purisima backs the NCC and slams the World Bank report as “erratic” and “unsound.”

“The Philippines believes that the Doing Business survey methodology of collecting sample data from one or only two cities makes it inappropriate to present the report as reflective of the state of doing business for an entire economy,” Purisima says in a report.

“Countries, especially developing ones like the Philippines, will have bright spots of promise in some areas and not in others,” he adds. “With this methodology, the DB (Doing Business) survey should be aptly titled as ‘Doing Business Across Cities’ to provide a better representation of the results of the report”

The World Bank, for its part, admits that their survey only focused on each country’s “largest business city” – which is the Quezon City for the Philippines report.