Ease in doing business: The secret to attracting more FDIs (Manila Bulletin: Business Agenda)

Never in the country’s history has government taken the issue of national competitiveness as seriously as it does today. The National Competitiveness Council (NCC), under the supervision of Guillermo “Bill” Luz, has done an excellent job getting all government units on the same page towards making their systems more efficient. I am pleased with the advances they’ve made.

In the last two years, the NCC was instrumental in pushing forward the country’s competitive standing in four important indices. In terms of the World Economic Forum’s Country Competitive Index, our standing improved from 75th position to 65th place, out of 145 nations rated. In Economic Freedom, we’ve advanced by 10 notches to 97th place out of 177 economies. In Travel and Tourism Competitiveness, we are now at 82nd place among 140 nations, a jump of 12 places. Our improvement was most dramatic in the Corruption Perception Index, where we now stand at 105th place out of 179 nations—a 25-notch leap!

Unfortunately, our standing deteriorated in three significant indices. In the Ease in Doing Business Index, we fell from 136th to 138th place out of 185 economies rated. We’ve also fallen four notches in the Global Innovation Index, where we now stand at 95th place. Most lamentable is our standing in the Country Brand Index, where we fell 17 notches to 95th place out of 118 countries evaluated.

It’s ironic that our country brand rating has been steadily slipping despite the positive effects of “Daang Matuwid” to the economy and the country’s overall image. It only underscores the need to invest in an ad campaign that tells the world of the new social and economic order that now prevails in the country. Emerging economies like Indonesia, Thailand, Macedonia and Poland launched their respective info campaigns just as they put their houses in order; immediately after, they received their first investment grade rating. All have realized terrific results by way of investments, diplomatic gravitas, and tourism, while the Philippines has barely started work on its country brand. But more on countwwry branding in another column. Right now, I’d like to focus on another important country barometer—the Ease in Doing Business Index (EDBI).

Ease In Doing Business Index

The EDBI is jointly administered by the International Finance Corporation and the World Bank. It measures the ease (or difficulty) by which one can start, operate, and wrap up a business in a particular nation. This includes getting a business registered, obtaining business and construction permits, getting electrical connection, registering/transferring land, getting credit from financial institutions, paying taxes, enforcing contracts, and resolving insolvency issues. The level of ease is measured by the number of steps and days it takes to get a task done. 

The Philippines does not have a good record at the moment. In terms of registering a business, our system requires business owners to go through 16 steps that take 36 days to complete. Applying for electricity requires five steps and a 50-day waiting time. Registering property is just as tedious, with eight steps taking 39 days to accomplish. As if it isn’t painful enough to pay taxes, a firm operating in the Philippines would have to pay 47 different taxes a year—a process that could take 193 hours to do.

The legal system exemplifies just how inefficient our bureaucracy is. To enforce a contract through litigation, the aggrieved party would have to go through 37 steps and wait 842 days before the courts hand out a decision. As far as resolving insolvency goes, the waiting time can last as long as five years and seven months.

All things taken to account, the Philippines ranks second to the lowest in ASEAN, only besting Laos. Globally, we are number 138 while Malaysia is at number 12, Thailand at number 18, and Indonesia at number 128. Our rankings went on a freefall during Arroyo’s nine-year reign, without her lifting a finger to arrest the situation. Typical.

Ease in doing business weighs heavy as foreign investors contemplate which country to invest in. Even if we have three investment grade ratings in the pocket (which only says that the country is in the pink of financial health and in the path towards growth), there are still other factors that work against us—expensive power costs and inadequate infrastructure being the most serious of them. The degree of difficulty to start, operate and wrap up a business in the Philippines makes us less attractive.

No surprise that in 2012, foreign direct investments (FDI) in the Philippines barely hit the $2 billion mark, while Indonesia and Vietnam attracted $19 billion and $7 billion, respectively. In January and February this year, our numbers even contracted by 18.7 percent to just $1.012 billion, from $1.245 billion in 2012. So while we bask under the investment grade glow and enjoy bragging rights of being the fastest growing economy in the region, next to China, we are actually losing out on the indicator that really matters—FDIs. Capital pumped into factories, plants and trading outposts are what generate jobs, after all. This explains why unemployment and poverty rates have not improved since 2006.

Headstrong Determination

The EDBI is the fly in the ointment in the otherwise better than satisfactory record of the NCC. Since my last talk with Bill Luz last December, he and his army of generals have been working tirelessly to get vital reforms rolled out so that our rankings can improve. 

Ten committees were set up, each tasked to cut the steps and number of days to get a particular business process done. This called for close coordination between the NCC and various government agencies. “Coordination” is really just a nicer word for “coercion”—to get them to drop their old practices and adopt more efficient ones. Among the government agencies the NCC is working with are the SEC, BIR, Land Registration Authority, Bureau of Customs, Bangko Sentral ng Pilipinas, and the Department of Justice, among others.

Hats off to Bill Luz for getting the head honchos of these government agencies to buy into his efficiency agenda. This in itself is an achievement, considering how territorial some of them can be. But the gratitude of the nation goes to the 10 committee heads who must work through the systems of the different bureaucratic agencies—pulling and tugging to get their efficiency programs done.

The NCC called for an “Ease in Doing Business Summit” earlier this month as a culmination of the work done by the 10 committee heads over the last year. Each of them presented their action plans on how they intended to simplify and expedite their respective business processes. They publicly announced their quantitative commitments (expressed in a reduction in steps and number of days to get a business process done) and were even made to sign a public contract on stage.

While this made for a good photo op, it was really done to make the commitment a sacred one. It struck me as a sincere gesture as the event was attended by no less than the heads of the affected government agencies themselves, including Commissioner Ruffy Biazon (who himself enumerated his commitments and signed the contract), DTI Secretary Greg Domingo, and Secretary Rene Almendas, representing the office of the President. I was convinced that each party in the room had the full intention to fulfill their commitments or at least die trying.

The contract calls for the commitments to be delivered before May 31, the deadline for the next review of the IFC and World Bank. Bill told me that should everything be delivered as planned, we could reasonably expect a 38-notch jump in our next global ranking, landing us in 100th place. Should only the simpler reforms be implemented (e.g. Starting a Business, Registering Property, Getting Credit, etc.), we should land in 109th position or a 27-notch improvement.

The World Bank should release 2013’s ranking by December this year. It will be interesting to see how effective the NCC has been.

Attending the conference was International Finance Corporation Country Representative Hans Shrader, who shared an amusing anecdote with the group. He told us how Bill made a declaration back in 2010 to take the Philippines from the bottom third of the ECBI rankings to the top third before 2016. Shrader confessed thinking that Bill was just being carelessly audacious and full of empty bravado. But seeing how the NCC has succeeded in the WEF Country Competitiveness Rankings and Corruption Perception Index, among others, plus the headstrong determination he’d witnessed in the summit, he is now betting on the Philippine side, he declared. I am betting on our success as well.

By Andrew James Masigan
(is an economist, political analyst and businessman. He is a 20-year veteran in the hospitality and tourism industry. For comments and reactions, e-mail andrew_rs6 [at] yahoo [dot] com. Follow Andrew on Twitter @andrew_masigan.)

Original source: www.mb.com.ph