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World Bank: Doing business harder under Aquino

One thing President Aquino didn’t discuss in his State of the Nation Address last week was the state of business in the country. He couldn’t.

Because doing business in fact has become harder under his administration, according to the World Bank and its subsidiary International Finance Corp.’s (IFC) “ease of doing business” report for 2013 (“Doing Business 2013: Comparing Business Regulations for Domestic Firms in 185 Economies”).

In its 2013 report, which actually is an assessment of the situation in 2011-2012 or when Aquino hit his full stride, the country’s ranking went down to 138 from 136 in the previous report. The report noted (see chart) that the Philippines is now only second to Laos as the most difficult place to do business in East Asia and Pacific, outranked by socialist Vietnam and Indonesia.

The report used ten indicators for determining the ease of doing business in a country.

Out of this, Philippine ranking went down in seven indicators during Mr. Aquino’s administration: starting a business (158 to 161); getting electricity (53 to 57); registering property (120 to 122); getting credit (127 to 129); protecting investors (124 to 128); paying taxes (136 to 143) and enforcing contracts (109 to 111).

The country’s ranking improved, but only marginally, only in the ease in getting construction permits, trading overseas, and resolving insolvency. (see table below)
The World Bank-IFC report even included the Philippines among the ten countries wi

source: World Bank

source: World Bank

th the worst obstacles to business in certain categories.

It requires 16 procedures in the Philippines to start a business, the only countries, requiring more steps being Venezuela (17) and Equatorial Guinea (18). In comparison to our neighbors, Indonesia has only 9 procedures, and Thailand, 4.

There have been several studies in the past, which concluded that the Philippine bureaucracy has resisted simplifying business permits and other procedures as each step for the corrupt represents an opportunity for corruption.

Making it easier for businesses to be set up is not that difficult, the report noted. Burundi, Rwanda, and Guinea simply set up a one-stop shop in 2011, while Ireland introduced business registration through the Internet.

Ease of doing business

Despite a one-notch improvement in terms of the ease of getting construction permits, the Philippines is still among the ten countries in the world with the most number of procedures to get construction permits, with nations such as Kazakhstan (32), El Salvador (33) and Russia (42) having more such requirements.

The Philippines is one of the ten countries in the world where creditors recover the least of their credits to insolvent firms, creating an environment in which credit availability is difficult or expensive. Our recovery rate is at 4.9 cents to the dollar, in contrast, for instance to Vietnam’s 13.9, Indonesia’ s 14.2, and Thailand’s 42.4.

The report had a significant finding that should be taken into account in debates that our restrictions on foreign direct investments (FDI) in certain industries and property has been one factor for the sluggishness of overseas capital’s flow in the country:

“Cross-country correlations show that FDI inflows are indeed higher for economies performing better on Doing Business indicators, even when taking into account differences across economies in other factors considered important for FDI.”

That is, are foreign investments not coming in because of the restrictions in our Constitution or because it is just hard to do business here, both for domestic and overseas investors?

There is support in the World Bank’s data for the latter. East Asian countries that have been getting much more foreign investors in recent years were ranked high in the ease-of-doing-business listing: Malaysia is ranked 12th, Thailand 18th and even Vietnam, 99th.

The World Bank actually has detailed reports for each country, where it tracks government reforms that would make doing business easier in their countries. From 2010 to 2012, except for two reforms (reduction of corporate income tax and an electronic customs systems, both in 2010), the report noted for the eight indicators determining ease of doing business in the country, for each of the years under Aquino:

“No reform as measured by Doing Business.”