Very costly doing business in RP – World Bank

Published by rudy Date posted on April 24, 2009

MANILA, Philippines – Despite efforts to simplify business processes in the country, the cost of doing business in the Philippines is one of the highest in Southeast Asia and very little protection is given to investors.

A report by the World Bank (WB) showed that compared to its closest competitors in the region, doing business in the Philippines needs more reforms if the country wants to compete for foreign investments.

The WB said in its 2009 World Development Indicators that the health of a country was measured not only in macroeconomic terms but also by other factors that shape daily economic activity such as laws, regulations, and institutional arrangements.

“The Doing Business indicators measure business regulation, gauge regulatory outcomes, and measure the extent of legal protection of property, the flexibility of employment regulation, and the tax burden on businesses,” the WB said.

The WB surveyed businesses to set indicators in starting a business, registering property, dealing with construction permits, employing workers, enforcing contracts, protecting investors, and closing a business.

“The fundamental premise of the Doing Business project is that economic activity requires good rules and regulations that are efficient, accessible to all who need to use them, and simple to implement,” the WB said.

Thus some Doing Business indicators give a higher score for more regulation, such as stricter disclosure requirements in related-party transactions, and others give a higher score for simplified regulations such as a one-stop shop for completing business startup formalities.

In the survey, the Philippines scored roughly in the middle of the Southeast Asian pack that included Indonesia, Thailand, Malaysia, Vietnam and Cambodia.

In the Philippines, the WB survey showed that there were 15 different procedures for starting a business that would take an average of 52 days to complete, with costs equivalent to 29.8 percent of the per capita national gross income.

On the other hand, there were 24 different procedures for dealing with construction permits that take over 200 days to complete and about 37 different procedures to enforce a contract that take a whopping 842 days to implement.

Worst of all, the country scored two on the one to 10 scale that assessed the degree of regulatory protection given to investors in terms of full disclosure and the like.

For comparison, countries like Malaysia have fewer procedures that take significantly shorter to complete and cost significantly less when starting businesses.

Malaysia also scored 10 in investor protection, at par with most developed countries that have advanced and strict disclosure requirements intended to protect stockholders and investors of listed and unlisted companies.

Vietnam, which used to trail the Philippines in terms of foreign direct investments, has made significant headway in improving its business environment with better and cheaper processing time for start-ups and a higher investor protection score of six.

Vietnam has also significantly improved its legal system such that it only took 34 procedures and 295 days to enforce a contract.

Even Indonesia where starting a business was more expensive and took longer, it still took significantly less time to enforce contracts and that country also scored high (9 index points against the maximum of 10) in the investor protection index. –Des Ferriols, Philippine Star

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