Private sector weaknesses noted

THE PRIVATE SECTOR remains “less than healthy” and “continuing weaknesses” should be resolved if the Philippines wants to accelerate development and reduce poverty, a report published by the Asian Development Bank (ADB) said.

The report, which provides recommendations to the ADB for its Philippine assistance strategy, was written by University of the Philippines economist Cayetano W. Paderanga, Jr. last year before he was named Socioeconomic Planning secretary of the Aquino administration. It was released to the public by the Manila-based multilateral lender only yesterday.

“Implementable, concrete and innovative” recommendations include privatizing the customs bureau and utilities, opening up the airline sector, and streamlining government transactions.

The ADB’s Private Sector Assessment for the Philippines report said the main findings of the previous 2005 review “still hold”. It said, “Traditional weaknesses such as lack of infrastructure and rule of law, a weak finance sector aggravated by national government competition with the private sector for access to investment funds, and the high cost of doing business still abound to debilitate the private sector.”

It said the ADB’s next country program strategy up to 2016 should emphasize five key “interventions”: completion of national, road, maritime, communications and other basic networks; enhanced and leveled access to markets, credit and government services; reduction of the costs of doing business; further devolution of administration and decision making to local governments; and the use of modern technology to facilitate governance.

As a result of the global financial crisis, the number of private enterprises registered and operating declined to 761,409 in 2008 from 825,000 in 2001, the report noted.

“In terms of company size, the proportions remain essentially the same, although microenterprises seem to have gained marginally at the expense of large firms and the small and medium-sized enterprises,”it read.

Average economic growth was said to be higher due to overseas remittances, along with savings rates and international reserves, while currency uncertainties largely disappeared. But investment and export growth was “lackluster,” leading to a hollowed-out manufacturing sector and industries focusing on consumption-related activities.

Because the country is “fragmented” geographically, transport costs are high and there are no middle enterprises linking exporters and other large firms.

“Physical capital improvement and capacity building should focus on projects designed to reduce the cost of doing business and improve the institutional framework and environment of the private sector,” Mr. Paderanga wrote. The number of ports of entry should be increased to lower transit costs for imported products, tourism and other traffic, he added.

To make port operations more efficient, two recommendations were made: privatize customs and make the release of goods automatic after a specific period (e.g. 72 hours).

Aside from these, a “more liberal aviation policy” that would enhance access to tourism and investment must be considered. “At present, capacity is limited by domestic airline capability to provide additional seats in order to fulfill reciprocity arrangements under present airline agreements,” Mr. Paderanga said.

He also said that the Philippine banking system’s conservative approach on access to credit should be reversed. This can be done by strengthening the banking system via the facilitation of bank balance sheet restructuring and implementing reforms in supervision and non-performing loans.

To develop more infrastructure, Mr. Paderanga more utilities should be turned over to the private sector in cases where they are willing to take over.

“Apparently, one of the barriers to entry is the large capital requirement including the bidding cost,” he said. “Improvement must be introduced for both large capital-intensive projects and small projects,” he added.

In order to ease the burden of doing business particularly for medium and small enterprises — which are “more vulnerable to economic stress” — administrative processes should be altered, the report said. The number of procedures should be cut by computerized online processing of papers, modification of accounting requirements, removal of extra government layers, and decentralized access to registration and processing.

Likewise, improving governance is also important, Mr. Paderanga said. The Office of the Ombudsman must be independent of the Office of the President and the National Competitiveness Council should be strengthened. — Daniel Anne Nepomuceno-Rodriguez, Businessworld