IF the government can encourage greater competition in the services sectors, the economy could see an addition of at least 0.2 percentage points to GDP growth annually, according to a World Bank study.
Using 2015 GDP estimates, that 0.2 percentage points is equivalent to adding P26.8 billion, or $600 million, to the economy annually, said the study titled “Fostering Competition in the Philippines: The Challenge of Restrictive Regulation.”
World Bank Markets and Competition Policy Team Senior Economist and lead author of the report Graciela Miralles Murciego said this was just a minimum and the gains could be larger if the government would address competition issues in other sectors.
“That estimation takes into account what would be the impact of reforms only covering service sectors. So this 0.2 percentage points refers to opening energy, transport, telecommunications and regulated professions which gives us a sense that this is at least, at least. The impact of further competition reform could be much more,” Murciego said in a briefing on Monday.
More concentrated
The World Bank data showed the Philippine economy is more concentrated than other economies in the region, with a higher proportion of monopoly, duopoly and oligopoly markets.
While concentration might naturally result from the market conditions, these structures can be more prone to collusion and abuse of market power—abetted by a plethora of restrictive regulations and other restrictions.
Murciego cited a need to institute market reforms that will remove restrictions, such as state ownership and involvement in business operations; complex regulatory procedures and administrative burdens on start-ups; as well as barriers to trade and investments, including foreign equity investments.
The World Bank said there is a need to tackle restrictive regulations in infrastructure and professional services to create more competitive conditions, which will have positive effects on other sectors of the economy.
It added that there is a need to eliminate restrictions on foreign investors, as well as among domestic investors in sectors where such regulatory restrictions create an uneven playing field.
Further, minimizing the scope of controlled prices to create the right incentives for firms to compete and ensure competitive neutrality among public and private operators, will promote a more effective use of public funds.
There is also a need to streamline burdensome administrative procedures for businesses to facilitate market entry and rivalry.
While instituting market reforms, particularly the removal of policies that restrict competition, can be a struggle for governments, Murciega said “having a framework to promote competition policy across the economy is precisely the driver to prevent that reform from becoming only a piecemeal reform, and to make sure that reform is undertaken from a wholistic perspective.”
That is why, she added, “it’s very important not to think of competition reform in just one particular sector. Obviously that reform will have an impact but the best is to have a framework that supports competition policy reform across the economy.”
Philippine Competition Commission Chairman Arsenio M. Balisacan said the PCC and the National Economic and Development Authority (Neda) are already in the process of finalizing the National Competition Policy (NCP).
Balisacan said the PCC and Neda presented the draft NCP to the Economic Development Cluster (EDC) a few weeks back and the government is on track to completing the NCP soon.
The PCC chairman explained in a speech at the launch of the report that the NCP has three fundamental pillars: effective enforcement of the Philippine Competition Act; enactment of procompetitive government regulations and issuance; and the internalization of the principle of competitive neutrality.
Constraints
The study notes how restrictions constrain the economy and negatively affect millions of Filipino consumers. For one, electricity costs are high, and capacity is limited.
The World Bank said this is largely due to the slow implementation of reforms, such as the open access provisions and retail competition, under the Electric Power Industry Reform Act (Epira) of 2001.
The study also said limitations on foreign direct investments prevent the development of electricity infrastructure, while prices of mobile phone services in the Philippines remain the highest in East Asia region, and four times higher than the average price in rich countries.
Restrictions in the transport sectors, particularly cabotage rules and limits to foreign participation, impair logistics in the Philippines by creating bottlenecks. The report also noted that lack of competition accounts for why domestic shipping in the Philippines is more expensive than in Malaysia or Indonesia.
“Ensuring that [the] government policies and regulations do not create barriers to entry or distort the playing field is necessary to enhance private participation and unlock more investment opportunities for all businesses big and small,” said Mara K. Warwick, World Bank country director for Brunei, Malaysia, Philippines and Thailand. “The Philippines needs an even more competitive and vibrant private sector to generate the types of jobs and economic opportunities that can lift more people out of poverty, at a similar pace to its neighbors in East Asia.”
The study benefited from funds provided by the Australian Government through the Australia-World Bank Philippines Trust Fund and the Canadian government.
Image credits: Nonie Reyes