By David Cagahastian & Cai U. Ordinario
The Philippines didn’t like the fact that it slipped six notches in the World Bank’s Doing Business report for 2016; so, immediately, it aired the “strongest and loudest critique” of this year’s edition of the report.
Finance Secretary Cesar V. Purisima questioned the methodology of arriving at the scores on the different categories that make up a country’s grade in the area of ease of doing business, blaming it for the drop in the rankings of the Philippines to 103rd place out of the 189 economies surveyed.
Purisima said that, instead of using as basis one or two cities in determining the rankings, the World Bank should collect data from other parts of the country, such as the economic zones administered by the Philippine Economic Zone Authority (Peza). In the case of the Philippines, the ranking was based on government regulations and business experiences in Quezon City.
Ironically, Purisima himself has been pushing to “rationalize” the incentives given to locators in special economic zones, suspecting that many of these locators are no longer deserving of these incentives.
“Countries, especially developing ones like the Philippines, will have bright spots of promise in some areas and not in others. For example, we have our economic zones managed by Peza, which will give investors a drastically different landscape than other areas. With this methodology, the Doing Business survey should be more aptly titled as ‘Doing Business Across Cities’ to provide a better representation of the results of the report,” Purisima said in a statement. The National Competitiveness Council (NCC) also openly criticized the methodology used in the World Bank 2016 Doing Business Report in a teleconference on Wednesday.
The NCC Private Sector Cochairman Guillermo M. Luz said the changes made by the World Bank on the Doing Business methodology have made it difficult for the NCC to monitor the country’s progress.
Luz said in the past five years, the World Bank changed its methodology four times. These changes, he said, also prevented the government to determine which of its interventions worked to improve its rankings and which did not.
“It’s the fourth time in the last five years that the methodology and the calculations and the scales have been changing so that it’s become very difficult for us to make heads or tails out of this particular diagnostic tool,” Luz told World Bank Doing Business 2016 coauthors Jean Nicolas Arlet and Laura Diniz in a teleconference.
Luz added that some of the reforms in the country, particularly in the paying-taxes indicator, was not included in the 2016 Doing Business Report. Paying taxes in the country to date already includes e-government initiatives that offer convenient payroll-related payments for Philippine Health Insurance Corp. and Home Development Mutual Funds.
Purisima cited the Doing Business report for 2011 to 2015, which saw the Philippines improving a total of 53 notches due to its reforms mainly in cutting red tape.
The World Bank, however, defended the rankings, saying that the Doing Business report is not only about helping potential investors start a business, but also about helping investors with other activities required in their business, such as paying taxes, enforcing contracts, getting credits and availing of services such as electricity and transportation.
Under the new Doing Business report for 2016, the World Bank pointed out that the scope and relevance of indicator sets are continually being adjusted to reflect the actual needs of investors in not only starting up a business but actually doing business in a particular economy.
“In this year’s report, four indicator sets are being expanded to also measure regulatory quality: registering property; dealing with construction permits; getting electricity, and; enforcing contracts. A similar expansion for the paying taxes indicator set is being considered for next year. The new indicators being introduced emphasize the importance of having the right type of regulation.
In general, economies with less regulation or none at all will have a lower score on the new indicators,” the World Bank said in the report.
In the indicators of “Starting a Business” and “Getting Electricity,” the Philippines’s ranking for Doing Business report for 2016 increased from its previous position last year. But the country slid down in rank in all the rest of the indicators, namely, Dealing with Construction Permits; Registering Property; Getting Credit; Protecting Minority Investors; Paying Taxes; Trading Across Borders; Enforcing Contracts, and; Resolving Insolvency.
Based on the distance to frontier score from 0 to 100, the country’s score improved to 60.07 in 2016 from 59.94 in 2015.
“I want to emphasize that the Philippines has risen and you are now in a much tougher, much competitive environment. Even Hong Kong which is third ranked had four reforms last year. The top is moving all the time, therefore, we have to move faster for the Philippines to gain ground,” World Bank Philippines Country Director Motoo Konishi said in a briefing on Wednesday.
“There are questions on methodology, etc., but one thing to emphasize though is the Philippines has been doing reforms, it simply needs to accelerate to compete with others in the neighborhood,” he added. Among its Asean neighbors, the Philippines was the only country that registered the largest fall in the rankings.
Singapore retained its No. 1 ranking for the 10th consecutive year, while Hong Kong maintained is fifth ranking overall.
Vietnam was considered among this year’s best performers after saw its ranking improve to 90th in the 2016 report from 93rd in the previous year.
“Vietnam implemented the most reforms in the region, with five, followed by Hong Kong SAR, China [four]; and Indonesia [three],” the World Bank said. For the 2016 report, the country introduced only one improvement in its business processes which is to make it easier to start a business by expediting the process of issuing an employer registration number.
The government was able to do this by streamlining communications between the Securities and Exchange Commission and the Social Security System.
For their part, Arlet said these changes were only a response to the recommendations in a panel review of the Doing Business report made three years ago. He said many of these changes focused on issues on quality of supply or construction, which were addressed in the 2016 methodology.
He added that apart from taking up this recommendation, the World Bank also embarked on expanding and improving the range of what the Doing Business report measures in the past two years. Arlet said moving forward, the World Bank is not expected to make any major changes following the recent changes in its methodology. The only change that countries like the Philippines should watch out for is the indicator on paying taxes, which may be revised in the succeeding report.
“Although we did expand, we haven’t really changed most of the indicators so more than two-thirds of our data is still comparable over time. Additionally, we did expand these into the areas where we found that we needed to capture more of the best practices that were being implemented on the ground,” Diniz said.
Doing business indicators
Despite the innovation introduced by the government to speed up the issuance of an employer registration number, the Philippines still ranked the lowest in the Starting a Business indicator.
The country ranked 165th out of 189 economies. This is because it still takes 29 days to complete 16 procedures in putting up a business in the Philippines. New businesses also need to spend 16.1 percent of income per capita to register and a minimum capital of 3.3 percent of income per capita.
The World Bank pegged the per-capita income of the Philippines at $3,440. The estimated population of the country is 100.1 million.
Apart from starting a business, the country also did not do well in the indicator on protecting minority investors, where it ranked 155th overall.
Out of a perfect score of 10, the country scored four in terms of extent of the conflict of interest regulation index; 3.7 in the extent of shareholder governance index; and 3.8 in the strength of minority investor protection index.
Meanwhile, of all the indicators, the Philippines was found to be doing well in terms of getting electricity, where the country ranked 19th out of 189 economies.
In the Philippines, it takes an average of 42 days to complete four procedures in getting electricity. It also takes 28.7 percent of income per capita and scored six out of eight in reliability of supply and transparency of tariffs index.
The country also did relatively well in resolving insolvency, where it ranked 53rd out of 189 economies. Based on the World Bank’s data, it takes 2.7 years to resolve insolvency and costs 32 percent of the estate of businesses.
2 comments
Too much monkey business in the Philippines to make it on the world class investment radar.
Nyahahahahahahaaaa! Marami kasi humihingi ng tongpats. Anong nagawa ni penoy dyan? Nag iimpake na lang sya wala pang nagawa. Yan tuloy barya lang ang foreign invstment na nakakarating sa Pilipinas.