The Market Monitor Minding the Nation's Business
The Aquino administration, incredulous at the dismal Philippines ratings in the latest annual Ease of Doing Business report of the World Bank (WB), has lashed out at the ranking, calling it “erratic and unsound.”
The report, released last Tuesday, showed the Philippines plunging eight notches to 103rd from 95th a year ago, due to the prevalence of bureaucratic red tape that accompanies the setting up of a new business.
Finance Secretary Cesar Purisima criticized the methodology used and aired a warning that the report might be seen as a document in which developing countries are evaluated and judged by people sitting in comfortable offi ces too far away to fully understand contexts and appreciate reforms being undertaken.
The list was topped by Singapore, followed by New Zealand, Denmark, South Korea and Hong Kong.
With the exception of Indonesia and Laos, other economies within the Association of Southeast Asian Nation (Asean) were well ahead of the Philippines in the global standings: Aside from topnotcher Singapore, the others were Malaysia at 18th place; Thailand, 49th; and Vietnam, 90th. Indonesia is at 109th place and Laos at 134th.
The WB report gave the Philippines its worst score in starting a business. “Globally, the Philippines stands at 165 in the ranking of 189 economies on the ease of starting a business,” the report said.
The WB said data it collected showed that starting a business in the Philippines is particularly hard, requires an average of 16 procedures, takes 29 days to complete, costs 16.1 percent of income per capita, and requires a paid-in minimum capital of 3.3 percent of income per capita.
Purisima questioned the WB methodology, as it “risks hurting the credibility and reliability of the report.”
He said in a statement that the Philippines was reported to be the most improved economy in the Ease of Doing Business Report, moving up a total of 53 notches from 2011 to 2015.
Purisima lamented the 2016 downgrade, saying it comes at a time when the Philippines undertook “game-changing reforms last April to hasten the process of starting business—reducing the process from 16 steps and 34 days to six steps and eight days.
“E-government initiatives, launched also last April, reduced the number of payroll-related payments from 36 to 13, a marked improvement on the paying taxes’ category,” he added.
Purisima said the Aquino administration “believes the Doing Business (DB) survey methodology of collecting sample data from only one or two cities makes it inappropriate to present the report as refl ective of the state of doing business for an entire economy.”
“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 (Philippine Economic Zone Authority), which will give investors a drastically different landscape than other areas,” he said.
“With this methodology, the survey should be more aptly titled ‘doing business across cities’ to provide a better representation of the results of the report,” Purisima added.
The WB ranking used the same methodology for all the 189 countries based on several indicators, namely: starting a business, dealing with construction permits, property registration, getting construction permits, and paying taxes.
Purisima said he has been consistently voicing critiques against the WB methodology, most recently in the World Bank Governor’s Statement he delivered in Lima, Peru.
He assailed the methodology’s inability to provide a proper reflection of the state of doing business with very limited information source and poor data collection process.
Issuing a warning against unintended consequences, Purisima said flawed conclusions adversely impact not only on rankings but also on investors’ perception of the country as an investment destination, imperiling much-needed job creation and capital formation.
Purisima even offered an unsolicited advice to the WB, saying the Ease of Doing Business Report might be more informative “by conducting the survey on foreign enterprises that are already based or in the process of establishing their presence in the economy, as these foreign businesses operate mostly at the economy’s free trade zones and/or major business districts, these locations are more fitting sampling sites for the survey instead of the economy’s largest business city.”
“The erratic methodological changes year after year, affecting even the findings of the past reports (as seen most recently in revisions applied retroactively to the 2015 report), severely threatens the report’s credibility as a reliable global measure of competitiveness,” he added.
“The Philippines fears the Ease of Doing Business Report may emerge to mirror the symptoms and hallmarks of past international development failures spawned by tone-deaf prescriptions and interventions incongruent with realities on the ground,” he added.
Purisima said the Philippines continues to undertake reforms to ease the conduct of doing business despite the inconsistent and ill-advised report methodology.
“Make no mistake: while we maintain the firm position we have long taken against the flawed methodology, we are committed to the continuous work of reform that catapulted the Philippines up by 53 places in the last five years. We refuse to be held hostage by flippant and unreasonable methodologies others insist upon us. We will persevere in rolling out more reforms to boost our competitiveness across various indicators,” he said.