PH drops in World Bank's 'Doing Business' ranking

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(File photo)

Metro Manila (CNN Philippines) — The World Bank is calling on the government to make doing business easier in the country for small and medium enterprises, to drive inclusive growth.

The Philippines ranked 103rd of 188 countries in the 2016 edition of the World Bank's annual "Doing Business" report, falling six spots below its 97th place last year.

The report looks at the ease and cost for small and medium enterprises to start and operate a business, trade across borders, pay taxes, and tap finance — among other factors.

The Bank linked the drop in ranking mainly to the process of registering a new business in the country, which takes 16 steps over 29 days.

Senior Country Economist Karl Chua estimated that this costs the country 60,000 jobs, over P100 billion in opportunity cost, and around P40 billion in foregone investments every year.

Roberto Galang of the International Finance Corporation added that too many tax payments of up to 36 per year, filed over 193 man-hours, also makes doing business hard and costly for small businesses.

Another major reason behind the drop was the difficulty of resolving contractual disputes, as even small claims could take up to two years.

Motoo Konishi, country director for the Philippines, as well as Guillermo Luz, Head of the National Competitiveness Council, have pushed for reforms in financial transparency to track the national budget, from appropriation to spending; reform the tax system to make it more equitable for the poor; break up monopolies; and improve regulations in telecommunications, rice policy, and shipping; as well as to ease restrictions on foreign investments.

However, there is a bright spot. The report noted recent reforms in the country, such as the merging of steps for registering new businesses with the Securities and Exchange Commission and Social Security System.

But the Bank admitted that there is still a long way to go, as the country continues to lag behind its Southeast Asian neighbors except Indonesia, which took the 109th spot. Singapore bested all other countries, while Malaysia took the 18th spot, Thailand ranked 49th, and Brunei 84th.

Questionable methodology?

For its part, the Department of Finance (DoF) has slammed the report. It has questioned the survey's methodology, and explained in a statement that the collection of "sample data from only one or two cities makes it inappropriate to present the report as reflective of the state of doing business for an entire economy."

"This is considering that starting a business and registering property vary across cities, since local governments have varying procedures and processing times for the various activities involved therein."

According to Finance Secretary Cesar Purisima, it would be more apt to title the survey "Doing Business Across Cities," to provide a better representation of the results.

"[T]his title will avert the tendency of the report to be construed as providing a depiction of the state of doing business for an entire economy, which it could not do given the survey’s sampling bias."

“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."

While the report assesses regulations affecting domestic small and medium size enterprises, the DOF said that the studies immediate audience is, unintentionally, offshore businesses planning to set up an enterprise in the economies covered in the report.

The department explained that the report "may be more informative to this audience 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."

CNN Philippines' Miro Capili and Paolo Taruc contributed to this report.