PH urged to address ‘restrictive policies’

Making potential entrepreneurs jump through bureaucratic hoops for more than two weeks before being able to operate hinders job creation and economic growth, the World Bank said in a new report.

The country loses billions of dollars in potential income and taxes every year due to the restrictive policies, which often force aspiring businesspeople to pay bribes.

And while existing rules are tough on small businesses, the government is also too eager to give out tax perks for big corporations—a strategy that fails to create new jobs and gives an unfair advantage to incumbents.

“Business regulations have long been a cumbersome process,” World Bank economist Karl Kendrick Chua said in a speech. “They limit the growth of innovative entrepreneurship and investments.”

Overall, the cost imposed on small firms in starting a business “is very high,” the World Bank official said. New businesses need to pay at least P45,000 in legitimate fees. On top of this, businessmen are forced to spend a “considerable” amount of time moving from one agency to another and waiting in line to process their documents—a process that currently takes longer than two weeks.

This leads to significant losses in foregone productivity. In many instances, businesses report having to pay bribes to obtain various permits. Once a business opens, companies are subjected to annual regulatory and tax requirements.

Chua said this lost productivity translated to an annual opportunity cost of at least P100 billion every year in the form of foregone income, taxes and spending.

On top of this, the World Bank estimated that the country loses P40 billion in foregone earnings a year because of the number of aspiring businessmen who are discouraged from starting at all. Addressing these issues can create at least 60,000 jobs a year, or the equivalent of 5 percent of all new entrants into the job market.

The Philippine economy, the bank said, has outperformed its Southeast Asian neighbors since 2010 largely on the back of better governance by the Aquino administration.

Citing data from the International Monetary Fund (IMF), the World Bank said the reduction of corruption, the increased transparency and the higher and improved spending patterns contributed more to higher growth than the structural reforms.

“As it is unlikely that a sudden improvement in technology adoption—the usual explanation for the unexplained part—occurred across the economy, improved governance would be a strong candidate to explain the growth acceleration,” the bank said.

Yesterday, the bank said it revised its 2015 growth projection for the Philippines to 5.8 percent, lower than the previous forecast of 6.5 percent. Next year’s growth is seen at 6.4 percent before tempering to 6.2 percent in 2017.

The Philippines, which is among Southeast Asia’s five biggest economies, is expected to outperform neighbors like Malaysia, Indonesia and Thailand.

“This takes into account the relatively weak first half growth brought by slow government spending, negative net exports and the initial impact of El Niño,” the World Bank said in a statement. The Philippine economy grew by 5.3 percent in the first half of 2015, making the government’s full-year growth target of 7 to 8 percent difficult to attain.