Gov’t bureaucracy blocking inclusive business growth

Companies in the Philippines blamed government bureaucracy for making it difficult to engage in inclusive business (IB), pointing out how red tape restricted firms from including the poor into their value chain.

This was according to a joint study on IB titled Business + the Philippines, which aimed to show the extent by which company policies were pro-poor. It was conducted by the Board of Investments (BOI) and the United Nations Development Programme (UNDP) Istanbul International Center for Private Sector in Development (IICPSD).

Contrary to corporate social responsibility, an IB model essentially includes the poor in the value chain of the company’s core business. In order to determine the level of inclusiveness, the proponents of the study had so-called entry points, which show the role the poor have in their operations.

These entry points include being a supplier, a member of the distribution channel and being an employee of the firm, among others. The study, which surveyed 223 companies and social enterprises in the country, said that the participants had “low levels of engagement” in inclusive business.

In examining the “contextual factors” that impeded firms from engaging in IB, survey participants pointed to government bureaucracy, a problem which was not only present in IB but even in other forms of business activities.

“Companies thought that the most significant challenges to overcome while doing inclusive business were, unfortunately but perhaps unsurprisingly, national government bureaucracy, local government bureaucracy and the regulatory environment in the country,” the study read, a copy of which is available online.

Moreover, some participants in the in-depth interview said that the “lack of connections and market information” were also considered major challenges. Some said that there was not enough information about which suppliers or supplier groups among the poor “were more reliable.”

Doing more

The study said that the highest level of inclusiveness was achieved by allowing the poor to be employees, followed by investments in less developed areas. In spite of these, some entry points—that would have had more impact to the poor— had lower scores.

“However, the entry points which would have contributed greatly to sustainable human and economic development—such as doing business with the poor as entrepreneurs, suppliers or distribution channel members—had relatively lower scores, followed by the lowest scores of the poor as consumers,” it said.

“Around 33.6 percent of the participant companies did not even target the poor as customers or consumers while 26.9 percent did not do business with the poor in their distribution channels and 22.9 percent did not do business with the poor as suppliers,” it added.

In the press briefing that followed the study’s launch yesterday, officials claimed that there were companies already engaging in some form of inclusive business, although not to the extent that would officially qualify as one. Part of the problem, officials said, was that companies were not aware what IB models were in the first place.

“While we all recognize there is huge potential in IB, the current level of awareness is extremely low. It’s not that they’re not doing IB. It’s just they don’t know they’re doing IB,” said UNDP country director Titon Mitra.

Merely including the poor in the value chain is not enough, however. For example, BOI included IB as one of its preferred business activities under its Investment Priorities Plan (IPP), luring companies to invest in such business models by giving them tax incentives.

There are conditions and quotas, however, that they must meet in order to qualify. Only IB models in agribusiness and tourism are eligible for the income tax holiday under the current IPP.

As of now, BOI Assistant Secretary Felicitas Agoncillo-Reyes said in the briefing that the government has not registered any IB activities yet under the IPP, which was already in effect since July.

It is also important to note that around half of survey participants were small and medium-sized enterprises, followed by large national companies (24.7 percent), multinational companies (15.8 percent), and social enterprises (8.4 percent).

Social enterprises, which are organizations that make profit out of addressing social problems, naturally had the highest levels of inclusiveness.

Multinational company participants had lower levels of inclusiveness in allowing the poor to take on the role as employees but had relatively high scores for the entrepreneur entry point, the study said.