6 steps and 8 days

April 30, 2015 at 12:03

In many progressive countries, small and medium-sized enterprises (SMEs) are the backbone of the economy, generating employment and livelihood mainly for the middle-income segment of the population, not to mention tax revenues to the government.

In the Philippines, however, the SME sector has been finding it hard to grow because starting a business itself can be discouraging to would-be entrepreneurs.

The Aquino administration has actually focused on the plight of private enterprises such that in July 2012, the National Competitiveness Council (NCC) crafted a Game Plan for Competitiveness. Its goal was to simplify government processes and make these more business-friendly. The plan was an offshoot of the dismal performance of the Philippines in the Doing Business Report of the World Bank-International Finance Corp. In 2013, the Philippines ranked 138th among 185 economies and placed eighth of nine economies in Asean. The report measured the ease of doing business across 10 processes that a business must undertake with several government agencies over its typical life cycle, with many problems focused on the first process—starting a business.

The positive results were immediate. The Philippines posted a 30-spot jump in rank in the 2013 Ease of Doing Business report—the biggest movement for any country covered by the multilateral lender. The report showed the Philippines as now 108th in the world in terms of ease of doing business. The 30-spot jump was also the biggest improvement for the Philippines since the survey started 11 years ago. The Philippines improved to seventh in Southeast Asia, which was led by Singapore (also ranked first in the world by the World Bank).

To speed up things further, two weeks ago 12 government agencies signed a commitment to implement reforms intended to help improve the ease of doing business in the Philippines as it seeks to boost not only its rankings in global competitiveness reports but also its beleaguered SMEs. The reforms will primarily address two main problem areas: starting a business and paying taxes. According to Guillermo Luz, cochair for the private sector of the NCC, the reforms will significantly cut the processes involved in starting a business to only six steps and eight days from the existing setup requiring 16 steps and 34 days. The reforms are to take effect starting this month in the head offices of the partner agencies and the local government of Quezon City.

The government’s goal is to move the Philippines to the top third of global rankings by 2016. Apart from improving the country’s image with investors, the practical impact of such improvements is a boost in investments. Trade Secretary Gregory Domingo noted that, on the ease of doing business report of the World Bank, the Philippines might rank anywhere from 60th to 62nd by 2016 among 185 countries. Beyond the World Bank report, the ultimate target of this exercise, as Luz pointed out, was to make it easier for investors—particularly the entrepreneurs in the SME sector—to start and operate a business.

However, one big issue remains: the other local government units. The agreement among 12 government agencies included only one LGU, Quezon City. It is no secret how some local government officials abuse their exercise of regulatory authority as provided under the Local Government Code. This authority includes the imposition of various fees and charges, or even the outright ban of certain industries. It has also become a means for local officials to extort from entrepreneurs and businessmen wanting to set up shop in their areas. Complaints abound about the extreme difficulties in getting just a simple business permit, unless of course money will change hands. It is the same with getting building permits and the host of related permits one needs in order to start a business, no matter how small it is.

Local governments in other Metro Manila cities and municipalities as well as the progressive LGUs outside the National Capital Region must also be required to sign the agreement. Only then can SMEs really experience ease in doing business—at least as far as starting a business is concerned. Otherwise, many of these entrepreneurs will remain underground and the government will continue to forego billions of pesos in tax revenues from them.