The World Bank released its report “Doing Business 2016: Measuring Regulatory Quality and Efficiency” on Tuesday, finding that over 60% of the world’s economies improved their business rules in the past year. But rankings are by definition relative, so what about the countries that dropped in ranks?
The Philippines, which dropped from 97th last year to 103rd this year, has slammed the report’s “erratic” methodology and therefore its conclusions. 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,” the Department of Finance (DoF) said. “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.”
While the report was very thorough in its methodology, it only examined the business environment of the city of Quezon. 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.
While the report assessed regulations affecting domestic small and medium enterprises, the DoF said that the study’s immediate audience is, “unintentionally, offshore businesses planning to set up an enterprise in the economies covered in the report.” It then 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.”
“The Philippines fears the… 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,” the DoF added.
This reaction is all the more understandable considering that just a month ago, the Philippines showed significant improvement in the World Economic Forum (WEF)’s Global Competitiveness Index 2015-2016. It rose five rankings from last year to be 47th out of the 140 economies surveyed, and the ranking last year was seven notches higher than in the previous year. The two reports do not cover the exact same issues but there is huge overlap.
And the country remains one of Asia’s fastest-growing economies, with GDP estimated to expand by almost 6% this year. “The Philippines is among the strongest performers in the region, bucking the trend, because of strong fundamentals,” World Bank Country Director Motoo Konishi said in a statement on October 5.
This is not to suggest that the Philippines has no need for further reforms; it absolutely does. The World Bank’s latest Philippine Economic Update noted the need for the government to simplify business regulations and lower the costs for micro, small, and medium enterprises (especially for small exporters), which account for around 99% of businesses in the country. The cost of starting and doing business ranges from about $450-950, some 17-36% of average per capita income. Bureaucratic inefficiency also means much wasted time and reduced productivity for small business, collectively resulting in annual losses of around $2.13 billion and about 60,000 jobs.
Change would be welcome for both sides in this mini-row. The World Bank should draw on a larger number of locations within a country before judging it, and the Philippines should work to improve the ease of doing business everywhere, not just in its free trade zones.