Interview: Alejandro Alfonso E. Navarro
What regulatory changes are being implemented to stimulate private sector activity?
ALEJANDRO ALFONSO E. NAVARRO: The Philippines has had consistent problems with basic regulatory processes such as the issuance of business permits, due to both corruption and simple red tape. This was a major factor contributing to the decline in the country’s ranking in the World Bank’s “Doing Business 2018” report.
The biggest challenge is for the Anti-Red Tape Authority to remain steadfast in strictly enforcing Republic Act No. 11032 of 2018, otherwise known as the Ease of Doing Business and Efficient Government Services Delivery Act. Under the new law, processing for simple permits will be reduced to three working days, complex transactions to seven working days and highly technical applications to 20 days. This is a far cry from the average 31 days currently taken to process simple permits.
In what ways can reforms boost foreign direct investment (FDI) inflows to the Philippines?
NAVARRO: FDI in the Philippines fell by approximately $500m in 2018, causing the country to lag behind neighbouring states such as Indonesia, Malaysia and Vietnam. This dip in FDI inflows is associated with the difficulty and high costs of doing business in the Philippines, along with the lack of fiscal incentives. Higher labour and energy costs compared to some neighbours in the region – such as Vietnam – has also been identified as a contributor to the reduced FDI. The Philippines could learn from Vietnam, which instituted sweeping reforms, ranging from lowering labour costs to granting fiscal incentives to foreign investors.
How effective is the current legal framework for public-private partnership (PPP) projects?
NAVARRO: The legal framework for PPP projects – and for unsolicited proposals received under the Swiss challenge procurement method – provides a strategic solution for stakeholders by increasing private sector involvement in major infrastructure projects and ensuring competition among investors.
Simply put, the current PPP framework theoretically allows the country to build more, which in turn opens up more employment and business opportunities for the private sector. Nonetheless, the PPP framework leaves much to be desired in practice. Actual implementation is often slowed down by tedious regulatory processes and corruption. It is our hope that the administration’s increased emphasis on improving ease of doing business and tackling corruption will support the country’s infrastructure drive to new and better heights.
Which legal reforms should be prioritised to improve productivity and stimulate competition?
NAVARRO: Businesses are no longer constrained by the boundaries of a given nation-state, and firms are virtually compelled to expand internationally to distribute products and maximise profits. Investors are likewise seeking opportunities to invest in small and medium-sized enterprises, which hold potential but may not be immediately capable of competing with much larger companies.
The high costs associated with doing business in the country – given that the Philippines has the highest corporate income tax in the region – alongside the lack of fiscal incentives for investment, and the high barrier to market entry spurred by foreign ownership restrictions and high capitalisation requirements, should be remedied.
This would stimulate competition and encourage international players to put up the required capital. In addition, improved corporate tax reform packages and further open dialogue regarding the continued overhaul of regulations on public services should be priorities for the administration moving forwards.
Read More from OBG
