By Gregorio G. Deligero
Among the 25 key cities in the country, securing construction permits is easiest in Davao City while it is easiest to start a business in General Santos City. In registering a property, however, it is difficult in both cities.
This, according to the Doing Business in the Philippines 2011 report released Wednesday by the World Bank’s International Finance Corporation (IFC).
The second subnational report in the series—following Doing Business in the Philippines 2008—compares the regulatory environment for business in 25 cities in the Philippines.
Doing Business investigates the regulations that enhance business activity and those that constrain it. Regulations affecting three stages in the life of a local business are measured: starting a business, dealing with construction permits, and registering property.
The IFC said these indicators were selected because they cover areas of local jurisdiction or practice. The indicators are used to identify business reforms and the extent to which these have been effective in simplifying the procedures, saving time, and lowering the cost of doing business.
This year, the report expands the analysis to 25 cities across the country based on the level of urbanization, population size, economic activity, political and geographical diversity, and other factors.
In Mindanao, three new cities—Cagayan de Oro, General Santos, and Zamboanga City—were studied. Davao City being studied for a second time.
Construction permits
In dealing with construction permits indicator, Davao City tops among 25 cities covered in the report. General Santos City ranked third.
The two cities have young lady mayors—Mayor Sara Duterte-Carpio of Davao City and Mayor Darlene Antonino-Custodio of General Santos City—whose fathers are veterans in politics in their respective locality.
“Dealing with construction permits is easiest in Davao City where it takes 57 days, but more cumbersome in Manila where it takes 169 days. Local requirements remain responsible for the variation in the number of steps required to build a warehouse,” said the report.
The IFC said Doing Business looks at licensing in the construction industry as an example of licensing regulations that businesses face. It measures the procedures, time, and cost to build a standardized commercial warehouse, hook it up to basic utilities, and formally register it.
These procedures include submitting project documents (building plans and site maps, for example) to the authorities, obtaining all necessary licenses and permits, completing all required notifications, and receiving necessary inspections. The time and cost to complete each procedure under normal circumstances are calculated while all official fees associated with legally completing the procedures are likewise included.
The IFC said the survey assumes that the entrepreneur is aware of all existing regulations and does not use an intermediary to complete the procedures unless required to do so by law.
Starting a business
In starting a business category, General Santos City tops among the 25 covered cities. Davao City ranked second.
“Starting a business is easiest in General Santos, where it takes 22 days and costs 15.3% of income per capita to comply with the 17 requirements. It is more difficult in San Juan, where it requires 21 procedures that take 39 days and cost 26.3%,” said the report done in collaboration with the Asian Institute of Management Policy Center.
Under this category, the IFC said Doing Business measures all the necessary steps to enable a small or medium-size enterprise engaged in general commercial or industrial activities to operate legally in 25 Philippine cities—including all permits, inscriptions, notifications, and inspections.
The time and cost required to complete each procedure under normal circumstances are calculated, as well as the minimum paid-in capital requirement.
The IFC said it is assumed that all information is readily available to the entrepreneur, that there has been no prior contact with officials, and that all entities involved in the start-up process function without corruption.
By procedures involved in business start-up alone, Cebu and Manila had the fewest at 15 while Pasig had the most (22). Setting up a business would take the longest, at 56 days, in Iloilo. Cost-wise, the most expensive was Makati (36%).
General Santos topped in time – entrepreneurs needed just 22 days to start a business – and in cost (15.3%), measured as a percentage of income per capita. Davao City ranked second in time with 27 days and also in cost at 17.06.
Property registration
In terms of the ease of registering property, all Mindanao cities performed poorly.
The cities of Zamboanga and Cagayan de Oro ranked 23rd and 24th, respectively,
Davao City, while first in construction permits and second in terms of the ease of starting a business, was near bottom (20th) with respect to registering property. General Santos, which is first in starting a business category and third in the construction permit indicator, is at the bottom (25th) in property registration.
“Land is a fundamental economic asset in every society. Poorly administered property systems or not clearly defined property rights prevent land from being turned into productive capital. An efficient property registration system has real benefits. When there is a formal deed, entrepreneurs can use their immovable assets to obtain credit and grow their businesses,” the IFC said.
Under this category, Doing Business records the sequence of procedures, time, and costs necessary for a business to purchase property from another business and to transfer the property title to the buyer’s name, so that the purchasing business can use it as guarantee in taking out loans or sell it to another firm. Every required procedure is included, whether it is the responsibility of the seller, the buyer, or a third party on their behalf.
The IFC said it is assumed in conducting the study that the property is registered and free of dispute.
Other findings
Other main findings of the report are:
It is easiest to register property in Valenzuela and Navotas and more difficult in Cagayan de Oro and General Santos—differences are mainly driven by the performance of national government agencies.
Each of the 25 cities benchmarked in the report could learn from each other’s best practices.
Over the past two years, 13 out of 20 cities in the Philippines carried out 19 regulatory reforms to make it easier to start and operate a business.
Cholesterol test
The IFC said the report functions “as a kind of cholesterol test for the regulatory environment for domestic businesses.” It is also timely for the Philippines, the two institutions said, as studies from other countries “suggest that 85% of business reforms occur in the first 15 months of a new administration.”
Philippine cities, according to the report, “actively reformed” business regulations over the past two and a half years, but it also noted that several of 2008’s top rankers had been overtaken; it said that aside from regulatory improvements, new entrants may have also been a factor.
No single city did well with respect to the three indicators.
A factor in the variation, the report said, is the national government’s more prominent role in property registration requirements, while local governments are more involved in the start-up and construction phases.
Recommendations
The report’s general recommendations with respect to the ease of starting a business indicator were the simplification of local business permit requirements, creation of one-stop shops at local and national levels, elimination of receipt/book registration at the tax bureau, and improving transparency.
In terms of construction permits, the report recommended that Philippine cities introduce risk-based approvals, improve inspection efficiency and increase transparency.
In the property registration indicator, the report said it sees the need for the conversion of stamp, transfer taxes and notary fees to fixed fees; introduction of fast-track procedures; standardizing requirements at the register of deeds and Land Registration Authority (LRA); completion of the LRA’s computerization project and monitoring of performance; and reviewing the tax bureau’s protocols with agent banks to address payment notification delays.
