The Value of LGU reform in the Philippines

 

 

 

Please read the following that appeared today in BusinessWorld .

LGU reform initiatives recognized

This week, the country’s provinces and municipalities will mark the 20th anniversary of the Local Government Code that gave local people and their representatives significant authority to manage their own affairs.

The International Finance Corporation shares the celebration of LGUs for many reasons, but one in particular: the code empowers LGUs to pursue regulatory reforms related to business registration, and many have done it at a pace faster than national agencies.

Various studies, notably the global Doing Business report of World Bank-IFC, show that the Philippines is one of the most difficult countries in which to register and do business. Compared with other economies in East Asia for ease of business entry, the Philippines (at No. 156 in the DB report) ranked well below Vietnam (100), Malaysia (113), and Thailand (95).

Local businessmen have to take 15 or more steps to register their businesses. Of the 183 economies surveyed, only a few other economies require more steps, among them Uganda and Equatorial Guinea. In this region, both Vietnam and Malaysia require nine steps and Thailand, seven.

The Philippines has so many steps because unlike many other economies, it runs a decentralized registration process that puts the burden on the local business person to visit numerous government offices and secure necessary information in order to comply with the required procedures. In economies like Hong Kong, the business person simply chooses an available business name and completes the application — the business registry does all the running around (electronically, in the most developed economies).

But some Philippine cities have had dramatic improvements. In Manila, it used to take as many as 19 days to secure a mayor’s permit. Since last year, Manila, Quezon City, Mandaluyong, and Marikina have succeeded in reducing the number of days to secure a mayor’s permit from an average of 11 for the four cities to only one.

What did they do? City government consolidated permit signoff to one office — the business one-stop shop — where they instituted a one-time payment of all fees and taxes and managed requirements so that a business person needs to visit City Hall just once to complete the registration process. They invested in IT systems that reduced city officer discretion, and improved processing efficiency and links to DTI’s business name registration system.

Still, there is much room for improvement. The new fire code (FSIC or Republic Act No. 9514) requires inspection of business premises before a mayor’s permit is issued. Given that all buildings are inspected and issued a Fire Safety Inspection Certificate prior to being allowed to be occupied and then again annually, it makes little sense to withhold a mayor’s permit for yet another inspection of space that has a valid FSIC.

Why does simplification matter? A 2010 World Bank review concluded that easier and cheaper registration encourages new firms to register and that the entry of new firms stimulates competition and productivity and, in the longer term, increases employment.

Indeed, the four reforming Philippine cities experienced a 24% increase in business registrations one year after the reforms were completed, which suggests fewer businesses operating in the informal sector or without registration, higher levels of employment, and higher economic growth. We also estimate that in total, businesses in these cities saved approximately P170 million in costs associated with registration over the year.

IFC, along with development partners CIDA, GIZ, USAID, AUSAID, and AECID, continues to work with the Department of Trade and Industry (DTI) and the Department of the Interior and Local Government (DILG) to standardize and roll out these reforms to LGUs across the country. The program is called streamlined Business Permit and Licensing System (BPLS). IFC is helping the BPLS coordinator, which is the Local Government Academy of DILG, engage with LGUs on simplifying business registration and other processes to encourage more SMEs to register.

While LGUs are regularly pressured to reform, it is important to know that many are reforming. Of the 25 cities analyzed in the Doing Business in the Philippines 2011 survey, two out of three were found to have implemented business-friendly reforms since last surveyed in 2008. The long-standing challenge remains: increase the pace of business reforms in the local government units and for national government to reform national level policy that hinders LGU initiatives to improve efficiency.

Hans Shrader is senior operations officer for Advisory Services of the International Finance Corporation.

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