Vibrant private sector engine of high and sustained growth — WB study
The World Bank (WB) said middle-income countries such as the Philippines need to have a dynamic and robust private sector to get out of the middle-income trap.
Norman Loayza, World Bank Director for the Global Indicators Group, said in a briefing in Quezon City on Monday that the Philippines’ per capita gross domestic product (GDP) growth rate was only 3.4 percent in the past decade.
“Countries that are in the middle-income category, such as the Philippines, need about 5 percent of GDP per capita growth in order to escape what is called the middle-income trap,” said Loayza.
The 5 percent per capita GDP is the first step for a country to reach the category of an advanced economy.
“The Philippines has achieved around, in the last decade, 3.4 percent of per capita GDP growth. So this shows a gap, actually, between what the country should be growing at and what has grown in the last 10 years,” Loayza said.
This is not solely for the Philippines, as other countries have also fallen into the middle-income trap, he said.
“This is a big challenge for most economies that are in the middle-income category, and the key to escape this middle-income trap, and to actually accelerate growth is the private sector. When you have a private sector that is dynamic and vibrant and innovative, then you have growth,” Loayza added.
The World Bank director pointed out that while the private sector is an economic giant that provides the majority of jobs, output, investment and government revenue, it sometimes behaves like a “sleeping giant,” thus, requiring more support by making the business environment more favorable.
He cited a need for middle-income countries to put the enablers in place, such as public services that are necessary for the private sector to become this engine of growth for the economy.
“At the end of this process, the goal is to have an economy that is sophisticated, that is diverse, that is vibrant, that is constantly in a state of change and renewal,” Loayza said.
He discussed the findings of the multilateral agency’s Business Ready report released last year to identify the state of business readiness in the Philippines.
The main findings of the report show that the Philippines has enacted good quality business regulations.
However, the country can do more by enhancing the public services provided to the private sector to help improve the business environment.
Ease of business entry
According to the World Bank’s fact sheet released on Monday, the Philippines outperforms the average of Asean countries in the area of labor, where it scores among the top 20 percent of economies globally. The country also performs relatively well in the area of international trade.
But the Philippines should pay particular attention to business entry, where it scores among the bottom 20 percent of economies globally.
According to the World Bank, it takes around 75 days to register a new domestic company in the Philippines, while the most efficient economies take three days.
“This may be because entrepreneurs are not able to fully register a company online,” the World Bank said.
The Washington-based financial institution noted that one of the key facts about the Philippines’ business environment is that it takes 90 days to transfer a property, while in most efficient economies, it takes only one day.
The Philippines does not have an online platform to register the transfer of immovable property, it said.
Electronic payment
Meanwhile, only 17 percent of payments by firms in the Philippines are made electronically.
In the most efficient economies, it is over 99 percent, the multilateral lender said. This may be explained in part by the lack of liquidity risks provisions, including guaranteed customer access to funds under the Philippines’ electronic payment regulations.
The lender said 22 percent of firms reported that their prices are regulated, while in the most competitive economies, less than 4 percent of firms report prices are regulated.
The World Bank also said the amount of time needed to resolve a liquidation proceeding is five years in the Philippines, while it only takes seven months for the most efficient economy.
In the Philippines, electronic filing is not used in bankruptcy procedures, and the World Bank emphasized that the country should catch up in this department.
“The hope is that every economy, including the Philippines, is able to catch up with the best, and the only way to do this is by having a strong enough private sector that can lead to high sustainable growth,” Loayza said.
While many countries are stuck in the middle-income trap, improving the business environment is really the escape route, according to the World Bank.
“It is vital that in the Philippines, the ambition for economic growth is resumed, confirmed, and maintained. The private sector can be a key component in this strategy. It can be the engine of high and sustained growth,” Loayza added.
This does not mean a “hands-off” approach on the part of the government.
“The government can do a lot to actually improve the business environment of the country, creating a favorable business environment for investment, innovation and competition,” said Loayza.
“The best thing that we can advise governments is to improve the quality of regulations, to provide well-designed public services and to ensure that they are putting practice, and not just left on paper,” he added.