Red carpet instead of red tape

Someone made the observation that in today’s tiger economies, governments roll out the red carpet to attract investors. Our government rolls out the red tape instead.

In a presentation on the power situation, Miguel Aboitiz who heads the association of independent power producers showed in a single Power Point slide the list of 200 or so permits and signatures needed to start building a power plant. To fit, the typeface was so small so as to be unreadable. He drove home the message that bureaucratic red tape is largely to blame for the current uncertainty in the power supply situation.

Indeed, even if we manage to have charter change to update the restrictive provisions of our Constitution, red tape is likely to drive away foreign investors anyway. It also doesn’t mean that just because the President, in the course of a state visit, witnessed the signing of an agreement to do business here, things will go smoothly.

While it is true that there are honest efforts to put up a one stop shop and computerize the process of securing business permits up to the level of some LGUs, red tape still rules the day in general. Even dealing with a national government unit like the BIR at the local level can be rather time consuming and painful.

Henry J. Schumacher, European Chamber of Commerce of the Philippines (ECCP) vice president for external affairs, complained to the Senate Economic Affairs committee about our government’s debilitating red tape.

“The documentary requirements for registration and doing business by foreigners here in the country need to be streamlined. The pervasive bureaucratic red tape persists to discourage and ward off potential investors,” Schumacher said.

“Weeding through the layers of requirements in starting up a business is often attended by bureaucratic red tape, inconsistent, complex and lengthy procedures, delays and a high cost for regulatory processes,” Schumacher complained.

I agree with Henry that “This bureaucratic pathology has no social redeeming value and is only centered on rules, regulations and procedure that entail compliance burden on new entrants and businesses.”

No wonder a recent study by a government think tank, the Philippine Institute for Development Studies (PIDS), pointed out that we are lagging behind our Asean peers in generating foreign direct investment (FDI) because, among others, “lengthy procedures, slow processing and delays, lack of transparency in procedure, corruption.” These are on top of “policy inconsistencies, lack of streamlining of interrelated procedures.”

I think the fault lies in the inability of our bureaucrats to think straight the way normal people do. Take that example of the German boy friend of the transgender allegedly slain by a US Marine in an Olongapo hotel. He wanted to leave the country after his failed publicity stunt in Camp Aguinaldo and was actually at the airport. He was stopped from leaving because he has to face deportation proceedings.

The guy wanted to leave. A normal mind will just let him go and just ban him from entering the country again. He was able to leave anyway on “self deportation” days after. I am sure we would have saved the taxpayers some money if we let him go the first time.

Our red tape is the result of very stringent rules that are supposed to prevent corrupt officials from stealing from the national treasury. Ironically, the tough rules, to the point of red tape, have not prevented the plunderers from plundering. The Napoles case show how those determined enough can go around the rules anyway.

Unfortunately, red tape is also the excuse being used by folks like those in DOTC for the slow execution of vitally needed infrastructure. Yet, the same red tape did not prevent them from awarding the MRT3 maintenance contract to an obviously unqualified entity, apparently because of a family relationship with an official.

I found it totally pathetic that P-Noy, as one report had it, blamed red tape for the slow Yolanda relief and rehabilitation. He is president of the Republic, the chief executive of its government presumably with the powers to ensure quick disaster relief and rehabilitation… or what is he president for?

There should be a way by which government officials can cut the processes involved in the release of relief goods. The President should also have the power to see to it that basic rehab measures like housing happen more expeditiously than it has so far happened.

Otherwise, it would make sense for government to sub contract relief and rehab measures to media organizations with disaster response operations. Indeed, Yolanda showed that organizations like Lingkod Kapamilya were able to organize more efficient logistical systems that made it possible to bring relief to the victims faster than government, despite government’s greater resources.

Going back to the power crisis… do we really need more than 200 signatures and permits to enable an investor in a power plant to break ground? It is difficult enough to convince investors to risk hundreds of millions of dollars to build power plants. We shouldn’t ask investors to talk to every barangay captain or bureaucrat of some National Government agency for permission to get going.

Since we badly need those investments to make sure we have adequate power supply, it is simply common sense to put up a one stop shop managed by the Department of Energy where an investor can get all the permits he will ever need. If we have to amend some laws including the Local Government Code, we ought to do it.

Someone in one of my e-groups commented that our horrific red tape is actually an effective barrier to entry in an industry. Our people are being prevented from enjoying lower rates and prices arising from a competitive market because red tape is acting as a de facto barrier to the entry of competitors.

The problem can also be traced to our politicians who create positions and jobs for no better reason than to employ people close to them. And once the small bureaucrats are given powers, they maximize their ability to extract “livelihood” specially from those they feel have an ability to pay.

I believe that if we put a curse on all government officials so they cannot go to work for a year, our economy will benefit. Putting the country on auto pilot may yet help us become a real tiger economy. That’s because government red tape saps productivity and competitiveness. Unless red tape is tamed, we can expect nothing good happening to our country in the foreseeable future.

Anyway, here is how we rank according to a World Bank study on the ease of doing business, from one to 189. The lower the number, the higher the ease of doing business. That ranking means the regulatory environment is more conducive to the starting and operation of a local firm.

The rankings are determined by sorting the aggregate distance to scores on 10 topics, each consisting of several indicators, giving equal weight to each topic. The rankings for all economies are benchmarked to June 2014.

Overall, the Philippines ranks 95 out of 189. Singapore is 1, Malaysia is 18, Thailand is 26 and Vietnam is 78. For the East Asia/Pacific region, we are ranked 14.

Here is how we rank in the region according to various indicators:

We are 22 for starting a business; 20 for Dealing with construction permits; six for getting electricity; 16 for registering property; 19 for getting credit; 18 for protecting minority interests; 20 for paying taxes; eight for cross border trade; 16 for enforcing contracts and six for resolving insolvency.

The World Bank, working with the Policy Center of the Asian Institute of Management, reports that “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.

“Starting a business is easiest in General Santos, where it takes 22 days and costs 15.3 percent 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 percent.

“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, for example.

“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. Check out details in this link: http://www.doingbusiness.org/Rankings/philippines/

We have a lot of work to get done. Hopefully Filipino bureaucrats give cutting red tape the highest priority. Our economic health depends on it. The arithmetic is simple: Red tape in government equals red ink for the nation’s economy.

Boo Chanco’s e-mail address is[email protected]. Follow him on Twitter @boochanco