World Bank ease-of-doing-business ranking decline not dampening FDI
By Janina C. Lim
Reporter
THE Philippines enacted an Ease of Doing Business Law this year, during which it also fell 11 places on the World Bank’s Doing Business report to 129th place. The embarrassing result unleashed a torrent of complaints from the government — concurred in by businesses — about the fairness of the study’s methodology.
A particular focus of the government’s wrath was the Philippines’ performance in the report’s Getting Credit metric, which officials called “grossly inaccurate” because it used “severely understated” data.
The Philippine score on that metric on the 2019 survey, released this year, had plunged to 5 points, as against the 30 points it received in the 2018 survey
“They’re not intending to revise it,” said Department of Trade and Industry (DTI) Secretary Ramon M. Lopez in a phone interview.
The DTI, together with the Department of Finance, wrote to the World Bank, saying the Philippines should have obtained a higher score on access to credit had data from all credit bureaus been taken into account.
For the latest study, the World Bank obtained its credit facility data solely from the BAP Credit Bureau, Inc. which happens to have the smallest database at 1.7 million borrower-entrepreneurs. The major credit bureaus with larger coverage were included in the previous year’s survey.
“They should find a way to include those because the reality is that they are present,” added Mr. Lopez, also the concurrent chair of the Anti-Red Tape Advisory Council (ARTAC) which was created to implement the EoDB law.
Mr. Lopez pointed out that the 2019 report “failed to reflect the reality on the ground,” as available credit has recently been growing year-on-year by nearly a fifth, thanks mostly to micro, small and medium enterprises.
Mr. Lopez said the report is widely used by the global investing community, and the country’s ranking can affect their perception of the Philippine business environment.
The good news is that the report does not seem to be deterring new investment. Foreign direct investment (FDI) hit a record $10 billion last year, when the Philippines endured an even worse 14-place decline in the study to 113th from 99th.
According to the central bank, FDI in the eight months to August totaled $7.422 billion, up 31% year-on-year.
At eight months, the total was equivalent to 82% of the Bangko Sentral ng Pilipinas’ $9.2-billion FDI forecast for the entire year.
Despite two consecutive years of declines amounting to 25 places in the rankings, as well as falling out of the top 100, the Philippines continues to struggle to meet President Rodrigo R. Duterte’s mandate of landing within the top 20% of the 190 economies surveyed — or at least 38th.
“We can still target that ranking because all these new laws being passed will hopefully be credited by next year,” Mr. Lopez said.
He cited the Senate-approved bill amending the 38-year-old Batas Pambansa 68 or the Corporation Code of the Philippines; the updating of the implementing rules and regulations (IRR) of the Business Name Act of 1931 or Republic Act 3883; the proposed amendment to the Securities Regulations Code; and the EoDB law which missed being factored into the 2019 Doing Business survey, among others, as having the potential to boost the country’s standing.
Some business groups operating in the Philippines also called out the World Bank report’s methodology.
“I think it is unfair,” said American Chamber of Commerce of the Philippines, Inc. Senior Adviser John D. Forbes in an interview.
He noted that the Philippines undertook major reforms nearly 10 years ago, with a credit information system in which all the banks entered information on their creditors, allowing future lenders to gauge their reliability.
“In the United States we have companies get all this information from credit providers and everybody has a credit rating… We have a similar system now in the Philippines,” Mr. Forbes said in an interview.
“I have not talked to the World Bank so I don’t understand their reasoning but that shocked me and I think that was wrong,” Mr. Forbes added.
Philippine Chamber of Commerce and Industry President Ma. Alegria Sibal-Limjoco also expressed support for the government.
“Business people when we ask them say that conditions have improved. Maybe a few others are concerned with corruption, I don’t know,” she said in an interview.
But to further improve the country’s ranking, business groups said that for a real impact on ease of doing business, the government can start with the ports.
In the “Trading Across Borders” indicator where the Philippines improved slightly to a 69.90 point score from 69.39, Mr. Forbes pointed to the unnecessary nature of some documentary requirements, even after the enactment of the Customs Modernization and Tariff Act of 2016.
“The bureau has gone online. But, let’s say you have air freight coming into NAIA, the paper work is still required. So it’s more work rather than less work,” the AmCham official said.
He also pointed out “some fear of port congestion,” a side effect of increased imports associated with higher government spending.
“It has to be more seamless, more efficient. I don’t think the green lane imports are effective yet. (There are) hold ups for inspection (even though green lane users) are known to be trustworthy,” Mr. Forbes said.
“We have a problem in that case with too many imports because of high level of imports and too few exports,” he added.
In the nine months to September, the trade deficit widened by 70.5% to $29.91 billion.
“A long-term solution is needed to speed up the dispatch of shipments,” Philippine Exporters’ Confederation, Inc. President Sergio R. Ortiz-Luis, Jr. said in an interview.
The Philippine Ports Authority (PPA) has denied the existence of a congestion problem even in the weeks before the holidays.
“As far as we are concerned within our operations, there is no congestion. In fact, utilization has been high,” Jay Daniel R. Santiago, PPA general manager, told BusinessWorld in November.
The Manila port’s utilization currently stands at 70% as against the 90% recorded in 2014 when the country experienced a severe case of port congestion, according to Mr. Santiago.
“The people who think there is a port congestion problem may be considering things that happen outside the ports, particularly road congestion. For that one we’re coordinating with the road and rail sectors in order to find ways to be able to ease up road congestion,” Mr. Santiago added.
He noted that the start of operations at the Cavite Barge Terminal will help in easing congestion.
Inaugurated on Nov. 23, the Cavite terminal is expected to decongest the roadways leading to and from the port of Manila by at least 140 trucks a day.
The terminal is also expected to further ease utilization at the Manila port as the PPA can more quickly dispatch container vans.
“Were also planning to do a similar facility north of Manila. The initial location is Orion, Bataan. What will happen is that the movement of boxes will be done over the water rather than on the road,” he added.
Business groups are also clamoring to implement a more immediate solution: applying the shorter timeline to process business documents as prescribed by the EoDB law.
“We passed the ease of doing business law, almost six months ago, but it has not yet been implemented,” Mr. Ortiz-Luis said.
“Very ironic that it has not yet been implemented,” he added.
Republic Act No. 11032 or the Ease of Doing Business law, signed in May, requires processing times of three, seven and 20 days for simple, complex, and highly-technical transactions with the government.
Government officials failing to process applications on time will incur suspensions of 30 days without pay for a first offense and a three-month suspension without pay for a second offense.
A third offense comes with the penalty of dismissal and disqualification from holding public office; forfeiture of civil service eligibility and retirement benefits; and one to six years’ imprisonment.
Although the DTI as the temporary secretariat of the ARTAC succeeded in completing the law’s IRR on time, the formation of the ARTAC is crucial as it has the sole authority to formally issue the IRR and make effective the 3-7-20 processing timeline.
Mr. Lopez expects the appointments, particularly for the ARTAC’s director general and two deputy directors-general, to be issued before the year ends.
Asked if these developments will help bring the Philippines back into the top 100 for the 2020 Doing Business survey, Mr. Lopez replied in the positive.
The $23-Billion FDI potential
The Philippine government is displaying an ambitious goal of speeding up infrastructure development through its “Build, Build, Build” program. The initiative is anchored on the goal of making economic growth more inclusive and pro-poor. While its first tax reform package, the Tax Reform for Acceleration and Inclusion (TRAIN) law, and increased and new taxes can be a positive fiscal measure to support it, transforming the economy may need something more.
The mining sector is one of the industries that has the potential to turn our industrial sector into a global powerhouse. The $5.9-billion project Tampakan copper-gold deposit in South Cotabato is said to be one of the largest undeveloped deposits in the world, with 2.94 billion tons of ore with 0.6% copper and some 18 million ounces of gold. However, data from the Philippine Statistics Authority show that Mining and Quarrying declined by 1.1% during the 3rd quarter of 2018 and had the lowest contribution in the industry sector. Clearly, the country continues to fail to make the most of our mineral prospects. Other countries with a similar profile such as those in South America, Australia, and even Indonesia have taken advantage of their resources, while the Philippine mining sector is mired in regulatory and legal uncertainty.
House Bill 8400, passed on third and final reading in the House of Representatives in November and transmitted to the Senate soon after, presents a promising development in the mining sector to generate more revenues and boost economic development. The bill, which seeks to rationalize and institute a single fiscal regime applicable to all mineral agreements, paves the way toward a new mining revenue law and therefore the lifting of Executive Order 79, which bans the approval of new mining permits.
The interagency Mining Industry Coordinating Council (MICC) has recommended to lift the open pit ban in the country once mining laws, rules, and regulations are strictly enforced. The Department of Environment and Natural Resources (DENR) continuously consults and collaborates with industry experts to thoroughly understand the complex technical, social and environmental issues in the sector. This hopefully results in a more enlightened, scientific and balanced policy environment anchored on sustainability and inclusiveness.
This is in line with what UP School of Economics professor Ramon Clarete advised in a roundtable discussion organized by independent think tank Stratbase ADR Institute (ADRI), Philippine Business for Environmental Stewardship, and the DENR. In his proposed mining fiscal regime, Clarete said it is more beneficial to attract more foreign investors to expand the mining tax base rather than impose new and higher taxes. This is especially true for large upfront investments in exploration and development even before revenues from mining operations come in. High taxes will not amount to anything if the mining tax base remains stagnant. He adds, “the only way I can have a good base is to encourage investors to find it for me. You can’t do that if you have an onerous taxation.” In hindsight, perhaps improving policies and generating more investment opportunities might be more strategic than taxing industries and the public.
Tampakan is not an isolated case of missed opportunities. Up north, Mindoro Nickel’s $2.5-billion project reportedly has some 2.9 million tons or 6.6 billion pounds of nickel. Philex Mining’s Silangan project in Surigao del Norte projects an estimate of 4.94 billion pounds of copper and 9 million ounces of gold, valued at P752 billion and P605 billion, respectively. Other pending multibillion-dollar investments include Nadecor’s King-king project in Davao del Norte, Davao Oriental’s Asiaticus project, Lepanto Mining’s FSE project in Benguet, and Masbate’s Philsaga Mining contract, among others. According to data from the American Chamber of Commerce of the Philippines, our total Foreign Direct Investments (FDI) in 2017 was only USD 10 Billion. These projects could have unleashed $23 billion in FDIs. Imagine the multiplier effect to the local and national economy when these projects are in full operation — local and national taxes, infrastructure development, employment generation, and linked industries.
These huge FDI potential should be more than enough reason for our policy makers to break the decades-long policy impasse that has frozen what used to be a great pillar of national development which contributed 5% of GNP. There is now opportunity with the passing on third reading of House Bill 8400 which proposes a new mining fiscal and revenue sharing regime that was painstakingly debated on by all of mining’s stakeholders.
Sen. Sonny Angara, chairman of the Senate committee on ways and means, has rightly acted by prioritizing the proposed bill in his committee’s agenda. If he is successful in leading his colleagues in the Senate to pass a new mining revenue regime into law, he will be credited with increasing the government’s share and the awakening of a sleeping economic giant that has been hibernating underground for decades. We hope that all the senators will also realize the strategic economic potential, seize this opportunity, and work together to pass this into law before the end of this Congress.
As growth is seen to slow down this year, it is high time to start building the foundations of sustainable economic growth. Much of the delay has been due to the uncertain policy environment that had disincentivized doing business in the Philippines for local and foreign investors. We may have several things going for us such as tourism, real estate, and construction, but there is responsible mining, too. While marred by negative media and public attention, the mining industry is not incompatible with high regard for environmental safeguards, monitoring, and enforcement. Energizing the sector will be an uphill task, but, when done sustainably, it is an opportunity we cannot afford to miss.
Vanessa Pepino is an environment fellow of the Stratbase ADR Institute.
‘I now pronounce you: DIVORCED’
Under Executive Order No. 209, otherwise known as The Family Code of the Philippines, only declaration of nullity of marriage and annulment of marriage can sever a marriage bond between husband and wife. Moreover, the grounds provided for by law are exclusive.
Irreconcilable differences are not valid grounds for declaration of nullity or annulment of marriage. Likewise, sexual infidelity, bigamy, or abandonment, which are some of the many causes of an irremediable marriage, are not valid grounds to sever the marriage bond. These factors, however, along with physical, verbal, or psychological abuse, may be used and considered to prove psychological incapacity, a ground for declaration of nullity under Article 36 of the Family Code.
But the stringent Molina doctrine (Republic v. CA and Molina, 268 SCRA 198) requires that psychological incapacity must be grave, incurable and existing at the time when the couples exchanged their “I do’s.” The root cause of the incapacity must likewise be medically or clinically identified, and sufficiently proven by experts, which makes the filing of a petition for declaration of nullity of marriage even more expensive.
Although the Supreme Court relaxed the application of the Molina doctrine in Marcos v. Marcos (343 SCRA 755) by clarifying that a physician is not required to examine the person to be declared psychologically incapacitated, still, the party seeking an annulment must present evidence that can adequately establish the psychological condition. Simply put, the totality of evidence presented must be able to sustain a finding of psychological incapacity, characterized as grave and existing at the time of marriage, and that the same is incurable.
The current stringent requirements to sever a marriage bond may have contributed to the decline of the reported number of marriages from years 2007 to 2016, based on data from the Philippine Statistics Authority (PSA). According to PSA, “in a span of 10 years, the reported number of marriages decreased by 14.4% from 2007 to 2016.”
To give an opportunity to spouses in irremediably failed marriages to secure absolute divorce under limited grounds, as well as judicial procedures to end dysfunction of a long-broken marriage, the House of Representatives approved House Bill (HB) No. 7303, otherwise known as “Absolute Divorce Act of 2018.” This Bill also hopes to save the children from the pain, stress, and agony consequent to their parents’ constant marital clashes, and grant the divorced spouses the right to marry again for another chance to achieve marital bliss.
Under Section 5 thereof, the following are the grounds for absolute divorce:
a. The grounds for legal separation under Article 55 of the Family Code.
b. Grounds for annulment of marriage under Article 45 of the Family Code.
c. When the spouses have been separated in fact for at least 5 years at the time the Petition for Absolute Divorce is filed and reconciliation is highly improbable.
d. Psychological Incapacity as provided for in Article 36 of the Family Code, whether or not the incapacity was present at the time of the marriage or later.
e. When one of the spouses undergoes a gender reassignment surgery or transitions from one sex to another, the other spouses is entitled to petition for absolute divorce with the transgender or transsexual as respondent, or versa.
f. Irreconcilable marital differences and conflicts which have resulted in the total breakdown of the marriage beyond repair, despite earnest and repeated efforts at reconciliation, shall entitle either spouse or both spouses to petition for absolute divorce.
In letter (a) above, the grounds for legal separation under Article 55 of the Family Code, as basis for absolute divorce, are amended. It no longer requires “repeated” physical violence as the bill removed such qualifier. It also included “chronic gambling of the respondent” as ground. Having a child with another other than one’s spouse during the marriage is also included as ground, except when upon the mutual agreement of the spouses, a child is born to them by in vitro or a similar procedure, or when the wife is a rape victim, who bears a child after the incident.
Moreover, when the spouses are legally separated by judicial decree for more than 2 years, either or both spouses can petition for an absolute divorce based on said judicial decree of separation.
The court shall not start the trial of a petition for absolute divorce unless the mandatory six-month cooling-off period is observed, except in cases which involve acts of violence against women and children under RA 9262. This serves as a final attempt to reconcile the parties.
On the effect of an absolute divorce decree to children born during the marriage, these children, as well as the adopted children, shall retain their legal status and legitimacy.
The bill, which does not provide for a retroactive application, was already approved by the House on third reading, and is now pending before the Senate. Needless to say, this bill may still undergo substantial changes/modifications given the strong opposition by the Church and conservative Filipinos.
The views and opinions expressed in this article are those of the author. This article is for general informational and educational purposes, and not offered as, and does not constitute, legal advice or legal opinion.
Erika Joy B. Murcia is an associate of the Angara Abello Concepcion Regala & Cruz Law Offices (ACCRALAW) Cebu Branch.
(6332) 231-4223
ebmurcia@accralaw.com.