Starting a business in the Philippines
It is not easy to start a business in the Philippines.It takes 11 steps, 48 days and is costly—about 18.7% of income per person, and costs 1.8% of your minimum capital, per capita, according to World Bank data using figures supplied by the Philippines’ leading corporate law firms.
The bank studied how to start a business in the Philippines—all the procedures, how to obtain licenses and permits, completing the required notifications, verifications, or inscriptions for the company and employees with relevant authorities.
The bank also measured the time and cost of complying with each procedure under normal circumstances and the required minimum paid-in.
Cost is recorded as a percentage of the country’s income per capita. So 18.7% translates into $243, assuming per-capita income is $1,300.
Canada, which ranks No. 1 in ease of starting a business, requires just two steps, three days and 0.9% of per-capita income. There is no minimum capital.
The World Bank suggests that the easiest way to ease up on starting a business is to change the corporation code. “Eliminate the minimum capital requirement, make business registration administrative rather than judicial and allow registration notices to be published online or at the registry,” advises the bank. Get rid of the judges.
Business start-up takes 20 days more on average where judges have to approve the applications.
Serbia and Uganda avoided these delays by creating a new administrative registry. Bulgaria did the same in April 2006, despite fierce opposition from the judiciary. Honduras and Italy transferred registration from judges to private chambers of commerce.
In Serbia, the government decided that radical reform was better than wrestling with the existing system. The reform took nearly two years to complete, starting in January 2003 with a seminar on business registration in countries of the European Union.
In May 2004 parliament passed a law to create the new registry. Registration was simplified, and agencies linked through a central electronic database. The registry no longer has the authority to check the authenticity of data or to refuse registration if the application is complete. A “silence is consent” rule ensures automatic registration within five days.
As soon as the law came into force, the focus shifted to training and publicity. The registry’s director, named in July 2004, became the spokesperson in the publicity campaign. By January 2005, when the registry opened, everyone knew about it. New registrations increased by 43% in the first year.
Slovakia took a different approach, reforming in steps. In October 2003—in time for its entry into the European Union the following year—Slovakia passed the Act on the Commercial Register, transferring registration from judges to court clerks. Standard documents and clear filing procedures replaced substantive review by judges.
And Slovakia did not stop there. In July 2004 it cut the statutory time limit for issuing a trade license from 15 days to seven.
Three years after the commercial register act was adopted, opening a business takes 25 days rather than 103.
Reformers who want to start simple could consider administrative reforms first: Cut unnecessary procedures, create a one-stop shop for business registration, introduce standard application forms and a single business identification number and move any tax payments to after the business has started operations.
Creating one-stop shops for company registration was the most popular reform in 2005/06. But one-stop shops are not enough. Many other procedures may be required before a business can legally operate—such as obtaining documents and having them notarized, depositing initial capital or registering for social security.
One-stop shops work best when other start-up procedures are cut or simplified. For instance, El Salvador cut the time to start a business—with no changes to the law.
In 18 months start-up time dropped to 40 days and the share of satisfied customers rose to 87%.
But reformers went even further, transferring staff from the Ministries of Finance and Labor and the social security institute to the company registry. Entrepreneurs now register with all 4 agencies in a single visit and can open their business in 26 days—down from 115 before the reform.
Whatever reforms are made, reformers should advertise the changes and monitor their effect on new registrations. Most reformers are bad marketers.
So, few entrepreneurs know how much easier registration has become. El Salvador first established a one-stop shop in 1999, but local entrepreneurs thought it was only for foreigners. A lesson was learned. The second time around reformers staged two “ribbon-cutting” events with President Antonio Saca and Vice-President Ana Escobar. The media coverage ensured that everyone knew about the new system when it opened in January 2006.
Finally, reformers best stick to one principle—simplify. Cumbersome entry procedures mean more hassle for entrepreneurs and more corruption, particularly in developing countries.
Each procedure is a point of contact—an opportunity to extract a bribe. The cost of such systems is the forgone jobs that new firms would have created.
