ENTERPRISE SURVEYS WHAT BUSINESSES EXPERIENCE Philippines 2015 ENTERPRISE SURVEYS Country Profile 1 Contents Introduction......................................................................................................................................................... 3 Firms Characteristics ........................................................................................................................................... 4 Workforce............................................................................................................................................................ 5 Firm performance................................................................................................................................................ 5 Physical Infrastructure ........................................................................................................................................ 6 International Trade ............................................................................................................................................. 6 Access to Finance ............................................................................................................................................... 7 Crime and Informality ......................................................................................................................................... 8 Regulations, Permits, and Taxes ......................................................................................................................... 8 Corruption ........................................................................................................................................................... 9 Business Environment Obstacles ........................................................................................................................ 9 Appendix ........................................................................................................................................................... 11 The Country Profiles produced by the Enterprise Analysis Unit of the World Bank Group provide an overview of key business environment indicators in each economy, comparing them to their respective geographic region and group of countries with similar income levels. The same topics are covered for all countries with slight variations of indicators. All indicators are based on the responses of firms. To learn more about the Enterprise Analysis Unit and to obtain Country Profiles for other countries, please visit www.enterprisesurveys.org © 2014 International Bank for Reconstruction and Development / The World Bank Group 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank Group with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank Group, its Board of Executive Directors, or the governments they represent. The World Bank Group does not guarantee the accuracy of the data included in this work. 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The Enterprise Surveys team can be contacted at: The World Bank Group 2121 Pennsylvania Avenue, NW Washington DC, 20433 USA Tel. (202) 479-3800 2 Economy Overview economies and includes the entire manufacturing sector and most services sectors: retail, wholesale, automotive Philippines 2015 repair, hotels and restaurants, transportation, storage, Region: East Asia & Pacific communications, construction, and IT. Public utilities, Population: 100,699,395 government services, health care, and financial services GNI per capita (US $): 3,540 sectors are not included in the sample (Figure 1). The ES interview takes place with top managers and business Income Group: Lower middle income owners. Introduction The ES are repeated approximately every four years for a particular economy (or region). By tracking changes in the The Enterprise Surveys (ES) focus on many aspects of the business environment, policymakers and researchers can business environment. These factors can be look at the effects of policy and regulatory reforms on accommodating or constraining for firms and play an firm performance. Repeated surveys aid in studying the important role in whether an economy’s private sector evolution of the business environment and how it affects will thrive or not. An accommodating business the dynamics of the private sector. environment is one that encourages firms to operate efficiently. Such conditions strengthen incentives for This document summarizes the results of the Enterprise firms to innovate and to increase productivity — key Survey for the Philippines. Business owners and top factors for sustainable development. A more productive managers in 1,335 firms were interviewed from private sector, in turn, expands employment and November 2014 to May 2016. Figure 2 provides a contributes taxes necessary for public investment in description of the sample breakdown across the three health, education, and other services. Questions survey design categories: business sector, firm size, and contained in the ES aim at covering most of the topics location. mentioned above. The topics include infrastructure, trade, finance, regulations, taxes and business licensing, corruption, crime and informality, access to finance, Figure 1: Sectors of the economy covered by the innovation, labor, and perceptions about obstacles to Enterprise Surveys doing business. Excluded Included SECTORS SECTORS The ES are conducted by the World Bank Group and its Agriculture Manufacturing (all subsectors) partners across all geographic regions and cover small, Fishing Construction medium, and large firms. The size of the firm is Mining Motor vehicles sales and determined by the number of employees: 5 to 19 (small), Public utilities repair Financial intermediation Wholesale 20 to 99 (medium), and 100 or more (large). Firms with Public administration Retail less than five employees are ineligible for the survey. Education, health and social Hotels and restaurants Firms that are 100% state-owned are also ineligible. work Storage, transportation, and Partners for the ES have included the European Bank for communications Reconstruction and Development (EBRD), the European IT Investment Bank (EID), and the UK's Department for ADDITIONAL CRITERIA ADDITIONAL CRITERIA International Development (DFID).  < 5 employees  5+ employees  Informal firms  Formal (registered) firms  100% state-owned firms  Minimum of 1% private The surveys are administered to a representative sample1 ownership of firms in the non-agricultural, formal, private economy. Sector coverage is defined consistently across all 3 Figure 2: Characteristics of firms surveyed Sector Chemicals & Chemical Products [149] Electronics [122] 161 149 122 Fabricated Metal Products [154] Food [159] 146 Garments [151] Other Manufacturing [141] 154 152 Other Services [152] Retail [146] 141 159 151 Rubber & Plastics Products [161] Size 403 418 Small (5-19) [418] Medium (20-99) [514] Large (100+) [403] 514 Location 194 457 Ncr Excluding Manila [457] Central Luzon [256] Calabarzon [227] 201 Metro Cebu [201] Metro Manila [194] 227 256 Firms Characteristics Figure 3: Age distribution of firms (percent of firms) 40 35 In addition to collecting information on the business environment and firm performance, the ES also collect 30 information on characteristics of private firms. Figure 3 23 % of Firms shows the distribution of firms in the private sector 21 according to their age, measured by the number of years 20 they have been in operation. The effect of the business environment on firm performance may depend on firms’ 9 10 4 5 experience and longevity. Also, older firms and young 3 firms may differ in their ability to successfully navigate the 0 business environment. 0-10 11-20 21-30 31-40 41-50 51-60 60+ Firm Age (Years) 4 Figure 4 exhibits the percentage of female participation in The incidence of training is measured by the percent of employment, in top management and in firm ownership, firms that offer formal training and the intensity of compared to the equivalent percentages for the region training is measured by the share of workers receiving and for economies with similar income levels. Female training in the manufacturing sector. inclusion in economic activity is necessary for promoting shared prosperity, one of the twin development goals of Figure 6: Within firms offering training, proportion of the World Bank Group. workers trained* 100 85 Figure 4: Female participation in employment, top 75 80 60 management and ownership 60 % of Firms 80 40 69 70 20 60 54 0 Percentage 50 Philippines2015 East Asia & Pacific Lower middle 38 38 40 income 30 30 25 24 * only for manufacturing firms 21 20 15 10 Firm performance 0 % of employees % of firms w/ a % of firms w/ If an economy’s business environment is supportive and that are female female top female competitive, resources are often channeled to the most manager participation in ownership productive uses and firms invest to further increase their Philippines2015 East Asia & Pacific Lower middle income productivity. Using the responses to questions on annual sales and the total number of permanent full-time employees, both in the last fiscal year and three fiscal Workforce years earlier, growth measures can be computed for each firm. Figure 7 displays the resulting annual growth rate in The ES collect workforce information such as the number employment and in real sales. By looking at business of permanent full-time employees, the number of environment measures in conjunction with available temporary employees, employees by gender, whether performance measures, policymakers can determine formal training is offered, and the top manager’s which aspects of the business environment may be experience working in the firm’s sector. In addition, for impeding or enabling the growth of the private sector. manufacturing firms, the ES also collects the breakdown of the workforce between production and non- Figure 7: Annual employment and sales growth production workers and between skilled and unskilled 8 7.3 6.7 production workers. Figures 5 and 6 highlight firms’ 6 investment in the skills and capabilities of their workforce. 4.0 4 3.2 3.3 % Annual Figure 5: Percent of firms offering formal training 2 80 60 57 60 0 Annual employment growth Real annual sales growth (%) 40 25 -2 (%) % of Firms 20 -2.8 -4 0 Philippines2015 East Asia & Pacific Philippines2015 East Asia & Pacific Lower middle Lower middle income income 5 Physical Infrastructure Figure 9: Days to obtain an electrical connection 30 25 A well-developed physical infrastructure, including roads, 25 19 20 electricity, water and telecommunications, is central to Days 15 competitiveness and growth of an economy. Quality 9 10 infrastructure efficiently connects firms to markets for 5 inputs, products, and technologies. It reduces the cost of 0 production and enhances the competitiveness of firms in Philippines2015 East Asia & Lower middle domestic and international markets. Pacific income For many industries in the manufacturing sector water is The ES capture the dual challenge of providing a strong also an important input in the manufacturing process. infrastructure for electricity, water supply and Figure 10 presents the average number of water telecommunications in addition to information on the insufficiencies in a typical month experienced by firms in development of institutions that effectively provide and the manufacturing sector. Interruptions in water maintain these public services. provision can have serious harmful effects on firms’ operations. Efficiency in the operation of the private sector requires a reliable supply of electricity. Figure 8 shows the extent to Figure 10: Reliability of water supply* which firms face failures in the provision of electricity and 1.0 0.8 No. of Insufficiencies their effect on sales as measured by the losses they generate. Inadequate electricity provision supply can 0.5 increase costs, disrupt production, and reduce 0.0 0.0 profitability. 0.0 Philippines2015 East Asia & Pacific Lower middle Figure 8: Reliability of electricity supply and related income losses * only for manufacturing firms 2.5 9.0 10 2.1 2.0 8 International Trade 1.5 6 No. of Power Outages Participation in international trade allows firms to % Sales 1.0 4 expand, raise standards for efficiency, import materials at 0.5 2 lower cost, and acquire updated and better technologies. 0.2 0.2 0.1 0.3 However, trading also requires that firms deal with 0.0 0 customs and trade regulations, and often firms are also % losses due to No. of power outages required to obtain export and import licenses. power outages Philippines2015 East Asia & Pacific Lower middle income The ES quantify the trade activity of firms and collects information on the operational constraints faced when Figure 9 displays the efficiency of infrastructure services exporting and importing. Figure 11 provides a measure of by quantifying the number of days it takes to obtain an the intensity of foreign trade in the private sector, electricity connection. Service delays impose additional captured by percentage of firms’ exporting (either costs on firms and may act as barriers to entry and directly or indirectly) and also the percentage of investment manufacturing firms using inputs or supplies of foreign origin. 6 Figure 11: Percentage of exporting and importing firms purchases of fixed assets (investments). Investment 50 44 purchases can be financed by internal sources, banks, 36 inputs’ supplier credit, or other sources, including non- 40 bank financial institutions or personal networks. % of Firms 30 Excessive reliance on internal funds may indicate 19 17 20 potentially inefficient financial intermediation. 12 9 10 Figure 14 displays two indicators of the use of financial 0 services by private firms: the percentage of firms with a % exporting directly or % using inputs of foreign checking or savings account and the percentage of firms indirectly origin(manufacturing firms only) with a bank loan. The former indicator measures the use Philippines2015 East Asia & Pacific Lower middle income of deposit mobilization services which helps firms to manage their liquidity and payments. The second indicator measures the use of financial services on the Efficient customs procedures enable businesses to credit side. Availability of credit permits funding projects directly export and import goods. Figure 12 displays the that otherwise would be constrained by each firm’s average number of days to clear customs for exports and limited pool of funds. imports. Delays in clearing customs for exports and imports create additional costs to the firm, can interrupt Figure 13: Sources of financing for purchases of fixed production, interfere with sales, and may result in assets damaged supplies or merchandise. Figure 12: Average days to clear exports and imports Philippines2015 10 5 3 81 1 through customs 20 18 15 East Asia & Pacific 64 2 86 2 15 % of Firms 9 9 10 8 6 Lower middle income 15 6 3 71 6 5 0 0 20 40 60 80 100 Exports at customs Imports at customs % of investment Philippines2015 East Asia & Pacific Lower middle income Financed by banks Financed by equity Financed by supplier credit Financed internally Other Access to Finance Figure 14: Use of financial services Well-developed financial markets provide payment 100 91 96 98 services, mobilize deposits, and facilitate funding for the 80 purchase of fixed assets – such as buildings, land, % of Firms machinery, and equipment – as well as working capital. 60 48 39 Efficient financial markets reduce the reliance on internal 40 23 funds or informal sources such as family and friends by 20 connecting firms that are creditworthy to a broad range 0 of lenders and investors. Small (5-19) Medium (20-99) Large (100+) The ES provide indicators on the sources of firms financing With checking/savings account With bank loan and on the characteristics of their financial transactions. Figure 13 compares the various sources used to finance 7 Crime and Informality Figure 16: Firms and informality 100 93 88 83 Firms can become the target of theft, robbery, vandalism, 80 or arson. Protecting themselves against crime imposes % of Firms 55 52 costs as firms are forced to divert resources from 60 productive uses to cover security costs. Moreover, both 31 40 foreign and domestic investors perceive crime as an indication of social instability, and crime drives up the cost 20 of doing business. 0 Compete with informal Registered when started Figure 15 displays the direct costs of security incurred by firms operations firms as well as their losses due to crime. These resources Philippines2015 East Asia & Pacific Lower middle income represent the opportunity cost of crime since they could have been invested in productive activities. Regulations, Permits, and Taxes Figure 15: Firms’ cost of crime 2 Good economic governance in areas such as regulations, business licensing, and taxation is a fundamental pillar of 1.3 % of Firms 0.9 a favorable business environment. Registered firms pay 1 0.7 taxes and are supposed to comply with regulations. 0.3 0.2 0.2 Figure 17: Time tax and meetings with tax officials 0 6 5.4 1.0 1.0 Security costs Losses due to theft 1.0 5 1.0 Philippines2015 East Asia & Pacific Lower middle income No. of Meetings 4.0 4 1.0 % of Time When firms are formally registered, they are required to 3 1.0 1.0 abide by rules and regulations, which are commonly set 2 1.6 1.0 by governments. Paying taxes is usually the most tangible 1 1.0 consequence of becoming part of the formal private sector. Some firms try to avoid these consequences by 0 1.0 Senior mgmt time w/ No. of tax meetings in a not registering their business and thereby remaining in govt regulations year the informal sector. A large informal sector may represent a challenge to competing formal firms as informal firms Philippines2015 East Asia & Pacific Lower middle income are able to engage in practices that can give an unfair advantage over formal firms that must comply with the Permits and licenses are usually required for business to prevailing rules and regulations. operate, build a new structure, and to import directly, among other activities. Ideally, these regulations and Figure 16 provides two measures of the incidence of permits safeguard the general public’s interest while informality in the private sector. The first indicator is the remaining transparent and not imposing heavy burdens percentage of firms that indicate that they face on the private sector. competition from unregistered or informal firms. The second indicator is the percentage of currently registered The ES provide quantitative measures of regulations such firms that started operations being formally registered. as business licensing and taxation. Figure 17 illustrates the “time tax” imposed by regulations, which is the percentage of time spent by senior management dealing with regulatory compliance. Figure 17 also presents the number of required meetings with tax officials in a year. 8 Figure 18 focuses on the efficiency of business licensing The ES capture individual transactions where bribes may and permit services. The indicators measure the time be solicited. Figure 20 displays the extent to which firms required to obtain an import license, a construction are requested to pay a bribe in order to receive selected permit, and an operating license. Delays in obtaining public services. Businesses may be asked to pay bribes licenses can be costly to entrepreneurs as they add when they request a construction permit, while trying to uncertainty and additional costs to much needed business secure a government contract, or during meetings with transactions. tax officials. These three types of transactions are common instances where opportunities for bribery occur. Figure 18: Number of days to obtain permits 40 37 Figure 19: Bribery Incidence (percent of firms 33 experiencing at least one bribe payment request) 30 27 30 24 22 22 21 18 19 17 % of Firms 18 20 16 20 Days 10 10 0 0 Philippines2015 East Asia & Pacific Lower middle Import license Construction Operating license income permit Philippines2015 East Asia & Pacific Lower middle income Figure 20: Percentage of firms requested or expected Complying with regulations is costly for businesses. to give gifts or informal payments Excessive or inefficient regulations can discourage private 50 44 sector activity and foreign direct investment. 40 39 40 35 31 Corruption 30 % of Firms 20 18 20 14 14 Corruption by public officials can be a major 10 administrative and financial burden on firms. Corruption 0 creates an unfavorable business environment by For construction For govt contract In mtgs w/ tax undermining operational efficiency and raising the costs permit officials and risks associated with running a private firm. Philippines2015 East Asia & Pacific Lower middle income Inefficient regulations constrain firms’ operations as they present opportunities for soliciting bribes, where firms are required to make “unofficial” payments to public Business Environment Obstacles officials to get things done. In many economies bribes are common and quite high and they add to the bureaucratic Most indicators in the ES are derived from survey costs in obtaining required permits and licenses. They can questions that ask businesses for their actual experiences be a serious impediment for firms’ growth and dealing with the business environment. For example, development. “How many days did it take to get a permit?” or “How many hours did the power outage last?”. A small number Figure 19 provides a composite index of corruption, the of survey questions ask business owners or top managers bribery incidence, that reflects the percentage of firms for their subjective opinion regarding the importance of experiencing at least one bribe payment request across various business environment elements. six different transactions including paying taxes, obtaining Figure 21 shows the percentage of firms that consider a permits or licenses, and obtaining utility connections. specific business environment obstacle as the most important one. The respondent was asked to choose the 9 biggest obstacle to their business from a list of 15 perceptions of managers of medium and small firms. This business environment obstacles. The figure presents the is related to the capacity to navigate business top 10 ranking obstacles compared to the regional environment obstacles: larger firms may have more averages. options to face obstacles but at the same time they are also more visible and more exposed to failures of the Figure 22 displays the top 10 obstacles for small, medium, business environment. and large firms. In many economies, the perceptions of managers of large firms are very different from the Figure 21: Top ten business environment constraints (percent of firms) 25 Philippines2015 East Asia & Pacific 20 20 15 % of Firms 12 10 10 9 8 6 6 5 5 4 5 0 Practices of Corruption Access to Tax rates Electricity Labor Access to land Transportation Customs and Business the informal finance regulations trade licenses and sector regulations permits Figure 22: Top three business environment constraints by size (percent of firms) Small (5-19 employees) Medium (20-99 employees) Large (100+ employees) 25 23 18 16 16 25 20 14 13 13 20 20 12 % of Firms % of Firms % of Firms 15 10 15 13 10 10 11 10 8 10 6 5 4 5 2 0 0 0 Practices of Access to Corruption Practices of Tax rates Access to Corruption Practices of Tax rates the informal finance the informal finance the informal sector sector sector 10 Appendix The following tables contain the values of all indicator variables used in the country profile. Lower Small Medium Large East Asia Philippines2015 middle firms firms firms & Pacific income Firm Characteristics Age of the establishment (years) 19.4 16.6 22.9 25.8 13.3 16.6 Gender Percent of firms with female participation in ownership 69.2 65.0 74.8 78.4 53.8 24.0 Percent of firms with a female top manager 29.9 29.6 33.9 14.0 21.4 15.4 Proportion of permanent full-time workers that are female (%) 38.5 40.6 35.4 30.2 37.5 25.2 Percentage of permanent full-time non-production workers 31.8 30.5 55.7 22.4 39.2 20.4 that are female. Percentage of permanent full-time production workers that are 37.1 42.6 19.8 10.5 37.3 18.1 female. Workforce Percent of firms offering formal training 59.8 58.7 57.7 77.9 56.9 25.3 Proportion of workers offered formal training (%)* 75.3 97.0 51.7 96.7 84.9 60.3 Years of the top manager's experience working in the firm's 16.8 15.0 19.2 20.6 14.8 14.5 sector Number of permanent full-time workers 32.9 10.2 35.9 207.3 50.1 40.3 Number of temporary workers 12.1 1.6 15.5 83.7 4.9 5.0 Number of permanent production workers* 41.9 7.8 23.4 181.2 71.0 52.3 Number of permanent non-production workers* 16.6 3.2 15.1 57.8 18.6 11.9 Number of permanent skilled production workers* 36.0 5.8 19.7 158.7 36.7 37.1 Number of permanent unskilled production workers* 4.6 2.0 3.7 14.0 37.5 14.2 Proportion of unskilled workers (out of all production workers) 17.2 19.9 15.1 14.6 43.8 28.2 (%)* Performance Real annual sales growth (%) 4.0 4.4 3.4 3.6 7.3 -2.8 Annual employment growth (%) 3.2 1.2 4.0 15.1 6.7 3.3 Infrastructure Number of electrical outages in a typical month 0.1 0.0 0.1 0.1 0.3 9.0 Losses due to electrical outages (% of annual sales) 0.2 0.2 0.3 0.3 0.2 2.1 Days to obtain an electrical connection (upon application) 18.6 14.6 23.2 19.4 9.3 25.3 Number of water insufficiencies in a typical month* 0.0 0.1 0.0 0.1 0.0 0.8 Trade Days to clear direct exports through customs 14.5 13.5 17.5 11.8 7.5 6.3 Percent of firms exporting directly or indirectly (at least 1% of 9.5 6.2 11.4 27.4 18.8 12.2 sales) Days to clear imports from customs* 17.8 15.0 17.4 19.5 9.5 9.1 Percent of firms using material inputs and/or supplies of foreign 44.3 23.8 53.9 77.4 17.0 35.8 origin* Finance Percent of firms with a checking or savings account 93.2 90.9 96.2 98.0 85.3 74.9 Percent of firms with a bank loan/line of credit 29.9 22.6 38.9 48.1 26.8 25.0 Proportion of investment financed internally (%) 81.2 85.1 75.6 85.4 85.9 71.0 Proportion of investment financed by banks (%) 10.1 3.5 16.8 11.6 6.2 14.6 Proportion of investment financed by supplier credit (%) 2.6 0.6 5.2 1.0 2.2 2.9 Proportion of investment financed by equity or stock sales (%) 5.5 9.3 2.4 1.6 3.6 5.7 Crime Security costs (% of annual sales) 0.7 0.5 0.9 1.5 0.9 1.3 Losses due to theft and vandalism against the firm (% of annual 0.2 0.2 0.2 0.1 0.2 0.3 sales) 11 Lower Small Medium Large East Asia Philippines2015 middle firms firms firms & Pacific income Informality Percent of firms competing against unregistered or informal 30.9 30.5 30.7 34.4 55.1 52.0 firms Percent of firms formally registered when they started 93.3 92.4 96.1 88.8 88.0 83.0 operations in the country Regulations and Taxes Senior management time spent dealing with the requirements 5.4 5.3 5.8 3.7 1.6 4.0 of government regulation (%) Number of visits or required meetings with tax officials 1.0 1.0 1.0 1.1 1.0 1.0 Days to obtain an import license 36.6 29.6 40.8 41.4 21.5 18.2 Days to obtain a construction-related permit 27.3 14.3 42.1 18.1 20.6 33.3 Days to obtain an operating license 17.8 17.4 17.8 20.9 19.4 22.3 Corruption Bribery incidence (percent of firms experiencing at least one 17.2 16.5 18.4 18.5 15.9 24.2 bribe payment request) Percent of firms expected to give gifts to get a construction 39.9 44.3 41.7 21.5 31.5 35.2 permit Percent of firms expected to give gifts to secure government 20.5 13.3 26.8 26.7 44.1 38.6 contract Percent of firms expected to give gifts in meetings with tax 14.1 14.5 13.8 11.9 13.5 17.9 officials Biggest Obstacle Access to finance 10.4 10.2 12.9 2.1 17.1 11.6 Access to land 6.0 8.2 2.8 1.1 5.2 3.8 Business licenses and permits 4.5 4.8 4.7 1.1 2.4 3.4 Corruption 11.5 9.7 12.9 20.1 2.5 11.0 Courts 0.6 0.9 0.1 0.5 1.5 1.1 Crime, theft and disorder 3.5 2.6 5.7 2.6 1.1 2.9 Customs and trade regulations 5.0 4.0 5.2 10.9 3.0 3.1 Electricity 7.9 8.4 6.9 7.7 4.5 9.5 Inadequately educated workforce 2.4 1.6 2.2 9.3 9.4 4.3 Labor regulations 6.4 9.7 0.7 3.6 2.7 3.2 Political instability 3.4 3.0 3.2 6.9 4.2 12.3 Practices of the informal sector 20.0 22.6 16.5 13.2 22.3 17.1 Tax administration 4.3 3.4 6.4 2.3 4.0 2.8 Tax rates 9.0 6.7 13.1 11.0 13.9 10.8 Transportation 5.2 4.1 6.7 7.6 6.3 3.1 * These indicators are computed only for the manufacturing sector 1. The sample for each economy is stratified by industry, firm size, and geographic region. The level of detail of the stratification by industry depends on the size of the economy. Stratification by size follows the three levels presented in the text: small, medium, and large. Regional stratification includes the main economic regions in each economy. Through this methodology estimates for the different stratification levels can be calculated on a separate basis while, at the same time, inferences can be made for the non-agricultural private economy as a whole. For more details on the sampling strategy, review the Sampling Note available at www.enterprisesurveys.org. 12