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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.
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