2019News

WB cites need to lift restrictive rules to fuel economic activity

By J. C. Lim, March 5 2019; Business World

https://www.bworldonline.com/wb-cites-need-to-lift-restrictive-rules-to-fuel-economic-activity/

Image Credit to Business World

LIFTING regulations that restrict competition can help spur economic growth, according to a study conducted late last year by the World Bank Group that noted that Philippine markets are more concentrated — with few players — and more restrictive than those of regional peers.

Titled “Fostering Competition in the Philippines: The Challenge of Restrictive Regulations,” the November 2018 study — presented in a press briefing in Makati City on Monday — noted that a number of markets in the country have “only one firm in operation in an environment where competition would usually be considered viable.”

It particularly cited as “highly concentrated” the fields of transport and storage, agriculture, wholesale and retail trade, and manufacturing.

“In agriculture, there are 15 national markets that have only one firm operating, 16 in manufacturing, five in wholesale/retail and 15 in transport/storage,” it read.

The study noted, among others, that “in manufacturing, where the contribution to GDP has decreased in recent decades, Philippine markets appear to be more concentrated than those of regional peers, with a higher proportion of monopoly, duopoly or oligopoly markets which are typically more prone to collusion and abuse of market power, and a recent increase in the number of monopolies and duopolies.”

It also gave competition snapshots of four key service sectors, namely: energy, professional services, transport and telecommunication, which have “a lot of impact on downstream markets and spillover effects in the economy.”

“An estimation of the bank would be that an enhanced framework in services sector will actually result not only in increased productivity but in at least 0.2 percentage point in growth for the Philippines every year,” Graciela Miralles Murciego, senior economist for World Bank’s Markets and Competition Policy division, said in the briefing.

The World Bank study identified 99 restrictions and noted that many of these are rules that discriminate and protect vested interests (45.5%), followed by rules that reinforce dominance and limit entry (33.3%) and are conducive to collusive outcomes or increase costs to compete in the market (21.2%).

It also noted that “[a]lthough the government… had adopted key reforms to rationalize state participation in the economy, state-owned enterprises (SOEs) are still present in a number of non-infrastructure sectors where private participation is typically possible and economically viable.”

“Although the presence of SOEs in infrastructure sectors is not unusual across countries — especially in sectors that require capital investments (such as electricity transmission and road infrastructure), the government of the Philippines controls at least one in 11 firms out of the 17 non-infrastructure sectors surveyed,” it added, saying the list included insurance, financial services, construction, fabricated metal products, wholesale and retail trade, human health activities, as well as restaurants and hotels.

Hence, the study said rules should enable private and state-owned businesses to “compete on equal terms.”

“While the competition law calls for equal treatment of SOEs and private firms, privileges and immunities in terms of corporate governance or access to finance may distort market competition and even risk crowding out the private sector.”

It also cited inequitable provision of subsidies that “may result in market distortions”, citing 2012 statistics showing that 56 markets across sectors like manufacturing, agriculture, wholesale/retail and transport/storage “reported at least one firm receiving a subsidy (equivalent to nine percent of all markets in those sectors).”

“… [I]n many cases, subsidies do not appear to have been granted equally to all firms within the market,” the World Bank noted.

“In 22 industries, only one firm received subsidy while more than one firm operated in the market.” — J. C. Lim

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