Notes from the Field

Zamboanga City Reaps Gains of Better Business Environment

January 12, 2011

Zamboanga City is one of the oldest cities in the Philippines, with a rich history and distinct culture. It is the third largest city in the country in terms of land area, and sixth in terms of population. The city is also a center of economic activities in Mindanao, with a modern seaport and airport that serve as the gateway of goods to the region. It also serves as the tourism hub of Western Mindanao, and is dubbed the sardine capital of the Philippines.

Until recently, Zamboanga City's local business atmosphere was stifled by enormous challenges with business registration and the proliferation of non-registered business establishments. In 2005, A series of dialogues brought city government officials together with businesses to find a win-win solution to this long standing problem. Photo by Karl Grobl.

Despite its economic and cultural significance as “Asia’s Latin City,” until recently, Zamboanga City’s local business atmosphere was stifled by enormous challenges with business registration and the proliferation of non-registered business establishments.

In conjunction with its annual Doing Business Report, which provides objective measures of business regulations and their enforcement across 183 economies, in December the International Finance Corporation (IFC) launched its second sub-national 2011 Doing Business Report in the Philippines. The report compares the regulatory environment for business in 25 cities, and Zamboanga City boasted a high sixth place. This is a remarkable achievement considering where it stood in 2005 when The Asia Foundation began a series of reforms and dialogues through its Transparent Accountable Governance (TAG) Project, supported by the United States Agency for International Development (USAID).

The IFC report highlighted how far Zamboanga City has come since 2005, when it took 14 days to secure business permit (compared to just 2 days in other cities). The 14 days didn’t include the additional time spent to comply with the regulatory requirements of national agencies such as registration with Securities and Exchange Commission, obtaining a business name from the Department of Trade and Industry, and registering with the Bureau of Internal Revenue, Social Security System, and the Philippine Health Insurance System. For local government requirements, the lack of coordination among the various offices within the city government led to even more complicated and tedious procedures and longer processing times. As a result, businesses did not have the incentive to comply with the official process of securing business permits, opening up opportunities for corruption and negatively affecting the city government’s ability to collect much-needed business taxes.

When TAG first facilitated the dialogues between local governments and businesses, the city government had clear objectives about what it wanted to achieve. For example, Zamboanga’s Mayor Celso Lobregat declared that his government would like to simplify its business licensing process to make it friendlier and easier for businesses to file for business permits, and for the city government to raise local revenue. Non-registered businesses made up at least 25 percent of the total in Zamboanga City, but because the local government was unable to collect fees and charges from such businesses, the government only saw a portion of potential revenue.

A series of dialogues brought city government officials together with businesses to find a win-win solution, that both the city government and the business community would find advantageous, to the long standing problem of business registration. Each party identified bottlenecks in the business registration process and came up with shared solutions to remove these bottlenecks and speed up the process of issuing the business permit, but still fulfill legal requirements. First, the city government streamlined the process of issuing locational clearance – a document indicating that the location of the business conforms to city zoning ordinances and standard land use rules and regulations. It used to take seven days and three signatures. Now it takes just two days and two signatures (with alternates available, if the signatories are absent). Second, city hall now has a booth in the lobby with instructions on how to fill out the form and a map showing city streets to simplify the process of providing directions to inspectors. Third, the city government hired more inspectors to handle the work load. Fourth, regulatory offices such as health, fire, and planning coordinated inspections, instead of doing them one at a time, to speed things up.

As a result of the combined efforts of the city government, the business sector, and the TAG project, the city government drastically cut the time to issue a business permit: from 14 days at the project’s beginning in 2005, down to just  two days at project completion in 2007. Similarly, the number of steps to obtain a permit went from 15 in 2005, to 13 in 2007. Not only that, in 2006, the city government collected nearly 300 million pesos (nearly $7 million) in business tax revenues, a marked increase of 300 percent from its 2005 collection, and had a further 100 percent increase in 2007 collection. The number of registered businesses doubled in 2007. Now, three years after TAG assistance, the city government is able to sustain momentum and continue improvements in its business registration process, with the help of the business sector which has continuously monitored the city government’s efforts.

Zamboanga’s achievements aside, the Philippines overall still ranks 42nd among the report’s lower income nations for ease of doing business. It certainly has a lot of improvements to make before it joins some of its higher-performing regional neighbors like Singapore and Thailand. But, cities like Zamboanga and the 24 others that participated in the 2011 Doing Business study are making serious progress.

Maria Belen Bonoan is The Asia Foundation’s director for Local Governance in the Philippines. She can be reached at bbonoan@asiafound.org.

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