Metro Manila (CNN Philippines, October 10) — The government could be to blame for the lack of competition across local industries, which has stunted economic growth and brought added costs to consumers, economists at the World Bank Manila Office have noted.
In the October edition of its Philippines Economic Update (PEU) report, the development finance institution said key sectors like manufacturing, transport, agriculture, and even wholesale and retail trade remain dominated by a few businesses despite recent efforts to open up key industries.
“In the Philippines, regulatory restrictions might be limiting competition in key sectors of the economy, thus affecting the country’s ability to maximize its growth potential,” the PEU report said.
The Philippines has the most sectors revolving around monopolies, duopolies, and oligopolies when compared to Indonesia, Malaysia, and Cambodia, according to World Bank data.
There’s no need to look far as to why, as the PEU said restrictive government policies could be the culprit.
“High administrative burdens on start-ups make it costly for firms to enter the market,” it noted, citing state control, barriers to entrepreneurship, and restrictions on trade and investment.
The existence of numerous state-run corporations in segments otherwise left to the private sector is also an issue, the World Bank said, as seen in 18 of 27 sectors covered by a Product Market Regulation (PMR) study cited by the PEU.
Among these sectors are insurance, financial services, construction, fabricated metal products, health services, and even restaurants and hotels. Through this, the government is either giving away subsidies or may be distorting market conditions by way of price control.
“Almost half of the restrictions identified in the PMR analysis are related to regulations that discriminate and protect vested interests,” the report added.
In some cases, current firms are protected by high barriers “at the expense of new entrants,” such as railway franchises given to a single firm.
The World Bank even cited forbearance or clauses in the Philippine Competition Act, saying this could be a risk. Since 2016, the Philippine Competition Commission regulates big-ticket mergers and acquisitions and polices possible cases of abuse of dominance in the market.
Restrictive rules on foreign ownership also bar the entry of more players, including the practice of professions and even the participation of foreign suppliers in public biddings.
The World Bank added that removing market regulations in certain sectors “could accelerate economic growth in the Philippines.” It would pay off, as the World Bank said decreasing regulation may add 0.75 percentage points to annual growth of restricted sectors.
The World Bank has scaled down its growth forecast for 2019 to just 5.8 percent, well below the government’s 6-7 percent target.
