Higher fuel, power costs seen hindering foreign investments

MANILA, Philippines — Rising prices of power and fuel are becoming major roadblocks to increasing foreign investment in the country, an economist from the Asian Institute of Management (AIM) said.

In a presentation made during the recent 4th International Symposium on Asian Development Studies hosted by the Philippine Institute for Development Studies (PIDS), AIM economist Jamil Paolo Francisco said the lower cost of doing business is now becoming more important to investors than the ease of doing business.

Citing the results of the study titled: “Firm Creation and the Ease and Cost of Doing Business,” Francisco said rising power and fuel costs top the concerns of foreign investors considering to do business in the country.

Using data from the National Competitiveness Council for the period 2011 to 2015, Francisco and his co-authors Tristan Canare and Jose Fernando Morales tested the relationship between business creation and the ease and cost of doing business in cities and municipalities.

To establish the relationship between these variables, the authors focused on two factors: cost of doing business and ease of doing business.

The indicators for cost of doing business included prices of electricity, water, diesel, amount of minimum wage, and cost of land or rental of business space.

The indicators for ease of doing business, on the other hand, referred to the number of processing days in getting a permit for a new business, number of steps in securing a permit, number of days and steps for business permit renewal, and number of days and steps in getting a building permit.

“For instance, in the Philippines, high prices of electricity and fuel are a huge barrier [to foreign investments], not to mention our current situation of a higher-than-expected inflation rate,” Francisco said.

‘’When [business] creation is difficult at the local level, it discourages entrepreneurship, [which is] a critical component of inclusive development in developing countries,” he added.

The findings of the study also suggested that potential business owners are more discouraged by the high operating costs than by the cumbersome processes of regulatory compliance in running and starting a business.

To encourage business creation in cities and municipalities, the authors urged policymakers to put in place policy reforms that would decrease the cost of doing business in the country, such as laws that would lower the cost of electricity, water, and land or business space rental.

They also proposed the creation of a business-friendly environment for investors in the power industry to increase power production, ultimately addressing the high cost of electricity.

Francisco explained that lower foreign direct investments and the technological growth of a country can affect the productivity in both macro and micro levels.

He added that the lack of business competitiveness can lead to the growth of informal economy in the grassroots.