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How competitive is the Philippine economy today?

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Andrew J. Masigan

Numbers Don’t Lie

How competitive is the Philippine economy today?

(First of two parts)

In this time of uncertainty resulting from the unnecessary provocation of our Christian community, political killings, and rumors of martial law, its important that we put perspective on things by taking into consideration the true state of the economy.

How solid is the country’s economic fundamentals? How competitive is the Philippines as compared to our regional neighbors? Are our economic managers doing enough? Is there a place for the Philippines in the world of tomorrow? These are questions we need to answer as we plan forward in these turbulent times.

There are two ways in which to assess the fundamental strength of the economy.

The first is by comparing where it stands against our neighbors in various competitiveness indices. The second is by comparing historical data, or its state today as compared to three years ago, before President Duterte took over.

The piece dwells on the Philippine’s competitive position in the region.

THE PHILIPPINES’ REGIONAL POSITION
There are numerous indices that measure an economy’s efficiency and sophistication. However, four indices, taken collectively, give us a fairly good idea where the country stands.

The first is the World Economic Forum’s Global Competitive Report.

This report assesses how efficient an economy is in using the resources available to it, its level of productivity and its ability to sustain economic growth. In particular, it looks into the state of a country’s infrastructure, the strength of its government institutions, its macroeconomic conditions, the quality of its primary and higher education, the efficiency of its work force and the sophistication of its financial markets, among others.

In this index, the Philippines rose from a lowly 85th position in 2010 (out of 139 countries ranked) to a high of 47th position in 2015. It slipped to 56th position in 2017.

Within ASEAN, the Philippines is in the lower rung competitive nations, better only than Laos, Cambodia, and Myanmar.

The second index is International Finance Corp.’s Ease in Doing Business Report. This index provides a snapshot of how easy it is to do business in a country. It is the index often referred to by potential investors.

Among the indicators it measures are the number of hours and steps it takes to register a business, obtain government permits, install electricity, apply for credit, pay taxes, and trade across borders, among others.

The Philippines rose from 148th position in 2010 (out 183 countries evaluated), to 99th position in 2016. Again, it slipped to 113th position in 2017.

Within ASEAN, we are only better than Laos, Cambodia, and Myanmar again.

The third index is the Transparency International’s Corruption Perception Index. This index shows how corrupt a nation is perceived by the international community. It is also an indicator of good governance.

The Philippines was deemed the 134th least corrupt country out of a lot of 178 nations back in 2010. It improved to 85th position in 2014, but dropped to 111th position in 2017. Again, the country lags against its neighbors as it is perceived to be the 7th least corrupt in ASEAN.

Finally, the Global Innovation Index provides an assessment of the innovation performance of 128 countries. It takes into consideration a nation’s policies on innovation, its ability to innovate products and processes, the level of education of its populace, the state of its infrastructure and level of business sophistication, among others.

The Philippines ranks 73rd out of 128 nations, an improvement from 91st position in 2010. Again, we are in the lower rung of ASEAN.

GOVERNMENT EFFORTS TO IMPROVE COMPETITIVENESS
Institutions like the World Economic Forum and World Bank have been ranking the competitiveness of nations since the early 90s. However, the Philippines only began to pay attention to it in the mid 2000’s.

In 2006, former President Arroyo signed Executive Order 571 creating a Public-Private Task Force to improve Philippine competitiveness. Its contribution, however, was dismal.

In 2011, President Aquino gave more teeth to the task force by making it a legitimate government agency with powers to influence policies across various government agencies and local governments. It was named the National Competitiveness Council (NCC) and was chaired by the Secretary of Trade and Industry himself. Its co-chair was mandated to act as the moving force of the council, responsible for its strategic direction and day-to-day operations. Guillermo “Bill” Luz, a highly respected executive from the private sector, was tapped to lead the charge.

As the numbers show, the big leaps in our competitiveness standings took place between 2010 and 2015. This was due to the dramatic improvement in the economy’s fiscal position, Malacañang’s dedication to good governance and Luz’ numerous efficiency programs that made it easier to navigate the bureaucracy.

Luz playbook at the NCC is what any private sector executive would normally employ. He created working groups composed of representatives from the national government, the local government units, and the private sector to address inefficiencies in government processes. These groups sought to cut the steps and slash the hours needed to get things done. They also served as an advisory council to economic planners as they formulated policies that affected the economy, labor, infrastructure, and education. Each working group was given legitimacy by being recognized by Malacañang as an official government functionary.

So successful was Luz’ playbook that other countries in the region adapted it.

Why did our competitiveness standings decline in 2016 and 2017?

Two reasons. First, the change of administration disrupted the reforms.

With new personalities installed in various positions of the bureaucracy, both national and local, implementation of reforms took a back seat as the new executives acclimatized themselves to their positions.

Second, reforms of other nations, particularly those from ASEAN, accelerated in the last two years.

In global rankings, to stand still is to regress. The competition never sleeps and most rallied forward during this time while the Philippines remained static.

AN END OF AN ERA
Last May, President Duterte signed Republic Act 11032 which created the Anti-Red Tape Authority (ARTA), a new government agency directly under the purview of the President.

With the establishment of ARTA, the National Competitiveness Council has been dissolved and its moving force, Bill Luz, had bowed out of government service.

We cannot let this piece pass without extending our gratitude to Luz for his service to the nation. He dedicated seven years of his career serving the NCC and succeeded in a multitude of ways. His playbook shows his successors how to effectively institute reforms in an otherwise unwieldy and lethargic bureaucracy.

Bill will be moving on to other pursuits, among them is to focus on his work at the ASEAN Business Advisory Council and the Philippine Disaster Resilience Foundation. We wish him all the best.

ARTA will be structured in the same way the NCC was. It will be chaired by the Secretary of Trade and Industry and its Co-Chair will be a presidential appointee from the private sector. Let us hope the President appoints someone based on their credentials and body of work, and not on political favor. This position is critical to our future and we simply cannot afford to have a lightweight at the helm of ARTA.

MOVING FORWARD
ASEAN is progressing at lightning speed in almost all competitive indices. So dynamic is the region that the Philippines must leapfrog on all fronts to compete. Luz offers some advise to achieve this.

In Ease in Doing Business, a complete paradigm shift is required for us to keep in step with our progressive neighbors. We must approximate the systems put in place by Singapore and Malaysia, both of which have fully automated their processes. Key to success is the ability register a business, obtain business permits and pay taxes through a smartphone. Everything must be automated with data shared across various government agencies to avoid redundancies in procedures. Transacting with government agencies should be as efficient as booking a hotel in expedia.com. To remain analog (and paper-driven) is to regress.

In terms of global competitiveness, the name of the game is soft skills. Having strong government institutions and appropriate infrastructure are now givens for rapidly progressing economies like those in ASEAN. What will set apart the good from the great is the quality of its work force — their skills, their adoption to new technologies, their aptitude in the sciences, and culture of innovation.

To this, government must focus on making the next generation of Filipinos more astute, competent, creative and skilled. It must also create an environment that is conducive to invention and innovation.

We operate in a very competitive region and the Philippines needs to step up its game in no less than revolutionary ways to secure a place in tomorrow’s world. ARTA has big shoes to fill.

Next week, I compare the state of the economy today against what it was is 2015.

 

Andrew J. Masigan is an economist