Improving competitiveness?

Michael Alan Hamlin

Posted on May 21, 2008

The Philippines is accountable for its success… or failure

Late last week, the Institute for Management Development (IMD) announced the latest update to its annual World Competitiveness Scoreboard (subscription required). The Scoreboard ranks the competitiveness of 55 countries. Although the Philippines ranks in the bottom third of the ranking, it moved up five places from 45 to 40. Its improved competitiveness was attributed to record economic growth and an improved image, according to reports.

While it is important to celebrate victories, even little ones, it’s also important to examine them dispassionately. This is particularly true in the case of the latest IMD results. For one thing, the Philippines has, realistically, moved back up to the starting line, not past it. After all, it also ranked 40 in 2005, a year in which “Hello Garci” ringtone downloads reached a fever pitch, President Gloria Macapagal-Arroyo launched a movement to overhaul the constitution, and Forbes named Ms. Arroyo the fourth most powerful woman in the world nevertheless. And in that year, the Philippines received less than P2 billion in foreign investment, less than all its Southeast Asian neighbors.

Three years on, the administration is still under fire and Ms. Arroyo is still very powerful nevertheless. Foreign investment trends are holding steady, with the Philippines again bringing up the rear regionally having collected slightly less than $3 billion in foreign direct investment last year. Indonesia more than doubled Manila’s take, collecting $6.3 billion. Malaysia reaped $7 billion. Thailand hauled in over $10 billion.

To be fair, the Philippines did receive more investment than South Korea, whose economy is struggling to remake itself after successive liberal governments managed to take the sheen off the once mighty Korean export engine. But South Korea’s GDP per capita at $20,000 is 12 times that of the Philippines’ $1,600. In fact, in Asia Pacific, only India has a lower GDP per capita. Indonesia’s is almost 20 percent higher although it has a population more than twice as large.

In Asia Pacific, Indonesia is the only country less competitive than the Philippines, coming in at 51 on the IMD Scorecard. But when it comes to business efficiency, the Philippines does considerably better, coming in at 31. It is more efficient than China (33), Korea (36), and Indonesia (44). On the other hand, Asian countries the Philippines should be benchmarking are soaring. Singapore is the number 2 most competitive country in the world, and it is ranked 2 in business efficiency. Hong Kong ranks number one in the world in terms of business efficiency.

But more populous states that receive significant levels of foreign investment every year are also more business efficient than the Philippines. They include Taiwan at 10; Malaysia at 14; India – yes, India – at 20; and Thailand at 25. I could go on dribbling out these statistics and those from similar studies, but I’m sure by now that you get the picture. Although progress is being made, the Philippines is still bringing up the economic rear in Asia.

Why am I being such a sourpuss? It is probably my fear that the Philippines, now that there are signs it may be generating some economic synergy, is about to enter another self-inflected downward spiral as it has every other time things started looking up. Don’t get me wrong, there are real reasons for concern that the Philippines will trail the rest of Asia in perpetuity as the statistics I’ve cited seem to suggest.

Yet ironically, perhaps just weirdly, the Philippines seems poised at that painful political and economic fulcrum when things can go either way. It can leverage the modest but real economic gains of recent years to eventually attain sustainable economic development. Or, it can take those gains for granted – or worse, use them as an excuse to become over confident – and wind up back where it started, behind the starting line. Historically, I don’t have to tell you how this has always worked out.

Will 2008 be the exception, a year in which the Philippines breaks the curse that has held it back and breaks out to achieve sustainable economic growth? Truth to tell, it’s a little scary to say. With the economy growing, investment in infrastructure increasing, and reform in education taking hold, it’s easy to be a little hopeful. On the other hand, political uncertainty and serious allegations of corruption, the spectre of regressive regulations that will discourage foreign investment, and weakening government institutions bode ill.

Whatever the outcome, it will be the result of conscious decision-making, here, not an economic downturn or other transitory aberration elsewhere. Ultimately, the Philippines is accountable for its competitiveness, and its economic development success or failure.

No Comments

Leave a response