The hits keep on coming

Michael Alan Hamlin

Posted on September 18, 2009

Three weeks ago, I wrote that respondents to a business process outsourcing survey said negative perception of the Philippines could threaten industry growth. Two weeks ago, foreign investors recalled the NBN-ZTE corruption scandal when a controversial anti-corruption watchdog recommended filing charges against two government officials. Last week, business was alarmed when Monday was proclaimed a national non-working holiday without warning.

And the hits just kept on coming. The day following the disruptive, instant holiday, the World Economic Forum (WEF) released its annual Global Competitiveness Report. The Philippines’ performance in all 12 indicators worsened from last year, and its overall index fell to 3.9 from to 4.1. The Philippines ranked 87th out of 133 countries. While other Southeast Asian nations also saw their competitiveness rankings suffer, the Philippines brought up the rear. Regionally, only Cambodia fared worse at 110.

Asia’s rising star-Vietnam-came in at 75. Sadly for the Philippines, war-torn Sri Lanka even did better, landing in the 79th spot. Singapore, a muddy backwater 50 years ago struggling for an identity when the Philippines was the second largest economy in Asia, was ranked the third most competitive economy in the world. Another former Southeast Asian economic wannabe, Malaysia, landed in the 24th slot.

Before investors had time to digest those results, more bad news was announced by the International Finance Corporation (IFC), the arm of the World Bank that lends funds to the private sector for infrastructure projects that have little chance of being funded by the private banking sector. The Philippines fell three places to 144 out of 183 economies in the 2010 Doing Business Report. The IFC study measures the difficulty associated with managing a business through 10 stages of enterprise activity, from starting a business to closing one.

Ironically, the Philippines fared particularly poorly when it came to starting a business, falling seven places. The Philippines desperately needs investors and entrepreneurs to establish new businesses to create new jobs. The report estimated that it takes an average of 52 days for a startup to successfully maneuver a bureaucratic maze involving 15 different procedures. The Philippines also fared poorly when it came to paying taxes.

In terms of protecting investors and transparency, the Philippines garnered a two out of a possible 10. Enforcing contracts was estimated to take 842 days and 37 procedures. Many investors would say this was an optimistic estimation, I suspect.

There are two basic reasons why the Philippines fares so poorly in international competitiveness surveys and rankings. The first is that the Philippines has issues that it fails to effectively address. In the WEF report, the most problematic factors for doing business are corruption (“most problematic” for 24.3% of respondents), inefficient government bureaucracy (20.6%), inadequate supply of infrastructure (15.0%), and policy instability (12.6%). While it has other issues, none was identified as “most problematic” by more than 5.2% of respondents. These are the big four.

These results suggest that should the Philippines address the top two-corruption and inefficient bureaucracy-in a reasonably efficient manner, the Philippines would fare significantly better than it does now in perception surveys. For those who believe it can’t be done, there is evidence to suggest that it can be. The Institute of Solidarity in Asia (ISA) works with local government units to improve governance, as I’ve written in this space before. San Fernando, Pampanga and Iloilo City in Iloilo, for example, have dramatically reduced corruption while enhancing delivery of constituency services using the ISA’s Balanced Scorecard-based good governance system, with the result that they are highly evaluated by their constituents.

That brings me to the second reason the Philippines fares poorly as a country brand in competitiveness surveys. The Philippines does, I’m afraid, an almost mindlessly poor job communicating its attributes, of which there are obviously many as any international investor will attest. While the Philippines has real-not just imagined-issues to deal with, poor understanding of the Philippines is part of the problem.

I don’t mean to suggest that the Philippines can fast-talk its way out of its negative perception doldrums. In fact, it would be counterproductive to try to do so because substance must back up any effective communication effort. And there are positives to be communicated. For example, no respondent to the WEF survey cited foreign currency regulations as a “most problematic” factor for doing business. The Philippines ranks high in terms of its educated workforce, work ethic, and even crime and theft.

That story is understood by some investors, such as the business process outsourcing industry. It’s time to make sure others get it too. And it’s time to fix at least the top two “most problematic” factors while we’re at it.

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