World Economic Forum: Competitiveness gain?

Michael Alan Hamlin

Posted on September 17, 2010

The World Economic Forum (WEF) released its Global Competitiveness Report 2010-2011 last week, and once again the news was not good for the Philippines. Although the country moved up somewhat from 87th to 85th place, it was shown to be the least competitive country in Southeast Asia. To add a little sting to the findings, Vietnam jumped 16 places to 59th, and improved in nearly all the 12 areas measured in the survey.

While the Philippines showed improvement in three areas-or pillars of competitiveness-performance in several key pillars deteriorated. The country improved in terms of macroeconomic environment (68), financial market development (75), and sophistication of businesses (60). It did poorly in governance and legal framework (125), infrastructure (104), and innovation (111).

One reason the country scored poorly in innovation is the sad state of the Philippines’ educational infrastructure. The survey revealed further deterioration in the quality of higher education and training (73). Lower scores were also recorded for trade openness and efficiency (97), technological readiness (95), and market size (37). Labor efficiency remained low at 111 as did health and primary education (90).

These results are an economic and development indictment of the administration of former President Gloria Macapagal-Arroyo. In no way do they portray a strong republic, in either a political or economic sense, compared to other nations in the region and the world. But they also show that the administration of President Benigno S. Aquino III has an enormous task ahead in making the Philippines more competitive and thereby its people more prosperous.

Accomplishing that objective will require making some very tough decisions, and the willingness to use up political capital making decisions that influential personalities and interests are bound to oppose. Take governance and legal framework, for example. The WEF survey ranks corruption (22.7) as the single most problematic factor for doing business in the Philippines. It is closely followed by inefficient government bureaucracy (18.3).

These hurdles are tightly interlinked. Government is inefficient because inefficiency promotes revenue generation for corrupt officials. Weeding out corruption is so tough because it is so pervasive. As Mr. Aquino’s administration approaches its three-month anniversary in power, it’s not surprising that little had been done to address corruption, other than filing criminal cases against high-profile tax evaders.

Corrupt officials in revenue agencies typically respond to these crackdowns by becoming even more inefficient than usual. According to sources, that’s what is happening in the Bureau of Customs, with the result that executives-especially those running small and medium enterprises that employ the majority of Filipinos-are complaining that they can’t get their shipments released. It’s not hard to guess who can least afford to wait this game out.

A further complication is inefficiency and corruption in the judiciary. Finance Secretary Cesar V. Purisma recently commented on Twitter that a tax case he filed as finance secretary in Ms. Arroyo’s administration finally resulted in a conviction six years later. As anyone who has had the misfortune of dealing with the judiciary knows, that’s something of a speed record, and the fact that a conviction actually resulted is more than a mild surprise.

Inadequate infrastructure (15.4) and policy instability (11.8) are also major obstacles to doing business in the Philippines, and are similarly linked. Since I’ve addressed this issue recently in previous columns, I won’t go into details other than to reiterate the obvious reality that if government expects private-sector, international investors to finance and build badly needed infrastructure, it’s going to have to keep its commitments to them.

The causes of policy instability-aside from weak leadership-can be traced to populist politics (also responsible for populist labor policies that scare investors off), competing interests who are poor losers and file motions for temporary restraining orders, local government officials seeking new sources of revenue, and alas, the judiciary which aids and abets dysfunctional public governance. The ultimate losers are not the investors, who chastised take their money elsewhere, but the 75% of Filipinos who are unable or choose not to chase opportunity overseas.

I wish I had some words of wisdom or insight into solving these massive problems that could somehow help Mr. Aquino-who I presume did really want to be president despite these seemingly insurmountable issues. But I have no idea where to start, other than to say that maybe we should look to Vietnam for answers. The WEF survey results provide a statistical glance at an obvious reality.

Whether and how that reality changes will depend on Mr. Aquino’s leadership, and his insights into solving these deeply damaging problems.

(Michael Alan Hamlin is the managing director of TeamAsia and a Manila-based author. His latest book is High Visibility: Transforming Your Personal and Professional Brand . Write him at mahamlin@teamasia.com and follow him on Twitter, Facebook and LinkedIn.). Copyright © 2010 Michael Alan Hamlin. All Rights Reserved.)

No Comments

Leave a response