Ease of doing business

Michael Alan Hamlin

Posted on November 11, 2010

Two reports-one by the International Finance Corporation and the World Bank (IFC-WB) and the other by the World Economic Forum (WEF)-provide further evidence of the challenge Philippine President Benigo S. Aquino III and his economic team face in their effort to attract foreign investment. They come on the heels of a report by Pacific Strategies and Assessments (PSA) arguing that while the president understands these challenges, he has so far “not articulated any semblance of a strategy to address them.”

In its annual Financial Development Report, the WEF ranked the Philippines 50 out of 57 countries in terms of institutional maturity, business environment, and financial stability. Although the Philippines fares poorly overall, the report notes that it has “made strides” as evidenced by “a fairly high degree of M&A (25th) and securitization (20th) activities, as well as relatively well developed bond markets (20th).

However, access to these opportunities is largely limited to what PSA describes as “powerful families who have long controlled the nation’s incestuous political economy,” The WEF Financial Development Index (FDI) provides credence to this argument, ranking the Philippines even closer to the bottom of the list of economies assessed at 53 for business environment. Only Indonesia, Venezuela, Nigeria, and Bangladesh do worse, in that order.

That assessment is also supported by the IFC-WB report, Doing Business 2011, which ranks the Philippines 148 out of 183 countries. The report evaluates the ease of doing business in each of the economies studied. And the trend isn’t positive. In the previous report, the Philippines was ranked 146. In Asia, only Laos is ranked lower. The Philippines just trails Cambodia, ranked 147.

There are plenty of Asian countries that rank highly in both reports, and provide examples that the Philippines can choose to emulate. Singapore and Hong Kong, for example, are ranked number one and two, respectively, in terms of the ease of doing business in the IFC-WB report. The overall FDI index shows Hong Kong at number three and Singapore at number four. Singapore is ranked number one in institutional maturity, number two in business environment, and number four in financial stability.

Larger Southeast Asian economies also do better than the Philippines. Thailand-despite its myriad political issues in the past few years-ranks 34 overall, and 31 in institutional maturity, 37 in business environment, and 25 in financial stability. That’s a significant accomplishment, considering that the 1997 global financial crisis began in Thailand when its overheated real estate sector collapsed. Malaysia, at number 17 overall, ranks much higher than either Thailand or the Philippines.

As we know, all of these economies trailed the Philippines’ 60 years ago, and for most of the last half century have put the Philippines to shame in terms of determined economic development, notwithstanding some thrilling and inevitable ups and downs. To be sure, the Philippines does have some success stories, most prominently its business process outsourcing (BPO) industry, which is considered the second largest in the world. Although the Philippines does not have a sophisticated wafer fabrication plant, its semiconductor industry has also done well, and accounts for about two thirds of exports.

Both of those industries are dominated by multinational corporations that prosper in an environment of benign neglect-government incentivizes them to create jobs and otherwise leaves them alone. It insulates these businesses from local and national bureaucratic capriciousness by creating and sustaining a regulatory environment in the form of the Philippine Export Processing Zone Authority (PEZA) and the Board of Investments (BOI) that functions outside normal government channels and is professionally managed.

So it’s not necessary to look outside the Philippines for examples that illuminate the path to greater ease of doing business in this country. They exist here. The challenge is to create the environment outside super-bureaucracies like PEZA and BOI. This is where PSA’s argument kicks in. PEZA and BOI-with few exceptions-are not burdened with the ordeal of satisfying the demands of the politically and economically powerful.

That’s not the case with many other government agencies, whose mandate can directly influence the welfare of the economically and politically influential, including the new influential as well as the established. This year’s national election was branded by allegations of candidates or their families exerting influence on government agencies for personal benefit. The Philippines is one of the most corrupt countries in the world, according to Transparency International, and the impact is felt everywhere: in the quality and availability of infrastructure, the number of flights to and from the Philippines, and even the deployment of technology.

Another way to describe “ease of doing business,” is equal, transparent, and accessible opportunity. Providing it is Mr. Aquino’s challenge.

(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.)

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