The Philippines: More competitive, but institutions remain weak

Michael Alan Hamlin

Posted on September 15, 2011

The Philippines is more competitive this year—for the first time in several years—according to the World Economic Forum’s (WEF) Global Competitiveness Report (GCR) 2011-2012 released last week. The GCR itself and news reports noted an impressive increase in the Philippines’ rank from 85 to 75, a 10-point jump. But it also acknowledged that much work remains to be done if the Philippines is to become truly and highly competitive.

Much of that work is fundamental. As I wrote last week, without a strong base, the Philippines cannot hope to attain its potential. While many celebrated the Philippines’ improved ranking—understandably so—most overlooked the fact that the Philippines actually slipped a notch in basic requirements, which include the economic competitiveness pillars of institutions, infrastructure, macroeconomic environment, and health and primary education.

Ranked 100, the Philippines dropped from 99 in the 2010-2011 GCR. Not all the news is bad, however. In the view of GCR researchers—whose local partners were the Makati Business Club and the Management Association of the Philippines—the country markedly improved its macroeconomic environment, rising to 54 from 68, a 14-point jump. Institutions also improved, moving to 117 from 125, an eight-point increase.

The not-so-good news is that the Philippines slipped a notch from 104 to 105 for infrastructure and health and primary education fell two places to 92 from 90. The 2010-2011 GCR included 139 countries and the 2011-2012 report expanded its coverage to 142. So the Philippines was competing in a slightly larger field. This suggests that the Philippines’ performance may not have necessarily deteriorated, but it was stagnant.

President Benigno S. Aquino III has been criticized for not spending more on infrastructure to stimulate the economy. Mr. Aquino said recently that his administration has moved slowly on infrastructure spending to address corruption issues, noting that about 70% of projects identified for funding under the current budget have already been completed. The inference is that spending earmarked funds might result in overpayment and the lining of corrupt officials’ and contractors’ pockets.

Allegations of double payments helped derail the presidential candidacy of Mr. Aquino’s most significant opponent in the 2010 national elections, Manuel B. Villar. Mr. Aquino understandably doesn’t want similar allegations to derail his administration’s reform agenda. But low infrastructure funding was also a “feature” of his mother’s administration, the late former president Corazon C. Aquino, until a flurry of projects was initiated near the end of her term.

Infrastructure investment creates jobs, but it also makes the Philippines more attractive for investors, enhancing efficiency and productivity. And it contributes to enhanced lifestyles for voters. Decades of neglected infrastructure investment means the Philippines is mired in the bottom third for this basic indicator of competitiveness, far behind its most important competitors for investment in Asia.

Just as alarming is the Philippines’ inability to improve health and primary education. The Philippines has a young population with over 60% of approximately 100 million Filipinos between the ages of 15 and 64. But these people won’t be productive if they are not healthy and are not educated. Although overall foreign direct investment into the Philippines is very low compared to its neighbors, there is overwhelming demand for educated workers.

The IT-BPO Road Map 2011-2016 forecasts that the Philippine labor pool will fail to provide enough workers for the IT-BPO industry this year. Although the industry can grow up to 20% annually, that will only be possible if there are workers to fill increasingly sophisticated jobs. Mr. Aquino’s administration recently announced a P500 million training budget for remedial training for IT-BPO “near-hires” to address the shortfall.

That’s an effective program. During the previous administration, a similar initiative resulted in about 80% of applicants undergoing such training receiving job offers. But it is at best a stopgap measure. A report in The New York Times recently indicated that the country is short almost 30 million classrooms. In some schools, classrooms are divided by partitions as a result. In others, schooling takes place in shifts. In general, quality of instruction is low.

Although institutional competitiveness increased eight points, the GCR authors note that “the Philippines ranks beyond the 100 mark on each of the 16 related indicators. Issues of corruption and physical security appear particularly acute (127th and 117th, respectively).” The authors have a dim view of Philippine institutions, arguing that they appear to provide a great disserve to the nation, rather than to support its development and stability.

Mr. Aquino’s economic team can take heart in the macroeconomic results, which are primarily the result of a “slightly lower public deficit and debt, an improved country credit rating, and inflation that remains under control.” While important, however, the benefits of an improved macroeconomic situation won’t matter much if other basic pillars of economic competitiveness aren’t fixed.

(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 TwitterFacebook and LinkedIn. Copyright © 2011 Michael Alan Hamlin. All Rights Reserved.)

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