Philippines competitiveness: Getting there?

Michael Alan Hamlin

Posted on June 21, 2012

The Philippines’ competitiveness is improving—in some respects significantly—according to two new competitiveness indexes published by the World Economic Forum (WEF). But decades of mismanagement of the economy and other competitiveness factors mean that progress up the competitiveness rankings is slow, with the result that the Philippines remains mired in the mid-tier of global attractiveness to investors.

“Up 10 places to 75th, the Philippines posts one of the largest improvements in this year’s rankings,” reads the World Competitiveness Report (WCR) 2011-2012. “The vast majority of individual indicators composing the GCI (Global Competitiveness Index) improve, sometimes markedly. Yet the challenges are many, especially in the areas of the foundation of any competitive economy, even at an early stage of development.”

As a result, the Philippines is in limbo, occupying a space between factor-driven economies that depend on cheap labor and natural resources—of which the Philippines has neither, albeit the latter largely the tortured, artificial result of political paralysis—and efficiency-driven economies that provide value for money. It has sad company in this transition space—countries like Angola, Azerbaijan, and Sri Lanka—but all of its Southeast Asian neighbors have moved on to become more competitive economies.

WEF’s Global Enabling Trade Report shows similar results with the Philippines ranked 72 out of 132 countries, up from 92 when the index was last published in 2010. That jump is primarily attributed to improved market access—specifically, foreign market access—up a breathtaking 50 places from 64 to 14. Unfortunately, poor border administration (72), inadequate transport and communications infrastructure (91), and a highly regulated business environment (107) left the country adrift in a sea of mediocre economies.

The GCI ranks 142 countries, putting the Philippines at 75 in that same mid-level milieu, neither here, nor there. As in previous surveys, it’s not hard to see what holds the Philippines back. The problems are far from new. “The quality of the country’s public institutions continues to be assessed as poor,” according to the GCI, with the Philippines ranking “beyond the 100 mark on each of the 16 related indicators.” Higher education (71) and management schools are both unimpressive and unexceptional (78).

Corruption and physical security continue to be perceived as “particularly acute” competitiveness issues, ranking 127 and 117, respectively. The report acknowledges that while infrastructure is “improving marginally,” the rate of improvement is “not nearly fast enough to meet the needs of the business sector. The country ranks a mediocre 113th for the overall state of its infrastructure.”

Particularly damaging is the perceived state of the Philippines’ seaport (123) and airport (115) infrastructure compared to other countries examined. Those weaknesses are somewhat balanced by its marginally improved macroeconomic situation: “The country is up 14 places to 54th in the macroeconomic pillar (one of 12 pillars or areas of competitiveness attributes), thanks to slightly lower public deficit and debt, an improved country credit rating, and inflation that remains under control.”

The report diplomatically says there is “vast opportunity” for improvement in other pillars of the Index, and points, “in particular,” to “the largely inflexible and inefficient labor market (113). The issue is regressive, archaic labor law, and it is among the “most problematic factors for doing business” in the Philippines along with tax regulations, inefficient government bureaucracy, and inadequate infrastructure. Chief among uncompetitive labor factors is hiring and firing practices (114).

Populist Philippine politicians have been reluctant to address highly intrusive and archaic regulations that limit companies’ options for managing human resources. Particularly irksome is the long, dysfunctional processes required to dismiss an errant employee, no matter how grave the transgression. Even when that process is followed scrupulously, legally dismissed employees frequently file claims against their former employers with the National Labor Relations Commission (NLRC), a frighteningly corrupt and incompetent quasi-judicial agency under the Department of Labor and Employment.

At the NLRC, the employer is assumed to be guilty, and the burden of proof is on the employer to show otherwise. As a result, NLRC “labor arbiters” routinely rule in favor of dismissed employees, forcing employers to negotiate with their former employees or appeal decisions by the NLRC over many years up to the Supreme Court. This process presents both cumbersome HR management and needlessly draining financial issues to employers.

But that’s just one example of institutional bias and inefficiency. The GCI also points to the efficiency of the legal framework in settling disputes (97) in general and the efficiency of the legal framework in challenging regulations (83) as significant factors impinging upon Philippine competitiveness. However, the Philippines scores much better when it comes to business costs of crime and violence (37), organized crime (40), and strength of investor protection (36).

Like other indexes of competitiveness and business freedom, these WEF reports show that the Philippines shows signs of “getting there” in terms of national competitiveness. But they also show that it needs to get there faster.

(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 © 2012 Michael Alan Hamlin. All Rights Reserved.)

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