These are the speech notes of Jesse Ang, Philippine resident representative of the International Finance Corporation. Mr. Ang delivered this speech at the Mid-Year Economic Briefing on 17 September 2012 at the Philippine International Convention Center (PICC).
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Economy is good because the government is taking care of business. Progress has been made on fiscal consolidation, macro volatility, and inflation management. Public trust in the government. has increased.
Indeed, IFC, as a development partner to the country and investor in the economy has observed more investment opportunities and increased interest in the Philippines for investments by foreign companies and private equity firms.
As the Administration recognizes there is much more to do and this becomes even more obvious if you view the economy from the perspective of our neighbors and though the lens of inclusive growth.
Regional Benchmarking
Global Competitiveness Report:
- Philippines in the bottom 40% for over half of the indicators
- Philippines trails Singapore, Malaysia, Brunei, Thailand, Indonesia
- Philippines only better than Vietnam and Cambodia
Doing Business Report (much more specific – focus on domestic SMEs that Enter, Operate and Exit the economy):
- Philippine ranking in Doing Business is weak — 136/183 — and has not moved significantly from that point over the last few years
- The Philippines is lower ranked than all Asean countries but Cambodia
- The Philippines is in the bottom 10 countries of the world in 3/11 topics: i) Starting a Business, ii) Dealing With Construction Permits, and iii) Resolving Insolvency rate. The issue is not cost or even time, but the significant number of procedures necessary to do the work.
Red Tape and Corruption: Despite the red-tape reform efforts, the Philippines is tying itself in knots working to meet all the procedures necessary to register your business, get married, or sell your car. This discourages business activity, esp. for smaller businesses that the Philippines needs to grow.
Number of Procedures can be linked to perception of corruption: Businesspeople and investors rank corruption as one of the most serious issues affecting the investment climate. Transparency Internationals’ Corruption Perception Index allows comparison between economies on the pervasiveness of corruption in the country. The Philippines had a modest gain from 2008 to 2011 (2.3 to 2.6). But the scale is 1-10 so our position is very poor!
What the Indicators mean:
The Philippines is working from a low base.
Relative to ASEAN countries the Philippines is underperforming compared to the others: Despite effort to reduce red tape, whatever progress is being made it is at the margins for domestic businesses – not really making it easier for them to form and operate.
Not Inclusive Growth – High Inequity and Persistent Poverty
The Growth that has taken place has not been inclusive. According to the UN Human Development Report on Asian Economies 2010, the Philippines has highest levels of inequity of all ASEAN countries.
Gini Factor
- Philippines: 0.44 (closely followed by Thailand and China)
- Malyasia: 0.39
- Indonesia: 0.37
From 1990 – 2000, Philippines decreased poverty from 30% to 20%. Since 2001 the economy has pick up but this has not translated into poverty reduction – between 2003 and 2006 poverty might have actually increased remained unchanged through 2009. Again, looking at neighbors for comparison:
1990 – 2010: Malaysia and Thailand has moved poverty to low single digits
Indonesia and Vietnam has reduced % of poverty by around 50% over the period to come to about same level as the Philippines.
Opportunities to Improve Competitiveness and Increase Inclusive Growth
AGRIBUSINESS
- It employs almost 1/3 of the population and accounts for close to half GDP. Philippines lags ASEAN peers.
- Only $3.1 billion of agri-food export in 2009 vs. Indonesia’s $23.6 billion, Thailand’s $29.8 billion and Vietnam’s $10.8 billion
- Coconut – 1/3 of exports with $1 billion; fruits has only just over $500 million market).
- There is no significant change in the structure of exports in the last decade (Philippine Development Plan 2011-2016).
- Opportunities for inclusive growth in agribusiness lie in improved trade policy frameworks to enhance efficiencies in trade facilitation and logistics;
- Active promotion of agri-export by exploiting free trade agreements and linking farmers to markets; and
- Agricultural productivity enhancement through technical education & training.
- Regulations should be particularly sensitive to creating an even playing field and should be revised if they not and Agri related PPP’s should be prioritized.
INFRASTRUCTURE
Infrastructure is the great equalizer. Road, bridges, communication networks, and airports connect people and markets and do not discriminate between the rich and the poor. This is especially impactful in agribusiness where about half the population is employed and were costs to get food to market are unusually high.
East Asia economies spend 6-8% of their GDP on infrastructure investment. Developing Economies are spending about 4% on average. Philippines has been spending only about 2.5% of GDP – far below its neighbors.
ATTRACTING INVESTMENT
Investment interest is growing in the Philippines – both domestically and from abroad. Still, 80% of the GDP is consumption based. The government needs to continued investment climate reforms that give our liquid banks and potential entrepreneurs opportunities worthy of their investments. Much of these reforms are liked to governance.
Renewed interest and attention needs to be focused on breaking up cozy relationships between vested interests, politicians, and bureaucrats. The DOJ’s Competition office is a good start. We encouraging focusing on the current anticompetitive behavior in infrastructure and transportation. This will help open the doors to new innovators and risk takers.
Earlier I made a link between the number of procedures and corruption. National and local governments needs to make is simpler, easier, and faster for businesses to comply with regulations. Reducing procedures and face-to-face interactions can help lower the perception of petty corruption.
The Philippine Business Registry one highly visible highly effect initiative that can help. It will allow the entrepreneur to register his business from the internet and pay using online or electronic payment. Once functioning in this way, it will both reduce procedures and lower face-to-face interaction for the thousands of SMEs that are registering every year.
CONCLUSION
Macro Econ Stability is working. The priority now is to maintain this good work but now emphasize the transaction – getting reform done, seal the deal, committing the investor and fixing the micro economic policies or problems that allows underperformance compared to our neighbors and which inhibit inclusive growth.
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Source: Investor Relations Office
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