In the last Global Competitiveness Report of the World Economic Forum, we ranked near the bottom. The Philippines is second-to-the-last among Asean (75th) countries that matter, 10 notches below Vietnam (65th) and better only than another war-torn country, Cambodia (97th). There is small comfort that we improved our ranking 10 notches from 85th out of 139 countries.
This is what WEF has to say about our competitiveness: “The quality of the country’s public institutions continues to be assessed as poor: 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 state of its infrastructure is improving marginally, but 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, with particularly low marks for the quality of its seaport (123rd) and airport infrastructure (115th). Finally, despite an enrollment rate of around 90 percent, primary education is characterized by low-quality standards (110th). The Philippines continues to have a vast opportunity for improvement. In particular, the largely inflexible and inefficient labor market (113th) has shown very little progress over the past four years.”
To improve our competitiveness, leaders of Congress want to amend the Constitution. Senate President Juan Ponce Enrile said he firmly believes that “the restrictive economic provisions of our Charter are anathema to our efforts to achieve economic development and to compete in the global arena.” The economic provisions congressional leaders want changed are those that limit foreign ownership of businesses and real estate. Enrile said “there are so many restrictions that impede foreign investors from freely staking their investment in very viable and potent business opportunities in the country and thereby create jobs for our countrymen.”
I guess revisiting these provisions is not a bad idea. We are living in this era of globalization whether we like it or not. And this means we have to adjust our laws to best benefit from it. Even the Americans who introduced the concept to the world are now finding out that they have not prepared to compete in such a globalized world.
But I just want to point out that changing our economic provisions that prevent foreigners from owning land and restrict their participation in certain businesses like utilities, media and exploitation of natural resources is not going to solve all our problems. Foreigners can’t own land in China either, the state owns all the land, but that has not prevented foreign investors from going to China in droves.
Liberalizing our economic provisions will improve the investment climate in our country by a few degrees but there are other things we have to attend to in order to truly encourage investors to invest here… both foreign and local. Lack of confidence by local investors is why there is some P1.8 trillion in idle funds owned by Filipinos frozen in BSP SDA accounts that could have been invested in productive ventures here. But they don’t have the confidence to risk their money here, owners decided to just put all that money under their pillows so to speak.
In other words, the factors that make local investors hesitate to invest in the Philippines are likely to be the same factors that make foreign investors stay out. Corruption is a key deterrent to investments. And we are not just talking about corruption at the BIR or Customs but corruption at the LGUs when entrepreneurs apply for business permits, etc. We are also talking about corruption at the judiciary where TROs and decisions are for sale. We are talking of a lack of a level playing field in the competitive environment because vested interests are too powerful for new entrants to many businesses.
Toti Chikiamco, president of the Foundation for Economic Freedom, describes this investment conundrum: shortages abound, capital is plenty and available, returns should be high, but investment spending remains low. Why? He cites an Italian World Bank economist, Alexander Magnoli Bocchi who attempted to answer this question in a paper entitled, “Rising Growth, Declining Investment: The Puzzle of the Philippines.”
“According to Bocchi, first, the public sector cannot invest because of poor revenue performance, weighty debt burden, and high cost of inputs. Second, the capital intensive private sector expects low returns here. MPK (marginal productivity of capital) is low, for two reasons: a) the public sector does not invest enough to provide incentives for private investment (as the return to private investment depends on both quantity and quality of public capital spending); and b) inputs are expensive because of elite-capture in the traditional sectors of the economy (agriculture, sea and air transport, power, cement, mining, banking, etc.)
“Third, the politically connected conglomerates, protected by favorable rules and regulations, enjoy barriers to entry and market power, and hence sell at a high price their products (agricultural commodities, transport services, electricity, cement, etc.), which are critical inputs for both upstream and downstream sectors.”
The investment conundrum clearly lies in the realm of political economy, Chikiamco concludes. He cites a paper entitled, “The Philippines: Weak institutions a drag on economic performance,” wherein PIDS President Josef Yap stated that “the corporate conglomerates are symptoms of an oligarchy in the Philippines.”
Josef explains: “Weak institutions and an oligarchic private sector are two symptoms of the same coin. A gridlock has evolved wherein stronger institutions are required to loosen the grip of the oligarchs, but at the same time the grip of the oligarchs has to be reduced to strengthen institutions. Crafting appropriate development policies in the Philippines requires a political economy framework supported by a variant of new institutional economics.”
P-Noy is right to say we don’t need cha cha to improve our competitiveness. Ah, but getting our competitiveness up to par requires hard work on the points raised by the WEF in their criteria. The P-Noy administration must also show it has the political cojones to reform our structures the way FVR broke up the stranglehold of the dominant oligarchy in the telecoms sector. Like it or not, P-Noy or any President for that matter, must prove he is not a captive of the local vested interests. That is infinitely more difficult to do than cha cha.
In the end, all that investors want is fairness, a level playing field and they can’t see that happening unless corruption is dealt with and institutions strengthened to deal effectively with the vested interests. Open Skies is a step in the right direction. But we need more… a helluva lot more!
Buko Economy
I got this e-mail from Manuel Cantos reacting to the column on buko juice.
I was in Canberra (Australia) in October 2001 on training. In one supermarket, I saw & bought a can of buko juice. I thought it came from the Philippines, but when I turned the can around, it said made in Thailand. I can’t recall how it tasted. This was 2001 yet!
In the early 1980s, relatives who worked in Saudi Arabia told me that they have Tentay (or Rufina) patis there. The bottle and packaging are the same; it even tastes the same. But if you turn the bottle around, you will find out it was made in Thailand. It could only be done by former Thai students in the Philippines.
No doubt Thais are more entrepreneurial than Filipinos. In Thailand, you find stalls on the way to conference halls displaying export-quality Thai goods during international meetings, whether sponsored by the Thai government or private sector. You don’t find similar stalls during international meetings in the Philippines.
Is Sec. Greg Domingo a fit in DTI? He’s a finance man! But then, why were former DTI Secretaries drawn from the field of finance? You had then Min. (now Rep.) Luis Villafuerte (Bancom), Min Roberto Ongpin, Secs. Rizalino Navarro & CesarPurisima (all from SGV). Secs. Peter Favila (PNB), Jesli Lapuz (Land Bank). Mar Roxas was also a finance man before he became a Representative and Senator. Regards.
Weird Market
The market is weird. Every time one guy sells, another one buys, and they both think they’re smart.
Boo Chanco’s e-mail address is [email protected]. He is also on Twitter @boochanco
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By: Boo Chanco – Demand and Supply
Source: The Philippine Star, Oct. 7, 2011
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