MANILA, Philippines – Despite moving up one slot overall, the Philippines fell behind 6 of its Southeast Asian neighbors in the annual competitiveness ranking of the World Economic Forum (WEF).
The country improved a notch in the Global Competitiveness Index, ranking 56th out of 137 economies this year from 57th in the 2016 report.
But its score this year slightly decreased by 0.01 point to 4.35 out of 7, from last year’s 4.36. Countries’ scores in the index are based on 114 indicators grouped into 12 “pillars of competitiveness,” which form 3 subindices: basic requirements, efficiency enhancers, as well as innovation and sophistication factors.
The Philippines’ almost flat performance placed it behind most of its neighbors in the Association of Southeast Asian Nations (ASEAN): Vietnam, Brunei, Indonesia, Thailand, Malaysia, and Singapore.
Brunei and Vietnam have overtaken the Philippines to secure the 5th and 6th positions in the region, respectively. Brunei jumped 12 notches this year, while Indonesia improved by 5 spots. The Philippines, as a result, dropped to 7th out of 9 ASEAN countries ranked by the WEF.
“It is good to see that we have maintained our overall competitiveness and even moved one notch higher. However, as we implement changes to improve, other countries are doing the same. In fact, Vietnam and Brunei have overtaken us this year. We, therefore, need to do much more at a much faster pace,” Makati Business Club (MBC) chairman Edgar Chua said in a statement.
For Guillermo Luz, private sector co-chairman of the National Competitiveness Council (NCC), “this basically illustrates the intensity of the competition in the region, with 6 countries all improving their performances in the last year.”
Investors in the Philippines are happy about the country’s robust macroeconomic foundation, strides in improving higher education and training, as well as the increased purchasing power of consumers, the Global Competitiveness Index showed.
But on the flip side, there are concerns such as inefficient government bureaucracy, poor state of infrastructure, too high and complex tax rates, as well as corruption.
The macroeconomic environment was among the strong areas of performance for the Philippines this year. The country is ranked highly in inflation management, government debt as a percentage of gross domestic product (GDP), country credit rating, as well as government budget balance as a percentage of GDP.
“The strong suits for the Philippines are the still-strong macroeconomic environment, improvements in higher education, which is a good sign – the implementation of the K to 12 program and specialized or vocational training. Market size jumped 4 spots, meaning purchasing power of consumers has improved,” Luz told Rappler in a phone interview.
For Luz, another notable improvement in the Philippines’ competitiveness score this year is the labor market efficiency, which climbed two spots to 84th from last year’s 86th.
“Labor is often overlooked by many people. As you know, the Philippines’ labor rules are quite rigid. This was a concern among investors. But now, the rules are getting more flexible than before,” he said.
Other than labor market efficiency, the Philippines’ highest gains this year are in market size as well as higher education and training.
In contrast, financial market development in the country was down 4 spots from 2016, mainly because “banks’ credit exposure has been placed under tight watch despite [the] sound financial system,” Luz said. This, however, remains the 3rd highest pillar of the country.
Luz noted that the country received moderate downgrades in the areas of financing through local equity markets, ease of access to loans, and venture capital availability.
The Philippines’ gains are being offset by inefficient government bureaucracy, inadequate supply of infrastructure, and corruption, all with the same rankings as in 2016.
“Different government programs in the administration’s 10-point socioeconomic agenda are currently addressing these issues,” Luz said.
Another area where the Philippines ranked low this year was the quality of airports, ports, and roads.
“Infrastructure remains quite low, especially ports and airports. This is kind of holding steady. Investors just want to see more airports being rehabilitated,” Luz said. “I think we will have a low grading until we get those airports done.”
Other indicators that ranked low include time to start a business, burden of customs procedures, agricultural policy costs, labor redundancy costs, and government procurement of advanced technology products.
Complex tax regulations and high tax rates are also included in the “most problematic factors for doing business in the Philippines.”
Room for improvement
For Luz, government bureaucracy improvements, better ports and airports, and developments in primary education and health in the next one to two years will greatly improve competitiveness in the Philippines.
“Infrastructure is the very obvious challenge among most investors,” he added.
For MBC executive director Peter Perfecto, “implementing the plans under the Build, Build, Build infrastructure program is critical for the effective functioning of a growing Philippine economy.”
Investments in technological readiness, higher education, innovation, as well as science and technology will also need to be made over the next 3 to 5 years. In the medium term, Luz said internet bandwidth should be a priority.
“The way the economy is structured is that 3 to 5 years from now, investors will be thinking of technological readiness. They would ask, how is your innovation? How is your technological readiness?” he explained.
For MBC’s Chua, Congress should focus on passing priority bills identified by the business sector, especially the Comprehensive Tax Reform Program, and “not allow itself to be diverted by various political maneuvers like impeachment proceedings.”
“[The Philippines] cannot advance to the next stage unless our public institutions are strengthened by addressing corruption and we improve our legal and regulatory frameworks,” Chua added.
“The Global Competitiveness Index figures on cost of terrorism, crime, and violence are sources of concern and we believe that a root cause of these is poverty. We all need to work on helping government implement its 10-point socioeconomic agenda and achieve a truly inclusive growth.” – Rappler.com