PH least competitive in Asia-Pacific

Carlos Santamaria

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The Philippines slips 2 notches in a global competitiveness ranking of 59 economies. Overall, it still lags behind neighbors in the region, although it is better in other indicators such as business and government efficiency

MANILA, Philippines – The Philippines remains the least competitive country in the Asia-Pacific region, dropping two notches to 43rd place from 41st in the 2012 World Competitiveness Scoreboard, although its decline was not as much as its neighbors’.

The annual survey of Switzerland-based International Institute for Management and Development (IMD), in partnership with the Asian Institute of Management (AIM), showed slower economic growth weighed on the Philippines’ ranking, but other indicators such as business and government efficiency, as well as infrastructure, improved.

The country’s economic performance fell to a 2012 rank of 42 from 29 the previous year due to “unfavorable global economic headwinds” that adversely affected trade.


Competitiveness landscape of the Philippines. Source: AIM

By far, international trade saw the most dramatic decline among indicators, with the Philippines falling to 55th place from 18th.

According to the IMD-AIM report, the results “reflect data on the previous year’s economic performance, and so it still mirrors the challenges faced by the country in 2011.”

“Nevertheless, reform areas point to improvements that have begun to pay off in terms of more positive business perceptions, and perhaps soon also in terms of hard economic numbers,” it added.

Consequence of less growth

The report noted that the main factor behind the ranking was economic growth, which dipped from 7.6% in 2010 to 3.7% in 2011.

Economic performance 2008-2012. Source: AIM

A major drag on growth was exports, which contracted 6.9%, bringing the Philippines’ trade-in-goods deficit to US$12.2 billion from $3.4 billion in 2010.

The lackluster exports performance was driven by the marked decline in shipments of electronic products to $25.2 billion from US$32.5 billion.

Overreliance on this sector, which accounted for 37% of total export receipts, and services like business process outsourcing (BPO) makes the Phillipine economy more vulnerable to shocks and the economic downturn in Europe and the United States, said the report.

The report was released as the Philippine government announced its first-quarter 2012 economic results. Data from the National Statistical Coordination Board (NSCB) showed the Philippine economy grew 6.4% in the first quarter, against only 4.9% in 2011, thanks to higher public spending and exports, and a robust services sector, which was mainly driven by tourist arrivals. Unlike before, the government did mention BPO as a major driver this year.

Improving gov’t efficiency, drive on infrastructure

Meanwhile, the Philippines climbed 5 notches to 32 from 37 in government efficiency on the back of notable improvements in public finance and institutional framework. The report noted in particular the decline of the government budget deficit to P197 billion in 2011 from P314 billion in 2010 “as a result of improvements in revenue collection combined with budgetary reforms that generated public sector savings.”

Government efficiency 2008-2012. Source: AIM

Several public-private partnership projects (PPPs) are expected to take off in the next few months, and the government recently announced the creation of a P25 billion infrastructure fund to further boost PPPs in the transportation, energy, power, water, environment, and communications sectors.

Nevertheless, AIM’s study warned that it may still take some time for the planned PPPs to actually translate into a better competitiveness score for the country.

Infrastructure 2008-2012. Source: AIM

Is Philippines catching up?

Among Asian countries, the Philippines remains the least competitive, with a score of 59.271 out of 100.

The IMD-AIM report graded Hong Kong 100, making it the most competitive this year, beating the United States, which ranked 2nd with a score of 97.755.

Other neighbors ranked as follows: Singapore, 4th (95.923); Taiwan, 7th (89.959); Malaysia, 14th (84.217); China, 23rd (75.769); Japan, 27th (71.354); Thailand, 30th (69.001); India, 35th (63.596); and Indonesia, 42nd (59.499).

Despite falling at the bottom of the regional ranking, however, the Philippines’ 2-notch drop was smaller than China, Thailand and Indonesia, which fell by 4, 3 and 5 respectively as many regional economies “took a hit” from poor international trade environment.

Two years after President Benigno Aquino assumed office, the Philippines also ranked higher than China, Japan and India in government efficiency, and performed better than China, Japan, and Indonesia in business efficiency.

Business efficiency 2008-2012. Source: AIM

The Philippines is also no longer the worst country in terms of infrastructure, as that title belongs now to Indonesia.

“The commitment of the current administration to clean up the government as well as improve infrastructure and other investments (even though delayed) seems to be bearing fruit mainly in terms of investor and business sentiment at this stage,” said the report.

Challenges for 2012

But the report warned: “For these reforms to finally create a full impact on the country’s economic and competitiveness outcomes—which are components of its global ranking—the government needs to stay the course until a critical mass of mutually-reinforcing positive investor sentiment and actual robust investments and economic outcomes takes full effect.”

In that sense, challenges still remain, such as increasing the level of human development and creating more jobs, encouraging more investments and developing the export industry to make it more diversified.

The Philippines, said the report, also needs to improve the business environment, mitigate disaster risks, strengthen public-private sector cooperation, and accelerate the development of physical, institutional, and social infrastructure in support of meeting these goals. –

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