The Philippines: Sharpening the competitive edge

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The Philippines is making progress in boosting its ability to compete in the global economy, according to a recently released report. Although the country still has some way to go before being able to match many of its neighbours, its rationalisation of trade tariffs, an improving macroeconomic environment and a growing technological readiness have all strengthened its capacity to conduct business on the international stage.

In the latest Global Competitiveness Report, issued September 7, the World Economic Forum (WEF) ranked the Philippines 75th out of the 142 countries covered in the study, a jump of 10 places on the 2010 rating and making the Philippines one of the fastest movers up the ladder. The WEF’s annual report assesses strengths and weaknesses of world economies based on 12 criteria, including institutions, infrastructure, macroeconomic stability, higher education, training, goods-market efficiency, labour-market efficiency and innovation.

The WEF found the financial sector’s development was one of the Philippines’ strong points, with financial services readily available and affordable. The banking industry was also rated as sound, being ranked 46th globally. Additionally, the Philippines scored strongly in technological readiness, with the report noting that the latest technologies were becoming increasingly available to a population prepared to adopt them.

The government responded positively to the strong showing, though presidential spokesman Edwin Lacierda acknowledged the Philippines had only just begun its journey towards the upper echelons of the WEF rankings.

“This is thus far our highest-ever improvement, and one of the highest-ranking improvements by any country in the world in the past year,” Lacierda told a press briefing on September 8. “We are aware that the work does not end here. The report acknowledges that there remain challenges for us to hurdle and we agree.”

The secretary of socioeconomic planning, Cayetano Paderanga, also noted the country’s progress, saying that the Philippine economy’s improved competitiveness was contributing to higher investor confidence levels.

“We want to sustain this by creating an environment that is conducive to possible growth,” Paderanga told reporters the day after the WEF report’s release. “What we need to do right now is to ensure that this vote of confidence from the private sector is not compromised and therefore our capacity to address issues arising from these projects.”

International investors have seemingly taken notice of the improvements made to the business environment in the Philippines. A September 12 release from the Bangko Sentral ng Pilipinas showed strong growth in foreign direct investment (FDI) over the first eight months of the year, up by 16.4% over the same term in 2010, with the total reaching $779m for the January to August period this year.

“The respectable growth in FDI reflected favourable investor sentiment as the country’s macroeconomic fundamentals remained strong, amid a backdrop of a moderating and uneven global economic outlook,” the central bank said in a statement.

While the WEF report rightly praised the Philippines’ progress, it also warned more needs to be done if the climb is to continue.

“Yet the challenges are many, especially in the areas at the foundation of any competitive economy,” said a WEF statement accompanying the report. “The state of its infrastructure is improving, but not nearly fast enough to meet the needs of the business sector. The country ranks a mediocre 113rd for the overall state of its infrastructure, with particularly low marks for the quality of its seaport and airport infrastructure.”

It is in infrastructure where many of the Philippines’ ASEAN neighbours have invested heavily, providing the backbone for sustained economic development. Singapore, rated by the WEF as the second most competitive country in the world, was also assessed as having the second best infrastructure, with Malaysia ranked 23rd and Brunei 44th. Of the 10 ASEAN member nations, only Vietnam’s overall infrastructure quality was ranked below the Philippines. Indeed, such are the country’s infrastructure grid’s shortcomings that the WEF listed them as the third-most problematic factor hindering business, behind corruption and inefficient government bureaucracy.

While trying to counter graft and cut red tape, the government has also targeted infrastructure as a key area needing investment and development. However, getting large-scale projects off the ground inevitably takes time and money.

The needs are apparent, but the path is not. However, a clever balancing of government and private resources, coupled with continued essential reforms, could put the country on track to see further improvement in the WEF’s rankings in the coming years.

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