Philippines: competitiveness
Published 7 October 2014
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This publication was archived on 4 July 2016
This article is no longer current. Please refer to Overseas Business Risk – Philippines
Summary
Philippines most improved country in the world in the Global Competitiveness Index from 2010-14. Jump largely driven by macroeconomic reforms. Vibrant and energetic private sector. Beneath the surface, rankings reveal disparities; particularly poor on infrastructure and education. Institutions and innovation, though improved, may have been given good rankings based on perceptions rather than reality. Short term, the improvements are real and opportunities for UK business are clear. Medium term, underlying weaknesses may reverse recent gains if not addressed.
Detail
Since 2010, the Philippines has moved up from 85th to 52nd in the World Economic Forum’s Global Competitiveness Index. This 33 point jump is the largest jump of any country. In ASEAN alone, it has leapfrogged Vietnam and gained over 30 places on Thailand, Indonesia and Malaysia. According to the survey, the drivers are improvements in institutions, macroeconomic environment and innovation, as well as improvements in market efficiency, financial market development and technological readiness. However, whilst the reforms set in place by the Aquino Administration since 2010, have undoubtedly driven strong improvements, the Philippines may now be treading water.
Recent Philippine performance is underpinned by macroeconomic strength. The country grew by 7.2% in 2013, and is still averaging around 6.5% growth halfway through 2014. For the last four years, the country has managed to raise revenue, pay down foreign debt, keep prices stable, and outgrow most of its regional neighbours, attracting strong foreign portfolio investment and raising the country’s international profile. The country’s Pillar 3 rankings provide a solid foundation for investor optimism, based on widely acknowledged and credible data. Some Government institutions, notably the Department of Finance, Central Bank and Bureau of Internal Revenue are seen to be high performing, free largely of political meddling or corruption and have delivered strong results. A Government anti-corruption campaign has borne some fruit with more rigour in procurement practices.
The private sector is highly performing with strong, well-managed companies and a business process outsourcing industry second only to India. Many of the major conglomerates are beginning to consider overseas investments, including in the UK, and are largely free of the bureaucracy and corruption that plagues much of the public sector. Finance is readily available with good local liquidity and international appetite for Philippine risk. The improvements (20 to 27 places) in goods and labour market efficiency and financial market development appear reasonably accurate. The booming private sector economy, driven by consumption, property investment and remittances, has sign of continued vitality and normal emergence of inflationary pressures under such circumstances is not yet alarming.
Although there have been some substantial improvements in institutions, much of this was put in place in the first two years of the current Presidency particularly in the core financial agencies. Overall progress remains slow. Many Filipino Government agencies have a chronic inability to spend allocated funds, with the flagship PPP programme and post-Typhoon Haiyan reconstruction being particular examples where delivery has lagged rhetoric. Despite some progress, corruption remains endemic and recent concerns about presidential overreach in by-passing Congress, disputes over fiscal powers, judicial independence, and selective justice have all had an impact.
Infrastructure is rightly flagged as a weak point in the WEF’s rankings – at 91st, it is the pillar on which the Philippines ranks lowest in the index. Huge undercapacity in transport infrastructure has made Manila’s traffic jams notorious and the current Government, like most of those before, has not taken the necessary action. A statement by a Government spokesperson that high profile recent accidents on the MRT were due to the previous administration’s failure to purchase new trains epitomises the lack of ownership of the situation. The summer has been dominated by questions on how to decongest Manila port which had no capacity to unload new shipments. Firm reassurances about sufficient power supplies have now oscillated to a call for the President to declare a state of emergency.
Longer term, the very low scores on the education pillars (the Philippines’s weakest pillar is on health and primary education where it ranks 92nd in the world), combined with a high birth rate, a young population and a stubborn unemployment rate of approximately 25%, together with low productivity, point to problems ahead.
Comment
Overall, the Philippine economy looks set to outpace its disappointing historical trend for some time yet. However, if some of the underlying problems in infrastructure, institutions and education are not addressed over the next few years, growth will inevitably lag and the feedback loop will begin to cycle downwards once again.
Disclaimer
The purpose of the FCO Country Update(s) for Business (”the Report”) prepared by UK Trade & Investment (UKTI) is to provide information and related comment to help recipients form their own judgments about making business decisions as to whether to invest or operate in a particular country. The Report’s contents were believed (at the time that the Report was prepared) to be reliable, but no representations or warranties, express or implied, are made or given by UKTI or its parent Departments (the Foreign and Commonwealth Office (FCO) and the Department for Business, Innovation and Skills (BIS)) as to the accuracy of the Report, its completeness or its suitability for any purpose. In particular, none of the Report’s contents should be construed as advice or solicitation to purchase or sell securities, commodities or any other form of financial instrument. No liability is accepted by UKTI, the FCO or BIS for any loss or damage (whether consequential or otherwise) which may arise out of or in connection with the Report.