Competitiveness

Competitiveness indicators have for some time now been used to measure the country's business landscape. From 1994 to 1999, the Philippines ranked between 32 to 35 in the International Institute for Management and Development (IMD) Global Competitiveness Report but slipped to 49 from 2000 to 2007.

Several measures of competitiveness reveal weakness in major development aspects compared to the rest of the world. In the World Economic Forum (WEF) Global Competitiveness Index Ranking, the Philippines ranked 87th out of 133 countries, and last among the ASEAN-6 subset of countries for the period 2009-2010. In specific categories, the Philippines ranked 113th in institutions; 113th in labor market efficiency; 99th in innovation; and 98th in infrastructure.

In 2009, the Philippines ranked 43rd out of 57 countries and last among five ASEAN members; next to last in infrastructure; and 51st in economic performance in the IMD Global Competitiveness Report; and placed 139th out of 180 countries (6th among the ASEAN-6) in the Transparency International's Corruption Perception Index. In 2010, the country ranked 144th among 183 countries and also last among the ASEAN-6 in the International Finance Corporation/ World Bank's (IFC/WB) Doing Business 2010 Report.1

Compared with its neighbors, the country's economic performance in terms of investments, exports, and competitiveness is unsatisfactory and needs to be improved. Over the past years, the Philippine economy has been characterized by a reduced share of the manufacturing sector in the country's GDP and declining gross domestic investment rate. The country continues to lag behind its neighbors in terms of foreign direct investments. (FDI). The Arangkada Philippines 2010 report noted that inflows of FDI into the Philippines were lowest among six ASEAN countries, and that "many multinational firms not already present in the Philippines bypassed the country".2

In the 2010 IMD Global Competitiveness Report, the country's overall infrastructure quality ranked below that of Singapore, Malaysia, and Thailand and was closer to Indonesia and Vietnam. The inadequate and poor quality of infrastructure diminished the country's overall competitiveness and its capacity to attract investments.

Aside from cumbersome business procedures and high cost of power, inefficient transport network raises production cost, all causing a higher cost of doing business. Infrastructure and communication problems also hinder access to raw materials and distribution of goods and services to consumers.

The Doing Business survey of the IFC/WB also consistently identifies the high cost of doing business in the Philippines as a major obstacle to competitiveness. (Table 3.1). The IFC/WB Doing Business Report 2011, on the other hand, reported the 148th ranking of the Philippines in terms of ease in doing business, a finding related to the difficulties of transacting with the local government units (LGUs) and national agencies in terms of length of time, steps, signatories, costs and other indicators. There is broad agreement that the process of applying for a business renewal registration is a long, difficult, and tedious process. Starting a business in a Philippine city involves an average of 15 procedures, takes 38 days, and costs 29.7 percent of income per capita. The country was listed among the countries with high number of procedures for starting a business, although wide differences exist across different Philippine cities3.

Measured competitiveness affects the country's capacity to attract trade and investments. The economic situation remains a challenge for the Philippines, which is seen as falling short of its true potential for attracting both domestic and foreign investment, given its human, natural, and capital endowments4.

Table 3.1: Cost of Doing Business Indicators

Source: World Bank, Doing Business 2005 and 2010 (http://www.doingbusiness.org)

Policies that distort competition are the main impediments to economic growth. Protectionist paradigms were embodied in flawed policies manifested through market power or the extent to which a firm can influence the price of an item by exercising control over its demand, supply or both, barriers to entry, and rent-seeking practices. Clearly, some businesses do not get level playing fields.

Philippine products and services face some challenges in the international market. For instance, there is lack of information on the standards of other countries. A certification system for exported products is still not fully in place. Laboratory and common service facilities are either incomplete and outdated or inadequate. The costs of ISO certification can be borne only by the more liquid traders and producers.

With tariffs reduced, difficulties experienced by manufacturers, exporters/traders will increasingly pertain to technical barriers such as standards and conformity assessment. Standardization, a component of the technical infrastructure, protects consumers and accelerates product integration into the global trading system. Other components of the technical infrastructure, such as metrology, accreditation, certification and testing, are dispersed with different agencies involved in conformity assessment, spreading government resources thinly. A robust and harmonized technical infrastructure would not only help the country overcome trading barriers and protect the buying consumers, but also cut redundant overhead costs due to many regulatory bodies.

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1 The Annual Meeting of the Global Federation of Competitiveness Councils held in Washington D.C. in December 2010 agreed to adopt new paradigm metrics beyond the existing competitiveness reports and surveys. Metrics of competitiveness substantially different from current indicators will be used in future surveys. The new measures, due by the end of 2011, will focus on the creation of a sound business environment for firm-level productivity.

2 The same report notes that in the period 1970-2009, Indonesia, Malaysia, and Thailand each received twice or three times as much FDI as the Philippines, and that only 4.5 percent of total FDI in six ASEAN countries came to the country.

3 Such variations could be due to differing procedures and practices at the local government level, differential performance of local branches of national agencies, and variations in local taxes and fees.

4 See, for example, the World Bank's Country Assessment Report 2005.