PHL competitiveness falls most in Asia

NOTWITHSTANDING relatively robust growth so far, the Philippine economy’s competitiveness ranking suffered the biggest drop in Asia over snags in ease of doing business, “worsening” public finances, as well as tourism, employment and education concerns, according to a research group of Switzerlandbased business school International Institute for Management Development (IMD).

The Philippines ranked 50th out of 63 economies in IMD World Competitiveness Center’s annual

World Competitiveness Rankings, nine notches down from its 41st place last year, and 13th among 14 covered Asia-Pacific economies, just ahead of Mongolia (62nd globally) and right behind India (44th).

The Philippines’ rank fell across all four subfactors, sliding to 50th from 26th in terms of economic performance, to 44th from 37th in terms of government efficiency, to 38th from 28th in business efficiency and to 60th from 54th in infrastructure.

“The Philippines experiences the most significant drop in the region, shifting nine places to 50th,” IMD said in a statement e-mailed to media groups.

“The reasons for such a drop include a decline in tourism and employment, the worsening of public finances and a surge in concerns about the education system,” it explained, adding that “[ i] nvesting in quality infrastructure and strengthening investment in human capital are the key challenges for the Philippines.”

Arturo Bris, director of the IMD World Competitiveness Center, said in a telephone interview that the overall drop in ranking reflected the “lack of ability of the country to attract investments.”

“I think that the Philippines has been booming as a country where large multinationals can bring their global services like IT ( information technology) or HR ( human resources), but compared to other countries like Indonesia and specifically Vietnam, it is lacking appeal for foreign investors when it comes to establishing plans and operations there,” Mr. Bris explained.

He said IMD’s Executive Opinion Survey showed “executives in the Philippines clearly state that the government has not been business friendly.”

“That has to do with the institutional environment. When a company decides not to come to the Philippines, they take into account the institutional environment, which is a very important factor to international investment,” he explained, noting that “[ e] ase of doing business, deteriorating labor regulations” and comparative “investment incentives… have prompted investors to retreat from investing there.”

A summary of Philippine data enumerated five key “challenges” this year, namely: investing in quality infrastructure, increasing investment in human capital (particularly in health and education), strengthening institutions, increasing digital competitiveness and mitigating political risks.

At the same time, however, IMD’s executive survey showed that 89.4% of respondents placed the country’s skilled workforce first among 15 attractiveness factors. This was followed by dynamism of the economy ( 72.3%), high education level ( 62.8%), open and positive attitudes (62.8%) and cost of competitiveness (56.4% of respondents).

On the other end of the spectrum were reliable infrastructure ( just 1.1% of respondents), “strong research and development culture” (2.1%), “effective legal environment” (3.2%), “competency of government” (6.4%) and “competitive tax regime” (7.4%).

Mr. Bris said that although the Philippines has an advantage of relatively low labor cost, it is still “poor” at attracting and retaining talent. “People find better opportunities abroad, so the Philippines has a long way to go because it requires improvements in education, improvements in the quality of life,” he explained.

Mr. Bris also said that tourism may have suffered from “exchange rate instability and… the political environment.”

Asked about “worsening public finances,” Mr. Bris said the Philippines ranked “very badly in terms of corporate taxation” noting it has the highest tax rate in Asia at 30%, which “has been like that for a long time.” “There is no tax advantage for corporations to come in there,” even as he noted the government’s move to cut corporate income tax rates to as low as 20-25% and rationalize fiscal incentives would be “very interesting to see” and would “definitely be welcomed.”

He said that although the government has improved revenue collections through the first of up to five tax reform packages that took effect in January, the government’s move to take the lead in infrastructure development may not necessarily be advantageous.

“The Philippines’ investments seems to be driven by the public sector. The public sector is not very efficient compared… for example to Singapore and Hong Kong,” Mr. Bris noted.

“So when we rely on public financing, the government becomes a weak spot, because corruption has an overall effect.”

The United States bagged first place globally this year, pushing Hong Kong to second spot, followed by Singapore, the Netherlands and Switzerland.

Hong Kong (second globally) was first in Asia and the Pacific, followed by Singapore ( third), China (13th), Taiwan (17th), Australia (19th), Malaysia (22nd), New Zealand (23rd), Japan (25th), South Korea (27th), Thailand (30th) and Indonesia (43rd).

This is the 30th edition of the IMD World Competitiveness Rankings, which has tracked economies’ performance since 1989 using 258 indicators.