PH dismal competitiveness ranking shocks gov’t

The government has expressed disbelief over the Philippines’ dismal performance in the 2018 World Competitiveness Yearbook as it fell 9 points to rank 50th out of 63 countries despite the often-flouted growth in the country’s gross domestic product (GDP), which is only second fastest in the region.

“Hard to believe the competitiveness ranking report,” was how Trade and Industry Secretary Ramon M. Lopez, who co-chairs the National Competitiveness Council (NCC), described the report which showed the Philippines falling 9 notches lower from 41st in 2017 to rank 50th out of 63 countries in the 2018 report.

“Lower on economic growth? Infrastructure growth? Business efficiencies? But we have one of the fastest growth in the world. Faster than most peers. And infra improvements done on some and continuing,” added Lopez in disbelief on the 2018 WCY published by the International Institute of Management Development (IMD) with the Asian Institute of Management as a partner in the Philippines.

The trade chief even compared the IMD further noted that for comparison, IMD tracks 63 vs WEF’s 137 and WB/IFC’s 190. Thus, Lopez assumed many much smaller economies not tracked by IMD, which covers only 5 in ASEAN out of 10.

Despite the fall, Lopez said that the “Philippine growth rates and reforms have been faster.”

Lopez expressed optimism that the fast growth the country is experiencing, the infrastructure build-up, and various reforms to ease cost of doing business, the growing middle class, and demographics attractiveness will enable the Philippines to improve its ranking soon.

Jamil Paolo S. Francisco, executive director at the Asian Institute of Management RSN Policy Center for Competitiveness, explained at the launch of the 2018 WCY that it is possible for a country in the IMD to fall in ranking despite the fact that it has improved its competitiveness performance because GDP is not the only measure being looked into by the study.

In this 2018 WCY, the economies were evaluated using 340 indicators spread across four factors: Economic Performance, Government Efficiency, Business Efficiency, and Infrastructure. These four factors are in turn divided into sub-factors. The WCY uses both mac- roeconomic data and perceptions-based indicators in ranking the competitiveness of countries.

“Although real GDP grew by 6.7 percent – the fifth highest in WCY – other macroeconomic indicators overcame this improvement. For instance, current account deficit more than doubled,” Francisco said.

“We’re not deteriorating, but many economies have rebounded so they’re back in the game and we’re still playing the same game 3-4 years ago.”

Notably, the Philippines’ Economic Performance ranking dropped from 26th in 2017 to 50th in 2018. Among the sub-factors under Economic Performance, Domestic Economy declined from 12th to 24th, International Trade from 44th to 52nd, Employment from 4th to 32nd, and International Investment from 47th to 48th. Only the Prices subfactor improved from 52nd to 45th.

Although real GDP grew by 6.7 percent – the fifth highest in WCY – other macroeconomic indicators overcame this improvement. For instance, current account deficit more than doubled. And while Foreign Direct Investments (FDI) inflows posted record levels, its growth rate slowed down to about half that of 2016.

While the Philippines ranked 5th in the overall WCY report in terms of GDP growth, the per capita income in the country also ranked second lowest among the 63 countries.

In addition, the Philippine Peso substantially depreciated against most major currencies in 2017. Preliminary data also shows that unemployment rate slightly increased and total employment declined.

Government Efficiency experienced a sevennotch drop in ranking from 37th in 2017 to 44th this year. Out of the five sub-factors under Government Efficiency, only Tax Policy improved from 18th to 15th. Public Finance (25th to 34th), Institutional Framework (41st to 46th), Business Legislation (58th to 60th), and Societal Framework (51st to 54th) all saw ranking declines.

The rank for Business Efficiency likewise saw the Philippines slip, from 28th in 2017 to 38th this year. Drops were registered in the sub-factors for Finance (33rd to 39th), Labor Market (5th to 19th), Management Practices (28th to 33rd), and Attitudes and Values (18th to 34th). The rank for the Productivity and Efficiency sub-factor improved from 52nd to 46th, but the Philippines is still near the bottom in overall productivity and in labor productivity.

Francisco noted that while the Philippines ranked second cheapest in terms of labor cost, it also ranked among the lowest in terms of productivity at 61st.

“This is problematic because productivity is a determinant for wages because companies do not pay if you are not productive,” he added.

Notably, the IMD report ranked the Philippines 58th in terms in the relocation threats of services among 63 countries. Francisco highlighted this as a result of President Trump’s policy to bring American companies to bring in jobs they have outsourced to other countries, threatening the Philippines BPO industry.