How the Philippines can compete in the ASEAN community

By Francis Anthony T. Valentin, Special Features Writer

The long anticipated ASEAN Economic Community (AEC) finally came into force on Dec. 31, 2015. Its establishment — which has the intention of turning ASEAN (Association of Southeast Asian Nations) into a single market and production base in which, goods, services, investments, skilled labor, and movement of capital flow freely — unlocks tremendous opportunities, as well as challenges, for the 10 member countries of the trade bloc, which includes the Philippines.

At the recently concluded BusinessWorld Economic Forum, held on July 12, several issues surrounding the AEC were discussed by two of the most prominent personalities in the Philippine private sector — Ramon R. del Rosario, Jr. president and chief executive officer of PHINMA Corp. and Riza G. Mantaring, president and chief executive officer of Sun Life Financial Philippines. Their exchange of views on integration was moderated by Regina Lay, anchor and executive producer at Bloomberg TV Philippines.

Jobs mismatch

The AEC, as Ms. Mantaring remarked, is a huge market.

It is worth approximately $2.6 trillion and is populated by some 622 million people.

But the Philippines needs to be competitive for it to take full advantage of the enormous possibilities of the AEC. Fortunately, Mr. del Rosario noted that there are many factors that have set the stage for the country “to be potentially a much more competitive site for investments.” Among these are the rapid economic growth, increasing population and rising labor costs in neighboring countries such as China. He also disclosed that Japanese investors are taking a closer look at the country’s manufacturing sector — an important development since, he said, investments in that sector lead to job creation.

There is, however, a skills mismatch that both Ms. Manataring and Mr. del Rosario raised. There doesn’t seem to be a shortage of Filipinos looking for jobs and yet the number of jobs that goes unfilled is large.

“It is really a mismatch that we in the business community have to be vocal about. We have to speak up. We have to participate in the effort of addressing that gap,” Mr. del Rosario said. The specific steps the community could take, he said, include defining the competencies and skills they want from graduates and getting involved in the formulation of curricula and courses in schools. “The important point is there has to be better communication between industry and academe so that the output of academe matches the expectations and needs of industry,” he said.

Securing permits takes forever

In addition to the mismatch, the country has a lot of work to do to develop an environment in which businesses can thrive. “It’s very difficult to do business here,” Ms. Mantaring said. “Just to get a permit, it takes forever.”

In the Doing Business 2016 report of World Bank, the Philippines ranked 103rd, a decline from its 95th place finish in 2015. It was behind Singapore (1st), Malaysia (18th), Thailand (49th) and even Vietnam (90th), but it was ahead of Indonesia (109th).

Ms. Mantaring also called attention to high corporate taxes imposed on private firms, which are among the highest in Southeast Asia.

“If you’re a company… if you want to build strong manufacturing capabilities, why would you locate in the Philippines when you can operate much more cheaply and efficiently elsewhere?”

For his part, Mr. del Rosario said: “I think it’s important to point out that we are making some progress.”

He said, for instance, that the country is used to being seen as a “very corrupt nation,” but it has gained a lot of ground in altering such perception. He also noted that the National Competitive Council of the Philippines has been addressing the difficulties in doing business in the country and has made progress in eliminating as much red tape as possible, for instance.

The business process outsourcing industry (BPO) in the Philippines is an exemplar of what a good partnership between the private sector and the government can engender. Ms. Mantaring said that what has made the industry succeed is a combination of private investments and the enabling environment courtesy of the government. “If we were able to do it for BPO, there’s no reason why we can’t do it for other industries,” she said.

Francis Anthony T. Valentin (@iamfrancistv) joined BusinessWorld as a special features writer in 2014.