SINCE my arrival in this country in late June, I have witnessed the increasing number of visitors and queries about the business environment in the Philippines. This is attributable to two milestone developments: the opening of the Korea Visa Application Center in August and the signing of the Korea-Philippines Free Trade Agreement (FTA) in September. Readers may think that most of the visa applicants are those who love K-pop and Korean drama. To my pleasant surprise, however, a sizeable number of them are also business-related, including those promoting business opportunities in the Philippines. Under the circumstances, the signing of the FTA is expected to provide an additional impetus to trade and investment between Korea and the Philippines.
The surge in queries and visits related to business begs the question: How is the ease of doing business in the Philippines perceived? Ease of doing business is an intricate amalgamation of various elements such as infrastructure, tax structures, and regulatory frameworks. What makes this complex matrix more complicated is that it is always compared to other countries, and it affects the overall perception and image of a country’s business environment. Often, perception trumps reality, and perception, once established, is extremely hard to change. As old habits die hard, perception, especially a negative one, lasts a long time.
I recall my conversation with a Filipino senator who confessed that doing business in this country is very difficult. If this is the observation from an influential politician, one could easily fathom the challenges faced by foreign businesses. In this regard, the OECD survey released in 2020 on FDI RRI (foreign direct investment regulatory restrictiveness index) is alarming. The Philippines is ranked as the third most restrictive among 84 countries, topped only by Palestine and Libya.
However unpleasant it may be, the survey should be taken seriously. The stark contrast between the number of Korean investors in Vietnam compared to the Philippines, which is, roughly, 9,000 to 300, is truly mind-boggling. It is especially so considering the geographic proximity of the Philippines to Korea, its facility for language as the third largest English-speaking nation in the world, and the large number of young and educated individuals willing to work for competitive wages. The difference highlights the dire necessity to foster an environment ripe for investment.
In my humble opinion, the crux of the problem lies in the perception of the ease of doing business environment. The trick is in finding appropriate solutions to this obstacle. Here we have some good news as well as bad. Transforming the Philippines into a more investment-friendly destination demands a comprehensive strategy and whole-of-nation approach. It encompasses such measures as cutting bureaucratic red tapes, streamlining processes and procedures, keeping regulations fit-for-purpose, and going digital. It is a daunting task.
On the bright side, there are reasons to be hopeful. Drawing from my experience as ambassador to Myanmar, where investment-friendly reforms faced challenges, I believe that a three-fold approach is necessary to improving the Philippines’ competitiveness in the global market: 1.) strong political will; 2.) robust legal and institutional mechanisms; and, 3.) a cultural and mental shift to accommodate the change. President Ferdinand Marcos, Jr.’s commitment to building an “ease of doing business” architecture is commendable. It is evidenced by his Executive Orders aimed at fostering a more conducive business environment. The latest example — in addressing logistics costs, which, according to George Barcelon, president of the Philippine Chamber of Commerce and Industry, is estimated to account for 26% of production costs in this country and way higher than its neighboring countries — is pivotal to attracting FDI.
Another encouraging element is that the President’s political will is backed by an effective coordinating mechanism, most notably the Anti-Red Tape Authority (ARTA). Recently, ARTA organized a three-day convention focused on the ease of doing business, during which representatives from the national and local governments had opportunities to share ideas and experiences with members of the diplomatic corps, academics, and businessmen. ARTA’s efforts align well with the Philippine government’s push for reinforcing a rules-based international order and bringing the country up to global standards. Such endeavors will motivate countries like Korea to invest more in the Philippines amid growing concerns over disruptions in the global supply chain.
As one of the speakers at the convention, I shared my experience in Myanmar as a cautionary tale. A Korean conglomerate and the world’s top-notch semiconductor manufacturer once considered Myanmar as an investment destination, but ultimately chose Vietnam after taking into account a number of factors, including infrastructure, particularly, electricity. But, more importantly, it was the comparative edge that Vietnam had in maintaining an investor-friendly environment that led the Korean manufacturers to choose Vietnam as its destination. By telling this story, I meant to emphasize the pivotal role that reputation plays in attracting investors.
This leads me to highlight the final component of the three-pronged approach I suggested earlier — a change in culture and mentality. I see parallels from my time at the Executive Office of UN Secretary-General Ban Ki-moon. Secretary-General Ban’s reform measures initially met strong resistance from different quarters. Eventually, he was able to convince them to accept the changes and innovations he proposed. If history is any guide, the world hates change, yet, it is the only thing that has brought progress. As opined by James A. Belasco and Ralph C. Stayer in their book, Flight of the Buffalo, change is difficult because people overestimate the value of what they have and underestimate what they may gain by giving it up.
My key message at the ease of doing business convention was to urge ARTA and its partners to stay on track. The Authority has done a splendid job under the able stewardship of Secretary Ernesto V. Perez. Regardless of whether it be diplomacy or business, trust is the cornerstone of success. As a saying goes, “Trust arrives on foot, but leaves on horseback.” Building a trustworthy reputation takes time and is challenging. So, ARTA must soldier on and persevere even against all odds.
I am confident that as the Philippines strives hard to improve its ease of doing business, foreign investors will vie for its huge, untapped business potentials. This optimism holds particular significance for the Philippines and Korea as our two nations approach the 75th anniversary of diplomatic relations in 2024. As part of our ever-deepening ties, the recently signed Korea-Philippines FTA will serve as a catalyst for strengthening shared commitments to improve the ease of doing business and reinforce a mutually beneficial partnership. What makes my conviction stronger about the future of Korea-Philippine relations is that we share the same philosophy: Embracing change is the first step to embracing a brighter future.
Lee Sang-Hwa is the ambassador of the Republic of Korea to the Philippines.