Last week, we received the unwelcome news that the Philippines fell eight notches in the World Economic Forum’s (WEF) Global Competitiveness Report for 2019. From being among the most improved countries in 2018 with a 12-notch leap to 56th position, we slid to 64th place out of 141 countries this year. We are at the same level we were in 2012. While utterly disappointing, it serves as a wake up call to our policy makers.
The Global Competitiveness Report is significant because it measures the efficiency in which a country generates wealth for its citizens. It is an indicator of how productively resources are utilized and how favorable (or unfavorable) conditions are to achieve long term growth. In short, it is a barometer of how prepared a country is to meet the challenges of the future and prosper in it. Foreign investors refer to the Global Competitiveness Report to assess the stability and vitality of countries.
The WEF takes into consideration 12 factors (or pillars) in its assessment of nations. They are: the strength of government institutions; the sufficiency of infrastructure; the degree in which new information and communication technologies (ICT) are adopted; macroeconomic conditions; the health of the population; the skills of the workforce; the size and availability of the labor force; the extent by which businesses can operate on a “level playing field”; the size of the domestic market; the sophistication of the financial system; the ability to adopt to new technologies; and the extent of research and development and capacity to turn ideas into something concrete.
In 2018, the Philippines was the 5th most competitive economy in ASEAN following Singapore, Malaysia, Thailand, and Indonesia. This year, Brunei overtook the Philippines.
The Department of Trade and Industry (DTI) is responsible for championing all aspects relating to the country’s competitiveness through its subsidiary, the National Competitiveness Council. Hence, with a sense of urgency, I messaged DTI Secretary Ramon Lopez to ask what happened and if we have reason to worry. The Secretary responded by providing perspective on the eight notch drop. He also assured me that the laws needed to improve our competitiveness have already been passed. With it, we could reasonably expect a rebound in rankings next year.
First of all, it is wrong to think that the country did not improve in competitiveness. It did. The reason for the drop in rankings is because other countries improved faster.
That said, the report revealed that the country posted its greatest improvement in the strength of our institutions. The fact that government is already preparing for the fourth industrial revolution is as a step towards the right direction. (For those unaware, the fourth industrial revolution refers to disruptive technologies such as the internet of things, robotics, virtual reality, and artificial intelligence).
Last year, the Ease of Doing Business (EODB) and Efficient Government Service Delivery Act was passed into law and along with it will come the digitization of all frontline government services. This will further bolster our competitive standing in as far as our institutions and ICT adoption are concerned, said the Secretary. The Anti-Red Tape Authority was assigned to monitor and help facilitate the full implementation of the EODB law.
Another pillar in which the Philippines improved is the extent in which business operates on a level playing field. The fact that President Duterte does not meddle in business affairs has worked to our favor. It also helps that the formulation of economic policies is left to capable technocrats and not to politicians.
The country also showed improvement in market size, thanks to our ever growing population and rising incomes.
On the downside, the pillars in which the Philippines lost traction were in sufficiency of infrastructure; macroeconomic conditions; ICT adoption; the ability to adopt to new technologies; the extent of investment in research and development; health of the population; skills of the workforce; and the sophistication of the banking system.
There are reasons for all these, asserted the Secretary. In terms of infrastructure, the roads, rails, ports, and telecommunication facilities needed to ease connectivity are presently under construction. We can expect strides in this category as they become operational. This will happen in succession from 2021 to 2025.
In terms of ICT adoption, this too is expected to rebound once the Ease in Doing Business Act is fully implemented and all government front line offices are automated. In fact, the DTI has already started its digital migration with the roll out of its computerized system for business name registration. Very soon, registration with the Securities and Exchange Commission as well as processing Bureau of Internal Revenue permits can be facilitated online.
Despite the economy’s posting 6.2% growth last year, the WEF still deemed the country’s macroeconomic conditions as unfavorable. This was due to the high inflation rates that beset the country last year. Again, it was a temporary condition that has since been resolved. With benign inflation rates now prevailing, we should see an improvement in this pillar as we move forward.
The ability to adopt to new technologies is the pillar where the Philippines posted its biggest drop. Poor performance in this pillar is due to a trifecta of reason — our low standards of ICT education, the lack of wherewithal of our people to innovate and poor telecommunication infrastructure.
This is where the recent enactment of the Philippine Innovation Act and update of the Philippine e-commerce road map comes into play, said Secretary Lopez. Both statues aim to remove the obstacles to innovation and encourage local businesses to exploit business opportunities in the e-commerce and ICT space.
If I may add, government also needs to pass the Open Access in Data Transmission Act and the amendment to the Public Services Act. The former aims to improve data transmission by having service providers share infrastructure while the latter aims to open the telecommunications and transport sectors to foreign investors. If enacted into law, both statutes promises to raise our ICT infrastructure to world class standards.
The country scored shamefully low in terms of the health of the population and the skills of the workforce. It only underscores the fact that government is not investing enough on human development.
Our standing in the WEF’s competitiveness report is a case of climbing two steps forward and sliding one step back. Yes, the message of the Secretary is loud and clear — the laws that should improve our competitiveness standing are already in place. Still, we must not forget that the devil is in the speed and thoroughness of implementation.
If we do it right, we can expect a great leap forward in competitiveness next year. I trust in Secretary Lopez to pull it off nicely. He has never let us down.
Andrew J. Masigan is an economist