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ADR NSTITUTE
PACING UP:
ASSESSING THE PHILIPPINES
PROGRESS ALONG WITH
THE ASEAN NEIGHBORS
page 2
PACING UP:
ASSESSING THE
PHILIPPINES PROGRESS
ALONG WITH THE ASEAN
NEIGHBORS
The ASEAN Advantage
The Association of Southeast Asian Nations (ASEAN) was
established to accelerate economic growth, social progress,
and cultural development in the region. From the original five
founding countries, the community today consists of a 10-nation
bloc that includes Brunei, Cambodia, Indonesia, Laos, Malaysia,
Myanmar, Singapore, Thailand, Vietnam and the Philippines.1
The move toward integration began in 2003, when ASEAN
leaders resolved to form an ASEAN Community by 2020, mainly
driven by an ambitious economic agenda. In 2007, this commit-
ment to integration was accelerated with a vow to establish a European Union-style ASEAN Economic Community (AEC) by 2015.
The AEC is but one element of the proposed ASEAN Community,
along with the ASEAN Security Community and ASEAN Socio-Cultural
Community. However, the AEC has emerged as the top priority of
member-states because it leverages on the power of ASEAN as a
market, which, at over 600 million consumers, is equivalent to 9 per
cent of the worlds total population. The establishment of the ASEAN
Community also means significant regional influence2 vis--vis
its neighbors such as China, Japan, and South Korea, as well as the
United States and the EU.
Page
Page
02
page 3
04
First Pillar:
The ASEAN
Advantage. ASEAN leaders resolved
to form an ASEAN Community by
2020, this commitment to integration
was accelerated with a vow to
establish a European Union-style
ASEAN Economic Community
(AEC) by 2015.
June
CONTENTS
Page
07
Third Pillar:
Equitable Economic Development.
The Philippines is struggling to fulfill the
equitable economic development pillar,
with the level of inequality remaining
high compared to the rest of ASEAN.
Page
08
Taking Full
Advantage of AEC. The integration
of ASEAN member-countries has been
peddled as something that would
propel the region into a significant
economic bloc
Page
06
Second Pillar:
Competitive Economic Region.
The Philippines improved competitive
ranking may mean that it is more open
for business than it was before.
Page
11
Nowhere to Go
but Forward. The remaining
challenge for the Philippines is to
institutionalize and sustain the policy
reforms and good governance
practices that have been initiated by
the current president
page 4
The availability and quality of associated logistics services also remain largely insufficient (84th). These include
high costs or delays caused by domestic transportation,
access to imported inputs at competitive prices, non-compliance to technical requirements and standards abroad,
identifying potential markets and buyers, and difficulties in
meeting quality/quantity requirements of buyers.
Trade-enabling pillars such as market access, border administration, infrastructure and operating environment were recognized in the World Economic Forums (WEF) most recent Global Enabling Trade Report (GETR). The report built its assessment based on the extent to which economies
have in place terms of institutions, policies, infrastructures and services that facilitate the free flow
of goods over borders.
The Philippines also came in in the lower half of the index when it came to efficiency and transparency of border
administration (71st), due to corruption and red tape, two
factors that contribute to the weakening of the general operating environment (82nd).
Globally, Singapore scored the highest, followed by Hong Kong, the Netherlands, New Zealand,
Finland, United Kingdom, Switzerland, Chile, Sweden and Germany. The Philippines came in at
64th, which the report said was already a significant improvement considering its previous placements, 72nd in 2012 and 92nd in 2010. Even so, among ASEAN countries included in the index,
Singapore, Malaysia, Thailand, and Indonesia all ranked higher than the Philippines in the report.
(See table 1).
According to the report, while the Philippines did well on the domestic (19th out of 138) and
foreign (26th) market access pillars, improvements were needed in the other five pillars of the
index, in which the Philippines ranked in the bottom half.
Worst was its ranking on the availability and quality of transport infrastructure pillar (96th),
which rated the quality of railroad infrastructure (81st), paved roads (91st), air transport infrastructure (105th) and port infrastructure (107th), among other indicators.
competitive
economic
region
giving guidance on the flagship projects and other SME initiatives in
the region.
The WEFs Global Competitiveness Report emphasized on the
fundamental aspects of competitiveness measured macroeconomic
environment, institutions, good market efficiency, and innovation.
For the sixth straight year, Switzerland remained the most competitive in the world, followed by Singapore, the United States, Finland,
Germany, Japan, Hong Kong, the Netherlands, the United Kingdom
and Sweden.
Globally, the Philippines ranked 52nd out of 144 economies. While
among ASEAN countries Singapore (2nd) was the most competitive
in the region, followed by Malaysia (20th), Thailand (31st) and Indonesia (34th). Behind the Philippines were Vietnam (68th), Laos
(93rd), Cambodia (95th), and Myanmar (134th).
page 5
THERE IS MUCH
WORK TO BE DONE
page 6
infrastructure &
labor market
The report noted the Philippines improvements on several indicators. The Philippines made significant strides in terms technological
adoption, rising eight notches to 69th place, closely following Malaysia (60th) and Thailand (65th). It also improved in terms of ethics
and corruption, moving up from 135th in 2010 to 81st this year. It
also improved in government efficiency (69th) and the protection of
property rights (63rd).
The Philippines improved competitive ranking may mean that it is
more open for business than it was before. However, compared to its
ASEAN neighbors, and, more significantly with the rest of the world,
there is much work to be done.
Furthermore, the Philippines still lagged in infrastructure, categorized as poor (91st), with its airport and seaport
infrastructure ranked 108th and 101st, respectively.
The situation is just as worrisome in the labor market, as the country suffers from rigidities and inefficiencies. The
report shows that the Philippines ranks a mediocre 91st in this dimension with almost no progress since 2010.
As a whole, the Emerging Asian economies (Southeast Asia, China and India) are expected to grow at a robust pace of
6.9 per cent per year from 2014 to 2018. This development in the medium term is anchored on a steady rise in domestic
demand. (See Table 3). Real GDP growth in Emerging Asian economies is projected to be moderating gradually but
remains robust over the 2014-18 period.3
page 7
hardly changed
for more than
20 years
page 8
achievement would be half-truth at best.
Fourth Pillar: Integration into a Global Economy
There is slow yet steady progress in terms of integration
to the global economy, with incremental advancements
towards liberalizing investment and capital flows in the
Philippines.
ASEAN has emerged as the hub of free trade agreement (FTA) activity in Asia and plays a leadership role in
negotiating trade rules for connecting Asia. FTAs have been
concluded with ASEANs six dialogue partners: Australia,
the Peoples Republic of China, India, Japan, the Republic
of Korea, and New Zealand.
However, if the Philippines is to take full advantage of
the opportunities of an integrated AEC, it must first align its
domestic laws and regulations with ASEAN commitments.
To promote the Philippines as an investment destination
and facilitate the entry of Foreign Direct Investments (FDI),
the country must bring its policy on foreign ownership to
global standards.
In a speech, Foreign Affairs Secretary Albert del Rosario
said that the Philippines opened its doors to international
investors but has kept a restrictive business climate. Citing a provision in the 1987 Constitution limiting foreign
ownership of companies in the Philippines to 40 per cent,
Sec. del Rosario said that the Philippines is constrained by
Constitutional and statutory economic restrictions on foreign ownership and has maintained a conservatively open
investment milieu. He added that there may be a need to
evaluate existing statutory economic parameters as the
Philippines further redefines its international economic
policy. 7
page 9
Our Philippine Export Processing Authority (PEZA) industries which export to the world, including other ASEAN
countries, are essentially import dependent enterprises for
their raw materials. There is little integration of their requirements with domestic supplies and even less integration of
their manufacturing operations with domestic industries.
According to economist Gerardo Sicat,The obvious solution to this is to reform Board of Investments (BOI) policies
to allow greater participation of foreign capital in the industries designed to serve the domestic market. He believes
that this will create pressure on competition for domestic
firms. It will further deepen the operations of PEZA firms
with the local economy and raise the domestic value added
of their exports.
To reform BOI policies much more effectively requires the
relaxation of many provisions of industrial policies regarding
the economic restrictions to foreign capital, including those
provided in the Constitution.
Amend the Constitutional Limit on Foreign Ownership
The Philippine Constitution restricts foreign ownership in
some industries and of property to 40 percent. By imposing
restrictions on foreign ownership, the framers of the Constitution believed that they were protecting the countrys
sovereignty from foreign encroachment. To them, imposing
barriers on foreign trade and investments and prohibiting
controlling property rights of foreign nationals would translate to domestic economic strength and independence
Despite good intent, an inherent flaw in the 1987 Philippine Constitution is in the integration of economic policies
into its provisions. While the constitution embodies the
fundamental law of the land and lays down principles and
general guidelines, economic policy must be more specific, changeable, and consists of programs that cater to the
changing needs and challenges of market fluctuations.
In addition to constitutional restrictions, the Joint Foreign Chambers of Commerce of the Philippines (JFC) is also
calling for a review of dozens of other restrictions on foreign
equity and foreign professionals, as well as discriminatory
taxes and fees, from which Filipinos but not foreigners are
exempt. Reforming these policies would lead to more FDIs
tion. In short, FDI promotes economic growth by increasing the volume of investment and the efficiency of recipient
countries.
However, Sicat believes that those countries with the
freest and most flexible policy mechanisms will gain the
most, while those burdened with domestic restrictions
will be slowed down by those restrictions since they could
prevent or cause investments from happening. Unless the
limits on foreign ownership are relaxed the Philippines
could still find itself left out of the lions share of FDI in region, despite everything else being in place.
Recognizing the Comparative Advantage
Having competent labor force and favorable macroeconomic fundamentals, the country could entice more investments when these could freely flow across countries in the
region, particularly in the services sector, which enjoys
continually growing foreign investments because of the
skills of the countrys labor force and appropriate information and communication technology infrastructure.
The current growth drivers of the Philippines are the
outsourcing industry and the strong and stable remittances of the OFWs. The positive demographic structure of
the country will be an advantage. By next year, more than
50 per cent of our population will be within the working
ages and more FDI inflows will surely boost employment
opportunities for Filipinos.
page 10
Economist Cielcito Habito believes that our labor pool has always driven the spectacular recent success of the BPO industry, where the initial moves began with the establishment of call centers. In this sector, fully-owned FDIs were encouraged
to set up call centers and other BPO operations. Today, the country is at the forefront of the international BPO industry.
While there were more than a million jobs created last year, the quality of these jobs remains a challenge. Since AEC will
pave the way for the free flow of skilled labor in certain profession, economist Epictetus Patalinghug believes that academeindustry collaboration in workforce development is still the key to be globally competitive and achieve economic gains.
Structuring the countrys manpower will prepare the middle-income type of industries because in the long run, these
labor-intensive industries will eventually mature. Through this, an access to the global supply chain connectivity can also
be developed.
page 11
tween the government and the private sector, challenges can be managed and opportunities can be exploited, specifically in
the areas of cross-border trade, manufacturing linkages with regional production networks, supply chain connectivity, and
people-to-people connectivity. These will help to increase competitiveness, promote international economic and security
cooperation, enhance growth prospects with inclusiveness, attract investments, increase employment, and alleviate poverty. Through relevant economic and governance reforms the long stymied potential of the country can finally be released.
But to do this the leadership must unite the country and start a new culture of achievement and competitiveness, a new
culture that desires to move forward.
endnotes
1
Cebu Declaration on the Acceleration of
the Establishment of an ASEAN Community by 2015.
2
Narine, Shaun. ASEAN in the 21st Century:askepticalreview in Cambridge Review of International Affairs, Vol. 22, No.3,September2009,pp369370.,
as cited in the Working Paper No. 13, April 2013, entitled How should ASEAN engage the EU? Reflections
on ASEANs external relations by Dr. Yeo Lay Hwee
(EU Centre in Singapore). Retrieved from: http://www.
eucentre.sg/wp-content/uploads/2013/06/WP13ASEANEU.pdf
3
OECD Development Centres MediumTerm Projection Framework (MPF-2014) : the Economic Outlook for Southeast Asia, China and India 2014.
Retrieved from: www.oecd.org/site/seao/Pocket%20
Edition%20SAEO2014.pdf
Ibid.
5
Asian Development Bank (2009). Poverty
in the Philippines: Causes, constrains and opportunities. Retrieved from: http://www.cebe.anu.edu.au/
staff/info/mccaig/BBM_Vietnam_Inequality_October_2009.pdf
6
Asian Development Bank. (2004). Income
poverty and inequality in the Philippines. Retrieved
from: www.adb.org
60-40 rule to blame for low foreign investments? (2012). Retrieved from: http://www.rappler.
com/business/9774-60-40-rule-to-blame-for-lowforeign-investments
12
Philippine Retailer Plans $800 Million IPO.
(2013). Wall Street Journal. Retrieved from: http://
www.wsj.com/articles/SB1000142412788732465940
4578498282736286500.
Page 70, East Asia and Pacific Economic
Update, April 2014, World Bank Publications published on May 13, 2014. Retrieved from: http://www.
worldbank.org/en/region/eap/publication/east-asiapacific-economic-update
8
Ibid.
10
Philippine Economic Update - January,
2015 Edition. Retrieved from: http://www.worldbank.
org/en/country/philippines/publication/philippineeconomic-update-january-2015
11
SRI SPARK: Generating Investment and
Right Governance Volume 4, 4th Quarter
13
Mines and Geosciences Bureau. Retrieved
from: www.mgb.gov.ph.
SPARK
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Stratbases ADR Institute is an
independent international and strategic
research organization with the
principal goal of addressing the
issues affecting the Philippines
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