Doing something right?

Now this is a first: “The Philippines ranked first among a list of countries worthy of investment this year based on a recent survey conducted by an American media company.” That’s from a report titled “2018 Best Countries to Invest In” by the US News and World Report. It went on to say that, “in contrast to declining inflows of foreign direct investment (FDI) to Southeast Asia as a whole, the Philippines continued to perform well, according to United Nations data.”

The claim is supported by some facts: Foreign direct investments last year was $10 billion, up 21.4 percent. This year, so far it’s been much the same. In the first five months, FDI rose 49 percent to $4.8 billion. Worryingly, though, the foreign investment commitments into the Philippine Economic Zone Authority (Peza) are down by a disturbing 59 percent in the first four months of the year. I attribute that to the uncertainty over what incentives they’ll get under “Trabaho”—and a crucial reason why Congress must decide on the tax reform package now. I wonder how we can get them to understand that.

This recognizes something I’ve long argued: The present international perception of the Philippines is vastly different from the reality on the ground. As we who do business here experience, the problems we face are not much different from elsewhere in Asia—except for traffic!

The political noise that dominates the news has little impact on doing business. I think Finance Secretary Sonny Dominguez summarized it quite well when he said in response to the report: “Among the reasons could be a young and hardworking workforce, an excellent inclusive growth momentum, an expanding middle class, politically stable environment, strong and popular leadership, fiscal discipline, stable monetary policy, membership in the Asean (Association of Southeast Asian Nations), an achievable infrastructure program, a strong anticorruption drive and improved revenue collection.”

Another area the Philippines doesn’t do too badly in is its ranking in the Global Innovation Index (GII). Here, it ranks 73rd out of 126 economies, about the same as last year but well up from previous years.

All of which is nice, but a number of frustrations still remain. I would put high on the list (apart from the dreadful, debilitating traffic that really is not making it successful to be business-efficient) the bureaucracy. It just drives you mad, though there have also been improvements. And as the administration continues its program to computerize all government services (see my column last week), the situation can only get better. The implementation of the Ease of Doing Business Act should help the Philippines
improve its rank under this category.

I think we all agree that employees are a real plus. Their attitude and dedication make doing business effectively in this country possible. But we can’t get them to work with the present traffic situation. It will take years—no, decades—to put in place an adequate traffic network in Metro Manila, if it can be done at all.

In the immediate term, for Manila and Cebu particularly, there has to be a focus on public transport. Trains are decades away, so, in the meantime, cars have to be a more urgent priority than walking; it’s too hot and humid in the Philippines to walk for any distance. New roads take time, so better to utilize the roads we have in the best way possible. Clearing usable side roads of parked cars and stalls, etc., could be a good start.

I’m trusting that the Ease of Doing Business law will really improve the business environment, and that taxes will come down. But I’m less sure about the other weaknesses in the GII, such as education. Government spending on education is too low, and the student-to-teacher ratio is too high.

The ease of getting credit is also listed as a weakness. That’s a tough one; the banks are in very sound, stable shape—essential in this sector—but maybe they are, indeed, a little overcautious. They may want to reflect on this.

I’m fully sympathetic with their reluctance to lend to the small guy; the cost and risks are too high. Then again, someone has to do it, if the country is to really become more inclusive. Gary Teves suggests that banks provide more and faster wholesale lending to rural and cooperative banks, and that Landbank continue to focus even more on rural agriculture, agri-infrastructure and agribusiness lending.

We’re doing something right, maybe. But there’s an awful lot left to do.

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