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Reality check

/ 12:07 AM March 12, 2015

When things are going well, or you think they are, you tend to relax. And certainly the record high for FDI (foreign direct investment) would seem to indicate that things are going well. But a closer look at the figures would belie this. It would be unwise for the leadership to rest on its laurels because there are thorns in those laurels. And those thorns are reality.

The government’s position is that it’s doing fantastically well, up an impressive 66 percent to $6.2 billion in 2014 from $3.7 billion in 2013. The government attributes the increase to its success at enticing new investment. Well, where are the jobs that investment should have brought in?

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In October 2014 (latest comparable data available) there were 2.479 million unemployed Filipinos—an insignificant improvement from 2.584 million without a job in October 2013. But worse, the number of underemployed rose to 7.279 million from 6.789 million during the same period. From 2010 to 2013 the Philippines recorded the highest unemployment rate in Asean. The International Labor Organization itself noted that in the Philippines, “despite robust economic growth in excess of 6.8 percent in the past two years, job growth has been subdued and the unemployment rate remained at around 7 percent throughout 2012 and 2013.”

The detailed breakdown of FDI is available only up to end-November 2014. And it seems that a reason for the low job creation was that only 27 percent of the $5.7 billion (or $1.5 billion) was actually new investment. And of that, 64 percent (or around $990 million) was in finance and insurance services. Necessary businesses, but they create limited jobs, and don’t add to the production that this country must be in if it’s to be a real part of the world. Only 17 percent (or $268 million, a miniscule amount) was in new manufacturing.

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The largest single block of money coming in wasn’t new equity; it was loans, intercompany borrowings—local MNCs borrowing from dad. Now some of that (details aren’t available) will have created jobs through expansion or new activities, but much of it would be just for rehabilitation of aging plants and similar non-job-creating activities.

If I were President Benigno Aquino III I’d be worried, and wondering why. Well, there’s no need to wonder. The business community has been telling him for four years; all he has to do is listen, and act.

For instance, Speaker Sonny Belmonte is aggressively pushing for amendments to the economic provisions of the Constitution to ease foreign-ownership restrictions in key sectors. Business is overwhelmingly in favor of the Speaker’s resolution, but the President is averse to it for unfathomable reasons. Not only would it encourage investment into areas much in need of greater levels of capital, but it would also send a message that would get world attention: The Philippines is open for business in a dramatic opening up that deserves a closer look.

In terms of doing business, although the global ranking has improved, the number of procedures required to start a business is at 16 versus East Asia and the Pacific region’s average of 7.3. Whatever improvement there has been is grossly insufficient. Computerization that would greatly hasten and simplify the process has yet to be done. And that needs a Department of Information and Communication Technology, which the President still resists, to effectively accomplish.

When it comes to labor reforms antiquated labor laws (40-year-old Labor Code) remain unchanged. Hiring and firing policies are still too rigid. There’s no push for pro-business, which would also be pro-employee, amendments.

As to power reliability and cost there is marginal supply so brownouts are on the cards, and costs can’t be reduced in the short term. Too many plants are over 25-30 years old, prone to breakdown (think of your car), and needing replacement in the plannable future.

Transportation and logistics costs remain high. Transportation within Metro Manila and nearby urban centers has worsened. There’s no attempt to impose discipline on drivers, particularly of public vehicles. The Japan International Cooperation Agency study has yet to be implemented. But the administration’s flagship public-private partnership program is starting to move.

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Spending on the construction of much-needed infrastructure is at a paltry 2.4 percent of GDP (average from 2011-2014). This is nowhere near enough. There’s a promise to raise it to the World-Bank-recommended 5 percent of GDP in 2016. For PPP projects, the National Economic and Development Authority should be removed from the approval process. The relevant department has, or should have, the necessary experience and expertise. The Neda just duplicates the work and can’t have the expert personnel needed. Eminent domain must be exerted to obtain right of way. Pay double market value for the land; it would be cheap given the delay, court costs, etc.

The country’s anticorruption ranking is improving; there have been commendable gains at the top (the global Transparency International agrees), but little improvement below (local government level). Computerization of all services, no face-to-face contact could have a very positive impact. It’s hard to bribe a computer. Another reason for a Department of ICT.

There’s a need to be consistent in implementing business policies, and the administration’s record does not look good here (Calax, Piatco, San Roque Power, mining tax, cancelled contracts, etc.).

Twice, 18 of the local and foreign business chambers got together and agreed on about a dozen priority areas. Arangkada, a joint foreign chamber initiative, has gone to great lengths to detail the reforms and improvements needed. Despite this business support, far too little has been done.

It’s not too late. The President can still act, can still initiate change, force improvement, create, really create, jobs.

But only if he accepts the reality.

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TAGS: Benigno Aquino III, Foreign Direct Investment, infrastructure, labor, logistics, Sonny Belmonte, Transportation, Unemployment
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