We’re moving but it’s not arangkada

“Unfortunately, it’s really difficult to get the bureaucracy to work on all of these details, as anybody who has tried to lead a change initiative can tell you. It’s really like pushing on a string.  You can really just try your best and hope to get as much in as you can.”

That was the reaction of a former senior official to posts on an e-mail group about how slowly government is moving on reforms. I know this official to be well meaning and he tried to do his share towards accelerating our nation’s development. I can understand his frustration and plea for understanding from his private sector peers.

It is indeed difficult but it doesn’t mean we should give up trying. Many of us have been encouraged by recent gains in good governance from a determined P-Noy. We are happy to note international recognition of these efforts even as we worry that P-Noy and his economic managers are tempted to rest on early laurels. If so, we can realistically assume this is the best it is going to be… an aborted take off again.

But John Forbes and the guys at the Joint Foreign Chambers behind Arangkada don’t give up easily. The faith of these foreigners in our country’s ability to become a tiger economy often amazes me. They produced a roadmap for development they called Arangkada, which details what could be done to maximize the contributions of various sectors of the economy to a growth offensive.

Last Tuesday, the Arangkada guys convened at the Makati Shangri-la to assess progress so far. The assessment folder which is very detailed contained a mixed bag of good news, bad news and “same old” news. Overall, we have moved but it is still at a pace far from what could be called arangkada.

Even the normally diplomatic Arangkada guys had to be honest about it. The theme for their assessment this year is “Growing Too Slow”. The theme of last year was “Moving Twice as Fast.” Disappointment is obviously starting to set in, as Paco Sandejas warned two weeks ago during the Roubini presentation.

“The biggest challenge facing the Philippines is to move the economy to a higher level of growth and job creation,” the first sentence of this year’s report declares. It sure is.

In his speech at the Arangkada conference, former Finance Secretary Bobby de Ocampo emphasized that the three most important priorities to enable sustainable and inclusive growth to take place namely, job creation, job creation, and job creation.”

Bobby emphasized that “the financial economy by itself despite the stellar performance of the stock market and the prospect of an investment grade credit rating cannot pull that off.”

The Arangkada report then talks of “high population growth and boom and bust cycles shaped by intermittent political turmoil and costly lapses in economic management.” That’s why, the report suggests, why we have lagged our peers in the high performing ASEAN-6 group for the past five decades.

But the Arangkada report also noted that things are changing for the better. Last year, we became “the fastest growing economy of ASEAN-6 economies, just ahead of Indonesia.

It is an extensive report and I only intend to take up some points in the first chapter due to limited space. This should give us an idea of where we are.

Recommendation 1 – Double the GDP growth rate to nine percent supported by a clear long-term industry policy. In 2011, this was rated a regression. But in 2012, it rated substantial progress.

Arangkada noted that the 6.6-percent growth last year surpassed expectations. “Growth in 2012 came in spite of global economic weakness and was the highest of the large ASEAN economies. The Philippine Development Plan continues to target seven percent to eight percent growth in order for it to be inclusive.”

But it noted that “increasing infrastructure spending must be sustained to encourage high gross capital formation, including FDI, which remains anemic for an economy the size of the Philippines.”

Arangkada recognized efforts of DTI to prioritize manufacturing by encouraging industry groups to prepare roadmaps set to be completed this year.

Recommendation 2 – Job creation by the private sector should receive extremely high priority. This didn’t move, Arangkada reports.

Arangkada noted that “while more jobs are a priority, they are not being created fast enough to reduce the seven percent unemployment rate in the 40 million work force, the world’s 16th largest…

“Success at accelerating manufacturing and tourism sector growth and reforming the long underperforming agribusiness sector could provide millions of new jobs. Construction and consumption from remittances comprise a sizeable part of the economy, but jobs in these sectors are low-paying and often temporary. Underemployment remains very high at over 18 percent.”

Recommendation 3 – FDI should be targeted to reach over $7 billion a year in three to four years. It noted that nothing is ongoing in this area for the past two years.

Indeed, I have heard a BOI official rationalize why we lag in FDI compared to our neighbors. Foreign investors like P&G, Nestlé, Unilever have been here for decades, I was told, unlike in places like Vietnam and Indonesia where they have to put up basic facilities. Of course they are ignoring the fact that Colgate moved its toothpaste manufacturing to Thailand and P&G is doing that in Indonesia.

Arangkada observed that net FDI remained below $2 billion last year, significantly lower than the investment inflows to our ASEAN peers. It also noted the $4-billion net foreign portfolio investment that flowed into the stock market last year.

 Recommendation 4 – Export target of $100 billion in five to six years.

“The export target for the private sector of $100 billion represents a doubling from 2010. Based on BSP’s data, exports of goods and services from January to September 2012 increased by 9.5 percent in 2012 to $52.7 billion (estimated to $67.8 billion for full year) versus the $48.1 billion in the same period in 2011 and $48.4 billion in 2010.”

Recommendation  5 – Adequate funds should be made available for international promotion. Arangkada noted that this is ongoing, an improvement over 2011. Still Arangkada complains that “aggressive overseas promotion remains weak… The Department of Tourism launched its “More Fun in the Philippines” campaign but its National Tourism Development Plan has not been released over 12 months after final draft…”

Recommendation 6 – Remittances channeled into productive investments. Nothing moved for this suggestion.

Arangkada observes that “at $22 billion in 2012, remittances are mostly spent on paying debt and basic consumption needs of families… Only 6.8 percent are spent on investments, according to the Commission on Overseas Filipinos.

“Financial education for OFWs and their families is needed. The Personal Equity Retirement Account law (RA 9505) that creates new savings vehicle for OFWs has yet to be implemented four years after its signing. The introduction of Exchange-Traded Funds in PSE in 2013 could be helpful.”

Recommendation 7 – Double funds for growth-promoting expenditures through less waste in government spending, more effective tax collection, and selectively increasing taxes.

Arangkada recognized growth in revenue collection through administrative reforms in the BIR but “the Bureau of Customs still underperforms and is challenged by corruption.”

Arangkada noted improvements in procurement procedures and increased transparency have reduced corruption.

Recommendation 8 – Organize a Special Experts Group to recommend key reforms to make the economy grow at least nine percent.

“No Special Experts Group advises the president or his Cabinet,” Arangkada observed. It noted the work being done by the National Competitiveness Council where public and private experts interact but few reform proposals from the NCC to the Economic Cluster are being made.

Actually, if the Economic Cluster just used the Arangkada outline to guide its reform agenda, they should do just fine.

I get the impression that the private sector is trying is best to be patient about the reforms being demanded by our current situation. But patience may just run out soon and if it does, our economic growth will slow down as well.

Even those gung-ho folks in Arangkada may lose hope and start looking elsewhere for investment. Manny Pangilinan has said as much as his companies, including Meralco, are now looking to invest abroad.

The local business community cannot be blamed if they do go abroad to invest their capital simply because the local environment is still less than hospitable. As I have said here in this space, capital has no sense of nationalism… just an affinity for the highest return on investment.

It’s the season

 Fair warning during this campaign season!

It’s useless to hold a person to anything he says while he’s in love, drunk, or running for office.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco.