RP investment climate 1 of worst in SEA — ADB

The Philippines has one of the worst investment climates in East and Southeast Asia, according to a study conducted by the Asian Development Bank (ADB).

"Poor investment climate explains in no small measure the economy’s low investment rate resulting in stagnant productivity and anemic growth, leading in turn to slow poverty reduction," Dr. Ernesto M. Pernia, lead economist of the ADB’s Economics and Research Department, said.

In terms of business costs of corruption, the Philippines was ranked 65th out of 66 countries, with Bangladesh taking the 66th place.

The study indicates that close to 50 percent of Philippine firms regard the Bureau of Customs (BOC) as a moderate to major obstacle in improving the investment climate. Three-fourths of those surveyed perceive that a regime of high taxes is a moderate to major obstacle, in an improved business climate.

On a regional scale, the Philippines was considered second worst in terms of tax collection, and the worst in terms of the judiciary system.

Pernia said the country was tagged as a "soft state" which means that it has all the pertinent laws but it does not have the political will to enforce it, especially in the case of tax evaders, corrupt government officials or personnel, and mutineers.

The Philippines’ net foreign direct investments (FDI) as a percentage of gross domestic product (GDP) was placed at 1.7 percent in 2000. The ADB study shows this is one of the lowest in the region, only slightly better than Sri Lanka, Bangladesh, India and Indonesia, which was rated worst performing.

The economist noted that capital formation in the Philippines remains among the lowest in the region, affecting its economic growth and productivity. Hence, the country came out as having the lowest GDP per capita growth, resulting in the slowest poverty reduction rate.

The ADB study also noted that labor productivity went down from P38,000 in 1981, to P32,000 in 1985, where it has remained up to the present.

One of the major reasons for low productivity, is the outrageous level of infrastructure development, the study pointed out.

The ADB researcher noted that only 20 percent of the roads in the Philippines were paved, only slightly better than Bangladesh which had the worst record in the region. Thailand was the leader with 98 percent, Sri Lanka with 95 percent, and Malaysia with 76 percent.

The only saving grace of the country is that it ranked high along with China and Thailand in terms of fixed communication line and mobile phones. The Philippines had 192 fixed line and mobile subscribers per 1,000 persons as against a high of over 500 in the case of Malaysia.

In the realm of cyberspace, the Philippines ranked better than Bangladesh, Sri Lanka, Vietnam and Indonesia. It has 2.5 Internet hosts per 10,000 population versus Malaysia’s 29.3 and Thailand’s 10.5.

The ADB study also indicates that the country’s main financing constraint is high cost of borrowing which was aggravated by the recent imposition of the 10-percent value-added tax (VAT) on all financial institutions.