Economic takeoff

It happened during the Ramos watch. It seemed that FVR had successfully lined up most of the things needed for economic growth and we were poised for take-off. Then, external and internal forces combined to abort it.

The Asian financial crisis and some wrong decisions of FVR at the tail end of his term made that takeoff a dream once more. The Arroyo and Aquino administrations failed to do enough to give a takeoff the momentum it needed.

Now, it feels like an economic takeoff is possible again. Economic indicators are pointed in the right direction. The Duterte administration’s economic team has been working hard amidst the political turbulence to deliver that takeoff.

The credit rating upgrade is no doubt a feather in the cap of Finance Secretary Sonny Dominguez and the economic managers. They fought strong political opposition to reforms. And despite the hesitant support of the President, they have so far been able to deliver.

The Rice Tariffication Law comes to mind… and TRAIN 1.

Trade and Industry Secretary Ramon Lopez has also been working overtime to improve the business climate. He did most of the work that brought us a new law that will tackle red tape and, hopefully, make doing business a lot easier.

Indeed, there was this four-place improvement in the ranking of the Philippines’ in the 2019 World Competitiveness Yearbook (WCY). We are now ranked 46th out of 63 countries.

I know that seems like baby steps. But at least we are starting to recover from a nine-place drop in 2018. Among Asia-Pacific economies, the Philippines ranked 13th out of 14 countries.

The WCY has been published by the International Institute of Management Development (IMD). It evaluates competitiveness using 235 indicators spread across four factors: Economic performance, government efficiency, business efficiency, and infrastructure.

About two-thirds of the indicators are based on hard data, while the remaining are perceptions-based indicators derived from an executive opinion survey.

The Philippines saw an improvement in the ranking of all four factors. Economic performance posted a 12-notch improvement in 2019 – the largest increase among the four factors – from 50th to 38th.

Government efficiency rose from 44th to 41st; while business efficiency improved from 38th to 32nd. Infrastructure, perennially the lowest-ranked factor for the Philippines, hardly improved from 60th to 59th.

But work to really see an economic takeoff has just began. Populist tendencies and influence of vested economic interests continue to hinder progress of more legislation needed to really get going.

This is why it is widely hoped among the business sector that the President will use his significant political clout to support measures that will greatly enhance our economic competitiveness.

My colleagues in the Foundation for Economic Freedom (FEF) has urged the government to continue introducing more policy reforms, particularly in the agricultural sector.

“In particular, the administration should focus on agricultural growth, which had been lagging behind population growth. Its weak performance had been a drag to manufacturing and the other sectors of the economy, making the country vulnerable to food price shocks.”

In a statement issued after the mid-term election, the FEF also emphasized the need to improve export performance in the face of a widening trade deficit. “The country cannot continue to rely on OFW remittances to finance its negative external trade position.”

One significant unfinished business in the Duterte administration’s to-do list is TRAIN 2 or TRABAHO bill. The new Congress must give it priority to remove the uncertainty about the tax regime on fiscal incentives and corporate income taxes.

Rationalization of fiscal incentives and the lowering of corporate income taxes under TRABAHO make sense. The controversial provisions on fiscal incentives can perhaps be rewritten to retain incentives for foot-loose and labor-intensive industries.

But Finance Dominguez is correct in observing that businesses cannot enjoy preferential fiscal incentives forever. These incentives are intended to help them get started, but have an expiry date.

A really big miss by the outgoing Congress is its failure to pass the Public Service Act Amendment to liberalize foreign investment in transportation and telecommunications.

As had been pointed out by various business groups, the quality, cost, and efficiency of transportation and telecommunications are inputs to the decision of companies to relocate here or go to Vietnam. More foreign investment in the strategic sectors of transportation and telecommunications will bring more competition, improve services, and lower prices.

While we now have a law to cut red tape with a bureaucracy to implement it, we have yet to see it really working specially at the LGU level. Hopefully, the Ease of Doing Business Act will finally be able to simplify procedures and establish timelines in securing permits and other transactions with government.

There are indications that the government’s Build Build Build (BBB) Program is finally rolling out after three years. Our creaky infrastructure, from ports to roads, make doing business in the Philippines costly and inefficient.

This is why the FEF strongly recommends a shift to Public-Private Partnership (PPP) were feasible. But projects can be done under Official Development Assistance (ODA) or General Appropriations Act (GAA) whenever there is no incentive for private participation.

The government should also quickly make a decision on the rehabilitation and expansion of the Ninoy Aquino International Airport and the Davao airport by private companies, the FEF urged. I might add... the San Miguel Airport in Bulacan too!

There is no reason why we cannot take advantage of the current trade war between China and the United States by attracting manufacturers to relocate here. But we have stiff competition from Vietnam, Thailand, Malaysia and Indonesia because they have friendlier laws for investors and better infrastructure.

Incremental gains during the last three years should excite us enough to realize that bigger gains are possible. We are well positioned for an economic take-off and we shouldn’t mess up this opportunity again.

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