‘Growing too slow’

The month opened with a report that business confidence, high throughout the daang matuwid administration, fell to its lowest in the first quarter of the year.

Slow consumer demand after Christmas and a weak peso were the reasons cited by the Bangko Sentral ng Pilipinas in presenting the results of the Business Expectations Survey, which showed the business confidence index dropping to 37.8 percent in the first quarter of the year from 52.3 percent in the fourth quarter of 2013.

Overall the business community remains upbeat, but there are negative trends that, if ignored, could contribute to the doom of whoever is endorsed by President Aquino as his successor in 2016.

Administration officials can pore through the detailed report on the status of reforms proposed by investors to improve national competitiveness, create more jobs by drawing more investments and promote inclusive economic growth.

“More reforms = more jobs” is the title of the third anniversary assessment of the Arangkada Philippines Forum, which is a project of the Joint Foreign Chambers of the Philippines.

While generally positive, the forum’s assessment, however, is that the country is “growing too slow.”

Arangkada, meaning to accelerate, continues its rating system that assigns stars based on the progress achieved on recommended reforms.

One star means the proposal is no longer relevant. Two means “backward / regression.” Three, “not ongoing.” Four, “started.” A five-star rating means substantial progress and the highest, six, is for completed projects.

Of 447 recommendations, steady progress was noted in 285 or 63.33 percent, improvements were reported in 112 or 25.17 percent, while a decline was noted in 50 or 11.24 percent.

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The daang matuwid may find this observation striking, on governance, under the section on the general business environment: “It appears that the corruption crusade of the present Administration is losing steam.”

World Bank-endorsed lifestyle checks, according to the report, are conducted infrequently, and do not target senior government officials.

The report also gave only three stars (not ongoing) on the proposal to impose heavy penalties, including seizure of assets, for those found guilty of major corruption.

The “glacial” pace of resolving cases particularly in the Sandiganbayan “appears to have worsened,” according to the report. Among the proposed remedies is to impose a prison term for the sole act of amassing ill-gotten wealth, with no need to prove a predicate crime. Another proposal is to fully implement the United Nations Convention Against Corruption, which the Philippines has ratified.

While about 2,000 companies and public agencies have signed a so-called Integrity Pledge to fight corruption, the report points out that the strongest deterrent against graft “is still swift detection, prosecution and conviction.”

The report did cite progress in several proposed reforms in the judiciary. But it noted that 10 years ago, a World Bank study showed that it took an average of 6.6 years for the Sandiganbayan to resolve cases. The “grave delay” has worsened, the report said.

Temporary restraining orders issued by various courts were also included among the “political risks” that investors face in this country, in addition to “interference” from local government units (LGUs) and right of way problems, where proposed reforms were given three stars.

Businessmen have long complained that LGUs can pose major deterrents to investment. “The issue of LGU exceptionalism and disregard for national policy remains serious,” according to the report.

Investors are seeking, among other things, clarification on the limits of LGU authority regarding national projects.

“Smuggling, difficulties in doing business, and higher power costs mitigate other improvements in competitiveness,” Arangkada reported.

While the Philippines showed improvements in ranking in international surveys on transparency and competitiveness, the country continues to lag behind its neighbors.

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Comparing the business environment among the six earliest members of the Association of Southeast Asian Nations, the Philippines was rated lowest since 2006 on ease of doing business, but passed Indonesia last year. Among the 10 ASEAN states, however, we were still behind Vietnam.

Within the ASEAN-6, Manila fared better than Brunei, Indonesia, Malaysia, Singapore and Thailand only in terms of low office rentals and overall cost of living.

Arangkada reported that the Philippines has the highest minimum wages, the biggest number of paid holidays (two stars here), the most expensive power and telecommunications (even higher than in China and India), inadequate and inefficient transportation infrastructure and high transportation costs.

Last year we were the second worst within ASEAN-6 in terms of burden of government regulation in the Global Competitiveness Report, where we ranked 108th out of 144 countries. It was worse in terms of burden of Customs procedures, where the country ranked 126th – the lowest among ASEAN-6.

With no improvements in the power and infrastructure situation, output in one of the few major export manufacturing sectors, electronics, has been going down over the past three years.

Two stars, or “backward / regression” were also given to airport development, with the Department of Transportation and Communications commissioning studies to verify old ones done by the same agency. There has also been no movement in proposals to improve computer and Internet penetration nationwide as well as e-governance.

Proposals to decongest the port of Manila by promoting greater use of the Batangas and Subic ports were presented years ago. The recent “truck holiday” shows the status of the proposals.

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By any measure, according to the report, the country lags behind the rest of ASEAN in attracting job-generating foreign direct investment. From 2010 to 2012, the country received only 1.3 percent of the $305-billion FDI within ASEAN-6.

The Philippine economy has been the fastest growing among the ASEAN-6 in the past two years. The challenge is to move up to a higher level of growth, with more investments in export manufacturing. This can happen, of course, only if we deal with the problems that deter investors.

Even the services in our robust business process outsourcing sector can use an upgrade. We are a top destination only for voice BPO; India still dominates knowledge BPO services.

The Arangkada report is generally upbeat, noting that its target FDI of $7.5 billion a year is “within arms reach.” It also cited robust growth last year despite horrific natural disasters.

But if we want more and better jobs plus inclusive growth, the Arangkada forum estimates that domestic production must accelerate to nine percent within three years.

This will be a challenge for the next president. The current one must lay the groundwork for it.