CONTENTS Abbreviations Acknowledgements Transmittal Letter to President Benigno Simeon Aquino III EXECUTIVE SUMMARY Philippines: Country Data Introduction PART 1 GROWING TOO SLOW The Philippine Economic Landscape in 2010: Faster Growth is Essential Decades Lost to Slow Growth Philippine Growth Has Not Been Inclusive Living in the High Growth Neighborhood Inadequate Skills + Insufficient Jobs = High Unemployment/Underemployment Remittances Are Important But Distort the Economy Twice as Much Investment Needed for Higher Growth Low Foreign Direct Investment Flows Weak Export Volume Lacks Diversification Headline Recommendations PART 2 BECOMING MORE COMPETITIVE The Philippine International Competitiveness Landscape Regional Business Outlook Survey Best Countries for Business Failed States Index Index of Economic Freedom World Competitiveness Yearbook International Property Rights Index Corruption Perceptions Index Human Development Report E-governance Readiness Survey Doing Business Report Investing Across Borders 2010 Paying Taxes Report Worldwide Governance Indicators Global Competitiveness Report Global Enabling Trade Report Travel and Tourism Competitiveness Report Environmental Performance Index Headline Recommendations
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FIGURES, MAPS & TABLES LIST OF FIGURES Figure 1: Philippine historical real GNP and GDP growth rates, 1981-2009 Figure 2: Average real GDP growth rates, ASEAN-6, 1961-2009 Figure 3: Real GDP growth rates, ASEAN-6, 1990-2009 Figure 4: Poverty incidence, ASEAN-5, 1990-2006 Figure 5: Poverty trend in the Philippines, 1985-2006 Figure 6: Share in ASEAN-6+4 GDP, 1990-2009 Figure 7: Annual GDP per capita, US$ PPP, ASEAN-6, 1990-2015P Figure 8: Real GDP per capita growth, average by decade, ASEAN-6, 1981-2009 Figure 9: Average annual population growth, ASEAN-6, 1961-2009 Figure 10: Share in world GDP, 1990-2009 Figure 11: Real GDP growth rate forecast, annual percent change, ASEAN-6, 2010-2011 Figure 12: GDP growth, ASEAN-6, by quarter, 2007-2010 Figure 13: Labor market, key indicators, 1990-2009 Figure 14: Labor market, sector share in total employment, 1990-2009 Figure 15: Employment by class of worker, 2009 Figure 16: Composition of unemployed by educational attainment, 2009 Figure 17: OFW remittance, Bn US$, 1990-2011 Figure 18: Fixed capital formation distribution, Philippines, % of GDP, 1990-2009 Figure 19: Gross fixed capital formation, East Asia, % of GDP, 1990-2008 Figure 20: Gross fixed investment, % of GDP, ASEAN-6, 1990-2009 Figure 21: Gross domestic investments, as % of GDP, ASEAN-6, 1990-2009 Figure 22: Net FDI, Philippines, 1990-2009, Bn US$ Figure 23: Net FDI, ASEAN-6, 1990-2009, Bn US$ Figure 24: Net FDI, % of GDP, ASEAN-6, 1990-2009 Figure 25: Philippine goods and services exports, current prices, Bn US$, 1990-2009 Figure 26: Export of goods and services as % of GDP, ASEAN-6, 1990-2009 Figure 27: Philippine exports, product distribution, 2009 Figure 28: Philippine exports, by destination, 2009 Figure 29: Emerging Asia’s external financing, by source, 2010 Figure 30: Top areas of dissatisfaction, % of respondents, Philippines, 2003-2009 Figure 31: Forbes best countries for business, percentile rankings, 2008-2009 Figure 32: Foreign policy failed states index, percentile rankings, 2006-2009 Figure 33: Index of Economic Freedom, percentile rankings, 2001-2010 Figure 34: Editorial cartoon published on release day Economic Freedom Ranking 2010 Figure 35: IMD world competitiveness, percentile rankings, 2001-2010 Figure 36: IMD world competitiveness sub-rankings, selected ASEAN countries, 2010 Figure 37: International property rights index, percentile rankings, 2007-2010 Figure 38: Corruption perceptions index, percentile rankings, 2001-2010 Figure 39: Editorial cartoon published on release day of Corruption Perceptions Index 2004 Figure 40: Human development index, percentile rankings, 2001-2010 Figure 41: UN E-governance readiness, percentile rankings, 2003-2010 Figure 42: Ease of doing business, percentile rankings, 2006-2011 Figure 43: Ease of business establishment index, foreign companies (0-100) Figure 44: Ease in paying taxes, percentile rankings, 2008-2010
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EXECUTIVE SUMMARY
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ARANGKADA PHILIPPINES 2010: A BUSINESS PERSPECTIVE
INTRODUCTION Arangkada Philippines 2010: A Business Perspective has a strategic purpose – to provide recommendations that lead to millions of new jobs for Filipinos and higher economic growth for the country. This document includes hundreds of recommendations for action by both public and private sectors in a great number of areas. Together they add up to an agenda for change to help policy makers and business leaders to enable the national “If we want things to stay as they economy to compete in a world increasingly interlinked and are, things will have to change.” competitive. In this world, keeping up is an imperative, not a choice. For too many years and in too many sectors of its Giuseppe di Lampedusa in “The economy the Philippines has lagged, losing competitiveness Leopard” his novel about Sicily despite the nation’s immense potential. The Philippines has the good fortune to be located in Asia. The region accounts for 28% of global GDP, 32% of global trade and has 60% of global population.1 Three of the world’s largest economies – China, India and Japan – are in Asia, and two – China and India – are among the fastest growing. The other large economies in North America and Europe are readily accessible to the Philippines. Fast-growing China and India have longstanding economic and cultural ties to the Philippines. With new free trade agreements (FTAs) in effect or soon to come into effect for many of these markets, the Philippines has better opportunities than ever before to improve trade and investment ties with advanced as well as rapidly-developing economies. The Joint Foreign Chambers of the Philippines (JFC) – comprised of the American, AustralianNew Zealand, Canadian, European, Japanese, and Korean chambers of commerce as well as PAMURI – have prepared this advocacy paper to contribute the ideas of our Filipino and foreign members in the spirit of partnership with the people and government of the Republic of the Philippines (GRP). Our more than 2,000 members, of dozens of nationalities including Filipino, are deeply committed to the welfare of the Philippines and a brighter future for its citizens. Our members include many of the largest investors, employers, taxpayers, and CSR supporters in the country, some who have operated in the Philippines for as long as a century as well as many who have arrived quite recently. Our hope is for our members to contribute increasingly to Philippine economic development and provide high quality jobs for the domestic economy, especially its export sector to take advantage of our members’ links to global markets. Our members are prepared to invest continuously and heavily in the Philippines and to create millions of new jobs. But we can only do this if the nation can create a better business climate to enable its future prosperity. The many things that are working well in the economy could be further enhanced, while obstacles to sectors with high growth potential need to be removed. Many of our members believe the Philippines faces a crossroads, where it chooses between the status quo or an ambitious growth agenda with diversified strategies. As foreign investors and employers, we fully share the ambition of Filipinos for the country to become an advanced economy. The Philippines’ progress is ours, too; for many of us, there are emotional ties, as well. 1
UNSD; As of 2008 (revised); 2009 World dataset is not yet complete.
DECEMBER 2010
1
250% 100% 200%
Thailand
Vietnam
Philppines
Indonesia
50% 150% 0%
100% Joint Foreign Chambers 1990 1991 1992 1993
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ARANGKADA PHILIPPINES 2010: A BUSINESS PERSPECTIVE
50% Source: UN Statistics Division 0%
1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Figure 27:27: Philippine 2009 Figure Philippineexports, exports,product productdistribution, distribution, 2009
Source: UN Statistics Division
Other Manufactures, 24. 5%
Special Figure 27: Philippine exports, product distribution, 2009 Transactions, 3.7%
Other Manufactures, 24. 5% Electronics, 61.6%
Electronics, 61.6% Source: NSO
Total Agro-Based Products, 5.5% Special Transactions, 3.7% Forest Products, 0.1% Total Agro-Based Mineral Products, 5.5% Products, 3.8%
Petroleum Products, 0.8%
Forest Products, 0.1% Mineral Products, 3.8%
Petroleum
Figure 28 clearly shows 28: the high potential for export diversification exports of the agribusiness Products,if0.8% Figure Source: NSO Philippine exports, by destination, 2009 and mining sectors can be vigorously developed. Similarly, the potential for increased revenue is high for services for medical visitors, retired foreigners, and international tourist visitors. Others, 14.3% US, 17.7%
Figure28: 28:Philippine Philippine exports, destination, Figure exports, by by destination, 20092009 ASEAN, 15.2%
Others, 14.3%
US, 17.7% Japan, 16.2%
ASEAN, 15.2%
Source: NSO
Source: NSO
EU, 20.6%
EU, 20.6%
China Japan, 16.2% (Mainland+HK, exc Taiwan), 16.0%
China (Mainland+HK, exc Taiwan), 16.0%
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“…ultimately accountability for a country’s failure to attract investment must lie with its leadership and government institutions.”
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Oscar M. Lopez, Chairman, Lopez Group of Companies, FOCAP speech, January 15, 2008
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ARANGKADA PHILIPPINES 2010: A BUSINESS PERSPECTIVE
Infrastructure: Road and Rail
Sector Background and Potential Ground transportation infrastructure is essential for investment and job creation which are necessary to reduce poverty in the Philippines. It is a “catalyst” for area development and economic growth. Transport-logistics infrastructure such as roads and rail facilitate the efficient movement of goods and people. Absence of such vital infrastructure impedes the efficient movement of goods, increases transport cost, and ultimately impacts negatively on the country’s Electricity spot market prices, P/KWh competitiveness. Effective settlement price (w/ Surplus) Effective settlement price (w/o Surplus) Ex-ante load weighted average price
22 20
Modern roads and rail support the high-growth sectors of BPO, manufacturing, and tourism. 18 16 Modern toll roads and better farm-to-market roads provide tourists better access to destinations. In 14 large urban areas particularly Manila a more extensive light rail system moves both employees and 12 10 tourists more efficiently and eases traffic congestion on major thoroughfares. 8 6
The government4allocated roughly PhP 889 billion to the development of transport infrastructure 2 airports, and seaports) under the 2006-2010 Medium Term Public Investment (roads, rail, light rails, 0 Program (MTPIP). For 2009, DPWH’s budget reached almost PhP 130 billion, the largest amount -2 in the national budget and the highest level ever for the department (see Figure 82). The DPWH builds roads and bridges, school houses, and other public works. However, Figure 81 suggests that Source: WESM Ê this increased spending has not raised the overall quality of roads. Ê
Figure 82: DPWH budget, Bn PhP, 2005-2010 180
80%
Budget, lhs Nominal yoy growth, rhs
160
70%
140
60%
120
50%
100
40%
80
30%
60
20%
40
10%
20
0%
0
-10% 2005
2006
2007
2008
2009
2010
Source: DBM; 2006 national budget was a re-enacted 2005 national budget.
Ê
Ê DECEMBER 2010
136 Singapore Malaysia
1 1 3 21 24
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ARANGKADA BUSINESS 1998 1999 PHILIPPINES 2000 2001 2002 2010: 2003 A 2004 2005 2006 PERSPECTIVE 2007 2008 2009
Ê
Source: ITU
Figure Ê100: Estimated number of Internet users, Philippines, 1998-2009 7
7
total, in million, lhs
6
6
per 100 inhabitants, rhs
5
5
4
4
3
3
2
2
1
1
0
0 1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
Ê
Source: ITU
Ê Proportion of households with Internet, Philippines, 2002, 2009 Figure 101: 80%
76.0%
70% 60%
59.4%
2002
50%
2009
40% 30%
21.1%
20%
18.3% 11.0%
10.5%
10%
5.0%
4.9%
8.6% 4.0%
6.5% 0.6%
3.4% 0.2%
1.0%1.4%
India
Indonesia
0% Singapore Malaysia
China
Philippines Thailand
Vietnam
Ê
Source: ITU
Expanded andÊ higher speed broadband and higher computer penetration will bring a wealth of benefits to Filipinos and efficiencies for the economy, reducing business costs and helping the 300% Singapore economy to become more competitive Malaysia and meet its Millenium Development Goals. With mobile Thailand phone penetration 250% in the country approaching 80%, new technology is available to link new Vietnam Philppineson cellphones. This hybridization of mobile phones with generations of phones to the Internet Indonesia 200% computers is already happening in developed countries, where consumers are rapidly changing to reading digital books, magazines, and newspapers. Financial transactions are similarly facilitated 150% over the Internet. Investing in such infrastructure is one of the most important actions in the near100% term to increase Philippine competitiveness and move towards a knowledge-based service economy. 50%
Wireless Internet service is increasingly commercially available in most Philippine cities at various “hot spots.” A 0%program to make free Wi-Fi available at national high schools and in densely populated urban areas can be considered as a means of encouraging greater use by Filipinos of new mobile technologies. Sources: UN Statistics Division and ASEAN Secretariat Ê DECEMBER 2010
Ê
167 700 600
Value, lhs YOY growth, rhs
35% 30% 25%