How Competitive is the Philippines? (Issue No. 18)

The capacity of a national economy to achieve sustained economic growth over the medium term is measured through the growth competitiveness index. This is measured by the growth of Gross Domestic Product per person. Structures, institutions and policies within this index explain why some economies prosper faster than others. It consists of three component indices, namely:

  1. Technology Index
    • Innovation sub-index-includes R&D spending of companies, US utility patents and gross tertiary enrolment rate
    • Technology transfer sub-index-includes foreign direct investment as source of new technology and technology in-trade residual
    • ICT sub-index-includes extent of internet access in schools, enforcement of laws on ICT, number of mobile telephone users per capita, number of telephone mainlines per capita, and the number of personal computers per capita
  2. Public Institutions Index
    • Contracts and law sub-index-includes perception on the independence of the judiciary, government neutrality among bidders in public contracts, and impact of organized crime on costs of business
    • Corruption sub-index-includes perception on bribes paid in connection with export/import permits, connection to public utilities and annual tax payments
  3. Macroeconomic Environment
    • Macroeconomic Stability sub-index-includes inflation rate, real exchange rate, general government surplus and national savings rate
    • Country Credit sub-index-includes the country credit rating according to the institutional investor on-line
    • Government Expenditure sub-index-includes the ratio of government expenditures to GDP

How is the Philippines Faring?

Growth Competitiveness Ranking

Selected Asian Economies 2000 2001
Philippines 36 48
Singapore 2 4
Hong Kong 7 13
Taiwan 10 7
Malaysia 24 30
South Korea 28 23
Thailand 30 33
Indonesia 43 64
Vietnam 52 60
Source: World Economic Forum

The Global Competitiveness Report 2001 of the World Economic Forum has placed the Philippines at 48th rank from 36th place in 2000. The ranking is n terms of prospects for growth in GDP per capita within five years. As can be gleaned from the table above, almost all our neighbors in the region with the exception of Taiwan and Korea fared poorly among 75 countries surveyed.

In terms of sub-component indices, the Philippines ranked 40th in technology index just ahead of Indonesia and Vietnam; 64th in public institutions index beaten by Vietnam and slightly in front of Indonesia but places 28th in macroeconomic index besting Vietnam and Indonesia. The table below showed the comparative performance of regional economies by competitiveness sub-indices.

Economy Ranking by Sub-Indices

Economy Technology Public Institutions Macro- economy
Taiwan 4 24 15
South Korea 9 44 8
Singapore 18 6 1
Malaysia 22 39 20
Hong Kong 33 10 4
Thailand 39 42 16
Philippines 40 64 28
Indonesia 61 66 41
Vietnam 65 63 37
Source: World Economic Forum

World Competitiveness Yearbook

Another survey on competitiveness was also conducted by the Switzerland-based Institute for Management Development (IMD) in partnership with the Asian Institute of Management (AIM)-Policy Center. Based on the survey results, the Philippines was ranked 40th overall out of 49 countries covered. The survey was based on criteria on economic performance, employment growth, government efficiency, business efficiency, productivity, and infrastructure. Though we maintain our ranking from last year, our ASEAN neighbors Thailand and Malaysia performed better than the Philippines as their overall competitiveness rankings improved at 26 and 34 from 29 and 38, respectively.

Notable improvements in economic performance and government efficiency have contributed a lot in maintaining our competitiveness ranking. From 40th place last year, the country improved seven rungs higher at 33rd position by economic performance. In terms of government efficiency, from a high of 22nd in 1997, it plunged to 37th last year but was maintained this year.

On a positive note, the survey cited that the country's strength is on the quality of human resources. Based on statistical data, the Philippines ranked number one in terms of unit labor costs in manufacturing and number 4 in remuneration in services professions, number 1 in terms of availability of skilled labor, number 3 for competent managers and number 4 in terms of skills in finance. We are ranked number 14 in terms of IT skills and number 14 in terms of flexibility of people. But these strengths were wiped out by the country's seemingly stagnant productivity.

The Institute for Management Development quoted that the Philippines' failure to improve labor productivity and infrastructure prevented it from improving its overall competitiveness ranking.

A study conducted by Bosworth an Collin cited that the nearly stagnant state of Philippine productivity could be traced back to the Martial Law years. Based on the study, the output per worker in the Philippines plunged from 2.3 in 1960-1973 to just 0.2 in 1973-1996 or an average of only 1.0 for the 36-year period. Comparing with our neighbors in the region, Taiwan registered 5.8, Korea at 5.6, Singapore at 5.0, Thailand at 4.9, Malaysia at 3.9 and Indonesia at 3.5.

The measure of the output per worker or labor productivity was based on factor productivity, education and physical capital. The IMD survey, found out that the Philippines is the only country with a negative productivity factor of minus 0.4, compared to Thailand's 2.0. There's not much difference among economies in terms of education capabilities. In terms of physical capital, however, the Philippines was outperformed by more industrialized countries like Korea, Taiwan and Singapore that registered an average of 3.2 as against the Philippines' 1.0.

What is quite alarming in the study was that some well-educated Filipino workers are demotivated aside from being hobbled by the lack of equipment and tools that prevent them from being competitive. In terms of infrastructure, the Philippines was only ranked at 44 near the bottom of the 49 countries surveyed.

Essential Next Steps

Regression analysis conducted by the study revealed that there are three factors that are correlated with the various measures of competitiveness, namely: productivity, infrastructure and employment growth. We are performing well in employment growth but we fared poorly in productivity and infrastructure.

In a study by Professor Lansona of Ateneo, he found out that improving labor productivity hinged a lot on education and training aside from research and development. He cited that the country's labor productivity was pulled down by the lower output from unskilled labor especially in the field of agriculture which is one of the major economic sectors in the country.

TESDA must focus its efforts towards uplifting the lot of unskilled labor and technology in agriculture and manufacturing sectors. As actual training on-the-job helped a lot in increasing productivity where trainees/students were exposed to the rudiments of real work environment, firm-based training should be encouraged more. Public-private sector cooperation must be strengthened. Of course, quality assurance schemes like assessment and certification, program registration/accreditation and quality audits must be enhanced to improve the quality of the system's outputs.

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