GLOBAL COMPETITIVENESS: PHILIPPINES RANKS 37TH

No. 26 - September 2000 Global Competitiveness: Philippines ranks 37th By Michael B. Mundo

From the 33rd rank in global competitiveness last year, the Philippines dropped four ranks into the 37th place, above Indonesia and Vietnam which are in the 44th and 53rd places, respectively. The rest of Asia likewise suffered setbacks from last year in competitiveness considering their performance in economic creativity, finance, and openness to foreign trade and capital flows.

Information technology, the internet, and electronic commerce have started to influence a country's economic growth prospects and productivity in recent years. Because of this, the United States now leads in terms of global competitiveness, outpacing Singapore in the Global Competitiveness Report 2000.

The Report, prepared by the World Economic Forum and Harvard University, surveyed 59 economies. It introduced a new major factor in its annual series of global competitiveness indices which determine growth in GDP per person.

1.1 Openness
What dragged the Philippines down was its ranking in terms of the international index, dipping six steps behind into the 48th place from the 42nd place. The Philippines performed poorly among other Asian countries, only surpassing Vietnam. Except for Thailand, other Asian countries also slid in terms of openness to global trade and capital flows from the previous report. Hong Kong and Vietnam slipped 1 rank; Taiwan, 3; South Korea, 6; Malaysia, 15; and Indonesia, 21. The Philippines' relative edge lies in its favorable exchange rate for exporters. In this category, the country ranked among the top 12. On the other hand, the report noted worsening hidden import barriers (other than published tariffs and quotas) dropping from the 42nd rank to the 53rd rank. In addition, the report noted the relatively low foreign access to capital markets resulting to a drop from 42nd place to 48th place. The country likewise rated poorly on foreign exchange availability (ascending from the 51st place to he 52nd place), Moreover, IMF lists 12 capital account restrictions for the Philippines, placing it at 53rd rank, below Malaysia, Korea, Indonesia, Vietnam and Thailand,

1.2 Finance
Though still at a disadvantageous rank, the good news on the Philippines is its ascent in the finance category from the 38th place to the 36th place, just ahead of Asian countries -Vietnam and Indonesia, in the 47th and 50th places, respectively, In contrast, other Asian countries dropped from their previous ranks in this category, Singapore and Thailand slipped by 1 rung; Hong Kong, 5; Taiwan, 6; and Malaysia, 11.

The BW scam and the loss of self-regulatory organization status in the stock exchange last year dragged down the Philippines to 57th place from 48th place in terms of insider trading, the worst in Asia. Weak investments last year as a ratio to GDP likewise pushed down the Philippines from the 31st place to the 42nd place, ahead of Indonesia at 45th place.

The star belongs to the bond market, however, where the country climbed from the 49th place to the 42nd position, ahead of Thailand, Malaysia, and Vietnam, at the 44th, 45th, and 52nd places, respectively. Another development is the improving access to credit, where the Philippines climbed to 42nd place, from the 50ili place, ahead of Thailand and Indonesia, at the 51st and 58th places, respectively.
1.3 Economic Creativity

The Economic Creativity Index now accounts for a third of a country's growth competitiveness. This indicator is composed of three sub-indices measuring innovation, technology transfer, and start-ups. The Philippines ranks 36th in terms of economic creativity, ahead of Thailand, Indonesia, and Vietnam, at 40th, 43rd, and 50th places, respectively.

In measuring innovation, the Report looks into companies' competitive advantage in unique products and processes, technology development, product design, technological sophistication, scientific research institutions, firms' need to undertake research and development, private sector spending on R&D, and intellectual property protection.

The Philippines ranks 47th in terms of innovation, ahead of Thailand and Indonesia, at 50th and 55th places, respectively. In this regard, the Philippines lagged behind in world technological leadership or technological sophistication. From 51st place in 1997, the Philippines slowly climbed to 48th place in 1998, and 45th place in 1999. Now, the country is back to a lower spot at 49th place. In terms of companies' pioneering products and process or technology development, the Philippines ranks 50th, ahead of Thailand and Indonesia, at 52nd and 54th spots.

Scientific research institutions here are far from being world-class, currently at 49d1 place from 32"d in 1997, 52nd in 1998, and 46th in 1999. The Philippines, though, remains ahead of Vietnam, Indonesia, and Thailand, at 50th, 53rd, and 54th places, respectively. Another important weakness of the Philippines is its 46th standing in intellectual property protection, ahead of Indonesia and Vietnam, at 53rd and 57th places, respectively. Previous surveys place the Philippines at 45th (1997), 46th (1998), and 42nd (1999) ranks.

The Philippines ranks relatively higher compared to other Asian countries in terms of technology transfer, at 19th place, coming from 13th place. Previous rankings show the country's fragile position in this aspect because of technology transfer's dependence on foreign direct investments. Since 1997, the Report has tracked down executive opinion on foreign direct investments' contribution to technology transfer under the previous category of technology as well as overall spending on R&D.

Factors contributing to start-ups are venture capital, loan availability, and starting a new business, including investment rate, entry into banking industry" competition with domestic banks, and access to external finance.

The Philippines needs to catch up in terms of startups, at 41st place, ahead of Thailand and Vietnam, at 42nd and 45th places, respectively. Since 1997, venture capital has been drying up in the Philippines, as the country's ranking slipped from the 21st rank in 1996 to 28th place in. 1997, 33rd place in 1998 and 1999, and 47th rank in 2000. In terms of loan availability for those with business plans but witl1out collateral, the Philippines ranks 4th coming from the 45th place, just ahead of China at 53rd place.

2.0 Current Competitiveness
Harvard Professor Michael E. Porter introduced the Microeconomic Competitiveness Index (MICI) way back in 1998 into the Global Competitiveness Report. This year, MICI has evolved into the Current competitiveness Index. Some of the factors that go into the Growth Competitiveness Index overlap with components of the Current Competitiveness Index. Their focus, however, remain different. The Growth Competitiveness Index measures factors behind the future growth of GDP per person. The Current Competitiveness Index gauges the factors behind the present level of GDP per person.

In the Current Competitiveness scheme, the Philippines fell behind to 46111 place from the 45th place in 1998 and 45th place in 1999, ahead of Indonesia and Vietnam, at 47th and 53rd places, respectively. This can be explained by the deterioration in the sub-index of Company Operations and Strategy to the 43rd place, from the 41st and 34th spots in 1998 and 1999, respectively. The Philippines comes ahead of Thailand, Indonesia, and Vietnam, at 47th, 51st, and 50th places, respectively.

The Philippines' strength in this sub-index lies in marketing and approach to human resources. Its 33rd spot in both factors come ahead of Thailand, Indonesia, and Vietnam. On the other hand, the country is weakest in Asia with regard to foreign distribution and marketing. Likewise, the country is disadvantaged at international brands and technology development.

The second sub-index that determines the Current Competitiveness Index is the Sub-Index on Quality of National Business Environment. The Philippine standing remained stable at the 46th place since 1999 from the 45th place in 1998, better than Indonesia and Vietnam, at 47th and 52nd places, respectively.

In this regard, the country's advantages lie in the quality of business schools or management education (13th place, the top two in Asia). Another edge lies in the sophistication of buyers, at 30th place, ahead of Malaysia, Vietnam, Thailand, and Indonesia, at 33rd, 41st, 45th, and 49th spots, respectively. The Philippines also enjoys an advantage in terms of consumer demand for innovation, at 32nd place, ahead of Thailand, Indonesia, and Vietnam, at 36th, 48th, and 57th places, respectively.

The country retains notoriety in terms of irregular payments (56th place), favoritism by public officials (57th spot), and poor research collaboration (55th place).

WEF and MBC
The World Economic Forum is a Swiss-based organization of leaders from business, government, and the academe committed to improving the state of the world. Incorporated in 1971, WEF is an independent foundation having a consultative status with the United Nations. WEF developed and launched its first competitiveness report in 1980 and published it yearly, for several years in partnership with the Institute for Management and Development. The Makati Business Club has been WEF's exclusive partner institute in the Philippines for the preparation of international competitiveness reports since 1993. MBC has been conducting the Executive Survey of the Global Competitiveness Report among its members.