Thursday, 23 July 2009

A major competitiveness obstacle

Outside the Box
John Mangun
Business Mirror

During a telephone call with a group of potential investors from New York yesterday, I was asked the normal questions about the Philippines from those who are unfamiliar of what “da Pilipines” is really like.

The first question was a bit surprising as they asked what internal factors would cause major problems of political instability. I admit that I forgot what should have been the “media” answer: changing the Constitution. I know that subject is on the front page every few days, but then again, it does not seem like anyone really takes Cha-cha seriously anymore. It is almost like the topic is a mental game that the politicians play with each other that does not have any basis in day-to-day reality for normal people.

These investors asked what external factors might harm the business environment here and I, of course, mentioned the problems with the Islamic separatists in the south. But in truth, how in the world could you compare our problems with Indonesia, where they blow up a five-star hotel every couple of years? Yet Indonesia is supposedly higher on the list of countries favorable to foreign investors. Seems foolish to me.

We talked about the economy and the drivers of this economy like foreign remittances, outsourcing and the Philippines’ mineral wealth. Yet, as to be expected, the conversation kept turning back to what the greatest problems for foreign investors might be. I hope I made it clear it was not in the political arena, which seems to be what the foreigners are worried about.

Toward the end, I was asked simply what the greatest hindrance was to doing business in the Philippines. Corruption came to mind but I have done extensive business in some of our neighboring countries, and, unless you are dealing with major government contracts, corruption is quite manageable by comparison.

At the end, I said that in my humble opinion, the greatest challenge to foreign investors as well as to the average Filipino is the inefficiency of the bureaucracy of the government. And please note this: it is not the people of the bureaucracy but the system itself. You know what I mean. Why does it need to take two hours or more to get a driver’s license? Imagine what more inefficiency you face setting up and operating a multi-million-peso business.

Any large organization, public or private, must have a bureaucracy to function. But if a company like San Miguel or Ayala Corp. created and maintained the layers of bureaucratic structure as the government does, they would be unprofitable very quickly, just like the government is.

It seems as if private enterprise works to streamline and improve efficiency in its bureaucracy whereas the government thrives on making its structure more complex, tortuous, lengthy and difficult and, therefore, ultimately more expensive.

However, cost is not the main issue. Efficiency is. And an efficient system is always more cost effective. And an inefficient system, public or private, is a breeding ground for corruption.

As vital as the government bureaucracy is to the nation, improvement of the bureaucracy is a very low priority. I can remember only one instance in all the past presidential campaigns when a single candidate spoke of the bureaucracy. This was when senator Juan Ponce Enrile ran for president and spoke of the need to rationalize and bring greater professionalism to the system. The one and only time. Yet government bureaucracy is a vital and pervasive part of our lives.

Government programs to facilitate a “one-stop” approach to the handling of services provided by the bureaucracy are good and often effective. But it has been two years since the long-awaited Republic Act (RA) 9485 or the Anti-Red Tape Act of 2007 (authored by Sens. Juan Flavier, Edgardo Angara, Aquilino Pimentel, and Panfilo Lacson) became law. I wonder how much you know about this important legal stride in improving the bureaucracy. This law should be a crucial step in redefining “doing business in the Philippines.”

Yet perhaps the most important factor in improving government services and the delivery of those services is the public itself. We accept, allow and even encourage bureaucratic efficiency by our acceptance of the problem. RA 9485, if implemented well, demands that all government, not just at the national level, become more efficient and, therefore, less corrupt. However, it requires the public to help. The public must demand that government live up to the mandate of this law.

The new survey of global competitiveness again showed the Philippines is lacking against our global competitors. Yet we make this competitiveness issue seem much more overwhelming than it really is. Most of the competitiveness issues from labor inefficiencies to the government’s fiscal policies can either be adequately handled by private-sector operations or are “nonthreatening.”

But an inefficient government bureaucracy, which business must interact with on an almost daily basis, is crucial. Let’s be honest. The ‘”face” of the government is found across the counter at the Land Transportation Office and how well it handles your situation. And yes, I do remember when it used to take half a day or more to get your driver’s license. Things are better.

On a personal note, beginning next month, I will publish a weekly market update, with trading strategies based on technical analysis which gives entry prices and timing. If you would like subscription details and an example of this weekly update, now available only to members of the Portfolio Trading Program, please e-mail me.


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