Tuesday, 15 September 2009

The Philippines may be more competitive than you think

John Mangun
Outside the Box
Business Mirror

By now I am sure that you have read that the Philippines dropped 16 places to 87 in the ranking of countries by the World Economic Forum’s (WEF) “Global Competitiveness Report.”

Don’t feel too bad though. The Philippines is still ranked No.2 in the number of times a Filipina has won the Miss International Beauty Pageant. And the importance of the WEF ranking is about the same as a beauty pageant. It means almost nothing.

Bear in mind that only 39 people, nearly the lowest count in the world, responded to the survey from the Philippines. By comparison, 54 respondents talked about Zimbabwe and 79 replied from the Kyrgyz Republic. So 39 Filipinos answered the survey questions and based on their answers, the Philippines is number 87.

But if you do get excited by these kinds of surveys and need to feel good about the Philippines, here are some of the individual rankings. Under the health category, the Philippines ranked No. 1 because of the low prevalence of HIV/AIDS. The USA ranked 85. In the “Quality of Management Schools,” here again the Philippines fared well at No. 39; Japan scored at 79.

So you can sleep well at night knowing that you probably won’t die of AIDS while getting a good-quality MBA here in the Philippines.

Rest assured that no business is going to come or not come to the Philippines based on this WEF survey. But deeply buried inside the report and not discussed by any local coverage I have read is something fearful and dangerous.

One of the 12 “pillars” of competitiveness is “Macroeconomic Stability.” The ranking here is not based on some silly perception from the survey participants. This is based on hard data; government gross budget balance as a percentage of GDP, national savings rate, inflation, interest-rate spread, and government debt. Note also that the numbers in this report are for 2008, and much has changed since then and not for the better.

The Philippines ranked 76 while the USA stood at 93, India 96, and Japan at 97.

Here is where it gets very scary. Everyone of those components listed under macro-stability has turned much, much worse in 2009 particularly in the USA.

The world cannot afford to have countries like the United States and Japan in the same economic category as Albania (95) and Bangladesh (84). Moreover, the world cannot wait for the USA to make constructive moves out of its problems, particularly when Obama is showing a complete lack of qualifications for the job with each additional economic-policy decision he makes.

Last Friday, Obama started what may turn out to be a full-blown trade war with China. China has reacted “violently” to the imposition of a US 35-percent duty on Chinese truck and auto tires. This may be the most stupid policy decision in a long list of stupid Obama policies.

On September 30, the US government closes its books on the 2009 fiscal year. By November, the USA must raise tens of billions of dollars through the sale of government debt, the biggest buyers being China and Japan. China is in no mood to finance Obama’s budget and a trade war will make the Chinese even less responsive to loaning the US money.

Japan just elected a new leader and Prime Minster Yukio Hatoyama is not the best choice from the American perspective. He has long-standing ties with the most conservative elements of Japan’s war-making past. Further, his grandfather, Ichirō Hatoyama, himself a former prime minister, was named in an assassination/coup plot to overthrow the Japanese government in 1952 and establish a pro-military, right-wing government. The current Hatoyama recently said, “The financial crisis has suggested to many that the era of US unilateralism may come to an end. It has also raised doubts about the permanence of the dollar as the key global currency.”

However, he also went on to say, “But at present no one country is ready to replace the United States as the dominant country. Nor is there a currency ready to replace the dollar as the world’s key currency.” That is unless China and Japan join together, which they could easily do as they control about 50 percent of all US government debt.

The closing sentence in yesterday’s BusinessMirror editorial summed up the current situation well; “First is to chuck the ‘business as usual’ attitude that has caused the economy to list for the longest time.”

But the future is not just about reducing red tape, perceptions of corruption or simply improving the business environment. We are entering a new world.

One important thing missed by those who commented on the WEF report was that the Philippines is equal to and mostly better in every one of the 12 pillars when compared to economies in our current stage of development, called by the WEF as a ‘factor-driven” economy. A factor-driven economy is one that must rely on its internal endowments: labor-force quality, natural resources, and labor productivity.

The qualities of “innovation-driven” economies like the USA and Japan did not save them from the current disaster. The economic world is not the same as it was a generation ago or even two decades past. And the truth is, no “expert” really has a clue what new practices and policies will be necessary for the decades to come. We may be better positioned than anyone thinks.

On a personal note, if you would like to subscribe to the weekly Stock Market Update and gain access to our website, please send me an email.

PSE stock-market information and technical-analysis tools were provided by CitisecOnline.com Inc. E-mail comments to mangun@email.com.

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