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AIM: More needed to be done to boost competitiveness

Bigger gains in the country’s competitiveness can be achieved by assuring strategic infrastructure investment, enhanced market competition and a simple and progressive tax regime, according to the Asian Institute of Management (AIM) Policy Center after the 2017 World Competitiveness Yearbook (WCY) showed the Philippines rose a notch on the list, from 42nd out of 63 economies last year to 41st. 

The Comprehensive Tax Reform Program (CTRP) proposed by the Department of Finance (DOF), in line with the Duterte administration’s 10-point socioeconomic agenda, is designed to simplify the tax system and encourage the compliance of businesses and individuals by streamlining systems, cutting personal income-tax rates, and expanding the value-added tax base, it said.

The Philippines’ ranking has remained in the 40s for the past few years, with sporadic jumps to the high 30s for most of the past two decades.

This year, the Philippines saw an impressive rise in the ranking for Economic Performance, climbing to 26th place from 38th last year.

The AIM Policy Center, however, said economic performance largely depends on the production and capacity of the national economy, determined by the other factors of competitiveness not only in a given year, but also in previous years.

“This year, the country faltered in Government and Business Efficiency, factors that are essential for sustainable value creation and long-term competitiveness. Laggard improvement in Infrastructure also weighed on the country’s overall ranking,” it said.

The country’s current ranking matched its position in the 2015 edition of the yearbook. Among Asia-Pacific economies, the Philippines also moved up from 12th in 2016 to 11th.

The WCY has been published by the Swiss-based International Institute of Management Development (IMD) since 1989.

The list showed that the Philippines was sandwiched between Latvia at 40th and Southeast Asian neighbor Indonesia at 42nd.

The country’s ranking, however, paled in comparison to neighbors Hong Kong, which kept the top place in the WCY; Singapore, 3rd; Taiwan, 14th; China, 25th; Malaysia, 19th; and Thailand, 28th.

The yearly competitiveness ranking evaluates economies across 346 criteria in four broad categories which are Economic Performance, Government Efficiency, Business Efficiency, and Infrastructure.

The WCY uses both macroeconomic data and perceptions-based indicators in ranking the competitiveness of countries.The Philippines’ economic performance ranking soared 12 places to 26th in 2017 from 38th in 2016.

This improvement was largely driven by a jump from 31st to 12th in the Domestic Economy sub-factor, led by robust GDP growth, as well as improvement in the Employment sub-factor from 19th to fourth.

The Philippines also ranked third in both real gross domestic product (GDP) growth and resilience of economy, but placed near bottom of the rankings in GDP per capital. In terms of government efficiency, the Philippines dropped from 36th in 2016 to 37th in 2017. While the country rose nine places in the Public Finance sub-factor, from 34th to 25th, this could not make up for drops in the sub-factors for Tax Policy (15th to 18th) and Societal Framework (43rd to 51st), according to the AIM Policy Center.

The Philippines also performed well in the criteria for central bank policy (second), but continues to lag behind in terms of start-up procedures and other criteria covering ease of doing business.

The rankings for Business Efficiency likewise saw the Philippines slip, from 24th in 2016 to 28th this year.

Drops were registered in the sub-factors for Productivity and Efficiency (36th to 52nd), Labor Market (4th to 5th), Management Practices (24th to 28th), and Attitudes and Values (12th to 18th), while the country rose from 35th to 33rd in Finance.

The ranking also showed the Philippines placed highly in skilled labor, flexibility and adaptability, and national culture.

Low marks on productivity, infra

On the other hand, the country placed 62nd in both overall productivity and labor productivity.

The country continued to perform poorly in Infrastructure despite going up one place in 2017, from 55th to 54th. Overall, most of the improvements in ranking were driven by data-based indicators, while decreases were mostly accounted for by perceptions-based factors.

Hong Kong topped the 2017 competitiveness rankings, with Switzerland, Singapore, the United States, and the Netherlands completing the top five.

The bottom of the ranking features several economies undergoing political or economic upheavals, including Venezuela, Brazil, and Ukraine.

The tax reform program is also needed to help fund the government’s ambitious infrastructure program.

Sustaining and enhancing national competitiveness requires large-scale resource, organization, and brand management on multiple fronts, according to AIM.

The Philippines is in a unique position to remedy ills that have long held it back from advancing in competitiveness as reflected in world rankings, it added.

Now is the time for leaders in government and business to come together and make sure this opportunity is maximized, it noted.

The Philippines has much to cover in the build-up to adequately competitive infrastructure. The share of fixed capital formation in Philippine GDP from 2010 to 2015 had remained low relative to comparable Association of Southeast Asian Nations (Asean) economies.

But its growth rate and share in GDP at 23.8 percent in 2016 are two of the country’s better-ranked indicators under Economic Performance this year.

The current administration’s drive to “Build, build, build!” is expected to funnel much needed investments in transportation, energy, and telecommunications infrastructure, but there must also be a strategic approach to making the necessary “hard” and “soft” investments in health, education, and scientific research.

The local private sector and prospective foreign investors must also be encouraged to participate in these capacity-building projects.

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