By Bernie Cahiles-Magkilat
The Philippines ranked 46th out of 63 countries in the 2019 World Competitiveness Yearbook (WCY), a four-place improvement from last year’s 50th. The country partially recovered this year after a nine-place drop in 2018.
Among Asia-Pacific economies, the Philippines ranked 13th out of 14 countries.
The WCY, which is being published by AIM Rizalino S. Navarro Policy Center for Competitiveness has been the Philippine partner institute of the IMD in producing the Yearbook since 1997, which evaluates competitiveness using 235 indicators spread across four factors: Economic Performance, Government Efficiency, Business Efficiency, and Infrastructure.
The Philippines saw an improvement in the ranking of all four factors. The Economic Performance showed the most improvement of 12 notches in 2019 — the largest increase among the four factors – from 50th to 38th.
Government Efficiency rose from 44th to 41st; while Business Efficiency improved from 38th to 32nd.
Infrastructure, perennially the lowest-ranked factor for the Philippines, marginally improved from 60th to 59th.
The country partially recovered this year after a nine-place drop in 2018. Over the past five years, the Philippines placed 41st in 2015, 42nd in 2016, and 41st in 2017. Among the 14 Asia-Pacific countries in WCY, the Philippines ranked 13th, the same as in 2018. Its four-place improvement is the seventh largest in the WCY this year.
Overall, Singapore was the most competitive country after placing third last year. It took the place of the United States, which fell to third this year. Hong Kong remains second while Switzerland (fourth) and the United Arab Emirates (fifth) round up the top five. The remainder of the top ten, from sixth to tenth respectively, are Netherlands, Ireland, Denmark, Sweden, and Qatar. The bottom-ranked country is Venezuela (63rd), followed by Mongolia (62nd), Argentina (61st), Croatia (60th), and Brazil (59th).
Some of the country’s ASEAN competitors also improved their ranking, and by a larger margin than the Philippines. Thailand improved five places from 30th to 25th and Indonesia jumped 11 places from 43rd to 32nd. Malaysia kept its rank at 22nd.
The primary drivers of the strong improvement of Economic Performance are the Domestic Economy and Employment sub-factors. The former rose 12 places from 24th to 12th while the latter improved 11 places from 32nd to 21st.
Domestic Economy was backed by the robust real GDP growth and real GDP growth per capita, respectively fifth and eighth highest in this year’s WCY. Some GDP expenditure components under the Domestic Economy sub-factor have also contributed to the ranking improvement, particularly consumption, government expenditure, and investments.
Meanwhile, the Employment sub-factor benefited from the drop of the unemployment rate and robust employment growth. The International Investment sub-factor also rose in ranking from 48th to 42nd, driven mostly by investment flows abroad (investment of local companies abroad). This made up for the decrease in inward foreign direct investments.
Not all sub-factors of Economic Performance improved. International Trade declined two places from 52nd to 54th as the current account balance, roughly the difference between exports and imports, continues to deteriorate. The growth of exports also slowed down last year compared to the year prior. The country’s low ranking in balance of trade and exports of goods per capita also remain. The Prices sub-factor also dropped from 45th to 46th with inflation rate accelerating last year. The gasoline prices criterion also contributed to this.
Infrastructure sub-factor shows how important programs such as the ‘Build Build Build’ and Public-Private Partnerships are; but other sub-factors also show that the Philippines should invest on infrastructure that promotes education, health, and research and development. Although Technological Infrastructure is performing much better, the digital automation and the technological improvements characterizing the fourth industrial revolution may require the country to ramp up investments in digital infrastructure.
The WCY Executive Opinion Survey asked respondents to select five key attractiveness indicators for the country from a list of 15. For the Philippines, the most frequently identified indicator was the country’s skilled workforce as listed by 85 percent of respondents. This is followed by dynamism of the economy (73 percent), cost competitiveness (58 percent), open and positive attitudes (57 percent), and high education level (50 percent). The least-identified indicators were effective legal environment (four percent), competency of government (seven percent), policy stability and predictability (nine percent), competitive tax regime (nine percent), and strong R&D culture (nine percent).
These responses suggest that the overwhelming key attractiveness indicator of the Philippines is the quality of labor. The dynamic economy follows, and lower cost is also a key advantage. The responses can also help policy makers design programs that can help promote Philippine competitiveness.