World Bank economist urges PH to address fundamental concerns

Published December 6, 2022, 4:33 PM

by Bernie Cahiles-Magkilat

The Philippines should strengthen some fundamental concerns and address key constraints to arrest the country’s inability to capture trade and investment opportunities and compete with the rest of the ASEAN region, according to a senior World Bank economist.

Jaime Frias, World Bank senior economist, in a presentation at the Industrial Digital Transformation Congress “Digital Transformation and Strategic Repositioning for Globally Competitive and Innovative Industries”, identified fundamental concerns that need to be addressed. These are high cost of trade and investments; labor skills, know how and technology; supplier networks; logistics, transport and connectivity; and contract enforceability and IP protection. Frias said these are areas with big opportunities for improvement.

He said the World Bank is working with the government to modernize the Bureau of Customs because clearance time are still “very, very slow.” This makes the country’s high cost in importing and exporting.

For example, he said, the Philippines failed to take full advantage of the opportunity in terms of shifts from China’s imports due to the trade tensions with the US.

He cited a report showing that the imports of inputs for the US that originally came from China went to the ASEAN countries particularly Vietnam. Same is true in terms of foreign direct investments.

When it comes to trading services, Frias said, the Philippines also shows quite a bit of restrictions.

On the future of workforce skills, he said “It’s very important also that almost half of the population, especially the young recognize that their skills was actually not part of what the market needed.”

He cited a 2019 WEF report showing that the score of future workforce skills is predicted to be 11 percent below the regional average. Among the young, 43 percent recognize that current knowledge needs to be updated.

Frias even said that the share of workers with post-secondary education has not increased over the last decade.

On supplier networks, the WB economist noted that based on the latest report, investors have complained actually of the density and the quality of supplier networks that are present in the country.

The Philippines backward linkages and global value chain (GVC) participation is lower than that of Malaysia, Thailand and Vietnam. Increased diversification in supplier networks have been associated with reduced vulnerability of GVCs to supply chain disruptions.

Already, he said, investors have complained about the unavailability of local manufacturing inputs, and absence of qualified suppliers.

But improvement in logistics performance also increase the probability of participating in GVCs. For an archipelago country, he urged the government to invest in trade infrastructure such as Customs reforms, investment in ports, and advance logistics services.

Finally, the economist noted that the Philippines ranked 32 out of 100 countries in the 2020 Worldwide Governance Indicators for rule of law, which relates to confidence in contract enforcement and property rights.

To help address the trade and investment constraints, Frias has called for the ratification of the Regional Comprehensive Economic Partnership (RCEP). “It’s going to be important removing restrictions to foreign investment, specifically, airport sectors transport and telecom enabling cross border payments with the regional peers in facilitating online payment systems, and disputed clearance of customs.

When it comes to skills, RCEP, there are mutual recognition agreements in RCEP. Thus, he also urged for the liberalization on the practice of professions.

On local suppliers, he said, it is important to attract better you know, tier two tier three suppliers. Promoting adoption of technologies is an area perhaps where the Philippines innovation could be a very useful vehicle to promote the capabilities of SMEs and suppliers.

Frias said the implementation of the public services for telecom road transport and domestic shipping would be important and promoting sharing of network infrastructure.