Tuesday, May 08, 2012

How to Achieve Optimum Investment Enterprise Development

Provide an Enabling Environment for Business. There is wide consensus that in order for the Philippines to attain optimum investment enterprise development, government must provide an “enabling environment” for businesses to grow. But how to achieve this “enabling environment” has been the subject of much debate and controversy not only in government circles but in academia as well. Various administrations from Cory Aquino to Gloria Arroyo have grappled with this question and have adopted various strategies towards this end, but despite best efforts the Philippines has still consistently lagged behind its Asian neighbors in terms of attracting foreign investors and achieving economic development. For his part, President Noynoy Aquino recently bared his two-pronged strategy to achieve this goal: 1.) by “leveling the playing field” and 2.) by “lowering the cost of doing business” in the Philippines. So far, this policy pronouncement has been translated into specific programs by his Cabinet officials, among the more notable of which are the BPLS Streamlining program of DILG-DTI, RATS and RATE program of DOF, and the various infrastructure development programs of DOTC and DPWH. The President has also demonstrated his resolve by signing E.O. 44 expanding the National Competitiveness Council and by adopting a “no-nonsense attitude” towards corruption, pursuant to his "Kung Walang Corrupt, Walang Mahirap" battlecry. 

“Kung Walang Mayaman, Walang Mahirap.” After only two years in power, it may still be too early to judge the Aquino government. The most that can be said for now is that President Aquino has yet to live up to the people’s high expectations. With the recent SWS Survey showing the number of Filipinos who rated themselves poor (“mahirap”) increasing by 2 million, it is becoming increasingly clear that PNoy’s “Kung Walang Corrupt, Walang Mahirap” slogan may not be enough to attract foreign investors and enable the country to achieve “inclusive growth.” To paraphrase Noam Chomsky, the ills of our society may not solely lie in a corrupt government but in a system wherein “costs and risks are socialized to the extent possible, while profit is privatized.” Thus, more than just curbing corruption, Aquino must also address the skewed system where political and economic power are concentrated in the hands of a well-born few. Which brings me to the last two points of my essay. 

Discard Protectionist Policies. First, we cannot continue on ignoring the 5,000-pound gorilla in the room. We must confront the inconvenient truth that the Philippines can never become globally competitive until we discard our protectionist policies. We must face the fact that there can never be a “level playing field” unless we amend the “nationalist” provisions in the Constitution. Even if we succeed in lowering our electricity rates, reduce the time it takes to register a new business, eradicate corruption and improve transparency, upgrade our labor skills, etc. most foreign capitalists will still see us as an unattractive investment destination simply because of the perception that one cannot do business in the Philippines without partnering with the native oligarchy (case in point: Fraport). This may not bother some businessmen, but for majority of foreigners it serves as a powerful disincentive and a major turn-off.  

Improve MSME Access to Credit. As a final thought, I would like to say that (as someone who once worked for SB Corp.) I am a firm believer in the power of micro-lending as a means to “inclusive growth.” Whereas government dole-outs (i.e. CCT Program) and education reform (i.e. K+12) are long-term strategies towards inclusive growth, improving MSME access to credit is a more direct policy solution that brings about immediate results notably in terms of jobs creation and income generation for those who need it most, the ”unemployable” poor. Thus, the Aquino government must also focus its efforts towards improving MSME access to credit by 1.) infusing more funds into SB Corp. and other public lending institutions (i.e. LBP, DBP, Quedancor, PCIC, etc.) and 2.) ensuring industry compliance to the 10% mandatory lending provision of RA 9501 (Magna Carta for MSMEs). At present, SB Corp.’s total loan portfolio (TLP) does not even represent 1% of the ₱3.5 trillion TLP of the entire Philippine banking system. To become an influential “player” SB Corp. must increase its market share. But more importantly, the continued financial success of SB Corp. serves as indubitable proof that (contrary to conventional wisdom) “there is money in MSME lending.” This should serve to encourage more private banking institutions to engage in MSME credit lending. 

Wednesday, May 02, 2012

The Country Must Address Jobs-Skills Mismatch

Since today is Labor Day, I think it is appropriate and timely to write about the current labor situation in the Philippines. 

First off, the positive news. Contrary to what naysayers claim, the long-term economic prospects of our country is quite rosy. According to the CIA Factbook, the Philippines is now the 45th largest economy in the world. Various international rating agencies predict that our country will become one of the largest in the world – Goldman Sachs estimates that by the year 2050 the Philippines will become the 14th largest economy while HSBC estimates that our economy will become the 16th largest in the world, the 5th largest in Asia and the largest in Southeast Asia by 2050.  

Even now, there are unmistakable signs that the West is slowly on the decline while much of the East is progressing. For example, the unemployment rate in the Philippines is now lower compared to the unemployment rate in the United States – as of January 2012, DOLE reports that the unemployment rate in the country is 7.2% while in the U.S. it is 8.2% (as of March 2012). Other Western countries are also experiencing high unemployment - United Kingdom has 8.3% as of February 2012 while in Spain, which is currently undergoing a full-blown economic crisis, the unemployment rate is a whooping 24.4%. Of course, this is not to say that conditions in the Philippines is now better that the U.S. In fact, the standard of living in crisis-torn Spain is still considerably higher that in our country. What this signifies is that in the future (in 2050 perhaps) the living standards in our country will improve and may eventually become at par with Western standards.  

What is truly remarkable about the Philippines’ economic performance is that we were able to achieve growth without consuming too much electricity. Most experts agree that there is a “uni-directional causality” between electricity consumption and economic growth, and it is widely-held that for every 1% increase in the GNP a corresponding 1.6% growth in energy consumption is to be expected. Thus, to grow by 1% conventional wisdom says that we must increase our electricity consumption by 1.6%. But remarkably the Philippines was able to achieve an average 4% growth rate despite the fact that it has the highest electricity rates (and as a consequence, one of the lowest electricity consumption rates) in Asia. This is because our country’s economic growth is supported not by heavy manufacturing industries but by less energy-intensive industries like the service industry, tourism industry and the BPO sector. Moreover, if other countries have oil deposits, we have an inexhaustible supply of OFWs who contribute an average of $20 Billion (and growing) every year to the economy.

I believe that other nations can learn from the Philippine growth model. While it is true that our economic growth is slower compared to China, Malaysia and Thailand, ours is a growth model that has the least impact on the environment and thus the most sustainable. China has been growing at an average of 10% annually for the last two decades or so, but its “hyper-development” has only resulted to massive environmental degradation and the widening of the rich-poor gap in their country. In this age of Climate Change, countries we must find various ways to sustain economic development while decreasing its “carbon footprint.” 

As I mentioned earlier, the unemployment rate in the Philippines is now lower that in most Western countries. Increasingly, the problem faced by young people nowadays is not so much that there is a dearth in employment opportunities but that their educational background/skills training are not what the market demands. For instance, today there are thousands of nursing graduates in Iloilo without work (or who find themselves employed in unrelated fields) while other industry sectors on the other hand are finding it hard to source qualified professionals. Labor experts call this phenomenon “jobs-skills mismatch.” In a word, jobs-skill mismatch is caused by the imperfect and dysfunctional relationship between the private industry, public sector and the labor force.  

As such, addressing this jobs-skills mismatch is a task not only of the government but of private industry and the academe as well. The Department of Labor and Employment (DOLE) can only undertake market research on future labor trends but it really cannot force parents to make their children enroll in courses needed by industry. As such, Filipino families must erase the stigma they attach to tech-voc education and encourage their children who possess an aptitude for technical careers to pursue vocational degrees. All private and public high schools must have guidance counselors who coach and direct students towards career paths that are best suited to their individuals talents and aptitudes. Colleges and universities must work closely with private industry to learn current labor demand and future market trends. In other words, the problem of jobs-skill mismatch requires a “private-public partnership” between government, the school, the family and the business sector.

If it is any consolation, almost all developed and developing countries experience a jobs-skills mismatch problem at one time or another. Several years back the United States and United Kingdom had to import nurses from the Philippines because there were not enough nursing professionals in their country. U.S. and U.K. authorities responded to this jobs-labor mismatch by conducting a massive Information Education Campaign (IEC) and by offering college scholarships to encourage more of its citizens to become nurses. Within a short span of time America and Britain were able to solve this mismatch (to the detriment of our Philippine nurses).

Likewise, in the Philippines there are certain industries which lack qualified professionals. To cite a specific example, one of the reasons why the Philippine mining industry cannot seem to take off is because there are not enough geologists and mining engineers in the country. Most are either retired or working outside the country. At present, there are only two schools offering mining engineering courses in the country – UP Diliman and Adamson University – and despite industry demand and generous scholarship benefits to deserving applicants, there are very few enrollees in the course. As such, PRC records show that in 2010 there were only 15 (out of 30 takers) who passed the Mining Engineering Board Exams while in 2011 the figure slightly improved to 32 board passers. As a result of this dearth in qualified professionals, some mining companies were forced to bring out of retirement mining engineers who are already in their 60s and 70s just to fill in the gap.

So my advice to young people who are currently in 3rd or 4th year high school is to consider your career prospects carefully. Know your strengths and weaknesses. Study hard and read on any subject that interests you. Develop your natural abilities and always strive for perfection. And most important of all, develop a work ethic and do not develop an attitudinal disdain for manual labor. Far from it, always welcome labor and always strive to give your best effort no matter how menial your work. As they say, the secret formula to success is really simple: work, hard work and more hard work.