A BUSINESS PERSPECTIVE ON THE PHILIPPINE ECONOMY

Riza Mantaring

[Slide 1 – TITLE SLIDE]

A few years ago, my husband was speaking with a European colleague who had decided to

close his business in the Philippines and move – lock, stock and barrel – to another Asian

country. He was married to a Filipina, so my husband was puzzled on why he would want to

move, as his business was fairly successful. The response? “I can’t see why anyone would want

to invest in this country.”

He had become so frustrated with the slowness of how everything moved, the red tape, the

everyday logistical problems, the lack of supporting infrastructure, the informal barriers at each

stage, that he had decided to give up.

Today, I would challenge his views and ask, “Why would anyone not want to invest in the

Philippines?”

[Slide 2 – WE HAVE A LOT GOING FOR US]

We have many things going for us. A young, literate population, with a median age of 23 and

with 60% of working age. This, together with decades of increasing earnings from BPOs and

OFW remittances, are expected to fuel the continuing growth of the middle class. Poverty

levels have declined from 26% in 2015 to 20.8% in 2019 and are expected to decline further to

18.7% in 2021.

Despite the global uncertainties, the macroeconomic environment remains favorable.

Notwithstanding the slower growth in the first half of the year, GDP has been growing at over

6% since 2010, and we expect this trend to continue in the next few years, powered by the

Build, Build, Build program of the government and the continued implementation of market

reforms. Reforms began in the 80s with trade and foreign exchange liberalization, opening up

of the telecommunications and financial services sectors and the privatization of power. More

recently, the passage of TRAIN drove another ratings upgrade. Important reforms that have

languished for years have finally been passed – the rice tarrification law, instrumental in

bringing down inflation which spiked last year; the National ID, which in turn should greatly

help in implementing the Ease of Doing Business law; the Bangsamoro Basic Law, which has the
potential to unlock the wealth of the ARMM and end decades of conflict.

The BSP is doing its part to support growth, aggressively lowering interest rates and reducing

the reserve requirement ratio for banks. While the BSP has been doing a stellar job for years

despite being hampered by an obsolete governing law, the passage of the new Central Bank Act

allows it to align with global best practices and gives it more levers to act proactively in

response to changing market conditions.

In the World Bank’s Ease of Doing Business Report, we received the welcome news that we

moved up to 95th place from last year’s 124th out of 190 countries.

[Slide 3 – FOREIGN INVESTMENTS CONTINUE TO LAG]

Yet despite all of these, foreign investments, so critical to moving the country forward and

turning it into a middle-class economy, continue to significantly lag those of our ASEAN

neighbors.

The reasons are many, and you have probably heard this over and over.

First, it is simply not easy to do business here. The DTI, and now the ARTA, have done much to

improve the business climate, and for this they deserve to be lauded, but much more needs to

be done.

[Slide 4 – IMPROVE BUSINESS ENVIRONMENT]

It is said that constitutions, while supposed to be lasting, are often influenced by the issues of

the times in which they were written. Ours is no different. But in the over three decades since

it was ratified, the world has moved on and globalization has changed the environment

dramatically. Foreign equity restrictions have prevented sorely-needed investments in vital

industries such as telecommunications, transport and energy. Competition is restricted, which

protects unproductive or poorly-performing firms at the expense of more productive ones, and

reduces the incentive for firms to innovate.

Limited competition in key sectors has significant consequences for the economy. Witness the

impact of poor transport on logistics, and on every industry which relies on the movement of

goods. Trade costs could be greatly minimized by improving our port and logistics

infrastructure.

To catch up with our ASEAN neighbors, we need to lift these restrictions to encourage the entry
of capital. We can start by simply reducing the number of sectors in the negative list. Why, for

instance, do we bar foreigners from teaching at the tertiary level? Singapore jumpstarted its

tech industry by building excellent universities, understanding the heavy reliance of technology

development on human capital. And to attract good students, they brought in well-known and

highly respected educators from overseas.

The Ease of Doing Business act has great provisions and we have been eagerly awaiting its

implementation. In particular, we need to make it easier to start new businesses, get approvals

and pay taxes. Burdensome administrative procedures not only deter new businesses from

starting up and existing ones from expanding, they also encourage corruption, as do

complicated tax rules and processes. They also hold back badly needed infrastructure such as

new power plants, many of which are mired in the approval process despite the looming power

shortage.

Labor market rigidities make it difficult to do business here. I remember numerous instances

when I had to explain to our corporate and regional offices overseas why we couldn’t fire an

obviously incompetent employee. And worse, why we had to give him a separation package

after months, or even years, of non-performance! While we need to ensure that employees are

protected from abusive employers, we also need to ensure that our laws adapt to the times.

For example, rather than security of tenure, why not portability of benefits? Everywhere in the

world we see employees moving away from lifetime employment to taking on varying roles in

different industries throughout their working life. But each time they move, they lose all the

benefits, such as pensions, which they may have accumulated. If they take those accumulated

benefits with them as they move, they would have a nest egg by the time they retire.

Addressing all these issues will definitely help, but we also need to remember that one of the

biggest factors which makes investing attractive is predictability. Money is the most cowardly

of things, and when you are investing billions, even hundreds of millions, you need to know that

the conditions under which you invested would not suddenly change. I ran a Canadian

company which has been in the country for close to 125 years, through wars, coups, changes in

government. Our contracts with clients lasted decades. Knowing that the rules would not

suddenly change has helped the company prosper and invest more in the country.
[Slide 5 – STRENGTHEN HUMAN CAPITAL]

One of our biggest strengths and our most valuable asset is our human capital. I truly believe

the Filipino is world class. We note that the government’s medium-term Philippine

Development Plan, its development blueprint to 2022, is people-centered, focusing on

inclusiveness, resilience and a competitive knowledge economy.

Building a competitive workforce means strengthening our human capital even further. This

starts with the very basic food security. It is estimated that 26% of Filipino children are

malnourished. The damage to health, physical development, and brain development from

malnutrition is often irreversible, affecting children for life. The World Bank, in its Human

Capital Index, estimates that at the current levels of nutrition, healthcare, and education,

today’s children will only be 55% as productive when they grow up as they would have been

had they been able to enjoy a complete education and full health support.

Thus, ensuring affordable food is important. The rice tarrification law is a step in the right

direction. Helping Filipino farmers by giving them the tools and knowhow to grow more

lucrative crops and increase productivity not only helps ensure food security but also helps

farmers escape poverty and drive inclusive growth. Secretary Dar deserves our full support in

his efforts to modernize the agriculture sector.

The Universal Health Care Law is also very welcome. There remains a gap, however in its

fulfillment, as we need to build an additional 2600 healthcare centers. Perhaps LGUs should

also find a way to engage private practitioners to provide certain packages of services.

Education is another critical area. Prior to 2012 the Philippines was one of only three countries

in the world and the only one in Asia with only ten years of basic education. The shift to K-12

has brought us more in line with the rest of the world and should allow even high school

graduates to find jobs. Not everyone is cut out for college and it has always puzzled me why we

require a university diploma for people being hired as clerks and data center operators.

Free education in state universities and colleges sounds good, but one wonders how the

government can fund all our SUCs, in addition to all the other services it is trying to provide.

Quality education is costly. Perhaps rather than free tuition for everyone, we can implement a

voucher system so that the more economically disadvantaged students get the support they
deserve, while those who can afford it pay more. This would also allow private universities to

participate in educating the youth – with the lack of facilities, we need both public and private

universities.

An educated population is critical if we are to build a competitive society. In a rapidly changing

world where whatever you know today will be obsolete in five years, the ability to learn and

adapt will determine how we evolve as a nation.

[Slide 6 – DRIVE INNOVATION]

Which brings me to my last point, innovation. This is one which is a personal advocacy, as we

have seen technology render once dominant companies obsolete. History is littered with the

carcasses of business giants who have gone bankrupt, forced out by new technologies and new

business models – Kodak, Nokia, Blockbuster, Sears – household names which are gone or are

about to disappear.

When we look at what drives our economy, we see the twin engines of BPOs and OFW

remittances. These are what have powered our GDP growth over more than a decade. But

both are being impacted by technology.

Some months ago I was speaking with a colleague visiting from Singapore, and he told me of a

call center operation which had just closed 3500 seats. 80% of the seats were replaced by

machines, powered by artificial intelligence. The remaining 20% required more complex skills

which the BPO had difficulty finding locally, so they decided to bring back the seats to

Singapore, where talent was more expensive but also more readily available. As AI becomes

more advanced, we can expect the need for large backrooms to decline even further, perhaps

to the point where companies who are currently offshoring simply take those functions back to

their home countries. We are already seeing this in manufacturing, where some companies

have relocated their factories back from Asia to the U.S. as AI and robotics have allowed them

to operate entire plants with a minimal number of staff. It is said that as much as 89% of BPO

jobs may be at risk.

While information technology changes are the most visible, technological change is also

happening in other areas. The bulk of our OFWs are located in the Middle East, which is

primarily dependent on oil. As countries shift to green energy and lessen their dependence on
oil, what will happen to the thousands of Filipinos working there? Indeed, as technology

changes every single industry, what will happen to Filipinos working all over the world?

The World Economic Forum estimates that 75 million jobs will be lost by 2022 due to

technological changes, but 133 million new jobs will be created, for a net gain of 58 million. But

these are not jobs in the fields we know. These are jobs in data science, analytics, artificial

intelligence, machine learning. We need to ensure that our human capital evolves and adapts

as the world around us changes. This means not only enhancing STEM education but

emphasizing critical thinking, complex problem-solving and creativity in our curricula.

This will help us to create an enabling environment for innovation so that we are at less risk of

obsolescence as a nation. Further, enabling foreign capital and talent to come in will spur

competition, which is key to innovation, and improve the quality of our physical and digital

infrastructure. More importantly, it should enable knowledge transfer.

While the government needs to do its part, we in the business community also need to do ours.

We need to invest in innovation. The DOST has presented a whole range of technologies our

scientists and engineers have developed, which are in need of funding. We also need to

prepare our workforce for the future. It is estimated that more than half of them, including

executive leadership, will need significant re-skilling and upskilling. Incidentally, one area

where we can innovate fairly easily is tourism, which has the potential to become another

growth engine for the country.

To become a middle class nation, as is the goal of AmBisyon Natin 2040, we need to surpass a

7.1% growth rate for the next 20 years. To achieve this, we need to generate 1.3 to 1.5 million

new jobs a year for the next 20 years, triple per capita income to $11,000, and increase annual

total factor productivity growth rate by 1.5% or higher in the next 22 years, double the world

average since 2000.

It seems almost impossible. Yet even as we play catch up, our neighbors continue to grow and

evolve even faster. Can we ever compete?

[Slide 7 – MIRACLE ON ICE]

I am reminded of the U. S.’s hockey victory in the 1980 Olympics, dubbed the Miracle on Ice.

The Soviet Union was the dominant force in hockey, having won the gold in 5 of the last 6
Olympics. The team was composed primarily of professional players who played hockey full

time. The U. S., in contrast, consisted solely of amateur players still in college, the youngest

team in the tournament. To anyone, it seemed impossible for the U. S. to beat the Soviets.

In the group stages, the U.S. was able to draw against Sweden and managed to upset the

heavily favored Czechs then beat the rest of their group. The Soviets simply powered their way

through, thrashing their opponents by such lopsided scores as 16-0, 17-4 and 8-1.

In the medal round, the U. S. met the Soviets in the first game. Playing to a packed crowd, the

U. S. fell behind early, but somehow managed to end the first period tied at 2-2. In the second

period, the Soviets scored again and ended the period leading 3-2. In the third period, a Soviet

player was given a penalty and had to sit it out at the penalty box. With their opponents lacking

one player, the U. S. scored and tied the game a few seconds before he returned. Only a couple

of minutes later, the U. S. scored again. With the U.S. leading 4-3, the Soviets started to panic

and made several tactical errors. As the clocked ticked away to the end of the game, the U. S.

coach kept telling his players “Play your game, play your game.”

The U. S. won the game and went on to beat Finland and win the gold. It is another David

beating Goliath story, but it also left many valuable lessons. One, the coach chose the best

players he could in the tryouts. You don’t win with a B-team. Two, every single player on the

team did his part, from training hard to the point of exhaustion to playing hard in the actual

games. Three, they followed the game plan – execution. And four – dedicated amateurs

working together can beat even the best professionals. A star team is always better than a team

of stars.

Can we achieve AmBisyon 2040? Can we keep up and even surpass our neighbors? Yes, but

only if each of us does his part until we drop from exhaustion. The Philippines is a land of great

promise but also lost opportunities. This time, let’s lock arms – kapit-bisig – and move forward

together to fulfill our promise.