Getting there

The latest visitor from Britain, MP Hugo Swire, had encouraging words for the policy thrusts of the Aquino administration.

Swire, who addressed top Filipino businessmen at the Tower Club in Makati last week, said history had taught his country that in times of economic uncertainty, more open economic policies rather than protectionism, more trade and greater competitiveness were the best guarantees of sustained growth.

He cited four indicators that the Philippines is taking the same path: the Aquino administration’s campaign against corruption, efforts to improve infrastructure, initiatives for peace and stability, and policies embracing free trade and shunning protectionism.

Swire’s outlook reflects survey after survey on business confidence under the Aquino administration. Businessmen seem to like what they hear from the government. Now if only that strong business confidence can start translating into real investments – the type that will generate jobs decent enough to bring back at least some of the millions of Filipinos who have left the country for better opportunities abroad, including the United Kingdom.

Swire cited the Philippines’ 7.1 percent GDP growth in the third quarter – impressive particularly in the continuing global economic slowdown.

That growth, however, is heavily dependent not on local production but on remittances from our 10-million-strong army of workers overseas. The economy is not fueled by innovation and product creation, but by consumer spending powered by earnings from overseas.

It’s not a competitive economy, and that’s bad news for us for the long term. We should not be surprised that we lag behind most of the founding members of the Association of Southeast Asian Nations (ASEAN) in terms of inclusive growth and several other human development indicators.

Despite President Aquino and his team making all the right noises about promoting transparency and leveling the playing field for business, figures show that the Philippines still has one of the lowest levels of foreign direct investment (FDI) in ASEAN.

I’ve asked investors from several key regions and countries about what’s keeping them from putting their money in the Philippines. They’ve given me similar answers: they still see capture of state and regulatory agencies by local groups with vested interests.

The investors acknowledge certain reforms in the business environment. But they are aware of the history of reforms in this country, and are not sure if the reforms will last beyond June 2016.

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Apart from inadequate infrastructure, which the administration is trying to address, investors are also deterred by challenges in the Philippines that are not present in several more competitive Asian economies: high power costs, restrictions on foreign ownership, and difficulty in setting up a business. As annual surveys have shown, the Philippines is not an easy place to do business, especially when compared with several of our neighbors.

Net FDI inflow in the first three quarters of the year went up by about 40 percent, from $782 million in the same period in 2011 to $1.09 billion. But the amount is just a fraction of what our neighbors attracted. In September, net FDI plummeted by 60 percent, from $138 million in the same month last year to just $55 million.

For certain foreign investors, perceptions of chronic corruption and unreliability in enforcing business contracts in the Philippines are based on actual experience.

P-Noy’s challenge is persuading those investors that a new team is in place, with a new way of doing business, and reforms are here to stay.

Economists have pointed out that robust GDP growth does not necessarily translate into higher FDI; structural weaknesses still have to be addressed.

That 7.1 percent growth also has a downside: it tends to reinforce the status quo. Members of the power elite can resist reform efforts that threaten their vested interests by citing the high growth rate. Never mind if that growth owes much to Filipinos who have left their own country for lack of opportunities.

Government economic managers have admitted that the 7.1 percent growth must be sustained for several years or increased if the benefits of growth are to be felt by the masses.

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There are true bright spots in the economy, starting with business process outsourcing, where UK firms are significant players. Swire, who was here as a tourist 25 years ago during the first Aquino presidency, also noted positive changes in the Philippines.

In those 25 years, China became the world’s second largest economy, and we were left behind in economic performance by Malaysia, Singapore and Thailand, with Indonesia now sprinting ahead. But Swire, being a minister of state at the Foreign and Commonwealth Office, is diplomatic and dwells on the positive.

In case you haven’t noticed, Britain is raising its profile in the Philippines, actively supporting the peace process with Islamic secessionists, and sending members of parliament to visit Manila. Its modern, eco-friendly embassy on McKinley Hill is one of the five largest in the country. UK Ambassador Stephen Lillie is working hard to increase the two nations’ awareness of each other.

Britain last month reopened its embassy in Laos, giving the UK representation in all 10 ASEAN states. It’s all part of the UK’s “strengthened” focus – as described by Swire – on Southeast Asia, a region of over 500 million people and strong economic growth.

Australia and New Zealand, members of the Commonwealth, strengthened their ties with Southeast Asia years earlier, but then the two countries are in the Pacific neighborhood.

Swire, in his speech, pushed for more partnerships between his country and the Philippines to promote “mutual prosperity.”

“What makes Britain a particularly attractive partner is, I think, the openness of our economy, our transparency and adherence to the rule of law, and our firm belief in the rules-based system,” he said. “We have much in common, and economies that rely on a strong and open global economy.  We are democracies, with a strong attachment to human rights and the rule of law.”

The UK has its own problems, but countries are judged by the way they deal with those problems. Swire wasn’t exaggerating in describing his nation’s strengths.

New Zealand Ambassador Reuben Levermore (not Levenmore as printed in the previous article; sorry for the typo), whose country ranks high in surveys on transparency, the rule of law and competitiveness, told me something similar. Without comparing our countries, he said that if you break the law in New Zealand, there’s certainty that you’ll be made to pay for it.

In our case, the best that we can say at this point, in terms of transparency and a rules-based system, is that we’re getting there, or at least trying to.