Lockdowns cut PHL’s competitiveness rank

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THE Philippines is trailing its Asia Pacific neighbors after falling by seven notches to 52nd position out of 64 countries in the 2021 Institute for Management Development (IMD) World Competitiveness Ranking—a fall that economists attributed to restrictive lockdown measures.

This is the lowest ranking of the Philippines for the metric in five years. Last year, the country slightly improved to 45th rank from 46th position in 2019.

In Asia Pacific, the top performers are Singapore (5th), Hong Kong (7th), Taiwan (8th) and China (16th). The Philippines only outperformed Mongolia (60th) in the region.

The Philippines, IMD noted, had the sharpest drop in ranking in the region. It cited the country’s decline in economic performance, government efficiency and business efficiency as the primary reason for the lower ranking.

“The decline experienced by The Philippines was driven by a deterioration in several indicators related to the domestic economy, the job market [e.g., unemployment rate doubled from around 5 percent to more than 10 percent], public finances and productivity of firms in the private sector,” it explained.

“A sharp drop in its domestic economy and employment subfactors has signaled an economy suffering from the crisis as its citizens struggle to find employment from a poorer labor market of 27th position after a 17-position drop,” it added.

For economic performance, the Philippines slid to 57th rank from 44th rank, considering the lower position for the following subfactors: domestic economy, international investment, employment and prices. But it ranked higher for international trade.

The country’s ranking for government efficiency fell by three notches to 45th position as its subfactor rankings for public finance and institutional framework slipped as well. Tax policy, business legislation and societal framework improved in this cycle.

The Philippines’s business efficiency ranking plunged to 37th rank from 33rd as a result of the worse ranking for productivity and efficiency, labor market, finance and management practice.

It registered the lowest ranking for infrastructure at 59th, which the country has maintained for three cycles now.

The country showed minor improvement in ranking for basic infrastructure, technological infrastructure, scientific infrastructure and education. For health and environment, its position slipped by two notches.

The respondents of the Executive Opinion Survey, meanwhile, picked a skilled work force, open and positive attitudes, high educational level, cost competitiveness and dynamism of the economy as the top key attractiveness factors.

Disrupted business activities

RCBC Chief Economist Michael L. Ricafort and ING Bank Manila Economist Nicholas Antonio T. Mapa said the strict lockdown protocols implemented last year, especially during the onset of the pandemic, impacted the country’s competitiveness.

“The lockdowns in the country are among the longest in the region as new Covid-19 cases remained relatively higher compared to other countries in Asean/Asia, thereby reflecting the drag in the competitiveness ranking for 2020,” Ricafort told the BusinessMirror.

Mapa explained that the lockdown measures and mobility restrictions hampered efficiency of both the government and business in delivering goods and services.

“Thus, we can also tie the loss of efficiency to the pandemic and to the inability of the Philippines to effectively snuff out the virus and deal with its negative implications,” he said.

Both economists noted that further reopening of the economy can help the country improve its competitiveness ranking. “Government must do all it can to jump-start the economic engines as well as to work to quell the ongoing spread of the virus, as the prevalence of such invariably leads to the imposition of these ECQ [enhanced community quarantine] lockdowns which knock out growth momentum and hinder the efficiency of both business and government,” Mapa said.

The RCBC economist said passage of more structural reforms that encourage foreign investments, further ease of doing business and improve governance, among others, would also help.

Apart from mobility restrictions, the lower competitiveness ranking may be attributed to delayed passage of new corporate tax reform and “weak internet” Infrastructure, according to Philippine Chamber of Commerce and Industry Chairman Alegria Sibal-Limjoco.

Challenges to overcome

This year, the international think tank listed among the country’s challenges “ensuring inclusive economic recovery and quickly reviving business and consumer confidence.”

This goes together, IMD noted, with effective management of the Covid-19 pandemic and full rollout of the vaccination program.

The survey noted the country may also find it challenging to build resilient social infrastructures, especially in health and education, and to sustain more investments in physical and digital infrastructure.

Lastly, IMD said the Philippines should focus on “maintaining fiscal health while adequately providing stimulus and support especially for vulnerable sectors.”

Overall, the world competitiveness index for 2021 was led by (in order) Switzerland, Sweden, Denmark, Netherlands and Singapore.

“This year the rankings expose the economic impact of pandemic across the globe,” IMD said, adding that investment in innovation, digitalization, welfare benefits and leadership resulting in “social cohesion” have boosted the countries’ competitiveness amid an ongoing crisis.

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