Biggest Loser

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By Ray L. Junia, publisher

Next year, South East Asian countries will officially and fully coalesce into one business and economic system, opening their doors to free trade and labor exchange.

We are supposed to jump in victory for this envisioned ASEAN Economic Community (AEC), the Philippines being one of its original proponents.

But is there reason to be happy or should we be wary in the runup to 2015 full implementation of AEC?

Experts warned that the Philippine business climate is not prepared for this integration and will end up the biggest loser.

The economic numbers on trade and business do not give us confidence on our future in this AEC. First, when President Benigno Aquino III took national leadership in 2010, the Philippines started to suffer decline in trade with its ASEAN partners.

From 2007 to 2010, Philippine trade with its ASEAN neighbors consistently rose but dipped in 2011 and 2012.

Although the country’s exports in 2007 climbed from 15.9 percent that year to 22.4 percent in 2010, they declined in 2011, down 18.1 percent in 2012. Imports, meanwhile, increased from 23.2% in 2007 to 28.2% in 2010 but dived to 23.7% in 2011 and ended the year 2012 at 23.0 percent.

Benjamin E. Diokno Ph.D, professor of the School of Economics at the University of the Philippines, said there is no way we can compete with our ASEAN neighbors when the day of AEC starts. He said solid investors have been avoiding our shores, as shown in the foreign direct investments (FDI) the Philippines had, relative to its neighbors. The Philippines got 15 percent of Indonesia’s US$19.479 billion FDI.

However, the Philippines increased, more than doubled, its FDI in 2012 at US$2.797B compared to US$1.298B in 2010. President Aquino’s economic managers jumped in victory for this increase. But they never said that the country’s FDI is peanuts to what Indonesia, Malaysia, and Vietnam have. Malaysia had US$9.4 billion, Indonesia US$19.479 billion and Vietnam, US$8.133 billion.

Unemployment Rising

At the labor front, the Philippines has the highest unemployment rate in the region,based on a survey done in 2013. The country’s seven percent unemployment rate is really bad compared to Thailand’s 0.7 percent and Malaysia’s three percent. In the beginning of 2013, 2,000 jobs were lost due to company closures even as a million joined the ranks of the underemployed.

There is no arguing that the economy revs up in this country because of salaries and wages that fuel consumer spending. These salaries, however, mostly come from employment overseas where over 10 million Filipinos find use for their talents and industry.

The over US$20 billion annually sent by Overseas Filipino Workers (OFW) has made the country’s economy active and kicking. However, the Philippines’ losing over 10 million of its most skilled workersabroad left a country with a workforce not ready to support manufacturing and industrialization.

“The Filipino experts running our industries have gone out and are serving foreign governments, if not industries in other countries,” Lito Soriano, an expert on the OFW sector said. According to Soriano, it will take a decisive step to bring back our strong position as source of skilled and technical personnel to man local industries.

The bottom line is, the country lost its advantage on the availability of required manpower to work in industrial operations. Labor experts say skills availability is not the only problem. The other is growing militancy at the labor front. Unfortunately, investors are turned off by militant labor.

Taxation Problem

Another big turnoff to foreign and local investors is taxation, that most believe is leading this country to its biggest disaster. The Philippines has the highest income tax rates. Corporate income tax in the Philippines is at 30 percent, while Singapore is 17 percent. The biggest surprise, if not irony, is that the country collects the lowest taxes to fund infrastructure and good governance.

Corruption in the highest offices in this country has eaten up most of its budget that should have gone into building the needed infrastructure to attract private investment and development. Worse for our competitiveness, our neighboring countries poured much of their taxes to building public infrastructure.

The Philippines was way off the ideal public infrastructure spending as a percentage of the GDP. The ideal ratio is five percent of GDP.

It was only in 2009 that the Philippines spent highest for infra at 2.24% of GDP. This is not even half of the ideal five percent ratio. The lowest was in 2011, when the country spent 1.49% of GDP on public infra.

While government spending and attention to make this country competitive was very poor and very bad, the private sector acted worse.Privately owned utilities drove away even those businesses that are already in place with outrageous cost of their services.

Expensive Power Rates

Cost of electricity in this country is one of the highest in the world, second only to New York. The energy sector is controlled by a little over five families, including a foreigner who uses a local fund manager to gobble up cash cows in the economic order: electricity, water supply, communications, roads, hospitals, schools, mass media and what have you.

That corruption from the highest offices of the land to the cops on the streets is causing massive poverty in this country does not escape the attention of foreign investors. It has even become an embarrassment that foreign groups are leading efforts to rid this country of the killer corruption.

In 2015, when AEC gets to run full steam, the Philippines will be nothing but kindergarten boys roughing it up in the college department. We will be eaten up by giants in the banking sector.

Even our biggest bank is no match to the regional giant money machines. The economic managers of President Aquino, however, say there is no need to worry in 2015. Integration has been picking up for a long time and the country survived. There will be no surprises. They have prepared for everything.

The business community is not biting these assurances from the student council running Malacañang. Also, the academe has issued warnings of the beating the country will get from the big boys. Lessons in the past tell them, both the business community and the academe, not to trust these government mouthpieces who know nothing more than smiling before the camera.

One lesson of the past is to remember our economic standing in Asia in the 1960s. We were the second most progressive nation in Asia, next only to Japan. Today we are at the tail end of progress in this region, no thanks to massive corruption.

Peace and Order? What’s That?

Many Filipinos can’t help but envy our Asian neighbors. Singapore and Vietnam have very low crime rates. You don’t have to fear for your life, whether you’re doing business or simply walking in the streets at night.

On the other hand, the Aquino administration has become notorious for high crime incidence ever sincethe massacre of tourists in Luneta.

One quick Google search will reveal one thing: so many people all over the world are afraid to travel to the Philippines for safety reasons. In the big city, petty crime to assassination in the streets make the headlines in the early evening news. Down in the south, in Mindanao, kidnapping to open war get to the world newsrooms.

Traffic is still a big problem. Roads get narrower everyday relative to the number of vehicles in the streets. Traffic problems get worse by the day. This includes traffic caused by cars and other vehicles.

Mass transit as a solution to the nightmarish traffic problem turned out to be a corruption expedition by the government. The brother-in-law of the President got linked to corruption in the improvement of the railway system.

Watch the jugglers.

The economists at the Asian Development Bank have repeatedly warned the Aquino administration that the ASEAN integration will be a disaster for us because we are not ready.

ADB lead economist Jayant Menon has said that the integration targets will not be met for reasons that involve needed improvements in agriculture, steel industries, and services such as the nursing industry. Menon’s co-author Dr. Omkar Shrestha also warned that a majority of the private business sector are not well-informed of the implications of the integration.

Given the confidence in the student council in Malacanang, the country will survive the surge of, and invasion by, the business giants on our shores.Many are convinced that the President has not been fully informed of the real consequences, making him think he will come out a winner in this economic circus.

Mr. President, watch the jugglers, watch intently so you won’t get hit. For when the ball hits your head, it may be too late to wake up;because we would have already lost our shirts, if not our economic sovereignty.