MANILA, Philippines - "Vietnam ranks 75th this year," the 2011-2012 edition of the Global Competitiveness Report (GCR) reads, "and switches positions with the Philippines. Over the last two editions, Vietnam has lost 16 places and is now second-lowest ranked among eight members of the Association of Southeast Asian Nations (ASEAN) covered by the report." That switch provides dramatic context for the Philippines' jump to 65 of 144 countries surveyed for the GCR, an advance of 22 ranks since 2009.
To be sure, it's important to anchor perception of the Philippines' progress not just in terms of its legitimately commendable gains in competitiveness, but the low baseline from which it began the transition from economic backwater to emerging economy. The report's authors provide that perspective, writing, "The Philippines makes important strides this year in improving competitiveness - albeit from a very low base - especially with respect to public institutions (94th, up 23 places).
The closely watched GCR is just one of several annual country competitiveness reports published annually. Published by the World Economic Forum, an independent organization with close ties to tier-one multinational corporations and world governments, its annual meeting in Davos, Switzerland, attracts top executives and heads of state who debate the global economic and political outlook. A number of other influential meetings are conducted annually, and the WEF publishes a series of influential reports on trade and development as well as competitiveness.
Despite the Philippines' improving competitiveness ranking, it has yet to break out of a sort of economic limbo between two GCR-defined stages of development. Stage 1 is defined as "factor-driven" economies, those that merely exploit natural resources rather than add value to them. Stage 2 countries demonstrate "efficiency-driven" economies. Efficiency isn't value-added, but it improves cash flow - profitability - from economic activity.
The Philippines remains in a transition phase between Stage 1 and Stage 2, according to the GCR, along with 17 other countries. If the Philippines continues to improve at the rate it has since the 2010-2011 edition of the report, it stands a good chance of breaking out of limbo. A number of countries did just that in the last 12 months. They include Armenia, Guyana, Georgia, Guatemala, Jamaica, and Paraguay. All transitioned to Stage 2 in the latest edition of the GCR.
Why hasn't the Philippines? Here's the irony: The Philippines scores relatively well in efficiency indicators-a group of six pillars of competitiveness that include higher education, market efficiency, labor efficiency, financial markets development, technology readiness, and size of market - at 61. That's despite a notably low score in labor efficiency (103). The Philippines also ranks a respectable 64 in innovation and sophistication, the principal feature of Stage 3 economies, the most competitive.
But the Philippines ranks 80, in the bottom half of all economies surveyed, in basic requirements. These results suggest that the Philippines is reasonably competitive in terms of efficiency and sophistication and innovation, but that it performs poorly doing the most basic things an economy should - providing trust-worthy institutions (94), adequate infrastructure (98), and basic healthcare and primary education (98). In terms of business-friendly macroeconomic environment (36) - a fourth pillar of competitiveness under basic requirements - the Philippines does well.
The authors of the GCR appear to believe the Philippines is finally addressing these fundamental shortcomings. Aside from gains in improving performance and accountability of institutions, the report says, "Trust in politicians has made considerable progress (95th, up 33), although significant room for improvement remains. The perception is that corruption (108th, up 11) and red tape (108, up 18) are being addressed decisively, even though they remain pervasive.
But progress is tempered but the significant tasks - notably in the areas of basic requirements - that require urgent attention. "The country's infrastructure is still in a dire state, particularly with respect to sea (120th) and air transport (112th), with little or no progress achieved to date. Furthermore, various market inefficiencies and rigidities continue, most notably in the labor market (103rd)."
The priorities seem clear, as they have been for many years. That progress is being made in many key areas of competitiveness is encouraging for investors as well as Filipinos who desire to build their futures here rather than in some Stage 3 economy, most of which remain in a fragile state overall despite their sophistication due to the lingering effects of the global financial crisis.
To switch places with more competitive economies, though, the Philippines must ramp up investment in infrastructure and undertake the politically hazardous but critically important task of labor reform. The administration of President Benigno S. Aquino III has shown convincingly - according to the GCR - that it can accomplish positive reforms under difficult circumstances. Now, on to Stage 2.
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(Michael Alan Hamlin is the managing director of TeamAsia and a Manila-based author and commentator. Write him at mahamlin@teamasia.com, follow him on Twitter, @asianpundit, friend him on Facebook, michaelalanhamlin, or link on LinkedIn, michaelalanhamlin.).
Copyright © 2012 Michael Alan Hamlin. All Rights Reserved.
