Abbreviations Acknowledgements Transmittal Letter to President Benigno Simeon Aquino III

EXECUTIVE SUMMARY

Philippines: Country DataIntroduction

PART 1GROWING TOO SLOW

The Philippine Economic Landscape in 2010: Faster Growth is EssentialDecades Lost to Slow GrowthPhilippine Growth Has Not Been InclusiveLiving in the High Growth NeighborhoodInadequate Skills + Insufficient Jobs = High Unemployment/UnderemploymentRemittances Are Important But Distort the EconomyTwice as Much Investment Needed for Higher GrowthLow Foreign Direct Investment FlowsWeak Export Volume Lacks DiversificationHeadline Recommendations

PART 2BECOMING MORE COMPETITIVE

The Philippine International Competitiveness LandscapeRegional Business Outlook SurveyBest Countries for BusinessFailed States IndexIndex of Economic FreedomWorld Competitiveness YearbookInternational Property Rights IndexCorruption Perceptions IndexHuman Development ReportE-governance Readiness SurveyDoing Business ReportInvesting Across Borders 2010Paying Taxes ReportWorldwide Governance IndicatorsGlobal Competitiveness ReportGlobal Enabling Trade ReportTravel and Tourism Competitiveness ReportEnvironmental Performance IndexHeadline Recommendations

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36373839394042424344444548485152535355

CONTENTS

ix

LIST OF FIGURES

Figure 1: Philippine historical real GNP and GDP growth rates, 1981-2009Figure 2: Average real GDP growth rates, ASEAN-6, 1961-2009Figure 3: Real GDP growth rates, ASEAN-6, 1990-2009Figure 4: Poverty incidence, ASEAN-5, 1990-2006Figure 5: Poverty trend in the Philippines, 1985-2006Figure 6: Share in ASEAN-6+4 GDP, 1990-2009Figure 7: Annual GDP per capita, US$ PPP, ASEAN-6, 1990-2015PFigure 8: Real GDP per capita growth, average by decade, ASEAN-6, 1981-2009Figure 9: Average annual population growth, ASEAN-6, 1961-2009Figure 10: Share in world GDP, 1990-2009Figure 11: Real GDP growth rate forecast, annual percent change, ASEAN-6, 2010-2011Figure 12: GDP growth, ASEAN-6, by quarter, 2007-2010Figure 13: Labor market, key indicators, 1990-2009Figure 14: Labor market, sector share in total employment, 1990-2009Figure 15: Employment by class of worker, 2009Figure 16: Composition of unemployed by educational attainment, 2009Figure 17: OFW remittance, Bn US$, 1990-2011Figure 18: Fixed capital formation distribution, Philippines, % of GDP, 1990-2009Figure 19: Gross fixed capital formation, East Asia, % of GDP, 1990-2008Figure 20: Gross fixed investment, % of GDP, ASEAN-6, 1990-2009Figure 21: Gross domestic investments, as % of GDP, ASEAN-6, 1990-2009Figure 22: Net FDI, Philippines, 1990-2009, Bn US$Figure 23: Net FDI, ASEAN-6, 1990-2009, Bn US$Figure 24: Net FDI, % of GDP, ASEAN-6, 1990-2009Figure 25: Philippine goods and services exports, current prices, Bn US$, 1990-2009Figure 26: Export of goods and services as % of GDP, ASEAN-6, 1990-2009Figure 27: Philippine exports, product distribution, 2009Figure 28: Philippine exports, by destination, 2009Figure 29: Emerging Asia’s external financing, by source, 2010Figure 30: Top areas of dissatisfaction, % of respondents, Philippines, 2003-2009Figure 31: Forbes best countries for business, percentile rankings, 2008-2009Figure 32: Foreign policy failed states index, percentile rankings, 2006-2009Figure 33: Index of Economic Freedom, percentile rankings, 2001-2010Figure 34: Editorial cartoon published on release day Economic Freedom Ranking 2010Figure 35: IMD world competitiveness, percentile rankings, 2001-2010Figure 36: IMD world competitiveness sub-rankings, selected ASEAN countries, 2010Figure 37: International property rights index, percentile rankings, 2007-2010Figure 38: Corruption perceptions index, percentile rankings, 2001-2010Figure 39: Editorial cartoon published on release day of Corruption Perceptions Index 2004Figure 40: Human development index, percentile rankings, 2001-2010Figure 41: UN E-governance readiness, percentile rankings, 2003-2010Figure 42: Ease of doing business, percentile rankings, 2006-2011Figure 43: Ease of business establishment index, foreign companies (0-100)Figure 44: Ease in paying taxes, percentile rankings, 2008-2010

FIGURES, MAPS & TABLES

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EXECUTIVE SUMMARY

Joint Foreign Chambers Advocacy Paper ARANGKADA PHILIPPINES 2010: A BUSINESS PERSPECTIVE

DECEMBER 2010 1

INTRODUCTION

Arangkada Philippines 2010: A Business Perspective has a strategic purpose – to provide recommendations that lead to millions of new jobs for Filipinos and higher economic growth for the country. This document includes hundreds of recommendations for action by both public and private sectors in a great number of areas. Together they add up to an agenda for change to help

policy makers and business leaders to enable the national economy to compete in a world increasingly interlinked and competitive. In this world, keeping up is an imperative, not a choice. For too many years and in too many sectors of its economy the Philippines has lagged, losing competitiveness despite the nation’s immense potential.

The Philippines has the good fortune to be located in Asia. The region accounts for 28% of global GDP, 32% of global trade and has 60% of global population.1 Three of the world’s largest economies – China, India and Japan – are in Asia, and two – China and India – are among the fastest growing. The other large economies in North America and Europe are readily accessible to the Philippines. Fast-growing China and India have longstanding economic and cultural ties to the Philippines. With new free trade agreements (FTAs) in effect or soon to come into effect for many of these markets, the Philippines has better opportunities than ever before to improve trade and investment ties with advanced as well as rapidly-developing economies.

The Joint Foreign Chambers of the Philippines (JFC) – comprised of the American, Australian-New Zealand, Canadian, European, Japanese, and Korean chambers of commerce as well as PAMURI – have prepared this advocacy paper to contribute the ideas of our Filipino and foreign members in the spirit of partnership with the people and government of the Republic of the Philippines (GRP). Our more than 2,000 members, of dozens of nationalities including Filipino, are deeply committed to the welfare of the Philippines and a brighter future for its citizens.

Our members include many of the largest investors, employers, taxpayers, and CSR supporters in the country, some who have operated in the Philippines for as long as a century as well as many who have arrived quite recently. Our hope is for our members to contribute increasingly to Philippine economic development and provide high quality jobs for the domestic economy, especially its export sector to take advantage of our members’ links to global markets. Our members are prepared to invest continuously and heavily in the Philippines and to create millions of new jobs. But we can only do this if the nation can create a better business climate to enable its future prosperity.

The many things that are working well in the economy could be further enhanced, while obstacles to sectors with high growth potential need to be removed. Many of our members believe the Philippines faces a crossroads, where it chooses between the status quo or an ambitious growth agenda with diversified strategies. As foreign investors and employers, we fully share the ambition of Filipinos for the country to become an advanced economy. The Philippines’ progress is ours, too; for many of us, there are emotional ties, as well.

1 UNSD; As of 2008 (revised); 2009 World dataset is not yet complete.

“If we want things to stay as they are, things will have to change.”

Giuseppe di Lampedusa in “The Leopard” his novel about Sicily

Joint Foreign Chambers Advocacy Paper ARANGKADA PHILIPPINES 2010: A BUSINESS PERSPECTIVE

DECEMBER 2010 31

Figure 27: Philippine exports, product distribution, 2009

JOINT FOREIGN CHAMBERS ADVOCACY PAPER ARANGKADA PHILIPPINES 2010: A BUSINESS PERSPECTIVE

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Figure 26: Export of goods and services as % of GDP, ASEAN-6, 1990-2008

Figure 27: Philippine exports, product distribution, 2009

Figure 28: Philippine exports, by destination, 2009

0%

50%

100%

150%

200%

250%

300%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Singapore MalaysiaThailand VietnamPhilppines Indonesia

Source: UN Statistics Division

Total Agro-Based Products, 5.5%

Forest Products, 0.1%

Mineral Products, 3.8%

Petroleum Products, 0.8%

Electronics, 61.6%

Other Manufactures, 24.

5% Special Transactions,

3.7%

Source: NSO

US, 17.7%

Japan, 16.2%

China (Mainland+HK, exc

Taiwan), 16.0%EU, 20.6%

ASEAN, 15.2%

Others, 14.3%

Source: NSO

Figure 28 clearly shows the high potential for export diversification if exports of the agribusiness and mining sectors can be vigorously developed. Similarly, the potential for increased revenue is high for services for medical visitors, retired foreigners, and international tourist visitors.

Figure 28: Philippine exports, by destination, 2009

JOINT FOREIGN CHAMBERS ADVOCACY PAPER ARANGKADA PHILIPPINES 2010: A BUSINESS PERSPECTIVE

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Figure 26: Export of goods and services as % of GDP, ASEAN-6, 1990-2008

Figure 27: Philippine exports, product distribution, 2009

Figure 28: Philippine exports, by destination, 2009

0%

50%

100%

150%

200%

250%

300%

1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008

Singapore MalaysiaThailand VietnamPhilppines Indonesia

Source: UN Statistics Division

Total Agro-Based Products, 5.5%

Forest Products, 0.1%

Mineral Products, 3.8%

Petroleum Products, 0.8%

Electronics, 61.6%

Other Manufactures, 24.

5% Special Transactions,

3.7%

Source: NSO

US, 17.7%

Japan, 16.2%

China (Mainland+HK, exc

Taiwan), 16.0%EU, 20.6%

ASEAN, 15.2%

Others, 14.3%

Source: NSO

“…ultimately accountability for a country’s failure to attract investment must lie with its leadership and government institutions.”

Oscar M. Lopez, Chairman, Lopez Group of Companies, FOCAP speech, January 15, 2008

Joint Foreign Chambers Advocacy Paper ARANGKADA PHILIPPINES 2010: A BUSINESS PERSPECTIVE

DECEMBER 2010136

Infrastructure: Road and Rail

Sector Background and Potential

Ground transportation infrastructure is essential for investment and job creation which are necessary to reduce poverty in the Philippines. It is a “catalyst” for area development and economic growth. Transport-logistics infrastructure such as roads and rail facilitate the efficient movement of goods and people. Absence of such vital infrastructure impedes the efficient movement of goods, increases transport cost, and ultimately impacts negatively on the country’s competitiveness.

Modern roads and rail support the high-growth sectors of BPO, manufacturing, and tourism. Modern toll roads and better farm-to-market roads provide tourists better access to destinations. In large urban areas particularly Manila a more extensive light rail system moves both employees and tourists more efficiently and eases traffic congestion on major thoroughfares.

The government allocated roughly PhP 889 billion to the development of transport infrastructure (roads, rail, light rails, airports, and seaports) under the 2006-2010 Medium Term Public Investment Program (MTPIP). For 2009, DPWH’s budget reached almost PhP 130 billion, the largest amount in the national budget and the highest level ever for the department (see Figure 82). The DPWH builds roads and bridges, school houses, and other public works. However, Figure 81 suggests that this increased spending has not raised the overall quality of roads.

Figure 82: DPWH budget, Bn PhP, 2005-2010

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Ê

Ê

Ê

Ê

Ê

-2

0

2

4

6

8

10

12

14

16

18

20

22

Electricity spot market prices, P/KWhEffective settlement price (w/ Surplus)Effective settlement price (w/o Surplus)Ex-ante load weighted average price

Source: WESM

-10%

0%

10%

20%

30%

40%

50%

60%

70%

80%

0

20

40

60

80

100

120

140

160

180

2005 2006 2007 2008 2009 2010

Budget, lhsNominal yoy growth, rhs

Source: DBM; 2006 national budget was a re-enacted 2005 national budget.

94

102

105

32

17

3

104

102

94

35

24

1

114

117

84

36

21

1

0 20 40 60 80 100 120 140

Philippines

Vietnam

Indonesia

Thailand

Malaysia

Singapore

2010-112009-102008-09

Source: WEF Global Competitiveness Reports; Note: Number of countries evaluated -2008-09 (134); 2009-10 (133); 2010-11 (139)

Joint Foreign Chambers Advocacy Paper ARANGKADA PHILIPPINES 2010: A BUSINESS PERSPECTIVE

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Figure 100: Estimated number of Internet users, Philippines, 1998-2009

Ê

Ê

Ê

Ê

Ê

Ê

0

10

20

30

40

50

60

70

80

90

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

SingaporeMalaysiaThailandVietnamIndonesiaPhilippines

Source: ITU

0

5

10

15

20

25

30

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

IndonesiaVietnamMalaysiaThailandPhilippinesSingapore

Source: ITU

0

1

2

3

4

5

6

7

0

1

2

3

4

5

6

7

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

total, in million, lhs

per 100 inhabitants, rhs

Source: ITU

Figure 101: Proportion of households with Internet, Philippines, 2002, 2009

Ê

Ê

Ê

Ê

Ê

Ê

59.4%

10.5%5.0% 4.9% 4.0%

0.6% 0.2% 1.0%

76.0%

21.1%18.3%

11.0%8.6% 6.5%

3.4% 1.4%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Singapore Malaysia China Philippines Thailand Vietnam India Indonesia

2002

2009

Source: ITU

0%

50%

100%

150%

200%

250%

300% SingaporeMalaysiaThailandVietnamPhilppinesIndonesia

Sources: UN Statistics Division and ASEAN Secretariat

-20%

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

0

100

200

300

400

500

600

700 Value, lhsYOY growth, rhs

Source: WTO

Expanded and higher speed broadband and higher computer penetration will bring a wealth of benefits to Filipinos and efficiencies for the economy, reducing business costs and helping the economy to become more competitive and meet its Millenium Development Goals. With mobile phone penetration in the country approaching 80%, new technology is available to link new generations of phones to the Internet on cellphones. This hybridization of mobile phones with computers is already happening in developed countries, where consumers are rapidly changing to reading digital books, magazines, and newspapers. Financial transactions are similarly facilitated over the Internet. Investing in such infrastructure is one of the most important actions in the near-term to increase Philippine competitiveness and move towards a knowledge-based service economy.

Wireless Internet service is increasingly commercially available in most Philippine cities at various “hot spots.” A program to make free Wi-Fi available at national high schools and in densely populated urban areas can be considered as a means of encouraging greater use by Filipinos of new mobile technologies.