2015: Asean Integration, ready or not?

Asean Integration by 2015 is just around the corner. Despite the fast approaching deadline, the prevailing sense is that the country somehow seems unprepared to meet the competitive challenges when trade barriers are lifted to allow for the free flow of goods and services in the region. The business sector needs a carefully constructed environment it could use to steel themselves for the onslaught while giving foreign competition a serious run for their money.

Whenever Asean Integration is taken up, the lack of preparedness and synchronicity of the government and private sector and weak state of competitiveness dominate the conversation. Except for the OFWs that continue to pour $20 billion annually in remittances, around $10 billion in income from BPOs, and growing receipts from the tourism sector, the country’s other economic sectors, particularly the agricultural and manufacturing sectors, are vulnerable to Asean Integration’s risks. And if the peso continues to strengthen to levels below 40:1, expect serious problems from the export sector that may turn to “Dutch disease.”

Exploiting opportunities arising from Asean Integration requires that we lessen our vulnerabilities to foreign competition and exposure to market risks. One vulnerable sector is the agribusiness industry where productivity targeting self-sufficiency and surplus growth for export are found wanting. 35 percent of the labor sector is in this sector, yet, despite the opportunities from Free Trade Agreements, our farmers continue to be saddled by a plethora of unresolved issues that competing nations have overcome. I’m not aware of contingency plans that aim to mitigate the risks posed by cheap products and services, and to strengthen our competitive advantage where we shine or could eventually shine.

There is much to be done in terms of providing adequate incentives, critical infrastructure (we are spending 2 to 3 percent of GDP, far below the regional average) and universal access to know-how and capital. Arangkada points out that domestic transport, labor and other business costs arising from inefficiencies of the system must be immediately addressed and effectively reduced. We have yet to develop indigenous mechanized and other farm implements; expand irrigation and insurance coverage; provide cheaper fertilizer; and integrate small farms to attain economies of scale, including the promotion of corporate farming. More important, backward and forward integration in priority agriculture sub-sectors like grains/feeds, livestock, and high value crops must be part of that agenda.

Another example is the country’s defense buildup to a “minimum desired credible level” espoused by the Department of Foreign Affairs and the Department of National Defense to acquire the appropriate force mix to defend our territory and uphold national honor. Apart from seeking off-budget funding options that preserve the budget for social defense and the delivery of basic services, there should be another goal: develop a manufacturing industry to produce dual purpose factories producing for the domestic and export markets, supported by vital infra and systems, to spur industrialization.

Our strong peso, steady OFW remittances, rising income from BPOs and tourism, low interest rate regime, over $83-Billion in foreign exchange reserves, over P1.7-trillion in Special Deposit Accounts, inflation that is well within the 3 to 5 percent inflation band (around 3.3 percent, which is expected to remain there this year) are strengths we can put to bear to industrialize. We’ve learned our bitter lessons well and masterfully managed our macroeconomic agenda. The Bangko Sentral, the Bankers Association of the Phils, the DOF, Neda, key agencies of government and Congress must come together to provide the private sector the playing field it needs to push the economy forward.

Arangkada, a project of the Joint Foreign Chambers of the Philippines, gave this 2nd anniversary assessment of the manufacturing sector:

“Domestic manufacturing has never faced more challenges to survival than today, such as high business costs, low import duties, and extensive technical smuggling. As long as smuggling provides better profits than manufacturers, the economy will be one of traders and smugglers. When Arangkada was drafted, there was no strong, unifying policy that manufacturing is a key component of economic and technological development. There was no national industrial master plan, and funding for trade and investment promotion was small.”

Drawing in foreign direct investments and the cost of doing business could be made much easier with clear plans, programs and critical infrastructure in place; with firm law enforcement and a reliable criminal justice system; with national government agencies applying the same rules for synchronicity; with the bureaucracy providing accurate answers and sensible solutions instead of confusing investors with conflicting responses and interpretations of the rules; and with the curbing of extortive practices at the local government level that drive investors away to investor-friendly destinations.

All that is causing a drag on our growth and development. “The biggest challenge facing the Philippines is to move the economy to a higher level of growth and job creation. Per capita income barely grew during the ’80’s and ’90’s with high population growth and boom-bust cycles shaped by intermittent political turmoil and costly lapses in economic management.”

But while things started looking up from 2010, with last year’s 6.6 percent growth making the country the fastest-growing economy of the Asean-6 (Indonesia, Philippines, Malaysia, Singapore, Thailand and Vietnam) economies, Neda Sec-Gen Arsenio Balisacan says that the country must continue planting the seeds of a structural transformation of the economy to make it more investment and industry-led.

Both the government and business should be on the same page, without which our economic rise might get cut short by Asean Integration in 2015, leaving us once more to twist in the wind. We must convert inputs to outputs, and outputs to impacts, to reach the bottom of the pyramid. As DBM Sec. Butch Abad said, the most pressing challenge is for us to ensure “inclusive economic growth; that the expansion of the economy creates more jobs and livelihood opportunities, and contributes meaningfully to poverty reduction.”

2015 is just around the corner and we need to see that things are moving in the right direction to justify expectations of a new era under the sun rather than sensing that there’s another storm coming.

(The article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines. The author is the vice president of the Management Association of the Philippines and Independent Director of the Pepsi Cola Products Philippines, Inc. Feedback at [email protected]. For previous articles, visit <map.org.ph>.)