Reviving our competitive spirit

The advent of the Asean Economic Community (AEC) is supposed to be an opening of more opportunities for our enterprises to expand their markets,  and consequently, expand job creation and increase revenues for society as a whole.

Our products and services have got what it takes to be competitive in the region, and the needed tailwinds to make them even stronger are being addressed by both public and private officials.

AEC was initially envisaged as a way of reducing various forms of disparities among members where pockets of under-development persist, especially with most of the newer member-countries by offering them the opportunities of a unified prosperous market … and they have been working hard to be full-fledged players as typified by the never-say-die Vietnam.

On the other hand, there are those who fear that we will be swamped with goods from our neighbors, displacing our industrial and agricultural activities.

During a recent AEC forum called by Department of Trade and Industry (DTI) Secretary Gregory Domingo mentioned that AEC is practically with us already.

More than 90 percent of tariffs among the original 6 Asean countries (Brunei, Indonesia, Malaysia, Philippines, Singapore, and Thailand) have already been at zero since 2010. The 4 newer members (Cambodia, Burma (Myanmar), Laos, and Vietnam) are likewise undertaking cuts, albeit at a slower pace.

Did it cause any harm on our economy and businesses so far? On the contrary, our economic growth continues to be the highest in the region, although admittedly unemployment level is still too high.

We see positive trends in our trade and investment relations with our neighbors in the manufacturing and service sectors.

The same trend can be achieved in the agriculture sector once a coordinated strategy is put in place in the same manner that the present game plans of our strategic sectors are crafted.

DTI Undersecretary Adrian Cristobal correctly identified that the main point is to intensify strategic initiatives as have been done so far with our leading sectors, and to adopt a unified approach between public and private sectors, and within the Cabinet itself.

Music to the ears

This is music to the ears of businessmen who are leading the fight to compete in one of the world’s biggest markets. DTI’s “one-two punch” will undoubtedly propel the country to leadership role in inclusive national growth.

The Management Association of the Philippines (MAP) has management experts in its membership who are working on sectoral competitiveness and road maps with government groups to achieve this laudable objective.

The few products that are still protected by tariffs within Asean are in the agricultural sector—rice, sugar, swine, chicken.

However, these will not be reduced to zero tariff abruptly, but gradually as the sector improves its viability.

The underpinning idea is to calibrate the  phase in depending on the development of the sector in each country. Dr. Rolando Dy, the agribusiness expert in UA&P and the Chair of the MAP Agribusiness and Countryside Development Committee, explained in several seminars that these agri-products have latent comparable advantage that can be exploited in a strategic, coordinated manner.

Department of Agriculture (DA) Secretary Proceso Alcala, in his recent meeting with MAP, intimated that he is inclined to consider this unified approach of regional clusters in production, supply chain, logistics and processing, coupled with improved marketing expertise in Asean.

The trick is for Team Philippines of private and government experts to get together in  joint functional fields, as mentioned earlier.

Almost all the multinational companies  have already adopted regional business models, such as what they do in the Americas, Europe, Africa, Asian subcontinent, etc.

Nestle, for example, produce their breakfast cereals in this country, where corn is competitive, to supply the other 9 countries.

Their center of production for chocolates, such as Kit Kat, is Malaysia with its abundant cocoa beans crop.

The same business model is observed in consumer products such as shampoos, toothpastes, detergents, etc., where centers of production are influenced by costs of bottles, wrappers, glass, raw materials—labor, government hassles, etc.

 Post-investment service

Many Asean countries address the last factor by having a top post-investment service program reporting direct to their president.

Our bigger Filipino firms have also been taking advantage of these opportunities, repositioning their activities along the lines of the multinationals’ business plan, seeking partners, making investments and beefing up capabilities abroad.

They import inputs, primary or intermediate, from neighboring suppliers, allocate operations across their Asean partners and leverage the region to be a combined consumer base as their big market.

These linked supply chains and cooperative strategies between countries with free flow of capital, investments and services will become more the norm, if we are to play a key role in AEC.

What about the promised greater mobility of labor that will take place in AEC?

Surely the Philippines will benefit the most since we are confident that our labor is preferred as evidenced by the high global demand for our OFWs.

However, the framers of the AEC have in mind increasing the mobility only of skilled labor to help support the development of countries that are laggards.

What we have plenty of is unskilled labor which will not find opportunities in the Asean countries unless they are appropriately trained.

At any rate, these labor statistics may not be valid once agriculture gets going as mentioned above since it can provide livelihood to more than half of our unemployed.

It may even trigger the return of the OFWs as more opportunities open up locally— similar to the reverse migration in Ireland in the recent past.

Currently, we have one million OFWs in the region (mostly skilled) mainly in the advanced countries such as Singapore and Malaysia, which account for 95 percent.

It is said that the two countries will not be where they are today without the Filipino skilled labor in their midst. In the future as our economy benefits from the AEC opportunities, we may need these skilled compatriots back to help move the wheels of progress faster.

The skeptics will say that the country will never be competitive due to LEI (Labor & Electricity costs and poor Infrastructures).

In these factors of production, the key solution is “improved productivity.”

We have written about these topics in the past and experts more knowledgeable than I have recently emphasized the importance of productivity in managing costs. Hence, the LEI disadvantages are not innate but are self-inflicted—making corrections possible.

Secretary Domingo stated that the situation of having “noninclusive growth” is not desirable but we are halfway there since the key word is growth.

The point is to craft the game plans with the strategic missionary zeal to achieve the inclusive part.

It would have been impossible if we have poor growth like the situations in the past. To get transformation rolling, we have to abandon our sense of despondency not only  the private sector but government officials as well.

  Skeptics

Observers such as the Asian Development Bank worry that AEC is not yet fully supported due to skeptics in the private sector, and the politicians who remain unsure of its effect on our massive poverty population.

During the forum, it was evident that tough steps to take to achieve  inclusive growth in the AEC scenario is left on the shoulders of the competent economic managers such as Secretary Domingo with his DTI team, and the business sector behind him.

Some panelists were saying that if Secretary Domingo pulls through two additional feats, his name will be carved in the anti-poverty stone. What are these two additional feats? (1) Comparative corporate tax,  and (2) Amended Cabotage Law for competitive local shipping cost.

Let’s go TEAM PHILIPPINES!

(The author is the Chair of the MAP National Competitiveness Committee and the Chair of CIBI Information, Inc. He previously served as Secretary of DTI. Feedback at [email protected]> and <[email protected] >.  For previous articles, please visit <map.org.ph>)