World Bank backs removal of productivity constraints

MANILA, Philippines — The World Bank is urging the removal of constraints affecting productivity — such as restrictions on foreign investments — to enable the country to attain its long-term agenda of being a poverty-free society by 2040.

In a new report released yesterday titled “Growth and Productivity in the Philippines: Winning the Future,” the international finance organization said the country would be better able to create high-paying jobs and reduce poverty if it can use its resources (human capital, natural resources, machines, technology, knowledge) more efficiently.

Productivity growth is deemed most crucial in the agriculture sector where many World Bank country director Mara Warwick said the country’s ability to sustain its high growth rate would depend strongly on its aggressive infrastructure push and maximizing the use of inputs to produce goods and services needed by the local and global markets.

“The Philippines’ ability to sustain its current high growth rate will depend primarily on two factors: how the country can accelerate investments in improving physical infrastructure, and how it can make better use of capital, labor, and technology to increase productivity,” she said. “In the long-run, a persistently booming economy will require constant boosts in productivity.”

To attain its long-term vision of becoming a predominantly middle class economy by 2040, the country would need to triple its current income per capita (around $3,500) in the next two decades, said the report. This means the economy would have to grow at the annual average of 6.5 percent in the next 22 years versus its average growth rate of 5.3 percent since 2000.

To sustain growth in productivity, the report urges the removal of constraints to productivity such as a low competition environment in key business sectors,  easing of regulations that are “stifling” small and medium businesses, as well as restrictions on foreign participation in Philippine businesses.

 “By creating an equal playing field and simplifying business regulations, firms will be encouraged to enter the market and invest, grow, and innovate, leading to higher labor productivity,” said Rong Qian, World Bank senior economist and lead author of the report. “Market competition, coupled with a flexible labor market, allows higher productivity and raises the real incomes of Filipino workers.”

The report thus recommends promoting increased competition in the telecommunications, power, and transport sectors; streamlining burdensome procedures in starting a new business and paying taxes; and reducing restrictions on foreign investors.