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Losing to Vietnam

DEMAND AND SUPPLY - Boo Chanco (The Philippine Star) - February 10, 2021 - 12:00am

There had been a lot of talk about charter change to remove provisions that supposedly discourage foreign investors from pouring capital here. I agree that is a factor why we are unable to attract as much foreign direct investments (FDI) compared to regional peers like Vietnam.

But let us be clear that even if that chacha happens, it will not solve our attractiveness problem. We have to address among others, our corrupt political system and the horrible bureaucracy that thrives on red tape.

We are a nation with a surplus of lawyers, but a weak judiciary… and a useless Congress that robs the Treasury through pork barrel, protects vested interests, and mindlessly passes laws that only make life and doing business here increasingly unbearable.

I have been reviewing comparisons of the Philippines and Vietnam prepared by the local foreign chambers of commerce. Vietnam scores high in many items considered important by current investors: intelligent COVID response, power supply/rate, broadband speed, ICT adoption, enforcing contracts, labor hiring and firing practices, FDI restrictiveness, murder rate, overall security, paid holidays, policy stability, etc.

But our situation is not a total disaster. Indeed, our current foreign investors admit Vietnam has no inherent advantage that the Philippines cannot equal. Of course, that requires a president who knows what he is doing and the political will to get things done beyond press releases. So there…

The new CREATE could be a turning point for doing better. We have known for a while that we are slipping behind. We know what needs to be done. But we are just too slow and indecisive. It took a Sonny Dominguez to stubbornly insist reforms are needed and must be passed into law.

“The fact Vietnam is moving ahead should be a wake-up moment for the Philippines to do more and faster to grow and create jobs,” one foreign chamber official here observed.

“Asia is the fast-growing region in the world and will remain so. There is lots of FDI, to spread around, and the Philippines can attract much, much more, as much as Vietnam, but this requires working harder at it, and Vietnam is a tough competitor.”

Here are some points of comparison my foreign chamber source shared with me:

Labor force – We have better managerial talent and better worker skills and the workforce sizes are comparable. Indeed, our managers are well regarded in Vietnam.

I visited a vast tourism complex of hotels, restaurants and a fleet of small cruise ships that take visitors on overnight trips around Halong Bay. Their top manager is a Filipino from Angeles City. A good number of their staff are Filipino too.

When Intel left their factory in Cavite to relocate to Vietnam, they took some of their Filipino managers and engineers to help run the new plant. There is a thriving community of OFWs who are managers and professionals in Vietnam.

In an Amcham Singapore survey in 2018, the Philippines beat Vietnam 74 to 49 percent in terms of a favorable rating for availability of trained manpower. But even this advantage is to no avail because of our highly politicized business climate. Our trained manpower ends up helping other economies grow instead.

This manpower advantage has also probably dissipated by now. Surveys now show Vietnamese students beat Filipino students in science and math. We still have some advantage for English proficiency, but probably not for long.

The Vietnamese government had been seriously training their people to supply the requirements of investors. We, on the other hand, only pretend to train our workers.

Governance - both countries have corruption; the Philippines should have less because open media is a check, while there is state censorship in Vietnam. But countering that is the weak rule of law in the Philippines.

In Vietnam like China, there are periodic anti-corruption campaigns, and the big guys are punished. Here the big guys - and gals – get away with their crimes.

Erap was the highest official found guilty of corruption by the Sandiganbayan. But he was quickly pardoned by former President Arroyo and was even able to run again for president the next election and almost won.

My source also pointed out that “Vietnam has the mandarin tradition where the native bureaucracy would govern responsibly with governance focused on popular welfare. The Philippines lacks this, even at a national level…

“Our politicians monopolize local businesses, indulge in patronage practices and buy votes if such patron-peasant assistance is not enough.”

Policy implementation – “Take agriculture. Why does Vietnam do so well with cashews, coffee, rice, fish, and more? It is not foreign investment in this sector. The government is better organized to assist the farmers to be productive.”

I have wondered about that too. Landers superstore is selling cashews from Vietnam. Why aren’t there cashews from Antipolo instead? How their government treats agriculture is probably the important advantage.

Our government has neglected our agricultural sector and even milked whatever meagre budget it gets for personal gains of officials. Remember the fertilizer scam scandal of the Arroyo administration?

We also do not have enough infrastructure to support agriculture from irrigation, credit facilities, to technical support for farmers.

And as we have seen in the current African Swine Fever epidemic, our government was late to react and didn’t have the testing and quarantine strategy to save our swine industry. Now they are clinging to price control, another disaster in the making.

Yet, Vietnam’s situation wasn’t so different from ours as they emerged from the Vietnam war. My source told me that after their 1975 victory over America, they expelled Chinese middlemen. They also learned from Mao’s Great Leap Forward that caused famine and poverty in China’s countryside.

“Their own quick realization and correction of their agrarian policy enabled them to incentivize farmers to produce more. The Vietnamese government has clearly made their farmers prosperous unlike in the Philippines.”

Here we are, still debating about agrarian reform even when it is clear we ought to consider it a lost cause and do what we must to get farmers out of poverty like Vietnam. Next Friday, we will discuss other areas of competitiveness.

 

 

Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco

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