By Rea Cu and Mia Rosienna Mallari
DIFFERENT set of leaders, but the same goals. This was how experts described the 1996 and 2015 Asia-Pacific Economic Cooperation (Apec) meetings that the Philippines hosted.
Twenty years apart, some would naturally ask—what has changed since 1996, and what has the Philippines achieved in that span?
In Subic, developing human capital; fostering safe, efficient capital markets; strengthening economic infrastructure; harnessing technologies of the future; promoting environmentally sustainable growth; and encouraging the growth of small and medium enterprises (SMEs) were the themes given priority by the Apec leaders in 1996.
In the 2015 Manila Apec summit, the more striking goals were to improve regional economic integration; foster SMEs’ participation in the regional and global economy; invest in human-capital development; and build resilient and sustainable communities—obviously carrying the same tenor as the targets set in 1996.
“We haven’t fully achieved these goals, that’s why they are still the same,” economist Dr. Alvin Ang stated in an interview. “We haven’t improved yet.”
However, he too said that the 1996 Apec should not be compared to this year’s because of several things, particularly since the annual summit was only established three years prior to the first summit in the Philippines.
“The summit in 1996 was procedural, it was more on procedures, how to do this and that. Now it’s already about policies. We’re talking about issues now,” he said.
Looking closer, smaller
SMEs serve as the backbone of the economy. The present data from the Department of Trade and Industry (DTI) show that, as of the 2012 census, 944,897 business enterprises are operating in the Philippines, and 99.58 percent (940,886) are micro, small and medium enterprises (MSMes), while the remaining 0.42 percent (4,011) are large enterprises.
The goals of the Asean are aligned with that of Apec—fostering the growth of businesses within communities that are micro, small and medium. As large contributors to the increase of market value in any economy, both blocs firmly believe that the efficient integration of SMEs will help economies compete in the global and regional markets.
Benel P. Lagua, executive vice president and chief development officer of the development sector of the Development Bank of the Philippines, noted in his presentation that SMEs comprised 99.6 percent of the total registered businesses in the Philippines, and that 70 percent of the labor work force are employed by SMEs.
MSMEs generated a total of 4,930,851 jobs in 2012, in contrast to the 2,658,740 jobs from the large enterprises. These numbers specify that MSMEs generated almost 64.97 percent of the total jobs produced by all types of business establishments that year, but 5.03 percent lower than in 2001.
Lagua noted that a major hurdle getting in the way of MSMEs faster growth and development is the lack of resources and funding from the government. MSMEs are still in a problematic state given that the country’s local businesses have not yet modernized, Ang said. He added that MSMEs need to be more organized to stand out and survive the influx of private companies that are providing more convenient setups for public purchasing.
“That is the way to beat competition, it’s to fight them as one. Kaya walang nangyayari, ’yung SMEs kanya-kanya eh,” he said.
To help foster the growth and development of MSMEs in the country, the DTI created the SME Development Plan 2004-2010 and the MSME Development Plan 2011-2016 to serve as the framework for the stimulation of MSMEs and how it can contribute to the economic growth of the country.
The plans are aimed at enhancing the operations of individual MSMEs, to assist in priority industries and to improve the MSME operational environment. The plan was launched in 2004 and has since been implemented to guide the MSME sector. It is trying to increase the economic contribution of the SME sector of up to 40 percent by 2016.
Meanwhile, in the report of Rafaelita M. Aldaba, assistant secretary of Industry Development Group, titled “Asean Economic Community 2015 SME Development: Narrowing Development Gap Measure,” she stated that the Asean has also developed a plan to aid the SME sector of member-economies in terms of being effective contributors to a country’s economic standing.
The 2010-2015 Asean Strategic Action Plan for SME Development and the 2004-2009 Asean Policy Blueprint for SME Development were developed to further assist SMEs into becoming competitors in the global arena. The Asean Strategic Action Plan aims for the implementation of numerous programs for SME financing, facilitation, technology development, promotion and human-resource development, while the Asean Policy Blueprint for SME development strives for the same goals with the inclusion of the implementation of enhancing SME marketing capabilities and creating conducive policy environment.
As mentioned in Aldaba’s study, the targeted increase in the SME sector was not fully met. There were little to no change in having an effective impact on financing measures for SMEs, technological development, promotions and capacity-building.
This was due to the numerous barriers the SMEs face, which make it hard for SMEs to be internationally competitive. According to the study, it would require strong government support and close coordination between the government and the SME sector for an effective integration into the global market.
The problem also encompasses not just the lack of funds, but also the lack of access to them. Despite the mandatory allocation of 8 percent of their loans to SMEs, banks are generally hesitant to lend funds because of the high transaction cost of small loans and the lack of collaterals.
“Ang mga issue nila hindi kami maka-access sa funds. How can you access funds if you don’t even do accounting? Paano kayo papautangin ng bangko kung wala kayong libro?” Ang said.
Some SME loan-guarantee programs failed to stimulate lending to SMEs. Other nonfinancial government agencies also lack proficiency on loan evaluation, subsidized interests rates are below cost and there are some that turn problematic because of low repayment rates.
When free trade is not yet free
Lack of infrastructure, the constitutional restrictions and high cost of power are some of the factors holding foreign investors back from settling in the Philippines.
“Investors don’t like inconsistency of rules, “ Ang said.
As of the second quarter of this year, the total foreign investment approved in the country totaled to P36 billion. The combined investments committed by local and foreign firms in the first half, meanwhile, reached P58 billion, dipping 21 percent from last year’s P73.4 billion.
Free trade, according to Ang, does not pose any harm to the local economy. In fact, he sees this as an avenue for the local industries to be more competitive. The industry sector should also improve through free trade, although it failed to do so in the past years.
The creation of the Osaka Action Agenda through the 1995 Apec summit paved the way for the country to implement the Philippine Action Plan, which propelled the reduction of tariffs progressively and ensured the transparency of tariff regime, which also goes for the country’s nontariff measures.
The challenge with free trade is not the different countries circulating within the economy, but on its implementation.
“The government need not provide the solution, but provide a good environment for business,” Ang said.
A good environment should foster the culture of entrepreneurship and streamline government processes; accessible funds, trouble-free processing of papers, eradication of corruption, sustainable quality infrastructures and consistent laws and regulations. Microenterprises should also be distinguished from SMEs since the profit margins of the two segments vary.
“In a competitive environment, kung pantay-pantay ang starting point magagawa nila [iangat] ’yun,” he said.
The gradual elimination of tariff barriers on goods since the first Apec summit in 1996, is a slow but steady pace in implementing free trade. The market is first to filter the effects of the low tariff barriers, which in turn have an effect on both local and international businesses.
It was stated in the Osaka plan that by the year 2003, a two-tiered tariff structure consisting of 3 percent for raw materials/intermediate products and 10 percent for finished products will apply. To monitor whether the country is following the said guidelines, it must actively update the Apec Tariff Database with its progress.
As for nontariff measures (NTM), it was planned that for the period covering 1997 to 2020, the NTM’s that will be allowed to remain are ony those imposed for reasons of public security, health and safety.
It can also be noted that the country’s GDP growth in the year 1996 was at 5.8 percent, with 23 percent of the growth driven by the manufacturing industry, including nondurable goods and textiles, processed food and tobacco products. The Philippines had an 11.9-percent share in the GDP of Southeast Asia and 0.29 percent in the world.
Notable years that the country experienced fast GDP increments were in 2010 with a 7.6-percent growth, 10.4-percent share in the Southeast Asia and 0.31 percent in the world; and 2013, with a 7.2-percent growth, 11.1-percent share in Southeast Asia and 0.36 percent share in the whole world. In the January-to-September period this year, the country’s economy grew 5.6 percent, mostly driven by the services sector.
In a statement to the Manila Rotary club, Rodolfo C. Severino, secretary-general of the Asean from 1998 to 2002, said the Philippines has already achieved the 0-to-5 percent tariff drop on goods traded with its fellow Asean 6 countries. Still, the 5-percent tariff allowed under the Asean Trade in Goods Agreement constitutes barriers to intra-Asean trade.
In plain sight, this is a step forward when it comes to achieving the first Apec goal, which is to enhance the regional economic integration.
The Asian Development Bank (ADB) stated in a 2012 report that the “lack of industrial dynamism in the Philippines” is one of the main reasons for its stagnant economy. From 1980 to 2009 the country’s labor productivity increased by only 10 percent, while those of neighboring Indonesia, Malaysia and Thailand more than doubled.
The stumpy capacity of companies to expand or upgrade their range of industrial products being exported may be linked to the Philippines’s lagging performance. Aside from that, agricultural imports have tripled over the years, reflecting the mismanagement in what was once the top exporter of rice in the region.
The ADB then proposed to focus more on public-sector support, which emphasizes specific industries and products for industrial upgrading and diversification.
The report also recommended “effective dialogue between the public and private sectors” to identify constraints specific to the target products and to cultivate satisfactory resolutions
Human-capital development
Both Apec and Asean communities also recognize the capacity of the work force when stimulated effectively, and have made it a point to continuously invest in human-capital development. This means increasing the employment rates within economies and also providing more jobs and opportunities to the labor force that will contribute to economic development.
In the year 1996 the Philippines experienced an 8.525-percent unemployment rate. The lack of available jobs, partnered with the growing population, was one of the many hindrances the labor sector faced.
“It means that there aren’t enough quality jobs being created,” Ang said.
Existing labor-market requirements also were not met since the skills available within the population are not in line with the standards companies are looking for. The Asian Financial Crisis that happened in 1997 also worsened the unemployment rate of the country.
According to a study done by Anne Therese M. Connolly, titled “A Jobless Growth: Why is unemployment still high in the Philippines?,” the Philippines—prior to the Asian crisis—already experienced an 8.8-percent unemployment rate, and as of 2013, it has progressed minimally.
As of April 2013, 7.25 million Filipinos are still underemployed, and another 3 million are jobless. As for the third quarter of 2015, the Philippines logged an unemployment rate of 6.5 percent, a decrease from last year’s 6.7 percent. Though small, it still can be seen that the unemployment rate of the country was slightly changed. It averaged 8.82 percent from the year 1994 to 2015.
Building sustainable and resilient communities
Asean member-nations and Apec member-economies also seek to foster and build resilient and sustainable communities. A sustained economy, meaning a country that is capable of providing the needs of its population without compromising the benefits it will provide for its future generation, will function better, as it is already equipped with the tools necessary for it to function effectively.
A resilient economy, meaning a country that can bounce back after weathering a crisis or problem, will be able to address problems quickly by working with what it already has and putting into motion what it can still do.
Since the Philippines is a country frequently visited by typhoons, its government has developed plans aimed at preparing for natural disasters. A quicker response in aiding disaster-hit areas and having enough resources to answer the needs of affected areas are some of the ways that a country can become more resilient.
The reduction to damage in property, the loss of life and social and economic disruptions are what this goal is trying to achieve.
Since the 1990s to 2005, the annual damage reported from disasters and natural calamities amount to almost P20 billion, or 0.5 percent of the GDP on average. The Luzon earthquake in the 1990s resulted in P695 million in economic losses.
The Philippine government has partially addressed the challenges disasters constantly present. Besides improving its framework on how to prepare for disasters, it has also implemented a disaster-preparedness program that informs and teaches the country’s population on what to do when disasters strike.
This year a number of typhoons have visited the country, with Typhoon Lando as the last to inflict havoc. A total of 666,562 families were affected in Luzon and a total of 23,993 persons were preemptively evacuated, according to the National Disaster Risk Reduction and Management Council. A total of P104.77 million worth of assistance was provided to the victims.
The difference between the two
When asked to comment on the difference between the commitments made via the Asean and Apec, Henry J. Schumacher, vice president for external affairs at the European Chamber of Commerce of the Philippines, said: “Apec is not binding. Apec is not based on treaties with clear commitments and timelines. In contrast, Asean is binding, with commitments in all areas of the Asean integration, from the political environment to the economies, from business to the social environment.”
And because of the binding nature of the Asean community, Schumacher believes that the bloc is definitely more effective in delivering results than the Apec. Asean member-economies are more likely to act on its plans and initiatives since Asean has deadlines and expectations to meet. “Yes, they are binding, manifested in over 1,000 meetings annually to test, supervise, accomplish progress toward the integration that will commence on January 1, 2016.”
He also notes that both goals set by the two parties are works in progress, still. Though the Asean community has made changes within the communities of its member-states—gradual but sure changes—it is still evident that the member-countries still have a long way to go. Even if the Asean has achieved some of its goals, it still needs to work harder for the completion of most, if not all, of its goals. “Yes, this has happened, but we have to be realistic that the Asean economic integration remains a work in progress, as has been and still is experienced by the European integration,” Schumacher added.
Image credits: Stephanie Tumampos