Competitiveness was measured in this year’s report in terms of Growth Competitiveness and Microeconomic Competitiveness. The Growth Competitiveness Index is the overall measure of the capacity of an economy to achieve sustained growth in terms of GDP per capita over the next five years. Three areas of the economy are taken into consideration to arrive at this index – Technology, Public Institutions, and the Macroeconomic Environment.

For the Philippines, its low rating for Public Institutions and its sharply deteriorated position in the Technology Index contributed to its overall slide in the Growth Competitiveness Index from No. 48 (out of 75) in 2001 to No. 61 (out of 80) in 2002.

The Technology Index was derived from a study of indicators in Innovation, Technology Transfer, and Information Communications Technology (ICT). The areas covered in Innovation included such topics as R&D spending, patents, and tertiary enrollment. Technology Transfer covered areas such as foreign direct investments as a source of new technology while ICT referred to school access to the internet, enforcement of ICT-related laws, mobile and fixed line telephones per capita, and number of personal computers per capita.

The Philippines rated favorably in terms of the ability of foreign direct investments to facilitate technology transfer, the prevalence of foreign technology licensing, the E-Commerce Act, and the quality of competition among internet service providers. However, the country lagged in terms of telephone lines per capita, internet hosts, personal computers per capita, internet access, and mobile phones per capita. The country also rated poorly in terms of technological sophistication, low R&D spending, technology innovation at the firm-level, low collaboration between business and universities, low tertiary enrollment, low internet access at schools, and the government’s low prioritization and success in ICT promotion.

The Public Institutions Index covered two important areas – Contracts/Law and Corruption. Contracts/Law referred to independence of the judiciary, fair bidding on public contracts, and the impact of organized crime on business. Corruption referred to the perception of bribes paid for import or export permits, connections to public utilities, or in connection with tax payments.

The Philippines received low marks in all these areas, including ranking at the bottom in terms of the perception of bribes in connection with government policymaking and next to bottom in terms of illegal political donations.
The Macroeconomic Index looked at stability, country credit ratings, and general expenditures. Stability referred to inflation rates, interest rate spreads, real exchange rates, budget surpluses, and the national savings rate while country credit ratings referred to sovereign debt ratings issued by Moody’s and Standard & Poor’s. Government expenditures were measured as a percentage of GDP.

The Philippines rated relatively well in the Macroeconomic Index, with the exception of poor performances in terms of access to credit and the deficit-to-GDP ratio.

Previously called the Current Competitiveness Index in last year’s report, the Microeconomic Index identified factors behind high productivity and economic performance measured in terms of GDP per capita. These microeconomic fundamentals explain why some countries can sustain higher levels of prosperity over others. This Index looked specifically at Company Operations and Strategy and the Quality of the National Business Environment.

For the Philippines, the foundations for microeconomic competitiveness have been eroded by the weaknesses in the Quality of the National Business Environment.

One of the foundations of company productivity rests on the level of sophistication of operations, especially as companies shift from competing on the basis of comparative advantage (e.g., low-cost labor, natural resources, etc.) to competing on competitive advantage (e.g., unique products, processes, etc.).

The Philippines has competitive advantages in terms of the prevalence of foreign technology licensing and the willingness of its managers to delegate authority to its workforce. The advantage in global markets does not rely heavily on either low-cost natural resources nor unique products and processes. The country, however, does lack sophistication in production processes, capacity for innovation, and limited distribution channels.

The quality of the national business environment is shaped by government, universities and schools, infrastructure, standard-setting agencies, other organizations, and the private sector.

A consistent edge for the Philippines has been in its quality of management and business education. In terms of overall infrastructure, however, the country has remained globally uncompetitive. Moreover, the Philippines placed eighth from the bottom in terms of costs imposed on businesses by bribes to influence government policies, laws, and regulations.