Date: June 2003

In Spite of the Good Times, Investors are Still Unhappy

A new advocacy paper released by the American Chamber of Commerce in the Philippines and circulated to top government leaders serves as a further reality check for a government that is starting to believe its own hype that times have never been better. Entitled "The Roadmap to More Foreign Investment" the AMCHAM report cites the difficult business environment faced by foreign companies, the slow pace of reform and eroding competitiveness as factors that are making current investors restive and scaring away much needed new investment. Echoing many of the sentiments expressed previously by the Japanese chamber, the report reminds the government of ongoing investor concern at infrastructure bottlenecks, bureaucratic corruption and tax avoidance, antiquated labor legislation, slow pace of implementation and the ongoing problems of security.

Based on two surveys during 2002 by AmCham Philippines and the Gallup Organization of executives of American corporations operating in the Philippines, companies were asked to rate the strengths and weaknesses of the country as an investment site.

The Gallup Survey showed the country's most significant strength to be the availability of trained English-speaking personnel.

Principal concerns were widespreadcorruption, poor infrastructure, personal security, outdated laws and regulations and an unstable political system.

AmCham surveyed 17 business sectors. While the overall business climate was judged as fair, the trend of a majority of sectors was judged to be deteriorating, rather than improving.

These findings are consistent with other recent perception surveys, which show deterioration of the Philippines as an attractive site for foreign investment. Of the larger ASEAN economies, the Philippines ranks well below Malaysia, Singapore and Thailand and barely ahead of Indonesia and Vietnam. (Since 1997 all ASEAN countries have slipped considerably in global competitiveness ratings.) Eastern Europe on the other hand has risen in the world.

The Asian Development Bank (ADB) has also joined the chorus of those extolling the government to do even better. A new investment climate survey commissioned by the bank and due for release in July this year is likely to suggest diplomatically that the Philippines is not moving ahead fast enough and risks falling farther behind the rest of Asia unless it improves significantly the business environment in the country. The bank cites complex business regulations, poor infrastructure, delays in importation as well as graft and corruption as the major factors inhibiting investors.

Back in March, the ADB criticized the Philippines for underperforming in development programs sponsored by the Bank. "Overall, its performance record places the Philippines below the performance average of all ADB's borrowing member countries" it said at the time.

The Bank believes that underperformance of the Philippine program has been attributable to a number of factors ranging from frequent internal and external shocks that the economy experienced to more project-specific problems such as poor project design and project implementation bottlenecks such as a lack of counterpart funds. The ADB lending to the Philippines during 1986-2001 totaled US$5.9 billion for 86 projects. Of the 36 projects completed and post evaluated during the period, only 31% were rated generally successful against the ADB-wide average of 51%.

The full executive summary of the AMCHAM report is available online at the AMCHAM website http://www.amchamphilippines.com/pub/pubroadmap-excerpt.htm.

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