Get real
Philippine Daily Inquirer, 7 July 2012


It seems that the Philippines is on a roll. First came a GDP growth rate of 6.4 percent for the first quarter, then the SWS May hunger (self-rated) survey results which showed a 5.4-percent decrease in the percentage of families who experienced hunger in the past three months, followed by a credit rating upgrade (one notch) by Standard and Poor’s (S&P). That’s not all: the June Consumer Price Index shows continuing price stability, and at the same time, the April Labor Force Survey shows that not only were more than 1 million new jobs created between April 2011 and April 2012, but the quality of employment—as indicated by the share of wage and salaried workers in the employed labor force—also improved.

Pretty good. And even if we discount the hunger results, except for the balance of Luzon outside the National Capital Region (because given the margins of error, the difference between the March and May figures for the other areas in the Philippines is actually not significantly different from zero), and we take the credit ratings with a grain of salt (the three major credit rating agencies were blind-sided by the global financial crisis and are not exactly credible), the three remaining good-news items are in themselves quite substantive.

So we can safely give P-Noy (and his bosses, us) a pat on the back for the nonce, although final judgment on how he is fulfilling his social contract with the Filipino people at the two-year benchmark is still forthcoming.

At the same time, however, the just-released UN Conference on Trade and Development (Unctad) World Investment Report (WIR) should give us cause to worry, although it also points at the direction we have to take if we want to improve. The cause to worry arises because of what the Unctad’s Foreign Direct Investment (FDI) Attraction, Potential and Contribution Indices tell us. These indices (the FDI Contribution Index is new) are designed as tools to help policymakers assess the effectiveness of their investment policies, particularly because it allows countries to compare themselves with other countries.

The Inward FDI Attraction Index, for example, ranks countries by the FDI they receive in absolute terms and relative to their economic size. The Inward FDI Potential Index captures four key economic determinants of the attractiveness of an economy for foreign direct investors—the attractiveness of the market (for market-seeking FDI), the availability of low-cost labor and skills (to capture efficiency-seeking FDI), the presence of natural resources (resource-seeking FDI), and the presence of FDI-enabling infrastructure.

Well, what does the 2012 WIR tell us? That the Philippines is in the bottom 25 percent (4th quartile) of the 180 economies measured in so far as attractiveness is concerned, although it is in the top half (2nd quartile) of countries with regard to potential. Not surprisingly, the 2012 WIR finds that we are performing “below expectations.” Take note please, policymakers.

And there is worse to come.

Unctad now has what it calls the Inward FDI Contribution Index, which “aims to measure the development impact of FDI in the host economy.” How is this done, at least in this initial pass? By looking at their contribution to GDP, employment, wages and salaries, exports, R&D expenditures, capital formation and tax payments as a share of the host country totals  (for example, the employment they create as a percentage of total employment).

Only 79 countries had the required minimum data for this first pass, the Philippines being one of them, and they were ranked accordingly.

The results? Of the 79 countries ranked, Hungary was No. 1—which means to say that the contribution of its inward FDI to its development (as specified above) was the greatest among the countries ranked. Malaysia was No. 7, Singapore No. 13, Thailand No. 16, Indonesia No. 45.  And where were we? The Philippines was No. 60.

Misery loves company, so the good news is that we were just behind China, just ahead of India, and ahead of the likes of the United States, Japan, and South Korea and Taiwan. Translation: The FDI coming into the country contributed less to our country’s development than those coming into the countries ahead of us. Either we weren’t picky enough, or we weren’t lucky enough. But we were better off than the 19 other countries ranking below us, including those mentioned above. They were less picky, or they were less lucky.

Not only that. It turns out that we are in the bottom quartile of countries not only with respect to the contribution that FDI has made to their development, but also in terms of the share of the FDI inward stock (as distinguished from yearly flows) to GDP, which in a way helps explain why the contributions of FDI to development are small.

Bottom line: The Philippines is among the least attractive of countries to inflows of FDI, and the FDI it attracts contributes the least (relative to other countries) to our development. Obviously, the Philippines would be well-advised to review its current investment policy framework, and study the “Investment Policy Framework for Sustainable Development” that is the core of the Unctad Report.

And if anyone thinks that mining is the answer, think again. Chile and Saudi Arabia, two of the largest hosts to FDI in mining, are in the bottom half and quartile, respectively, in the Contribution Index, performing “below expectations.”