AND so it came to pass that another State of the Nation Address has been delivered. And maybe for the fourth straight year, I’ve opted not to tune in. For the very simple reason that it’s become evident to me that the State of the Nation, as seen from the banks of the Pasig River, is not the same state of the nation as I see it from the streets and sidewalks that I traverse every day.
It’s either the current and past Philippine presidents just don’t see the same country that I see, or, heck, maybe we live in two very different countries.
And then I come across a report made by a global investment banking firm, all 68 pages of it, which is an analysis of the supply chain in seven Asian economies plus China, with an eye to a shift of some manufacturing from China to elsewhere as part of the new “global trade war” that exists between China and the United States, not to mention the Russia-Ukraine conflict.
The report sought to study which of the seven economies — India, Vietnam, Thailand, Indonesia, Malaysia, Singapore, and the Philippines — would stand to gain the most if companies currently manufacturing in China decided to embrace “nearshoring” and move from the mainland to a location close by.
I wonder if the President’s speechwriters studied the bank’s report to see what items needed to be stressed in the SONA.
‘It’s either the current and past Philippine presidents just don’t see the same country that I see, or, heck, maybe we live in two very different countries.’
Anyway, not surprisingly, the top two Asian economies that the analysis suggests will most benefit from a manufacturing shift out of China are India and Vietnam. India can count on a huge population, lower manufacturing costs magnified by scale, structural reforms, and macropolitical stability as working in its favor. Negatively, it is starting from a low manufacturing base and suffers from infrastructure bottlenecks.
Vietnam, on the other hand, is favored because of its close supply chain network with China, its tremendous FDI record, and its successful production network. Working against it is its relatively small scale, infrastructure bottlenecks, and even recent issues of electricity shortage.
In contrast, Malaysia is seen as the champion when it comes to education levels and R&D spending, long-term incentives, and a well-established ecosystem that all contribute to its leadership in the semiconductor industry. Thailand is Asean’s leading auto exporter, has good infrastructure, and ranks very well in ease of doing business, but labor costs are high. Singapore suffers from costs and scale issues but ranks highly in productivity with high education and R&D levels, the highest number of Free Trade Agreements, and low tax rates. Indonesia, meanwhile, is leveraging its dominant position in commodities and intensifying its resource-based industrialization.
And the Philippines? We are blessed with a younger, lower-cost labor force. Period. On other aspects we suck.
In fact, when the economies were rated in the matter of labor costs, the Philippines was ranked second only to Vietnam in terms of competitiveness. That’s good. But that was our best score.
We were ranked fourth on economic indicators (GDP, real GDP growth, inflation, and net FDI inflows), fourth in demographics (population, manufacturing age population, and median age – where we were the best!), fourth in productivity (TFO, R&D spending and mean year of schooling). And then it got worse.
For infrastructure, we ranked seventh (only Indonesia was worse) based on the logistics performance index, domestic investment as a percentage of GDP, and manufacturing as a percentage of GDP. We ranked eighth or dead last in Trade Openness (mean tariff rate, number of FTAs, FDI restrictive index, and percentage share in world goods exports), and eighth and dead last again in Doing Business (corporate tax rate and ease of doing business).
When everything was averaged, we ranked fourth, ahead of Malaysia, Indonesia, Singapore, and Thailand. But that’s what’s wrong with averages because we were poorest where it mattered most.
Bottom line? Competitively, we are dead last. And I still have yet to hear that stated, loud and clear, in a SONA.
