Peter Angelo V. Perfecto is Executive Director of the Makati Business Club, an organization whose main aim is to foster and promote the role of the business sector in national development efforts, both in the planning and the implementation of policies. In this interview with The Worldfolio he speaks about fighting corruption and the country’s most prized resource – its people.
The Philippines is currently refocusing its energies towards deeper regional integration, partly due to recent geopolitical changes. This shift in policy has already resulted in ODA worth over $19 billion from China and Japan alone. Also FDI grew by over 40% in 2016 – China even just recently pledged another investment of $1.7bn, much of which will be used to invest in infrastructure. In fact, by 2020, 7.1% of GDP is expected to be allocated for related projects. How does this contribute to the competitiveness of Philippine export goods on a regional level and what role do PPPs play in this context? What will be the benefits in terms of the ease of doing business for risk-adverse countries such as Japan that might shy away from thick red tape and unclear policies?
It is clear that the infrastructure gaps must be addressed by bringing in more investments. In addition to that, the ease of doing business must also be ensured, ideally by entering into the special economic zones or PEZA.
Another concern that has to be mentioned in this context is regarding leftist KMUs that have begun reorganizing unions. The government will have to be very quick to act on this, probably through the National Competitiveness Council (NCC). Listening to Guillermo “Bill” Luz, the co-chairman of NCC, will do them good with regards to red tape and bureaucracy. He has all these basic guides for ease of doing business, as well as plans that cover competitiveness of cities. He has been putting effort into developing cities as an alternative for investment. This is an effort to present to investors, helping determine which are the top cities worth investing in. Thus, working with NCC would allow them to address that.
If the administration is able to deliver on infrastructure gaps, ease of doing business, creation of frameworks and an effective system, then they are sure to succeed.
One of their biggest concerns is inclusive growth. They must sustain growth and ensure that the momentum continues, especially in May of 2017. Upon achieving this, they can then build in the program that will make the growth more inclusive. Joey Concepcion is one of the top advocates of this as he is ensuring that micro and small enterprises are capable of branching out all over the country and even of competing with the rest of the ASEAN. And that is the key to inclusive growth, with sustainment of growth as the backbone.
Having established what the government has to do to push the economy, how does your Integrity Initiative Project contribute to more trust in the government, leading to an increase of FDI and, effectively, economic development?
A problem has persisted in the business community, which involved bribery and/or not paying taxes. These acts resulted in a gain in competitive advantage for a number of companies. It’s as simple as not paying VAT in oil exports, for example. They get away by smuggling in and not paying 12% VAT, which translates to a 12% margin over your competitor. This becomes a concern for companies like Shell that actually pay their taxes right and in accordance with their company ethics. So, the field becomes highly uneven because of this whole issue of corruption. It does not only exist in the government, but also in the private sector.
We felt the need to take action by promoting the Integrity Initiative which is a private led effort to get companies to sign an integrity pledge. The integrity pledge is basically a commitment to build control measures in their companies in order to ensure that ethical practice becomes a norm. It is basically a pledge to run a clean and good business. It begins at the top, and then eventually addresses fraud or corruption prone areas like sales and marketing, finance and accounting, procurement, human resources, etc. Certain standards are still being set up and being finalized. Only upon meeting these standards can companies be certified as having proper control measures and being companies of integrity. We are hoping that this certification will serve as permit for corporations before entering into partnerships or projects with another company. The government, as well, can require that certification before allowing suppliers, contractors, and companies to bid for projects or other procurement opportunities.
The whole idea is to give the private sector and the government a sort of whitelist containing certified corporations who follow the rules and more importantly, pay the right taxes. These are the companies who justly deserve advantages in procurement, government contracts, and B2B contracts, not those who resort to bribery. So, we are working very closely with the government to get them to recognize the Integrity Initiative and for certification through the integrity pledge to be a requirement especially in developing larger projects.
This is not a problem of the government alone, but also of the private sector. And we cannot just keep on ranting. We have to take action to address the corruption going on.
Several international economic monitoring bodies have been comparing the Philippines’ economic performance to the rest of the world for several years now. Looking at the past decade, a general upwards trend can be seen, nevertheless, the country seems to have lost momentum lately, especially in comparison with its neighbours. In the World Bank’s Doing Business ranking the Philippines stagnated on 99th spot while in the WEF’s Competitive Index the country fell to 57th. On a brighter side, economic freedom indicators show tremendous improvements. What are your expectations for the future and how can the country improve its performance compared to other countries within the ASEAN?
Many companies that have chosen to locate here have all attested to the fact that the strength of the Philippines is its people. Filipinos are fluent in English, hardworking, and easy to train as compared to those from other countries. Multinational companies feel that the human resource pool of the Philippines is superior. In order to live up to this, the private sector really needs to make sure that the educational system, K-12 program, On-The-Job training and internship opportunities are strengthened and expanded. This will secure the country’s competitive advantage, as far as the ASEAN is concerned. If you are looking for low power cost, that cannot be found in the Philippines because we do not subsidized power in this country.
The Filipinos, however, possess the qualities, skills, and attitude that are enough to offset the downsides of the country. We can achieve a competitive advantage if the government can adopt an effective approach to its priorities, such as making the Philippines a doorway to the ASEAN for Japan. But we need an all-around government approach. The President basically dictates the direction to go, and then there is the economic cluster working together to ensure that we realize the objectives of such a goal. It is important to identify these objectives as some of them are fairly reachable. The country’s relationship with Japan is a low hanging fruit that we must maximize on and we must take advantage of. The fact that Prime Minister Abe’s visit turned out well and that they (Mr. Abe and President Duterte) seem to have good chemistry is something to build on. We just have to keep our focus.
Your members mostly consist of large conglomerates. According to the Asian Development Bank, 99.6% of Philippine companies are MSME’s. What is the role of entrepreneurship for a modernizing economy and what are the opportunities for investment, compared to the big players?
The conglomerates, rather than the MSMEs, are the ones that have the capacity to deliver to investors what they expect. The MSMEs here in the Philippines are actually micro and are not similar to those of Japan. This is a problem that must be addressed because we need the MSMEs in order to improve our own local sourcing of services and other products. These enterprises also need to grow to an extent that would allow them to become a part of the global value chains. But before anything else, investors must work with the larger conglomerates who are the ones that have the capacity, network, and ability to deliver to them.
With regards to the whole agenda, large businesses play a role in mentoring growing businesses and in ensuring that these businesses become part of their own supply and value chains. That is the direction where they hope the effort of mentoring will lead to. When we go around Singapore, France or the United Kingdom, for example, we always advise investors to find a local partner if they want to penetrate our market. That is the best way forward. It is important to make sure that the local partner is one that is good and trustworthy because, like any other country, there are companies out there that are only profit oriented. It is safe to say, those included in the Makati Business Club roster are clearly the ones who are looking for mutually beneficial partnerships in the long-term.
Having the chance to communicate to international investors, what is it you would like them to know about the Philippines they might not be aware of yet?
The strength of the Philippines is really in its people. Foreigners will come to the Philippines because they want to maximize the strength of the people. They are fluent in English, are easily trainable, and have a positive outlook. Despite living in a disaster prone land, the Filipinos still manage to have a positive attitude, which may reflect on the quality of our workforce. That is what outsiders should look at and focus on.
When Filipinos go abroad, they turn out to be some of the best merchants, teachers, domestic helpers, construction workers, etc. In fact, looking at the history of the United States, some of the Filipinos who migrated there have become quite successful entrepreneurs and business owners.
There is a lot of noise and negatives surrounding the Philippines, and the situation may get aggravated if no investments are brought in. Investments should come in to help influence the country towards building a stronger democracy and stronger institutions. Investors should remain and aid the county in addressing the challenges that the country is currently facing. We are a young democracy, but nonetheless a determined one. We have exercised democracy for so many years; from the time we gained freedom from the Spaniards and the Americans. The activity that goes on social media can attest to the Filipinos’ penchant for freedom of speech. Because of that, all the more we need investors and partnerships with other countries where democracy and institutions are strong. We have to learn from them, but first they have to believe in the country.