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Momentum
By Michael Alan Hamlin
June 11, 2001
When Secretary Manuel A. Roxas II addressed the Management
Association of the Philippines (MAP) last week, he told his audience
that he would be addressing them as leaders, rather than managers.
"We all know that the difference between managers and leaders
is that managers do things right," he explained, "and
leaders do the right things." In Mr. Roxas' view, what ails
the Philippines has little to do with doing or even having the right
things. Rather, it's with the right people doing the right things.
In support of his argument, Mr. Roxas first talked
about the things that are right with the Philippines. "There
are three drivers of Philippine growth," he explained. "The
first of these is our stable macroeconomic fundamentals." He
believes those fundamentals are stable largely on the basis of strong
export performance, which has doubled to almost US$40 billion in
the last five years, reflecting a substantial change in the structure
of the country's output.
Over the last 25 years, exports have shifted from substantially
agricultural exports to manufactured exports, especially in the
garment and electronics sectors, signaling increased, at least somewhat,
value added, which Mr. Roxas says is up to about 35 percent. While
that's still relatively low, the former investment banker says that
value added is growing as a result of the Philippines' new image
as a site for design and development.
However, Mr. Roxas acknowledges the very significant
challenges associated with growing investment, which has failed
to recover to even pre-crisis levels, traditionally the lowest in
Southeast Asia. "China is vacuuming foreign investment,"
he says, due to its large domestic market, plentiful and low-cost
labor, and other benefits associated with its expected entry into
the World Trade Organization. Mr. Roxas believes the only way for
the Philippines and Southeast Asia to effectively compete with China
is to strengthen cooperation among the signatories to the Asia Free
Trade Agreement. A true free trade economic zone, perhaps with a
single currency, will provide a market comparable to China's, Mr.
Roxas argues.
Of course, the Philippines has some problems that eclipse
the macroeconomic fundamentals Mr. Roxas points to as an indicator
of the country's attractiveness to investors. First of course is
the deficit, which ballooned under the former administration, which
also boasted of sound economic fundamentals. Second, is the sorry
state of the Philippine Stock Exchange, and international portfolio
investment. While a small net inflow appears to have been realized
in May, the first five months reportedly saw close to US$40 million
- a paltry but painful sum given the mini-size of the market - flow
out of the country.
Still, things would certainly be worse if the country's
macroeconomic fundamentals weren't in line with international analysts'
expectations, although it's hard to estimate how much worse, considering.
As Mr. Roxas himself suggests, investors who find the Philippines
attractive do so despite economic and political fundamentals. Specifically,
he cites Intel CEO Craig Barrett, who will be returning to the Philippines
for a visit again this year. Mr. Roxas says Mr. Barrett recently
told him that Intel has remained and regularly increased its investment
in the Philippines for the better part of a quarter century, despite
the ups, and mostly downs. The reason? That's Mr. Roxas' third driver
of economic development.
But let's consider the second driver of development
first, and it is democracy. Despite widespread criticism from the
international community of People Power II and the assumption of
Gloria Macapagal-Arroyo to the presidency, Mr. Roxas believes the
Philippines' democratic tradition distinguishes the country from
its competitors. "We've had four peaceful transfers of power,"
he told the MAP audience. "That's better than our neighbors."
He believes that Filipinos' emotional embrace of democracy
translates into better government. And specifically for MAP members,
government that is pro-business, and supportive. Mr. Roxas cites
the low tariffs on imports, which in theory at least provide competitive
advantage to local exporters compared to other regional competitors.
Of course, those low tariffs have gotten traditional manufacturers
who exploit the local market bellyaching, but that's obviously good
for consumers.
The third driver of economic development, and arguably
the most important, is Filipinos themselves, according to Mr. Roxas.
"Foreign investors are increasingly consolidating their development
centers in the Philippines because of our large pool of talented,
English-speaking engineers and other knowledge workers," he
says. Aside from Intel, Mr. Roxas notes that Toshiba, Epson, and
Lexmark are among the companies that have continued to make significant
investments in the Philippines, largely on the basis of the quality
of the workforce.
In this column, we've previously noted another example, NEC, whose
Cebu technology center is developing highly sophisticated, original
communications technologies for global telecom providers. To return
briefly to our discussion of value added, this kind of work is about
as value added as value added gets.
But while drivers of growth are fundamentally important,
Mr. Roxas believes that the Philippines won't reach its potential
if its leaders don't lead. "People are pessimistic," he
says, as a result of recent events, including the impeachment of
former president Joseph Estrada, the May 1 siege of Malacañang,
the bloody campaign period and the level of cheating during the
just-concluded election, and the increased incidence of kidnapping,
including the most recent Abu Sayyaf folly.
"We must keep our eye on the ball," he says,
and the ball is the imperative of inspiring development, instead
of just waiting for it to come. It's doing the right thing.
(Mr. Hamlin is managing director of the consultancy
TeamAsia and the author of two books on Asian economies and managing
in Asia. His latest book is The New Asian Corporation: Managing
for the Future in Post-Crisis Asia. His e-mail address is mahamlin@teamasia.com.ph.)
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