Interview: Miguel Varela
What reforms can boost capital flows into the country and increase foreign direct investment (FDI)?
MIGUEL VARELA: The country’s recent receipt of investment grade status from all three major credit rating agencies speaks greatly of the reforms initiated by the government. However, to ensure a sustainable flow of FDI, a combination of institutional policy and administrative reforms are needed to attract long-term investments and promote expansion of existing developments.
By way of policy interventions, the government must look into ensuring that the country’s regulatory environment is open and conducive to business. This entails setting attractive incentive packages that involve, among other things, non-tangibles such as streamlined processes and turnaround times for registering a business, as well as more effective dealings at the local level.
Our support to investors should also include efficient infrastructure, adequate materials sourcing, skills matching and market development. In short, the approach has to be integrated, as investors look for quality assurance and a cost-effective regulatory environment that encourages businesses to grow.
Once we have developed a conducive environment for attracting investments, we need to ensure consistency in our policies so that we can benefit from business expansion. This includes ensuring that the costs of doing business are aptly reduced, such as power and utilities, labour, taxes, permits and licensing, and trade facilitation, among others. We must also develop a healthy environment for competition to allow the integration of sectors and the participation of micro, small and medium-sized enterprises (MSMEs).
How can growth of MSMEs be nurtured?
VARELA: MSMEs are the lifeblood of the Philippine economy. As of 2011, there were approximately 830,000 business enterprises in the Philippines, with 99.6% of these classified as MSMEs. Most enterprises in the Philippines operate within wholesale and retail trade, repair of motor vehicles, manufacturing, business, health and social services, professional scientific and technical services, education, arts and recreation industries. This means that MSMEs may support any given sector and any other form of enterprise, particularly the supply chains of large enterprises.
Thus, MSME development should be undertaken in the context of competitiveness; we should develop the ability of our locally-grown industries to produce products that can be accepted globally. Doing this requires a combination of the following: ensuring a pro-business regulatory environment; lowering costs for doing business; improving bankability and boosting access to available credit; creating incentives to innovate, internationalise and participate in global supply chains; and supporting entrepreneurship networks that provide advice, linkages and infrastructure.
How will local businesses be affected by the upcoming ASEAN economic integration?
VARELA: ASEAN integration complements the government’s thrusts to open and strengthen the country’s foothold in the Asian market. While it puts pressure to enhance the competitiveness and productivity of our local industries due to stiffer competition from foreign counterparts, the integration process still brings opportunities for businesses. Exporters and importers benefit from low tariff rates, harmonised standards and the reduction of administrative, political and economic costs, as they will now be dealing with a market that promotes the free flow of goods, services and people.
Nearly 99% of products traded within the region are currently trading at tariff levels of 0-5%. This allows manufacturers to access new sources of cheaper raw materials from outside their territories. By taking advantage of these lower costs, businesses are able to more easily move up the value chain, generating investments and creating new employment. Domestic consumers are also major beneficiaries of the ASEAN economic integration, as they can now enjoy the option of choosing from a larger variety of products, both imported and local.
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