The Philippines has to liberalize its services sector and grow the capacity of its small and medium enterprises (SMEs) if it intends to sustain its productivity growth, a World Bank report said.
In a report titled “A Resurgent East Asia: Navigating A Changing World,” the World Bank said it is necessary for East Asian economies, including the Philippines, to adapt to the changes in global economy to sustain productivity growth. This, as they seek to transition high-income ranks from medium income.
“Labor productivity and human capital levels in developing East Asian countries still lag behind the levels of…countries like Chile and Republic of Korea [which they have] achieved at the time [they have] reached high-income status,” the report read.
“Moreover, much of developing East Asia has also seen productivity growth slow recently, and like advanced and emerging economies elsewhere, these countries must now find ways of reactivating it in the face of a changing global, regional and domestic environment,” it added.
It argued that the Philippines had acceded to the World Trade Organization (WTO) earlier than Cambodia, China and Vietnam, but its services sector remained restrictive.
“In the Association of Southeast Asian Nations-4 economies that had acceded to the WTO in the 1990s [Indonesia, Malaysia, the Philippines and Thailand], the openness of the services sector, while higher at the turn of the century, has remained relatively unchanged since,” the report read.
“The types of policies that result in the restrictiveness of service sector policies across East Asia are also striking. The problem stems mainly from restrictions on entry, ownership and operations within various subsectors rather than the presence of public sector monopolies or the complete closing of services markets,” it added.
The World Bank report claimed the playing field in East Asia is tilted against foreign providers because of the opaqueness and discretion that is prevalent in the allocation of licenses. This is reportedly accentuated in many economies by lack of accountability because regulators do not have to provide a rationale for rejecting license applications.
The report also urged developing East Asian economies to address its uneven access to finance.
“Domestic capital markets have grown in complexity and depth across much of developing East Asia, particularly since the Asian financial crisis. However, access to them, and to finance more generally, has continued to be restricted only to the largest firms,” the report read.
“For equity markets, the median issuing firm has assets about three times that of median nonissuer. For bond markets, the gap is even larger, with the median issuer about seven times larger in terms of assets than the median nonissuer. Thus, SMEs still cannot take full advantage of the deepening of capital markets,” it added.
The World Bank said this is especially alarming for countries like the Philippines. “Because SMEs remain important contributors to employment and output in most of these economies, finding ways of fostering their productivity growth remains important,” the report read.
The world’s largest lender said Philippine SMEs account for about 66 percent of total sales and employ 37 percent of the country’s labor force.