US state dep’t report: RP losing edge in English

August 09, 2007
Updated 03:52:39 (Mla time)
Cynthia Balana
Inquirer

MANILA, Philippines -- English language proficiency, while still better than in other Southeast Asian nations, is declining in the Philippines, according to a US state department report.

In its “2007 Investment Climate Statement—The Philippines,” the US Department of State said the Philippines needed to restore the comparative advantages it once enjoyed to attract more investments and support higher growth.

The report said high levels of corruption, efforts to reform the judicial system, weak but improving protection of intellectual property rights, slow pace of energy sector privatization, need for further fiscal reforms to boost depressed spending levels for infrastructure and social services, and political uncertainties were dampening investor interest.

“Investment Climate Statements,” prepared by the US Department of State’s Bureau of Economic and Business Affairs annually, provide a thorough description of the overseas environments in which US investors must operate.

The statements cover general characteristics, such as openness to and treatment of foreign investment, details of procedures for licensing, and similar administrative matters.

The statements are updated each year as Chapter 7 in the Country Commercial Guides, a series issued by the US Department of Commerce.

Lack of transparency

On the Philippines, the report said regulatory inconsistency and lack of transparency persisted in many sectors while the regulatory authority remained weak or ambiguous.

“Foreign business representatives often cite corruption as a serious impediment to investment. Commercial disputes are often difficult to resolve quickly or satisfactorily in the understaffed and complex judicial system,” the report said.

In addition, the Philippines has not adequately addressed other key issues like inadequate public infrastructure and potential electric power shortfalls, it said.

Sanctity of contracts

Questions over the general sanctity of contracts in the Philippines have clouded the investment climate, according to the report.

“Investment disputes are infrequent, but when they occur it can take years for parties to reach settlement. Several disputes have concerned water rights, both for use in manufacturing and in power generation,” it also said.

Trade infrastructure, including Bureau of Customs operations, inter-island shipping and port facilities outside of Manila, urgently needs attention, according to the report.

It said infrastructure spending remained subject to corrupt practices in allocation, procurement, contracting, and implementation, with a significant portion of the budget wasted.

Also, a number of Philippine government actions in recent years have raised questions about the sanctity of contracts and clouded the investment climate, the report said.

Recent high-profile cases include the government-initiated review of contracts with power producers, and court decisions voiding allegedly tainted build-operate-transfer agreements and challenging the extent of foreign participation in mining.

The report said that government fiscal conditions, helped recently by new revenue legislation, seemed nonetheless to be improving and that the general economic outlook for 2007 was cautiously optimistic.

Due to persistent fiscal constraints stemming from the country’s high level of debt and persistent tax leakage, the country has consistently under-invested in infrastructure important to both domestic and foreign investors, such as roads and railroads, utilities, healthcare and education, the report said.

High cost of electricity

Foreign investors cite relatively high energy costs in the Philippines compared with neighboring countries, and the potential for power shortages in the midterm, as areas of concern.

On the brighter side, the report lauded the Philippines for taking these challenges seriously, saying the government is liberalizing the power sector through the sale of assets and is supporting alternative energy sources to reduce dependence on imported fuels.

Despite these problems, many foreign investors maintain long-term commitments to the Philippine market and have prospered, the report noted.

“The Philippines is often receptive to suggestions and criticisms from the private sector,” it said.

“Philippine observers will watch closely the government’s ability to sustain revenue expansion and boost capital expenditures after years of extremely tight budgets,” the report said.