Mulcting motorists

MMDA officials soliciting donations outside
Filinvest in Alabang on 29 March 2008

Post deleted and reposted so as to enable comments

Earth hour goes unnoticed in Manila

Last Saturday evening, 29th March, people around the world were enjoined to turn off their lights for one hour, between 8 and 9 pm as a symbolic gesture to draw attention to the relationship between energy use and global warming.

With much of Manila close to sea-level one might have expected the occasion to have been taken seriously. Alas it was not to be.

As the photo of Alabang Town Centre shows, in Manila, both government and private sector alike largely ignored the event. There was no noticeable difference at all to the public lighting during the one hour period.

Employment and under-employment in the Philippines

Be careful how you read the numbers
When President Arroyo assumed office in 2001, she promised one million new jobs per year but the domestic economy has failed to produce anywhere near such numbers. And with the population of employable age swelling by more than one million annually, even a million jobs a year falls short of providing full employment. In fact the reality is much harsher. No wonder there is such emphasise on overseas employment.
According to a release last week from the National Statistics Office (NSO) quoting results of the latest quarterly Labor Force Survey, the country’s unemployment rate in January stood at 7.4 percent. This result represents a slight deterioration from the previous survey (October 2007) when the rate stood at 6.3 percent[1]. However, it represents a slight improvement when compared on a year-on-year basis. In January 2007 the unemployment rate stood at 7.8 percent. It all depends how you look at the numbers. With the end of the school year and a further influx of school leavers to the labour market, the April figures will bear close watching.
Table 1: Results from the January 2008 Labor Force Survey (LFS)
Philippines
January 2008 1/
January 2007
Total 15 years old and over (in '000)
57,389
56,145
Labor Force Participation Rate (%)
63.4
64.8
Employment Rate (%)
92.6
92.2
Unemployment Rate (%)
7.4
7.8
Underemployment Rate (%)
18.9
21.5
Notes to the table
1/ Estimates for January 2008 are preliminary and may change. 2/ Population 15 years and over is from the 2000 Census-based population projections.
According to the NSO, the unemployment rate in January translates to around 2.7 million jobless Filipinos out of the 36.4 million which the government claims to make up the labour force. But the official numbers on labour force size are based on the 2000 Census-based population projections. The baseline is now eight years old and the estimate could be wide of the mark.
Be that as it may, the official numbers tell only part of the story and could be misleading to outsiders without further clarification.
New labour market concepts introduced in 2005[2] ostensibly brought the Philippines into line with ILO standard definitions although many analysts have questioned both their applicability to developing markets generally as well as the specific manner in which these definitions have been applied—especially the concepts of “availability” and “underemployment”—in the Philippines through the survey questioning.
As we see below, the end result of applying these new concepts has been that many people previously categorised as “unemployed” or “underemployed” were removed from the labour force and the effect was an immediate reduction of around four percent in the unemployment rate.
Employment Status Concepts
“In the Labor Force” or “Economically Active Population”
· This refers to population 15 years old and over who are either employed or unemployed in accordance with the definitions described below.
Employed
· Employed persons include all those who, during the reference period are 15 years and over as of their last birthday and are reported either:
- At work. Those who do any work even for one hour during the reference period for pay or profit, or work without pay on the farm or business enterprise operated by a member of the same household related by blood, marriage or adoption; or
- With a job but not at work. Those who have a job or business but are not at work because of temporary illness/injury, vacation or other reasons. Likewise, persons who expect to report for work or to start operation of a farm or business enterprise within two weeks from the date of the enumerator’s visit, are considered employed.
Underemployed
· Underemployed persons include all employed persons who express the desire to have additional hours of work in their present job or an additional job, or to have a new job with longer working hours. Visibly underemployed persons are those who work for less than 40 hours during the reference period and want additional hours of work.
Unemployed
· Unemployed persons include all those who, during the reference period are 15 years old and over as of their last birthday who have no job/business and actively looking for work. Also considered as unemployed are persons without a job or business who are reported not looking for work because of their belief that no work was available or because of temporary illness/disability, bad weather, pending job application or waiting for job interview.
Persons Not in the Labor Force
· Persons 15 years old and over who are neither employed nor unemployed according to the definitions mentioned. Those not in the labour force are those persons who are not looking for work because of reasons such as housekeeping, schooling, etc. Examples are housewives, students, disabled or retired persons.
“Employed” covers all those who worked at least one hour during the reference period and not those who had a full-time job. It also includes people who undertook unpaid family work. The crude employment rate tells us very little about those who work in full-time paid employment.
Furthermore, labour market analysts believe that many people are now being classified as out of the labour force by the manner of the questioning as to their availability for work and that those conducting the surveys are not sufficiently probing on this aspect. As a result it is estimated that between 2 and 3 percent of those at present considered out of the labour force should really be included were definitions applied more stringently.
Returning to the present numbers, we see that as well as a slight rise in the unemployment level, the underemployment rate also rose—to 18.9 percent in January from 18.1 percent in October 2007. The NSO defines the underemployed as those who were working but who were seeking additional hours of work. If unemployment and underemployment are considered together then in January 2008 some 26.8 percent of the labour force was in need of work or additional work.
Were the pre-2005 definitions to be applied, the labour force would probably be sized at around 38 million rather than the 36.4 million given in official estimates and the unemployed would amount to around 4.4 million rather than 2.7 million as inferred from Table 1.
If this were the case then the official unemployment rate for January 2008 would jump immediately to 12 percent rather than the 7.4 percent, given in the above table. While at first sight the unemployment numbers appear to have declined in absolute terms, this is only because of the change in definition. In fact neither in unemployment nor in underemployment is any clear downward trend evident.
Definition changeFigure 1: Unemployment and underemployment

Note to the chart
The unemployment numbers dropped significantly as a result of the change of definitions in April 2005 but the total of unemployed and underemployed, while showing cyclical variation has not changed in any significant way.
The average of the quarterly unemployment rate from April 2005 to January 2008 is 7.7 percent whereas the average unemployment rate in the eight quarters preceding the definition change was 11.7 percent—a difference of four percent. Such is the influence of the changes made at that time.
Averaging employment growth over the period between January 2008 and April 2006[3], shows that in absolute terms, the local economy has been creating jobs at an annual rate of only 550,000 p.a. or a little over half what is required to keep pace with new entrants to the workforce in this country.
Quality employment lags
Perhaps of equal concern is the quality of employment offered. According to the latest Labor Force Survey, labourers and unskilled workers continue to make up the largest proportion (31.6 percent) of the total employed population. Farmers, forestry workers and fishermen registered the next largest group of workers with 18.2 percent in January 2008 against 17.6 percent in January 2007.
More than half (51.7 percent) of the total employed persons in January 2008 were wage and salary workers mostly working for private establishments (38.2 percent). Those working for the government or government corporations accounted for 7.9 percent. More than one-third of the total employed persons were own-account workers accounting for 36.1 percent with self-employed workers registering the highest share (32.3 percent of total employed). Unpaid family workers were estimated at 12.2 percent. This amounts to 4.4 million people who are considered to be in the workforce but unpaid for the work they do.
More money for education
Against this stark background, the signing into law last week of the 2008 budget and with some Php140 million earmarked for the Department of Education is a welcome sign but it is only the first step on a long road towards enhancing the skill-base of the country. State-owned colleges and universities will receive a further Php19.4 billion. Specific budget allocations to support higher learning and skills development through TESDA and the CHED were not disclosed in the statement although it has been announced that a total of Php200 billion has been allocated this year for the various agencies dealing with education.
Also in recent days the state-owned Development Bank of the Philippines has announced the creation of a Php100 million scholarship programme to provide free college education for deserving students under the DBP Endowment for Education Program. Interestingly, priority under the programme will be given firstly to those wishing to study nursing and secondly towards seamen—both career paths that will enable graduating students to find employment outside of the Philippines. This is a drop in the bucket of course and will only support some 150 to 200 students but it is a step in the right direction. Hopefully other financial institutions may come to the party with creative financing solutions to enable promising students from disadvantaged economic groups to finance their education against their future earning power. Other countries have come up with creative programmes for student loans, so models exist that could easily be adapted to the local system. Perhaps one of the major donor
Foreign Direct Investment per capita (2007 data)
Population
FDI
FDI/pc
(millions)
(Billions)
US$
1323.1
96.1
73
1110.4
20.2
18
234.7
6.3
27
27.2
6.6
243
91.1
2.3
25
4.5
29.0
6,459
66.5
10.9
164
86.0
6.1
71
Source: PBLF estimates based on EIU forecasting data for 2007
countries could assist in the setting up of such a scheme?
Given the structural nature of the problem, finding quick solutions will not be easy. But the first step is to recognize that much of it stems from the poor investment climate. As we have noted elsewhere recently[4], the level of per capita FDI flowing into the Philippines is among the lowest in Asia and certainly the lowest of those countries who wish to be considered as “emerging markets.” Using recent Economist Intelligence Unit forecasts, we estimate that in 2007 Singapore received almost $6500 per head in FDI; Malaysia, $243; Thailand, $164 while Indonesia and the Philippines received $27 and $25 respectively.
With new volatility in global markets, it will be those countries that develop their domestic economy to drive future economic growth that will prove to be the most resilient. The young population demographic of this country could be a boon if it provides the basis for domestic consumption generated within the local economy. But as it is, while almost 70 percent of GDP growth comes already from domestic consumption, the funding of that consumption is offshore. That is a kind of double jeopardy that has to change. We need quality jobs here in the Philippines and that means a significant improvement in the investment climate.
[1] Such survey’s are conducted quarterly
[2] See box next page
[3][3] Earlier comparisons would be distorted by the definition changes
[4] AIM Conference on ASEAN Charter, 12 March 2008

Commentary

Progress in national mining policy?

There is much happening in the Philippines mining industry and yet investors remain concerned that national mining policy could yet unravel. As we reported last week in this column, the prestigious Fraser Institute of Canada has again rated the Philippines high in potential but low in terms of investment desirability.

Nothing happens fast in this country. It is in the nature of the people to make changes slowly and with due consideration. This can be frustrating to Western companies used to quick reaction times or who seek to apply their experience in Africa to their mining activities in the Philippines and who are then surprised that it doesn't work. Progress has been slow, but there has been progress.

Just looking at the stories reported this week shows some of the activity underway to strengthen the underpinning of the minerals sector. For one, the listing and compliance rules of the Philippines Stock Exchange have been strengthened using the Australian model as the basis of drafting the local rules and regulations. DENR Secretary Atienza is seeking to enforce the small-scale mining regulations by restricting such activity to hand-tool operations as the law intended but which for years has been flaunted by local officials.

In many areas small-scale mining is anything but small-scale. Well funded but rarely operating to standards of international best-practice it is the owners of the small-scale mines that often have been seeking to stir up problems for international companies seeking access to their areas. As a result of their own activity environmental degradation has become rampant and has cast a pall over the entire sector but such activities rarely attract the ire of either the Church or the NGO anti-mining lobbyists for the simple reason that they are perceived of as being "local" and engaging in traditional activities. Poisoning of watersheds and rivers with mercury and other toxins is hardly a "traditional" activity but it is surprising how many people—including well-known international NGOs—are prepared to look the other way.

Of course it is all about money. Local governments control the permit system of small-scale miners and enjoy the revenue from it. Falsification of records and permits is rampant in many areas and is a major reason why the Mines and Geosciences Bureau, the national government agency with the mandate to implement and regulate the Mining Act, is unwilling to devolve too much responsibility to the local level despite calls of local officials to do so.

Small-scale mining activity is also believed to be a major factor in evasion of export taxes since export permits for ore from small-scale mines are also handled at the local level. As a result, many such shipments are undervalued and taxes evaded. China has reported that its two-way trade with the Philippines in 2007 amounted to US$30.6 billion. Yet the Philippines reports the figure at only $9.76 billion. According to the Chinese customs data, China imported US$23.1 billion of goods from the Philippines in 2007 while the Philippines recorded only $5.7 billion in exports to the PRC. Since Taiwan and Hong Kong are both separate customs territories their figures are not included. So why such a huge discrepancy?

There are many who believe that the explanation lies in the undervaluing of shipments from the Philippines to avoid export taxes and that this includes the products from mining. With China seeking to gain a major strategic foothold in the Philippines minerals industry could Chinese companies be colluding with small-scale mining interests to circumvent the Mining Act and gain access to minerals shipments at knock-down prices? The answer is that we don't know; we merely report that many people are starting to fear this may be happening. If so, then Secretary Atienza and his team may have an uphill battle on their hands.

It all comes down to money and with the failure of local governments and many communities to see much material benefit from international mining activity it is no wonder there are so many problems remaining. But these problems are starting to be addressed.

At a recent industry meeting arranged last week by PBLF (copies of the record are available to members upon request), participants were told that the MGB was working with the Bureau of Internal Revenue (BIR) on the collection side to ensure proper revenues were collected from industry and with the Department of Budget and Management (DBM) on the expenditure side to ensure the timely release of funds appropriated both in support of the industry and in terms of allocations due to local government units. Indeed, the President had ordered the early release of 2007 allocations to LGUs before the end of the first quarter of 2008 and any entitlements from earlier years would be released progressively after that. If this happens, and money starts to flow, there may be a sea-change in attitudes from many quarters since it will strengthen the resolve of the provincial leagues (League of Mayors, League of Governors, League of Municipalities and the League of Provincial Board Members) to support mining that adheres to best practice. The leagues have already given their endorsement of support for the implementation of the 1995 Mining Act but each of them still have their waverers and discontents to deal with.

The Philippines is at the very top in prospectivity with an estimated $1 trillion in reserves. As we report below, the government is looking at Php26.8 billion in revenue from mining in 2009 alone. By 2011, total investments are expected to amount to $10.47 billion.

These are impressive numbers which we duly report but there is always the caveat that so far, investments pledged are always much higher than investments actualised. This is true not just of mining but across the entire economic spectrum. The investment climate in this country leaves much to be desired.

While many within the mining and investment community are hoping for the best; they are well aware that the industry could yet unravel. In particular there is concern that the depletion of resources at the MGB will aggravate future problems and delays in the processing of licensing and permit applications as well as in compliance monitoring.

With the increased activity within the mining sector since the Supreme Court ruled in 1995 with finality on the validity of the 1995 Mining Act, the Bureau has lost 60 percent of its personnel. If not addressed, this problem could have a domino effect on the industry as already it was finding difficulty in properly fulfilling its mandate. It is literally "running on fumes" and its operations need to be put onto a much firmer footing if it is to play its part in servicing and in regulating the needs of the mining sector.

For its part, the MGB had used recent budgetary support from the World Bank to progress three key projects: geohazard mapping, the rehabilitation of abandoned mines and in a study of groundwater resources but it appears that little has been set aside for a performance audit of its key functions. How will it cope as industry expands? Not only that, but the renewed interest in mining is drawing out other stakeholders who demand—and who are entitled to—a voice in the consultative process. Failure of government to address this resource constraint will likely reduce the strong commitment given to the international mining community to mere lip service. Failure to strengthen the MGB will play directly into the hands of the small-scale mining interests and will leave investors wondering whether this has not been the intention all along?

Assessing ASEAN competitiveness and its readiness for East Asian Regionalism

An address by

Dr. Michael Clancy
Chairman and CEO, Philippine Business Leaders Forum

AIM International Conference on the Implications of the ASEAN Charter for
East Asian Integration

12^th March 2008

Sofitel Philippine Plaza, Manila

Note: This is an edited version of the address that incorporates both the text of the prepared speech as well as the figures and text contained in the supporting slide presentation.

Good morning ladies and gentlemen

"Assessing ASEAN Competitiveness and its readiness for East Asian regionalism." That is quite a topic to cover in 20 minutes or so and at best I can give you some ideas that will hopefully lead into lunchtime discussion and which will also set the scene for the topics that will be covered this afternoon. Let us start by looking at the issue of competitiveness before we look at readiness for integration.

The changing regional dynamic

"Unity in diversity" is the phrase commonly used to rally the faithful to the cause of ASEAN integration but what does it mean really? Does it, in fact, mean anything more than "non-interference" in each other's affairs?

Is the region really moving towards integration in any meaningful sense? Or rather is it being pushed by outside forces that are largely beyond its own control? With the emergence of giants on its borders, can ASEAN determine its own destiny or has that opportunity already passed? Does ASEAN want to fly in the slipstream of China—as one speaker mentioned earlier—or does it want to be flying alongside the likes of China? This is a question we will come back to later.

The promise of the ASEAN Charter is that it will provide a legal basis for economic, political and social integration—or at least "alignment" which is perhaps more meaningful a term at this stage—and create a single market of half a billion people here in Southeast Asia.

Sadly in the minds of many people, ASEAN has gained a reputation as being little more than a "talk shop," an entity that is incapable of meaningful decision-making and which, instead of becoming master of its own destiny, is being integrated by default into an East Asia that is dominated by China's economic muscle.

Greater ASEAN is often referred to as the heart of Asia Pacific. It is wedged between two of the most populous and fastest growing countries in the world—India and China. Both countries are aided by relatively low population growth rates (at least compared to the Philippines) and are rapidly improving the life of their people.

China has 1.3 billion people India has 1.1 billion while ASEAN has around 550 million. Both China and India are achieving rates of GDP growth that are the highest in the world. China's expansion has been based on global trade and an opening of its economy that of India has been much different and has relied traditionally on domestic consumption and internal capital to fuel its growth.

While ASEAN sits strategically between China and India. It is China—and East Asia—that commands most attention because of its growing importance to trade, manufacturing and the global economy.

Thanks to 30 years of unprecedented economic dynamism, China is rapidly expanding its middle class. China's per capita GDP (measured at purchasing power parity rates) is also increasing at a fast clip. By 2010 China will have caught up with Thailand and will be poised to overtake Malaysia. Aside from the special case of Singapore which is far and away the most successful country in Southeast Asia, Northeast Asia continues to pull away in terms of affluence as compared to ASEAN. Yet even with all the dynamism that China is showing, it will be nowhere near knocking at the door of developed country status any time soon. And if even China is not achieving that target, it is hard to see how the Philippines can do so. That is reality.

A report from the Economist Intelligence Unit, Foresight 2020—economic, industry and corporate trends, published in 2006 sought to gain insight into what the world would look like by the end of the next decade. That study predicted that by 2020, China would have overtaken the United States as the world's largest economy . (Again this is when measured at purchasing power parity rates; the USA would still likely be in the first spot when GDP is measured at market exchange rates.)

Interestingly although in terms of GDP per head, in 2020 China will still be well down the list. Singapore, followed by Taiwan and South Korea are expected to have the most affluent populations in Asia and would be the only ones able to lay claim to having achieved "first world status."

So if competitiveness is to be measured by growth in per capita GDP, China is far ahead of the ASEAN countries—and just about everyone else.

Competitiveness in terms of trade patterns

Table 1: Exports to the United States as a percentage of nominal GDP
	2001	2007
Malaysia	19.2	17.6
Singapore	14.1	11.9
Thailand	11.4	8.7
Philippines	12.6	6.7
Indonesia	4.8	2.9
Source: EIU estimates

Over the past decade the rise of China as a global trading giant has been nothing short of phenomenal. The table shows how ASEAN exports to the US have been falling comparatively while from Figure 3 we see how the share of exports destined for China has risen rapidly in each of the major ASEAN countries, but for the Philippines most of all.

The US economy still impacts on the region but, increasingly, China is the intermediary. Raw or intermediate products are shipped from ASEAN to China before heading for the USA, Europe and Japan.

But beyond that, as we have seen, the economies of East Asia are growing rapidly also and internally generated demand within East Asia is becoming a significant factor that cushions to an extent the ramifications of any slowdown in the US economy. Note that it will not compensate for a slackening of US demand but it will certainly mitigate it.

Figure 4 (below) gives us the bigger picture. Exports to the USA are still increasing but it is China that is driving US import growth. India hardly comes into the picture in terms of merchandise trade. It is simply not a global player.

And what about ASEAN intra-regional trade? While trade with East Asia is growing, Intra ASEAN trade is actually falling. Intra East Asian trade now accounts for around 60 percent of the regional total but intra ASEAN trade has fallen from 22.4 percent of the total in 2000 to 20.9 percent today. Vietnam and Singapore have both seen their ASEAN trade decline the most.

Only the Philippines and Thailand appear to be more dependent on intra-ASEAN trade today than they were in 2000. The decline is somewhat surprising and suggests a need for ASEAN to look at its With the rapid rise in the value of the peso against many other ASEAN currencies it will be interesting to watch to see what happens to the Philippines trade pattern over the next one or two years.

So while ASEAN talks a lot about integration—especially economic integration, we have not yet seen very much from that process to transform ASEAN to a higher and more dynamic growth path that builds and reinforces interdependence. Indeed, quite the opposite seems to be happening. It can be argued that the issues that divide ASEAN member states are possibly greater than those that unite them.

Is ASEAN becoming more competitive? The numbers here do not suggest so. In the broader global picture, ASEAN is doing better than many emerging markets but in comparison with the regional giants, and the smaller Confucian tigers, ASEAN just hasn't got its act together. And while Asia is still the dynamo of global growth and with ASEAN performing better than much of the emerging world elsewhere, were it not for the China factor, would the Region be doing anywhere near as well as it is? ASEAN is already firmly in the Chinese slipstream.

Following the money

Let us approach our look at competitiveness from another angle. How does business view the prospects of the region? One measure of this is to look at foreign investment flows. Business votes with its cheque book.

Figure 6 shows the trend in Asian FDI from 2005 projected out to 2011 as forecast by Economist Intelligence Unit. At first blush ASEAN does not look to be doing badly at all. Between 2005 and 2007 FDI flowing into China amounted to US$253.3 billion while India received a total of $44,4 billion. ASEAN as a sub-region received a total of US$151.9 billion. But let's take a moment to decouple Singapore from the equation. The result then looks quite different.

We don't have to break the numbers down too far to show the manner in which investment into Singapore skews the ASEAN data. Almost half the total net flow into ASEAN goes to one small island state.

To look at the data another way: Just computing over the past three years, China has received some $194 in FDI for each man, woman and child; Singapore received more than $15,000 per capita while the Philippines received just $74. That tells us something about regional competitiveness.

Table 2: Inwards Fixed Direct Investment in US Dollar billions
	2005	2006	2007	2008	2009	2010	2011
China	79.1	78.1	96.1	85	87.6	90.9	92.9
India	6.7	17.5	20.2	25.0	30.0	35.0	37.0
Indonesia	5.3	6.1	6.3	6.5	6.7	7.0	7.5
Malaysia	4.0	6.1	6.6	6.5	6.8	7.0	7.5
Philippines	1.9	2.3	2.3	2.4	2.4	2.3	2.4
Singapore	15.0	24.2	29.0	27.4	27.3	28.5	29.1
Thailand	9.0	10.8	10.9	10.5	9.5	9.0	9.0
Vietnam	2.0	4.0	6.1	6.8	7.5	8.5	9.3
total ASEAN - Sing	22.2	29.3	32.2	32.7	32.9	33.8	35.7
Total ASEAN	37.2	53.5	61.2	60.1	60.2	62.3	64.8
Source: EIU estimates and forecasts; December 2007

The lions share still goes to China and warnings of overheating and a potential meltdown has done very little to abate the appetite of investors for China. In 2007 an estimated $96.1 billion went into the PRC as FDI. India attracted $20 billion in that year while ASEAN did very well at around 60 billion. Singapore took almost half of the total at $27.4 billion. Even Thailand, emerging from a political crisis managed to pull in $11 billion while the Philippines managed to get barely $2 billion—or around 1 percent of the total flowing into East Asia.

China is now the world leader among emerging markets for fixed investment as shown by figure 9 which estimates gross fixed investment as a proportion of GDP using 2006 data. The Philippines is playing catch up not just to China but to the rest of ASEAN—at least insofar as those members of the group that the Philippines most closely seeks to emulate. Investment competitiveness around the region shows wide disparities but the sad fact of life is that the Philippines is bringing up the rear.

Much more needs to be done to improve the investment climate in this country. Loans—even loans on concessional terms—are no match for bricks and mortar investment. Concessional loans may be a cheap alternative (according to one participant) but whether they be from China, Japan or Australia for that matter, they usually come on terms that give the recipient little control over the implementing agency which is usually specified by the donor.

Really, and as problems over the ZTE deal have shown, Build-Operate-Transfer schemes generally deliver a much better cost-benefit ratio than loans. For one in a BOT scheme, hard cash—private sector cash—is put into bricks and mortar that is truly fixed investment. And if the builder has to operate the facility in order to get a return on the investment there is a very strong incentive to build a project that will stand the test of time.

If figures recently quoted in the press are true, that the Philippines is already indebted to China for around $8 billion then that represents an obligation of around $100 for every man, woman and child in the Philippines.

My final slide in this section (reproduced as figure 10) shows the manner in which foreign exchange reserves have changed over the past ten years. This phenomenon is what The Economist called recently the "invasion of the sovereign wealth funds. This is perhaps the most telling slide of all. It takes us back to the Golden Rule—"He who has the gold makes the rules."

With around $1.5 trillion in reserves it is no wonder that China is flexing its muscle and using its new found wealth to advantage. No nation on Earth thinks more strategically or negotiates more adroitly than China but that does not mean that ASEAN countries—the Philippines in particular, should not strengthen their hand in terms of coming to terms with China. Sadly we see very little by way of strategic thinking from ASEAN at the present time.

So what does it all mean?

ASEAN was inaugurated originally on 8^th August 1967 in Bangkok. This year it is already forty years old. China this year celebrates 30 year's of Deng Xiaoping's economic reform programme. Which of the two has made the most progress?

While ASEAN still talks about integration and reform, China has got on and done it.

This brings me to my final point. Whether or not ASEAN now develops its Charter and its priority integration areas is largely irrelevant. China has a carefully planned programme of strategic investments that allow it increasingly to call the shots. While ASEAN wrings its hands over whether to allow further foreign direct investment, China has gone ahead and done it.

The trade and investment pictures tell the story. Most ASEAN businesses are not looking at each other except as competitors. Tariffs may have gone down but the non tariff barriers are still there.

Regional integration has been an underperformer because it has failed to produce a cohesive single market and shows little signs of doing so even now. With 550 billion people ASEAN could be a force to be reckoned with. And growth in the future has to come more and more from domestic consumption rather than reliance on export led growth drivers. It is those countries that show strong domestic demand that will weather the vagaries of global fluctuations the best.

And here again, the Philippines is extremely vulnerable. I believe around 70 percent of GDP growth now comes from domestic consumption. But this consumption is artificially skewed by remittances and as such is vulnerable to the vagaries of the global cycle. Take remittances out of the equation and domestic consumption would just about collapse. To build a Philippines that is genuinely strong, we need jobs and wealth generated within the domestic economy and that means foreign direct investment and not more foreign indebtedness. I don't see any other solution that would lift the Philippines out of the bind that it is now in.

Ladies and Gentlemen, Regionalism is a fact of life already but ASEAN is not in the driver's seat. My prediction is that unless there are some rapid changes and genuine leadership, ASEAN will likely be a permanent appendage to the Chinese juggernaut, a supplier of components and raw materials but unable to influence the terms of its engagement in any meaningful way.

It need not be like that. But, outside of one country, ASEAN leaders have so far failed to show the kind of leadership necessary to make the rest of the world sit up and take note. And for that, one only has to look at the investment flows. The ASEAN region is not yet ready for integration of itself so how can it be ready for integration into a wider grouping? "Absorption" maybe, but that is not the same thing.

But the Philippines can take the lead in a manner that would improve its international competiveness. Leaving aside the so-called ASEAN priority integration areas which appear good on paper but which seem beset still with problems posed by those non-tariff trade barriers we spoke about earlier—even after the formal barriers have been removed—my personal view is that the Philippines should emphasise and work towards the following:

• Governance
  

  Problems of governance are the most pressing of all. Nobody underestimates the problems of bringing corruption and rent-seeking behaviour to heel but equally it has to be recognised that it is the biggest single deterrent to long-term foreign investment. It simply has to be addressed.
  

• Reform of the Labor Code
  

  After corruption, dealing with the complexities of the Labor Code appear to be a major disincentive to foreign investors coming to the Philippines. I recognise the complexities of labour market reform in the context of a democratic society. But surely some harmonisation of codes throughout ASEAN would provide suitable cover for the Philippines to look at how the world has changed and to introduce labour market reforms that—ASEAN-wide—conformed to global best practice.
  

• Logistics
  

  I am told it costs more to ship a 40' container from Manila to Cebu than it does from Manila to Hong Kong. Transport and logistics charges are a major impediment to cost-competiveness throughout the region. If logistics can be made more efficient, perhaps regional trade would prosper to a greater extent than it has so far. As an archipelagic economy, this is no more than self-interest.
  

• Education
  

  ASEAN—the Philippines in particular—could be Asia's education hub. But foreign investment into the education sector needs to be liberalised and fast. It will reap domestic benefit. It will reap foreign exchange benefit.
  

• Agricultural collateralisation
  

  East Asia built its prosperity—in Taiwan and Korea anyway (two countries in which I have previously lived and worked)—on the basis of land reform that enabled farmers and rural dwellers to borrow against their land value. This created cottage industries and then wide-scale industrialisation. While in both countries for many years, politics was the preserve of the elite, that elite allowed the masa to grow rich through the sweat of their labour. In the Philippines sadly, the elite appears to want both the politics and the economy to itself. Yet, people in this country are hard-working and industrious. Give them the means to prosper and watch this country take off big time.
  

Neither the Philippines nor ASEAN as a whole need be swept along by events. But it will take leadership to change the paradigm.

There is much I have left out and much I am sure you could take issue with. But in the time available I hope I have done two things. In the short-term there is some food for thought to go with the lunch being served and in the longer-term some benchmarks against which we can judge progress the next time we meet.

Thank you and good morning.