Philippines Discussion Notes

4^ Another important information gap pertains to the registration of moveable collateral (chattel); often the only type of collateral available to SMEs. Currently, the Registries of Deeds’ information is not centralized, registration of chattel is often extremely time-consuming and costly, and often financial institutions cannot verify if a particular chattel has already been registered.

5^ The Global Competitiveness Report measures the quality of national business environments on the basis of 12 pillars that comprise the Global Competitiveness Index (GCI), while the World Economic Forum’s Executive Opinion Survey seeks to identify the most problematic factors for doing business. The 12 pillars refer to the quality of institutions, infrastructure, macroeconomic stability, health and primary education, higher education and training, goods market efficiency, labor market efficiency, financial market sophistication, technological readiness, market size, business sophistication, and innovation.

6^ These constraints are addressed separately in several accompanying Discussion Notes. The issues of governance are addressed in the Philippines Discussion Notes Nos. 17 and 18, the shortcomings in transport and energy infrastructure are discussed in the Philippines Discussion Notes No. 9 and 10, and the fragility of public finances as the main threat to macro-stability is addressed in the Philippines Discussion Notes No. 3, 4 and 5.

7^ A 2007 study by the International Finance Corporation (IFC) suggested that the annual unmet demand for SME loans was in the range from PHP67 billion to PHP180 billion. Bangko Sentral ng Pilipinas (Central Bank) figures show that between 2000 and 2006, in nominal terms, the total (official) lending volume to MSMEs rose only from PHP986 billion to PHP1, 228 billion, i.e., an average increase of only 3.7 percent per annum, significantly less than the rate of inflation. According to the UPS 2009 Asia Business Monitor, access to funding is the second most important factor limiting the competitiveness of the Philippines’ SMEs (67 percent of respondents, following “lack of government support”, with 74 percent).

8^ An up-to-date bankruptcy framework – the “Financial Rehabilitation and Insolvency Act” - which aims for a faster and more orderly rehabilitation or liquidation of financially distressed companies and individuals was passed before the end of the 14th session of the Congress.

9^ Aldaba (2008), Table 14, found that the average four-firm concentration ratio of the Philippine manufacturing sector (at the five-digit PSIC level) increased from 71 percent in 1988 to 81 percent by 1998, where the most concentrated sub-sectors involve the production of intermediate and capital goods. She also found, however, that the level of industry concentration was positively correlated with import penetration, but not with domestic price-cost margins. This suggests that the increased market concentration reflected a winnowing out of the less efficient firms in the face of greater competition, and was not associated with the exploitation of market power.

10^ These structural barriers refer to the presence of very high up-front investment expenditures required to enter the market, or the existence of economies of scale conducive to natural monopolies.

11^ Lack of access to credit is not among the top three constraints on the investment climate (Figure 2), nor a constraint on large enterprises, which are mostly responsible for any anti-competitive behavior in the Philippines. However, it is a constraint for medium-sized enterprises, which provide the best hope for increased market contestability in some sectors.

12^ There are a couple of exceptions to the privatization list, notably a pumped storage facility in Luzon that is under the operational control of the system operator, and NPC-owned hydro in Mindanao; for the Mindanao plants, a careful look at the mode and timing of privatization will be necessary as there is no competition in the Mindanao market as well as other political economy concerns.

13^ IPPA’s give the private contracting party the right to output of IPPs that are under contract to NPC. There are two factors that explain the use of this instrument. First, because most IPPs sell their output to NPC, WESM cannot function as a truly competitive market because too much capacity is controlled by NPC/PSALM. The fact that NPC and PSALM are owned by Government explains why it would appear that there has been little evidence of the abuse of market power in a way that would be directly harmful to customers. The other motivating factor is the desire on the part of PSALM to limit financial losses under these contracts (losses which are assured because of WESM and the surplus of generation in the current market).

14^ 1999 Metro Manila Urban Transportation Integration Study (MMUTIS), among others.

15^ 1981 Metro Cebu Land Use and Transport Study

16^ 1983 Davao City Urban Transport Cum Land Use Study

17^ Tiglao, N., June 2009, Urban Transport Development in the Philippines-Draft Final Report to the World Bank

18^ International Labour Organization, 2007, Rural Road Maintenance: Sustaining the Benefits of Improved Access

19^ Kellogg Brown & Root Pty., Ltd. in association with Transport & Traffic Planners, Inc., December 2009, Draft National Transport Plan, for the Partnership for Economic Governance and Reforms (PEGR) Reform Agenda RA 008-02: Formulating a National Transport Plan

20^ Source: International Telecommunications Union (ITU), 2008. Some market intelligence reports quote 76 million mobile subscribers.

21^ Internet user data provided by ITU (2008). Some market research indicates up to 24 million Internet users, including visitors to Internet cafes, public employees etc. The Internet subscriber data are usually considered more reliable since they are more readily measured.

22^ Delivering broadband Internet (or any telecom service) requires “backbone” or transmission, and access networks. The telecommunications industry is investing in both. For example, the Philippines is one of the few countries in the world with a competitive backbone or transmission network (PLDT and Bayantel have national fiber broadband networks, and Digitel has a fiber network in Luzon). But there is a need to encourage and incentivize fiber rollout to the uncovered provinces, and municipalities/LGUs.

23^ See World Bank Policy Options for ICT Universal Service, 2010

24^ Source: Family Income Survey, National Statistics Office, 2006

25^ Internet access pricing is somewhat complex: available options include pre- or post-paid service; unlimited/limited downloads; typical residential speeds offered may be “up to” 2 Mbps and are theoretical, depending on the number of users, developments in the network etc.

26^ World Bank Policy Options for ICT Universal Service, 2010

27^ Components of e-readiness include countries’ ICT infrastructure access & environment, investment policy, and socio-economic factors related to Internet usage – critical factors for the information economy.

28^ For a partial list of projects see National Computer Centre http://www.ncc.gov.ph/default.php?a1=16&a2=4. Further information on specific departmental projects is available on their websites.

29^ One of the issues is the status of the CICT and its conversion into a Department, the DICT. As CICT had been established by an Executive Order (EO), its status is less secure, and could more easily be revoked, compared to the status of a Government department. The pending DICT bill (Senate Bill 920) may be enacted in 2010. However, the concept of a DICT has been around since 2001 and the establishment of the CICT in 2004 was seen as an interim step to a DICT. As a result there is still uncertainty and overlap between the roles and responsibilities of the following institutions, for example: CICT, DOST, DOTC, NTC, Telof and NCC.

30^ “E-Government” may be defined as the use of ICT to improve the range and quality of public services available to businesses and citizens, and to make government more efficient, transparent and accountable.

31^ Some countries have established ICT Departments; other have assigned ICT Governance to an existing central department such as ministry of finance or treasury or public administration. The key issue is that ICT is regarded as integral to the functions of modern Governments and managed accordingly.

32^ For an analysis of institutional and governance issues related to E-Government, see “National E-Government Institutions: Functions, Models and Trends” Ch 6. Extending Reach and Increasing Impact, ICT for Development, World Bank (2009).

33^ The growth of labor productivity, however, remains constrained by increasing population pressures on cultivable land, which is a consequence, in turn, of rural demographic dynamics and the relatively low pace at which surplus labor is being reallocated from agriculture to other economic activities.

34^ Real agriculture sector growth per annum averaged 3.8 percent over 2002-2008, or significantly below the average growth in industry (4.7 percent) and services (6.3 percent).

35^ “Competitiveness” refers to the ability to produce farm goods at average costs that are comparable to those of competitors in the world markets; see Philippines Discussion Note on Improving Competitiveness.

36^ RCA indicators are a measure of relative export performance by country and industry, and are traditionally calculated as a country's share of world exports of a good divided by its share of total world exports.

37^ It is commonly assumed that the rate of labor migration from agricultural to non-agricultural activities is influenced by wage differentials, which are in turn determined by differences in marginal productivity. As labor productivity in agriculture increases, the pace of migration out of agriculture sector employment diminishes, as does the downward pressure on real wages in the least productive informal service sectors, which generally represent the first stepping stone out of agriculture sector employment.

38^ Recognizing that sector liberalization would create losers as well as winners, an Agriculture Competitiveness Enhancement Fund (ACEF) was established to help the former face inevitable adjustments. The AFMA also mandated increased funding of strategic public services, such as market development, R&D, and regulatory functions.

39^ During 2000-2005, about 60 percent of the AFMA budget was spent on rice programs (mainly investments in irrigation), even though rice accounts for only 16 percent of total agricultural value-added. Meanwhile, the structure of protection for rice and other importable crops has changed considerably since the late 1990s, with less emphasis placed on tariff protection and more on hidden subsidies. The average nominal rate of protection of rice declined steeply from an average of 53 percent in 1995-99 to 5 percent in 2005-08.^ The most important sources of hidden subsidies are now the subsidized access to land through the agrarian reform program in rice and corn areas, and underpriced irrigation services. This trend is likely to continue as pressure mounts on the Philippines to implement the Asian Free Trade Area agreements on rice, corn, and sugar.

40^ See Annex 1 of the Philippines Discussion Note No. 4 (“Closing the Gap in Public Spending”), which discusses the cost of the rice subsidization policy administered by the NFA.

41^ The Department of Trade and Industry estimates that 91 percent of the nearly one million registered firms are micro and small in size. Meanwhile the number of unregistered microenterprises is estimated to be around 4 to 5 million, mostly belonging to the poorer families in the Philippines.

42^ International food safety standards are becoming increasingly stringent for both raw and agro-processed products. One manifestation is that between 2000 and 2008 detentions and rejections of Philippines’ food imports by the European Union have increased fourfold (World Bank, 2010b).

43^ To maintain their competitive edge, Philippine producers also need to respond to structural changes in the domestic demand for agricultural products. The pace of urbanization in the country has been quite sustained (urban population is now 50 percent), which is influencing the pattern of demand for food products, as urban consumers eat more “street” food and display a marked preference for more meat products and processed foods. As quality, variety, and packaging of food products are increasingly valued by urban consumers, the food retail sector is adjusting and, with it, the procurement modalities for high value crops. With the declining importance of traditional markets and the emergence of quality and health standards as drivers of product selection, small producers face serious challenges in adapting their farms in order to maintain their competitiveness.

1^ The World Bank is supporting the development of PIPHs through the NSSHRP.

2^ Based on estimates from the Basic Education Public Expenditure Review (World Bank, forthcoming). Official estimates from DepEd’s Basic Education Information System are higher by 1 percentage point. These observations point to the urgent need to develop more reliable and consistent enrolment data to have a more accurate view of enrolment trends in the Philippines.

3^ According to a recent report from UNESCO (2010), the Philippines trails behind Tanzania and Zambia, and has fallen behind Indonesia.

4^ That would be shameful, considering that in the 1980s, the Philippines was projected to reach universal primary education by the 2000s, or much earlier than the MDG target date of 2015.

5^Basic education reform initiatives that have shown initial successes include: (i) the implementation of school-based management ; (ii) reduction of rote learning and promotion of active learning by students; (ii) the application of the National Competency-Based Teacher Standards (NCBTS) in the hiring, firing, training, promotion and deployment of teachers (including rigorous impact evaluation of NCBTS applications); (iii) implementation of a Quality Assurance and Accountability Framework (QAAF) and the institution of minimum service standards for inputs, outputs, and outcomes; (iv) building up the capacity of school heads to lead and manage teachers in the transformation of schools into highly effective learning centers; and (v) material support for the implementation of the policy on the use of the mother tongue in the early grades and the improvement of the effectiveness of multi-grade teaching. Additionally, there is a need to determine empirically teacher competencies using objective procedures. At the moment, DepED has no valid and reliable data on teacher pedagogical and subject content competencies. The teacher self-assessment procedure is purely subjective. Given that more than 80 percent of funding goes to teacher salaries, it is important to know the outcomes.

6^. Most countries today have a 6+3+3+4 education cycle; that is, six years of elementary, three years of junior secondary, three years of senior secondary, and four years of college education. As the first three years of high school in the Philippines can be regarded as equivalent to junior secondary (according to International Standard Classification of Education (ISCED), the country’s education cycle can be characterized as a 6+3+1+4 system with six years of elementary, three years of junior secondary, one year of senior secondary, and four years of college.

7^ To avoid the inefficiency of one-size-fits-all, the number years of upper secondary education required for a college degree should be allowed to vary, depending on the needs of specific tertiary education study programs. This should be determined jointly by the Higher Education Institutions and the Commission on Higher Education (CHED).

8^ The last activity could include the development and institutionalization of regular Public Expenditure Tracking Surveys (PETS).

9^ School accountability can be increased by: (i) ensuring regular parent-teacher dialogue on student progress and building the capacity of parents to take full advantage of the opportunity; (ii) establishing regular school “performance accountability meetings” between School Governing Councils and the public; (iii) widening the awareness of parents and community stakeholders regarding SBM policy and improving their capacity to assess school performance; and (iv) instituting and disseminating regular report cards on the performance of the Local School Boards for the quality of their support to schools.

10^ The Medium-Term Philippine Development Plan for Higher Education (MTPDP) 2005-2010 and the Philippines Main Education Highway: Towards a Knowledge-based Economy 2008 provide the overall government direction for the tertiary education sector. The Government’s 1992 Manual of Regulations for Private Schools, which eased the procedures for the establishment of private schools and resulted in the growth of private higher education institutions, and the tri-focalization of basic education, higher education and technical education and vocational training in 1994 deeply influence sector governance and management. The Commission on Higher Education (CHED), created under the Higher Education Act of 1994 is responsible for formulating and implementing policies, plans and programs for the development and efficient operation of the system of higher education in the Philippines.

11^ The composition of university student enrolment is as follows: 23 percent are enrolled in business administration and related fields, 18 percent in medical and related fields, 15 percent in education science and teacher training, and 13 percent in engineering and technology.

12^ Gross graduation rate is defined as the number of graduates regardless of age in a given level or program expressed as a percentage of the population at the theoretical graduation age for that level or program.

13^ Tan (2010) has noted: “a growing awareness on the part of the executive and legislative heads of the government and business and academic leaders that the country’s innovation system is very weak and seriously lags behind what all its high performing neighbors have created. They realize that this weakness partly explains the relatively poor performance of the economy especially its agriculture and manufacturing sectors.”

14^ The others are Kazakhstan, Cambodia, Korea, Peru, Azerbaijan, Chili, Tajikistan, Russia, and Oman.

15^ Accreditation criteria are defined as follows: Level 1: Granted initial accreditation for three years; Level 2: Re-accredited for 3 to 5 years; Level 3: Re-accredited and have met additional criteria involving standard of instruction and community extension and at least two of the following: research tradition, faculty development tradition, performance in licensure examinations, linkages with other schools and/or agencies, library and learning facilities.

16^ “Status and Progress Towards the MDG Targets” 2010 Update from the Joint Monitoring Programme of the World Health Organization and the UNICEF

17^ Small water districts comprise about 80 percent of the total number, mostly established for single municipalities with services extending to a few barangays rather than to the entire municipality

18^ Webster, Corpuz and Pablo, 2003

19^ Economies of aggregation refer to the benefits that firms obtain when locating near each other and include economies of scale and network effects.

20^ World Bank Urban Strategy, 2009

21^ Reshaping Economic Geography, World Development Report 2009, World Bank

22^ The City Development Strategy Program of the League of Cities has assisted over 40 cities to prepare City Development Strategies

23^ Updates as of May 2009, NSCB MDG Watch: Statistics at a glance of the Philippines' Progress based on the MDG indicators, http://www.nscb.gov.ph/stats/mdg/mdg_watch.asp

24^ NAPC & NSCB (2006) estimates are based on 1997 Family Income and Expenditure Survey.

25^ World Bank staff estimates based on 2006 FIES (NSO, 2006).

26^ World Bank staff estimates based on 2006 FIES (NSO, 2006).

27^ Based on the Review and Strengthening of the National Social Protection and Welfare Program, the government’s quick assessment of social protection programs in the Philippines, undertaken by the Development Academy of the Philippines in collaboration with the National Economic and Development Authority, Department of Social Welfare and Development, and the National Social Welfare Program.

28^ World Bank staff estimates based on 2006 Family Income and Expenditure Survey (NSO, 2006).

29^ World Bank staff estimates based on 2006 Family Income and Expenditure Survey (NSO, 2006).

30^ Not shown in Figure 3 is the total program cost of

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