Transparency leads to competitiveness

Business Matters

Transparency leads to competitiveness

By Guillermo M. Luz

Over the last year, we advocated that transparency can lead to competitiveness and that good governance is good for the economy. Our basic hypothesis is that transparency and good governance basically build trust in an economy and society. Trust creates some benefits, among them the ability to attract more responsible businesses and investors, more competitive and honest bids for public projects, lower-cost and better-quality projects, and ultimately better services and infrastructure for the public.

In the case of the Philippines, I believe we will see the effects of transparency and good governance on our infrastructure sector and on the PPP (Public-Private Partnership) projects. After a lengthy review to clean up the bidding process and after sorting through some birth pains on the PPP front which contributed to the lower-than-expected public spending and economic growth in 2011, I think we have turned the corner and should see some acceleration and more activity in both areas.

Last year, many felt impatient with the pace of reform and the low growth that has been attributed to it. Some argue that the government was overly zealous in its fight against corruption and that it had become too cautious in its moves to jump-start the economy. Others suggest that the government had become vindictive and too focused on looking at the past rather than on looking forward.

I would argue the opposite. One of the biggest charges against the country—and a reason why we have such low competitiveness rankings—has been its low regard for the rule of law and its being soft on corruption. By pursuing cases and rebuilding institutions and processes, the country sends a strong message that business will be conducted in a far more ethical manner than in the past. However, this type of reform is necessarily slow and tedious and some patience is required before results can be shown. We cannot afford to ask for better governance and, at the same time, let the past be the past and forgotten. One of the reasons we got to a bad spot in the first place is that we were too prone to forgive and forget.

Thankfully, the mood has changed and the dividend we are beginning to see from all this transparency and accountability is the trust that the administration has now earned. That trust will yield further dividends in terms of credibility and confidence which will eventually be felt in the form of investments and economic activity, but only if the transparency, accountability and good governance were maintained.

We have already seen some signs of that with government spending significantly increasing and the first PPP project successfully bid out in the fourth quarter of last year. This year, the Department of Public Works and Highways is reporting that it has conducted the bidding for most of its projects for the full year and that notices of awards have been released for roughly 70 percent of its projects. The early start ensures that the low public spending of last year is now history. Moreover, with construction ready to get into full swing before the summer starts, that should augur well for the pace of construction work before the rains set in around midyear.

A second good sign I see that transparency has brought is the number and quality of bidders signifying their interest to bid on projects. In the past, many reputable firms chose to keep away from bidding for government projects for a variety of reasons, not the least of which was the level of corruption associated with government projects. This time around, we are seeing large numbers of firms bidding for the first time. When the Department of Tourism bid out the brand project (a fairly small contract), over 30 agencies expressed an interest in the project and 12 eventually passed the first round of qualifications. This was short-listed to seven firms, with six of them participating in a government bid for the first time. When the winning pitch was finally announced, firms that lost out extended their congratulations to the winning agency. The conduct of the bid and the response of the industry were a testimony to both the trust the private sector had in the government as well as the industry’s desire to get engaged in helping the country. In the case of the PPP Center and its contract for the construction of school buildings, 17 firms have expressed interest to bid, many of them first-time bidders. With that kind of response, can eventually solving the problem of classroom shortages be at hand?

Finally, one of the most important benefits of pushing for more transparency and accountability is that it sets the benchmark for acceptable behavior not only for future administrations but for this one as well. By setting a high standard, this administration is basically challenging people to measure it against that standard. So long as it lives to that standard, it will continue to build trust among the people. That trust will eventually keep the virtuous cycle going, which brings with it greater economic benefits for the people.

Guillermo M. Luz is private sector co-chair of the National Competitiveness Council. He can be contacted at gm.luz@competitive.org.ph.