"The only variable we face today is whether our next President will continue the path of good governance or take us back to the era of corruption and incompetence. Our fate can go either way. At the end of the day, the deciding factor will be the people’s ballots in 2016."
My comment:
I agree with the above observation . . .
But therein lies the weakness of the Presidential Form of government. This kind of worry of leadership is not much an issue under the Parliamentary Form as the mechanism to easily change incompetent leadership is there . . . Unlike in the Presidential form where all it takes are pork barrel, distorted legalities, etc. to hold on to power"
Read the fully story at the Manila Bulletin
The story . . .
Three stages to economic supremacy
September 22, 2013
Ok, so the economy posted three consecutive semesters of high growth, peaking at 7.6 percent in the first half of this year. With growth like this, the public should be jubilant and bursting with optimism, right? Well, not exactly. Unfortunately, many still question whether this growth is indeed by design, or perhaps just a timely coincidence given the pump-priming effects of the mid-term national elections. Some question whether growth at these levels can really be sustained. As we all know too well, the country has fallen victim to boom-and-bust cycles many times before, with spurts of growth being driven by domestic consumption rather than solid investments in industry. It’s the same scenario today.
One can’t blame the public for their skepticism. After all, we get mixed signals about the economy everyday. On one hand, we hear about our tourism, BPO and creative industries posting double-digit growth, while the agricultural sector seems to be in a permanent state of flux. We hear about OFW remittances breaking its own record every year, while the national poverty rate has hardly changed since 2006. We hear about the strong comeback of the manufacturing sector, only to be bellied by a .4 percent rise in unemployment, which now stands at 7.5 percent. We hear about the nation making significant gains in its competitiveness, yet exports continue to lose ground. We hear about massive spending on infrastructure but are painfully aware of the train wreck that is the DOTC, which can’t get a single big-ticket item off the ground, and the PPP Center, who has only bid three of 42 projects in its pipeline. And the most lamentable irony of all is that despite gaining investment grade status from Fitch and Standard and Poor’s, our share of foreign direct investments remains but a tenth of Indonesia’s—even posting a 2.8 percent decline for the first four months of the year. The paradoxes are undeniable.
A few weeks ago, I invited Rene Almendras, Secretary of the Presidential Management Staff, to sit down with me to provide rhyme and reason to these paradoxes. Despite a schedule packed solid from 8 a.m. to 10 p.m., the good Secretary made time to chat with me—a gesture telling of his generosity. Over breakfast, we spoke about the economy and Malacañang’s inner workings on it.
As we began our talk, the Secretary dispelled the notion that the substantive growth we enjoy today is coincidental or one that “just so happened” on the back of strong OFW remittances and election spending. Sure, 70 percent of the economy is still driven by consumption, but all this is by design. Our economic planners purposely set out to build domestic consumption to a critical mass right from the get-go. It is the first of a series of stages in a grand strategy to achieve high, inclusive growth over successive years.
Stage 1: Build Consumerism
According to Secretary Almendras, consumption was propped up by embarking on a massive spending program that included fresh investments in infrastructure, social services (e.g. education, healthcare, housing, and the like) and conditional cash transfers to the marginalized. All these fired up consumer spending from the grassroots, a move that continues to ripple through the economy. So successful were the efforts that the economy would have grown by over eight percent in the second quarter if not for the drag in agriculture. Pump-priming started as early as 2011 after plugging the loopholes that made the bureaucracy prone to graft.
The strategy bode well for the country on many levels. Heightened consumer spending sparked a demand for locally-made products, causing a revival of our manufacturing sector. This is why our garment, furniture and food manufacturers are back on expansion mode after years of contraction. Consumerism also caused our real estate sector to become one of the most explosive in the region.
But the most meaningful benefit of government’s strategy is that it insulated the economy from the global recession brought about by financial woes of the EU. While countries that used to grow at a fast rate like Thailand, Malaysia and Singapore began to decelerate due to global slowdown, the Philippines displayed an ability to withstand external shocks, thanks to its strong economic activities from within. It is precisely for this reason that China is trying hard to turn its economy to one that is less dependent on exports to one more akin to ours.
Stage 2: Rebalancing with FDIs
Let’s face it—a consumer-driven economy has its benefits, but it won’t be enough to fuel high growth through the next decade. This is where the second stage of the government’s strategy comes into play, says the Secretary. This is where we’re at today.
We need to widen our industrial base, produce more, and export more in order to sustain our growth trajectory. This calls for a rebalancing of the economy from one that’s weighed heavily on consumer spending to one that’s investment-driven and industrialized.
Propping up consumption was a necessary first step to make the country more attractive to investors. Having a base demand for goods and services makes a compelling case for foreign firms to establish factories, plants and trading posts in the country. It justifies their setting up shop in our shores. On the other hand, government spending on basic and higher education, healthcare, and even conditional cash transfers (because it brings our marginalized youth back into the classrooms) prepares our workforce to absorb the deluge of investments when it comes.
The strategy is beginning to bear fruit. For the past three quarters, capital formation has grown faster than household consumption, indicating that local businesses are beginning to boost their production capacities to catch up with demand. In fact, the industrial sector’s double-digit growth of 10.6 percent outpaced the service sector’s growth of 7.1 percent for the first time in recent memory. This only means that the economy is churning out more locally manufactured products.
But the lion’s share of investments still comes from local sources. Foreign direct investments (FDIs) still elude us. In the first quarter of the year, records show that our net FDI contracted by 8.5 percent to only $1.3 billion. When viewed in the context of our neighbors in ASEAN, ours is but a drop in the bucket. Indonesia got $6.7 billion and Vietnam $4.48 billion in the first quarter alone. Last March, the Philippines even registered a $78 million net outflow of FDIs. Meaning, foreigners brought more money out than they put in.
Despite our dismal FDI numbers, Secretary Almendras is convinced that foreign investors will soon find their way to the country. For one, our market of nearly a hundred million consumers is too significant to ignore. The economic environment is now more stable than most in the region, given its healthy foreign reserves of $87 billion, continuous balance of payments, surpluses and budget deficits hovering at just two to three percent of GDP. But more significantly, the country will approach its demographic sweet spot by 2015—a scenario where more than half the population will be in their prime working age. The country’s median age will be 23.3 in 2015, up to just 32.5 by 2050. This gives investors fresh pickings for hiring and a new wave of potential customers for their products.
Sure, certain issues still work against us, the Secretary concedes, but government is working hard to address them. Our level of competitiveness is one area that has shown great improvement. From being the 85th most (un)competitive economy in 2010, we have advanced 26 places to number 59 this year, according to the World Economic Forum. As for our expensive electric power, government is trying to offset this through fiscal incentives, higher productivity of workforce, and the like. But of all deterrents, the most pervasive is the worry that PNoy’s reforms may not be continued, post 2016. On this score, all government can do is embed its reforms within our institutions as best it can and hope for the best.
Our economic planners are targeting to attract a modest $5 billion in FDIs this year. As of last June, we are up by 10.9 percent, pulling in $2.2 billion. It is nowhere near the numbers of Indonesia or Vietnam, but at least it’s more than we have got over a six-month period. Still, FDIs at this level is not enough to fuel an investment-led growth. Let’s hope things move to higher gear soon.
Stage 3: Own Industries
The third stage of government’s strategy is to be the regional “owner” of certain industries. Just as Thailand “owns” automotive manufacturing today, government is priming the economy to gain a firm grip on electronics, automotive parts and components, creative furniture and homeware and agro-processed products. In a nutshell, the Philippines is positioning itself to become the “center for services” in the region—if not the world. This stage becomes more significant in light of the looming ASEAN common market in 2015.
The Secretary is optimistic about the country’s future. In truth, PNoy’s government has laid the foundation for a growth trajectory that could last 40 years. Combine this with our demographic sweet spot, the country has a real chance to achieve accelerated growth over several decades, much like China has done from the ’80s up to today. This is what prompted HSBC to predict that the Philippines will leapfrog 27 places to become the 16th largest economy in the world by 2016 in the first place.
The only variable we face today is whether our next President will continue the path of good governance or take us back to the era of corruption and incompetence. Our fate can go either way. At the end of the day, the deciding factor will be the people’s ballots in 2016.
Andrew is an economist, political analyst and businessman. He is a 20-year veteran in the hospitality and tourism industry. For comments and reactions, e-mail andrew_rs6@yahoo.com. Follow Andrew on Twitter @aj_masigan.
