Every time I hear or see on social media how great the Philippine economy is doing, I have to pinch the inside of my wrists to keep my mouth shut. The usual thing bandied about is the growth rate of 7% which was second only to China, making the Philippines the second fastest growing economy. THAT sure got a lot of mileage on social media and local newspapers. Even when those figures came out though (BTW, the latest GDP figures show that Philippines growth has tapered-off again to 5%. India is now the 2nd fastest growing economy), I was already shaking my head. As an economist by training and long time Philippine observer, I knew the real story of the stellar growth that was being trumpeted by the Philippine government and Aquino supporters. That story rings hollow to me. These are my reasons in brief:
1) it is growth off a low base. For example, if you grow from 0 to 1, that is a 100% growth. Is that impressive? In terms of GDP per capita, which is a better measure, the Philippine economy looks a lot less impressive. Go find the Philippines on this list. http://en.wikipedia.org/wiki/List_of_Asian_countries_by_GDP_per_capita. Tell me if you are still impressed.
2) The growth is uneven and concentrated only in certain sectors. The bankers, mall owners, property developers, and stockbrokers made a killing. That is probably less than 1% of the population. Did any of this wealth trickle down? Did Shoemart increase its wages? The heartbreaking thing is that the poverty level actually INCREASED, even with all this trumpeting about “raging” growth. http://www.philstar.com/opinion/2015/03/10/1431919/poverty-increases
3) BPOs and OFWS – the supposed bright spots are not that bright if you take a closer look. First of all, the BPO industry is not that big in terms of contribution to GDP, at only around 6%. Even if the industry supposedly currently employs 1 million Filipinos now, that is what? Barely 1% of the population?
BPOs are very cost sensitive. Look at how fast India lost its BPO lustre to the Philippines, soon as wages started to go up. Further, the people getting these BPO jobs are usually the graduates of the top universities, again because the slack in manpower is so huge, there are just too many people to absorb the labor force. What is the country doing to keep its advantage in BPOs and remittances? Has education improved so that when humans are exported they at least go to higher value jobs? Is the level of english proficiency improving or stagnating? We all know the answer. My frustration is, if these are the bright spots – then government should throw money at them by doing their job which is providing proper infrastructure i.e. good laws and human development.
Second, the OFW story – remittances make up around 10% of the economy (actually more since the remittances actually impact consumption, which has multiplier effects). Besides, the social costs of this phenomenon are worth weighing against any kind of success in terms of GDP growth. The main export of the Philippines is not electronics or copra or coconuts, it is people. The 7% unemployment rate is as smelly a statistic as they come. Ask anyone outside Makati and they will tell you there are NO jobs available to support a family.
4) The growth in not sustainable – Manufacturing is not taking off because there is insufficient domestic capital and risk-taking to grow the sector. You can blame the foreign investment restrictions in the Constitution for that one. Agriculture remains, well, agriculture–subject to weather, commodity prices, and infrastructure. The sector also remains a hotbed of corruption.
So what do we have? Where is the strategic planning? Why doesn’t the Philippines have a comprehensive industrialization plan?
These are the main things that prevent me from joining those people popping champagne corks. Indeed, the main reason things seem to be going so well is because of the global reflationary environment. If you are a global economy watcher instead of just a Philippine economy watcher, you would know this. Once the Federal Reserve in the US starts hiking rates, I fear Philippine growth will crumble and go back to boom-bust. If the Philippine middle class, or the forces for change (as I call them) continue to believe that things are headed in the right direction, they will refuse to move, organize, and mobilize. I do hope they wake up and smell the garbage in time.