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Key Economic Data 
  2003 2002 2001 Ranking(2003)
Millions of US $ 80,574 77,076 71,400 43
GNI per capita
 US $ 1,080 1,020 1,050 135
Ranking is given out of 208 nations - (data from the World Bank)

Books on The Philippines



Update No: 093 - (26/01/12)

Cautious optimism - again
January is traditionally the time to look back at the past year as well as ahead to the new year. In this, our first report on the Philippines for 2012, we are happy to be starting the year on a moderately upbeat note.
At a time when once again global growth is slowing and—according to the latest IMF projections—risks are increasing, the Philippines can at least be thankful that it is located in the heartland of Asia and that, among Asia’s developing economies, its reliance on Europe and the USA for export growth is much less now that it was a decade ago.

Final growth figures for 2011 have not yet been released, although international agencies such as the World Bank and the Asian Development Bank expect GDP expansion of around 3.7 per cent. Compared to 2010 when the figure hit a record high of 7.6 per cent, many were disappointed with the outcome. But delve a little and, all things considered, the result was not too bad.

Two factors constrained growth in 2011. Firstly, export growth was sluggish to say the least, and actually went into negative territory. Secondly, infrastructure spending, an important driver of growth, was down while government took stock of its procurement programs with the intent of ridding them of the graft and corruption that under the Arroyo watch, had led to the Philippines gaining the dubious ‘honour’ of having the most expensively priced projects in the world.

True to its declared mandate, President Aquino has started to set the national house in order. On balance, the Philippines appears to be in a better place than it was a year ago, and better able to weather any storm clouds gathering once more around it.

Firstly, overseas remittances held up well during 2011 and this has been a key factor contributing to robust domestic consumption. Deployment numbers for overseas workers for last year have not been published, but in 2010 there were approx. 1.47 million who left the Philippines to take up contract employment overseas. The Philippine Overseas Workers Administration or POEA, estimates that there are now eight million OFWs living and working overseas, of which around half are temporary workers on fixed term contracts and who return at the end of their contract. Many seek new contracts while others use their savings to establish micro-businesses. So while numbers are not known for sure, what is known is that the money they sent back grew by more than seven per cent last year. Figures for January–November show total inbound remittances had already exceeded 18 billion dollars and had grown by 7.31 per cent over the corresponding period in 2010.

Total external trade for the period January to November (latest figures available) increased by only 2.9 per cent over the previous year. While imports grew by 11.0 per cent, exports fell by 5.6 per cent. Over the past decade the Philippines has become far more dependent on regional exports and this may provide some insulation from the downturn in the US and, especially, European markets. Currently around 67 per cent of exports are destined for Asia compared to only 46 per cent in 1999.

The real problem for the Philippines is that its mercantile exports have become far too dependent on one sector—electronics, and especially semiconductors. It is this concentration of exports that has created the vulnerability. The Philippines does have other opportunities, especially in agriculture but so far has not developed its potential.

Inflation has been brought under control with the headline inflation rate falling to 4.2 per cent in December and averaging 4.8 per cent for the year as a whole. Consumer prices actually fell by 0.2 per cent in December, primarily due to a reduction in food items as well as slightly cheaper gasoline prices.

The local banking system is in relatively good shape, and international reserves are growing at an annual rate of more than 20 per cent.

But there are a few worrisome issues that have proven stubborn and which need to be addressed.

New foreign direct investment (FDI) continues to decline. In the aftermath of the world financial crisis, investors are naturally cautious and few people are willing to put bricks and mortar assets into the Philippines. In the seven months to July 2011, total Non Resident Investment in the Philippines amounted to only $805 million. This represented a decline of 9.7 per cent over the same period a year earlier. About the only positive gloss that can be put on this figure is that it was lower than the previous year which saw a decline of -45.5 per cent (and with -88.3 per cent the year before that). Hopefully, if the government can continue to clean up its house, 2012 might actually see an increase in FDI. (Figures for portfolio investment have not been made public to this time although the central bank data shows that the total of such investment amounted to $12.05 billion at the end of 2010; this was a 40 per cent increase over the 2009 total.)

Considering that much of FDI goes into creation of manufacturing employment, this is a serious situation. A number of local analysts argue that actually the Philippines has ‘bypassed’ the manufacturing growth model and jumped direct to a service economy, but this argument, as tempting as it is, flies in the face of reality.

Certainly, the country’s process business outsourcing sector, has grown rapidly over the past decade. According to a recent ADB report, employment in this sector grew by 34.5 per cent between 2004 and 20009 and revenues jumped by 37 per cent annually. Furthermore, the Philippines is climbing up the value chain. From the earlier voice-based services such as call-centres, the industry is now moving to knowledge-based services such as software development, financial, accounting and medical services.

However, whether the industry can continue to grow remains to be seen. In a country where there is endemic poverty caused by lack of meaningful employment opportunities it is important to remember that this sector employs only around one per cent of the labour force and is biased towards skilled workers with good English communication abilities. This industry does little to help impoverished workers beyond contributing to a flow of domestic remittances back to families from those working in this sector.

Unemployment in the Philippines remains stubbornly high. The results from the October 2011 Labour Force Survey has the unemployment rate standing at 6.4 per cent. Again, at first sight this does not appear to give any cause for concern – especially since it represents a drop from 7.1 per cent recorded a year earlier. But this would be misleading. Leaving aside the issue of how definitions are doctored to make the figures more appealing, there are two main areas of concern.

Firstly, if the aggregated figures are considered by occupation and industry, farm workers still make up one-third of the workforce while manufacturing workers now comprise only 8.2 per cent of workers, and that number continues to decline. Unlike elsewhere in Asia, where manufacturing growth has allowed rural day-workers to gain employment for wages, this has not happened in the Philippines. Labourers and unskilled workers make up 33.2 per cent of the total.

Secondly, it is important to look at the underemployment rate—those who work but who need more hours. There are many more underemployed workers than there are unemployed. Currently around 19 per cent of the labour force considers itself underemployed.

One of the major challenges facing Aquino therefore is to reverse the decline in manufacturing and grow the country’s industrial base. This would have a major impact on poverty reduction and reduce income inequality, that has grown larger over the past decade.

A second major challenge for government is the need to increase infrastructure spending. Many projects were put on hold in 2011 as the government sought to place projects on a more transparent footing and reduce opportunities for corruption and over-bidding. Included there is the need to improve social infrastructure including access to health, education and social services. Over the past decade, the Philippines invested less than half the amount in education as a proportion of GDP, than countries such as Malaysia and Thailand. Malaysia for example invested 8.1 per cent (the tenth highest in the world); Thailand, 5.2 per cent; for the Philippines, the figure is 3.1 per cent.

These challenges were outlined by ADB Vice-President, Stephen P. Groff, in a recent address to the Foreign Correspondents Club of the Philippines who added two additional concerns of the Bank: reversing the decline in agriculture and governance.

The fact that so many people still depend on farming and fishing for their livelihood, coupled with the potential of the Philippines to become a major food exporter of East Asia, adds the need to reverse the decline of coastal and marine environments, farmland and forests in the Philippines.

The final challenge and the one that underpins all the others is the need to continue to work at improving governance. This issue more than any other has contributed to the low competitiveness ranking, and perceptions that the quality of governance has deteriorated markedly over the past decade.

2012 has started with the impeachment trial of the Chief Justice and the incarceration of former President Arroyo, who is also expected to stand trial for her plundering of the Philippines economy and other excesses, during her regime. A start has been made, and we will cover these issues at an appropriate time. For the moment we can be optimistic that the government of the Philippines remains committed to reform and to an increase in investor confidence. This could be a decisive year.

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