Books on The Philippines
Update No: 051 - (28/03/08)
Whether the Philippines is doing extremely well or extremely
badly is largely a matter of how you view the presidency of President Arroyo.
Her supporters are quick to point to the manner in which the economy has
performed over the duration of her presidency—the longest period of sustained
growth in recent history; the stronger than expected performance last
year—provisional growth figures suggest that the domestic economy grew by 7.3
percent in 2007 making it the best performing economy in Southeast Asia and the
manner in which this growth momentum is being propelled into 2008: remittances
from overseas workers were up by 15 percent in January this year compared to a
year ago and export income rose by 6.4 percent.
An oft repeated refrain of the President is that the Philippines is well on its
way to becoming a developed country by the year 2020. It is a “feel-good”
statement but one that really says very little. A closer dissection of the
numbers shows not only the absurdity of such a claim but also the shallowness of
the present growth pattern.
There is no doubt that over recent years, investor confidence has started to
return—not wholesale confidence, and patchy at best but there is movement and
the movement is in the right direction. Leaving aside the Business Process
Outsourcing sector—which is the one real growth area of domestic employment
for the brightest and best, for those who have a solid command of English
anyway—there has been very little by way of quality work creation. We will
return to the employment picture in a moment. But BPO is not capital intensive
and does little to create bricks-and-mortar investment. By its very nature, it
is fluid investment, not quite the “hot money” found in local stocks but not
either the cold hard cash that builds factories. BPO moves with the arbitrage,
to countries and locations that have the right skill set at the right price. And
with the peso rising by some 18 percent against the dollar over the past 12
months (it has fallen a tad recently), the economies of operation may yet move
against the Philippines in years to come if prices and wages cannot be kept
Manufacturing, outside of a couple of choice projects is in the doldrums and
there are signs of a hollowing out—the so-called “Dutch disease”—due to
currency and wage appreciation. Yes, exports in January were up by 6.4 percent
as compared to January last year but, and as others have pointed out, the
January figure was lower by 5.2 percent than US$4.472 billion in December 2007.
It was higher commodity prices and not expanded export volume that gave the
increase. In fact in volume terms exports are slowing in line with the sluggish
Tourism and minerals development have been touted as the new drivers of domestic
growth that have a chance of taking prosperity to the rural areas and there is
new hope that moves may be afoot to modernize the agricultural sector. Be that
as it may, it has not happened yet and we are forced back to consider the other
Since the Supreme Court of the Philippines moved in 2005 to uphold the validity
of the 1995 Mining Act and allow foreign investment into the mining sector
(without foreigners actually owning the minerals) investment has started to
return to this sector. The government is pushing some 23 priority mining
projects which it is hoped will lead to more than US$10 billion in new FDI by
2010. But time is running out for this particular deadline.
Total investment in the country’s mining industry had reached a total of
US$1.4 billion as of February 2008 and is projected to reach US$1.8 billion by
the end of the year with seven more projects advancing to production stage. The
total of mining investments covering the period 2004-07 came from the
exploration, mining operation, as well as construction and development
activities of some 63 mining companies that are now doing mining business in the
So while there has indeed been positive movement, the pace of investment is
nowhere near what the government was earlier expecting. There have been a number
of hurdles to overcome and not all of them have been pushed aside yet.
First and foremost there is the parallel “Small-scale mining act” to
consider. Originally meant to give comfort to traditional pick-and-shovel miners
against inroads by mining multinationals, the fact that small-scale permits are
issued at local rather than national level, has allowed some local interests to
drive a dump truck through the loopholes in the law. Small-scale permits are
issued at the local level. No wonder such permits have led to large levels of
corruption and attempts to shut out the foreign investment.
It is those operating under this particular Act that have been responsible for
much of the environmental degradation and mine safety problems associated with
this industry. Yet curiously, the anti-mining NGOs active in the Philippines
have been curiously silent in criticising this sector even though much of it is
anything but small-scale.
Secondly, the Mines and Geosciences Bureau, the national body tasked with
oversighting the industry, has lost some 60 percent of its staff since the
revitalization programme got underway in late 2004. Staffing levels have now
become acute forcing delays in permit procedures and in compliance monitoring.
This particular problem can only get worse before it gets better is the view of
many within the industry.
According to the Cabinet Secretary in charge of the Department of Environment
and Natural Resources some 6,500 new jobs have been generated by the industry
and an additional 30,000 jobs are projected to be generated between this year
and 2010. It is good to see any domestic employment growth but mining will not
go anywhere near generating the one million jobs a year promised by President
Arroyo early in her presidency—unless of course you count the jobs being given
to Filipinos outside of the country.
This brings us to consideration of the second growth driver—that of tourism.
Like mining, tourism is not transportable—either you are an attractive tourist
destination or you are not. The Philippines is indeed blessed in this regard and
could become the tourist playground of East Asia but it will likely fall short
of this goal. But in this area tourism development is totally in the province of
local government units. There is no national tourism development policy body in
the Philippines and the role of the National Tourism Authority is confined to
that of tourism promotion. As a result there are many side-deals being
undertaken for investment outside of the purview of the national government and
again opportunities for rent-seeking behaviour abounds. Tourism development
appears to be viewed as a cash-cow for local politicians designed to keep them
toeing the party line.
The obvious question to ask is whether any of this should matter if the economy
is doing so well. But as we have seen already eight years into the Arroyo
presidency, the surface has barely been scratched in many areas. It is the
continued poor investment climate that tells the real story.
In the area of foreign investment—if 2007 is considered in isolation—again
the numbers can be read in different ways. According to the latest data from the
Central Bank, gross equity capital placements made by foreign investors rose
28.2 percent to US$2.2 billion last year. Undoubtedly this was a pleasing
result. But (and here is the downside) the Philippines remains the
underperformer of the ASEAN region garnering barely one percent of the total
foreign direct investment flowing into East Asia. Indonesia and Thailand receive
more than four times the value, In per capita terms the figure is even more
In 2007, Singapore received almost $6,500 in per capita FDI (net inflow);
Malaysia received $243, Thailand received $164. Indonesia and the Philippines
were at the rear with only $27 and $25 respectively. To complete the picture,
last year China received around $73 in FDI for each man, woman and child. These
numbers are telling because we are now eight years into the Arroyo presidency
and the numbers by now should be looking much better if the Philippines had
really turned the corner.
The one million jobs a year promised have not materialised. And the population
continues to grow at around 2.3 percent a year. Around 70 percent of GDP is
generated by domestic consumption and this consumption, in turn is generated on
the back of strong remittances. But this is hardly a formula for long-term
stable growth, at best it is a short-term placebo. And the jobs will not appear
until the investment climate improves. Sadly it appears that borrowing money
from China with no conditions asked, is just too easy at the present time. And
yes the unemployment rate has gone down markedly in recent years but only
through the convenience of redefining the term. If you are out of work and not
actually looking for work, then you are no longer considered part of the
workforce. It is a definition that works well enough in advanced countries but
in a country such as the Philippines it is only a means of masking a problem.
Corruption remains the biggest single factor holding this country back and the
considered view of much of business is that it has got worse rather than better
under the Arroyo watch. Until some form of genuine effort is made to combat the
rent-seeking behaviour that pervades every level of society, the potential of
the Philippines will remain just that—potential.