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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: 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 under control.

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 global economy.

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 two.

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 country. 

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 stark.

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. 

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