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PHILIPPINES


 

 

Key Economic Data 
 
  2003 2002 2001 Ranking(2003)
GDP
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)

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Update No: 049 - (30/01/08)

THE MEDIA EXERCISES ITS FREDOMS
January 20th marked the 7th anniversary of EDSA II—the second “people’s power” uprising that led to the ouster of President Estrada and the installation of (then) Vice President Gloria Macapagal-Arroyo to the highest office in the land. For the Philippines it was the defining moment of the first decade of the new millennium. On that day, the Philippines said farewell to a president that had won the largest mandate in Philippines history and ushered in a presidency that has had as its own defining hallmark, an ongoing controversy, surrounding whether the lady in Malacañang has any mandate at all. It is a pity because it detracts from the much good that she has done the country.

“An abusive and corrupt regime was replaced by one that was even worse. Did the country make a mistake?” That was the rhetorical question asked in one Philippine newspaper editorial in its own comment on EDSA. The answer is not so easy to give. President Arroyo quickly proved to the country that she was no reformer—at least not insofar as the political system is concerned. Sadly, lacking a popular mandate, she has chosen as her constituency, the military, the Catholic Church and the dynastic political families who have always made sure they stay on top whatever happens. As a result, on the political front, her presidency has been “conservative” to put it in the kindest possible terms.

She probably doesn’t care. She and her team outshine the Blues Brothers in their “mission from God.” Her particular mission is to put the country’s economic house in order but to do so in a manner that does not upset either the elite or her church. Sadly for much of the decade we have been witness to a zero sum game. Progress on the economic front has been countered by backsliding on basic democratic norms.

She has succeeded where many thought she would fail because there has been simply no alternative path for the country to take. Her success has shown the limits of the people power phenomenon. Again quoting another local newspaper columnist “the romanticism of EDSA 1 has been destroyed in the wash-up of EDSA 2.” And more: “EDSA 2 was a revolution devoured at the table of history by the greed of its own beneficiaries.” 

These are strong words and we do not necessarily embrace them, but they do illustrate the passions stirred up in the minds of many by the failure of the Administration to match economic progress with political progress. Perspectives differ widely. There is little by way of middle ground. That this type of comment is allowed at all shows that at least, press freedom in the Philippines is alive and well.

But we have to ask: “hasn’t it been always thus?” Leaving Hong Kong aside as a special case, Singapore, Taiwan and Korea have all grown to economic prosperity on the back of strong government that brooked no opposition. In the case of Taiwan and Korea, the foundations of that prosperity were laid under the kind of martial law regime that makes the Philippines look benign. And those of us old enough to remember, might recall what happened to the Shah of Persia when he tried to introduce democratic reforms ahead of economic progress in his country.

Such an attitude is not to condone the continued poverty of the countryside but rather to put it in context. It does appear that President Arroyo and her team are aware of the need to break the cycle of poverty. In a country beset by needs on all fronts it is a matter of setting priorities and sticking to them and in this regard, she seems to be doing just that.

No wonder then the President chose not to celebrate the anniversary of her original rise to power; the more so in light of the pardon granted to Estrada. Neither of them wanted to remember the event, but for markedly different reasons.

And it may well be the right approach. People’s power the first time around was a seminal event that addressed a singular problem. As a means of implementing reform, its limits are now well known. Stability is a precursor to progress.

What will that legacy be?
President Arroyo has come in for much criticism for the transactional nature of her political style. A lot of it is well-deserved. Many close-in advisors surrounding the president are nothing if not clumsy. Public relations skills are close to zero. But clumsy as they are, they reflect the President’s Thatcherite determination to pursue the primary goal at all costs. On that score it is hard to fault her. She is determined to leave the Philippines in a much better economic state than it has been in a generation and she is succeeding. While the real effects of the economic growth have yet to be realised in many areas of the countryside, the cities are now more prosperous and we are seeing the emergence of a new urban middle class. 

Her legacy agenda has already been announced and so we have a bench-mark by which her ultimate record can be judged. Chief among these are the return of the country to fiscal health (read: reduction and elimination of the budget deficit and consequent reduction of the debt-servicing burden that has brought the country close to that of a mendicant state). Secondly is an improvement of the investment climate through both domestic and foreign capital injections. Sadly while there has been good progress made on the first—with debt servicing reduced from 95 percent of government outlays to around 65 percent at the present time—there has been less progress on the second. It appears that with China awash with funds (US$1.5 trillion by all accounts) instead of building a true investment-friendly business climate, the propensity to become indebted to China is an all-to-easy option to follow. 

Privatisation of the energy sector is at last in full swing and will in the longer term result in lower energy delivery costs. Even now with the introduction of the spot electricity market and with “open access” about to come into being (whereby commercial and industrial users will be able to contract for power directly with generating companies), the end result will be a more competitive power environment.

With the reduction of debt servicing, the government now has the opportunity to put more funds into education, health and infrastructure, so hopefully, changes at the rural level may be starting to have some affect. There is now talk of some of the money being used to subsidise those electricity consumers using less than 50 KwH per month thereby providing a direct benefit to poorer households.

By all accounts the government looks set to maintain a “hands off” policy (all things are relative) with regard to the peso and many of the SME exporting community are suffering because of it. The garment industry has all but been wiped out as have many other small export-based manufacturers, furniture, handicrafts and gift items among them. The list could go on. That is the price to be paid for an economic realignment as the factories of England, the USA and Australia have found already. But with creativity and an ability to think outside of the box, all need not be lost. “Niche markets” is the name of the game.

Even here the Philippines has been able to strike up some recent and significant success stories. Chief among these is the Hanjin investment into shipbuilding (first in Subic and now about to expand to Mindanao) and Texas Instruments in Baguio (and now in Clark). Both of these represent billion dollar commitments.

THE ACHILLES HEEL 
The Achilles heel for the Philippines is the labour sector and specifically wage rates and the minimum wage. If manufacturing is to make a successful transition and survive into the future then employers need freedom to manoeuvre. Sadly at the present time Congress again appears to be taking the wrong road by strengthening the powers of organised unions, even in situations where the workplace is non-unionised. In fact in the Philippines, the influence of the unions is quite out of proportion to the membership that they have. But we should note that there is actually more maneuverability on the labour front than there looks at first sight. The trouble is that unless you are familiar with the workings of the Department of Labor and Employment (DOLE) you could be forgiven for overlooking the signs. In a nutshell, the DOLE is seeking to reorient the whole workplace environment from a legalistic and adversarial labour-management approach to one that emphasises team-building and human resource development.

As the sun sets on some industries so it rises on others. Chief among these (at least in major urban centres) is the Call and Business Process Outsourcing industries. With an estimate of around 300,000 employed in this sector at the present time, the Business Processing Association of the Philippines (BPA/P) is upbeat about increasing this to one million by 2010. 

In the service sector IBM has announced that it has signed contracts for third party development work amounting to US$50 billion, much of which will flow to the Philippines. For outsourcing work, IBM believes that the talent pool in the Philippines is second to none. Convergys and others think likewise.

The BPA/P estimate could well be right. It represents a phenomenal growth rate and one that will have foreseen consequences on just about every other sector: greater difficulty in recruiting employees into other industries; escalating wage costs across the spectrum and escalating office rentals as well. This may well be manageable for large corporations but for the small business sector it could be devastating. While competition is the name of the game a “beggar my neighbour” policy ultimately does nobody any good. Again it reflects lack of foresight and planning.

MINING AND TOURISM
Among the regional growth drivers we see both mining and tourism now well above the horizon. The government remains committed to the development of both and, indeed, sees the mining and the tourism sectors as spearheading rural development and sustainable growth. The level of commitment is high but really the government has no choice. Other options to redress the rural-urban imbalance are hard to find in many areas. Critically, mining and tourism provide jobs for unskilled and semi-skilled workers as well as qualified professionals.

For mining, the government has given its commitment and is living by it. The challenge now is for the corporate sector to work together—with government and with each other—and engage mainstream community leaders as well as indigenous communities in order to explain the benefits that responsible mining can bring to them, and to ensure those benefits are delivered. Once commitment has been obtained there is the added need to have those leaders integrate these benefits into specific deliverables that can be incorporated into local and regional development plans. So far the foreign-funded anti-mining lobby has had it all its own way. That may not be the case this year once the money starts to flow as it now appears set to do. 

Tourism development may be more problematical. With the downgrading of the Philippines this month (January 2008) by the US Federal Aviation Agency from a Category 1 listing to Category 2, the challenge to build an effective tourism industry faces another major challenge. This move by the US—over safety concerns within the local aviation industry— again underscores the problems faced through an inefficient bureaucracy and the tendency (not unknown in other aspects of Philippine life) to be reactive in the face of a problem, rather than to anticipate and plan in a manner that will avoid such problems from ever surfacing.

A further factor that may work against the tourism industry in the longer-term is the lack of centralised planning and coordination. With each region doing its own thing and building airports, not to mention hotels and leisure facilities at a breakneck speed, is it any wonder that standards are not maintained? “We will just rely on the natural friendliness of the Filipino” is the stock answer given by tourism officials when asked about the “software” needs of the tourism sector. The fallacy of that argument is now clearly evident.

For business the challenge in the immediate term is to manage the twin adjustments that are taking place within the business environment—domestically and globally. We may expect growth in 2008 but for many sectors it will not be as easy to achieve as it was before. Conditions are tougher now. Exchange rate volatility will mean money management becomes more important than ever and cash, as it always has been, will be king. Unless of course you own a gold mine. Miners should do very well.

Escalating rentals as well as wages—both in part driven by the insatiable demand of the BPO industry—will be a major factor for those companies based in major business centres. Good talent, when it can be found, is likely to come at a higher price.

Looking beyond 2008, the Philippines is again going into election mode and with the first change of presidency in nine years, the 2010 election will determine whether we will see more of the same or whether a candidate will emerge who can offer—and deliver—more rapid change. The business community cannot sit idly by. There is a need now to engage politicians constructively on the real issues facing this country, not least human rights and the all too frequent murder of labour organisers and journalists. These are the scandalous issues which hamper more rapid development of a dynamic and prosperous Philippines, able to hold its head up – and compete globally. Foreign investors can play a critical part in this process since they have leverage that many others do not have. Continuity is the key.

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