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By Bettina Faye V. Roc, Reporter

Regions seen crucial to country’s growth

Posted on February 13, 2014

A SURGE in regional economic activity, backed by supportive government fiscal policies, could be the Philippines’ “growth engine” over the medium term.

Citi Research, in a report released yesterday, highlighted the likely gains from a focus on regional growth, which would then raise the overall economy’s potential for more sustainable and inclusive expansion.

"Rising spending on infrastructure, especially to widen access to electricity and water, will have numerous and self-reinforcing economic benefits, including creating new and competitive industrial clusters," said Citi’s local economist, Jun Trinidad, in the "Philippines Long View: The Regions That Could Roar" report.

"Continuing cash transfers and social investment will alleviate poverty, raise education standards and help create sustainable consumer demand," he added.

Income improvements in the regions "would help ease the concentration risk of Philippine economic growth." This will require government fiscal intervention, particularly via increased budgets for the Public Works and Transportation departments that are primarily responsible for infrastructure developments.

Mr. Trinidad noted that government’s fiscal strategy over the past three years had contributed to regional growth, and that a rise in the regional shares of the Public Works and Transportation department budgets, the expansion of economic zones and robust social spending would continue to spur expansion.

"We find empirical evidence that regional growth responds to regional DPWH (Department of Public Works and Highways) budget shares ... A 1% rise (decline) on average in the DPWH budget share (ex-NCR) increases (decreases) regional GDP growth (ex-NCR) by 0.36% ... For household consumption, a 1% increase (decrease) in DPWH regional budget share potentially elevates (diminishes) regional household consumption by 0.11%," he said in the report.

"In terms of DoTC (Department of Transportation and Communications) budget share, a 1% change has a 0.02% impact on household consumption."

He warned that "the government would be ill-advised to ignore infrastructure needs in regions that are already proving their economic competitiveness and attractiveness as investment hubs" such as Central Luzon, Central Visayas, and Northern and Southern Mindanao.

For less-developed regions, improved roads, electrification, airport/seaport upgrades and expanded services are needed "to attract local businesses and investment, and thus spawn a virtuous loop of more jobs and higher incomes, resulting in increased consumption demand and in turn more investment".

"Further regional growth upside would come from a faster rollout and implementation of PPP (public-private partnership) projects," Mr. Trinidad added.

Infrastructure improvements will lead to more investments that could help the growth of industries, among them food processing, garments, furniture & fixtures, and construction materials, which "should do well."

"These industries are not very sensitive to ‘clean & stable’ power, while cheap labor and supply of indigenous agro-based inputs would enable them to produce for the national/regional markets."

Risks to regional growth, Mr. Trinidad said, include fiscal constraints, peace and order, PPP delays and power shortages as these would delay investment activities, especially in underdeveloped regional clusters.