Human Side Of Economics


(Part 2)

Each country is unique. The Philippines obviously lacks some of the features of Korean society. During this present stage of our development, our strong fundamentals can be enumerated as follows. The greatest of them all is our demographic dividend. We are among the few countries in the East Asian region that have not committed “demographic suicide” through birth control programs. We still have a young, growing, and English-speaking population, an asset that has not been diminished by the ongoing pandemic. Our fertility rate will continue to above replacement (2.1 babies per fertile woman) for at least the next 20 years. In a world in which practically all of the developed countries are suffering from the rapid aging of their population, our having a median age of 24 will continue to support our two largest engines of growth, i.e., the huge remittances that are sent by the Overseas Filipino Workers and the earnings of 1.3 million well-educated workers in the BPO-IT sector. These two account for some 12 to 15 percent our GDP.

Together with the other countries in the Indo-Pacific region, we will be benefitting from the rise of the Asian Century. Today, economic power has shifted from the countries of the so-called American Century (the 20th century) to those of the Asian Century during which the three major territories of China, India, and the ASEAN Economic Community will dominate the world in economic growth and vitality. Thanks to international agreements like the Regional Comprehensive Economic Partnership (RCEP) Agreement of the ASEAN countries with Australia, China, Japan, the Republic of Korea, and New Zealand, the Asia Pacific region defies the trends in other parts of the developed world towards ultra-nationalism and inward-looking trade and investment policies (e.g., America First, Brexit). The Philippines can capitalize on the open trade and investment opportunities within the largest and most dynamic economic region in the world. We can call this our “geographic dividend.” This would, of course, require that the next Administration after May 2022 complete the efforts in this present government to remove the many restrictions against foreign direct investments found both in some existing laws and in the Constitution.

Another strong fundamental of the Philippine economy in the next decade or so is that it will be transitioning from a low-middle income economy to an upper-middle income one. We can call this a temporal dividend because the timing of this transition is perfect. As more and more of the 110 million people in the Philippines today (and growing still at close to 1% annually) join the upper-middle income category, their demand for more sophisticated consumer and industrial products will grow exponentially, following Engel’s Law. Since more than 70% of the Philippine GDP comes from consumption expenditures, the growing consumer markets will act as a magnet for both local and foreign companies, both large and small, to invest heavily in the country. It will be the Philippine domestic market that will be the primary engine of growth, with exports growing only to the extent that we need to import a number of capital goods and raw material inputs that we don’t produce in the Philippines. This large domestic market will be more evenly spread over the major economic regions outside the National Capital Region, which had been growing more slowly even before the pandemic in comparison with such booming areas like Calabarzon (with Batangas as the epicenter); Central Luzon (with the Pampanga triangle of Angeles, San Fernando, Clark-Subic as the center); the Visayas (with developments moving out of the congested Metro Cebu towards Iloilo that has been endowed with better infrastructure over the last decade or so); and the island of Mindanao (with Davao and Cagayan de Oro as the agro-industrial centers).

Finally, like Indonesia and Vietnam, the Philippine is well endowed with natural resources such as mineral ores, the very long coastlines that provide abundant aquaculture resources, and thousands of islands that can be the basis for a thriving tourism industry, both domestic and foreign (starting 2024 and beyond, after the world is able to put under reasonable control the ongoing pandemic). With the Build, Build, Build Program under the present Administration which has sustained spending on infrastructure at the level of 5-6% of GDP, more and more attractive tourist destinations in this archipelago of more than 7,000 islands are becoming more accessible to both domestic and foreign tourists. Here it may be noted that one of its islands, Palawan, has been dubbed as the “best island in the world,” according to a survey conducted by a renowned international travel magazine, Travel+Leisure. This island paradise (actually part of the 2,000 islands of the province of Palawan) has topped the list of the top 25 islands across the globe, a title it held in 2013, 2016 and 2017. Among the numerous islands in the Philippines, there are many others like Palawan that is praised for sun-glazed beaches, evergreen nature trails, endless fun, and the local culture. (Filipinos in general are known as exceptionally friendly, hospitable, and “amazingly laid back.”) The Philippines can be the “Spain of the Indo-Pacific region,” attracting some of the hundreds of millions of tourists who are expected to come from China, India, Japan, the ASEAN Economic Community, and South Korea, among others. Again, this is the advantage of being in the epicenter of the most dynamic economic region for decades to come. Once people from all over the world consider COVID-19 as just another ordinary flu, foreign travel will go back on track and the Philippines will be one of the major beneficiaries of the strong rebound in foreign tourism in 2024 and beyond.

Already the mining sector at the early stages of the post-pandemic recovery, is benefiting from the boom in the prices of copper and nickel. As reported by Karl Ocampo in The Philippine Daily Inquirer (Sept. 3), the value of the Philippine metallic mineral production increased by 25% in the first half of 2021 compared to the same period last year. The prices of base metals like nickel and copper surged by 40% and 65%, respectively; while precious metals like gold and silver went up by 10% and 59%, respectively. A game changer has been the lifting of the suspension on the issuance of new mining permits through the issuance of Executive Order 130. The long-term outlook is bright despite a possible demand cutback from China. Other major sources of demand will be the huge infrastructures projects of countries implementing their own Build, Build, Build programs such as Indonesia and Vietnam, still trying to catch up with the quality of infrastructures of their Northeast Asian neighbors. Also significant in boosting demand are the efforts of a large economy like the US whose Legislature recently approved a budget of $1 trillion to renew its ageing infrastructure. This very bright outlook for the infrastructure sector, both domestically and abroad, is a major reason why I think the NEDA 40-year projection underestimates the strong rebound of capital investment in the post-pandemic era. The years 2020 and 2021 will literally be just a blip in the long-term trajectory of Build, Build, Build.

Despite its relatively small area, the Philippines is one of the world’s richly endowed countries in terms of mineral resources. It still has untapped mineral wealth worth at least $840 billion in gold, copper, nickel, chromite, manganese, silver, and iron. This is 10 times the country’s annual GDP. In a special report that appeared in Financier Worldwide Magazine, it was pointed out that Philippine mining is increasingly taking into account environmental sustainability. In an effort to align with government’s continued focus on ensuring the environmental sustainability of all mining activities, the Chamber of Mines of the Philippines recently adopted the Towards Sustainable Mining (TSM) initiative, spearheaded by the Mining Association of Canada, one of the global benchmarks in the extractive mineral industry. The TSM will provide the mining industry “tools and indicators to drive performance and ensure that key mining risks are managed responsibly in order to meet society’s needs for minerals, metals and energy products in the most socially, environmentally responsible way.”

To be continued.


Bernardo M. Villegas has a Ph.D. in Economics from Harvard, is professor emeritus at the University of Asia and the Pacific, and a visiting professor at the IESE Business School in Barcelona, Spain. He was a member of the 1986 Constitutional Commission.