The Philippines made significant progress in the last 10 years, thanks to the good fiscal management of the Aquino administration. The Duterte government inherited an economy in the pink of health, with wide fiscal space to pump-prime the economy. With it, they were able to engage in massive infrastructure spending which allowed GDP growth rates to be sustained at above 6%. The Philippines could have graduated to become an upper-middle income economy if not for the COVID-19 pandemic.
From 2010 to 2020, the country’s gross domestic product (GDP) increased by 56%, from $229 billion to $358 billion. It could have reached $400 billion last year if only we sustained the 6% growth.
The bright spots of the last decade include the IT-BPO industry whose annual revenues grew three-fold, from $9 billion to $27 billion. Local and international tourism, combined, grew by 165% and constituted 10.5% of the GDP in the last five years. Infrastructure development was encouraging too as spending increased from 1.8% of GDP in 2010 to 5.4% of GDP in 2019.
Manufacturing and merchandise exports grew as well but at a tepid pace. Gross value added for the manufacturing sector increased by only 50% from $44 billion in 2010 to $66 billion in 2020. For its part, merchandise exports grew by 88% from $34 billion in 2010 to $63.77 billion in 2020.
The underperformers were the agricultural sector, whose growth over 10 years was only 20%. Mining was also a disappointment, with gross value added growth of only 27%.
Annual intake of foreign direct investments (FDIs) posted a seemingly favorable growth rate of 392%, from $1.7 billion in 2010 to $6.4 billion in 2020. It peaked in 2017 at $10.26 billion. However, it must be taken into context. The Philippines is still one of the lowest recipients of FDI’s in the region, receiving only a third of what Indonesia and Vietnam get.
Per capita income grew by 50%, from $2,217 in 2010 to $3,323 in 2020. We are still a long way from attaining the national goal of $13,000 by the year 2040. The economy would need to grow by an average rate of 7% for 20 years to achieve this goal.
Is a sustained growth rate of 7% possible? Yes, it is, especially since we will be in the midst of our demographic sweet spot until 2040. However, we will not realize the full potentials until we undertake deep reforms in our legal framework. The sooner we effect these reforms, the sooner the economy can operate on all cylinders.
As mentioned in this corner last week, the following industries will drive the economy in the next decade: agriculture, auto and auto parts, electric vehicles and parts, aeronautics, next-gen electronics, construction, and creative industries.
To maintain our position as the world’s second largest provider of IT-KPO (information technology-knowledge process outsourcing) services, we must evolve to become a center for excellence in artificial intelligence, animation, game development, information and knowledge management, robotics, cloud technology and software development.
The development of the “blue industries” is another potential driver for the economy. Blue industries include ship building, ports and shipyard management, logistics services, seafarer crewing, maritime financing, aquaculture, and offshore energy exploration.
Mining holds enormous potential but the sector is plagued by disinformation and stigma. As a result, it contributes only 1/6 of 1% of GDP today. It’s a shame since the Philippines sits on 7 billion metric tons of metallic resources and 50 billion metric tons of non-metallic resources. Our mineral cache is worth well over a trillion US dollars at today’s prices. Minerals are our God-given resources that can change our fortunes. It is the Philippine equivalent to Saudi Arabia’s oil. Not to utilize it is a disservice to our people.
What reforms are necessary to be competitive in the abovementioned industries?
Foremost is to restore confidence in government. Policies start from the top and confidence can only be restored if we elect a transformative, honest and trustworthy leader in 2022.
Fundamental to unlocking the potentials of manufacturing, blue industries, and high-tech industries is the ability to attract FDI’s. We cannot do it alone. The restrictive provisions of the constitution must be amended to make us a competitive investment destination. In particular, the 60-40 rule on equity ownership, the opening of mass media and advertising to foreigners (which is basic if we are to compete in knowledge-based industries), and lifting the prohibition of foreign nationals from professional practice and be represented in corporate boards of directors.
In the short term, the passage of the Public Services Act, Foreign investment Act, and the Retail Trade Liberalization Act will open the economy and facilitate the entry of more FDIs.
Other “musts” include the reactivation of the National Competitiveness Council to develop and oversee strategies to make the country more competitive, strengthen the Philippine Competition Commission to eliminate oligopolies and level the playing field, complete the digital transition of government units to improve efficiencies and eliminate corruption, improve broadband services, and better capacitate the workforce by improving basic education system, STEM learning, and technical skills.
The Comprehensive Agrarian Reform Law must be amended to unlock the potential of agriculture. The average farm size today is below one hectare with a maximum holding of five. The maximum size of land holdings must be increased to permit industrial farming. Budgetary support for the agricultural sector must also increase from 3% of GDP to 8%. Finally, government must lift its restrictions on the free flow of agricultural products, especially the badly considered rule that corn farmers cannot export unless the Department of Agriculture declares a surplus of the crop.
There are three impediments that stand in the way of a flourishing mining industry. They are, the ban on open pit mining, the power of LGUs to enact ordinances banning mining, and the zonal ban on mining, which is hyper-excessive. These impediments have to be lifted in order for us to truly benefit from the resources we have been endowed with. Note, that opeisn pit mining are already governed by the strictest environmental laws.
By no means are these reforms comprehensive – but they are a good start. Accompanying these reforms is the continued modernization of infrastructure and continued investments disaster readiness.
We performed better in the last 10 years than we did in the decade before (2000-2010). We need to set the stage, through reforms, to ensure that we attain our development goals in the next two decades. What better time to start than in the coming new year.
Andrew J. Masigan is an economist