The economic status of Philippine regions: Focusing on the poorest
(Part 2)
The year 2021 was without question the recovery year from the pandemic. GDP grew at 5.7% in 2021 compared to a decline of 9.5% in 2020. With agriculture, forestry, and fishing (AFF) as the only exception, all major economic sectors posted positive growth in 2021, led by human health and social work activities at 14.1%, construction at 10%, and information and communication at 9.2%. Manufacturing was not far behind at 8.8% growth, led especially by food and beverage. Despite strict lockdowns during the first half of 2021, the hotel and restaurant sector (accommodation and food services) managed respectable growth of 7.2%, partly explained by the low base in 2020. Education grew at an above-average rate of 8.3%, mostly explained by a proliferation of non-formal and informal means of upskilling, reskilling, and retooling workers for the changing demands of the workplace. Formal education must have taken a hit with the drop in enrollment in degree-giving courses, especially among private educational institutions. Real estate and ownership of dwellings slowed down to a measly rate of 2.2% reflecting a glut especially at the higher-priced dwelling units level (more than P10 million per unit).
On the expenditure side, expenditures with the highest growth rates were gross capital formation at 20.3%, imports of goods and services at 13%, and exports of goods and services, at 8%. Household final consumption expenditure was muted at a growth rate of 4.2%. With the “revenge consumption” that is evident everywhere in 2022, starting during the Holy Week period of April 11 to 17, one can expect a strong recovery of this expenditure item for the whole of 2022, despite higher inflation rates that will average 4.5% for the whole year.
Despite the overall slower regional growth rate of the National Capital Region (NCR), it is not surprising that in terms of regional performance of services in 2021, Metro Manila registered a whopping rate of 42.4% of the total because of its huge population. Calabarzon* and Central Luzon follow at 10.7% and 8.3%, respectively. As regards the industry sector (manufacturing, mining, public utilities, and construction), Calabarzon is king, accounting for 25.1% of the total value, followed by the NCR (19.6%) and Central Luzon (15.4%).
Central Luzon is still the food hub of the country, accounting for 13.5% of the AFF sector, with Northern Mindanao and Western Visayas, following closely at 10.5% and 9.6%, respectively. The strategic role of Central Luzon in the agribusiness sector should prompt both the National Government and the respectively LGU heads in that region to formulate a comprehensive plan to improve significantly the productivity of the agricultural resources in that region, combining a move of farming activities away from the urbanizing areas of Pampanga and Tarlac towards the farm-rich provinces of Nueva Ecija, Nueva Vizcaya, and Aurora and the development of agribusiness manufacturing and logistics hubs in the Clark-Subic areas and Bataan. Already there is a perceptible movement of sugar production away from Pampanga and Tarlac towards Nueva Ecija, especially led by the Luisita group. Much can also be done to reverse the poor performance of the AFF sector if Calabarzon, the NCR, and Central Luzon regions can combine their forces to go into high-value farming of vegetables, fruits, and livestock that can be produced with the appropriate advanced technology even in highly urbanized areas.
An encouraging sign concerning the reduction of poverty may be read in the figures for household spending by region.
In 2021, household spending increased fastest in Caraga** (at 10.6%), Eastern Visayas (10.2 %), Cagayan Valley (9.0 %) and the Cordillera Administrative Region (CAR; 8%). These have been the regions with the highest poverty incidences in the past. These figures stand out more prominently when compared with an almost zero growth rate of consumption expenditures in the National Capital Region, which posted only a 0.4% increase in comparison with the national average of 4.2%. These figures may also be evidence of the effectiveness of the efforts of the Duterte administration to focus the anti-poverty programs on the poorer regions during the pandemic. If this hypothesis is true, then it can be said that the huge borrowings of the government during the pandemic were well worth it.
If these trends can be reinforced by the next administration, it will not be difficult to reduce the national poverty incidence from the present high of 23% resulting from the pandemic, to the 16% or even lower than what we already achieved before the pandemic. In fact, it should be the objective of the next administration to reduce the poverty incidence to single-digit levels of 5% to 9% by the end of its term.
This hypothesis of a focus on the poorer regions during the pandemic is further bolstered by the data on government spending in the Philippine Statistics Authority (PSA) report. Whereas the national average for growth in government spending was 7.1% for the whole of 2021, it was 12.6% for the Bangsamoro Autonomous Region in Muslim Mindanao (BARRM) and 11.6% for Cagayan Valley. Other similar predominantly rural regions received the same focus on government spending. This resulted in the highest real per capita GDP growth rate for CAR at 6.6%, Caraga at 6.1%, followed by Central Luzon and Calabarzon at 5.7% each.
There is no question that fighting poverty in the Philippines cannot be left to market forces alone. There is limited “trickle down” in the free market. In the countryside, the greatest contribution to combat poverty comes from the building of farm-to-market roads, irrigation systems, post-harvest facilities, and the provision of indispensable services to the farmers, farm workers, and fisherfolk with the necessary credit, training, and digital assistance to improve their productivity.
In some of the provinces of Mindanao, poverty incidence can be as high as 30% to 40% of the population. Following the positive results of investing heavily in public works in the Caraga and BARRM regions, the next administration should double the efforts to endow the second largest island in the country with better infrastructure. The whole island has the potential of being the agribusiness hub, not only of the whole country, but also a major contributor to food security of our neighboring countries to the northeast of Asia, like China, Taiwan, and South Korea through the export of larger volumes and more diversified fruit and vegetable products over and above bananas and pineapples.
We should renew talks with the Chinese government about their building the railway system for the whole of Mindanao. Improved transport and communication in the island will go a long way in opening vast tracts of land that can make the Philippines a positive net exporter of agricultural products that will be crucial to the food security objectives of Northeast Asia. This possibility should be one more reason why the next administration should as early as possible work for the Philippine’s final accession to the Regional Comprehensive Economic Partnership agreement that will facilitate our trade with these food-short economies to our north.
*A portmanteau of the names of the Southern Luzon provinces of Cavite, Laguna, Batangas, Rizal, and Quezon.
** The region comprises five provinces: Agusan del Norte, Agusan del Sur, Dinagat Islands, Surigao del Norte, and Surigao del Sur.
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.
