Where higher growth can come from

The country’s GDP growth of 4% in the third quarter (Q3) was low by recent Philippines growth standards, although modest to high by global growth trends. The causes for such low growth are generally understood, espe-cially the ongoing corruption scandals and the series of strong and damaging storms. The big question now in the minds of many people is: Can we sustain growth of 5.5% or higher, and when?

I asked myself that question too, so I devised ways and metrics to help answer it. First, I wanted to know what sectors the largest contributors to GDP are, and their share of the total. Second, I wanted to know their growth performance in recent years and this year. Third, I will be making some proposals on certain growth drivers that can be prioritized.

Gross Domestic Product (GDP) is measured in two ways, the demand side via consumption expenditure, and the supply side via industrial or sectoral origins.

On the demand side, the largest component is household and corporate consumption at 72% of GDP, followed by investment or gross capital formation (including construction) at 23% of GDP. Government consumption (ex-cluding construction) is around 15% of GDP.

On the supply side, the largest contributors are the services sector at 63% of GDP, particularly the sub-sectors wholesale and retail trade plus repair of vehicles at 29% of GDP, and finance-insurance activities at 11% of GDP. The second largest contributor is industry at 29% of GDP, with the manufacturing sub-sector making up 18% of GDP.

Now, the largest components of GDP on the demand side, household consumption and investment, have seen growth deceleration, while the smaller component, government consumption, is showing high growth.

On the supply side, industry and manufacturing are decelerating, which is not good. Agriculture, fishery and forestry remain crawling although they grew 4% this year (see the table).

So, to attain high and sustained growth, there should be expansion in investment or gross capital formation, particularly in construction, both private and public. The investment/GDP ratio should increase from the current 23% to at least 25% by 2028 and rise further onwards.

But government construction is slowing this year and will also slow next year due to the ongoing corruption scandals at the Department of Public Works and Highways (DPWH). This means private construction should pick up big time — both private projects, and public infra via Public-Private Partnership (PPP), like more toll roads, more big airports and seaports, more long bridges like the Cavite-Corregidor-Bataan bridge and the Iloi-lo-Guimaras-Negros bridge. Government should focus on the usual hurdles like right of way problems and valuation.

Our exports of goods and services should catch up with imports. In particular, our merchandise exports which are low by regional standards. Our average exports from January to September this year came to only $7 bil-lion/month while Vietnam’s was $39.3 billion/month — larger than the average of Australia, Russia, Spain, Poland, Brazil, India, Indonesia, Malaysia, Thailand, and many other countries.

An abundant electricity supply (regardless of source, with no favoritism towards renewables) will greatly reduce power and electricity prices, which will in turn encourage big manufacturing and export locators to come here. This plus good road infrastructure from the industrial zones to the modern seaports and airports.

Most of all, the implementation of the rule of law is important. The law should apply equally to unequal people, to governors and the governed, administrators and the administered, government and private individuals. This will substantially reduce corruption and waste because the restrictions on ordinary citizens will automatically apply to those in power.

There are many ways to sustain growth, the above are just a few of those. We should focus on attaining growth and prosperity while the government should focus on enforcing the rule of law.

Bienvenido S. Oplas, Jr.. is the president of Bienvenido S. Oplas, Jr. Research Consultancy Services, and Minimal Government Thinkers. He is an international fellow of the Tholos Foundation. minimalgovernment@gmail.com