Cielito F. Habito, Ph.D.

Economic Briefing for the Ateneo Graduate School of

Business4 June 2013

Philippine Economic Performance and Outlook:In Quest of Inclusive Growth

Overview

•Where We Have Been➜ Disturbing Comparisons

•Where We Are Now The “PiTiK Test”

•Where We Are Headed Signs of a Breakout Sustaining Growth, Threats to Growth The Challenge of Inclusive Growth Doing Our Share

Philippines & Thailand:Estranged Twins

Thai Phil Thai PhilPopulation (million) 36 36 66.9 92.2Population G.R. (%) 3.1 3.1 0.6 2.0GDP Per Capita (US$) 250 250 4062 1796GDP Share (%) Agriculture 32.0 26.0 11.6 14.8 Industry 23.0 27.5 43.3 30.2 Services 45.2 46.7 45.1 55.0

Gross Dom Inv (%GDP) 20.0 20.0 21.8 14.6Gross Dom Saving (%GDP) 18.5 20.3 31.7 15.6

FDI Stock (Billion US$) 7.8 2.3 93.8 22.91998 2009

Indicator1970 2009

1965 2009

Philippines & Indonesia:Trading Places

Gross Domestic InvestmentAverage Annual Growth Rate (%)

2004-2009Source: ADB

Poverty rose from 24.9% (2003) to 26.5% (2009); (H1-2012: 27.9%)

Net elementary school participation rate fell from 97% in 2001 to 85% in 2008; high school from 66% to 62%

Malnutrition incidence went up in most provinces

Wide disparities persist in life expectancy across provinces: Low - 53.4 (Tawi-Tawi); High - 74.6 (La Union)

The Economy In Human Terms

2010: Turning Point For Private Domestic Investment

Gross Domestic InvestmentAverage Annual Growth Rate (%) 2004-2009 (Philippines: Ave. 2010-12)

9.3

How Is The Economy Doing?The “PiTiK Test”

The Essential Yardsticks (P-T-K):

Price Stability (Presyo)

Jobs (Trabaho)

Incomes (Kita)

Latest Economic PerformanceGood News: 2½ out of 3

Prices: Slowed down to 3.2% in 2012 vs. 4.4% in 2011 (Food – 2.3%); Now 2.6% (Food -1.9%)

Jobs: Jan 2013 unemployment fell to 7.1% from previous year’s 7.3%, 606,000 jobs gained; but 571,000 agri jobs were lost, underemployment up to 21%

Incomes/Output: GDP grew 7.8% in Q1-2013 (fastest in Asia), from previous year’s 6.5% growth

Presyo

Inflation Trends

9.3%

3.2%

3.8%

4.4%

FY 2013 – 3.0% April ’13 – 2.6% Non-NCR – 2.8% Food – 1.9%

3.2%

Trabaho

Underemployment Rising

Kita

2012: All Sectors Speeding Up

Kita

Q1-2013: Industrial Vigor

Manufacturing & Construction Drive Industry Growth

Investment Surges in Q1

Business Confidence:Historical Peaks

FDI Approvals Reach 16-year High; Net Inflows Up 32.6%

($1.1b)

Sustained Remittances Growth

Regional GDP Growth, 2010-2011Fastest

growing: Caraga Region, Central Visayas, Central Luzon Worst

Performers:ARMM,

Zamboanga Peninsula

A Break From the Past

Source: NSCB

PiTiK Test: Then and Now

Source: NSCB

Taking Off Where It Matters

Source: NSCB

But much work remains

Source: ADB

We still lag far behind

Source: ADB

Where is the Peso Headed?

Source: http://fx.sauder.ubc.ca

Peso Appreciation Pressures

Credit rating upgrade More financial inflows

Sustained income remittances growth May accelerate further?

BSP’s ‘arsenal’ getting tighter Intervention ability more limited

More fun in PH Tourism influx picking up

US Dollar’s decline as reserve currency Long term weakening

Growth Drivers In 2013 Onwards

Government spending: Full throttle; PPPs coming on stream; stronger revenues

Governance: Improvements taking hold

Private domestic investment: Up from a decade of stagnation; FDI picking up

Fitch, S&P & Moody’s: Ratings upgrades

Election Spending: Strong stimulus

Growth Drivers In 2013 Onwards

Remittances: Steady growth

Gaming Investments: PH as the new Macau?

Mindanao: Peace agreement to unleash new growth potentials

New manufacturing investments

China: Factory of the world no more; resume PH industrialization?

Manufacturing: Renewed Vigor

China trends – returning factoriesFood Manufactures – driven by growing population, rising incomes; Halal products (with growing Islamic markets worldwide)

Design-based Manufactures – high end apparel; furniture & fixtures

Finished consumer electronic products – deliberate efforts now underway to move up the value chain (JICA)

Manufacturing 2012: Winners Well Outnumber Losers

Winners• Wearing apparel (44.1%)• Furniture/Fixtures

(38.7%) • Wood products• Office equipment• Nonmetallic Min Prods• Footwear & leather

prods• Transport Equipment• Electrical Machinery• Rubber & plastic products• Food Manufactures• Chemical Products

Losers• Basic Metal Prods • Misc Manufactures• Petroleum/Coal Prods • Paper/Paper products • Tobacco Manufactures• Radio, TV & Comm

Eqpt

BeveragesPublishing/PrintingNon-elec MachineryFabricated Metal

Prods

Threats To Sustained Growth

Fiscal Time Bomb in Europe & US: Systemic collapse would have global impacts

Appreciating Peso: Adjusting to the inevitable

Political Backsliding: Post-2016 scenarioASEAN Economic Community 2015: Tap opportunities, address vulnerabilities

Wide Inequalities: Attaining inclusive growth critical to avert “social volcano”

Who’s Afraid Of ASEAN 2015?

ASEAN as a single market and production base, via:

• Elimination of import tariffs

• Free movement of professionals

• Freer movement of capital

• Free flow of investment

• Faster customs clearance procedures

Top Philippine Billionaires:Skewed Wealth, Skewed Growth

Income of top 150,000 families = income of bottom 6 million

Rise in wealth of the 40 richest Filipinos in 2011 equaled 76 percent of the total growth in income (GDP) of all Filipinos

Forbes Asia

Wealth Increase of 40 Richest / Absolute Increase in

GDP (2011)

Philippines: $13 billion / $17 billion (76%)

Thailand: $9 billion / $26.7 billion (33.7%)

Malaysia: $2.3 billion / $41 billion (5.6%)

Japan: $11 billion / $381 billion (2.8%)

• Economy grew 7.2% in Q3-2012, but actually lost 882,000 jobs (NSO-LFS)

• PH rice farmers receive only 45% of wholesale price; other Asian rice farmers get 65-95% (FAOStat)

• A top billionaire can easily borrow hundreds of millions from a gov’t bank and make fabulous profits from it – but a small farmer or entrepreneur is hard-pressed to borrow a few thousand pesos

Narrow, Hollow & Shallow Growth:

Disturbing Facts

• It costs more to ship from Mindanao to Manila than from Bangkok to Manila, for well over 25 years now

• Some of the 40 richest Filipinos in the Forbes list do not even appear in the top 500 taxpayers list of BIR

• Gov’t borrowed billions for Subic & Batangas Ports “to decongest Metro Manila” – then permitted substantial capacity expansion of Manila Port, leaving the two < 5% utilized (JICA)

Narrow, Hollow & Shallow Growth:

More Disturbing Facts

Inclusive Growth:How Shall We Get There?

• Widen the economic base: Concerted SME promotion and development; foster social enterprise

• Disperse economic activity & economic gains: Democratize the value chains; invest in Mindanao; strengthen competition policy; make the financial system inclusive

• Get agriculture moving: Empower Provincial Agricultural Offices; reform DA bureaucracy; attract/push large investors into agribusiness

The Philippine Conundrum

• We have long understood our problems, and known the needed measures – still, the problems persist with no real action taken

• Can our politics and political economy ever change to finally enable the long needed reforms?

Our Task:

How can government, private sector and civil society work together to ensure sustained pursuit of the truly meaningful, long needed and largely well known policy and public investment interventions crucial for inclusive growth?

• Freedom of Information Act• National Land Use Act• Competition Policy Law• Rationalization of Fiscal

Incentives• Wider Liberalization of

Investment Policy• Political Dynasties Ban• Easing of Cabotage Law• Open Skies Policy• Integrated Forward-Looking

Strategic Infrastructure Plan• Expanded Farm and SME

Finance• Political Party Reform• Inclusive Commodity Value

Chains• Effective Smallholder

Clustering Programs• Wider Ro-Ro Coverage• National Agricultural

Cooperative System• Strategic Investment

Program for Bangsamoro• Climate Change Resilient

Local Development Plans• Freedom of Information Act• National Land Use Act• Competition Policy Law• Rationalization of Fiscal

Incentives• Wider Liberalization of

Investment • Political Dynasties Ban• Easing of Cabotage Law• Open Skies Policy• Integrated Forward-Looking

Strategic Infrastructure Plan• Expanded Farm and SME

Finance• Political Party Reform• Inclusive Commodity Value

Chains• Effective Smallholder

Clustering Programs• Wider Ro-Ro Coverage• National Agricultural

Cooperative System• Strategic Investment

Program for Bangsamoro• Climate Change Resilient

Local Development Plans

Ruchir Sharma: Breakout Nations

• PH: new economy to watch!

• TIP (Turkey, Indo-nesia & Philippines) are pushing BRICS aside

• Sharma: Quality of political leadership crucial to becoming a breakout nation

Positive change will not come automatically…

• Demand good governance from our leaders at all levels, at all times… and we must also deserve it

• Do our share to stabilize and strengthen the economy:- Pay proper taxes- Consciously buy Filipino, buy locally- Discover our own country first (it’s more

fun – and less costly!)

We Filipinos must all do our share…

• Doing Our Share (Cont’d)

- Invest in Mindanao – especially Muslim Mindanao (and help break its vicious cycle of backwardness)

- Invest in good political leaders

- Invest in a poor family➜ One out of five Filipino families is poor

➜ It takes only one of every four non-poor to ‘adopt’ a poor family

➜ Not to ‘give a fish,’ but ‘teach them to fish’!

Thank you very much!

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