the philippine economy growing too slow

Growing Too SlowJojo P. Javier

The Philippine Economy

Growing Too SlowThe Philippine Economy

• Philippine Economic Landscape• Growth is not Inclusive• Living in a High Growth Neighborhood• Arangkada’s 3RD Year Assessment

Philippine Economic Landscape

Philippine Economic Landscape

• 7.2% IS NOT ENOUGH• The PDP targets 7-8% growth rate.• Arangkada recommends a 9% annual GDP growth rate

but may be impossible in the short-run due to weak external economic conditions.

Philippine Economic Landscape

We can get it above 8% by 2015-16 by:

• Increasing FDI.• Recovery in exports.• Higher spending in public infrastructure.• Increase value-added growth drivers in

manufacturing, BPO and export agriculture.

Philippine Economic Landscape

57% Services31% Industry12% Agriculture

Philippine Economic Landscape

Philippine Growth Has Not Been Inclusive

NCSB Official Philippine Poverty Statistics

Practically remained unchanged from 2006 through 2012.

Poverty Profile

NCSB Official Philippine Poverty Statistics

Significant drop for 2013. 19.1 from 22.3 and 7.7 from 10.

Poverty Profile

19.1

7.7

Philippine Development Plan (PDP) 2011-2016

• Economic growth of an average of 7-8% until 2016• Reduction in unemployment rate to 6.5-6.7% by 2016• Reduction in incidence of income poverty to 18-20%• Reduction in underemployment to 17% in 2016• Reduction in incidence of multidimensional poverty

incidence (which looks at health, education, access to water, sanitation, secure housing, etc.) to 16-18%

Reduction in incidence of income poverty to 18-20%

Source: Philippine Development Plan (2011)

Malaysia and Indonesia have nearly eliminated poverty.

Indonesia and Vietnam have roughly reduced poverty incidence by 50% since 1990

ASEAN Poverty Profile

Despite the country’s economic growth, its share is becoming smaller compared to the ASEAN 6 countries.

It’s a few points above Vietnam

ASEAN-6 GDP Share

Vietnam is predicted to surpass the Philippines In terms of GDP per Capita in 2014

Indonesia overtook the Philippines in 2009.

ASEAN-6 GDP Per Capita

Lagged from 1981 – 2000 because of high population growth and political instability.

Increased in the current decade because of inward remittance flows.

Provided 4.4% of the average annual GDP growth.

ASEAN-6 GDP per Capita Growth

The Other Side of GDP per Capita

A rise in per capita GDP signals growth in the economy and tends to translate as an increase in productivity.

The Other Side of GDP per Capita

A rise in population with unemployment left unchecked decreases per capita GDP

ASEAN Unemployment Profile

Source: ASEAN Community in Figures (2013) p. 68

2013 – 7.3%2014 (Q1) – 7.5%

In 2011, the increase in wealth of the 40 richest Filipinos was 76.5 % of the Philippine GDP growth.*

* Habito, Inquirer, June 26, 2012

ASEAN Population ProfileSingapore grows through immigration.

Malaysia considers its population too small.

Vietnam, Indonesia and Thailand are below 2%.

The rest have experienced declines with the Philippines at high rate of 2% per year.

ASEAN Population Profile

BOON OR BANE?

Living in a High Growth Neighborhood

Living in a High Growth Neighborhood

Source: World Bank (2012)

Living in a High Growth Neighborhood

Living in a High Growth Neighborhood

• We need a growth rate of 11.6% to reach a PCI of US$ 12,000 in two decades.• Population should decrease to 1.5%, at the same time, to accomplish this goal.

Living in a High Growth Neighborhood

At current growth rates:

• We would be as rich as China today in 25 years.• We would reach income levels of Malaysia.• We would reach a US$ 12,000 PCI in 70 years.

Living in a High Growth Neighborhood

In 2008 the World Bank released “The Growth Report: Strategies for Sustained Growth and Inclusive Development” prepared by the Commission on Growth and Development, chaired by Nobel Laureate Dr. Michael Spence.

The commission studied 13 economies that have grown in the post WWII period for 25 years or longer at an average annual rate of 7% in order to learn what they did to achieve such high rates of growth.

Living in a High Growth Neighborhood

Four of these countries are our neighbors – Indonesia, Malaysia, Singapore and Thailand.

In addition to this small group of 13 economies, the Commission judged that India and Vietnam were “on their way” to increasing the group.

Living in a High Growth NeighborhoodWhat did the rapid growers do right?

• Fully exploited the world economy.

• Maintained macroeconomic stability.

• Mustered high rates of saving and investment.

• Let markets allocate resources• Had committed, credible, and

capable governments.

Living in a High Growth Neighborhood

These are the Philippines’ medium-term policy challenges according to a study by the Organization for Economic Cooperation and Development titled “Economic Outlook for Southeast Asia, China and India 2014”

Source: Economic Outlook for South East Asia, China and India 2014 – Beyond the Middle Income Trap (2014) p. 8

Living in a High Growth Neighborhood

• Job creation also needs to be bolstered through reforms to foster a more favourable business and investment climate, particularly for the small and medium-sized enterprises which contribute so much to employment.

• A weak job-creating capacity that has led to chronically high unemployment and – even more significantly –under-employment has been a critical contributory factor in persistent poverty and inequality.

Source: Economic Outlook for South East Asia, China and India 2014 – Beyond the Middle Income Trap (2014) p. 11

Living in a High Growth Neighborhood

• The Philippines’ poorest island grouping, Mindanao, has been largely overlooked by rural development policies. To help Mindanao capitalize on its natural assets, invigorate its economy, and lift its people out of poverty, rural development needs to focus on improving agricultural productivity and the island’s woeful transport infrastructure.

• The Philippines is one of the countries most prone to natural disasters in the world. Serious aggravating factors are environmental degradation, climate change and uncontrolled urbanization. Reforms to improve disaster management and to foster environmentally sustainable growth will be essential to improving and sustaining the country’s development.

Source: Economic Outlook for South East Asia, China and India 2014 – Beyond the Middle Income Trap (2014) p. 11

Arankada’s 3RD Anniversary Assessment

• The succeeding administrations should consider planning and implementing the doubling of GDP growth rates to 9% within three years as a high priority goal. This has to be supported by a long-term industry policy.

• Job creation in the private sector should be considered a high priority, to reduce unemployment and underemployment by 50% and to give Filipinos more alternatives than working abroad.

• FDI should be targeted to reach over US$7 billion a year in three to four years. It should also be measured in terms of job creation and exports (products and services) generated.

Not OngoingStarted

Substantial Progress

CompletedSource: Arangkada – Third Anniversary Assessment (2014) pp 25-30

Arankada’s 3RD Anniversary Assessment

• An export target of US$ 100 billion in five to six years should be set, with more diversified exports and new markets

• Adequate funds should be made available for the international promotion of Philippine exports, inward investments, tourism, medical travel and retirement programs.

• A significant share of remittances should be channeled into productive investments in the domestic economy through bonds and other funds - Not ongoing.

Not OngoingStarted

Substantial Progress

CompletedSource: Arangkada – Third Anniversary Assessment (2014) pp 25-30

Arankada’s 3RD Anniversary Assessment

• Double the funds available for physical and social infrastructure, civil service quality improvement, investment, tourism and trade promotion, and other growth-promoting expenditures through less government misspending, better tax collection and selectively increasing the EVAT before other taxes.

• Public and private sectors should organize a Special Experts Group comprising economic, business, labor and government leaders to recommend key reforms to make the economy grow at least 9%.

Not OngoingStarted

Substantial Progress

CompletedSource: Arangkada – Third Anniversary Assessment (2014) pp 25-30

“The Philippines is no longer the sick man of East Asia but its rising tiger. The latest GDP growth rate bolsters his assessment and is welcome news. The challenge for the administration is to make sure the benefits of growth will be enjoyed not just by a privileged few but by all Filipinos.”

World Bank Country Director Motoo Konishi

The challenge is to translate solid economic growth into poverty reduction by generating more and better jobs.

ADB. 2014. Asian Development Outlook 2014. Manila

There Is Still More Work Ahead of Us……

Thank You

Jojo P. Javier MIM, MBADoctor of Business Adminstration

Letran Graduate School of Business