Mr.Aldaba is a professor of economics at the Ateneo de Manila University. This piece was published in the January 9, 2012 edition of the BusinessWorld, pages S1/4 to S1/5.
With a gross domestic product (GDP) growth rate probably below four percent in 2011, will the Philippine economy have a better year in 2012?
And given a still unstable global environment due to the European debt crisis and uncertain US economic recovery, export growth will remain stagnant. Or at best, record a minimal single digit increase. However, our labor exports, which the government is finally admitting as an important factor for the country’s development, will continue to power domestic demand through remittances. Relatively lucrative labor markets in Australia, New Zealand and Canada will be the target destinations of Filipino professionals and skilled workers this year. It will not be surprising if the value of remittances breaches US$ 20 billion this year, fuelling much of consumption expenditures and stimulating more growth in retail trade, housing and real estate.
Another bright spot in terms of services exports is the sustained growth of Business Process Outsourcing (BPO). The country has already reached the top of the global call center industry. Other value-added sectors will most probably register notable increases, in particular, information technology (IT) and web-based undertakings and the creative industry. In a couple of years, annual BPO contribution to GDP can exceed US$ 25 billion, surpassing remittances from overseas Filipino workers (OFWs).
Tourism is another sector which holds great promise to be a major growth driver. It currently contributes about six percent of GDP, but this can increase markedly in the next few years. Domestic tourism has expanded in the last ten years with the introduction of cheap airfares to various locations in the country. Given the new policy, i.e. pocket open skies, the industry should experience further growth. In terms of foreign tourists, from 3.5 million, visitor arrivals may exceed the 4 million mark as the Department of Tourism (DOT) embarks on its new marketing strategy. The national government’s readiness to spend for the improvement of regional airports is a step in the right direction. Of course, the development of a new international airport, preferably in Clark, will augur well for the industry. The Ninoy Aquino International Airport (NAIA) 1 will soon have a facelift while an airport for budget airlines is will soon rise in Clark within the next three years. Health and wellness tourism, given enough government support, will be another important growth catalyst. Hopefully, this industry will finally take off this 2012.
Local and foreign investments will also likely increase. Despite the political noise created by Chief Justice Renato Corona’s impeachment, key developments point to a positive scenario. The good governance campaign is now reaping some economic fruits in terms of savings from decreased corruption. Spending efficiency and improvements in revenue collection are continuing. Credit upgrades became commonplace last year, effectively reducing interest rates for the country’s debt. The stock market was tops in Southeast Asia last year, expanding moderately, despite the turbulent world economy, and is expected to find new heights this year. PPP (public-private partnership) hopefully will take off, as the feasibility studies and bidding processes have already been arranged.
Investor confidence has been on the uptick despite the still unresolved factors that increase the cost of doing business. The National Competitiveness Council and the Department of Trade and Industry (DTI) in tandem with the various chambers will now embark on strategic industrial plans for key manufacturing sectors like the electronics and semiconductors, automobile, agri-business and food processing, etc. Unless manufacturing growth is revived, over-all growth of the economy cannot be sustained and reach a higher level.
If government complies with its promise to accelerate spending this year and maximizes its stimulus package of PHP 72 billion, then the key ingredients for increased domestic demand will now be complete, more than mitigating the impact of a weak global environment. As P Noy mentioned in his New Year speech, processes to curb corruption are now in place and government is poised to spend on the implementation of big ticket programs and projects. A big chunk of government spending—PhP 39 billion—will go to poor households through the PantawidPamilyang Pilipino Program. With leakages minimized, we are sure that about three million households will be able to augment their incomes this 2012. Local economies are being catalyzed by these conditional cash transfers, while human capital formation is also being commenced.
Barring any big natural disaster or a huge political disturbance, (the latter’s occurrence is highly unlikely given the high approval and trust rating of the administration), domestic economic growth rate will probably reach five to six percent this year. Of course, the government must continue pursuing reforms to reduce the costs of doing business, to spend more especially on infrastructure and human capital programs, and to make governance more transparent and accountable.