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Hosting the World Economic Forum: Is the Philippines the next tiger economy?
By RICHARD JAVAD HEYDARIAN
With our country emerging as one of the fastest growing economies in the world, it should come as no surprise that Manila was chosen to host the 2014 World Economic Forum (WEF) on East Asia. As the new toast of the town among the global business elite, the Philippines -- along the likes of Mexico – has transformed into one of the most promising emerging markets in the early-21st century.
Meanwhile, the giant economies of China, Brazil, Russia, and India have been struggling with varying forms of “middle income trap”, as inflation, slowing growth, and policy paralysis undermine decades of robust economic expansion. In turn, the Philippines has managed to amass huge foreign exchange reserves and score above-average growth rates with relatively low inflation and interest rates.
Under the stewardship of the Aquino administration, there has been greater commitment to “good governance”, as exemplified by the ongoing anti-corruption initiatives and investigations. Host to about $300 billion in untapped mineral reserves, Mindanao is poised to benefit from large-scale foreign investments amid an increasingly promising peace process, which has paved the way for the establishment of the Bangsamoro state. No wonder, given our country’s youthful population, natural resources, myriad of tourist attractions, and huge reserve of skilled labor, it has become fashionable these days to talk about the Philippines as the new tiger economy of Asia.
In conjunction with the WEF, I had the privilege to join a distinguished panel of speakers in the 2014 Bloomberg Leadership Forum, in partnership with the Department of Finance (DOF), where we extensively discussed two inter-related questions of utmost significance: Whether the Philippines’ recent economic boom is sustainable, and whether it is poised to become a new tiger economy.
From our exchanges, it was quite evident that the panelists, featuring leading businessmen, policy-makers, and bankers in the region, more or less agreed on one thing: The Philippines suffers from an “infrastructure deficit”, which could seriously undermine the country’s long-term development trajectory. In addition, a more careful look at the Philippines’ recent economic growth also suggests that our biggest problem is that our growth is not trickling down to the greater population. In this sense, our challenge is not only to sustain high growth rates, but to ensure that our growth is meaningful and consequential to the greater population.
The Real Challenge
Despite years of robust economic expansion, the Philippines continues to suffer from a glaring absence of inclusive growth. Poverty and unemployment figures have hardly changed, while inequality is intensifying. Few major businesses swallow newly-generated growth, while the majority of the population is yet to benefit from the recent economic boom.
Much of our recent growth has been anchored by real estate expansion and low- to medium-end services. Hard-earned remittances from abroad have fuelled domestic consumption. In light of the continuing failure of our land reform program, rural poverty has forced millions of our citizens to search for better opportunities in increasingly congested urban centers, which provide cheap labour for few major conglomerates. Due to massive annual debt-payment (about 20% of our national budget in recent decades) and low tax-collection rates, the Philippine government still has one of the lowest spending rates on education and health in the developing world. Widespread corruption only compounds the situation.
In contrast, the tiger economies of Asia (South Korea and Taiwan) largely relied on successful land-reform, export-oriented manufacturing, and domestic capital to fuel decades of sustained economic expansion. Unless we make our growth more inclusive, there is a high probability that the Philippines will lose economic momentum in the medium- to long-run.
The Infrastructure Imperative
Developments in neighboring Southeast Asian countries have placed the Philippines in a more positive light. Thailand has been engulfed by a vicious political crisis, and the recent establishment of a military government has drawn international criticism and widespread opposition at home. In Vietnam, anti-China protests turned into a massive destruction of industrial plants owned by China and Taiwan, precipitating the exodus of thousands of Chinese citizens. Indonesia, in turn, has drawn huge criticism for imposing new protectionist measures against foreign investments, especially in the lucrative mining sector.
As the Philippines packages itself as an attractive investment destination in a highly competitive neighborhood, it seems quite scandalous that we continue to have one of the world’s worst airports. Due to legal squabbling, our government has struggled to efficiently transfer international flights to alternative sites. Our infrastructure spending is among the lowest in Asia, dwarfed by comparable economies such as Indonesia. The Aquino administration is set to double infrastructure spending, but it is yet to finalize a single Private-Public-Partnership (PPP) project, and the recent corruption scandals will further complicate budget-allocation for and implementation of strategic infrastructure projects.
Our transportation and communications infrastructure are highly underdeveloped. Commuting is a daily struggle for millions of ordinary Filipinos, while top government officials and businessmen benefit from convenient private transport. The internet speed in the Philippines, meanwhile, is among the slowest in Asia, while few companies make huge profits in a tightly-contested market.
Attracting high-quality foreign investment is crucial to our national development, since global companies have the resources and technology to turbo-charge industrialization and provide well-paying employment opportunities for the greater majority of the population. The Philippines has caught the attention of the international community, but it will continue to struggle to attract foreign direct investments unless it creates a robust physical infrastructure and a more stable regulatory environment. And this will require a committed and visionary leadership well beyond the current administration’s term.
Richard Javad Heydarian teaches political science and international relations at the Ateneo De Manila University, and is a columnist for “Asia Times” and “The Huffington Post.” As a foreign affairs specialist, he has regularly presented at varying local and international conferences and panel discussions, and been interviewed by leading media outlets such as Aljazeera, BBC, Bloomberg, CCTV, The New York Times, NPR, among other publications.
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