ASEAN
22 March 2014
Philippines: Asia's new tiger economy
The Philippines' economy grew by 7.1% in the July to September quarter, surprising even the optimistic forecasters. The Pearl of the Orient is finally becoming an Asian tiger.
The Philippines' economy grew by 7.1% in the July to September quarter, compared with the same quarter last year. This was a nice jump up from the previous quarter's growth rate of 6%. The economy was boosted by increased consumer and government spending, and a recovery in exports.
This strong growth surprised even the optimist forecasters who bet on growth of 5.4%, despite the downward sliding world economy. The Philippine September quarter growth rate was the highest in Southeast Asia and second highest in Asia.
The Philippines' GDP has now expanded by 6.5% in the first nine months of the year, and its benchmark stock index is up 30%. The country is clearly benefiting from sustained confidence in the Aquino government that equates good governance with good economics. The National Economic and Development Authority remarked that “our efforts at good governance are beginning to bear fruit".
The country has this year won credit-rating upgrades from both Standard & Poor's and Moody's to one rung below investment grade which is likely to help it attract more investment.
This very good performance is all the more striking because it was only in January this year that the Manila-based Asian Development Bank (ADB) gave a relatively downbeat assessment of the Philippine economy. Prospects were said to be challenging in the current global environment -- and looking ahead, the economy required very much better management.
ADB Vice-President Stephen P. Groff argued that while managing the short term is a challenge, the Philippines suffers from some very large and persistent developmental challenges.
First, unemployment remains high, and poverty remains a serious problem -- despite some success stories like growth in employment in the business process outsourcing industry (BPO).
The BPO industry is moving up the value chain from voice-based services such as call centres to knowledge-based businesses like software development, financial services, accounting and medical services. But the service outsourcing industry employs only about 1% of the total labor force and is biased toward relatively skilled workers. Fundamentally, the country needs a stronger industrial base.
Second, the Philippines is also in desperate need of improving its inadequate infrastructure, from hard infrastructure like roads and airports, to health and education services for people living in poverty. During 2002-2009, the Philippines invested less than half in education as compared to Malaysia, Thailand and Viet Nam.
Third, the Philippines' environmental disaster must be tackled -- coastal and marine environments, farm lands and forests, and air quality in the cities. It is estimated that nearly 5,000 premature deaths each year in Manila are due to respiratory and cardiovascular diseases from exposure to poor air quality.
The fourth key issue to tackle is governance and political economy which is in fact the heart of the matter. For years now, people have been talking about improving governance in the Philippines, but the situation just keeps on deteriorating. With outward migration being a massive social safety valve, there is not sufficient pressure on the government and the country's elite to change.
And too often, anti-corruption campaigns descend into infighting and score-settling among different groups in the elite, without regard to the plight of the country's poor.
There is still, of course, a lot of truth in Groff's comments. As he remarked, the Philippines' exports are too highly concentrated in electronics, particularly semi-conductors. It is too reliant on migrants' remittances. And as we are seeing right now, the country is highly exposed to deadly natural disasters, especially typhoons.
But it also seems clear that the Philippines is changing and is moving in the right direction. The country may have reached an historical turning point. It may be time to recognize that the Pearl of the Orient is finally becoming an Asian tiger economy.
But history shows that economic development is like running a marathon. We can only hope that the Philippines has the stamina to stay the course.
Executive Director
Asian Century Institute
www.asiancenturyinstitute.com
This strong growth surprised even the optimist forecasters who bet on growth of 5.4%, despite the downward sliding world economy. The Philippine September quarter growth rate was the highest in Southeast Asia and second highest in Asia.
The Philippines' GDP has now expanded by 6.5% in the first nine months of the year, and its benchmark stock index is up 30%. The country is clearly benefiting from sustained confidence in the Aquino government that equates good governance with good economics. The National Economic and Development Authority remarked that “our efforts at good governance are beginning to bear fruit".
The country has this year won credit-rating upgrades from both Standard & Poor's and Moody's to one rung below investment grade which is likely to help it attract more investment.
This very good performance is all the more striking because it was only in January this year that the Manila-based Asian Development Bank (ADB) gave a relatively downbeat assessment of the Philippine economy. Prospects were said to be challenging in the current global environment -- and looking ahead, the economy required very much better management.
ADB Vice-President Stephen P. Groff argued that while managing the short term is a challenge, the Philippines suffers from some very large and persistent developmental challenges.
First, unemployment remains high, and poverty remains a serious problem -- despite some success stories like growth in employment in the business process outsourcing industry (BPO).
The BPO industry is moving up the value chain from voice-based services such as call centres to knowledge-based businesses like software development, financial services, accounting and medical services. But the service outsourcing industry employs only about 1% of the total labor force and is biased toward relatively skilled workers. Fundamentally, the country needs a stronger industrial base.
Second, the Philippines is also in desperate need of improving its inadequate infrastructure, from hard infrastructure like roads and airports, to health and education services for people living in poverty. During 2002-2009, the Philippines invested less than half in education as compared to Malaysia, Thailand and Viet Nam.
Third, the Philippines' environmental disaster must be tackled -- coastal and marine environments, farm lands and forests, and air quality in the cities. It is estimated that nearly 5,000 premature deaths each year in Manila are due to respiratory and cardiovascular diseases from exposure to poor air quality.
The fourth key issue to tackle is governance and political economy which is in fact the heart of the matter. For years now, people have been talking about improving governance in the Philippines, but the situation just keeps on deteriorating. With outward migration being a massive social safety valve, there is not sufficient pressure on the government and the country's elite to change.
And too often, anti-corruption campaigns descend into infighting and score-settling among different groups in the elite, without regard to the plight of the country's poor.
There is still, of course, a lot of truth in Groff's comments. As he remarked, the Philippines' exports are too highly concentrated in electronics, particularly semi-conductors. It is too reliant on migrants' remittances. And as we are seeing right now, the country is highly exposed to deadly natural disasters, especially typhoons.
But it also seems clear that the Philippines is changing and is moving in the right direction. The country may have reached an historical turning point. It may be time to recognize that the Pearl of the Orient is finally becoming an Asian tiger economy.
But history shows that economic development is like running a marathon. We can only hope that the Philippines has the stamina to stay the course.
Author
John WestExecutive Director
Asian Century Institute
www.asiancenturyinstitute.com