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No Free Lunch

Drags and drivers in 2020

/ 04:30 AM February 21, 2020

The year 2020 started with a series of jolts to weigh the Philippine economy down in the very first month. The US-instigated assassination of Iran’s top military leader brought the specter of new volatility in the Middle East, and yet another episode of destabilizing oil price hikes. The British formalized their country’s exit from the European Union, bringing renewed apprehensions on its international economic repercussions. Out of China has come the COVID-19 virus that is poised to crimp growth prospects in our own tourism and manufacturing sectors, among others.

Here at home, Taal Volcano’s eruption has caused substantial damage to crops, livestock and fisheries, and disrupted manufacturing operations in the country’s most industrialized region of Calabarzon. Meanwhile, President Duterte’s intensified attacks on major business entities have sent chills down the spines of domestic and foreign investors at a time when total investment growth in the country had already ground down to a near halt. This follows years of double-digit investment growth, and three years of successive slowing down in the overall economy’s growth.

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These first-month jolts came on top of longer-standing drags on our economy that have already been taking a toll in recent years. Our perennially underperforming farm sector has remained sluggish, growing persistently more slowly than our population does, implying that agricultural production per capita has continuously declined over the years. The trade war that US President Donald Trump has waged against China has already severely diminished overall world trade, and slowed global economic growth. While the Philippines’ weak export sector relative to our economic peers has softened the impact of the world slowdown on us, the trade war’s dampening effect on our manufacturing sector’s growth has been unmistakable. Its toll on our human resource exports is also seen in slower growth in deployment of overseas Filipino workers, and similar slowdown in inward income remittances from the rapid growth of yesteryears.

As if the slowing down of foreign exchange inflows through goods and services exports, inbound tourism and remittances were not enough, foreign direct investment (FDI) inflows have actually declined for the second year in a row. Last year’s cumulative decline of 32.8 percent as of October was a far steeper fall than the previous year’s 4.9 percent decline, and yet most of our neighbors continued to enjoy growing FDI inflows. The implication is clear: something of our own doing is making us attract less of those job-creating investments, even as the trade war created a window to attract fleeing investments from China, with neighbors like Vietnam cashing in. Part of the problem could be the demonstrated low absorptive capacity of our government infrastructure agencies tasked to push the ambitious infrastructure buildup that the government has embarked on.

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All these notwithstanding, the Philippine economy possesses certain long-standing and recent strengths and opportunities that could be harnessed to help drive growth in the year ahead and beyond. Ours is an abundant and relatively young labor force, an advantage that will persist in coming decades owing to a persistently higher fertility and population growth rate relative to our comparable peers. Coupled with an abundance of human resources is our also peculiar abundance of natural resources: great biodiversity, fertile soils, rich inland and maritime fisheries, and a higher preponderance of minerals in the ground. Our macroeconomic fundamentals are solid, built over past administrations’ careful and skillful monetary and fiscal management. Formalization of the Bangsamoro Autonomous Region in Muslim Mindanao paves the way for potential economic dynamism in the erstwhile lagging region. Opportunities from greater economic cooperation and integration in our part of the world remain largely untapped. And “Build, build, build” can yet be the great economic boost it was meant to be, if and once we sort out the implementation bottlenecks plaguing us.

Our list of drags may dominate our list of drivers, but we enter 2020 hoping for the best.

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