At a briefing last July 19 by National Economic and Development Authority (Neda) Secretary Arsenio Balisacan, he said the Philippines is on track to be an upper middle-income country by 2025. Hopefully, we can achieve this milestone as projected by the Neda secretary because with Indonesia regaining upper middle-income country status at the end of the COVID-19 pandemic in 2022, the Philippines remains the only country among the five original Asean member states that has not been able to achieve that status.
Taking into account that the Philippines has been in the lower middle-income country status for three decades already, the country can be considered stuck in the so-called middle-income trap. This happens when a middle-income country fails to transition to a high-income economy due to rising costs and declining competitiveness. Caught in this situation, countries are likely to face the challenges of a large pool of young people searching for jobs as well as significant rates of poverty, especially in underdeveloped rural areas. Sounds familiar, doesn’t it?
So what can be done to get out of this trap? An Asian Development Bank publication in March 2017 titled, “Escaping the Middle-Income Trap: Innovate or Perish,” identifies the insufficient development of domestic innovation capabilities to be at the heart of the middle-income trap. Furthermore, globalization has provided an added challenge for middle-income countries in terms of narrowing the capabilities gap because there is less time to do so with more players competing in the innovation space and with technological innovation changing faster. This is why we cannot be left behind and need to break through.
The Philippines will need a comprehensive innovation-focused strategy in order to escape the middle-income trap. That strategy should focus on advancing innovation, moving up the value chain and creating decent jobs. In light of present circumstances, innovation is going to play a big role in the country’s path to progress.
As they say, better late than never. Thus Republic Act No. 11293 or the Philippine Innovation Act was signed into law in April 2019. Four years later, the National Innovation Agenda and Strategy Document (NIASD) 2023-2032 was approved by President Marcos on June 30, 2023. The NIASD is the country’s plan to improve innovation governance and establish a dynamic innovation ecosystem. It aims to facilitate collaboration through various platforms and provide resources and facilities to innovators so they can turn their innovative ideas into products and services.
While it is good to know that there is now an innovation strategy in place, many challenges remain and need to be overcome. Among these challenges is an overreliance on multinational corporations for innovation and a lack of technological readiness. Among the areas for improvement identified in a Department of Trade and Industry policy brief in 2018 on innovation in the Philippine technology sector are an educated labor force; foreign direct investment; government procurement of advanced technology; university and industry collaboration; ease of doing business; ease of starting a business; and patent activity.
Notwithstanding the challenges, the prospects of the Philippines creating an innovation culture and ecosystem are promising. Ranking at 100 in the Global Innovation Index in 2014, the Philippines now ranks 51 out of 132 economies as of 2021. Hopefully, with the NIASD 2023-2032 approved, the necessary steps needed to allow the country to unlock and harness the power of innovation will be taken. This will surely help the country achieve upper middle-income country status soon, and also bring us out of the middle-income country trap.
However, it must be kept in mind that even if we achieve such a distinction, that won’t mean anything to Filipinos if they continue to have to go overseas to get good jobs, have limited access to affordable health care, children continue to have poor learning outcomes, and people still need to rely on social welfare assistance (ayuda) programs. Economic progress isn’t just measured by GDP, per capita GNI, and other such metrics, it is also about the people experiencing an improved and better standard of living and quality of life.
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Moira G. Gallaga served three Philippine presidents as presidential protocol officer and was posted as a diplomat at the Philippine Consulate General in Los Angeles, and the Philippine Embassy in Washington.