Our industrialization challenge
Our economy faces various push and pull factors this year and onward, making it very hard for the average Filipino family to anticipate what the future holds for them. Aggregate economic performance measured with the usual yardsticks of gross domestic product (GDP) growth, inflation, and the unemployment rate may not necessarily reflect how the average Filipino family is doing, more so those at the bottom. For many years, I described our economy’s growth to be narrow, shallow, and hollow. With this, I meant that a small minority was benefiting even with good economic numbers reported as poverty incidence and inequality remained high notwithstanding.
Things changed around 2012 up to about 2018, a period when poverty incidence dropped from 25.2 to 16.6 percent, the fastest decline seen in our modern history. It was also a unique period when manufacturing activity grew faster than the overall economy as average annual manufacturing growth of 7.2 percent outstripped GDP growth of 6.6 percent. In contrast, manufacturing grew at an annual average rate of only 4.3 percent from 2004 to 2010, lagging behind a faster GDP growth of 5.2 percent. This was a period when our poverty incidence actually rose (i.e., from 24.9 percent in 2003 to 26.5 percent in 2009). These observations lend support to the view that industrialization is key to achieving inclusive economic growth, meaning, growth on a broad base, thereby yielding broad benefits as well. Sadly, I sense a renewed turn back toward a narrow, shallow, and hollow economy in recent years, especially with the government’s failure to help our farmers improve productivity and competitiveness, and persistent hurdles in getting more manufacturing investments into the country. The two are interlinked, as I explain more below.
Many think the services sector is our strength, having dominated our economy and its growth since the 1990s and further back. The sector has indeed been providing jobs, livelihoods, and incomes to the bigger part of our country’s workforce. But what kind of jobs? They span a wide range of occupations from the lowest-earning (like garbage scavenging) to top-tier positions (like bank executives). These range from low-productivity work in the informal or underground economy like trading, including its lowliest form called kalakal, or selling recyclable materials scavenged from garbage piles; informal transport services on pedicabs, habal-habal (motorcycle taxis), tricycles, jeepneys, bancas (small boats), and foot-driven railway trolleys; repair of motorcycles, cars, appliances, tools, and equipment; to white-collar jobs in finance, real estate, and business process outsourcing. It’s a varied mix, and the Philippine Statistics Authority reports that the average labor productivity in the services sector in 2024 was P469,487 per worker (in 2018 prices). This is higher than P176,830 per worker in agriculture, fishery, and forestry, but well below P728,457 per worker in industry, where labor is most productive.
If we are to generate more remunerative jobs, the clear need is to expand the industry, which is mostly manufacturing. This will entail addressing two long-standing hurdles to our industrial development: our inability to attract as much investments as our neighbors like Indonesia and Vietnam, and our weak agriculture sector that could otherwise provide the industry’s raw materials. The first will require relentless efforts to improve our investment climate, with the biggest drawback being governance and politics, or more precisely, corruption that raises costs of doing business here, and policy instability. I have written here extensively on the second over the last 22 years, and have long concluded that our problems in agriculture stem from bad governance of the sector. I know Agriculture Secretary Francisco Tiu Laurel Jr. is intent on making a difference, but it will take reimagining the entire agriculture bureaucracy and working effectively through provincial and local governments the way Vietnam successfully does it.
As our economy navigates its way through 2025 and beyond, at least four major pressures will shape our short- to long-term outcomes: (1) uncertain economic prospects in the United States under President Donald Trump; (2) continuing geopolitical tensions (in the West Philippine Sea, Middle East, and Russia-Ukraine); (3) our upcoming midterm elections, which will, as always, boost economic growth from sheer election spending alone, with great worries about the quality of new leaders to be elected; and (4) our critical human development challenges in health, nutrition, and education. The first two are largely beyond our hands. Outcomes on the latter two will crucially depend on all of us Filipinos thinking earnestly of concrete actions we can take to change our country for the better, as responsible voters and together as caring and sharing citizens.
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cielito.habito@gmail.com
