Can we grow twice as fast?

“The Philippines can grow twice as fast … although not yet this year,” declared my friend former Finance Secretary Roberto de Ocampo at the end of his talk last week at the “Arangkada 2012” business forum. The Joint Foreign Chambers of Commerce (JFC) came together to assess progress on a package of recommendations they made in late 2010 toward accelerating the growth of the Philippine economy in a way that benefits all Filipinos. The conference took stock of forward movement—or the lack of it—in over 400 recommendations embodied in the 2010 document of the same name.

Few doubt that our economy has the potential to double the growth it has seen in recent years. We have heard of how various investment banks have been making bullish predictions about how the country, for example, will be the 16th largest economy in the world by 2050 (HSBC), or 6th among 10 “global growth generators” within 2010-2050 (Citibank). In my own economic briefings, I end with the observation that the long-term outlook for our economy is bright, given our rich endowment of human and natural resources, coupled with key global economic trends that favor us.  The Asian Development Bank (ADB) is more cautious: in its Asia 2050 study, it terms the Philippines merely as an “aspiring economy.”

But we all know it is not mere growth that we need. The JFC points out that doubling growth is only half the objective. The quality of that growth is just as important, as we need that growth to be sustainable and inclusive. I have time and again lamented how the growth we have seen in past years has been narrow, shallow and hollow. Too few economic sectors and geographic areas have driven and, consequently, benefited from the growth. Very weak linkages between the leading growth sectors and the rest of the domestic economy yielded growth that lacks depth, with very shallow benefits. And too little job creation with the growth we attained, driven dominantly by capital-intensive (a.k.a. labor-saving) industries, yielded growth that not only failed to arrest poverty, but actually increased it.

In this light, the JFC focused on seven “big winner sectors” in Arangkada 2010: agribusiness, business process outsourcing (BPO), creative industries, infrastructure, manufacturing and logistics, mining and tourism (including medical travel and retirement). Once the qualifier “inclusive” is added, three of these seven are singled out as the top drivers: tourism, infrastructure and agriculture/agribusiness.

This is supported by my own analysis made in a 2010 ADB paper (“An Agenda for High and Inclusive Growth in the Philippines,” https://www.adb.org/documents/reports/agenda-high-inclusive-growth/agenda-high-inclusive-growth.pdf). In that study, I argue that for a sector to be an effective driver of inclusive growth, it must satisfy at least two attributes.  One, it should be strongly job creating, that is, it uses more labor per unit of output. Two, it should have strong linkages with other domestic industries, either as buyer of their products as inputs to production (backward linkage) or as sellers to those industries that use its product as input to their production (forward linkage).

We actually have a body of data available that permits this assessment, in the form of the Input-Output Table of the Philippine economy, produced periodically by the National Statistical Coordination Board. The matrix details the structure of the economy, tracing how much each industry uses of all other industries’ outputs as input, and how much of its outputs are used by all other industries as input. It also gives the value of primary inputs (labor and capital) used by each industry. With the table, one can thus assess the above two attributes for each industry. True enough, tourism turns out to have the strongest inter-industry linkages among all sectors of the economy. Not far behind are agriculture and agribusiness, where the latter includes food processing. My paper likewise argued that catching up on our infrastructure lag is both a critical prerequisite to and driver of high and inclusive growth.

Why the caveat in Bobby de Ocampo’s conclusion? Why can’t we double our growth by 2012? There are both external and internal reasons. The external reasons are by now well known. European economies are in turmoil, the US economy remains sluggish, political upheavals are sweeping the Middle East, and natural disasters in Japan and Thailand continue to adversely affect value chains linked to key Philippine industries. Internally, the Arangkada assessment welcomed the tangible progress made on a number of its 2010 recommendations, including on legislative initiatives for BPO and upgrading and extension of railway lines (the Bicol railway and MRT-1 North Extension). But it also observed slow progress in too many areas, reflecting the need for a greater sense of urgency in key government agencies and units.

Tourism, in particular, will not take off on the basis of the catchy “more fun in the Philippines” campaign alone. For as long as the US Federal Aviation Administration (FAA) rates us as “Category 2”—meaning our air safety measures fall below minimum international standards—no amount of promotion will get those tourists in. And with the reported angry walkout by Transportation Secretary Mar Roxas from the exit conference between our civil aviation authorities and a visiting FAA technical review team last week, I don’t expect us to regain Category 1 status anytime soon.

For now, then, Arangkada more aptly describes how government itself must move—and that means twice as fast, preferably faster.

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