As expected, economic expansion in 2014 missed the government’s target of 6.5-7.5 percent, but the performance in the fourth quarter was a pleasant surprise, exceeding all analysts’ expectations. With an annual growth of 6.1 percent as measured by the gross domestic product last year, Socioeconomic Planning Secretary Arsenio Balisacan declared that the Philippines was no longer the “sick man of Asia,” a label the country had carried since the 1980s when its neighbors started overtaking it in terms of economic prosperity.
The 2014 performance made the Philippines the second-fastest-growing Asian country after China, which had 7.3 percent, and ahead of Vietnam’s 6 percent, according to Balisacan. It is sad that the government is now choosing to compare the Philippine economy with Vietnam’s when we used to be more prosperous than fellow Asean members Thailand, Indonesia and Malaysia.
One bright spot last year was the continued growth of manufacturing. The healthier economies sustained their expansion usually through sectors such as exports, which led to the flow of investments into facilities such as steel plants that, in turn, led to the surge in manufacturing activity, a big generator of jobs. In 2014, the local industry sector accounted for 33.25 percent of GDP while agriculture had a diminished share of just 10.03 percent. The services sector continued to account for more than half of the economy with a 56.72-percent share of GDP. Services—that part of the economy that produces intangible goods (banks, hotels, call centers, etc.)—grew by 6 percent, but industry expanded at a faster pace of 7.5 percent, led by construction at 8.5 percent and manufacturing at 8.1 percent.
Economic growth last year remained respectable. Still, much needs to be done to make economic expansion sustainable and inclusive. Henry Schumacher, executive vice president of the European Chamber of Commerce of the Philippines, has reiterated that manufacturing and agriculture needed to grow at a much faster pace through local and foreign investment. To sustain growth, the Philippines still needs policies that will further boost investor confidence, which eventually leads to the creation of more jobs. The private sector has identified some of these measures to include stable tax regulations and reforms (lowering the income tax and removing subsidies to sectors that do not need them and providing the perks to those that require them), amendments to the Build-Operate-Transfer Law to facilitate infrastructure projects, as well as amendments to economic provisions in the Constitution, particularly those restricting foreign ownership, to enhance the environment for doing business.
The American Chamber of Commerce of the Philippines, on the other hand, had been pushing the building of more infrastructure (although the public-private partnership program will be bidding the big-ticket items this year), government support for responsible mining, and revival of the agricultural sector, where much of the labor force works.
The Philippines may not be the “sick man of Asia” now, but neither is it the healthiest. Balisacan asserted that “our economic growth is becoming more competitive with our East and Southeast Asian neighbors.” Well, the growth figures may be competitive with our neighbors’, but the question is whether the components of our economy are as competitive. Can our industrial and service sectors—from manufacturing to banking—really compete with their peers in the region? There is also the problem of joblessness. While unemployment eased to 6 percent in the October 2014 survey from 6.4 percent a year ago, underemployment rose to 18.7 percent from 18 percent. At the same time, poverty incidence remained at a high 24.9 percent: One in every four Filipinos is poor.
Sustaining respectable growth rates will require the government and the private sector to double their efforts at boosting the economy and preventing a relapse. The government needs to open the economy to investors through transparent and stable policies, while the private sector should take more risk and invest in agriculture and manufacturing, and build factories that create jobs. Only by creating more jobs can we truly alleviate poverty and make economic growth inclusive.
And inclusive growth is more than just hitting growth targets. It requires cooperative efforts that will address poverty, which is too big a problem for the government to resolve alone.