The missing 6 percent

The Philippines registered GDP growth of 6 percent in 2015. It’s an impressive number, and is being presented as proof of the effectiveness of government policies to uplift the lives of Filipinos.

In urban centers, the rising number of retail establishments and residences paints a picture of affluence. But contradicting it are the voices of the disgruntled bewailing their difficulty in making ends meet.

During President Aquino’s term, unemployment has improved from 7 percent in July 2010 to 6.5 percent in July 2015. But this picture wouldn’t be as rosy if we consider the alarming jump in underemployment from 17.9 percent to 21 percent in the same period.

Growth should translate to overall positive sentiment, yet feedback from the person in the street indicates otherwise. Things are not adding up. What is really behind this 6 percent? What explains its contradictions? With the national elections fast approaching, what economic policies should presidential candidates aspire to change or keep?

Various components explain growth, but three factors describe the Philippine experience.

First, it is consumption-driven. The consistently increasing remittances of overseas Filipino workers are fueling the retail-sector boom. This explains why so many restaurants and apparel stores are opening.

As of 2015, this value has risen to $26.9 billion, representing 10 percent of last year’s GDP.

Second, due to years of “monetary easing”—defined as actions by the US Fed, European Central Bank and Bank of Japan to spur growth by increasing the money supply in the system—real estate projects benefited from international capital finding its way into the banking system. Domestic bank loans have more than doubled from 5.9 percent in 2009 to 19.9 percent in 2014. A big chunk of that went into the speculative area of real estate construction.  An interesting note: Most of the property buyers are OFWs as well.

Third, the BPO (business process outsourcing) industry serves as a shining beacon of hope, generating much-needed employment. Considered a valuable export sector, it is expected to deliver a value of $25 billion by 2016, equaling the contribution made by OFW remittances.

We can see how lopsided the story is: OFWs, BPO participants, and real estate developers are well-placed to benefit from this growth. But with the OFWs at around 1.9 million and BPO participants at around 1.2 million, they represent only 7 percent of the 42-million-strong Philippine workforce. The remaining 93 percent are left behind because they either lack the needed skills or are not in the urban centers where the opportunities are.

The BPO industry aside, we also don’t see a direct relationship between government policy and the OFW/real estate stories. The absence of active policy in these areas is reinforcing this lopsided, noninclusive pattern.

Remittances may contribute to the retail sector, but this model is detrimental in the long run. Labor as raw material to production is relatively low-value, and we fail to capture a bigger slice of the pie by being content with supplying raw material to other economies’ industries.

Also, the value of jobs created in the retail sector is not enough to compensate for the ones lost with every OFW that leaves. This explains the persistent underemployment numbers and why people still aim to leave the Philippines to seek employment.

The cycle of generating low-value jobs through the export of labor is like quicksand that gets harder to get out of as time progresses.

Private-sector construction projects do serve a social good in terms of providing modern living conditions. But they are by no means an equitable means of sharing wealth. The transfer of wealth from buyers to developers benefits people who already have access to funds (the rich) or financing options intermediated by banks (the already employed and banked).

This explains why there is much more incentive to build in urban areas, further worsening the congestion afflicting the metropolis.

Jobs generated by this sector are also low-value and favor those residing in urban areas, further taking opportunities away from the rural poor. It is also no surprise that most of the buyers are OFWs.

To give credit where it’s due, government support for this sector is laudable.

Beyond providing formal employment, it provides for the gradual accumulation of intellectual capital within the Philippines’ borders and attempts to balance out the brain drain caused by OFW deployments.

Still, much needs to be done as the BPO industry focuses on commoditized jobs that are competed for mainly on price. Similar industries need to be supported/built. Incentives to spread them outside the metropolis will make more opportunities available to the rural poor.

As we scrutinize the presidential candidates’ platforms of government, it is imperative that we understand who among them is presenting concrete plans to:

• Maximize Philippine talent. We should demand a plan to reverse OFW deployments. Slogans of job creation will not be enough. Growing globally competitive industries that will retain Filipino talent and capture more of the value created is of utmost importance.
• Tackle the 93 percent. Much of the 93 percent are in rural areas and lack access to urban growth. Jobs are the primary means of social mobility for the poor. What plans are there to decentralize growth and unlock their productivity?
• Extend beyond the BPO industry. Resting on the laurels of the BPO success will stunt its growth potential; the price competition in this area will cap the wealth effect it brings.

Obviously, these imperatives require long-term thinking and political will. Otherwise, the next six years will go to waste, similar to the period that just passed.

Teelie Chua is an investment banking technologist living in New York City. In the past 10 years, he has navigated the financial centers of Tokyo, Hong Kong and Singapore, taking a front-row seat in understanding the evolution of the financial services industry.