Investments: our crying need

Headlines last week bannered the 27.5-percent joblessness rate reported by the Social Weather Stations (SWS) in the fourth quarter of 2013, a large jump from the 21.7 percent rate reported in the third quarter. But SWS chief Dr. Mahar Mangahas downplays the seemingly alarming news, pointing out in his recent Inquirer column that the full year average joblessness rate of 25.2 percent is lower than the previous year’s 28.8 percent full year average. Thus, the jobs picture actually generally improved in 2013, notwithstanding the fourth quarter surge in joblessness. He also explains the crucial difference between “joblessness” as defined by the SWS survey, and “unemployment” as measured by official government statistics. Having a job, Mangahas explains, is quite different from having been “employed,” which is defined in the official Labor Force Survey as having worked even only for an hour, whether paid or unpaid, within the past week from when the survey is taken. It is not inconsistent, then, that workers without jobs made up 27.5 percent but those who had not worked made up only 6.5 percent of the workforce in the last quarter.

The undeniable fact remains that joblessness and unemployment remain much too high in the Philippines, and unusually so in a region with among the most dynamic economies in the world today. Our 2012 unemployment rate of 7 percent was nearly three times the average for the region (2.4 percent), and yet we already have around a tenth of our workers working overseas as it is. What makes us so different from our neighbors that we have not been as successful in generating enough jobs for our workforce?

It all sums up in one word: investment. We simply don’t have enough of it, and we have far less of it than our comparable neighbors do. Before I began writing this piece, I spent several hours poring over and doing calculations with investment and employment data from various sources, including from the Asian Development Bank (for cross-country comparisons), the Philippine Statistics Authority (which now subsumes both the National Statistical Coordination Board and the National Statistics Office), and the Department of Budget and Management (for government capital expenditures). Several interesting observations jump out of the numbers.

First, and as already noted above, we lag behind most of our Southeast Asian neighbors in terms of overall fixed investment (aka capital formation), measured as a percentage of gross domestic product (GDP). Our gross fixed capital formation-to-GDP ratio was 19 percent in 2012, whereas the average for the rest of Asean is 23.9 percent, with Burma (Myanmar) and Indonesia even getting 30 percent or more. Included in this measure are domestic and foreign investments, and investments made by both private and public (i.e., government) sectors.

Second, among the past five administrations, we achieved the highest levels of fixed investment as a percentage of GDP during the Ramos years of 1992-1998, with a ratio of 23.3 percent. The ratio averaged 19 percent during the Cory Aquino years, 18.7 percent in the Estrada years, 20.4 percent in the

Arroyo years, and 19.7 percent under the current Aquino presidency so far. By decade, this ratio averaged 22.2 percent in the 1980s, 22.0 percent in the 1990s, 20.4 in 2001-2010, and 19.7 within 2011-2013 so far. Interestingly, the investment ratio averaged 24.9 percent in the early 1980s, suggesting that our investment-to-GDP ratio has been generally declining over the last three decades. This is a trend that we simply must arrest and reverse.

Third, foreign direct investments (FDI) have largely passed us by in favor of our neighbors.

In the period 2004-2011, FDI flows into the Philippines averaged a mere $1.1 billion per year, against Indonesia’s $4.5 billion, Thailand’s $4.8 billion, Vietnam’s $5.3 billion, and Singapore’s $15.7 billion. This is even less than the yearly average of $1.5 billion we attracted in the 1990s, with the peak of $3.5 billion reached in 1996 (before our momentum was broken by the Asian financial crisis). Governance issues had since held us back down to the same annual average of $1.5 billion in the 2001-2010 decade, slackening further in the latter half of that decade. But now there’s good news: we averaged $2.8 billion annually in the last three years, and already drew in $3.65 billion as of the first 11 months of 2013. While the pace appears to be picking up, we are still far behind our neighbors and need to speed up even more, even as we all wonder if we could sustain such momentum, especially beyond 2016.

Fourth, we lag behind even on investments coming from government itself. Our government’s capital expenditures as a percentage of GDP averaged only 2.6 percent in the past 10 years, whereas the average ratio for the rest of Asean was more than twice that, at 5.8 percent. Laos, Vietnam and Burma led the way with impressive 9.6, 8.2 and 7.4 percent ratios, respectively.

Is it any wonder then why we can’t create enough jobs to bring unemployment down to levels more comparable with that of our neighbors? Clearly, getting more investments is the key. It’s time we opened up for dramatically more investments and shed the restrictions we’ve stubbornly imposed on foreign investments even as our neighbors, communist China and Vietnam included, have long opened up to them. Nationalism isn’t about keeping foreigners out (that’s called xenophobia—and it’s a disorder); it’s about loving our people enough to give them many more decent jobs than what our restricted, hence perennially limited pool of investments could ever provide.

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E-mail: cielito.habito@gmail.com