IT has become a familiar refrain: “The Philippine economy should withstand the possible negative impacts of” this global development or that one, the more popular ones at the moment among people who talk a lot being the possible fallout from Donald Trump’s policies in the US, the effects of the “Brexit,” and the slowdown in the Chinese economy
Trump, for instance, was the main subject of a talk given earlier this week by Arvid Lukauskas from Columbia University’s School of International and Public Affairs. Professor Lukauskas worries that Trump’s antagonism toward China may spark a trade conflict that would have knock-on effects on both countries’ trade partners.
But of course, the Philippines should be able to weather that potential storm; its strong and consistent economic growth makes the country an attractive investment destination in its own right, Lukauskas said, and the good political relations the Philippines has with the US—in spite of President Rodrigo Duterte’s uncomplimentary comments over the past few months—will also be an advantage.
It is probably a fair assessment; as are other views about the Philippines’ economic resiliency; there is some real-world data that confirms the country is largely untroubled by economic trouble elsewhere. One good example is the maritime shipping industry, particularly container shipping. Since at least the beginning of last year, and in reality, since about 2009, the shipping sector has been in a deep, persistent slump.
The reason is that cargo volumes have declined while cargo-carrying capacity has greatly expanded; combined with the sharp fall in oil prices, the supply-demand mismatch has led to ridiculously low freight rates and threatened the stability of the industry. The downturn has already driven South Korea’s Hanjin Lines, once the world’s seventh-largest container shipper, out of business, and led to a number of high-profile mergers in Japan and Europe.
In a report this week, maritime consultants Drewry said the idle container fleet—ships simply parked due to lack of business—had doubled over the last year, from 238 ships with a total capacity of about 900,000 twenty-foot equivalent units (TEU), to 435 ships and a total capacity of more than 1.7 million TEUs. The most worrisome things about this development, and sure signs that it is not a short-term phenomenon, are that 65 percent of the idle fleet are ships that are owned by non-operating shippers—in other words, companies doing no real business of any kind at the moment—and about 60 percent of the ships are less than 10 years old.
And in a sign that the slump is not just a shipping sector problem but an actual decline in trade, a report in The Wall Street Journal this week detailed the huge oversupply of rail freight cars in the US. “We have too many rail cars chasing too little freight,” one railroad executive was quoted as saying.
Even in this supposedly economic vibrant part of the world, this week brought this discouraging assessment from the UN Economic and Social Commission for Asia and the Pacific (ESCAP): “2015-2016 has been a worrying period for trade and investment in the Asia-Pacific region and worldwide, and there are few signs that the current economic and trade slowdown is simply a temporary phenomenon.”
Yet, indicators from the Philippines are that the slump in trade is not being felt here at all. In recent months, all three of Manila’s port operators have reported increased freight volumes. In addition, Taiwan-based Evergreen Lines recently added a new route connecting the Philippines to Taiwan and South Korea, primarily because of increased demand, and the Subic-based Hanjin Heavy Industries shipyard is building three new containerships of more than 20,000 TEUs capacity each, which makes them among the largest carriers in the world at the moment.
But is the Philippines really insulated from global stagnation and uncertainty, or just isolated from it? While some indicators such as FDI figures for the year so far have been positive, they have not been remarkable; net FDI in August, for example, grew by $172 million this year, compared with August 2015. For the first half of the year, FDI amounted to $4.2 billion, a respectable performance, largely boosted by the huge Globe-PLDT-San Miguel telecom deal in April—but one that made absolutely no headway in closing the gap to the Philippines’ regional competitors. Vietnam, for instance, logged $11.2 billion in FDI in the first six months of this year.
Professor Lukauskas touched on the oddly persistent stagnant character of the Philippines’ economy—in spite of its equally obvious strengths—in his talk earlier this week: The problems the country needs to address, he said, is the difficulty in starting a business here, and the underdevelopment of the country’s human capital. Those are both things that have been mentioned in nearly every assessment of the country’s economy over the past 20 years. And given the consistency in the performance of the Philippines relative to its regional competitors over that period of time in measures such as trade and FDI that indicate actual productivity—the Philippines has enjoyed growth, but so have Vietnam, Thailand, Malaysia, and Indonesia—one has the sense that maybe the Philippines is “safe” from global economic troubles not because it is strong, but because it just happens to have already reached its potential, and at a level far enough below that where the global concerns would really matter.