Not really ‘open for business’

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MIKE WOOTTON

MIKE WOOTTON

The gross national income (GNI) in the Philippines in 2014 was $3,440/year. It is simply the value in US$ of the country’s income divided by its population. It is a rough measure and open to differing interpretations and calculation methods but it gives a comparative idea of the general standard of living, or at least what the general standard of living would be if the money were spread around equally which we all know it is not. The GNI of Singapore was $55,150 calculated by the same method. In Malaysia it is $11,120, in Indonesia $3,650 and in Thailand $5,410. The GNI of Australia was $64,680.

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The population growth rate of the Philippines—the surplus of births over deaths is about 1.7 percent per year, in Indonesia it is 0.92 percent, in Thailand 0.34 percent and in Australia 1.09 percent.

According to most of the international media, the Philippines is an economic growth miracle with GDP zipping along at about 6 percent per year. There are indeed more cars on the road. Increases in vehicle registrations run at about 20 percent to 25 percent a year as if those of us who are continually stuck in traffic don’t know it! And there are some attempts at improving the infrastructure. The perceptions of stellar growth by the international media community are based entirely on the performance of fiscal measures rather than on any increase in decent jobs or in manufacturing and consequent exports which are in fact declining by about 4 percent a year overall.

It seems that the Philippines has a lot of catching up to do with its regional middle income neighbours, let along the high income neighbours like Singapore. Fiscal measures to improve the economy can have the effect of restricting industrial development. Money which would better be in circulation is held to improve foreign exchange reserves for example and to make the national accounts look good. National debt in this administration is looked at with absolute horror. What is rather discordant is that the Philippines still seems to achieve a current account surplus at the same level as Malaysia in light of decreasing exports, increasing imports (new vehicle registrations for example), low savings and little apparent domestic capital.

All that said the publicity over the Philippines stellar economic growth is having an effect: there is more foreign interest and foreign companies are coming and setting up to sell things into this booming economy. If these investments are successful it will lead to more imports and without a corresponding increase in exports there will be greater strain on preserving a decent current account surplus, which by the way is not something to get too excited about in a place with the development status of the Philippines.

You have to wonder why the local oligarchs are not encouraged to set up industrial facilities which will provide jobs and manufactured goods for export as well as goods of high quality for consumption in the local market. Foreign industrial development can only really happen in the special economic zones and they are for products to be exported. Outside the economic zones, it’s just too much of a bureaucratic and politicised nightmare for any foreign or even local investor to bother to try to set up anything.

Despite having leapfrogged the normal industrialisation stage of development, it is perhaps not too late and it certainly seems essential to undertake that phase. The challenge would be in the face of a fairly high population growth rate, creaking if not terminally inadequate infrastructure and low level of domestic capital to establish enough industrial activity to propel the nation forward to a position to challenge its more successful regional neighbours such as Malaysia and Thailand. It is unlikely that this would be achieved with foreign capital given the political uncertainty and severely protectionism that hallmarks the Philippines. The foreign capital will go elsewhere in the region, to more appreciative and stable regimes where the playing field is more level.

Now is the time for government to release more money into a system which has to be made to accept entrepreneurial investment, leaving aside the dream that the financial numbers will attract vast amounts of foreign capital and expertise [or score political "brownie points”]and for the oligarchs to step up and put their money into developing decent jobs and a real sustainable economy for the Philippines.

Mike can be contacted at mawootton@gmail.com.

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1 Comment

  1. “The perceptions of stellar growth by the international media community are based entirely on the performance of fiscal measures rather than on any increase in decent jobs or in manufacturing and consequent exports which are in fact declining by about 4 percent a year overall.”
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    Yes, indeed, fiscal measure anchored on high taxes, highest in the region, and uderspending.