The Philippines looks bound for the major league of trillion-dollar economies in the Association of Southeast Asian Nations (Asean) by 2029 even if growth were to slip off the target high-speed track and on to the mid-lane 5.5 percent annually from 2016 to 2020, US-based think tank IHS said in a study released Tuesday.
Robust remittance inflows and a growing information technology business process-outsourcing (IT-BPO) industry could be the main drivers of growth to make the country one of the largest consumer markets in the Asean region, IHS said.
Such projection, however, could only be realized if the country would improve the inflow of foreign direct investments (FDI) and address other challenges such as infrastructure development, poverty and unemployment, it said.
In an analysis, Rajiv Biswas, Asia-Pacific chief economist for the think tank, forecast that gross domestic product (GDP) per capita in the Philippines will rise to about $6,000 by 2024 from about $3,000 in 2015.
By 2029, the Philippines will become a trillion dollar economy, with GDP reaching $1.05 trillion, he said.
“This has considerable implications for the size of the Philippine consumer economy. These significant increases in per capita GDP will create one of Asean’s largest consumer markets of the future as the middle class rapidly expands over time,” he said.
According to the IHS analysis, two key growth drivers are the rapidly expanding IT-BPO sector and the strong inflow of remittances from Filipino workers abroad.
Biswas cited the doubling of export revenues from the IT-BPO sector between 2008 and 2014 to an estimated $13.3 billion.
“The competitiveness of the Philippines in this industry has been particularly helped by the large pool of university-educated workers, as well as the strong English-language skills of the workforce in both countries,” he said.
By 2016, the analyst predicts that the Philippines’ IT-BPO industry will have 1.3 million employees.
Biswas added that the rapid expansion of the IT-BPO industry is creating ripple effects within the economy, such as in the commercial property sector where fast growth in demand for commercial floor space is underpinning the development of existing and new office parks in urban centers.
Overseas worker remittances, on the other hand, support consumer expenditure and spur residential housing construction around the country.
An estimated 35 percent of annual worker remittances flow into new residential property purchases, creating robust expansion in the residential construction sector in major cities, with momentum expected to remain strong in 2015 to 2016.
Improving FDI, infrastructure
As a word of warning, the IHS analysis points to the challenge of mobilizing both foreign and domestic investment flows into the manufacturing sector as the long-term outlook for the country’s future development will be heavily dependent on the ability to make the manufacturing sector more competitive.
“A key priority for the Philippines must be to attract greater FDI into the manufacturing sector, in order to boost employment growth and make the Philippines a competitive Asean manufacturing export hub,” Biswas said.
More FDI inflows will help reduce poverty by boosting jobs growth and household incomes, he said.
Another key challenge for the Philippines, the study said, is to boost infrastructure investment to create high-quality transport infrastructure for roads, ports and airports, as well as for power generation and transmission—all essential for spurring growth in manufacturing and services.
The country continues to face other economic development challenges such as poverty and unemployment, it added.
“Poverty and unemployment remain very high in the Philippines, with around 28 percent of the population still living in poverty according to government estimates, while the total number of unemployed or underemployed workers exceeds 10 million,” Biswas said.
Creating a diversified economy with key growth industries that can generate rapid jobs growth will be a key strategic imperative for the government.
Sustained rapid growth will require continued economic reform to improve the business climate of the Philippines, making it more attractive for FDI into sectors such as manufacturing and tourism, the study concluded.