Philippines: A hot market to bet on, says influential journal


Hold your horses, cool your jets, the sky may not be falling on us, after all. At least, not in the way that Ben Kritz appeared to be hinting in one column last week, (“The sky is falling,” 1 February, Manila Times). Ben took off from an op-ed piece by former presidential candidate Steve Forbes in Forbes Magazine, that declared that “we could have another big financial crisis like that which hit Asia in 1997-98.”

As though to underscore the fact that different crystal balls can produce different forecasts, the influential journal Foreign Affairs, in its first issue for 2014 (January-February 2014) carries a highly positive report on the Philippines, saying that it is now “providing the biggest upside surprise.”

The magazine does not dispute the fact that many of the once-hot emerging markets have cooled. Or that the BRICS (Brazil, Russia, India, China) are sagging. Or that the global economy is in for a rough ride this year.

Messrs, Gideon Rose and Jonathan Tepperman, editor and managing editor, respectively, of Foreign Affairs, contend that not all the news is bad. They write: “the United States has surprised skeptics by making a slow but steady recovery, led by energy and manufacturing. And a whole new crop of green shoots is springing up.”

Six economies to watch
Given the tumult in the global economy, they decided that now is a good time “to survey the up-and-comers–the countries and regions whose combination of size, recent performance and potential make them particularly interesting to watch and attractive to investors over the next half decade.”

They picked six countries as the top markets to watch: Mexico, South Korea, Poland, Turkey, Indonesia and the Philippines

They observe: “all six countries are well positioned to thrive as China slows and the commodity boom cools. All have crucial strengths to draw on and will play increasingly important roles in the future of the global economy. And yet each faces a distinctive set of challenges.”

Indonesia and the Philippines
Indonesia and the Philippines are discussed together in one analytic piece: “Indonesia and the Philippines: A tale of two archipelagoes,” written by Karen Brooks, senior fellow for Asia of the Council on Foreign Relations.

She begins with a familiar overview of Asean—a collective market of 620 million people; home to a young, large and growing labor pool, as well as a growing consumption-oriented middle class; a combined GDP of over $2.2 trillion in 2012— larger than Russia’s GDP and almost the same size as Brazil’s.

Brooks writes: “Impressive as the Asean pack has been, two of its members have stood out as particularly promising.

“Giant Indonesia soared during the last half decade, boasting high growth, low inflation, an extremely low debt-to-GDP ratio, strong foreign exchange reserves, and a top-performing stock market.

“But it is the Philippines, the region’s other archipelago, that is now providing the biggest upside surprise. The Philippine economy expanded by 6.6 percent in 2012, exceeding most economists’ prediction, and was among the fastest growing economies in the world in the first half of 2013, expanding by 7.6 percent. (despite the destruction of typhoon Haiyan, the Philippines’ growth rate for all of 2013 is expected to remain above 6.5 percent.

“The Philippine Stock Exchange has posted record highs since President Benigno Aquino 3rd came into office in 2010, and approvals for foreign investment have more than doubled in that period. The country’s inflation is low, its foreign exchange reserves are high, and its public debt is steadily declining. As a result, all the major credit-rating agencies upgraded Philippine sovereign debt to investment grade in 2013; the first such rating in the country’s history.”

Brooks’s article should lift the spirits of the tenant of Malacañang, who has lately absorbed some setbacks and much criticism, and needs to take a more positive worldview.

This should also waken Congress from its depression over the millions of lost and never-to-be recovered pork barrel.

Prospects and challenges
Brooks in her analysis outlines both problems and prospects of the Philippines for the balance of this decade.

“Thanks to reforms put in place after the 1997-98 Asian financial crisis, the Philippines, like Indonesia, has a strong banking system, with large amounts of capital on hand and a low incidence of loans in default. Respected technocrats run key economic portfolios and produce sound macroeconomic management.

“Unlike Indonesia, the Philippines’ current account has been in surplus since 2003, ending an era of perennial balance of payments crises. Indeed, the Philippines’ current account surplus exceeded that of the rest of Asia in 2012 and is projected to keep growing. This success is the result of two key factors: the substantial flow of remittances from the more than ten million Filipinos working abroad and a dramatic expansion in the Philippines’ service sector, thanks to huge growth in business process outsourcing.

“The Philippines continues to struggle on a number of key fronts. High economic growth has yet to translate into more jobs and less poverty. Unemployment has stubbornly remained above seven percent— higher than in any other core Asean state—for the past six years, and underemployment has stood at roughly 20 percent during the same period. With over one million Filipinos entering the labor force each year, the service sector alone cannot absorb them all, especially since the manufacturing and agricultural sectors have been shedding jobs. No surprise, then, that poverty has barely declined in recent years or that the country’s per capita GDP is the lowest among ASEAN’s core five.

“To reverse these trends, the country has to create jobs for semi- and unskilled workers in manufacturing and agriculture. But doing that, in turn, will require attracting more foreign investment, which for the Philippines is currently among the lowest in Asia, reaching only $2 billion in 2012 (compared with the $20 billion that went to Indonesia).

“Investment in the Philippines has stayed so low because the country’s economy remains one of the most restrictive in the world, with constitutional provisions limiting foreign ownership of Philippine companies to 40 percent in a broad range of sectors.

“Because of improvements and reforms made under the Aquino administration, the Philippines is well placed to withstand the expected return to volatility in global capital and equity markets when the US Federal Reserve ends its quantitative easing in 2014 (as it is expected to do). The Philippines will have significantly more leeway than its Indonesian counterpart, for example, to maintain a flexible monetary policy and to take measures to spur growth.”

Two immediate challenges
Brooks concludes her analysis by underscoring two challenges that President Aquino should immediately tackle:

“To make the most of the country’s opportunities, Aquino will first need to manage the humanitarian disaster wreaked by Typhoon Haiyan as quickly, efficiently, and compassionately as possible. Then, he will need to push forward with structural reforms, especially constitutional changes necessary to promote foreign investment.

“All business groups now support the relevant constitutional amendments, reflecting a change in the country’s political economy, as Filipino oligarchs now feel that they have more to gain than lose from the introduction of new foreign capital and competition.

“In the end, it may be this evolving public consensus in favor of openness and transparency that provides the most promise in the Philippines. Revelations in late 2013 that legislators had siphoned off huge sums of pork-barrel funds for personal use and that the office of the president had also misused discretionary funds sparked a public outcry so strong that Aquino may have to go even further than intended in fighting corruption in order to maintain his moral authority.”

President Aquino must not miss the opportunities before the nation today, because it may take some time before they come again. This is a thought worthy of a day of pr-ayer.


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  1. Two successive years of impressive GDP growth (2012’s 6.8 and 2013’s 7.6) do not an economic power make. Not even as an Asian regional power or even as an ASEAN sub-regional economic power. As a matter of fact, in ASEAN, the Philippines, despite notching these creditable economic growth rates has been downgraded to join the group’s second tier of members CLMP (Cambodia, Laos, Myanmar, Philippines) when it used to be CLMV, with Vietnam formerly occupying the last slot. The greater irony is the Philippines is a founding member of ASEAN formed to counter the perceived growing communist threat represented in Vietnam! The question remains: Will the Philippines sustain these positive two years of economic growth? Will it be able to do so by relying solely on two sources of foreign exchange – OFW’s and BPO? Will it be able to do so with its paltry 2 to 2.5 billion dollars of FDI annually? Will it be able to do so with its annual exports averaging 54 billion dollars compared to its imports of 75 billion dollars? Will it be able to do so with its allotment of less than two percent of its GDP for its infrastructure? Of less than 13 percent for its health, education and social services combined? Will it be able to do so in the face of the declining quality of education in the country? Will it be able to do so despite the continuing massive corruption that festers the nation which according to the World Bank amounts to thirty percent of the annual budget? Will it be able to do so despite the legally mandated payment of thirty percent from the country’s national budget of its foreign debt? Will it be able to do so . . . ? It took China 30 years – from 1968 ( Deng Hsiao Peng’s southern China’s visit) to 1998 ( Beijing Olympics) – at no less than 10 percent annual GDP growth rates to reach its present economic status.

  2. Manuel F.Almario on

    One or two swallows don’t make a summer. What counts is not GDP in one or two isolated years, but AVERAGE GDP over a number of years, say ten years. Here are PH GDP averages compared to neighboring countries, c/o Solita Monsod. With some years in Aquino’s term with just 1.5% GDP, what will be its average for six years?

    “For the period 1960-2009, the Philippines’ per capita GDP (measured in 2005 PPP) grew by an average of 1.58 percent annually, which means that its 2009 per capita GDP was 2.18 times what it was in 1960.

    How did Indonesia fare? Its per capita income GDP growth rate was 3.69 percent, which means that by 2009, its per capita GDP was 5.88 times what it was in 1960. The statistics for Malaysia were 4.25 percent and 7.68 times. For Thailand it was 4.36 percent and 8.11 times. For South Korea it was 5.54 percent and 14.05 times. And for China it was 6.185 percent and 18.94 times.”

  3. Aside from attracting foreign investments, there are other ways which the government can consider to create job opportunities especially in the rural areas. One, is by providing strong support through low cost loans/additional capital to thriving small businesses to allow them to expand and flourish thereby trigger economic activities that will create opportunities for employment and result to development.

  4. David Macaraeg on

    One of the most valuable answer of upliftng Philippine economy is to encourage foreign business owership by offering greater competitve conditions. The MINT and BRICK new emerging super economy countries has far more attractive business environment to engage a long term business activity. The competition is beyond ASEAN region. Globaisation has been around for a long time.

  5. jennifer potenciano on

    mr yen makabenta, you’re into your nth year of journalism work, but still you’re easily awe-struck by, easily sold to, ivory tower, fast buck-eyed spinmeisters? make up your mind. do you say this government is doing right, or wrong, in major terms of references? and us your readers thought you’ve got your deep impression about this government all figured out by now, three plus years into their six year term. as for this blogger, wait for my rebuttal of this foreign piece of high-priced fawning. yun ang may gulugod.

  6. Ha ha ha. They bet right. Ha ha ha. Investment will come for casino facilities. Manufacturing? Never when electricity is cheaper in Bangladesh who don’t have a drop of oil or a liter of petrol. Yes. You bet right.

  7. Nice. Human resource of the Philippines is the key to its development big and young population as observed by Bill Clinton is an advantage and efforts to improve its quality is most advisable. BPO should be expanded and skills demanded by industries here and abroad should be taught to all interested. We shall prevail.

  8. Unemployment rate is not accurate at all as infrastructure projects by the government are mostly concentrated in urban areas thus leaving nothing in the rural areas where the poorest of the poor are highly concentrated. Government’s support for the rural populace is a must at this time to achieve real economic upliftment, through massive agricultural activities and infrastructure projects, otherwise, poverty incidence in the country will never be diminished nor eradicated.

  9. Brooks’ outlook on BOTH Indonesia and the Philippines makes me seriously want to question whether it actually refers to countries on this planet, or maybe some different one.

    This entire discussion, however, tends to reinforce the point (the point which was almost-universally missed, as it turns out) I was actually making in my earlier column: The state of the economy is a matter of opinion — if what the experts tell you about it is discouraging, the easiest way to fix it is just to go ask some different experts.

  10. This column of yours, Mr. Yen Makabenta, proves that you are not at all a rabid anti-PNoy Aquino writer but a true and objective analyst.
    May your and The Manila Times tribe increase, as Abu Bin (or is it Ben) Adhim (or is it Ahem) said. I thought of that “dream of peace” because of the Pinoy Admin’s wrongheaded peace with the MILF at the cost of trampling on treaties the Republic of the Philippines solemnly signed with MNLF/Nur Misuari Muslim Filipinos which were hailed by the Filipino people and the international community, including the Muslim equivalent of the UN, the OIC.

  11. Abnoy has failed to manage pre and post Hainan, has zero ability for humanity or compassion. He neither has the wit or the guts to amend the constitution. Thank God for the strong economic fundamentals promoted by PGMA and for remittances of the OFW which has allowed the country to thrive.

  12. Your piece is most encouraging indeed. Changes, in all the aspects you cited are truly needed. Prayer is really called for – for President Aquino especially. How I wish the refrain immortalized by Julio Iglesias, “The winds of change is always blowing, and every time I try to stay, the winds of change continue blowing, and they just carry me away” put some sense in his unidirectional mind.

  13. It seems likely that the economists concerned have not visited the Philippines, or at least not outside Manila. The official unemployment figures are laughable, as anybody in a rural area will attest. The issue of corruption, only mentioned briefly at the end, blights not only the lifes of the average Filipino, but acts as a major deterrent to foreign investors.
    Of course we would all like to see the Philippines prosper, but the present economic growth is feeding very little into the wider economy or to the bulk of the population.

    • Mr. Keele, you dont have to go outside of MManila. Look around not where you live but in crowded places in MM and you will see that 7 percent have job.