Phl urged to rely less on services

MANILA, Philippines - The Philippine economy has been limping forward on just one leg, the services sector, for the past 30 years. This could not be sustained over the long haul.

To catch up with the booming economies in East and Southeast Asia, the country must walk on two legs, a modern services sector and a vibrant and diversified manufacturing sector.

This was the key message given by Dr. Norio Usui, Asian Development Bank (ADB) senior country economist for the Philippines, in a paper presented to the country’s industrialists during the 1st Manufacturers and Producers Summit held at a plush hotel in Makati recently.

“The economy has continued to suffer from chronic problems of high unemployment, slow poverty reduction and stagnant investment,” the ADB economist said.

“Over the decades, the Philippine economy has been transformed into a service-based one, and the recent boom of the business process outsourcing (BPO) has accelerated the process towards services” he observed.

Usui, a doctor in economics with an extensive experience as country economist of the regional bank for some of the poorer countries in Asia, has sought to find answers to the questions: can the country skip the process of industrialization and go straight to services? And whether services-led growth can resolve the chronic problems of the country?

He said that in his studies, he found out that the main culprit behind the laggard growth of the Philippines compared to its neighbors is a chronic productivity growth deficit due to stagnant industrialization, in particular, slow product diversification.

The Philippines’ biggest need is job opportunities for the growing working-age population, opportunities for the growing working- age population, he pointed out. The booming BPOs, backed by strong consumption fuelled by remittances provide short-term growth.

The BPOs, however, can only create one percent of the jobs needed by able-bodied Filipinos. Besides, the industry only accepts college graduates. There are no job opportunities for those who don’t finish high school or are only high school graduates.

“Strong growth of manufacturing is essential to deal with the country’s long-term development challenges of job creation and poverty reduction,” Usui argued.

The first decisive step towards industrialization, he added, is to undertake reforms necessary to address the long-standing challenges such as under provision of basic infrastructure, weak investment and the business environment to allow the economy to walk on two legs.