High value services to drive Philippines growth

MANILA, Philippines — The World Bank is urging the Philippines to ease foreign ownership and other regulatory restrictions in services to enable the sector to drive economic growth further amid slowing global trade in goods.

In a roundtable discussion with reporters yesterday, World Bank acting chief economist for East Asia and Pacific Region Andrew Mason said as global economic growth also gives rise to slower trade in goods, countries in the East Asia region could further develop their services sector.

This can be in the form of the liberalization of traditional service exports and the increased servicification of manufactured goods. An example of this would be the production of more smartphones that support better applications and contain more service content

“Global trade growth is slowing, but the important thing to highlight here is it’s really slowing in goods and much less in services,” Mason said.

“So in many ways, the opportunity for trade is in services. Because as technology changes, there is more cross-border trade in services. The second is that services are increasingly embedded in manufacturing exports,” he added.

Mason also noted that while many countries in the East Asia region have been increasingly liberalizing trade in goods through tariff reduction, “they’ve done much worse when it comes to removing restrictions in the services sector.”

“This is particularly important for the Philippines because I think the future of Philippine growth is going to be in high value services,” he said.

“So services sector reform in this regard is important. It has something to do with regulations on foreign direct investment. Perhaps on the share of foreign ownership in many sectors in the Philippine economy. That is the type of restriction that is counter productive from an economic perspective,” he added.

Other reforms that can strengthen the services sector in the country include increased protection for intellectual property rights and enforcement of competition laws.

The Philippine economy, he said, remains a “concentrated” economy with weak competition environment.   

“There is not always competition across many sectors in the economy and competition policy can make a difference in that area. Also not only the regulations themselves but the administration of regulations,” said Mason.