The state of the economy

Is the economy doing well? This question must be asked as President Marcos enters his third year as Chief Executive of the republic.

As you may expect, the response to this question is not a straight one… So let me break it down.

The Philippine economy is perhaps the most overlooked and under-rated one on the planet. For decades, we’ve been typecast as an economic underachiever who is unable to get its leadership act together. In a way, the stereotype is right. Our per capita income of $4,030 is less than a third of the global average of $13,000. Our poverty rate is at 16.4 percent, the highest among the ASEAN 6, and unemployment persists at 4.7 percent.

As for government leadership, our legislature is composed of members of dynasties, most of whom are unqualified and corrupt. Save for a few outstanding legislators like Senators Hontiveros and two or three others, the rest are mediocre who forward their own interests on the public’s dime. And as for the President, we would like to feel his leadership more on pressing issues.

Be that as it may, we cannot negate the fact that the economy has grown rapidly over the last 15 years and continues to do so. Between 2010 and 2019, the economy grew by an average rate of 6.4 percent, outpacing the rest of emerging economies which grew by just 4.0 percent. Between 2021 and 2023, the economy expanded by 6.3 percent, again outpacing other emerging economies which grew by only 4.6 percent. In the medium term, the World Bank, IMF and ADB agree that the Philippines will be Asia’s second fastest growing economy, after India, possibly through 2028.

And although poverty and unemployment remain high, they have in fact declined in tandem with the economy’s growth. Our fiscal health is strong too, with a debt-to-GDP ratio of just 57 percent, dollar reserves sufficient for eight months of imports and rising government revenues. Investments in infrastructure is above five percent of GDP, with over 197 projects worth $156.4 billion in the pipeline.

Still, we cannot blame the world for stereotyping us as an economic underachiever. For one, our country brand is confusing. While Presidents Aquino and Marcos tried to sell the Philippines as a dynamic economy suitable for investments, the atrocious human rights record, brazen corruption and gutteral behavior of Mr. Duterte made us appear like a rogue state. One brand image cancels out the other. It does not help that government is bereft of serious programs to build our country brand and soft power.

But the bigger reason for the stereotype is how the economy is configured. We are not typically Asian. We are not a Taiwan or Vietnam who are renowned for manufacturing. Neither are we Singapore or Hong Kong who are known for being logistics and financial hubs. The Philippines has an economy that is aggressively middle of the road. This has become our path to prosperity.

Aggressively middle of the road

Our service sector, driven by IT-BPMs, is not one based on high-tech services like quantum computing. Rather, we do the basics like contact services and health care services, where we are the undisputed world leader, and IT and back-office services where we are the world’s number two. In semiconductors, we do not manufacture advanced chips but simple microchips used for everyday gadgets. In electronics, we do not manufacture precision equipment but domestic appliances. In shipbuilding, we do not manufacture mega container vessels but simple tugboats, ferries and fishing boats. Among MSMEs, the majority of their pursuits are not based on technological innovation but simple technologies. Among OFWs, the majority are not high-level professionals but caregivers, nurses and retail workers.

In short, the Philippines is a specialist in products and services of low- to mid-level complexity and doing a lot of it. This “middle of the road” path explains why we are not the darling of emerging markets nor the talk of the town.

But make no mistake, we are on the highway to prosperity. Barring no untoward event and assuming infrastructure backlogs are sorted out, the Philippines will become a trillion-dollar economy by the year 2033 with a per capita income shy of $7,500.

Sorting out our problems

I am not worried about the infrastructure development nor the continued flow of OFW remittances. I am worried about the IT-BPO sector.

See, we import some $57 billion more than we export. Our finances remain on an even keel thanks to the inflows of OFW remittances and revenues from IT-BPOs, which contributed $33.5 billion and $35.5 billion, respectively. They balance our trade and current account deficit.

But artificial intelligence threatens to render our contact centers, IT and health care services obsolete. We must prepare for this.

The IT-BPO industry must reconfigure itself using AI as an enabler. Likewise, the entire industry must climb the value chain, leveraging on burgeoning technologies like machine learning, extended reality, etc. This necessitates upskilling our workforce. Too, the IT-BPO industry is projected to employ 2.5 million workers by 2028, from 1.7 million today. But we are running out of skilled talent. The DepEd can no longer drop the ball since our greatest competitive advantage is our workforce. Secretary Sonny Angara has his work cut out for him.

To maximize the economy’s potentials, government must also resolve the very reasons that made us an underachiever in the first place – the prevalence of political dynasties, corruption and debilitating red tape.

There is nothing wrong with being aggressively middle of the road so long as we eventually get to our final destination. That destination is a dignified, abundant life for all. But remember, to stay on that path, we must climb the value chain in the products and services we produce.

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Email: [email protected]. Follow him on Twitter @aj_masigan