AMID the recent volatility in emerging markets, the Philippine economy has stood out resiliently compared to its peers in the Asean region. During the period from May until August, 10-year bond prices in Thailand, Indonesia and Malaysia declined while in the Philippines, it still registered a 0.9-percent increase. The US dollar versus local currency exchange rate has also significantly declined in neighboring countries: the Malaysian ringgit registered a 15.9-percent decline; the Indonesian rupiah a 6.5-percent decline, the Thailand baht a 5.6-percent decline, while the Philippine peso only declined 4.5 percent. The equity markets also experienced a significant drop, as foreign funds pulled back on their positions, with Indonesia declining 15.7 percent, Thailand at 9.5 percent, Malaysia at 8.7 percent, while the Philippines declined the least at 7.6 percent.
Strong fundamentals and good macroeconomics have buoyed the country’s performance during this cycle and have enabled the economy to remain resilient. In the second quarter of 2015, the Philippines registered a gross domestic product (GDP) growth rate of 5.6 percent, still among the highest in Asia. Household consumption contributed 67 percent of the GDP and consumption spending continued to grow consistently at a 6-percent range. This is driven by spending in food and drinks, clothing and footwear, housing and utilities, and other goods and services.
The Philippine economy has also benefited from higher incomes and the growing middle class. Since 2010 the income per capita has grown 36 percent, while the middle class has grown from 28 percent of the population in 2000 to 36 percent of the population in 2012. The growing middle class, combined with higher income per capita, is expected to continue to drive local demand and consumption.
A key contributor to local employment and higher income is the business-process outsourcing (BPO) sector. This industry is steadily growing and currently employs around 1 million workers. It is projected to generate $21 billion in revenues and aims to grow its work force to 1.2 million by the end of the year. With the Philippines’s service-oriented culture, English language proficiency and cost advantage, it will remain as the preferred BPO destination in the Asean region. With the growing trend in global outsourcing, the presence of the BPO sector and the economic value it generates will continue to remain significant for the Philippine economy.
Another important intrinsic contributor is remittances from overseas Filipinos. These grew substantially at $12 billion in the first half of 2015. Historically, remittances have also been quite resilient and continued to grow despite disruptions in the global economy. They are projected to reach $25 billion by the end of the year.
Tourism has also been growing steadily. In 2014 the Department of Tourism registered a total of 5 million foreign tourist arrivals and close to 48 million domestic tourists. With a more systematic and focused campaign to promote the Philippines, the improvement in infrastructure, access to key tourism areas, the advent of low-cost airlines, and the development of more hotels and resorts, tourism is expected to grow further in the coming years.
These positive and unique intrinsic factors have allowed the country to maintain its steady growth despite external issues that affect the economy.
In a recent report by HSBC entitled “The Road to 2050”, it was cited that the Philippines remains to be in a bright spot in the region alongside Vietnam. Private consumption is expected to remain strong, boosted by sticky remittances, strong BPO growth and a favorable demographic transition. By 2050 the population is predicted to reach 155 million with a large portion within the working age group of 15 to 64 years old. The report also mentioned that growth prospects continue to improve. The Philippines used to grow at an average of 4.8 percent from 2003-2009, but have managed to grow at an average of 6.3 percent from 2010-2014.
More investments, however, are still needed to sustain growth and boost the economy, with savings comprising only 26 percent and investments comprising a little over 22 percent of the Philippines’s GDP. With the expected surge in the number of working class Filipinos in the coming years, more job opportunities will have to be created. While many Filipinos choose to work abroad given the limited number of jobs domestically, there is a need to continue developing the BPO sector to widen its geographic reach and enable it move up the value chain in its service offerings. The government will have to continue supporting the industry by providing it with key incentives to further encourage investments, boost competitiveness and maintain growth in this sector.
There is also a need to look at ways to further accelerate the rate of growth of the tourism sector in our country. Infrastructure developments and seamless connectivity between the major cities and tourism hot spots through efficient transport links, improved roads, airports and seaports will help boost tourism. A coordinated, comprehensive and systematic approach toward marketing the key tourist areas in the Philippines between the government and the private sectors, as well as appropriate incentives to tourism-related investments will provide a significant boost to the industry. These will further encourage hotel and resort investors and operators to upgrade existing facilities, as well as develop new ones that can address the underserved tourism market.
Infrastructure plays a big role in sustaining the gains that have so far been achieved. Key infrastructure projects need to be implemented soonest by the Philippine government on its own, as well as through the various public–private partnership (PPP) programs to address connectivity bottlenecks, and improve and accelerate access to trade and investments in key growth centers. Through these projects, growth centers especially in provincial areas will have better access to technology, capital and investments, which, in turn, promote higher productivity and increased mobility, thereby further fostering inclusive, sustainable growth.
By 2050 HSBC estimates that 19 out of the top 30 economies in the world will be those we currently call “emerging”. In this report, the Philippines ranks 16th (from 43rd in 2010) next only to Russia and besting other countries like Australia, the Netherlands and Argentina. This report might sound a bit too optimistic, but it is highly probable, if the Philippines can sustain the momentum and take advantage of the demographic dividend that a large population can bring.
While significant progress has been made, the private sector and the government need to continue working hand-in-hand to sustain the growth of these key factors that drive the economy. There is a need to implement and execute well all the plans that have been laid and all the PPP projects that have been awarded and about to be awarded. At the same time, there is a need to institutionalize the key structural reforms that have been put in place to ensure that the Philippines continues to improve its competitiveness in the Asean region, thus enabling it to achieve sustainable and inclusive growth.