By Mia Rosienna Mallari & Rea Cu
Second of three parts
BASED on the poll conducted by the BusinessMirror, economists and businessmen are banking on at least eight factors that will fuel economic growth this year—the May elections, infrastructure spending, tourism, remittances, consumer spending, foreign direct investments (FDI), exports and manufacturing.
Dr. Bernardo M. Villegas, a member of the University of Asia and the Pacific (UA&P) Board of Trustees, said these drivers will be enough to push 2016 GDP growth to 7 percent. The drivers, he said, “will outweigh the challenges, because the main drivers are already on automatic pilot.”
Villegas’s forecast is way above the 6.35-percent average growth forecast that came out in the BusinessMirror poll among heads of business chambers, economists and businessmen for 2016.
Election spending
Election spending is the widely accepted growth driver this year, although the conduct of the polls in May was also mentioned as a challenge, because of the uncertainties that a change in administration creates.
“You have a period during the elections when a lot of money is passed in the economy at the local level. And if you’re s pending it on television ads, it’s going to go to the owners and shareholders of the media companies who are so rich already,” American Chamber of Commerce of the Philippines Legislative Committee Chairman John D. Forbes pointed out.
“The big owners are already quite wealthy. But at the local level with a hundred thousand people running, you have money being spent for various things; so that helps the economy slightly,” he said.
A study done by Richard Emerson Ballester, Michael Bartolazo, Melanie Calumpang, Bien Ganapin and Sheryll Namingit from the National Economic and Development Authority in 2010 confirmed that election spending has a “positive effect” on the economy. This is based on the data gathered from the 2004 national elections.
Each candidate spends about 27.4 percent on government services, followed closely by manufacturing of election materials with a share of 26.6 percent. Advertisements in radio and television, as well as what was considered as recreational and cultural activities, eat up about 22.3 percent of the campaign budget altogether.
On the manufacturing side, only its sub-sectors on Printing and Publishing of Books and Pamphlets and Commercial, and JobPrinting and other Allied Industries were included in the expenditure.
Under private services, Recruitment of Labor and Provision of Personnel has the highest share, with Advertising Activity following suit. Elections could generate certain levels of employment, though this may need more looking into, particularly the nature and sustainability of these jobs.
Though the study of the group was only limited to the impact of national and local election spending quantified through the GDP, it also revealed an upward trend in the number of candidates hiring well-known personalities for their advertisements, thus, contributing more to the services sector.
In 2004 the ban on political television ads was lifted, providing candidates with a wider radius for their campaign. It also provided them an advantageous exposure, much so with catchy jingles and creative tag lines crafted by top advertising agencies in the country.
Another factor that drives up electoral spending is the archipelagic nature of the country, forcing candidates to travel mostly by air with their entourage.
“Election spending is different from government spending…. Mangagaling ito from the campaign contributions ng mga kandidato,” Senen Perlada, director of the Export Marketing Bureau of the Department of Trade and Industry, said. “Of course there are limits, with the ads, ilan papakainin mo sa rally, ilang t-shirt ’yan [how many t-shirts will be allotted], ilang tarpaulin ’yan, ilang ballers,” he said.
Infra spending
Victor A. Abola, associate professor at the UA&P, said, “Infrastructure spending should continue to expand at a fast clip, even though the DPWH [Department of Public Works and Highways] may be starting to feel the limits in its absorptive capacity.”
Francisco del Rosario Jr. of the Management Association of the Philippines also noted that infrastructure investments will play a major role in boosting GDP growth this year.
Since the 1997 crisis, spending on infrastructure has been low. Prior to that, developing Asian economies logged 6 percent to 8 percent of their annual economic output for public-works expenditures.
The World Economic Forum survey on infrastructure quality ranked the Philippines 95th of 144 countries. One obvious reason is the low budget for infrastructure projects in the previous years. According to the Asian Development Bank (ADB), infrastructure spending plunged to below 1 percent of GDP in 2010.
But the present administration made a serious attempt to ramp this up, allocating about $31.8 billion for infrastructure since President Aquino took office in 2010.
Tourism
Though an excellent tourism haven, the country has been lagging behind its Asean neighbors when it comes to visitor arrivals and tourism receipts.
Over 101.4 million tourists traveled to Asean countries, generating about $100 billion in revenue. The Philippines, however, is only the sixth most visited country in the region, way behind Malaysia, Thailand and Singapore.
In 2014 the country welcomed over 4.83 million tourists, almost half of these flying in from East Asia. Data from the Department of Tourism (DOT) show that from January to October 2015, tourism activities grew by 8.24 percent. The Philippines received 4.39 million visitors in the first 10 months of 2015, an 11.13-percent growth from 3.95 million in 2014. This year the DOT is targeting to attract 6 million tourists and generate $6 billion to $8 billion in revenues.
OFW remittances and consumer spending
Remittances from overseas Filipino workers (OFWs) have contributed significantly to the growth of the Philippine economy for the first three quarters of 2015.
“I think most people expect the GDP growth will be close to 6 percent through the year, but the government’s target was 7 percent to 8 percent, and the potential for the economy to grow is also 7 percent to 8 percent or even higher, especially because 3 percent to 4 percent of GDP growth is guaranteed by the 10 million Filipinos that have left the country in order to feed their families to have a better life than staying here,”
Forbes said.
OFW remittances will always have a role when it comes to boosting consumer spending. “Besides, the peso depreciation, which is likely to continue, albeit at a slower pace, will offset possible weakness in OFW remittances. So consumer spending will be very strong,” Abola said.
“Domestic consumption will increase naturally because of the population and the OFW remittances. It’s still growing although not as fast, but the absolute amounts are still there. What will drive that further, obviously, is the lower commodity prices, which will increase profitability,” Perlada said.
FDI, exports, manufacturing
Also identified as a major growth engine for the year is the expected higher foreign direct investment (FDI) inflows, especially in the manufacturing sector.
According to the Bangko Sentral ng Pilipinas, FDI are projected to hit $6.3 billion by 2016, a few notches higher than the expected $6 billion last year. The FDI are expected to focus on electronics, manufacturing, real estate and utilities, like renewable energy and waterworks.
The export sector is also believed to make a strong rebound this year and buttress the resurgence of the manufacturing industry. “At least for my sector, I think I can expect exports, particularly merchandise exports, to snap back. We are still maintaining the growth rate of about 10 percent, although in 2015 we are already conceding that we will have an export decline in merchandise. But we will probably have a flat to about minus 2 [percent] at most for total exports, because services is still strong,” Perlada said.
“I think a lot of a number of investments that have been placed in the prior years will come on stream by next year. So we can expect a robust manufacturing sector performance for next year and beyond. That’s another factor,” Perlada added.
“Exports will be a factor, I expect that exports will recover, especially manufacturing. Export now is declining. Share of total exports to GDP for 2014 is 47 percent; 2013 was about 44.8 percent; 2012 was 48.4 percent; 2011 was at 47.6 percent, so there is a declining trend in terms of the rate, but obviously the absolute figures are getting higher. So exports make a big difference; any increase in export will impact to that extent in GDP,” he said.
Abola also believes exports will grow stronger in 2016. “Exports should also recover, as the US growth has gained traction.”
Perlada said one cannot be sustainable if the country does not bother to look into foreign markets. Once the tariffs go down, it will be a signal for foreign competition to enter the local market. The Philippines, in his opinion, should have put up a stronger stance.
“You cannot prevent those imported goods from coming in because of globalization, etc. We should also be defensive. We should think about how to penetrate their market to reach a global playing field,” he said.
To be concluded