FRANKFURT, Germany—Philippine GDP could grow by more than 7 percent a year if it can harness the potential of its expanding labor force and exploit the opportunities presented by China’s rebalancing.
In a briefing here, Asian Development Bank (ADB) Chief Economist Shang-Jin Wei said improving labor productivity and increasing infrastructure investments will be “crucial” in helping Filipinos ages 15 to 64 to contribute to economic growth. The ADB said in its report, titled Asian Development Outlook (ADO), that the annual potential growth rate of the Philippines between 2015 and 2020 is 7.39 percent, based on its latest population-growth forecasts.
“[A large] work force can be very good, but you need to keep people employed, you need to provide jobs for those people and you need to create an environment that firms up the need to invest,” Wei said.
“That is why I stressed that population growth is a potential source of growth,” he added.
Wei said the Philippines is one of the countries in Southeast Asia that have a large population and a large work force.
Data from the Philippine Statistics Authority (PSA) pegged the country’s work force at 67.15 million in January 2016. However, only 40.05 million are employed.
While there are 2.48 million Filipinos who are jobless, this is only a fraction of the 7.88 million Filipinos looking for decent employment or better-paying jobs.
In terms of labor productivity, PSA data showed that in 2014, the year-on-year growth of labor productivity in the country slowed to 2.7 percent, from 5.6 percent in 2013.
Wei said labor productivity can increase if the business climate is conducive for investment. This will bring in the necessary high-productivity jobs that are needed to boost economic growth.
This, he said, requires good infrastructure, such as efficient mass-transport facilities, that can take employees to and from work, as well as reduce logistics costs for companies.
Taken together, this can reduce overhead costs that companies incur when they do business in the country. This will make the Philippines a more attractive investment destination.
“The Philippines needs reforms to make investment climate conducive to investment, and investments in infrastructure to reduce traffic, commuting time in Manila and the cost of logistics,” Wei said.
Apart from these reforms, the Philippines must also learn to take advantage of the structural transformation is happening in China, where growth drivers are shifting from investment to consumption.
Wei said Chinese households now have the financial capability to send their children to schools abroad or spend money for vacations overseas.
The Philippines, he said, can offer quality education, as well as beautiful tourist destinations where Chinese visitors can stay. An increase in tourist arrivals can help boost Philippine economy in the near to medium term.
PSA data showed that tourist arrivals from China declined to 394,951 in 2014, from 426,352 in 2013.
“Chinese households, their purchase, consumption is growing robustly. If you take advantage of that, then you can also grow very fast,” Wei said. “If you produce what the Chinese consumers want, then you will benefit.”
In March the ADB said weak external demand will likely reduce the Philippines’s GDP growth this year.
In the ADO, the Manila-based multilateral-development bank estimated that GDP growth will reach 6 percent this year and 6.1 percent in 2017.
In March and September 2015, the ADO noted that the country’s GDP growth will reach 6.3 percent in 2016.
Apart from weak external demand, weather phenomena, such as El Niño and La Niño, could also slash farm growth and jack up food prices.
The ADB said the outcome of the elections on May 9 will also have an important bearing on the country’s growth prospects in the next five years.
The report also highlights youth unemployment as a key development challenge. While youth unemployment declined to 14.4 percent, the ADB said this is still more than double the national unemployment rate.
Image credits: ADB Photo