Because of “revenge spending” in the last quarter of 2021, the country’s trade deficit reached a pre-pandemic level of $43 billion. Imports totaled $117.8 billion for the entire year of 2021, while exports hit $74.6 billion.
With the government scaling down the Alert Level and loosening the restrictions on mobility and mass gatherings across the archipelago, the year 2022 will undoubtedly witness a repeat of 2021 “revenge spending”. In fact, the spending is likely to be much more because of the election fever. Which means bigger trade deficits for an import-dependent country.
This brings us to a perplexing economic puzzle: how can the Philippines, with its stagnant industrial base and eroding agricultural sector, sustain a consumption-led pattern of economic growth? Every year, economists uniformly describe Philippine growth as “consumption-led”. Without low output by the two real sectors—industry and agriculture, how can such growth be sustained? How can the ballooning trade deficits be sustained?
Who, in the first place, are doing the consuming and where do they get the means to finance consumption?
Ikea, the behemoth Swedish furniture king, knows the answer. It built its biggest global retail outlet right there in the Mall of Asia complex—65,000 square-meter facility. The five-story Ikea building, estimated to be equal to 150 basketball courts, can accommodate 20,000 daily visitors. This does not include yet the thousands more Filipinos who shop online.
The Ikea shoppers, like the 200,000 others who troop to the MOA complex, belong mostly to the families of overseas Filipino workers, the country’s lifesavers. Despite the Covid-19 pandemic, our hardworking OFWs, numbering over 10 million, have been able to remit over $30 billion a year to their families and relatives. This is pure money.
The problem is that not all Filipinos have OFW saviors. And not all OFWs are doing well and are able to remit money regularly to the home country.
However, in the estimate of this writer, there are at least 2 million OFWs who have stable jobs and have been religiously remitting funds for the wherewithal and welfare of their families back home. These 2 million able OFWs constitute one-fifth of the estimated 10 million Filipino contract workers and overseas Filipinos (permanent migrants).
How about the rest of the OFWs? There are around 4 million OFWs occupying low-end jobs, jobs that provide better compensation than those they can find in the Philippines. However, the compensation rates for these jobs are not enough to elevate their families to high-income or middle-class level.
As to the rest of the OFWs (four million or so), they are non-regular remitters. This is so because either they have no regular or permanent jobs or they have become permanent residents/citizens/immigrants in the host countries. This last category of overseas Filipinos (immigrants) usually sends money or balikbayan gifts only during Christmas or special occasions.
Now back to the 2 million well-paid OFWs, they directly support at least 10 million Filipinos, assuming that there are five-to-six members in an OFW family. These 10 million who regularly receive financial contributions from the well-paid OFWs constitute a big market. Their spending is enough to sustain the operations of MOA, Ikea, Villar homes, Cebu Pacific and the whole galaxy of service enterprises sprouting across the country. By way of comparison, 10 million Filipinos are equal to the population of developed Sweden, the home country of Ikea. Ten million Filipinos are more than double the 5 million population of prosperous Singapore.
The trouble is that the above income and spending pattern among the OFWs and their families also contributes to the deepening of the social and economic inequality in the country. Families with no OFW saviors have limited savings and limited spending capacity. With limited job and livelihood opportunities in the stagnant real sectors—industry and agriculture, the breadwinners of these non-OFW families usually end up in the other side of the huge services sector of the economy—the so-called informal sector (street vending, ambulant merchandisers, informal home services, non-registered repair services, home-based native food production, trisikad transport, etc.).
The inequality is further accentuated by the spending habit of the well-paid OFWs and their families. Most of these well-paid OFWs tend to build “new homes” in the gated villages of highly urbanized towns or in the new “green” villages being developed by the OFW-oriented real estate developers. The poor towns and provinces where some of these OFWs hail from remain poor, visited by these OFWs only once in a while. The diffusion of wealth and learning/skills acquired from overseas has become limited.
At any rate, is the above pattern of Philippine economic growth—industry-less, agriculture-less, import-dependent, deficit-and-debt-prone and remittance-driven—sustainable? Can the next administration alter this pattern of development? Can the next administration steer the country towards a new pattern of economic growth—one that is reliant on robust industrial and agricultural growth with strong support from the country’s OFW heroes and heroines? Time for the presidentiables to spell out their industrial and agricultural development programs.
Dr. Rene E. Ofreneo is a Professor Emeritus of the University of the Philippines.
For comments, please write to reneofreneo@gmail.com.