The Philippines reported a 6.4-percent growth for Q1-2023— respectable and closely aligned with the long-term growth rate of 6.5 percent. At this rate, the country will continue to have the second-fastest growth in Asia after China.
As shared in our briefings, the status quo structure of our economy will allow it to continue growing at 6.5 percent. This structure is led by services (60 percent), followed by industry and manufacturing (30 percent), and then by agriculture (10 percent). Note that growth is being led by low-productivity sectors, such as construction, transportation, and accommodation. This may lead to inequality-enhancing growth. More jobs can be created in these sectors, but wages will remain depressed or stagnant.
According to latest employment data, transportation and accommodation contributed almost a million new jobs, while comprising less than a tenth of gross domestic product. By contrast, we lost about 300,000 jobs in agriculture and manufacturing, which jointly comprised three-tenths of GDP. Hence, it is the quality, not sustainability, of growth that is the challenge.
I believe the more pressing issue for the country is the medium- and long-term growth potential. Consider three facts. One, the country has made little headway in lowering the stunting rate, as about one-third of children aged five and below are affected. Two, the average passing rate of our elementary and secondary teachers is also about one-third. Three, the agricultural productivity of the country continues to fall and is now one-third. That’s why the title of this column is “One-third.” Since these issues could not be solved during the three to six-year terms of political leaders, no real efforts have been set in place to arrest them.
Stunting is a problem that is largely irreversible, even with a demographic dividend. One-third of children aged five and below will likely have hampered productivity. Worse, they can affect the efficiency of firms now and in the future. Those who are not stunted will find working in the country to be non-rewarding financially and will naturally opt to work outside the country. This means that the future workforce of the country will face quality and efficiency issues. Regarding education, the country continues to exhibit declining quality. We posted the lowest score in reading and the second-lowest scores in science and mathematics during the 2018 Program for International Student Assessment (PISA) exam. There are many context-specific issues in education due to geographic and infrastructure needs, but the average passing rate of one-third in the board examination for teachers clearly indicates the quality of teachers entering the teaching force. With a shortage of teachers and only a one-third passing rate in the board exams, it is possible that non-passers are temporarily hired to teach.
We have had an agricultural challenge since the 1980s. Instead of improving, we continue to slide in output. The pandemic and the Russia-Ukraine war exposed our worsening food security, as climate change and environmental degradation catch up with the unbalanced support of the sector. With the continuous fall in productivity, agricultural workers have been leaving to work in basic low-skill services in urban areas, such as transportation, accommodation, and construction, among others. They are comfortable with the minimum pay, as long as they get it regularly, unlike the waiting period in agricultural activities. No wonder the average age of the farmer is now close to 60. A low-productivity sector will not attract a future workforce and entrepreneurs.
There are other urgent challenges, such as health and connectivity, for these are needed in not only sustaining growth but also ensuring that growth is widespread. Nevertheless, any serious effort to address these three indicators can ensure that the country will have a high-quality work force and a food-secure economy. Since these take time to improve, these should be part of the performance metrics of any governance entity, regardless of the changes in administration. Private sector and individual investors should also rethink how they support and invest in the economy, as there is a need for drastic changes in how these indicators are treated in value creation and profitability.
The presentation I shared was actually a response to a question posed by an Indonesian academic who visited me last month. He asked me why the Philippines seems to be declining in terms of the quality of its growth. Comparative data across Asean show that the country is slipping instead of improving.
He is asking the right question. We should not be worried about growth, as we will continue to grow. However, we should be concerned about how that growth will be sustained beyond the political terms of our system.
Dr. Alvin P. Ang is Chairperson of the Department of Economics at Ateneo de Manila University and Senior Research Fellow at the Ateneo Center for Economic Research and Development.