IF the Philippines is to compete in a globalized world and achieve sustainable growth in the medium term, World Bank Regional Chief Economist in East Asia and the Pacific Vikram Nehru said the country must invest heavily not just in infrastructure, but in human capital.
In a teleconference for the launch of the East Asia and the Pacific (EAP) Economic Update on Wednesday, Nehru said the rise of China and India in the world market is placing more pressure on countries like the Philippines, Malaysia, Thailand, Indonesia and Vietnam.
These countries, Nehru said, were the ones that benefited a lot from economic reforms that came from Foreign Direct Investments (FDIs) that were geared toward labor-intensive industries.
“Well, I think the issue of skills is highly important in the middle-income countries in the region like Malaysia, Thailand, Indonesia, Philippines. These countries have enjoyed very good economic performance for the last couple of decades based on their ability to attract FDIs (geared toward) labor-intensive activity,” Nehru said.
“Now, with the rise of China, on one hand, and the rise of India, on the other, there is enormous pressure for these countries to start moving up the value-chain. To move up the value chain requires increased investments in not just infrastructure but also in human capital, in human skills,” he explained.
Nehru said that moving up the value chain will be very important for the Philippines, especially when it comes to improving the quality of human resources since the country sends overseas workers who, in turn, send over remittances.
Remittances, according to the EAP Economic Update’s principal author and the Bank’s lead economist in the Eas Asia Region Ivailo Izvorski, easily make up 60 percent of the loss in income of Filipinos during times of crisis.
Nehru added that thanks to remittances, the Philippines was able to post just above a positive growth rate in 2009 by posting a 0.9-percent gross domestic product (GDP) growth, while most of its Asian counterparts like Thailand were in the negative territory.
This year, the World Bank expects remittances to grow by 6 percent to 8 percent, marking a recovery in remittances after the crisis caused remittances to post slower growth compared to previous years.
“The middle-income countries need to move up the value chain building on their integration in regional and global networks, encourage technological spillovers and facilitate new investment to boost economic development,” the report stated.
In terms of manufacturing, particularly electronic exports, the EAP Economic Update said that middle-income countries in the region like the Philippines are faced with losing market shares against China.
The report stated that electronics easily account for two-thirds of the Philippines’ total exports. While the country has been part of regional and production networks for decades, the report stressed that value-added in electronics has been stagnant in the country.
“High technology does not mean high-value added. Value-added in electronics has been stagnant in [the] Philippines, with little evidence of spillover effects to other companies or industries. And the model has been one of low cost assembly. When you compete on costs, other lower cost producers tend to overtake you. The middle-income countries in the region, as a result, have been losing market share against China,” the report stated.
The World Bank, in the recently released Philippine Quarterly Report, stated that the Philippines is forecast to grow 3.5 percent in 2010 and 3.8 percent in 2011 on the back of rising remittances and greater public spending.
However, the bank noted in the EAP Economic Update that higher growth rates will be possible if the country can tackle long-standing bottlenecks such as weak investment climate and low spending on infrastructure. –Cai U. Ordinario / Reporter, Businessmirror