A 2020 vision for the Philippine economy, Part 1

MANILA, Philippines—For whatever it is worth, I have a vision for the Philippine economy for the year 2020, a decade from now.

I do not claim that it is as an accurate a vision as the term 2020 connotes physically. It comes from a whole set of judgments I am making about present economic and political realities in the global, Asia Pacific, and local scenes, and how things will play out in the next ten years. Among other perceptions about the Philippines emanating from world leaders, I am taking off from the statement by former US President William J. “Bill” Clinton, who in a recent visit to the Philippines remarked that the Philippines is now “at a whole new age.”

Key to this assessment by Mr. Clinton is that the Philippines is one of the emerging markets that will lead the world in economic growth for the next twenty years, partly due to its large domestic market.

First, I am making the assumption that President Benigno C. Aquino III will deliver on his promises about economic reforms. He will follow closely the footsteps of President Susilo Bambang Yudhoyono (SBY), who in the last six years has transformed a deeply corrupt and mismanaged country into an economic model in the Southeast Asian region by making significant strides in good governance and economic reforms.

As can be read in the article accompanying this short essay, Indonesia is about to receive an investment grade from credit rating agencies because of impressive macroeconomic reforms and success in combating corruption. Transparency National in its 2010 Report entitled Corruption Perceptions Index 2010 ranks Indonesia six notches above the Philippines when six years ago, Indonesia was close to the bottom of the list as one of the most corrupt countries in the world.

I am of the opinion that the Philippines under President Aquino will be able to improve its ranking in this Corruption Perceptions Index by aggressively prosecuting tax evaders and corrupt government officials. This will pave the way for the Philippines to attract significantly more Foreign Direct Investments (FDIs) approximating the $7 to $10 billion received in 2009 by Vietnam and Indonesia, the two countries most comparable to the Philippines today.

I am forecasting that the Philippine GDP will grow at an average of at least 7 percent per annum, emulating the growth rates that India and Vietnam have been able to register over the last five to ten years. I use these two Asian economies as a standard because they too are low in global competitiveness rankings in both governance and efficient infrastructure.

Despite these deficiencies, they have been able to grow at 7 percent or more, giving me the confidence that at this “whole new age” we have entered under the present leadership, we can also attain the growth rate necessary for us to make a significant dent on our poverty problem. Growing at 7 percent or more for a decade, we can reduce our poverty rate to about 15 percent in 2020 from the present 31 percent.

Today, Indonesia already has a 14.1 percent poverty rate. Our savings rate will be above 30 percent of GDP (which is already its present level) while our investment rate will be about 25 percent of GDP, the present average in the Asean region. This will be a significant improvement from the present investment rate of 17 percent. Such a big rise in investment will be mainly due to huge investments in infrastructure through the Private-Public Partnership Program of the present Administration, bolstered by some $7 billion annually of FDIs, the level of Vietnam today.

I am assuming that private investments, both local and foreign, will flow heavily into the 7 Big Winners, identified by the various foreign chambers of commerce. In Agribusiness, these investments will be in processed food/beverages, fruits and vegetables, and marine/seafood—the sectors that have bright export markets, especially to China and other Northeast Asian countries.

These exports will be especially facilitated by the removal of tariffs on agricultural products scheduled for 2015 under several Free Trade Agreements such as the AFTA + 3. Even today, China buys more than 50 percent of its banana imports from the Philippines. As this decade evolves, the demand for high-value food products from our Northeast Asian neighbors will increase rapidly. Given significant improvements in our rural infrastructures, we will be able to supply such increasing demand.

In the IT-BPO sector, as Oscar Sanez, President and CEO, of the Business Process Association of the Philippines (BPAP) forecasted in a gathering of foreign chambers of commerce last October 28, 2010, a 20-percent annual growth can be sustained at least till 2016, bringing total revenues by that year to $25 billion. A conservative estimate for 2020 will be $40 billion in total revenues, approximating what the electronics industry accomplished in 30 years of operations. In the same forecast, Mr. Sanez estimates that by 2016, there will be 1.4 million people employed in the BPO industry with increasing share of new, higher-valued services while sustaining the Philippine global leadership in Customer Relations Marketing (CRM). The Philippine share of global markets will expand, especially in the UK, Asia Pacific, EU while sustaining its established position in the US, just behind India. My assumption here, of course, is that we will be arresting the deterioration of Philippine education, especially at the primary and secondary levels.

With the focus on infrastructure development under the present administration, I expect a quantum leap in the quality of our roads, bridges, airports, seaports, water supply systems, waste disposal, and other public utilities. Through the PPPs, successes with Manila Water and North Luzon Expressway will be replicated in other sectors and regions. In the Global Competitiveness Report 2010-2011 of the World Economic Forum, the Philippines ranks 104 in Infrastructure as a basic requirement for investment and growth compared to 83 of Vietnam and 82 of Indonesia, two of our closest peers.

By 2020, I expect the Philippines to move to the low 80s in the same ranking, giving Vietnam and Indonesia closer competition. I am bullish in this regard because the persons occupying leadership positions in the departments directly involved in infrastructures (Public Works and Highways, Transport and Communication, Energy) under the Aquino administration are admired for their integrity and professional competence. We can be sure that the funds earmarked for infrastructures will not be wasted or misallocated through corruption.

For comments, my email address is bvillegas@uap.edu.ph.  –Dr. Bernardo Villegas, INQUIRER.net