OFW remittances help sustain 7 percent growth

MANILA, Philippines—Without OFW remittances, it would be difficult for the Philippines to sustain the annual GDP growth of 7 percent or more. It is fortunate that the outlook for the earnings of OFWs remain bright, despite the very slow recovery of the developed countries.

Thanks to their unique traits and talents, OFWs continue to be the first to be hired and the last to be fired in some 200 countries all over the world.

Economists from both the private and public sectors agree on one thing: for the Philippines to significantly reduce the poverty incidence from over 30 percent of the population to 15 percent in the next six years, the Gross Domestic Product (GDP) must grow at least at 7 percent annually during the term of P-Noy. The best time to start such a process is this year, not next year. Everything must be done by both the business sector and the government to achieve this growth target in 2010.

We have a good start. The growth in the first semester has been 7.8 percent. This has been mainly consumption-led, thanks to a 6- to 8-percent growth in OFW remittances, billions of pesos of political spending in the first five months of the year, and the front-loading of public expenditures during the first half of the year. It also helped to have exports growing by over 30 percent as a consequence of the surprising strong rebound in the US economy in the last quarter of 2009.

Unfortunately, three of these sources of strong growth are not sustainable for the rest of the year. The Aquino government is determined to reduce the fiscal deficit by both increasing tax revenues and reducing government expenditures. For obvious reasons, political spending will dry up. With the impending slowdown of the US economy and perhaps even a double-dip recession, Philippine exports of electronics products and semiconductor devices will grow at a much slower pace. Only OFW remittances will continue to grow at an accelerated rate, surpassing the $20 billion mark for the whole year.

How can the 7 percent or more be sustained then? The obvious answer is by growing the investment sector at double-digit rates. The conditions are ripe for a quantum leap in both local and foreign investments. That’s the impression I got during the dialogue that business leaders had last September 17 with the President and his cabinet. I was not the only prophet of boom. Even some perennial pessimists were euphoric about the stock market boom, the smashing success of the first-ever peso-denominated bond issue that was oversubscribed by 13 times, and the 7.9 percent GDP growth rate in the second quarter. All the major business organizations, both local and foreign, were represented. The only time I can remember when the business confidence was at the same high level was immediately after the Edsa revolution in 1986.

Business confidence alone will not produce a quantum leap in investment if funding is tight. Fortunately, the financial sector is awash with liquidity while inflation rates are at a historical low. With savings rate at close to 30 percent of GNP compared to only a 14 percent investment rate, there is a positive savings-investment gap that has resulted in a very liquid banking sector. The first beneficiary of this large savings pool is the housing sector, especially the low-cost and medium-cost units being constructed all over the Metro Manila area. Housing and construction will provide the first big boost to investment in the next 6 to 12 months. Much local funding is also being made available to energy projects, especially in the renewable energy sector. The more than 100 business leaders that participated in the roundtable conference last September 17 were visibly impressed with the hands-on and no-nonsense management style of Energy Secretary Rene Almendras. Knowing him personally, I am convinced that he will facilitate the purchase and expansion of existing power plants. These shovel-ready projects will constitute a good portion of the expected increase in investments in the short run.

Another sector that I expect to contribute significantly to a jump in investment is tourism. Secretary of Tourism Alberto Lim reassured the audience that the negative impact of the recent hostage crisis is short-lived and that he will work for an open-skies policy to bring in more foreign tourists. I was able to talk to a good number of business people involved in tourism, retirement villages, and recreation parks. One group that already has 5,000 hectares of land being developed in Batangas for a “leisure city” is looking for another 5,000 hectares in Palawan. Mr. Oscar Sanez, President of the Business Process Outsourcing Association of the Philippines, pledged that his industry will employ 100,000 more in the coming 12 months. That will ensure the continuing boom in the building of offices that will house these BPO workers. These new real estate investments are especially visible in Metro Cebu. In fact, in late November of this year, a sparkling new building will be inaugurated by the largest Filipino insurance firm, Insular Life, in Cebu. This addition to the Cebu skyline will house many BPO workers and will be inaugurated on time for the celebration of the 100th Anniversary of Insular Life.

Local investors will be complemented by a surge in foreign direct investments (FDIs), especially in mining, energy, and infrastructures. I am convinced that both Secretary of Public Works and Highways Rogelio Singson and Secretary of Energy Almendras will succeed in implementing the Public-Private Partnership in the construction of toll roads, power plants, and other infrastructures that are direly needed by the country to improve its standing in global competitiveness. Chamber of Mines President Philip Romualdez is confident that at least $1 billion of FDIs will be invested in mining in the next 12 months. There can be much more if we can succeed in educating some NGO and Church officials that in countries like Chile, Australia, and Canada, technology for protecting the environment has been developed by the large mining companies. Responsible mining technology can be transferred from these countries to the Philippines. It is about time we move on from the past mistakes of “irresponsible miners.”

I came out of that very fruitful meeting with the President and his economic team with the conviction that the growth of 7 percent or more annually for the next six years is within reach. We can now join the ranks of countries like India and Vietnam which have been growing at 7 percent or more annually for the last 5 to 10 years, despite their also being burdened by corruption, bureaucracy, and in the case of India a chaotic democracy not too different from ours.

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