The state of our nation

Last June 19, Francis Estrada, former president of the Asian Institute of Management (AIM), spoke before the Financial Executives Institute of the Philippines (FINEX). It was vintage Francis… incisive and to the point. He talked about the Philippines today… what is right with it… what are the challenges.

I have served in a board of judges with Francis to help select the Employer of the Year some years ago. I respected his insights during our discussions.

Going through the text of his Finex speech, I think Francis has pre-empted P-Noy’s SONA, assuming P-Noy’s Palace staff is capable of such analysis. I will liberally pick up whole chunks from Francis’s speech because that is the only way the reader can appreciate his message.

I hope the President will skip the good news part covered by Francis and just go on to the second part about the challenges. Most of the good part was due to external factors anyway.

What the nation must know is how P-Noy intends to meet the challenges in the remaining three years of his term. P-Noy’s SONA must deliver a strong message that he has not given up delivering the infra projects that his DOTC officials no longer care to deliver.

Francis opened his speech declaring that “we live in dangerous times.” But he also pointed out that “in an unstable global economy, conventional economic metrics suggest that the Philippines has never been stronger.”

These are the good news “we cannot, but be thankful for: “Our 6.8 percent GDP growth in 2012 and the 7.8 percent p.a. in the first quarter of 2013;

“The fact that we are in good fiscal health (especially considering the world at large). Our total fiscal deficit (at the end of September 2012 last year) was a manageable P54.7 B – .7 percent of GDP;

“Gross International Reserves ($82.9 B at the end of May 2013) – equivalent to 11.7 months import cover and 6.6 times short term debt cover.

“Modest inflation – 3.6 percent p.a. as of March 2013.

“Remittances that have almost trebled to $21.4B (2012), accounting for over 10 percent of GDP and growing at a rate of 11.3 percent p.a. (2006-2012).

“A robust banking system reflecting at the end of 2012: P8.05 T in assets and P1.05 T in capital; P5.755 T in deposits, P4.2 T in loans; A healthy loan to deposit ratio of 73.5 percent, return on assets of 1.6 percent p.a. and a return on equity of 12.71 percent p.a.;

“While banking systems of many developed economies struggle to meet Basle III capital requirements, our monetary authorities have successfully prodded our banks to comply ahead of schedule.

“An IT-Business Process Outsourcing (BPO) sector that has grown to be the global leader in “voice” and the No. 2 in “non-voice, complex services” with total employment of 776,794 at the end of 2012 (up 21 percent from 2011); 2012 revenues of $ 13.2B (up 19 percent), “on track” to rise to $ 25B by 2016…

“As duration of financial assets has lengthened significantly, long term peso financing is now becoming available – at least to government leading enterprises.”

But, Francis asks, “What is wrong with that picture? The answer is: a lack of inclusivity that fundamentally undermines sustainability… the benefits of growth have historically gone to a very small component of the Philippine population.”

We have pointed out countless times the most important problem of most Filipinos today can be summarized by one word: JOBS… the lack of it.

Francis agrees. “Our inability to provide gainful employment to our citizens has created a situation where over 11 million of our countrymen live overseas; close to 2.5 million are OFWs – almost five percent of our labor force!

“Our bagong bayani are critical to our economy with remittances as a percentage of GDP rising from 3.3 percent in 1990 to 10.2 percent in 2011!”

Francis then asks the most basic of questions in our supposedly democratic republic: “Aren’t institutions meant to serve all their stakeholders, not a privileged few?”

He goes on: “Are fiscal health and monetary stability – important though they are – the right over-arching measures of a country’s success?”

Here is our problem: “Soon after the announcement that we led Asia’s growth ‘league table’, we learned that this did not ‘trickle down’ – the way neo-classical economists would argue it would. We actually lost 21,000 jobs as of April this year.”

Statistical data, Francis pointed out, “suggest the following major issues (most of which are only too painfully known to you):

“A need to broaden an existing narrow economy characterized by a service sector that accounts for 52 percent of total employment (agriculture accounting for 33 percent and industry, 15 percent); a weak and badly neglected agricultural sector which, despite accounting for 33 percent of our total work force (2011), has seen its share of total loans from the banking system decline from 9.17 percent (P232.65 billion) in March 2008 to 4.66 percent (P197.15 billion in December 2012);

“Our economy also has a lopsided industrial structure that is heavily dependent on electronics; chronic and substantial income disparities; an incestuous relationship between the economic and political elite – undermining the existence of an authentic level playing field.

“There is furthermore, inconsistent and short-term socio-economic policies with inadequate emphasis in raising rural incomes; high domestic prices – witness our food, pharmaceutical and energy prices relative to those of our neighbors; a timid and unresponsive banking system.

“We also have a chronically high unemployment, indicating that our education system has not effectively prepared our youth for the work place; an inordinate focus on “macro” indicators – as opposed to actual communities and individuals.”

In governance, Francis acknowledged that “while the country has begun to reap the benefits of the current administration’s commitment, there is much to be done to broaden and deepen the reforms at both the public and private sectors.”

He also cited as a problem, “the lack of a comprehensive strategy to create integrated industries based on domestic raw materials, e.g. coconut, mining, wood and other extractive industries.”

Also problematic is our “woefully inadequate infrastructure and excessive cost of power.”

These issues – and our response to them – should also be seen in the context of the competitive environment we face, Francis urged. “The 2015 ASEAN Integration looms large in the horizon,” he warned.

There are red flags or immediate concerns P-Noy must address: “Unemployment – over the period 1990-2011, the Philippines reflected an average unemployment rate of 9.1 percent, the highest in Southeast Asia – followed by Indonesia (8.1 percent) and Myanmar/Lao (four percent).”

Another red flag is poverty reduction. “The results of Philippine poverty reduction efforts have substantially underperformed the East Asian average.”

We also ought to start worrying about remittances. “While the Philippines now ranks No. 4 globally in inward remittances, we have seen a steady decline in earnings per OFW in most of our top 10 deployment markets:

a) Earnings per worker in Italy (which provides the highest “bang per worker” declined 52 percent ($ 35,617 to $ 17,369) between 2007 and 2011.

b) Earnings per worker in Singapore (the country showing the fastest growth in worker deployment) have declined 57 percent, from a high of $ 12,571 (2008) to $ 5,383 (2011).”

Other red flags: Capital formation – “As an index of expansion potential, fixed capital formation has actually declined 5 percent (from 20.12 percent to 19.08 percent of GDP) in the period 2006-2011. “The Philippines has lagged the global average while its major ASEAN partners have consistently exceeded the same.”

Foreign Direct Investments – $ 2.8B in 2012 and growing at an average annual rate of 52 percent over the period 2003 to 2012; Per Capita FDI has actually declined 44 percent to $19 (2011) from $ 23 (2006); this compares with: Indonesia ($ 80), Thailand ($ 115), Malaysia ($ 413) and Vietnam ($ 85).”

Francis very well captured the facts and figures that describe our current state of the nation’s economy. Surely, after three years learning on the job, P-Noy and his bright boys must now have some bright ideas on how to respond. More than that, they must get going quickly.

But frankly, if P-Noy can’t get his DOTC boys to move, how can we expect him to have what it takes to move the rest of the bureaucracy? I hope and pray P-Noy will prove us wrong. If he manages to deliver the infra his boys are reluctant to roll out, that would be a victory for the people, his bosses. –Boo Chanco (The Philippine Star)