The state of the Philippine economy 1st quarter 2013

1. Cielito F. Habito, Ph.D.
Economic Briefing for the
Ateneo Graduate School of Business
4 June 2013
Philippine Economic Performance
and Outlook:
In Quest of Inclusive Growth

2. Overview
• Where We Have Been
➜ Disturbing Comparisons
• Where We Are Now
 The “PiTiK Test”
• Where We Are Headed
 Signs of a Breakout
 Sustaining Growth, Threats to Growth
 The Challenge of Inclusive Growth
 Doing Our Share

3. Philippines & Thailand:
Estranged Twins
Thai Phil Thai Phil
Population (million) 36 36 66.9 92.2
Population G.R. (%) 3.1 3.1 0.6 2.0
GDP Per Capita (US$) 250 250 4062 1796
GDP Share (%)
Agriculture 32.0 26.0 11.6 14.8
Industry 23.0 27.5 43.3 30.2
Services 45.2 46.7 45.1 55.0
Gross Dom Inv (%GDP) 20.0 20.0 21.8 14.6
Gross Dom Saving (%GDP) 18.5 20.3 31.7 15.6
FDI Stock (Billion US$) 7.8 2.3 93.8 22.9
1998 2009
Indicator
1970 2009
1965 2009

4. Philippines & Indonesia:
Trading Places

5. Gross Domestic Investment
Average Annual Growth Rate (%)
2004-2009
Source: ADB

6. Poverty rose from 24.9% (2003)
to 26.5% (2009); (H1-2012: 27.9%)
Net elementary school participation
rate fell from 97% in 2001 to 85% in
2008; high school from 66% to 62%
Malnutrition incidence went up in most
provinces
Wide disparities persist in life
expectancy across provinces: Low -
53.4 (Tawi-Tawi); High - 74.6 (La Union)
The Economy In Human Terms

7. 2010: Turning Point For Private
Domestic Investment

8. Gross Domestic Investment
Average Annual Growth Rate (%)
2004-2009 (Philippines: Ave. 2010-12)
9.3

9. How Is The Economy Doing?
The “PiTiK Test”
The Essential Yardsticks (P-T-K):
 Price Stability (Presyo)
 Jobs (Trabaho)
 Incomes (Kita)

10. Latest Economic Performance
Good News: 2½ out of 3
 Prices: Slowed down to 3.2% in 2012 vs. 4.4%
in 2011 (Food – 2.3%); Now 2.6% (Food -1.9%)
 Jobs: Jan 2013 unemployment fell to 7.1%
from previous year‟s 7.3%, 606,000 jobs
gained; but 571,000 agri jobs were lost,
underemployment up to 21%
 Incomes/Output: GDP grew 7.8% in Q1-
2013 (fastest in Asia), from previous year‟s
6.5% growth

11. Presyo
Inflation Trends
9.3%
3.2%
3.8%
4.4%
FY 2013 – 3.0%
April ’13 – 2.6%
Non-NCR – 2.8%
Food – 1.9%
3.2%

12. Trabaho
Underemployment Rising

13. Kita
2012: All Sectors Speeding Up

14. Kita
Q1-2013: Industrial Vigor

15. Manufacturing & Construction Drive
Industry Growth

16. Investment Surges in Q1

17. Business Confidence:
Historical Peaks

18. FDI Approvals Reach 16-year High;
Net Inflows Up 32.6% ($1.1b)

19. Sustained Remittances Growth

20. Regional GDP Growth, 2010-2011
Fastest growing:
Caraga Region,
Central Visayas,
Central Luzon
Worst Performers:
ARMM, Zamboanga
Peninsula

21. A Break From the Past
Source: NSCB

22. PiTiK Test: Then and Now
Source: NSCB

23. Taking Off Where It Matters
Source: NSCB

24. But much work remains
Source: ADB

25. We still lag far behind
Source: ADB

26. Where is the Peso Headed?
Source: http://fx.sauder.ubc.ca

27. Peso Appreciation Pressures
 Credit rating upgrade
 More financial inflows
 Sustained income remittances growth
 May accelerate further?
 BSP‟s „arsenal‟ getting tighter
 Intervention ability more limited
 More fun in PH
 Tourism influx picking up
 US Dollar‟s decline as reserve currency
 Long term weakening

28. Growth Drivers In 2013
Onwards
 Government spending: Full throttle;
PPPs coming on stream; stronger
revenues
 Governance: Improvements taking
hold
 Private domestic investment: Up from a
decade of stagnation; FDI picking up
 Fitch, S&P & Moody‟s: Ratings upgrades
 Election Spending: Strong stimulus

29. Growth Drivers In 2013
Onwards
 Remittances: Steady growth
 Gaming Investments: PH as the new
Macau?
 Mindanao: Peace agreement to
unleash new growth potentials
 New manufacturing investments
 China: Factory of the world no more;
resume PH industrialization?

30. Manufacturing: Renewed Vigor
China trends – returning factories
Food Manufactures – driven by growing
population, rising incomes; Halal
products (with growing Islamic markets
worldwide)
Design-based Manufactures – high end
apparel; furniture & fixtures
Finished consumer electronic products –
deliberate efforts now underway to
move up the value chain (JICA)

31. Manufacturing 2012:
Winners Well Outnumber Losers
Winners
• Wearing apparel (44.1%)
• Furniture/Fixtures (38.7%)
• Wood products
• Office equipment
• Nonmetallic Min Prods
• Footwear & leather prods
• Transport Equipment
• Electrical Machinery
• Rubber & plastic
products
• Food Manufactures
• Chemical Products
Losers
• Basic Metal Prods
• Misc Manufactures
• Petroleum/Coal Prods
• Paper/Paper products
• Tobacco Manufactures
• Radio, TV & Comm
Eqpt
 Beverages
 Publishing/Printing
 Non-elec Machinery
 Fabricated Metal
Prods

32. Threats To Sustained Growth
Fiscal Time Bomb in Europe & US:
Systemic collapse would have global
impacts
Appreciating Peso: Adjusting to the
inevitable
Political Backsliding: Post-2016 scenario
ASEAN Economic Community 2015: Tap
opportunities, address vulnerabilities
Wide Inequalities: Attaining inclusive
growth critical to avert “social volcano”

33. Who’s Afraid Of ASEAN 2015?
ASEAN as a single market and
production base, via:
• Elimination of import tariffs
• Free movement of professionals
• Freer movement of capital
• Free flow of investment
• Faster customs clearance procedures

34. Top Philippine Billionaires:
Skewed Wealth, Skewed Growth
 Income of top
150,000 families =
income of
bottom 6 million
 Rise in wealth of
the 40 richest
Filipinos in 2011
equaled 76
percent of the
total growth in
income (GDP) of
all Filipinos
Forbes
Asia

35. Wealth Increase of 40 Richest /
Absolute Increase in GDP (2011)
 Philippines:
$13 billion / $17 billion (76%)
 Thailand:
$9 billion / $26.7 billion (33.7%)
 Malaysia:
$2.3 billion / $41 billion (5.6%)
 Japan:
$11 billion / $381 billion (2.8%)

36. • Economy grew 7.2% in Q3-2012, but actually
lost 882,000 jobs (NSO-LFS)
• PH rice farmers receive only 45% of
wholesale price; other Asian rice farmers get
65-95% (FAOStat)
• A top billionaire can easily borrow hundreds
of millions from a gov‟t bank and make
fabulous profits from it – but a small farmer or
entrepreneur is hard-pressed to borrow a few
thousand pesos
Narrow, Hollow & Shallow Growth:
Disturbing Facts

37. • It costs more to ship from Mindanao to Manila
than from Bangkok to Manila, for well over 25
years now
• Some of the 40 richest Filipinos in the Forbes list
do not even appear in the top 500 taxpayers
list of BIR
• Gov‟t borrowed billions for Subic & Batangas
Ports “to decongest Metro Manila” – then
permitted substantial capacity expansion of
Manila Port, leaving the two < 5% utilized (JICA)
Narrow, Hollow & Shallow Growth:
More Disturbing Facts

38. Inclusive Growth:
How Shall We Get There?
• Widen the economic base: Concerted SME
promotion and development; foster social
enterprise
• Disperse economic activity & economic
gains: Democratize the value chains; invest in
Mindanao; strengthen competition policy;
make the financial system inclusive
• Get agriculture moving: Empower Provincial
Agricultural Offices; reform DA bureaucracy;
attract/push large investors into agribusiness

39. The Philippine Conundrum
• We have long understood our problems, and
known the needed measures – still, the
problems persist with no real action taken
• Can our politics and political economy
ever change to finally enable the long
needed reforms?

40. Our Task:
How can
government, private
sector and civil society
work together to
ensure sustained
pursuit of the truly
meaningful, long
needed and largely
well known policy and
public investment
interventions crucial
for inclusive growth?
• Freedom of Information Act
• National Land Use Act
• Competition Policy Law
• Rationalization of Fiscal
Incentives
• Wider Liberalization of
Investment Policy
• Political Dynasties Ban
• Easing of Cabotage Law
• Open Skies Policy
• Integrated Forward-Looking
Strategic Infrastructure Plan
• Expanded Farm and SME
Finance
• Political Party Reform
• Inclusive Commodity Value
Chains
• Effective Smallholder
Clustering Programs
• Wider Ro-Ro Coverage
• National Agricultural
Cooperative System

41. Ruchir Sharma: Breakout Nations
• PH: new economy
to watch!
• TIP (Turkey, Indo-
nesia & Philippines)
are pushing BRICS
aside
• Sharma: Quality of
political leadership
crucial to becoming
a breakout nation

42. Positive change will not come
automatically…
• Demand good governance from our leaders
at all levels, at all times… and we must also
deserve it
• Do our share to stabilize and strengthen the
economy:
- Pay proper taxes
- Consciously buy Filipino, buy locally
- Discover our own country first (it‟s more
fun – and less costly!)
We Filipinos must all do our share…

43. •Doing Our Share (Cont’d)
- Invest in Mindanao – especially
Muslim Mindanao (and help break its
vicious cycle of backwardness)
- Invest in good political leaders
- Invest in a poor family
➜ One out of five Filipino families is poor
➜ It takes only one of every four non-poor
to „adopt‟ a poor family
➜ Not to „give a fish,‟ but „teach them to
fish‟!

44. Thank you very much!
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