The Philippine Economy: Midway in the Noynoy Administration

Alvin P. Ang, Ph.D.

University of Santo Tomas

Manila, Philippines

Professor, Faculty of Arts and Letters

Flow of Presentation

Past Philippine Economic Performance Where is the growth coming from? What are the new growth drivers? What is the short-term and long-term

direction of growth?

NUMBERS THAT MATTER

GDP GROWTH – (UP) GDP BY CONTRIBUTION – (FEW) GDP BY AREA – (CONCENTRATED) EMPLOYMENT – (WEAK) BUDGET BALANCE (GOOD) REMITTANCES – (BEST) INTEREST RATES – (BEST)

GDP Growth – Breaking Out!

Death ofAquino andPolitical Crisis

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-10

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-6

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8

10

Philippines Real GDP Growth, Percent

Balance ofPaymentsCrisis

AsianFinancial Crisis

GlobalFinancialCrisis

Economic Structure

19901991

19921993

19941995

19961997

19981999

20002001

20022003

20042005

20062007

20082009

20102011

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Services Mining Agriculture

Contribution per industry

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100% Other Services

Public Administration & Defense: Compulsory Social Security

R. Estate, Renting & Bus. Actvt

Financial Intermediation

Trade and Repair of Motor Vehicles, Mo-torcycles, Personal and Household Goods

Transport., Stor., and Comm.

Electricity, Gas and Water Supply

Construction

Manufacturing

Mining & Quarrying

Forestry

Agriculture and fishing

Manufacturing2011 2012 2013

Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1Food manufactures 122,956 83,642 157,285 141,995 130,009 92,920 166,780 159,340Beverage industries 13,423 16,600 18,358 10,626 13,638 17,191 18,849 10,435Tobacco manufactures 735 1,958 1,710 507 837 1,945 1,386 480Textile manufactures 9,333 6,819 7,470 6,643 10,333 6,170 6,956 5,749Wearing apparel 6,008 7,159 9,862 7,284 10,314 11,093 10,863 7,634Footwear and leather and leather products 677 1,216 2,385 1,004 1,009 1,288 2,968 1,278

Wood, bamboo, cane and rattan articles 3,123 2,282 4,988 2,637 4,252 2,170 5,258 2,104Paper and paper products 4,286 4,728 2,449 2,721 3,937 4,243 2,690 2,609Publishing and printing 2,735 878 2,608 2,251 2,630 977 2,651 1,761

Petroleum and other fuel products 13,527 10,038 13,234 14,581 11,606 8,955 13,648 11,449Chemical & chemical products 18,976 22,782 30,983 18,652 21,029 23,527 32,058 22,092Rubber and plastic products 5,013 6,066 5,952 5,303 5,457 6,961 4,796 5,409Non-metallic mineral products 7,880 7,916 11,198 7,247 9,555 9,895 11,313 7,473Basic metal industries 4,858 10,387 4,481 4,315 2,914 8,388 5,367 7,144Fabricated metal products 6,007 2,542 3,568 2,057 6,053 2,539 3,311 1,964Machinery and equipment except electrical 4,344 5,804 4,828 4,888 4,488 5,832 5,063 5,799Office, accounting and computing machinery 3,318 6,748 3,889 3,862 3,431 8,787 4,860 4,087

Electrical machinery and apparatus 8,609 7,954 9,229 8,174 10,359 9,234 7,982 5,595Radio, television and communication equipmentand apparatus 62,909 70,817 38,306 67,216 56,284 68,960 45,936 80,824Transport equipment 6,858 8,884 8,175 5,627 8,349 10,300 9,009 6,282Furniture and fixtures 5,667 7,452 19,680 13,717 10,401 10,304 18,925 14,196Miscellaneous manufactures 13,394 13,021 10,594 10,929 11,606 11,846 10,796 11,682

Why can’t I feel the growth?

TWO THINGS:

What is expanding? - Growth

What is contributing to it? - Share

Where?

PERCENT DISTRIBUTIONREGION / YEAR 2010 2011 2012

NCR METRO MANILA 35.8 35.7 36.3

CAR CORDILLERA 2.2 2.2 2.0

I ILOCOS 3.1 3.1 3.1

II CAGAYAN VALLEY 1.7 1.7 1.8

III CENTRAL LUZON 8.8 9.1 9.1

IVA CALABARZON 17.3 16.9 16.8

IVB MIMAROPA 1.8 1.8 1.7

V BICOL 2.1 2.1 2.1

VI WESTERN VISAYAS 3.9 4.0 4.0

VII CENTRAL VISAYAS 6.0 6.1 6.3

VIII EASTERN VISAYAS 2.5 2.5 2.2

IX ZAMBOANGA PENINSULA 2.0 2.0 2.1

X NORTHERN MINDANAO 3.8 3.9 3.9

XI DAVAO REGION 4.2 4.2 4.0

XII SOCCSKSARGEN 2.8 2.8 2.8

XIII CARAGA 1.1 1.1 1.2

ARMM MUSLIM MINDANAO 0.9 0.9 0.9 Source: National Statistical Coordination Board

Share

Stagnant Manufacturing

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0

5000

10000

15000

20000

25000Employment by Sector

Agriculture

Manufacturing

Services

Productivity Issues

Agriculture Employment of 33% only produces 16% of GDP

Industry employs about 15% of GDP but contributes about 25% to GDP

Latest Employment Data

1Q11

2Q11

3Q11

4Q11

1Q12

2Q12

3Q12

4Q12

1Q13

2Q13

Labor Force Mn

39.2 39.7

39.9 41.1 40.3 40.6 40.4 40.4 40.8 40.9

Employed Mn

36.2 36.8

37.1 38.5 37.3 37.8 37.5 37.7 37.9 37.8

Unemployed Mn

2.9 2.9 2.8 2.6 2.9 2.8 2.8 2.7 2.9 3.0

LFPR% 63.7 64.2

64.3 66.3 64.2 64.7 64.0 63.9 64.1 63.9

ER% 92.6 92.8

92.9 93.6 92.8 93.1 93.0 93.2 92.9 92.5

UR% 7.4 7.2 7.1 6.4 7.2 6.9 7.0 6.8 7.1 7.5

UnER% 19.4 19.4

19.1 19.1 18.8 19.3 22.7 19.0 20.9 19.2

Minimum Wage in Asian Countries

Mya

nmar

Cambo

dia (C

ambo

dian

Riel)

Vietna

m (D

ong)

Indo

nesia

/Jak

arta

(Rup

iah)

China/

Shenz

hen

(Yua

n Ren

minb

i)

Philipp

ines/

VII (P

eso)

Philipp

ines/

IV-A

(Pes

o)

Philipp

ines/

III (P

eso)

Thaila

nd/B

angk

ok (B

aht)

Mala

ysia

(Ring

git)

Philipp

ines/

Met

ro M

anila

(Pes

o)

Taiwan

(Taiw

an D

ollar

)

Hong

Kong

(HK D

ollar

)

South

Kor

ea (W

on)

Japa

n (J

apan

Yen

)0

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Manpower supply – long term concern

276,940 unfilled jobs with 1,969,976 applicants (BITS 09-10)

Average time to fill up jobs is 3.7 months (09-10) vs 5 months (07-08)

Difficulty more pronounced in middle management

Source: WB Philippine Skills Survey 2010

Stock of Overseas Filipinos: 10.4 Million (more than 10% of Population, as of end-2011) in 239 countries and territories– 45% Temporary Migrants (also called overseas Filipino

workers or OFWs in the Philippines); – 48% Permanent Immigrants; – 7% Irregular migrants– Developing country comparisons: 0.9M overseas Albanians;

2.27M overseas Moroccans; 2.7M El Salvadorans

Filipinos’ Overseas Migration

Growth can be internally financed

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Portfolio Investments as % of GDP Foreign Direct Investments as % of GDP

OFW Remittance as % of GDP Gross Domestic Savings as % of GDP

Savings boom!

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Gross domestic saving

Gross national saving

Gross domestic capital formation

Government balance

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Total revenue Taxes

Total expenditure Overall budgetary surplus/deficit

Pushed Interest Rates to all time lows

Reserves at all time high!19

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Official Reserves and Exchange Rate

Official Reserve Assets, Million US$

Exchange Rates, PhP/US$

Foreign Debt

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External debt percent of GNI

Total long-term debt percent of total debt

Short-term debt percent of total debt

Investment Grade

Fitch, S&P, Japan Ratings Agency and soon Moody’s

Analysis of a country’s debt condition, tax collection, low and stable inflation collectively known as risk premium

Irony

With lower risk premium, money flows in > we no longer need too much external borrowing

Government can raise resources internally

Enough fx to finance our requirements

Employment in BPO

2004 2005 2006 2007 2008 2009 2010 2011 -

100,000

200,000

300,000

400,000

500,000

600,000

Software DevelopmentAnimationTranscriptionContact Center

Top Exports and Imports

Exports Share Imports Share

Electronics 58% Electronics 35%Clothing 4% Fuel 22%Furniture 3% Transport 5%Wiring 2% Food 5%Copper 2% Machinery 4%Bananas 1% Chemicals 2%Tuna 1% Iron 3%

Cities outside of Manila catching up!

Cagay

an D

e Oro

City

Iloilo

City

San F

erna

ndo

City, P

ampa

nga

Butua

n

Bacol

od

Koron

adal

San F

erna

ndo,

La

Union

Olong

apo

CityNag

a

Mar

ikina

Lega

zpi C

ity

Gener

al S

anto

s City

Surig

ao

Quezo

n

Vigan

Kidap

awan

Mab

alac

at

Antip

olo

Luce

na C

ity

Mas

bate

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Can we sustain investment grade?

Macroeconomic policy can influence but not totally change institutions/cultures

We are faced with huge structural imbalance favoring the present economic and political groups

Private sector must follow and government infrastructure investments

Short term growth prospects

Richest follow their investments

HENRY SY 12.BN MALLS, BANKING, REAL ESTATE

LUCIO TAN 7.5BN TOBACCO, BANKING, AIRLINE

ANDREW TAN 4.6BN REAL ESTATE

ENRIQUE RAZON 4.5BN PORTS, CASINO

JOHN GOKONGWEI 3.4BN MALLS, REAL ESTATE, AIRLINE, FOOD MANUFACTURING

JAIME ZOBEL DE AYALA 3.1BN REAL ESTATE, BANKING, TELCO

ENRIQUE ABOITIZ 3.0BN POWER, BANKING, FOOD

DAVID CONSUNJI 2.7BN UTILITIES, REAL ESTATE

GEORGE TY 2.6BN BANKING, UTILITIES

LUCIO CO 1.9BN SUPERMARKET RETAIL

What holds in the next 3 years?

Philippines will need to prepare:– ASEAN 2015– Shift in OFW demand– Immediate transformation of investments to

productive and job-sustaining activities– Support infrastructure

We are severely affected by internal structure!

P-Noy Focus

Focus on quality basic education including financial literacy as a basic life skill

Improving the business climate by now extending fight of corruption at local levels

Encourage and take the lead in investments in sectors where productivity is low – agriculture

Overwhelming infrastructure development

Without these…

Investment upgrade mostly reputational impact – good for short- term

Increase FDI to at least US$5Bn! – Argentina and Egypt have lower credit ratings but higher FDIs of 11 and 5 Bn!

They need to be connected to smaller firms

Please attend…

51st Annual Meeting of the Philippine Economic Society on 15 November 2013

Featuring the country’s top economists and business leaders

For further inquiry please log on to www.pes.org.ph

Philippine Economic Society 50 years (1962 – 2012)

THANK YOU AND GOD BLESS!

Twitter: @angalvin

Email: angalvinp@gmail.com

Blog: winninginvestor@wordpress.com