Philippines: The Next Bright Spot in Asia?
August 31, 2012 11:50 am
The Philippine economy is looking a good deal stronger over the past few years. The government has been pro-growth that has shown a transformation.
The stock market is holding up well since the low in 2009.
From the NY Times:
MANILA — In the upscale business district of Manila, a midweek crowd spills out into the street. The New York-themed Borough restaurant is pulsating to the beat of a Bon Jovi song, while young, hip Filipinos take shots of tequila from a passing tray and sing in unison.
A company support center in Makati City, Philippines. Last year, the Philippines surpassed India as the world’s leading provider of voice-based outsourcing services.
“Whoa-oh, we’re halfway there!” the crowd sings. “Whoa-oh, livin’ on a prayer!”
The revelers have reason to celebrate. Times are pretty good in the Philippines if you are young, skilled and live in the city. Young urban workers are helping to give the country its brightest prospects in decades, economists say.
With $70 billion in reserves and lower interest payments on its debt after recent credit rating upgrades, the Philippines pledged $1 billion to the International Monetary Fund to help shore up the struggling economies of Europe.
“This is the same rescue fund that saved the Philippines when our country was in deep financial trouble in the early ’80s,” said Representative Mel Senen Sarmiento, a congressman from Western Samar.
The Philippines has certainly had a steady flow of positive economic news recently. On July 4, Standard & Poor’s raised the country’s debt rating to just below investment grade, the highest rating for the country since 2003 and equivalent to that of Indonesia.
The Philippines is the 44th-largest economy in the world today, according to HSBC estimates. But if current trends hold, it can leap to the No. 16 spot by 2050. The Philippine stock market, one of the best performers in the region, closed at a record high after the recent S.& P. rating upgrade, and the country’s currency, the peso, reached a four-year high against the dollar at about the same time.
The gross domestic product of the Philippines grew 6.4 percent in the first quarter, according to the country’s central bank, outperforming all other growth rates in the region except China’s. Economists expect similarly strong growth in the second quarter.
“We have made a very bold forecast for the Philippines, but I think justifiably so,” said Frederic Neumann, a senior economist at HSBC in Hong Kong.
A high population growth rate, long considered a hindrance to prosperity, is now often seen as a driving force for economic growth. About 61 percent of the population in the Philippines is of working age, between 15 and 64. That figure is expected to continue increasing, which is not the case for many of its Asian neighbors, whose populations are aging.
“There are a number of countries in Asia that will see their working-age populations decline in the coming years,” Mr. Neumann said. “The Philippines stands out as the youngest population. As other countries see their labor costs go up, the Philippines will remain competitive due to the sheer abundance of workers joining the labor force.”
Many of those workers are feeding the country’s robust outsourcing industry. The Philippines, where English is widely spoken, surpassed India last year as the world’s leading provider of voice-based outsourcing services like customer service call centers.
According to the country’s Board of Investments, offshore call centers employed 683,000 Filipinos in 2011 and generated about $11 billion in revenue, a 24 percent increase from the previous year. The government is seeking to expand the industry and has said it hopes it will generate $25 billion in revenue by 2016.
The Philippines’ growing prosperity has also been driven by the 9.5 million Filipinos — almost 10 percent of the population — who work outside the country and who sent home about $20 billion in 2011. That is up from $7.5 billion in 2003.
Trinh D. Nguyen, an economist with HSBC in Hong Kong, said the Philippines had benefited from an increase in government efficiency and revenue collection, as well as aggressive actions to address corruption, like the impeachment of the chief justice of the Supreme Court and the arrest of former President Gloria Macapagal Arroyo on suspicion of accepting kickbacks and of misusing government lottery money.
“It is not only short-term growth that draws investors to the Philippines,” Ms. Nguyen said. “The fundamentals are there.”
But there are also real weaknesses in the country. Recent flooding, which by some estimates submerged 50 percent of Manila, illustrates a shortage of modern infrastructure that makes the Philippines highly vulnerable to disasters.
“The Philippines is hit with several deadly and devastating natural disasters every year,” Ms. Nguyen said.
But government officials have said that the recent flooding might actually help economic growth, because reconstruction will require an increase in public spending and the country will have to put into place programs to make it more resistant to the effects of natural disasters.
Another hurdle is the fact that the Philippines has traditionally underexploited its natural resources. The government estimates that there are 21.5 billion tons of metal deposits in the country, including large deposits of nickel, iron, copper and gold. But they have never been a significant driver of economic growth because extraction has been mismanaged, Mr. Neumann said.
In the shorter term, there are concerns that the country’s newfound prosperity has not sufficiently eradicated poverty.
Other countries in the region, most notably China and Japan, but also Thailand and Vietnam, have successfully developed export-driven manufacturing, bringing millions of people out of poverty and increasing the size of their middle classes. Manufacturing typically draws workers away from agriculture, which pays less. But many of the large foreign companies that financed such transitions to manufacturing in Asia have avoided the Philippines because of periods of political instability.
The service sector — including the young call center workers who were recently reveling in Manila — are helping drive an economic boom in the cities.
But that type of outsourcing still provides only about 1 percent of jobs in the country, according to data from the Asian Development Bank. And the strong sector does not create jobs accessible to farmers or to millions of other Filipinos in rural areas who seek a way out of poverty.
“While the Philippines’ business process outsourcing industry has grown impressively, it still employs a very small portion of the country’s work force,” noted Rajat M. Nag, a managing director of the Asian Development Bank. “It needs to aggressively develop its manufacturing sector to create more jobs.”
On Emerald Avenue in the Ortigas business district of Manila, where hundreds of call center workers pour out of skyscrapers to gossip and smoke, Mika Santos, 18, does not have much to say about the national economy. But she is very happy with her own situation.
After completing a two-year information technology course and passing an exam in English proficiency, she started handling customer service calls for a United States mobile phone company. She earns a comparatively high salary for an entry-level job, and her employer offers incentive bonuses, free meals and shuttle service.
Had she been born a generation earlier, she would most likely have worked as a low-income farmer or gone overseas to find work. “My parents didn’t have any opportunity like this,” she said.