Economy needs jobs boost from industrial sector
Investments crucial for improved growth
The ADB's and IMF's pitch on 'Inclusive Growth': debating the shift from mantra to method
-------------
MANILA, Philippines—The Asian Development Bank has urged the Philippines to aim for high level of industrialization—indicated by an ability to produce and export more goods—to squarely address the long-standing problem of poverty.
In a comprehensive study on the Philippines titled “Taking the Right Road to Inclusive Growth,” ADB said poverty incidence in the country has remained high, even if the economy has been growing year after year, because of weak industrialization.
ADB said that the services sector, led by business process outsourcing (BPO) firms such as call centers, has indeed helped keep the economy growing but the sector’s success has not had a significant effect toward poverty reduction. The country could lift more people out of poverty by boosting the industry sector, including manufacturing, the ADB said.
The industry sector, unlike the service sector, is capital-intensive and provides jobs even to individuals with low educational attainment, according to the ADB.
Latest official poverty statistics showed that Filipinos living below the poverty line accounted for 26.5 percent of the country’s population as of 2009, the highest among emerging Asian economies. The figure marked an increase from the 26.4 percent in 2006 and the 24.4 percent in 2003, even as the economy actually grew during the period.
“Despite high and sustained growth over the 2000s, the Philippines has failed to generate inclusive growth that is broad-based across the sectors and benefits the entire population. The country’s standing problems of unemployment, poverty and low investments remain,” the ADB said in the report.
To achieve the level of industrialization that the country needs to trim poverty incidence, the Philippines must come up with a road map that identifies measures that will increase private-sector investments in the production of more goods, besides intermediate electronics goods that account for the bulk of the country’s export revenues, according to the ADB.
One policy recommendation is for the country to identify more products that it can competitively sell offshore so that export revenues will rise and more domestic jobs will be created. ADB pointed to a wide range of products – from machinery, food and jewelry to musical instruments and fabrics – that the Philippines could invest in to become a more competitive exporting country.
Once the products are identified, the government should implement measures that will address problems that prevent the private sector from investing in the manufacture of these products, according to the ADB.
ADB suggested the creation of councils that would be in charge of conducting dialogues between the government and the private sector on the needs of the latter to invest and generate decent profits.
“This problem (of inviting private firms to invest in target products) could be alleviated by setting up an institution to interact with the private sector in identifying firms’ obstacles in exporting new goods, and determining the most appropriate interventions,” ADB said.
ADB said that other emerging Asian economies, unlike the Philippines, were able to significantly trim their poverty rates over the past decade because of stronger efforts toward industrialization.
“This is not to suggest that the growing services sector, in particular the BPO industry, should not be the centerpiece of the long-term development strategy… [However], without dynamic industrial development, the country will continue to suffer from the long-standing problems of high unemployment, slow poverty reduction, and low investment,” the ADB said.
-------
THE PHILIPPINES can achieve inclusive growth with a stronger industrial sector creating productive job opportunities, the Asian Development Bank (ADB) said.
“The Philippines has a robust service sector which is a pillar of the economy, but the country needs to develop an equally robust industrial sector to create more job opportunities,” ADB senior country economist Norio Usui said during yesterday’s launch of the “Taking the Right Road to Inclusive Growth” report.
Mr. Usui claimed the country’s focus on electronics had led to “exports vulnerability.”
“We must remember that last year the country has experienced sharp drop in exports. People say that it was because of the global crisis but then if you check all your neighbors, other countries maintained their exports growth... You concentrate too much on electronics, then you face these difficulties... The point is you need to diversify,” he said.
“It is not about the products. The point is not the products but the need is to focus on the capabilities of what we already have... which product is easy to develop.”
A stronger industrial base, said Mr. Usui, means the Philippine economy can “walk on two legs of industry and modern services.”
The report said policy reforms should be undertaken to address existing challenges that include the under-provision of basic infrastructure, weak governance and an unfavorable perception of the country’s business environment.
Responding to the study, University of the Philippines economist Emmanuel S. De Dios noted the need to address corruption and political instability.
National Economic and Development Authority Assistant Director-General Ruperto P. Majuca, meanwhile, said in a text message that the government was working to strengthen sectors such as “manufacturing, infrastructure and logistics, shipbuilding and mining... among others.”
--------------------
Investments crucial for improved growth
INVESTMENTS from both the public and private sectors are needed for an improvement in the Philippines’ growth potential, the International Monetary Fund (IMF) said.
“[A] key element to raising potential growth is basically strengthening investment, both infrastructure investment by the public sector, and also improving the business climate so that private investment strengthens,” said Abdul de Guia Abiad, deputy division chief of the IMF’s Research Department, in a teleconference from Washington D.C. late on Tuesday.
Potential growth refers to an economy’s capacity to expand and for the Philippines, based on 2000-2009 results, this has been pegged by the IMF at 4.6%.
The IMF, in its latest World Economic Outlook (WEO) report, expects the country to miss this in 2012, forecasting a 4.2% uptick that is still an improvement from 2011’s actual gross domestic product growth of 3.7%. The outlook remains below the government’s 5-6% target.
For next year, the IMF sees growth accelerating to 4.7%.
“Philippine growth is projected to increase to 4.2% from 3.7% last year... What is supporting growth is basically strong domestic demand, backed by strong government consumption, remittances, and the implementation of various public-private partnerships,” Mr. Abiad said.
The outlook assumes a “pretty weak” global environment.
“[T]he main risk externally is a reintensification of the euro area crisis... Our estimates are that it could lower output relative to our baseline by about 1.25%,” Mr. Abiad said.
The IMF said that while the global economic outlook had improved -- it forecast a 3.5% uptick for this year, up from 3.3% in January -- it remained fragile.
It said Asian growth would moderate because of slowing exports, particularly to Europe, but strong consumer demand could provide a buffer.
The region is expected to slightly expand to 6% this year from 5.9% in 2012. The 2013 outlook is a stronger 6.5%.
