Why didn't the Philippines develop economically?

LIPortal

- Excerpt from: "Philippines: Economy", ed. from the Federal Foreign Office, Berlin, November 2016:

"The Philippine economy shows a clear dichotomy: Modern electronics industry and booming service sector on the one hand, poverty and subsistence agriculture on the other. In addition, there is a development gap between Greater Manila (National Capital Region / NCR), which in many places reflects the level of development of an emerging country , and the economically more backward provinces.

Agriculture still employs around a third of all workers, but its share of the national product is only around 10 percent. Due to the high proportion of subsistence farming, the productivity of the agricultural sector is low. Industry contributes around a third to the creation of the national product. The electronics industry is an important part of this. Electronics and electrical engineering made up more than half of Philippine exports in recent years. The construction sector, the food and beverage industry and the infrastructure sector are also important growth sectors. The mining sector has recently not been able to build on the positive developments of previous years and is facing major reservations from the current government due to environmental damage. But it has considerable potential: The Philippines has large deposits of gold, copper and nickel.

The service sector has developed into the mainstay of the Philippine economy in recent years and today accounts for more than half of the gross national product. The Philippines are now the world's second largest outsourcing destination (call center, business process outsourcing) after India. Strong growth rates are expected to continue over the next few years. In the medium term, the increased use of artificial intelligence is likely to limit the further growth of the outsourcing sector in the Philippines.

The direct influence of the state on economic life is limited. Due to the largely completed privatization of the energy sector, state-owned companies hardly play a role in this area either. However, there are extensive restrictions on foreign investors (no ownership of land; in many areas only a minority share of up to 40 percent is possible). Corruption and non-transparent tendering procedures for public contracts have in the past put a considerable strain on the business climate for foreign investors. Investors expressly welcome the government's 10-point economic program, which is expressly intended to remedy this situation. "

The Federal Ministry for Economic Cooperation and Development (BMZ) also reports on developments in the Philippines.

Blocked development or new growth potential?

A rich country with a growing number of poor and marginalized people - this is the short formula for the economic development of the Philippines in the past decade. Budget deficits, chronic unemployment, lax tax collection from the high-income classes, falling per capita incomes, a widening gap between rich and poor and rapid population growth. All problems that persist to this day and the alleviation of which was not given even by the out-of-office government under President Benigno S. Aquino III. has succeeded.

International economic organizations and the majority of Filipino economists agree on the crucial point that despite strong economic growth at times, the gap between rich and poor is widening and that the distribution of income and access to vital resources such as drinking water are extremely unequal. The only argument is about the extent and extent of (absolute and relative) poverty and which criteria are used to determine it. If, for example, the World Bank assumes that - contrary to the trend otherwise noted in the region - the proportion of poor is below the 40 percent mark, Philippine analysts put the number at 60 to 69 percent.

"In order to disguise the number of the really poor, 69 percent of our population," explained Sonny Africa, head of the research department of the Ibon Foundation (see below), in the run-up to the elections in May 2010, "the government quickly changed the criteria for Determination of absolute poverty. This undermines the internationally recognized standards. Only those who have less than 41 pesos (around 80 US cents) per day live below the poverty line. " Therefore, government figures show only 33 percent of the population as poor. For 41 pesos you can get just one kilogram of rice.

Poverty is particularly a phenomenon in rural areas. By far the poorest province is the autonomous region in Muslim Mindanao (ARMM), which according to the peace treaty signed on March 27, 2014 in Manila with the Moro Islamic Liberation Front (MILF), the "Comprehensive Agreement on the Bangsamoro", will be merged until 2016 new autonomy should be transferred. In the course of this development, an investment surge was expected in this region. But here, as elsewhere, where the guerrillas of the Communist Party (CPP), the New People's Army (NPA), are active, the unresolved land or agrarian reform remains an Archimedean point of Philippine policy. As long as this is not actually implemented, every government in Manila is confronted with instability and, if not with "bad", at least with "poor governance".

Unemployment and underemployment (officially estimated at 7.5 percent and just under 23 percent) and the region's highest birth rate of 1.9 percent are further problems that urgently need to be resolved. According to the Geneva-based International Labor Organization (ILO), the Philippines has the highest unemployment rate in the ten-country Association of Southeast Asian Nations (ASEAN). Even the Aquino government did not pursue an economic program that was substantially different from its predecessor and, above all, designed in the interests of the poor and marginalized in society. Critics accuse the outgoing government of unwaveringly stuck to the neoliberal course of the Arroyo administration and of having committed itself to rhetorical poverty reduction. While state cuts in benefits in the social and medical sectors are flanked by, in some cases, drastically increased costs in the (mainly private) education and training sector (e.g. universities, colleges), wages for the majority of employees have been stagnating for a long time.

If experts from the government in Manila and from the Asian Development Bank (ADB) based there assume an annual increase in gross domestic product of around six percent, such a development is likely to continue to be asymmetrical. While on the north island of Luzon - especially in the greater and metropolitan area of ​​Manila - the electronics, mechanical engineering and textile industries functioned as the engines of industrialization, simple agricultural activities remained and will remain dominant in the south of the archipelago.

However, even in the opinion of members of the Aquino government, the economic surge forecast by economic experts is not enough to achieve the medium-term development goals. According to this, constant economic growth of seven to eight percent per year would be required up to 2016 in order to open up adequate prospects for more people. International rating agencies and economic institutes are currently certifying the country's good performance with a tendency to advance into the phalanx of growth economies. But even their forecasts remain below the forecast seven to eight percent per year. In 2017, the Philippine economy grew by 6.7 percent, making it one of the fastest growing in Asia. According to the National Economic and Development Authority (Neda), this will allow the Philippines to achieve middle-income status (average income of just under $ 4,000 per capita) by the end of 2019.

Despite all growth forecasts, the extreme social gap between rich and poor has persisted. At the ADB's 2012 annual conference, even its boss, Kuroda Haruhiko, commented critically on the widening income gap in the country. But like the World Bank and the International Monetary Fund, the ADB is also relying on forced liberalization of the markets to solve the problem. At the same time, the ADB boss called for greater investment in infrastructure and education in order to give children from poor families better (surv) life chances. Senator Grace Poe took up this warning in autumn 2014 when she repeatedly castigated growing child poverty as scandalous in public speeches.

At the beginning of 2019, experts estimate that 20 percent of Filipino children are underweight, making the Philippines ninth in the world for the number of children with stunted growth.

Economic indicators, analysis, statistics

External analyzes of the economic situation in the Philippines at regular intervals include:

Current economic data and analyzes from the Philippine side offer, among other things:

If you want to critically evaluate official government figures and statistics, which often diverge and contradict one another, the website of the IBON Foundation, which has already been quoted, is recommended. The foundation was established over three decades ago and initially published hectographed papers, the IBON: Facts & Figures, in which it took a concise position on pressing social, economic, political and cultural problems, didactically prepare relevant materials and made them available to the NGO scene Provided. Today IBON is a nationally and internationally recognized, independent think tank with a publisher and various educational offers.

Unemployment and underemployment remain just as high as the poverty rate, while the government's much-hoped-for investment boost has not materialized. The extent and scope of foreign direct investments are very low in a regional (ASEAN) comparison and fell again in the first quarter of 2019 - with short-term investments being withdrawn from the country at an ever faster rate. The controversial policy of the Duterte administration, which also has economic effects, plays a part in this. These effects - but also the investment restrictions for foreign capital set out in the constitution - led to discussions in the Philippines about easing the foreign capital limit in early 2019. Domestic demand due to low wages is also very weak and workers and employees from the public and private sectors are pushing for the introduction of a minimum wage.

Products and production methods

The main exports include electronic products, textiles, coconut products, copper and seafood, while the main imports are petrochemical products, industrial machinery and equipment and other capital goods.

In industry, there are mainly companies in the fields of clothing and textiles, pharmaceuticals and chemicals, wood, food and beverages, electronics and fish processing. Heavy industry focuses on the manufacture of cement, glass, industrial chemicals, fertilizers, iron and steel, and refined petroleum products. In agriculture, the focus is on growing rice, coconuts, corn, sugar cane, bananas, pineapples and mangoes. The main products of livestock are pork, beef and eggs.

Overall, the Philippines is a country blessed by nature and extremely rich in natural resources. The country's most important mineral resources include copper, nickel, gold, silver, iron ores, chromium, coal, mercury, limestone, quartz, marble, phosphorus and asbestos. Larger oil and natural gas deposits are suspected in some regions - including on the Spratlys claimed by several neighboring countries and in the Sulu Sea - where test drillings are already underway or advised. Natural gas reserves lie in front of Palawan and are used in addition to geothermal and water energy to generate electricity. In mining alone, the value of hitherto untouched deposits is estimated at the equivalent of approximately one trillion US dollars.

In 1995 the government passed the controversial Mining Act, which among other things allows 100 percent foreign-owned companies to explore, develop and exploit Philippine mineral resources. Much to the chagrin of protesting indigenous peoples and numerous civil society organizations, who see it as an additional burden for people, the environment and nature and a major hurdle for sustainable (economic) development. The Philippines are considered to be the second most dangerous place in the world for environmentalists and activists. In addition, the working conditions in the mines are extremely poor; here the Philippines occupy third place internationally. Only in Venezuela and Kyrgyzstan are the corresponding conditions even more miserable.

In recent years, so-called provincial clusters have emerged on the initiative of the government, whereby several of the country's 80 provinces have been divided into larger development regions in order to better plan infrastructure projects and give foreign investors greater incentives. For example, with CALABARZON south of the metropolitan city of Manila, a "super region" was created which includes the provinces of Cavite, Laguna, Batangas, Rizal and Quezon. A large part of the special economic zones (PEZA zones) managed by the Philippine Economic Zone Authority are also located there. In this metropolitan region, however, the transport system is increasingly proving to be an immense (environmental) problem. Critics are already speaking of a slowly disappearing Moloch Manila, where permanent traffic jams cause ever greater economic damage.

According to the PEZA map, there were already 358 such zones across the country at the end of October 2016 (including so-called health parks). A huge leap, considering the humble beginnings of such zones, which first emerged about three decades ago in Bataan, Mactan, Baguio and Cavite. Foreign companies enjoy tax advantages in these special economic zones. This includes a four to eight year exemption from corporation tax, after which a flat tax rate of five percent of gross income is payable. Labor and training costs are deductible. Outside these zones, tax exemptions are also possible, provided that investments are made in sectors that are particularly worthy of support (including IT and IT-supported services, vehicle parts, building materials and ecological agriculture).

At the beginning of 2019, the expansion of the transport infrastructure shows little effect despite concerted measures, which means that the demand for decentralization is emerging again: In order to counter the deteriorating traffic situation in the metropolis of Manila and other cities in the Philippines, the former Senate Chairman Juan Ponce Enrile called for on the government to take the pressure off the nation's capital by giving tax incentives to the creation of economic centers in other areas.

Above all in the tertiary sector, in the service sector, the greatest growth rates have been recorded in recent years. While its share of the gross domestic product was 37 percent at the beginning of the 1980s, today it is - according to various sources - between 53 and 57 percent. Considerable development potential is anticipated, especially in the "community, social and personal services" segment. There are already clinics that are preparing to increasingly provide (dental) medical care for foreign customers in the future.

Trade & Trade Balance

The most important foreign trade partners for Philippine exports are the USA, Japan, the EU, Hong Kong and the PR China with the product groups electronic products, office machines and transport equipment, clothing, optical products, coconut products and fruits.

The most important foreign trade partners for imports are Japan, the USA, the PR China, Singapore, South Korea and the EU with the commodity groups raw materials, machines and mechanical equipment, fuels and vehicles or vehicle parts.

Indebtedness

According to data from the Philippine Central Bank, foreign debt amounted to the equivalent of 77.66 billion US dollars at the beginning of 2017, which - as a percentage of GDP - corresponds to an improvement over previous years. For comparison: The government of Corazon C. Aquino had "inherited" a debt amount of almost 28 billion US dollars from the Marcos dictatorship in 1986, while the foreign debt when Marcos took office at the end of December 1965 was just the equivalent of two billion dollars would have. The repayment of foreign debts and the personnel costs of the government administration have absorbed nearly 90 percent of the budget in the recent past. The Philippines' debt rose to a record 7.16 trillion Philippine Pesos (PHP) in February 2018. This trend continued in 2019 and the debt of the Philippines rose again, reaching a new high of 7.494 trillion Philippine Pesos (PHP) in January 2019. The payments to repay debt in the first half of 2019 are correspondingly high.