PHL investment level deteriorating–WB

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Category: Top News

Published on Saturday, 14 September 2013 22:00

Written by Jun B. Vallecera

INVESTMENT activities in the Philippines as percent of local output or gross domestic product (GDP) have fallen sharply lower to only around 20 percent of GDP the past decade from some 30 percent of GDP in the 1970s, the Manila unit of the World Bank reported on Friday.

The deteriorating level of investments is one of a number of problems hounding the economy that has kept productivity low in the agricultural sector and the local manufacturing sector rather weak, for instance.

These developments, in turn, helped perpetuate the high 26.5-percent incidence of poverty in the country and partly explains why about a third of middle-income Filipinos would rather work abroad or migrate to other countries altogether, the World Bank said in its 2013 Philippine Development Report released only on Friday.

According to the World Bank, 60 years of underinvestments contributed to the slow growth of agriculture, whose potential
contribution to overall economic expansion cannot be underestimated.

Agriculture in the Philippines is backward-looking and unproductive, while its manufacturing sector is stagnant and offers few job opportunities for Filipinos, the World Bank said.

“Although the country’s average growth record of 4.1 percent in the last three decades is comparable to global performance, it is considerably lower than the 6.5-percent growth of its more dynamic East Asian peers over the same period. In per-capita terms, Philippine growth is much lower at around 1.4 percent, given its historically higher population growth rate of 2.7 percent. While there have been a few growth spurts, the country has rarely been able to sustain growth at above 5 percent for an extended period, again in contrast to its neighbors,” the World Bank said.

Karl Kendrick Chua, senior country economist at the World Bank in Manila, said the Philippines has a long way to catch up with Malaysia, for instance, whose above 7-percent growth had been going on for maybe 20 or 30 years.

He said that while Manila typically attracts $2 billion worth of foreign direct investments (FDI) in a year, its neighbors have no trouble attracting 10 times more FDI.

It was noted the Philippines posted high growth rates in the 1970 as a result of large-scale growth in infrastructure, although this was not sustainable as such growth was debt-driven and best illustrated by the debt crisis in the 1980s.

Growth accelerated in the 1990s, when the government promoted exports, FDI and domestic competition, but was stymied by the 1997 region-wide financial crisis and brought the country to its third recession in 15 years.

“Finally, between 2003 and 2012, the country generated higher per-capita growth of above 3 percent; however, this has yet to translate into significant job creation and poverty reduction. Growth has largely benefited the top 20 percent of Filipinos,” the World Bank said.

The World Bank blames persistent policy distortions and lack of structural transformation as explanation for the slow growth of agriculture and manufacturing the past 60 years.

“In agriculture, these include protectionist policies, such as the rice self-sufficiency policy, large subsidies for inputs and distortions in institutions that prevent broad and secure access to land by small shareholders,” it said.

It also said protectionist policies in place as far back as the 1930s, such as high tariff walls, preferential loans and tax incentives to cronies in addition to uncompetitive practices in the various manufacturing industries contributed to the decline of the sector.

“With the exception of food manufacturing and electronics, the rest of the manufacturing subsectors either stagnated or declined. The bulk of manufacturing value added has come from capital-intensive industries such as electronics, while labor-intensive manufacturing such as garments, footwear and furniture continued to decline,” the World Bank said.

In the same Philippine Development Report, the World Bank highlighted the need for the government to accelerate inclusive growth and the creation of jobs to help reduce the poverty incidence and sustain growth for the long haul.

This developed even as an additional 1.15 million enter the labor force every year, or 14.6 million more in the next four years.

According to the World Bank, only one of four Filipino jobseekers eventually gets a job and only around half of some 500,000 graduates every year are absorbed; the other half will find work overseas.

It said more recent high-growth outturns help employ some of the jobless but even then, an estimated 12.4 million will have been jobless by 2016.

“Addressing this jobs challenge requires meeting a dual challenge: expanding the formal-sector employment even faster while rapidly raising the incomes of those informally employed,” the World Bank said.