The Philippine Economy: The Next Asian Miracle?

By Hunter Bosson ’18

Squatter village around Pasig area Manila Philippines.Wracked by currency instability, corruption, and low commodity prices, now seems to be a bad time for emerging market investors. Yet for those pivoting to the East, a China is rising: the Philippines. A country historically plagued by poor infrastructure and unsustainable population growth is finally seeing its geographic location and demographics pay dividends.

The Philippines has enjoyed roughly 6% real GDP growth since the early ‘90s, but only now as emerging economies experience widespread slowdowns does the Philippines’ economic pace seem significant. While unemployment has stubbornly stuck close to 7% for years, per capita income is greater than most of its neighbors, including almost twice as great as Vietnam. Much of this growth has been fueled by a rapid expansion of the country’s working age population, as its annual growth rate of 1.7% has sent millions of young Filipinos into the burgeoning services sector, which now employs over half of workers. Rapid urbanization has led to a property boom, particularly in the capital Manila. The result has been a consistently growing, low-debt economy that earned it the highest macroeconomic resilience marks from the Center for Global Development among all emerging markets.

Unfortunately, the Philippines’ prosperity could be short-lived. Much of its fasting growing sectors are low skill and low wage service jobs, unlike the manufacturing boom that catalyzed Japanese, then South Korean, and finally Chinese economic growth. As India has become entangled with corruption and mediocre growth, service sector growth seems insufficient to fully develop emerging economies. What the Philippines needs is infrastructure: roads, telecommunications, seaports, and factories. So long as the government remains nearly incapable of collecting taxes and is ineffectual at spending them (though international reports have become increasingly favorable of the Philippine civil service) the country will need foreign investment.

Fortunately, the Philippines is willing to play ball, for now. Its congress is on track to sign Executive Order 79, which would finalize regulations that would permit a long line of foreign mining firms to set up shop on the country’s rich mineral deposits as well as join the Trans-Pacific Partnership, a 12-member free trade agreement. Both measures signal interest in working with international investors and may even lead to the greater infrastructure spending the country desperately needs.

For now, the Philippines needs to get going before its window of opportunity disappears. Economic growth, and the accompanying investments, come easily when a country has the lowest median age in the world, but if the country cannot industrialize before it experiences the demographic transitions being felt by South Korea and Japan today, its economy could be stagnated for generations. Success is far from guaranteed, but for now it seems to be a safe bet.

Sources:

http://www.forbes.com/sites/ralphjennings/2015/03/17/one-stubborn-problem-the-rising-star-philippine-economy-cant-yet-fix/

http://www.latimes.com/world/asia/la-fg-ff-philippines-china-20150404-story.htmlhttp://www.latimes.com/world/asia/la-fg-ff-philippines-china-20150404-story.html

http://www.forbes.com/sites/ralphjennings/2015/04/05/trillion-dollar-goldmine-for-philippine-economy-emerging-from-murky-pit/

http://www.cgdev.org/sites/default/files/CGD-Essay-Rojas-Suarez-Emerging-Market-Macroeconomic-Stability_0.pdf

http://www.forbes.com/sites/sylviavorhausersmith/2015/04/08/the-philippines-rich-in-culture-and-in-opportunity/

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