It was not all bad news though. The services sector, construction, manufacturing and consumption all contributed to growth, which will hopefully continue throughout 2016.
Public-private partnership projects are increasing. New projects are still being opened up to private bidders. The government will provide subsidies and the strategic leadership to manage the direction of the projects to meet public needs. This line-up of projects will provide momentum for growth in 2016. A number of government public works projects — such as drainage and flood control systems, roads and bridges — that have suffered delays will also continue to be implemented by the next administration.
But there are, of course, hurdles to be surmounted to boost growth in 2016. The El Niño phenomenon is likely to reduce rainfall, causing difficulties for agriculture, hydropower generation and water supply for the major urban areas. The new administration will also need to re-organise executive departments and the legislative branch as well as their own leadership and committee structures, which may slow progress. And unless the preparation and passage of the 2017 budget is enacted by December 2016, there will be massive delays in its delivery.
The territorial dispute with China in the South China Sea will further have a negative effect on development in the Philippines. This is due to both the need for increasing outlays on surveillance and defence, and the decrease in tourist arrivals, investment and trade. Exacerbating this, the world economy has slowed, leading to a decline in trade and investment, though the lower price of oil has provided some stimulus for the Philippine economy.
The present administration is considered to be in a holding pattern, trying to preserve its legacy of good governance. But problems continue to plague the country. One such problem is traffic congestion, which is due in part to the deterioration of the light rail networks. Congestion problems have also affected access to seaports and posed problems for the Ninoy Aquino International Airport.
The new government will need to address shortages of basic services. Fortunately, a shortage of peaking power in Manila was successfully averted in 2015, but limited power supplies will remain a problem in 2016. Mindanao was badly hit by a lack of new generating units. The El Niño phenomenon has also limited the water supply to hydropower units. The water supply for the Manila area has started to reduce but hopefully it will not be severely constrained.
The Philippines has conducted studies to determine its basic utility service needs into the future. But the recommendations of these studies came too late to be implemented during the six-year term of President Benigno Aquino. Without the required infrastructure to support increases in demand, economic growth will continue to spur shortages.
The government has prepared a comprehensive industrial program to promote inclusive growth. The objective is to lower underemployment and unemployment, which remain high. At the present stage of regional and global developments, industry should be competitive and be able to take advantage of the higher value chains.
As rural areas have higher poverty levels, it is vital that the Philippines sets up agricultural projects and their corresponding processing facilities. Infrastructure investments in irrigation, roads and power are essential requirements, as is skills training for agribusiness activities.
Another area being promoted is the manufacturing of automotive components, with the view to eventually building a few models of complete automobiles and trucks. Particular attention is also being directed to the development of small- and medium-sized enterprises since, according to the Department of Trade and Industry, they comprise about 97 per cent of all enterprises in the Philippines.
The services sector is quite strong in the field of business processing services, tourism and medical services. And there is continuing diversification into higher value services.
Other key issues that the next administration will need to address include finalising tax reform, resolving the law governing Muslim Mindanao, amending economic provisions of the constitution, encouraging foreign direct investment — especially in mining — and peacefully resolving the South China Sea dispute.
The next administration will have a full plate, but with the right governance strategy they will be able to manage the challenges and deliver strong growth.
Cesar Virata is Principal of C. Virata & Associates and is a former Prime Minister of the Philippines.
This article is part of an EAF special feature series on 2015 in review and the year ahead.
What about the threat of ISIS in the south? How come that’s not a concern? And when an attack happens, these politicians are all going to blame each other. They’d better take some action now before it gets worse.
According to intelligence reports, there is no ISIS threat. The threats come from the Abu Sayaf group, BIFF and some elements of MNLF. The current attention is still about the Mamasapano encounter and the passage of the Bangsamoro Basic Law.
Inputs, Outputs, & Outcomes
The creator of the GDP Simon Kuznets in a 1934 report to the US Congress acknowledged the GDP’s flaws as an economic indicator, “The welfare of a nation can
scarcely be inferred from a measure of national income. If the GDP is up, why is a country
down? Distinctions must be kept in mind between quantity and quality of growth. Goals for more growth should specify more growth of what and for what.”
GDP is a statistic that does not necessarily measure wealth creation or the quality of growth. It is a statistic that disasters, gambling, and useless endeavors can inflate.
A more holistic view to put GDP into context.
Pnoy Aquino has had the luxury of no constraints on INPUTS – young workforce, 3 trillion budget, rising Asian economic tide, 6 years, 1 million personnel/administration, compliant congress/senate, OFW remittances.
It is those inputs which drive the PROCESSES, and which themselves have been plagued by incompetence and corruption, and which in turn generate the OUTPUTS, including GDP growth which has been the only flag to be saluted by Pnoy Aquino, but GDP, whilst important, is a means to an end, not the end in itself.
Outputs should be considered as an interim factor which through POLICIES (lacklustre and outmoded), determine the end objectives, and the only things which really matter – OUTCOMES.
And it is the outcomes which paint the true picture, and one which is neither pretty, nor instils confidence in the future.
But most disconcerting of all is the continued dependence upon OFW’s and BPO’s, both of which could be prone to future changes ( foreign govt policies, disruptive technologies, etc), and no strategic vision to build up new skills/industries/value added services.
Diversification, rejuvenation, market expansion, sectirusation etc.
OUTCOMES:
Corruption – worse – dropped 10 places to 95th in 2015 Transparency International world rankings.
Poverty – worse – 45% rate themselves as poor (SWS), and 25% live below the poverty line, which is the highest rate in ASEAN, by far, and shameful.
Unemployment – highest in ASEAN
Inequality – far worse. The major economic issue, and resulted in no inclusive growth.
OFW’s – increase by 40% since 2010.
Education – philippine failed to meet UN Education for All targwts, and all PH universities gone down in world rankings.
Investment – FDI well below targets and a sign of little confidence by international investors
Millenium Development Goals –
PH ailed to meet main targets
Tax evasion/avoidance – no-one jailed. A major problem
Extra judicial killings/Human Rights – has become worse and a bad international image
Tourism – failed to meet targets
Crime – becoming a narco state. And considered a hub for human/sex trafficking
Traffic – horrendous and major cost to economy.
Infrastructure – all below par (airports, riads, internet)
And the only vision that LP can offer to the electorate is “more of the same”. Crazy.
“Insanity is doing the same thing, over again, but expecting different results”
Albert Einstein
The current crop of incompetents in Malacanan may be unconcerned and unfazed by anything and everything, as they continue to ignore reality, but the next administration will soon get a wake up call.
Pnoy Aquino was handed strong economic fundamentals by his predecessor, but he will be handing over a can of worms.
There will be a significant downturn end 2017/beginning 2018.
The key to quality growth is a meritocracy which promotes diversity and inclusion, and which has creativity as a core value and innovation as a central strategy.
Open markets, and open minds, are also requisites.
Investment in infrastructure
Rejuvenation of Agriculture
Home-grown value-added BPO services
Utilise returning OFW skills
Tourism – segmentation
Rural-sourcing
Smartsourcing
Co-operative marketing
Manufacturing expansion