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Philippines: Servicing The World

Philippines: Servicing The World

A stable administration and an educated, English-speaking workforce drive growth

 

THE PHILIPPINES AND THE WORLD

 

Nominal GDP ($)

250.2 billion

GDP Rank

41/189

Per Capita GNP – Nominal ($)

$2,470

Per Capita GNI Rank

152/213

Population Rank

12/227

Geographical Area Rank

73/252

Global Competitiveness Rank

59/148

Economic Freedom Index Rank

97/144

Human Development Index Rank

114/186

Major Industries

Services, Garments,
Electrical Machinery,
Electronics, Chemical
Products

Echoing softly across the 7,100 islands that form the Philippines archipelago, the lilting strains of the country’s national anthem seem to be a reminder of a volatile past. This indeed is a country where invaders trampled its sacred shores, imposing colonization for more than three centuries. Freedom since then has been a thorny crown to wear and the years of toil under colonial masters and then despotic power hungry leaders have marred these pristine islands. Asia’s only predominantly Christian country, the Philippines enjoys one of the highest literacy rates in the world, and it would seem that economic prosperity is its destiny. But then man plays a cruel hand where destiny cannot. It has been the curse of the Philippines that its leaders have shorn the country of its value. Will the nation rise again? Perhaps, gentle as the wind that swirls across Cebu, it already has.

Colonial vassal rises to become independent power

The islands of the Philippines were inhabited long before Ferdinand Magellan first landed his ship on these shores. The invading Spanish colonizers termed the Pygmies of the Aeta and Agta tribes as Negritos, which continues to be used even today. Following the defeat of Spain in the Spanish-American war, the Treaty of Paris granted the Philippines to the Americans who were to exert their dominance and shape the course of this nation until well into the 20th century.

Spain eventually named these groups of islands Isla Filipinas after Prince Philip. Magellan’s exploration would mean the conquest of the Philippines in the hands of Spain for the next 300 years. Traces of the Spanish influence remain visible in the country even today. Following the defeat of Spain in the Spanish-American war, the Treaty of Paris granted the Philippines to the Americans who were to exert their dominance and shape the course of this nation until well into the 20th century.

Saint Augustin church

Reminiscent of the country’s Spanish colonial past, the Saint Agustin church dominates Manila’s Intramuros district, built by the Spaniards in the 16th century.

The American president McKinley called it a policy of ‘benevolent assimilation.’ The Filipinos, however, were a proud people and searching for sovereignty, went to war in what was to be known as the Philippine-American War. More than 4,000 American and 16,000 Filipino soldiers died in combat before the U.S. established a political administration in the Philippines with the promise of independence eventually on July 4, 1946.

The shadow of the “Rising Sun” and the looming hand of World War II cast an unwilling Philippines into the forefront of a vicious battle between the Americans and the Japanese.Battered, and bruised beyond recognition, Manila became the second most destroyed city of the cataclysmic World War – next only to Warsaw in Poland. It was in this bitter, somber and fragile atmosphere that the Philippines finally claimed its rightful independence in 1946.

Post-war, faced with teething infrastructure and economic problems, the fledgling government led by Manuel Roxas also had to face insurgency from within in the form of the Hukbalahap – a guerilla warfare that was extinguished finally in 1954. A period of relative stability followed with progressive visionary Ferdinand Magsaysay’s rule, but his death in a plane crash hurled the country into the hands of power despots such as Ferdinand Marcos.

The assassination of popular oppoistion leader Benigno Aquino was to be a trigger for a People Power Movement that led to the immensely corrupt leader’s downfall and flight from the Philippines. The newly widowed Corazon Aquino and later Fidel Ramos’s presidency brought about a semblance of reform to the teetering nation. A second People Power Movement or ESDA led to the downfall of the charismatic but inept Joseph Estrada, paving the way for Gloria Macapagal – Arroyo. However, Arroyo was to be one of the most unpopular presidents the Philippines ever had, and Benigno Aquino, a senator and the son of former President Corazon Aquino, won the 2010 elections to become the country’s next president in a term that will last until 2016.

Administrative Structure

As a democratic republic, the duties of the chief of state, head of government, and commander-in-chief of the armed forces in the Philippines all remain with the President, who is elected by direct popular vote for a term of six years. The Philippines has a bicameral (two-chamber) legislature called the Congress, which consists of the 24-member Senate and the 260-strong House of Representatives. Administratively, the country is divided into 15 regions, 79 provinces and 115 cities.

 

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American and Spanish Mix

Rice fields in the Philippines

During the American occupation, the Philippines primarily supplied the U.S. with agricultural products. Today, the agricultural sector only contributes 12.3% to the country’s GDP.

Unlike most other countries in the region, the Philippines’ indigenous culture was almost completely transformed by the Spanish and American influences it was subject to for centuries. Under U.S. occupation, the Philippines rose to become one of the most westernized nations in Southeast Asia. Yet, among Muslim and upland tribal groups, certain old Malay traditions related to dance, sculpture and music remain. Under the patronage of the Catholic Church, architecture drew on religious icons for expression.

Local culture: Philippine tribes have retained some of the older traditions of oral storytelling, and art forms such as rattan weaving, woodcarving, and textile weaving. Filipino music has synthesized the best of its Spanish and American past although unique folk dances such as tinikling (bamboo or heron dance) and singkil (court dance), which continue to be popular. With around 120 ethnic groups and mainstream communities such as the Tagalog, Ilocano, Pampango, and Visaya, the quest for a common identity is forged oddly through another American legacy – English. The Philippines is now the third-largest English speaking country in the world.

 

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Evolution of the economy

During its long years under American occupation, the South East Asian nation of the Philippines did not have much of an economy to boast of, serving as a colonial outpost that supplied its master with agricultural and forest products, and importing most of its manufactured goods from the United States. Post-independence, during the 50s, the economy had its share of ups and downs for nearly two decades only to come under the martial rule of President Ferdinand Marcos in the early 70s. Needless to say, the Marcos regime, marked by rampant corruption and other high-handed practices, was an eminently forgettable episode in the history of the Philippine economy.

Sadly, the overthrowing of the dictator in 1986 failed to usher in a new dawn as corruption and other charges tainted successive democratically-elected rulers, resulting in political instability. Still, barring the occasional military coup, the Philippines has largely remained a democracy ever since, providing a solid backdrop for the evolution of the economy over the decades. Since the election of Benigno Acquino III as president in 2010, the Philippine economy has been cruising along on the right track.

From mining to electronics exports

Naturally blessed with minerals such as copper, gold, silver, chromium, and lead, the economy for a time was known for its mining and allied industries. However, the closure of several mines, lack of investment in technology, and environmental concerns led to the decline of the mining industry. Nevertheless, prospects remain bright for the mining sector if much-needed foreign investments come in. Traditional farm exports such as rice, corn, sugar, and coconut oil still contribute nearly 12% of the country’s GDP, though the economy faces stiff competition from other farm exporting nations.

Still, historically no economy has made rapid strides without an industrial base. The Philippines is no different as manufactured exports such as consumer goods, capital goods, and intermediate goods account for about a third of its GDP. In fact, personal consumption spending on goods such as food and beverages, footwear, tobacco, and apparel, accounts for about 70% of the economy. Petroleum products, coal, chemicals, and personal care products make up the intermediate goods, while electronics exports such as semiconductors as well as iron and steel, comprise capital goods.

Business park in Cebu

This business park in Cebu is one of many which support a growing back office processing business in the Philippines. With the third largest English speaking population in the world, the country’s BPO sector is one of the key employers in the country.

Also underlining the success of the country’s manufacturing sector, the Philippines is the second largest producer of geothermal power in the world and a user of hydroelectric power. As such, the relatively nascent domestic construction industry is growing, helped both by private sector participation and government spending.

The sunrise sector

In absolute terms, the services sector, which contributes about 60% of the nation’s GDP, displaced the manufacturing sector in the country’s growth dynamics since the mid-80s. In fact, the services sector employed nearly 20 million people in 2011, according to a report by the Asian Development Bank (ADB). Apart from Business Process Outsourcing (BPO) services, the major pillars of this key segment of the Philippine economy are telecommunications, financial services, as well as travel and tourism.

The Philippines is known as much for its human capital as for its natural resources. Small wonder, the archipelago’s 105-million strong population is mostly English- speaking, an invaluable asset. This has fuelled the burgeoning business process outsourcing (BPO) sector, with the country’s good telecommunications infrastructure providing the base.

The telecommunications sector came of age during the early 90s when the liberalization program encouraged greater competition, which drastically improved the efficiency and quality of the telecom network in the Philippines. The phenomenal success achieved by the country’s BPO sector, especially during the last decade, has given the likes of India and Canada a run for their money. The foreign exchange earned by the BPO segment also keeps the country’s current account healthy.

The picturesque South East Asian nation, though it is prone to Mother Nature’s floods and tornadoes, figures prominently in the tour itineraries of many foreign visitors, which brings in revenues. To put things in perspective, tourism alone accounts for about 6-7% of the country’s gross domestic product, giving direct employment to about 3.5 million people, as an ADB report showed.

Moreover, tourism is one sector that can help improve the economic well-being of different social groups, even in remote and rural regions of the country. Still, the sector could do a lot better if efforts are made to improve the country’s infrastructure — roads, railway lines, and airports.

Human capital

philippines-Manila-Bay

Sunset over Manila Bay, The Philippines. The Philippine government has granted licenses for gaming and casino complexes in Manila Bay, a popular tourist attraction in the country’s capital.

If the educated, predominantly English-speaking Filipinos were instrumental in securing for their home country a top position among the service-oriented developing economies, the contribution of the nearly 10 million Filipinos working abroad in over 200 countries has been no less. Estimated to contribute about 10% of the country’s GDP, the remittances made by these hard-working citizens has helped the Philippines bridge its trade deficit and amass more than $80 billion in currency reserves.

The flipside of this success story, though, is the lack of employment opportunities in the Philippines itself, which drives its people to seek employment abroad despite the rapid expansion of sectors such as services.

But demographics can cut both ways. On the one hand, the country is estimated to maintain a large pool of working age population through 2050, according to an article in The Diplomat.

At the same time, the predominantly Roman Catholic country has probably one of the highest birth rates in the whole of Asia and more alarmingly, the population is estimated to double in three decades.

Successive elected governments have not dared to broach the topic with the powerful Roman Catholic Church.

‘The Sick Man of Asia’ no longer

The country’s services sector-driven growth had averaged 5.5% during the five years that preceded the global financial crisis of 2008-09. However, the downturn in its main export markets of the United States, Japan, and China, and the fall in remittances, hit the Philippines hard and the economy was able to grow only a meagre 0.9% in 2009. The economy would recover quickly, thanks to the increased government stimulus and the uptick in consumer spending.

Post-recession, the economy has thrived as a number of favorable factors fell in place. Benigno Aquino III, who assumed the highest political office in the country in June 2010, came in as a refreshing change as his predecessor’s nine-year old rule was marked by widespread corruption and nepotism, with Gloria Macapagal-Arroyo herself being arrested on graft charges.

Singling out corruption as the root cause of poverty, Aquino set out in right earnest to clean up the Augean stables of Philippine bureaucracy, gradually extending his charge to improve the country’s business climate. Aquino also succeeded in bringing the Muslim and communist rebels to the negotiating table, which brought in peace and earned him much praise.

The resurgent economy has clocked healthy growth rates in recent years, thanks to the combination of domestic demand, stock market gains, remittance money, service sector revenues, and benign inflation. Moderate inflation has helped the central bank to maintain an accommodative monetary policy, which has also helped sustain the country’s economic growth. The economy of the Philippines, which in the early 60s was bigger than those of Malaysia and Singapore, seems to have regained part of its glory as other big Asian economies such as Indonesia and India are weighed down by their current account deficits and other issues.

Room for improvement

Manila Skyscraper

Manila, the 11th most populous metropolitan area in the world, continues to be a fast growing center of the country’s economy.

Despite persistent efforts by the government to cut out the red tape, the investment climate in the Philippines has a lot of scope for improvement, as World Bank data showed that the country received just $1.87 billion in foreign direct investment (FDI) in 2011, among the lowest in Southeast Asia.

The need for FDI is also a pointer to the broader question about the lack of competitiveness in the country’s manufactured exports. Higher investment, it has been pointed out, would lead to greater absorption of labor and improve the quality of goods produced, be it semiconductor chips or apparel. Thus, an increase in FDI would address the problem of rising unemployment in the country by creating opportunities at home, which in turn should help repatriate millions of Filipinos working in foreign lands.

Creaking infrastructure, as with many other developing economies, remains a key issue in the Philippines as well. Despite being blessed with geothermal power, huge investments in the power generation sector are needed to meet the country’s electricity requirements in the years ahead. Good roads, efficient railway networks, and airports are important not only for the services sector, but are integral to elevate some of the far-flung regions of the country to the level of progress achieved by the capital city Manila.

Despite these hiccups, which are often common in many emerging Asian economies, the Pacific archipelago has many things going for it as it stands on the cusp of a new dawn: a stable administration, economic progress, and a flexible workforce exposed to both Asian and Western cultures.

 

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