The Philippines’ economy in recent years has witnessed reasonable economic growth. Behind this is rising consumption by a burgeoning middle class, which has grown as a result of a robust service sector, as well as remittances from overseas workers who are settled in different parts of the world, including in the United Arab Emirates (UAE) and Singapore.
While the country has not been as successful as other ASEAN nations (like Vietnam) in drawing Foreign Direct Investment (FDI), business process outsourcing (BPO) centers have expanded in the Philippines, accounting for 8% of its GDP. This has given rise to a strong middle class, which has contributed to the country’s economic progress. The importance of BPOs can be gauged from the fact that even during the lockdown, they were given some relaxations.
Impact on the economy
The COVID-19 pandemic and the lockdown imposed in the Philippines have taken a toll on the country’s economy. According to conservative estimates, the economy is likely to contract by 3.5-4%. In fact, apart from Vietnam, all other ASEAN economies are likely to contract, according to forecasts. The IMF has predicted that the ASEAN nations economy will contract by 3.6% and the deficit in 2020 is likely to be a whopping 8% of GDP. Due to the lockdown, consumption has also been hit enormously.
Over 700,000 overseas workers are likely to lose their jobs by year end according to estimates, and this will have a significant impact on remittances (remittances account for 10% of the country’s GDP). The UAE, and other GCC countries, as well as Singapore where a large percentage of these workers are employed are likely to face severe economic setbacks, while a number of GCC countries are seeking to focus on providing more employment to locals.
Lockdown and relaxations
While the Philipines had begun to remove restrictions in the month of June, President Rodrigo Duterte on July 8, 2020 but stated that he will be cautious and will not follow examples of Brazil and US (on Tuesday July 14, 2020 the total number of cases was 57,405, while deaths was 1603)
Duterte known more for his mercurial nature, controversial approach adopted towards dealing with the drug menace in his country, and his tilt towards China, has been unable to deal successfully, according to many commentators. Like other countries, the Philippines has extended economic relief for the poor and has attempted to provide relief to the middle class and entrepreneurs. But this is not sufficient, and much more needs to be done if the economy needs to be brought on track
Duterte cannot be blamed for the harsh steps taken to deal with the pandemic, since like other developing countries, the ASEAN nation is not well equipped in terms of health care infrastructure. The harsh steps taken may have helped in containing the spread of the pandemic, but the ASEAN nation’s task is cut out with regard to putting the economy back on the rails.
What needs to be done
The Philippines’ President needs to be less authoritarian, adopt more pro-investor policies, reduce the country’s dependence upon China, and look at drawing more investment from Japan, US and western countries. Significantly, the Philippines and Vietnam jointly opposed military drills by China in the South China Sea and in April when one of Vietnam’s fishing boats was sunk by a Chinese maritime surveillance vessel, the Philippines had backed Vietnam.
It would be pertinent to point out, that even before the pandemic, there was a dip in FDI to the Philippines. In 2019, FDI plunged over 20% from the previous year due to his taxation policies (in 2019, the Philippines received 7.65 Billion USD as opposed to 9.8 Billion USD).
Duterte has also been at loggerheads with two corporate houses, Ayala Corp and Metro Pacific Investments Corporation. Two water companies which are subsidiaries of the said corporate houses were to be paid billions of Dollars according to a concession agreement. As per Duterte, the biggest losers would be the consumers, since the burden of paying corporate income tax would be passed on to them.
During the pandemic, two top business houses provided assistance in the form of medical gear, and the President who had been a critic of these business houses lauded them for their assistance, and also stated, that he was willing to resolve issues. This raised hopes that Duterte may change his approach towards entrepreneurs in the aftermath of the pandemic.
The Phillipines President needs to dispel the image of being anti-business if he wants to attract FDI, especially from Japanese and western companies seeking to shift from China, in the aftermath of the COVID-19 pandemic.
The Philippines has numerous advantages vis-à-vis other countries, including high skilled human resource, a strong service sector, and geographical location. It needs to harness these to its advantage. Its successes in the BPO sector can be replicated in other areas, with a workman like approach.
While getting the Philippines economy back on a high growth trajectory is likely to be an onerous task, astute leadership, imaginative economic policies and a balanced foreign policy are essential preconditions for the same.
Views expressed are the author’s own.
Tridivesh Singh Maini is a Delhi-based political and policy commentator, and is affiliated with the OP Jindal Global University.
Featured image: Katipunan, Quezon City during the community quarantine, April 2020 | Asian Development Bank, Flickr.