It is a fascinating situation that “experts” have such a difficult time figuring out the Philippine economy. What is it that makes our social/economic environment so far outside the conventional wisdom of analysts who observe our economy?

I ask this because of yet another review of the Philippines by JP Morgan economist Sin Beng Ong. From the Philippine Star newspaper: “Despite the surge in the country’s gross domestic product, economists are saying that the consumer-led growth is hollow and has no real impact on the economy’s productive capacity.”

This statement that the Philippine consumer demand has no impact on the gross national product (GNP) is nothing less than amazing. Let me tell you why.

In a very real sense, only consumer spending drives the Philippine economy. The most visible indication of its growth is found in the earnings reports of publicly listed companies. What blue-chip company derives its income from any source other than the purchases by tens of millions of Filipinos? PLDT, Globe, Manila Water, virtually every one of the blue-chip stocks, excluding the property companies, are dependent on Filipino purchasing.

Every dollar remitted by an overseas Filipino worker (OFW) and every dollar brought into the country by the outsourcing sector goes directly into purchasing from Filipino companies. Granted that the Philippines is not the manufacturing powerhouse of Asia and we import a sizeable portion of consumer goods. However, based on the balance of payments, the Philippines is not experiencing a huge cash drain. In other words, the money that Filipinos are spending is, for the most part, staying in the country.

Another factor that seems to baffle economists is our inflation rate. I guess they are thinking that because of the rapid increase in growth, inflation should also be rising. The conclusion Ong makes reveals a lack of understanding of this economy.  The Philippine Star continued: “Ong said broad inflation rate had been low not just because of the strength of the peso but also because there was no pressure on the demand side. So inflation will continue to be low. There is no second-order pressure outside of the energy sector because demand simply isn’t there.”  Wrong. Sorry, you do not have a clue how things work in the Philippines.

Remember what I have said in the past about Filipino companies having very high operating profit margins. At every stage of the manufacturing/distribution chain, high margins are added to the price. Let me give you a very simple example.

Go shopping in Divisoria or Quiapo and compare prices with the department stores, malls or even your sari-sari store. A P10 toy in Divisoria, which is probably first bought at P5, winds up selling for P30 or P40 or more by the time is gets to the malls, even the lower-end malls. You know as well as I do that by shopping around, you can make substantial savings on a very wide range of products. Again, the reason for that is there are substantial margins built into the distribution chain. So why is inflation not a problem? Because Filipino businesses are not locked into small profit margins and can easily and quickly adjust prices to ensure that goods move. This inherently keeps inflation in check.

Now Ong goes into something a little more complicated, and his conclusion is no less than astounding for an “expert.”

“Ong noted that the country also has a wide gap between savings and investments, indicating that investments are being financed largely by foreign borrowings instead of internally generated funds.” Ok. Maybe. Let’s see what that means. “According to Ong, there is strong liquidity but this is not being mobilized into savings and investments. Moreover, he said, credit demand had been dominated by real-estate and personal loans with very little showing by the manufacturing sector.” No one ever said that the Philippines is a manufacturing-based economy. However, so what? If wealth can be created taking pizza-delivery orders from the United States, that wealth is no less legitimate. If we are creating wealth from the sweat of OFWs, it is still wealth. If the Philippines makes money designing software for online gaming companies in Japan and Korea, then enjoy the prosperity.

And Ong’s conclusion? “We are not sure why the GDP is so strong despite the yawning S-I [savings-investment] gap.” There you go. They do not have a clue about what drives this economy and what makes it thrive. At the end of the day, another expert runs his numbers against his traditional models and walks away scratching his head as to why the Philippines can have a growing economy. 

E-mail comments to mangun@email.com.

IN these days of brain drain everywhere, there’s no longer any sense for companies to expect eternal “loyalty” from their employees.

The Licensing Executives Society (LES) Philippines, the local society of LES International, the preeminent global association of professionals engaged in the licensing and commercialization of intellectual-property rights, recently held a forum to explore the question of whether or not the Philippines has what it takes to establish its own version of Silicon Valley.

It is a fascinating situation that “experts” have such a difficult time figuring out the Philippine economy. What is it that makes our social/economic environment so far outside the conventional wisdom of analysts who observe our economy?

Mirror on the wall: Comprehensive tax reform a failure from the very start 

Not quite a long time ago, a previous administration, upon the suggestion of the International Monetary Fund (IMF), passed the Comprehensive Tax-Reform Program (CTRP) to impose what then-Finance Secretary Jesus Estanislao called sin taxes on liquors and cigarettes.

Many industrialized countries such as the United States, Canada, the United Kingdom, Germany, Japan and South Korea are now faced with the phenomenon of aging Baby Boomers.  These Baby Boomers, who created much of the wealth of the West in the last four decades, are hitting their retirement age. 

‘That dollar isn’t funny anymore.’’ That’s how economist Stephen Green and his colleagues at Standard Chartered Bank titled a recent report, and their observation was as spot on as any.

The recent agreement in Lisbon on the Reform Treaty marks the end of six years of debate on improving the workings of European Union (EU) institutions in order to help it meet the challenges of the 21st century. The EU has developed so much over the recent decades, not least expanding to 27 member-states at the beginning of 2007, and there is now an urgent need to modernize the way we do business both inside and outside the Union.