AS we enter the homestretch of the Aquino administration, doubts have begun to cloud the so-called growth spurt that we are now experiencing. The Philippines’s third-quarter economic performance has exposed some critical weaknesses that continue to hound the economy. There is also that lingering question on how the next administration can sustain the growth. As we begin a new year, it would be good to look at these challenges and prepare the right responses in transforming them into opportunities and increased options for business and investments.
Last week my colleague Dr. Leonardo A. Lanzona explained that the third-quarter performance is actually reflective of a structural transformation. The observed slack in government expenditures, due to the Disbursement Acceleration Program challenge, has actually been picked up by investments by the private sector, as seen in its double-digit growth. The resurgent growth of manufacturing and the sustained expansion of services have also validated this structural shift. This is good in the long term, as this will allow the government to focus on its role of improving the environment for private investments.
However, the critical role of agriculture in the growth process remains a huge challenge. Because of its erratic growth and its still-significant share of the work force (about 30 percent), agriculture cannot be left on its own. Poverty incidence among farmers and fishermen are also much higher than the national average. This is not to say that government policies favoring and supporting the agricultural sector are lacking. To date, the revised Agri-Agra law and the landmark Agriculture and Fisheries Modernization Act, which cover a wide range of policy and project-implementation support—from credit facilitation and fiscal incentives to research and human development—remain in place. The disconnect might be happening at how these national programs are delivered and coordinated at the local level. Thus, the challenge for broad-based and sustainable growth has to be responded strongly and deliberately at the local level.
While there are still loose ends in the national-governance process, much of the growth and development issues that relate to sustainability are really local in nature. Climate change and social and political risks need to have effective response mechanisms that should be in place in local government units. Thus, cementing the growth requires that the homestretch strategy of the Aquino administration and the beginning of the next administration’s term in 2016 must focus on addressing the capacities of local governments to improve their governance processes, particularly in addressing the needs of the agricultural sector.
To this end, the national government must give premium in institutionalizing efforts, such as the Cities and Municipalities Competitiveness rankings being undertaken by the National Competitiveness Council under the Department of Trade and Industry, and the national implementation of the local social-protection framework under the Department of Social Welfare and Development. Both initiatives work on strategies that allow local governments to understand, develop and build local capacities in improving their economic competitiveness, as well as respond to various types of risk. With the weather becoming unpredictable, risks are becoming highly local, and preparations need to be updated on the ground, as well. Finally, locally initiated activities will also help private capital to flow and match the opportunities that are available to them in these areas.
In the meantime, for business and investments, this year will be one of preparation for Association of Southeast Asian Nations (Asean) 2015. Officially, Asean 2015 will start on January 1, 2016. There is a still a full year to connect with the 600 million strong market of Southeast Asia. Local companies with access to Southeast Asian manufacturers will have a good potential for expansion. Currently, these are mostly on the food-manufacturing side. Hence, there is an incentive for the agricultural sector to be connected to this supply-chain link.
Smaller enterprises, on the other hand, should prioritize local services, such as transportation, tourism and health. Despite this week’s AirAsia tragedy, air transport will continue to expand and link many cities in the region due to the “open skies” policy. There will be a need to respond to this kind of market—not as rich as our tourists from East Asia, but capable of invigorating the local tourism industry. Local souvenir markets will benefit from this. With a number of available and capable health practitioners and increasing health needs, there is an opportunity to provide private basic clinics, especially in emerging cities and large municipalities.
These are just some opportunities that can be considered for the private sector in 2015. As more resources are discouraged from flowing into banks by the low deposit interest rates (and it will remain low this year), it is expected that there will be more people wanting to engage in business. This, again, will require a lot of local government facilitation to shorten the business-application process, lower application fees and simplify the requirements. Thus, to further bolster growth, 2015 should be a year of enabling local governments and encouraging the private sector to further expand their investments. Let us all look forward to an even better 2015 for the Philippines and for every Filipino.
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FOR more of our views on and forecasts for the Philippine economy and the financial markets in 2015 and beyond, we would like to invite you to attend the Eagle Watch Economic Briefing with Drs. Luis Dumlao, Alvin Ang and Cielito Habito at the Justitia Room of the Ateneo Rockwell Campus in Makati City, from 8:30 a.m. to 12 noon on January 22, 2015. For inquiries and reservations, call (632) 263-3221 or send an e-mail to info@ifpmphilippines.org.
Alvin P. Ang, PhD, is a professor of economics at the Ateneo de Manila University and a senior fellow of Eagle Watch, the school’s macroeconomic research and forecasting unit.