INCREASING the local labor force’s productivity over the next few years will be crucial for the Philippines to sustain its current stellar growth momentum amid the slower growth and volatilities in the international scene, an international think tank said.
In an interview with the BusinessMirror early this week, McKinsey Global Institute (MGI) economic experts Fraser Thompson and Suraj Moraje said the Philippines is currently at a “critical juncture” of high growth and a booming young labor force and, as such, the country must shift its focus on expanding the Filipino workers’ productivity to reap the gains of this confluence.
“We need to acknowledge that the Philippines is among the most competitive regions in the world. The outlook seems to be firm on the gross domestic product of the country and critical to sustaining this is growth in productivity,” Thompson said.
The Philippine economy has been dubbed by several economic researches as one of the youngest countries in the world, noting the dawn of the so-called demographic sweet spot in which there is a high percentage of citizens entering the labor force and thus will fuel economic activity and support growth in the country.
While the country has been successful in expanding its pool of workers as support to economic growth, MGI said the country will now have to work on raising its workers’ productivity to sustain the growth trajectory set by the favorable demographic dividend in recent and near-term years.
“Going forward, as population growth slows down, productivity will need to grow at almost double the pace it did historically to
sustain past growth rates,” MGI said.
To do this, MGI said the country must be open to capturing a greater share of global flows through foreign direct investment opportunities.
Thompson noted that the country has the potential to be one of the manufacturing hubs in the region due to the low wages. However, the economic expert noted that productivity in manufacturing is relatively low compared to other countries in the region that are already established manufacturing hubs in previous decades such as in Thailand and in Malaysia.
Moraje said that the country must work on sectors in which the Philippines has the advantage over the countries to gain foreign investments which will, in turn, pass on global skills and standards to local workers and increase their productivity. Among these sectors he mentioned were the automotive industry, food and beverage industry and chemical production industry.
The global think tank also said that the country will have to “ride the urbanization wave” and continue to build pocket cities that will give more opportunities to move individuals to a higher wage base and becoming part of the consuming class.
“For instance, over 75 percent of the Philippine economy’s productivity growth posted from 2006 to 2012 can be accounted for by an expanding labor force and changing sector mix, that is, a shift of labor out of lower-productivity rural farming into urban jobs,” MGI said.
Likewise, the global research institution said the country will need to “rapidly improve” the labor force’s knowledge particularly on technology and automation to make them more attractive to investors toward the Philippines.