It was once expected that the Philippines would be the economic powerhouse of Asia, but instead it became one of its poorest countries. After years of corruption and neglect, there are, however, some tentative signs of improvement in the Philippine economy.
For many years, the Philippines has been one of the world’s up-and-coming emerging markets. Unfortunately for the Philippine economy and its people, it has been a case of ‘up-and-coming’ but never quite ‘there’.
After the Second World War, many experts believed that the Philippines would become the economic powerhouse of Asia, not Japan. It was an American ally, it was a stable Philippino-speaking country with a capable workforce, and it had natural resources. By the 1960s it had a per capita income that was double that of Thailand and it seemed destined for greatness – however today the opposite has happened, and Thailand now has almost twice the per capita income of the Philippines.
Some experts believe that the Philippines has more in common with Latin America than Asia, having inherited strong Spanish traditions from its years as a Spanish colony, including a tradition of ‘caudillismo’, a form of leadership that often leads to dictatorships and leads to widespread corruption and nepotism. The Marcos regime in particular was responsible for misappropriating vast amounts of national wealth and left the country as one of the poorest in Asia.
Several hundred years of Spanish rule followed by almost 50 years of US occupation created enormous landed estates that are today controlled by a small group of families. Agriculture employs 40% of the populace, often on these estates, and produces 20% of GDP, a good indicator that expected development has not occurred. Reform and economic liberalization are vital for the long term economy, but with the landed families wielding so much economic and political power major change is unlikely.
The Philippines also suffered an economic recession in 1984 and 1985, reducing economic conditions by as much as 10%. Turbulence in the political area during this time also had a negative impact on the economy of the Philippines.
Lacking opportunities at home, Filipinos have sought work elsewhere. Remittances from overseas Filipino workers (OFWs) are estimated to contribute close to 10% of GDP. Filipinos are to be found across North
America, the Middle East, Europe and Asia-Pacific. In the US alone there are over four million Filipinos, with a further two million in Saudi Arabia. In all, there are 11 million Filipinos abroad, close to 11% of the population, of whom eight million are OFWs. One million Filipinos are sent out each year through the overseas employment program. They are employed as doctors and nurses, accountants, IT professionals, construction workers, domestic help, technicians, engineers, architects and as military servicemen. Over one third are unskilled workers, typically domestic maids or employed in the retail, hospitality, and food & beverage industries.
There are some signs of progress, however. In 2007 the International Monetary Fund recognized the Philippines as being the 37th largest economy in the world. Its growth rate in 2007 was 7.3%, the best the country has had thirty years.
Comparisons are starting to be made with India, in particular because of the growth of the Philippine outsourcing business, in IT and particularly in call centers and business process outsourcing (BPO). Low wages, an Philippino-speaking populace and one of the highest literacy rates in Asia should drive this boom, with planners aiming to capture 10% of the $130 billion outsourcing industry by 2010.
In addition to services, growth was also boosted by higher government spending and larger remittances from OFWs. Economic growth has averaged 5% since 2001, and recent years have been marked by a reduction in national debt and debt service ratios and increased investment in infrastructure and social services. Higher sustained growth rates are still needed, however, if the Philippines is to reduce endemic poverty levels and start to live up to its potential.
The Philippine economy has some strength in its manufacturing sector, in particular in automotive parts, food processing, electronics, garments, and textiles.
Mining is potentially one of the biggest industries in the Philippines as the country is rich in chromite, copper and nickel. In addition to its coal reserves, natural gas has recently been discovered in the Palawan islands.
Interestingly, the Philippines is a world leader in renewable energy sources. It has considerable hydroelectric generation facilities, and has created the world’s first commercial scale geothermal energy installation. Around a quarter of the Philippine energy is generated from underground heat sources.