Dindo Manhit, President, Stratbase ADR Institute
We at Stratbase have always advocated a shift away from consumption-led growth toward investment-driven development. Our experience of COVID-19 — specifically, its economic consequences — emphasized the need to be less vulnerable to external developments and hence be more resilient to external shocks. The lockdowns which restricted people’s movements, and hence consumption and other economic activities, dealt a serious blow not only to businesses, but to the economy as a whole.
When an economy is driven by investments, however, economic shocks do not have as much power to derail growth. Investments also make it easier to recover from disruptions.
But it is one thing to say a shift to investments is ideal. Even our leaders have acknowledged this. It is quite another to actually create an environment and adopt strategies that would, in fact, attract — and keep — investments.
We gathered a small group of economic experts to dissect this topic during a virtual round-table discussion held Feb. 9. The consensus was that infrastructure building through collaboration between the government and the public sector is key, but this has to be balanced with all the other problems hounding the country and our people.
University of the Philippines Professor Emeritus of Economics and former Socio-Economic Planning Secretary Dr. Ernesto Pernia, said infrastructure consists of three aspects: human, social, and physical infrastructure. Resolute action from both the public and private sectors is needed to improve all these.
The human challenges include the health of our children so that they can reach their full potential. Social challenges include schools and medical facilities. Physical infrastructure is costly and would need public-private partnerships, so “it is crucial that the conditions and guarantees imposed by the public sector on private sector partners are fair and sufficiently attractive for them to recover their investment cost and with reasonable returns.”
Mr. Pernia believes that the key strategies to fulfilling the Philippine Development Plan 2023-28 would be maintaining robust macroeconomic fundamentals for rapid economic recovery, keeping in mind that the vitality of the economy is only as good as the country’s health and educational system, and using a whole-of-government/whole-of-society approach in ensuring policy efficacy.
Dr. Alvin Ang, Chair of the Department of Economics of Ateneo de Manila University, said that the Philippines has to attract investments in areas that produce the same kind of productivity that will increase wages like finance, information and communication, and manufacturing.
But there is a gap that needs to be narrowed. The Philippines is not creating enough jobs in the agriculture sector and that most of the jobs being created are in the services sector. Addressing the problems of the agricultural sector will benefit its huge workforce and push down poverty levels.
Former Bangko Sentral Deputy Governor for the Monetary and Economics Sector, Diwa Guinigundo, said building the momentum for growth this year would entail addressing large infrastructure gaps. This, in turn, could enhance investment-led growth and appropriate the attraction of investments to the right sectors.
But there are numerous issues that he pointed out, such as the low per-capita GDP, fiscal deficit, public debt, low business and consumer confidence, and inflation.
He aptly cited a publication from the World Economic Forum in January that said what the world needs is a new growth story: “A new approach to sustaining strong and inclusive economic growth.”
The Philippines also needs a new growth story.
Jonathan Ravelas, Managing Director of eManagement for Business and Marketing Services, said that despite challenges like inflation and high interest rates, the Philippines has many advantages including its strategic location.
Investments are a special kind of economic activity, different because they transcend the here and now. They contemplate the future. It’s a commitment: when they come in, they are in for the long haul. They are a crucial tool in increasing a nation’s productivity while also generating employment, providing income security, and alleviating other economic hardships being experienced by millions of Filipinos.
It is impossible for the government to undertake this formidable task on its own. After all, the capital for investments will come from the private sector — big and small alike, foreign and domestic. The crucial role of government is to create a competitive business environment that encourages investors to come, stay, and invest some more. This can only be done through market friendly, consistent and reliable policies and regulations, and good governance — a highly efficient and transparent system of government.
The Philippines needs investments in the right sectors. For example, we believe that the manufacturing sector is an area with great potential. I would go as far as saying that the manufacturing sector that caters to the domestic market, if reinvigorated, could propel our economy to new heights. Renewed attention to domestic manufacturing will significantly narrow our trade deficit because then, there would be less imports for local consumption. It would also create jobs and other opportunities for the population, providing them income security, alleviating poverty, and revitalizing consumer spending.
And, as in any type of investment in any economic sector, the government’s role is definitive. There have to be serious policy and governance reforms to support to domestic investors via incentives, and to address issues such as the unstable supply and high cost of electricity, and ease of doing business.
At both the local and national levels, these uneven bureaucratic and regulatory roadblocks need to be squarely addressed to truly attract — and keep — investments, for a more resilient, sustainable, and most important, an inclusive economy.
This article was originally published in BusinessWorld.