The Philippine economy in 2050

Part 1

A few months after martial law was declared in 1972, a team of economists was asked by some media people to produce a show entitled “1980 Take Me There.” They wanted us at what at that time was the fledgling think tank called the Center for Research and Communication, barely five years in existence, to help the public visualize what the Philippine economy would look like eight years hence, given all the promises and plans being made by the Government then and the response of the private sector. Looking into the future eight years hence was no big deal to our team, especially since we were led by Dr.Jesus Estanislao who worked directly at Harvard with the very inventor of national income accounting, Nobel Prize winner in economics, Simon Kuznets. Before establishing CRC, Jess worked for the Program Implementation Agency (PIA), later evolving into the Presidential Economic Staff (PES) where he helped to frame what was a key feature of the medium-term plan of the Marcos government then. He was totally immersed in economic data. I remember that we focused on the Masagana 99 plan for palay production and the regional development plan that were main features of the medium-term plan of the Government then. The optimism embodied in our forecast was confirmed with what actually happened during the first four to five years of martial law during which the economy did quite well (what happened after 1980 was another thing!).

Now after some fifty years of significant improvements in national income accounting and the collection and analysis of abundant macroeconomic data and detailed information about economic sectors and regions, economists can be more daring in going beyond eight years in looking into the far future. Not only do we have very reliable data we can obtain from the Philippine Statistical Authority (PSA), the Bangko Sentral,, the National Economic and Development Authority (NEDA) and the Department of Trade and Industry (DTI) that can be useful in long-term economic forecasting. We also have fifty years of economic development experiences of countries all over the world that can help us track the possible paths that our economy will most likely follow in the next thirty years or so. That is why I have gathered enough courage to try to picture what the Philippine economy would look like in 2050. Part of my reason for doing so is to communicate to our leaders, present and future, what enlightened economic policies we must adopt if we are to make my admittedly optimistic forecast come true.

Speaking of countries from whom we can learn very important lessons to attain the high-income status I assume we will be attaining in 2050, let me enumerate the ones who have done better than we over the last twenty years, despite our having started ahead of them when we obtained our independence in 1946. I am referring to countries within the Indo-Pacific region like Singapore, Taiwan, Thailand, Malaysia, Vietnam and especially South Korea. If in the next thirty years, we can replicate some of the success stories of these countries in various sectors and regions of our economy, I am confident that the optimistic picture I paint for the Philippine economy in 2050 can be realized.

I chose 2050 for two reasons. The first is that in 2012, when we were just beginning to show signs that we were no longer the “sick man of Asia,” the Hongkong and Shanghai Banking Corporation Ltd. (HSBC) issued a long-term forecast entitled “The Wider World in 2050.” In that long-term projection which anticipated the global economy thirty eight years into the future, the Philippines was ranked the 16^th largest economy in the world by 2050, outranking powerful economies like Indonesia, Australia, Saudi Arabia, Malaysia, Thailand, the Netherlands, Pakistan. In Indo-Pacific, the only countries that had higher ranks than the Philippines were China, India, Japan, and South Korea. The reasons given by HSBC for projecting that the Philippines would register the largest improvement from 2012 to 2050, an impressive +27, provided me the confidence to postulate that by 2050, despite the many challenges we are facing today, we will attain first-world status in 2050. HSBC projected Philippine exports to grow fivefold by 2050, on the assumption of a growth trajectory that remains among the highest in Asia and enhanced by regional integration. The Philippines is fortunate to be in the epicenter of what is and continues to be the most dynamic economic region in the world for at least the next decade or so, the Indo-Pacific region. Our country will benefit from such agreements as the Regional Comprehensive Economic Partnership (RCEP) that guarantees that the 15 economies in this partnership will continue to be open to one another in trade and investment. We have not fallen into the ultra-nationalist and anti-globalization mindset that has resulted into America First policies in the U.S. and the BREXIT movement in the U.K. An opportunity for the Philippines, as well as for the other nine members of the ASEAN Economic Community (AEC), is what HSBC saw in the share of intra-Asian exports expanding to 27 percent of the global in 2050 from 17 percent in 2012. This expansion will be based on “nimble networks of multinationals that create their own specialized value chains” that will also raise levels of prosperity in the countries in which they operate. Although total exports of the Philippines have been the lowest in the East Asian region, its growth rate has always outpaced the GDP growth. To sustain this trend, it is imperative for the Philippines to improve the ease of doing business so that it can compete with other ASEAN economies in the coming years in attracting factories that are leaving China to locate in the Philippines. Basic to improving the investment climate is the removal of legal and constitutional restrictions against foreign direct investments. The legal ones have a high probability of being removed by the passing of three pending bills in Congress in the last months of the Duterte Administration, which ate the Public Utility Act, Retail Trade Liberalization and the Foreign Investment Act. With enough pressure from both local and foreign investors and members of the academe, the next Administration that will be elected in May of 2020 may still amend the restrictive provisions in the Philippine Constitution of 1987 against FDIs, especially in telecommunications, media, advertising and higher education—all vital to what is known as Industrial Revolution 4.0.

The HSBC Report anticipated the favorable trends that were introduced by the Build, Build, Build, program that was given a big push under the Duterte Administration which upped the total public spending on infrastructure from a historical low of 2 to 3 percent of GDP to 5 to 6 percent. The HSBC report anticipated this Build, Build, Build program when it prognosticated that “investments in infrastructure, such as port, airports and better road networks will push down prices. There have also been changes in policies such as the rent amendments to the Cabotage Law. Definitely, there will be big improvements in the movement of products and people as the infrastructure and trade environment improves.” The current reality, despite or perhaps because of the economic slowdown during the pandemic, is that the logistics sector has been given a big push during the many lockdowns that were imposed. Large improvements were made in supply chains and the delivery of goods, especially in the food sector. In the post-pandemic economy, logistics will be one of the strong engines of growth, especially because the heaviest investments of the Government in the Build, Build, Build, program are being made in the countryside, instead of the urban areas. There is a healthy division of labor. The bulk of the infrastructure budget of the Government is being spent in the rural areas, especially in farm-to-market roads and other infrastructures to increasing agricultural productivity. Improvements in the urban areas, especially in the Metro Manila Area are being heavily funded by the large conglomerates like those of San Miguel Corporation, DMCI, ICTS, Megawide, and First Metro Pacific. To be continued.