Serious challenges and obstacles face the Philippines today. These challenges have to do with inflation, unemployment and poor foreign and domestic direct investments.
Inflation
We are experiencing one of the worst episodes of inflation today. It has been reported that the Philippine inflation rate for the month of October is at 7.7% vs. 6.9% in September. While much of this inflation has been caused by global factors such as the serious rise in oil based products, supply chain issues; some local factors have come into play. There have been spikes in the local prices of food products, particularly pork and vegetables. The pork prices have spiked because of the lingering effects of the swine flu, which has decimated piggeries in Luzon, while natural calamities and supply chain issues have caused local vegetable prices to spike.
As a defensive move to cool off inflation and to arrest the fall of the peso exchange rate, the Bangko Sentral is using the monetary policy tool of interest rate increases to resolve the predicament. While this may cool off inflation, it may also exacerbate cost-push inflation and also discourage new investments and debt-fuelled expansion.
At the household level, however, this will only mean lower purchasing power for the peso and this may translate into discontent if not handled properly. At the national level, this would translate into slower and lower economic growth, which is a crying need to address the next challenge: unemployment.
Unemployment / Underemployment
The latest unemployment figures for August stand at about 6%. This is still high, but when combined with the underemployment rate of 14.5%, both for May, 2022, this translates into a total of 1 person in 5 being unutilized or underutilized, bringing our massive investments in education and training to very poor results. The exodus of labor to better opportunities abroad, speaks volumes about our problems in finding gainful employment for our citizens.
Many causes have been cited for the high unemployment/underemployment rates in our economy. Overpopulation has long been identified as a culprit, and yet, the most obvious, the lack of business investments has been conveniently overlooked.
It is fortunate that the overseas employment of our workers has provided a safety valve and important foreign revenue source for our country. However, this has come at a cost of separating families to support them and has created ancillary social issues. This is where the next major issue to resolve the economic ills of our economy comes in.
Foreign and Domestic Direct investments
When prices are high, and employment is low then it is investments into the economy that become paramount. As it stands, foreign direct investments plunged to a 14 month low in July, 2022, plunging by 64.4% year on year to US$460 million, after falling by 51.5% in June.
The need for foreign direct investments are acute and are needed as a means to invigorate our economy not only in the cash value of the investments, but usually in new technologies and processes that accompany the investments, and likely also the development of new markets for products and exports.
As is stands now, it appears that among the Asian nations, the Philippines as an investment destination sits behind Vietnam, India, Indonesia, with Bangladesh catching up quickly. As is logical, with every change in administration, there is a cautious wait and see attitude adopted by investors. This is exacerbated by the political interference and de facto confiscation of businesses during the past administration and the perceived rise of crony capitalism.
In the local investment environment, businesses are reluctant to establish businesses that have to do with Government partnership or approval, as the Philippines has, in the past, had a reputation for the succeeding administrations to declare as “unfavorable” contracts entered into by previous administrations. Even worse, government contracts or franchises ae threatened with cancellations at the slightest reasons. Therefore, as divined from business colleagues, investments in these times of uncertainties, will take a distinctly short-term horizon.
The challenge for Government is to lay out an investment climate of trust and fair play, and a level playing field. The rules of investment must be struck clear and unambiguous. The slightest hint of the resurgence of crony capitalism will be the final nails in the coffin that may make our economy descend to the depths of a Nicaragua or Venezuela
The opinion expressed herein does not necessarily reflect the views of Financial Executives Institute of the Philippines and the Manila Bulletin. Know more about #FINEXPhils through www.finex.org.ph.