Business NEWS

(Part 5)

As more strict lockdowns hang over the Philippines like a sword of Damocles because of the appearance of more deadly variants of COVID-19, It is not only the economy that is in danger of tanking.  There is also a serious danger that one of the human virtues of Filipinos appreciated by people from other nations– friendliness and affability– may suffer some deterioration.  Face to face contact is a must in developing the ability to relate well with others.  Viber or Zoom contacts, no matter how frequent, will always be a poor substitute for actual physical interaction.  Pupils will have to go back to the classroom, not only because of the majority of them cannot afford the resources needed for blended learning but also because they need to cultivate close friendships if they are to preserve what Filipinos and Filipinas are appreciated for both in their own country and outside as overseas workers.

What will be the shape of the Philippine economy during the next six to twelve months?  Unfortunately,  my answer will be far from the usual optimistic forecast to which my readers have gotten accustomed.  In the next six to twelve months, the Philippine economy will be the slowest growing among the major economies of East Asia, registering a GDP growth rate of 3 to 4 percent for the whole year of 2021.  As I foresee a prolonged period of lockdowns in different regions of the Philippines for the third quarter, we may experience still  another  negative GDP growth from July to September 2021.  Assuming we will survive the Delta variance by the beginning of the fourth quarter and the non-appearance of yet another equally or more deadly virus, the fourth quarter may see a  growth of 6 to 8 percent mainly as a result of strong spending related to the Christmas season and the  largesse of politicians who will be already feverishly campaigning for the May 2022 elections.

It is well known that the Achilles heel of the Philippine economy is the very low productivity of its agricultural sector, especially compared to its ASEAN neighbors like Thailand, Malaysia and Vietnam.    Accounting for about a quarter of the labor force, the agricultural sector contributes barely 10 percent to Gross Domestic Product.  Its growth has for a long time hovered at the level to 2 to 3 percent annually.  This under-development of the agricultural sector explains to a great extent the high rate of poverty incidence of the country, which during the pandemic may have gone back to over 20 percent of the population.  Some 75 percent of the poorest of the poor are in the rural areas, where agriculture is the predominant occupation.  The poor performance of the primary sector of the economy can be attributed to long-term neglect and unenlightened policies of past governments that failed to endow the small farmers with the appropriate infrastructures they needed to make their farms productive.  It was socially just to distribute to millions of farmers small plots of land during the period of agrarian reform in the 1970s and 1980s.  What went wrong was that after they obtained their respective small farms, they were literally abandoned to their own resources.  No farm-to-market roads, no post-harvest facilities, insufficient irrigation facilities, weak support services.  In fact, there is enough evidence that the farmer beneficiaries became worse off compared to the time when they were tenants.  Their landlords at least provided them with the necessary inputs to eke out a living from their farms.

The recent passing away of former President Benigno “Noynoy” C. Aquino III reminded us once again of the importance of institution building in the process of attaining sustainable and inclusive growth.  Economic officials who worked with him and knew him well were one in debunking the unfair label of “wimp” that was given to him by some of his detractors.  One good quality that he had as a leader was that he knew how to build on the accomplishments of his predecessors in the Presidency.  As National Scientist Dr. Raul Fabella wrote in the Business World, the average rate of growth of the Philippine GDP during PNoy’s watch was 6.2 percent, higher than the average during the watch of any other president in Philippine history.  One major factor for this accomplishment was, as Dr. Fabella wrote, his making the Private Public Partnership (PPP) mode “the main power train to arterial infrastructure.”  This is an example of the humble refusal of PNoy to not “reinvent the wheel.”  He just built on the Build Operate Transfer (BOT) strategy that was introduced during the administration of former President Fidel Ramos.  Also, his giving very high priority to reducing mass poverty led him to scale up the Conditional Cash Transfer (CCT) Program that was started during the watch of former President Gloria Macapagal Arroyo. 

The GDP growth for the whole of 2021 will be lackluster at 4.0 percent, lower than government’s expectations.  Gross Domestic Product (GDP), however, is an average of the growth prospects of the different sectors and industries of the national economy.  For example, the latest breakdown we have of growth performances of the various sectors and industries of the Philippine economy was for the first quarter of 2021.  Final figures for the second quarter are still expected sometime in August.  In the first quarter, GDP declined by -4.2 percent.  The sectors comprising the economy, however, had different growth performances.  According to the Philippine Statistical Authority (PSA), construction took a beating of -24.2 percent.  Other services declined by -38.0 and Real Estate and Ownership of Dwellings dropped by -13.3 percent.  These were some of the hardest hit among the economic sectors.  The story, however, is different for some more fortunate industries.  Human health and social work activities predictably expanded a robust 11.7 percent.  Just think of all the hospital and diagnostic services that millions of Filipinos needed during the pandemic, not to mention all the medicines people had to buy both for curative and preventive reasons.  The government had to spend billions of pesos for poverty alleviation.  Another sector that benefited from the pandemic was Public Administration, Defense and Compulsory Social Activities which grew at 7.5 percent; Information and Communication at 6.3 percent; Finance and Insurance at 5.2 percent.  Electricity, steam, water and waste management grew by 1.9 percent while manufacturing barely managed a positive growth at 0.5 percent.

We cannot let our guard down even as countries like Singapore take the optimistic view that COVID-19 should be treated like a regular recurring epidemic such as the flu or chicken pox. This sanguine view could lead to the dismantling of such safety measures as social distancing, the wearing of face masks and frequent washings of hands.  The World Health Organization (WHO) reported in early July 2021 that our COVID-19 case total of over 1.4 million is the highest among all countries in the Western Pacific region.  The WHO tallied 1,408,058 infections in the Philippines, putting us at the top spot among 24 countries that reported COVID-19 infections in the Western Pacific.  The tally is nearly double the cases confirmed in Japan, which ranked second with over 798,000, a number that is putting the Olympics at risk  of cancellation in late July. Other countries with high rates of infection are Malaysia, South Korea and China.  It is understandable that Bloomberg reports that the Philippines is placed at the second to the lowest spot among 53 nations in economic recovery.    

Once the Philippine GDP starts growing again at a rate of 6 to 8 percent after the pandemic is put under reasonable control in 2023, the demand for economic housing (units that are priced at P1 to 5 million each)  will experience the greatest rise.  There are two major reasons for this.  First, in the next three to five years, the Philippines will finally graduate from a low-middle income to an upper-middle income economy as our GDP per capita exceeds $4,000.  Extrapolating from data from the Philippine Institute of Development Studies (PIDS) research on “Profiles and Determinants of Middle Class,” 40 percent of the 22 million households in the country today will be earning monthly incomes (at 2017 prices) of P40,000 or more.  These approximately 8,800,000 million homes will no longer be overly concentrated in highly congested areas like Metro Manila or Metro Cebu but will increasingly move to the new metropolitan areas like CALABARZON (especially Batangas) and Central Luzon (especially the so-called Pampanga Triangle of San Fernando-Angeles-Clark-Subic).  This trend is also already obvious as we witness the leading Manila-based real estate developers expanding aggressively to these new Metropolitan areas.  Since it is the middle-income segment that will rise the fastest in the coming decade or so, the demand will be for economic housing and not for the high-priced luxury units of P10 million or more, the market segment that is already suffering from an oversupply and is currently experiencing  a  slowdown as the pandemic takes its toll on the economy.

Pope Francis is very clear about preserving what is good in our local culture and not swallowing hook, line and sinker everything that comes from abroad.  There is such a thing as “ideological colonization.”  The worst part of the culture prevailing in some developed countries is the anti-life mentality that glamorizes abortion, contraception, same-sex unions and divorce on demand that can explain to a great extent the demographic crisis most of them are facing.  As Pope Francis wrote in Fratelli Tutti (145), “There can be a false openness to the universal, born of the shallowness of those lacking insight into the genius of their native land or harbouring unresolved resentment towards their own people. Whatever the case, we constantly have to broaden our horizons and see the greater good which will benefit us all.  But this has to be done without evasion or uprooting.  We need to sink our roots deeper into the fertile soil and history of our native place, which is a gift of God.  We can work on a small scale, in our own neighborhood, but with a larger perspective…The global need not stifle, nor the particular prove barren; our model must be that of a polyhydron in which the value of each individual is respected, where the whole is greater than the part, but is also greater than the sum of its parts.”  The most important part of our culture that we literally have to protect with our lives against corruption from foreign lands is the highest value we give to the family as the basic unit of society  with the consequent inviolability of the institution of marriage and the sacredness of life from conception to natural death. 

One aspect of “re-envisaging” the social function of property is the way we apply this principle to the globalization and anti-globalization issues that characterize our era.  In Paragraphs 121 of Fratelli Tutti, he asserts:  “No one then can remain excluded because of his or her place of birth, much less because of privileges enjoyed by others who were born in lands of greater opportunity. The limits and borders of individual states cannot stand in the way of this.  As it is unacceptable that some have fewer rights by virtue of being women, it is likewise unacceptable that the mere place of one’s birth or residence should result in his or her possessing fewer opportunities for a developed and dignified life.”  The developed countries especially must not completely close their borders to the millions of hapless citizens of other countries who are suffering from the ravages of civil wars, natural disasters and other calamities that force them to immigrate to more hospitable environments.  It is also intolerable that natural-born citizens of a nation will persecute immigrants in their own lands, as is happening in the United States where Asian Americans are objects of hatred and violence.  Pope Francis is appealing to these natural born citizens of developed countries, whether in America or Europe, to practice preferential option for the poor, not only as individuals but also as nations:   “Development must not aim at the amassing of wealth by a few, but most ensure ‘human rights—personal and social, economic and political, including  the rights of nations and of peoples.  The right of some to free enterprise or market freedom cannot suppress the rights of people and the dignify of the poor, or, for that matter respect for the natural environment, for ‘if we make something our own, it is only to administer it for the welfare of all.’“  Clearly, these words in no way are advocating the abolition of private property but the responsible use of property for the international common good.

In Fratelli Tutti, Pope Francis clearly states that the common good cannot be defined in terms of majority opinion.  This would be tantamount to moral relativism.  He writes:  “The solution is not relativism.  Under the guise of tolerance, relativism ultimately leaves the interpretation of moral values to those in power, to be defined as they see fit.  ‘In the absence of objective truth or sound principles other than the satisfaction of our own desires and immediate needs…we should not think that political efforts or the force of law will be sufficient.  When the culture itself is corrupt, and objective truth and universally valid principles are no longer upheld, then laws can only be seen as arbitrary imposition or obstacles to be avoided…Relativism always brings the risk that some or other alleged truth will be imposed by the powerful or the clever.  Yes, ‘when it is a matter of the moral norms prohibiting intrinsic evil, there are no privileges or exceptions for anyone.  It makes no difference whether one is the master of the world or  the ‘poorest of the poor’ on the face of the earth.  Before the demands of morality we are all absolutely equal.” 

I have to apologize for the sensationalist tone of the title.  I just want to highlight the fact that some ultra-conservative Catholics in the US and elsewhere  have developed the bad habit common to some of our military and police of red tagging anyone who is speaking and acting for the poorer members of society.  I am referring to an article I have just read entitled “I’m Catholic.  Can I Disagree with Pope Francis on Property?” by John Horvat II, a  leading Catholic Conservative in the U.S. who wrote a best seller “Return to Order:  From a Frenzied Economy to an Organic Christian Society.”  To be sure, Mr. Horvat has been helping the Catholic Church in the U.S. spread more widely the social doctrine of the Church. He also has been a major critic of many immoral policies of the U.S. government that have been accentuated under the presidency of Joseph Biden such as abortion, same-sex unions, and contraception.  Unfortunately, however, he has grossly misunderstood the teachings of Pope Francis in his recent social encyclical entitled Fratelli Tutti (All My Brothers and Sisters), especially as regards the social role of private property.

True, an increasing population makes it more difficult to eradicate mass poverty. The Philippines still has the highest poverty incidence of close to 20 percent in the whole of East Asia.    The answer, however, is not to prevent births but to implement positive measures of transforming the humans being born into hands that can work and minds that can think and most of all into hearts that can unselfishly serve others.  Those positive measures have been identified by our leaders and are already being implemented to one degree or another.  We just have to persevere in carrying them out.  Among them is  focusing much more on rural and agricultural development.  The vast majority of the poor are in the rural areas which need more farm-to-market roads, irrigation systems, post-harvest facilities and many other resources that can help the millions of farmers, especially rice, corn and coconut farmers, improve their incomes.  We should give as much financial and technical assistance possible to the millions of micro, small and medium-scale enterprises (MSMSEs) that constitute 99 percent of business outfits.  We should invest more of the government budget in public education and public health.  To obtain the necessary funds for these pro-poor expenditures, we should increase the taxes on the wealthy  and on non-essential consumption (such as the so-called “sin  products” like liquor and cigarettes) so that the corresponding revenues can be used especially for Social Amelioration Programs for the poorest of the poor who do not benefit from free market forces. Those below the poverty line are too undernourished, too uneducated, and too unskilled to be able to participate actively in the market, whether on the demand or supply side.  We should encourage both the private sector and the State to invest, with the help of foreign capital from abroad, in labor-intensive industries and services.  These are time-tested solutions all over the world to reducing mass poverty. especially proved successful in the last twenty years in China that was able to reduce its poverty incidence to zero in just one generation. Another country we can emulate in this respect is Vietnam that just surpassed us in income per capita last year.  But more importantly, Vietnam has reduced its poverty incidence to close to zero by implementing the policies and programs enumerated above.

The news about agriculture during the first quarter of 2021 reminds us that the road to improving agricultural productivity in the Philippines will be long and difficult.  Agricultural production dropped by 3.3 percent, especially due to the large decline in production of livestock and poultry, with hog production shrinking by a whopping 23.2 percent.  The saving grace was the increase in crop production of 3.3 percent.  This development is in contrast with what happened last year when agricultural production increased in both the second and third quarters as the other sectors of the economy, industry and services, were experiencing double-digit decreases.

 The environmentalist affirms that a small population is good news because it would decrease the carbon footprint on our planet.  Mr. Grantham, who is  co-founder of GMO Asset Management,  deflates such optimism.  He said that to fight climate change, we still have a long way to decarbonize global industrial systems and reduce CO2 in the atmosphere to its pre-industrial level of 280 parts per million from its probable future peak of more than 550 parts.  This very ambitious target can only be achieved if the world can come out with every biological and mechanical innovation of which it is capable.  Unfortunately, lower economic growth caused by a shrinking and ageing population would surely weaken, not only the necessary innovation and investment, but also the resolve to do it.  Much fiscal resources and regulatory reforms would be needed to get the job done.  A nation on irreparable demographic decline and rapid ageing will not have the fiscal resources nor the political will to do what is necessary to combat the negative impact of climate change.

The pandemic has highlighted the greatest economic treasure the Philippines has, its human resources.  We continue to have a young, growing and English speaking population that is referred to as our demographic dividend.  In contrast, all developed countries as well as some of the emerging markets in Asia like China, Thailand, Vietnam and Indonesia are already showing signs of rapidly falling fertility rates and ageing that can dampen their economic growth in the next decade or so.  Heavy pressures on pension funds and social security systems, labor shortages, and dwindling domestic markets are already worrying the leaders of even the most populous country in the world, China.  Because of unwise population control programs in the past, China is already rapidly ageing before becoming rich.  We should be thankful that population control programs that some of our past governments tried to impose were not successful.  Our population today of close to 110 million is still expected to swell to 142 million in 2045 according to the Philippine Statistics Authority.  We will still be experiencing population growth of 0.65 percent annually during the 2040 to 2045 period.  Our East Asian neighbors will have fertility rates much below the replacement level of 2.1 births per woman. These low birth rates are coupled with  an ageing population in which those who are over 65 account for  20 to 30 percent of the  total.   For example, Japan and South Korea are predicted to see their population drop by more than half by the end of this century.   In contrast, even in 2045, Filipinos over 65 will be only 11.4 percent of the total, resulting in a ratio of young to old that will still be very manageable.   Because of very low fertility rates and  a high percentage of the population over 65 years of age,  our Asian neighbors (not to mention countries in the European Union) will be  weighed down economically by a huge proportion of senior citizens and very few workers to take care of them  This will require these countries  to open up to immigrant workers like our OFWs, with the consequent cultural  and social frictions we are now witnessing even in so-called democratic America where some of the most productive citizens, the Asian Americans, are objects of discrimination and hatred.

Another important reason why the Philippines (together with the other ASEAN countries) should try hard to have friendly relations with China, despite its provocative behaviour, is its vast domestic market for our exports.  As mentioned above, in PPP terms, China’s domestic market is already larger than those of the US and other large countries in the developed world.  China is already the third largest export market for the Philippines after the U.S. and Japan.  Our largest export to China comprises electrical and electronic equipment, followed by machinery, nuclear reactors and boilers; mineral ores; and edible fruits.  With the huge domestic market of China today and the prospects for growth of 6 percent or over at least in the next decade, it is highly probable that China will be our number one export market by 2025.  If we do everything possible to improve the productivity of our agricultural sector, especially in such high-value products like vegetables and fruits, the Chinese market for these will be almost unlimited as more and more of their population join the middle-income categories.  With the rapidly ageing population of the Chinese, we can also aim to send very well- paid health workers, care givers and teachers.  It is, therefore, very important that we are able to maintain friendly relations with China, despite the political challenges.

China has become increasingly dependent on the rest of the world for the huge quantities of raw materials that are required for continuous, albeit slower, growth.  It is already the world’s largest buyer of copper, the second biggest buyer of iron ore, and the third largest buyer of alumina.  It absorbs around a third of the global supply of coal, steel and cotton, and half of its cement. It is the second largest energy consumer after the U.S. with nearly 70 percent produced from burning coal.  In 2005, China used more coal than the U.S., India and Russia combined.  In 2004, it accounted for nearly 40 percent of the increase in the world demand for oil.  Although its growth has been slowing down to 5 per cent or less in  recent years and may never reach the income per head now enjoyed by the US and other OECD countries, the more than 700 million Chinese who have already attained middle-income levels will be making huge claims on the world’s supply of grain harvest such as soybean, wheat and maize.  As the other 700 million are able to go beyond just subsistence level of existence, food security will be the greatest challenge to this country that even today already has the largest GDP if measured, not at nominal figures but at Purchasing Power Parity (PPP) terms.  As of 2020, China’s GDP in PPP terms, according to IMF, was at $24.162 trillion compared to $20.807 trillion for the U.S.   To satisfy such a huge demand of the domestic market, China will need to import huge amounts of raw materials from other countries.