The Philippines has to increase labor productivity and diversify its economy to have sustained economic growth that benefits the poor.
Norio Usui, senior country economist of the Asian Development Bank (ADB), stressed this in a presentation to business leaders on “Taking the Right Road to Inclusive Growth” held in the Marriott in Cebu City.
Despite a consistent growth in the country’s gross domestic production (GDP) in the last 30 years, labor productivity has remained low, he said.
Despite an average annual GDP growth of 3.9 percent from 2000 to 2010, poverty incidence in the country increased from 24 percent to 26 percent, according to Neeraj Jain, ADB country director for the Philippines.
Two saving factors of the Philippine economy, said Usui, are remittances from overseas Filipino workers and Business Process Outsourcing (BPO), where Cebu is a major player.
Usui recommended that the country consider running on “two legs” – the BPO services sector and a more traditional sector of manufacturing and industry as a more sustainable combination that would translate to more jobs and alleviate poverty.
The BPO sector is the Philippine’s “star” performer, making the country a global destination, but it can’t remain with voice-based services and has to move up to higher-value services. However, this requires workers with college degrees and skills.
“Labor demand is biased toward relatively skilled workers,” he said.
“Manufacturing and industry are where the high school graduates, mostly from rural agriculture areas can be hired,” Usui told the forum organized by the Cebu Chamber.
Less skilled workers that cannot be absorbed by the service sector, can be absorbed by the manufacturing and industry sectors.
To boost these sectors, Usui said there is a need to diversify products from the current dependence on export of semi-conductors and electronics.
The ADB economist who just published his book ‘Taking the road to inclusive growth: Industrial upgrading and diversification in the Philippines’ noted stark contrasts in the country’s economic vital statistics.
While industry and manufacturing have the highest labor productivity, it has not grown big enough to absorb workers from the less productive sectors, especially agriculture.
Labor productivity in Malaysia tripled in the last 30 years, and more than doubled in Thailand while growth in the Philippines is almost flat at about 10 percent, Usui observed.
The drop in over-all Philippine exports during the global economic meltdown in 2008 – 2009 was largely due to the country’s dependence on semi-conductors, he noted.
Malaysia and Thailand did not suffer as much because they had a more diversified economy.
Meanwhile, Jain said that government economic reforms are important if the Philippine economy is to be stable and prosperous.
“What the economy needs is consistent and predictable policies, public accountability, and public spending for infrastructure,” Jain said.
While public infrastructure spending in the 1st quarter of 2012 is 83 percent higher than last year, Jain said this is is still low.
“The Philippines only spent 2 percent of its GDP on public infrastructure, while China spends 7 to 8 percent,” Jain explained./Bency Ellorin with a report from Careen Malahay