NOTE: This is a guest post. One of this blog’s readers, who requested to remain anonymous, pitched this article. It may or may not reflect my own views.
During his recent visit to Manila, Canadian Prime Minister Stephen Harper echoed many economists in hailing the Philippines as the next Asian tiger. This is something Filipinos had also heard some fifteen years ago, when the world hailed the Philippines as the next Asian tiger in the mid-1990s. The problem, however, is that the anticipated rise of this new Asian tiger never took place, and it’s highly likely that it will also not take place this time around.
An Asian economic tiger is characterized by massive influx of foreign direct investment (FDI), an export-driven economy, and a phenomenal expansion of its manufacturing base. Export-driven economic policies and a solid manufacturing base were the hallmarks of prominent Asian tigers like South Korea and Taiwan; while next-wave tigers Thailand and Malaysia were boosted by massive FDI, followed by the expansion of their manufacturing bases and the re-orientation of their policies towards an export-driven economy.
During the term of President Fidel V. Ramos from 1992 to 1998, the Philippines tried to follow the Asian tiger model by making a powerful pitch to attract a bulk of FDIs that were then going into the Association of Southeast Asian Nations (ASEAN) region. The Ramos era was a time of political stability, economic liberalization, and a vibrant economic vision with a catchy name– Philippines 2000. Key industries were deregulated and de-monopolized, public enterprises were privatized, and economic zones and free ports, coupled with financial incentives like tax breaks, were set up to attract foreign investors. These brought about significant positive results. Electronics and semiconductors manufacturing sites mushroomed in Subic Bay Free Port and various economic zones in Laguna and Cavite, for instance. Yet all of these achievements failed to compare with what the rest of the major ASEAN economies achieved.
According to data from the United Nations Conference on Trade and Development (UNCTAD), from 1990 to 1994, the Philippines took merely $4.7 billion in FDIs, while Thailand and Indonesia got $9.9 billion and $8.6 billion, respectively. It was even worse in the 1995-1999 period, when the Philippines got a measly $7.2 billion, while formerly lackluster Vietnam cornered $9.3 billion and Thailand received more than double its previous at $22.9 billion. The same story reflects the data for 2011: The Philippines got a meager $1.73 billion, while Vietnam took in $10 billion and Indonesia raked in $19.3 billion.
This failure to attract a substantial amount of FDIs resulted in an insignificant manufacturing base and a dismal performance in terms of manufacturing-based exports. Ateneo de Manila University’s Dr. Edsel Beja, in an opinion piece that appeared on the Philippine Daily Inquirer, even pointed out that the Philippines has been experiencing de-industrialization. One can simply go around Subic Free Port to know how much Philippine manufacturing has reversed.
Instead, the narrative of economic growth of the Philippines during the past decade has been characterized by the increase in foreign exchange remittances from overseas Filipino workers (OFW) and the phenomenal boom of business process outsourcing (BPO) industry. Manufacturing and export-oriented industry played very little role in comparison. This paradigm of Philippine economic growth is contrary to the Asian tiger model.
Many observers, like the Asian Development Bank (ADB), continue to argue that the Philippines needs to develop its manufacturing industry in order to attain inclusive growth. Some even assert that the Philippines should not yet aspire to be a services-based economy, since its manufacturing sector has never fully matured in the first place. However, the continued reluctance of foreign investors to set up a manufacturing base in the Philippines tells us that growth through the Asian tiger model is no longer viable, unless an indigenous Filipino company courageously decides to set up one.
There is, however, an alternative path to economic “tigerhood” that emerged alongside the Asian tiger paradigm: Ireland’s Celtic tiger model. From 1990s to 2000s, Ireland achieved phenomenal economic growth that raised its profile from being among the weaker economies of Europe to being one of its richest.
Ireland’s growth was different the path taken by the Asian tigers. Aside from the usual financial incentives to entice foreign investors, Ireland used its comparative advantage as an English-speaking nation and as a relatively cheaper location in Europe to build a strong services-based economy. The Emerald Isle became the destination of knowledge-intensive businesses like information technology (IT), financial services and BPO. This turned the country into a knowledge-based economy.
Of course, one key difference is that, unlike the Philippines, Ireland did not have to deal with poverty on a massive scale. But Ireland’s growth path through the development of its knowledge-based services industries is similar to the current path that the Philippine economy is currently taking. The Philippine BPO industry is already transforming from a voice-based services sector to a knowledge-intensive service industry.
The Philippine BPO industry is still in its infancy, and it must pursue the development of more sophisticated knowledge-based services sector like those involving IT, financial services, and similar other industries. The Philippines has the best chance of cornering investments of these nature. The competition in this field is smaller, with only India as the sole viable competitor.
Manila’s economic growth policy should therefore make a significant shift towards building a knowledge-based economy. The Philippines produces hundreds of thousands of highly skilled graduates that can meet the demands of a Celtic tiger economy. Jobs in a knowledge-intensive service sector are significantly better-paying than those in the manufacturing sector, which means that a knowledge-based economy would create a sizable middle class with a high disposable income.
In the Celtic model, inclusive growth can be achieved when the knowledge-intensive service sector produces a multiplier effect that boosts allied sectors. The demand for office spaces, for example, would boost the real estate industry, while the proliferation of offices would result in an increase in demand for fast foods, convenience stores, retail outlets like malls and supermarkets, and building maintenance and security services, among others.
In so far as the traditional Asian tiger economic growth model is concerned, the Philippines has arguably lost its comparative advantage to the other major ASEAN economies. The country should therefore explore growth paths where it enjoys overwhelming advantage. Instead of aspiring to be an Asian tiger, perhaps the Philippines should aspire to be a Celtic one.
Want to contribute articles for the Guest Post? Just indicate in the blog’s comment section.