Business outlook in the new administration

ECONOMIC SEERS say that global growth will likely remain modest at 2.4 percent in 2016.

Global economy

Despite a rebound expected in the US economy in the second half of 2016, its GDP growth will likely not exceed1.7 percent. In spite of employment growth and higher wages that support consumer spending, low levels of investment and productivity will dampen hopes for higher growth and profitability. Europe will have a more stable economic environment as investments and productivity shall likely improve and pave the way for some modest growth acceleration.

China’s growth will likely stay at 3.8 percent, but India will be Asia’s growth leader in 2016. The ASEAN, including the Philippines, will see significant improvements in 2016. Brazil, once the darling among the LatAm economies, will likely suffer from ongoing troubles. The fall in oil and commodity prices will continue to impact other LatAmcountries. Sub-Saharan Africa will grow at 2.6 percent, slowest in two decades, but has great potential in the medium and long term. However, political and institutional constraints will cause uncertainty.

Phl Development

An article by CaiOrdinario at Bloomberg News quotedincoming NEDA Secretary Ernesto Perniaas saying that the Duterte Administration will simply “fine tune the existing Philippine Development Plan (PDP) according to our vision.”

The economic and social priority of President Rodrigo Duterte is “addressing inequality.” Pernia believes that uneven distribution of wealth is the reason for the Philippines’ high poverty rates, estimated at 26.3% in the first semester of 2015.

Aside from ensuring a more equitable distribution of wealth, the new Administration will also focus on an effective population policy. Pernia was the lead author of the UP School of Economics’ position paper supporting the Reproductive Health Law of 2008.

12% growth goal

Pernia said that the current per capita income of Filipinos is $3,500. To bring this up to $7,000 and keep up with our ASEAN neighbors, Pernia said that the Philippine economy must grow by 12% annually. Under the Aquino Administration, the country’s economy grew by roughly 6 percent per year. Pernia, however, said that the 12% growth is “highly unattainable in the next six years. What would be more prudent is to focus on the existing problem of inequality that will give a major boost to attaining higher economic growth.”

To fuel economic growth, the Duterte Administration will likely favor a more loose fiscal policy and higher borrowing, more infrastructure spending, cutting taxes to 25% (down from the corporate tax of 30% and personal income tax of 32%).

More deficit spending

Ben Diokno, Duterte’s budget secretary, favors more borrowing at this time of low interest rates to “fund and invest in infrastructure and social capital.” Diokno also believes that a fiscal shortfall of 3% of GDP is a “comfortable deficit target.” The past Administration has cut the budget deficit from 3.5 percent of GDP in 2010 to 0.9 percent in 2015.

According to Michael Wan, a Singapore-based economist at Credit Suisse Group AG, “Investors would be willing to look past any potential increase in the deficit, depending on the details of the fiscal policy. A broad overhaul of the tax structure could put more money in the hands of consumers, while more spending on infrastructure, education and health would boost the Philippines’ growth potential.”

Human development

In 2015, the Philippines ranks 115th among 188 countries in terms of Human Development Index (HDI), a composite statistic of life expectancy, education and income per capita indicators. This is an area for improvement.

The new Administration must work at making economic growth more inclusive. Broad-based development, innovation for economic development, and growing the manufacturing and agriculture sectors, not just the services sector, can end the jobless growth experienced for decades.

Filipinos need jobs – regular, temporary, or contractual. Decreeing that all jobs must be regular will not make businesses regularize all temporary or contractual employees. Instead, the latter can lose their jobs. Since investment equals employment, let’s tweak policies to encourage investments – domestic or foreign.

Government must also revisit our business model as a country. Progressive countries sell to other countries. Most of our GDP is about Filipinos selling to each other (domestic consumption), if not the remittances of OFWs, revenues from the BPO industry, and government spending. More jobs will be created if we focus on manufacturing and exporting Philippine-made products.

In the 1950’s, the Philippines sent Filipino soldiers to fight in the Korean War. At that time, our per capita income was more than five times that of South Korea. Today, theirs is more than ten times the Filipinos’ per capita income. They manufacture high-value products in minutes, more efficiently, with lesser resources and higher labor productivity. We export bananas and pineapples that take several months to grow, require much land, water and laborers to plant, harvest and pack, for a fraction of the price of South Korea’s products.

It doesn’t take a rocket scientist to see why some countries are richer and others are poorer.
(Ernie is the 2013 Executive Director and 1999 President of the People Management Association of the Philippines (PMAP); Chair of the AMCHAM Human Capital Committee; and Co-Chair of ECOP’s TWG on Labor and Social Policy Issues. He is President and CEO of EC Business Solutions and Career Center. Contact him at [email protected])