Oxford Economics: Low R&D spending a roadblock to PH becoming high-income economy

MANILA, Philippines — Despite sustaining strong economic growth in the long term, the Philippines may fall behind in its bid to become a high-income economy if it fails to jack up spending on research and development (R&D).

In a Feb. 13 report titled “Where EMs stand in the race to high-income status,” UK-based Oxford Economics included the Philippines among emerging markets attempting to catch-up with the United States and other developed countries.

A long-term growth indicator showed that the Philippines was among the economies where baseline forecasts implied they could catch-up with the US during the 2020s decade.

The same indicator suggested upside risks to Philippine growth in the long term.

Last year, Oxford Economics projected the Philippines’ gross domestic product (GDP) to grow by an average of 5.3 percent between 2019 and 2028, to be exceeded only by India’s 6.5 percent among emerging markets.

Oxford Economics data showed that the Philippines’ GDP per capita relative to the U.S. increased by almost 5 percentage points (ppts) during the 2010s, and was expected to double to nearly 10 ppts in the 2020s.

However, Oxford Economics’ emerging markets long-term growth heatmap showed that the Philippines may land among the 10 weakest performers—joining Chile, Russia, Indonesia, India, Turkey, Mexico, Brazil, South Africa, and Argentina—mainly due to higher downside risks to growth coming from a meager share of R&D to GDP as well as low number of patents and researchers in the country.

“R&D can facilitate the transition from a labor-surplus to a labor-shortage economy and the transition from input-driven growth to total factor productivity (TFP)-based growth, as well as the upgrading of industrial and export structures to high-skill and technology-intensive products. Lower rates of R&D could hinder that transition, particularly where they interact negatively with incentives to gain skills,” Oxford Economics explained.

During last week’s ceremonial signing of the implementing rules and regulations (IRR) of the Philippine Innovation Act under Republic Act (RA) No. 11293, DOST Secretary Fortunato T. dela Peña said the new law will encourage more R&D given a P1-billion revolving fund to support startups and innovative micro, small and medium enterprises (MSMEs).

Socioeconomic Planning Secretary Ernesto M. Pernia said that at present, government spending on R&D in the Philippines was a mere 0.15 percent of GDP, compared to 1 percent of GDP in Singapore, and close to 1 percent in Indonesia, Malaysia, and Thailand.

“Our R&D in the Philippines is like in 1991 or 1995 compared to Singapore,” lamented Pernia, who heads the state planning agency National Economic and Development Authority (Neda).

Pernia said the government wanted to jack up expenditures on R&D also to 1 percent, similar to our neighboring countries.

This year, the Philippines was poised to become an upper-middle-income country—defined by the World Bank as having per capita income above $3,956.

The Philippines’ long-term vision dubbed “AmBisyon Natin 2040” envisioned tripling Filipinos’ per capita income to $11,000 by sustaining at least 6.5-percent annual GDP growth alongside the implementation of policies that would make the Philippines a high-income country 20 years from now.

Under AmBisyon Natin 2040, “the Philippines shall be a prosperous, predominantly middle-class society where no one is poor.”