The Philippines, under the leadership of President Benigno Aquino III and followed by Rodrigo Duterte, is slowly yet steadily emerging as a rising tiger, something that was highlighted by Motoo Konishi, World Bank Country Director, during the 2013 Philippines Development Forum.
Clean governance, strong leadership, growing infrastructure, and policy endeavors have catapulted the Philippines onto a path of faster growth. However, like all growing economies, the trickle-down effect has yet to gain full momentum, and social issues that stymie growth—poverty, inequality, and unemployment—need to be addressed in earnest. The future holds promise as the Philippines has a young, growing workforce that speaks English, has remittances from abroad that are high, and has household debt that is among the lowest in Asia.
Although the Philippine economy grew at a mediocre pace up until the 21st century, the economy has seen significant growth in the last 20 years. Average annual growth between 2001 and 2009 was 4.6%, and between 2010 and 2019, it shot up to 6.4%. This has moved the country from a lower middle-income nation with a gross national income per capita of $3,830 in 2018 to an upper middle-income country with a gross national income per capita targeted to be between $3,956 and $12,235 in the immediate future.
As the economy has improved, poverty has naturally declined as well. With real wages increasing, poverty has decreased from 23.3% in 2015 to 16.6% in 2018; a significant decline in three years.
The composition of the gross domestic product (GDP) is broadly split among the agricultural, industrial, and service sectors. In 2018, agriculture accounted for 9.3% of GDP, marking the lowest contribution to GDP in the country's history. To put that into perspective, agriculture accounted for one-quarter of the country's GDP during the 1980s and almost one-third in the 1970s. Meanwhile, the industrial and service sectors accounted for 30.8% and 60%, respectively. Note that the share of industrial output has steadily fallen as well over time, while the services sector has risen substantially.
Neglected Agriculture, No More
The Philippines has gradually shifted from an agrarian to an industrial and service-oriented economy. In 1980, agriculture accounted for about one-fourth of the nation’s GDP, but that has dwindled over the years to 9.3%. The agricultural sector includes forestry, hunting, fishing, the cultivation of crops, and livestock production. The sector accounts for about 25% of the workforce. The main agricultural products are sugarcane, coconuts, rice, corn, bananas, cassava (manioc), tapioca, pineapples, mangoes, pork, eggs, beef, and fish.
The low level of productivity and slow growth in the Philippines’ agricultural sector has resulted in a high incidence of poverty within the sector. The lack of government initiatives has been primarily responsible for the decline of the agricultural sector, which has suffered from poor infrastructure and low levels of investment. These factors were accentuated with the long seasons of drought that the country suffered.
Fortunately, things seem to be changing as the government is now investing heavily in this sector. The government is backing the Department of Agriculture’s (DA) programs in an attempt to improve food security, rural income, and infrastructure. Some initiatives by the DA in a bid to improve the post-harvest losses, while making products less expensive as well as stabilizing labor costs, are Farm Mechanization, National Organic Agriculture, and Post-Harvest Development.
Then there is the World Bank-supported Philippine Rural Development Project, which aims to improve rural infrastructure. Beyond these, a crop insurance scheme, which will cover the costs of devastating weather phenomena, is being rapidly expanded by the government through Philippine Crop Insurance Corporation. Given these and many more measures, the agricultural sector of the Philippines should witness a spurt in its productivity and output in the near future.
The industrial sector has made a fair and sustained contribution to the GDP of the Philippines over the years, averaging 34% during 1980-2014 and dropping to 30.8% in 2018. This sector employs 18.39% of the country’s workforce. The government of the Philippines is making efforts to attract foreign direct investment in the country by improving its infrastructure. The country has developed a number of economic zones, which have attracted many foreign companies. There are reports that predict some companies are set to relocate their production from China, their traditional base, to the Philippines and neighboring countries in Southeast Asia. These measures will help sustain the growth of the industrial sector in the years to come.
The major industries of the Philippines include manufacturing and agribusiness. Within manufacturing, mining and mineral processing, pharmaceuticals, shipbuilding, electronics, and semiconductors are the focus areas. The Philippines is one of the most attractive pharmaceutical markets in the Asia-Pacific region. The Philippines is also richly endowed with metallic resources, and the country has attracted many foreign companies to its land. BHP and Sumitomo Metal Mining Co Ltd are among them. Moreover, the arrival of foreign players has helped the country to capitalize on its shipbuilding potential. The island nation is the fourth-largest shipping country (after China, South Korea, and Japan).
The Philippines’s electronic industry has been active since the mid-1970s when the companies from the West were looking to relocate production facilities to combat the issues of rising costs of production. The electronics industry in the Philippines has only grown bigger and better since then and is an important component of the nation’s economy in terms of job creation, tax contribution, exports, household income, and share in the GDP.
The agribusiness is mainly composed of processed fruits and vegetables, seaweeds, tropical fruit purees and juices, fresh tropical fruits, mango seed oil, sugar plantation, bioethanol, biofuels, and coco methyl ester.
BPO-Driven Service Sector
The service sector of the Philippines overtook the industrial sector in terms of contribution to the GDP during the early 1980s, increasing from 36% in 1980 to 60% today. The services sector now employs 56.7% of the country’s workforce, which is more than the agricultural and industrial sectors combined.
Within the service sector, business process outsourcing (BPO) has played a significant role in sector growth. The Philippines was able to grow its BPO sector due to having professionals that spoke the languages necessary, partly due to the interest in U.S. culture, of which the country is the Philippine's largest BPO market, and the customer service focused aspect of the professionals in the industry.
The second important segment within the service sector is tourism, which has a long history of moderate growth. Tourism in the Philippines has not been able to tap its resources optimally and has lagged behind its regional cousins (like Singapore, Indonesia, and Thailand) in attracting international tourists. Inadequate infrastructure (airports, poor rail and road connectivity), insufficient tourist services and facilities are among the chief reasons for this.
Another segment is export services, which include the services delivered by Filipinos working outside the country as permanent, temporary, or irregular migrants. The remittances by Filipinos working abroad have grown substantially over the years. Their jobs have also undergone a structural change from low-end service jobs to more professional jobs that require higher education skills.
Remittances from abroad continue to be strong at 10.2% of the total GDP in 2018. This was 8.5% in 2000, 3.3% in 1990, and 1.93% in 1980. The emergence of the BPO industry is seen as a driver of consumer spending and employment generation on the back of strong foreign earnings. This is turning out to be a good alternative mechanism for the nation. The expanding base and growth prospects of the BPO industry will not only boost the service sector in the country but could also persuade some of its people to return home while combating the threat of decline in remittances from its people abroad.
The Bottom Line
For any economy to surge ahead, a balanced and harmonious growth of agriculture, industry, and services sectors is quintessential. Once these are accomplished, improvements in tertiary sectors of the economy follow quite naturally. For many decades, the Philippines has lagged behind its more affluent Southeast Asian and East Asian neighbors in terms of economic and social development. But those days are gone. The Philippines today appears to be firmly on the path of growth and sustainability.