By ANDREW JAMES MASIGAN
June 11, 2012, 3:10pm
I personally thought that the prognosis of these financial institutions did not do us justice—4.2 percent was too low considering that exports made a dramatic rebound over the first quarter, as did OFW remittances and tourism receipts. Even government spending was on overdrive given the effects of the R72 billion stimulus package launched last year. All things said, I thought that growth of 5.2 to 5.7 percent was about fair.
DTI Sec. Greg Domingo also thought the IMF sold us short. When I spoke to him last month, he said that most financial institutions only take global economic trends into consideration and not the latest developments in the local landscape. The Secretary was confident that we would surpass the IMF forecast. His estimate back then was between 4.5 to six percent.
Last week, NEDA finally announced our first quarter stats and pegged our growth at 6.4 percent. This exceeded everyone’s expectations including Sec. Domingo’s most optimistic forecast. Even better was that we are proving the IMF wrong by a long shot. Not only did we outdo the bank’s forecast by as much as 2.2 percentage points (equivalent to R32 billion worth of goods and services), we also outperformed Vietnam which grew by just four percent; Thailand, which grew by .3 percent; and the current darling of the investment world, Indonesia, which grew by 6.3 percent. Redemption, even a tentative one, is sweet indeed.
A New Respect
But even before our first quarter stats were released, I could already feel a new “curiosity”, and shall I say, respect, for the recent advances we’ve made as a nation. No doubt, the good news about our reform program is resonating in many business circles overseas.
Last week, I attended the Global Leadership Conference of the Entrepreneur’s Organization (EO) in Manama, Bahrain, a gathering of at least 300 prominent entrepreneurs from 37 nations. The Philippines has always been an active chapter in the EO circuit being one of the oldest chapters in the region. I have the honor of being one of the founding members in the Philippines, having helped launch the organization in 1996.
E.O. has several international conferences every year and the Philippine chapter never fails to be represented. I myself have attended more conferences than I can count. For some reason, we Filipinos have become known as the most approachable and fun chapter, having the unique ability to connect with fellow Asians, North Americans and Latinos. It just comes naturally to us, perhaps even to the chagrin of other chapters.
But despite being “popular”, we’ve never seen a genuine interest from our fellow entrepreneurs on the goings-on in the Philippines. As far as I can remember, I have never interacted with people interested in our economy or how it is to do business here. Not until Manama, Bahrain.
Throughout the conference, I was pulled aside, on several occasions, by colleagues from Latin America, Europe and the States to share my views on our economy and the opportunities that may be available for them. This has never happened before. Apparently, news is reverberating that the Philippines will be the next investment-grade economy, following Indonesia. Typically, keen entrepreneurs want to position themselves before everyone else.
We made a bid for the Philippines to host the next EO Global Leadership Conference in April 2013 and was in competition with Thailand and Japan for the privilege. I am proud to announce that we won by a landslide. It seems those in the know want a piece of the Philippines now.
Drivers Of Growth
I was glad to see that this time around the country’s growth was driven from multiple sectors and not just from one source. This tells me that the economy is growing holistically. Still, I am worried that foreign direct investments still contribute pittance to our overall growth equation. Fine, it increased 154 percent in the first two months of the year, bringing in $850 million in fresh capital, but it is still not enough to make a significant dent in our growth numbers.
In any event, growth is growth and I am just happy that economic expansion exceeded population growth two times over. For curious minds like mine who want to know where our growth stemmed from and how each area of the economy fared, here is a summary according to subsector.
The services sector, which contributes more than half of total domestic output, grew by a healthy 8.5 percent. Among its subsectors, wholesale and retail grew by 8.9 percent, other services grew by 10.5 percent, and real estate grew by 7.9 percent. Supporting growth in this sector is the 1.15 million tourist arrivals, which provided increased economic activity in transportation, communication, hospitality (hotels and restaurants), as well as recreational, cultural and sporting activities.
The industrial sector, on the other hand, grew by 4.9 percent. Again, a closer look into its subsectors reveal that manufacturing grew 5.7 percent, primarily due to strong demand here and abroad for Philippine-made furniture, apparel and food products. Utilities grew by 8.0 percent and construction by (only) 3.6 percent. Apparently, private construction contracted by -9.9 percent and was only offset by substantial increases in public construction.
After several quarters of decline, merchandise exports rebounded and grew by 7.1 percent while service exports (mainly from the BPO industry) grew by 11.1 percent. Net exports receipts was the second highest contributor to growth after the services sector.
Agriculture was somewhat a disappointment, growing by only one percent. As usual, OFW remittance was our main source of liquidity, growing at 5.4 percent, pumping in $4.8 billion into the system. No surprise household consumption grew by 6.6 percent.
All factors taken into account, our impressive growth would not have been possible without the massive increase in government spending. Thankfully, DBM’s early release of budget allocations last January paved the way for government agencies to fast-track the implementation of their respective infra projects. This allowed government spending to increase by 24 percent.
To the man on the street, all these facts and figures translate to 1.101 million new jobs and increased dispensable income per household.
Can Growth Be Sustained?
Again, some financial institutions think not. Both HSBC and the DBS Group think that the worsening situation in Europe and our dicey relations with China could weigh heavy on our export performance for the rest of the year. As mentioned earlier, net exports are our second driver of growth so a damper on this could drag down our performance for the entire year. HSBC’s regional economist, Trinh Nguyen, doubts whether government can sustain its high spending rate. While some financial institutions like Japan’s Nomura Securities have increased their 2012 growth projections for the country to 5.1 percent, HSBC maintains that we can only manage 4.4 percent growth for the entire year.
Even if government set a fighting target of between five to six percent growth, both NEDA Sec. Balisacan and DTI Sec. Domingo think we will surpass it.
Their optimism is predicated on our performance in April and May, a period where Europe was in the doldrums of its crisis. NEDA noted that despite the serious credit crunch in the western hemisphere, initial data indicate that our exports in fact increased so much so that they are looking at a 10 percent year on year uptake.
In addition, Sec. Baltican believes there is still considerable room to accelerate government spending. On top of the continued capital expenditures of the DPWH and the DOTC, there are now 22 multi-billion projects ready for bidding at the PPP Center (from just under five projects this time last year). As to whether they will actually see public bidding this year or not is another story. The point is, the Secretary stresses, the projects in the PPP pipeline will be rolled out eventually and the economy will surely feel its ripple effect.
On the social infrastructure side, Balitacan disclosed that an additional R9.02 billion will be spent over and above what was already allocated in the national budget, on projects to benefit public health, education and social welfare. Balitacan believes that this should be sufficient to cover any negative effect the Eurozone crisis might bring.
For his part, Sec. Domingo is optimistic that substantive investments will begin to pour in this year. He has been busy going on road shows and entertaining investment missions into the country, with very promising results. He tipped on a new multi-billion dollar investment in the shipbuilding industry due to be finalized in the next few months.
And so, it all boils down to HSBC’s word against that of our government technocrats. As we have done with the IMF, I hope we prove HSBC wrong yet again.
Andrew is an economist, political analyst and businessman. He is a 20-year veteran in the hospitality and tourism industry. For comments and reactions, e-mail andrew_rs6@yahoo.com. Follow Andrew on Twitter @aj_masigan.
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