As I have written in this space last week, the country’s two main sources of income are at risk – IT-BPOs and OFW remittances. The former from the widespread adoption of artificial intelligence (studies show that 50 percent of global remote interactions will be driven by AI by 2024) and the latter from new labor laws of advanced economies that allow immediate family members to emigrate along with the contracted worker. With family members abroad, the need to remit to the homeland is all but negated.
Cracks are beginning to show in our consumer-led economy and this is made evident by the poor 4.3 percent GDP growth in the second quarter. Foreign direct investments are down by 20.8 percent in January to May too. President Marcos cannot afford to simply rely on economic inertia and the breakthroughs of past administrations. The inertia is running out. Without preparation, he will be caught flatfooted as our current account deficit and debts balloon.
I am well aware that the Philippine Development Plan (2023-2028) and the Ambisyon Natin Development Plan (2015 to 2040) serve as roadmaps to attain our development goals. I have read them both.
We must remember, however, that the attainment of our development goals depends on the successful implementation of at least 2,000 reforms stated in these plans. Among them is to quash corruption, improve ease in doing business, improve economic competitiveness and many more.
We’ve been trying to enact these 2,000 reforms for 45 years, yet we still find ourselves relatively unsuccessful today. Our per capita income of $3,905 ranks 124th out of 192 countries evaluated by the World Bank. Sure, there have been some breakthroughs but let’s be honest – not even 25 percent of all the needed reforms have been realized in half a century. I doubt whether the pace will change.
So how do we get from per capita income of $3,905 to $20,000 in the fastest manner? Is there a way to turbo-charge our path to wealth?
Yes. Japan did it in the 50’s. South Korea and Singapore did it in the 70’s. Vietnam is doing it today. At some point in these countries’ development, their leader led the way towards economic transformation. From producers of agricultural products and basic goods, their visionary leaders boldly resolved to be producers of high-value products that competed on the basis of complexity and quality, not on price.
A country’s economic transformation need not encompass multiple industries. It’s all about specializing in niches and expanding from there. For South Korea, they started with shipbuilding and domestic electronics. For Taiwan, it was electronic components.
Done right, the positive effects of an economic transformation could be rapid. South Korea’s per capita income in 1987 was about the same as ours today. They attained high-income status with incomes of $13,450 in just eight years! Meanwhile, exports of high-value goods and services gave the Korean economy the capacity to import more capital goods without incurring perilous amounts of trade deficits. This enabled their economy to achieve high growth in a sustained manner.
With high-value industries operating in a country, workers engaged in medieval agriculture, the underground economy and low-paying services can migrate to factories that pay higher, offer health benefits and security of tenure. Incomes increase across the board, all on the back of higher value-added production.
We must face the fact that we Filipinos will never be rich if we continue to rely on basic IT-BPO services, remittances and jobs from our consumer-led economy. No call center agent, waiter or cashier can become a millionaire doing what they do. Neither will a farmer engaged in non-mechanized agriculture.
Note too that 99 percent of businesses in the Philippines are MSMEs. They are bereft of the capital, technology and expertise to compete on a global level and offer basic wages to their employees. While they are a source of employment, MSMEs cannot be the impetus to wealth generation.
An economic transformation involves embracing technology, innovation, competitiveness, productivity and advanced logistics. It’s about shifting our products from low-yield to high-yield. From call centers to robotic automation. From raw nickel to nickel batteries.
Successful countries in Asia, the Americas and Europe have all undergone this kind of economic transformation. We must do the same – and now is the ideal time, given our demographic advantage.
But how do we do it?
An economic transformation is championed by the President. He must decide to do it. He is the visionary and author of transformation. He drives transformation by clearly defining his vision. He inspires and empowers the agents of change, both in the public and private sectors. He unblocks developmental impediments by leveraging on his executive powers. He focuses on results and pushes the bar ever higher.
The President’s enablers in this transformation are the conglomerates, simply because they have the capital, management culture and expertise to compete globally.
As a matter policy, conglomerates must be encouraged to diversify away from rent-seeking businesses like malls, property development and utilities franchises and instead invest in the industries strategically identified by the President.
What industries can the Philippines find its niche in and go on to be the world leader and global vendor of it?
DTI Undersecretary Fita Aldaba and BOI managing head Perry Rodolfo have done extensive studies on this. Suffice it to say that the Philippines has the potentials to be a global leader in biotechnology and health care, robotic process automation, AI, renewable energy, maritime industries, machine learning, blockchain, electric mobility, among others.
The stakes are high. The economy can bust if the President leaves matters to the status quo. Conversely, he can be put the country on the fast track to a new stratosphere of wealth by championing an economic transformation. It is all up to him.