Development-At-Work Series

30 ADB’s Norio Usui on inclusive growth for the Philippines, 12 April 2012

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12 April 2012

Mr. Norio Usui, Senior Country Economist of the Asian Development Bank (ADB) asserts that the Philippines’ can actually affect inclusive growth if the economy can finally and truly “walk on two legs” instead of just one. That one leg being the booming BPO industry, the impact of which is limited to educated labor.

Speaking at a Center for Development Management Development-At-Work forum entitled Philippine Economic Outlook and Development Challenges, Mr. Usui worked from the Philippines’ 2011 economic numbers and revealed that there were two factors that contributed to the modest economic growth of last year. One was the fact that the Philippine government’s focus has been on its anti-corruption drive instead of on spending and budget allocation; second is the shutting of the door on exports.

2011 numbers also reveal that services remain as the dominant driver, where the Philippine economy remained strongly dependent on services. Meanwhile, industry growth slowed down and agriculture only modestly recovered. Speaking about tax collections, Mr. Usui also highlighted the fact that while tax collection is good, because government spending was so low, that was where the taxes went.

This brings to light the key factors in GDP Growth Outlook. According to Mr. Usui, there was very strong private consumption which affects both GDP growth, and is supported by OFW remittances which continue to be the buffer of the Philippine economy. There was also higher government spending particularly in infrastructure, as there was high business and consumer confidence, too. There are also early signs of merchandise export recovery, and services exports are slowly becoming key contributor to account earnings.

Mr. Usui though asserts that the Philippine economy’s dependence on particular industries such as electronics limits productivity and growth. Thus it is clear that there are structural weaknesses here, where the link between growth and development is weak, where there is rising growth but declining investment, and the diversification of exports are limited. It’s because of these problems that long-term development still seems like a puzzle, where the root causes for the modest and stagnant growth rates aren’t clear.

It’s in light of this that Mr. Usui draws the picture of possibilities for the Philippines, using ideas of growth and structural change. According to him, growth “is not just more of the same” given that structural change “is about transformation of the economy by transferring resources from less productive activities to more productive ones.” The latter can be done by diversifying production, upgrading production and increasing labor productivity.