Philippines is the third largest economy in ASEAN behind Indonesia and Thailand. It has an increasing urbanization, a growing middle-income class, and a large and young population.
Amidst global uncertainties, the economy is growing strong. It grew by about 6.2% in 2018. This makes it one of the strongest performers in East Asia and Pacific region.
The Services sector, the Industry sector and the Agriculture, Hunting, Forestry and Fishing sector accounted for 57.8%, 34.1% and 8.1% respectively of Philippines' GDP in 2018.
The Government has created plans namely Ambisyon 2040 and The Philippine Development Plan 2017-2022 to improve the economy and lives of its citizen. Ambisyon 2040 has a long-term vision to bring down poverty and improve the lives of the poorest segments of the population.
1) It has a young and growing population; poverty levels are declining
Philippines has the third youngest population in the region. 30% of Filipinos are under 15 and the median age is 26. It also has a growing population. Its younger population is also becoming increasingly educated. It has an increasingly attractive domestic market.
It also has a very high literacy rate. The entire population has a 96.3% literacy rate. The Philippines has recognized the necessity of English language proficiency and pushed the language as an essential skill for their workforce. It helps them connect better with countries globally.
According to World Bank, poverty rate in the country has also declined from 26.6% in 2006 to 21.6% in 2015. There are more well-paying jobs which reduced poverty.
Increased wage income and the movement of workers out of agriculture, transfers from government social programmes, and remittances from domestic and foreign sources were major forces in the poverty decline over the decade. But there is still a lot to do for poverty in the rural areas.
The World Bank recommends for the Philippines Government to improve productivity in all sectors, equip Filipinos with skills needed for the 21st century economy, invest in health and nutrition, focus poverty reduction efforts on Mindanao (where there are frequent fighting) and manage disaster risks.
According to CEIC, private consumption in Philippines has risen to 76.8% of nominal GDP in March 2019. This figure is the highest in the last 10 years. Private consumption is the value of consumption goods and services acquired and consumed by households. It is a prime indicator of economic well-being of households.
2) Government is upgrading infrastructure to support economic growth
Insufficient infrastructure has been a major constraint to economic growth and poverty reduction in the Philippines. According to World Bank, Philippines is currently ranked 102 and 96 out of 141 countries for transport infrastructure and utility infrastructure respectively.
The current administration recognises the country's critical need of infrastructure. It acknowledges the need to ramp up its spending to sustain the country's economic momentum. It has announced a "Build, build, build" agenda in its Philippines Development Plan 2017 - 2022.
There are a total of 4,490 infrastructure programs and projects on transportation, water resources, energy, social, information and communications technology (ICT), and other public infrastructure. The total target investment is PHP (Philippines Pesos) 7 trillion (~USD 140 billion).
Without the required infrastructure, it is difficult for Philippines to connect supply chains and efficiently move goods and services. As an example, its MRT is operating at 142% of its designed capacity. Inadequacy of mass transit has partially caused road congestion. Most roads are already operating at close to full capacity.
The investment in infrastructure will ensure Philippines has the right foundation for economic growth.
It will also help promote inclusive growth. New roads, bridges and airports are expected to connect impoverished communities to Manila and thus bringing opportunities for better jobs.
3) Offshoring is growing rapidly in Philippines
The services sector is one of the fastest growing sector because the BPO is the fastest growing industry in the Philippines today. Companies in English speaking countries have been utilising Philippine-based outsourcing providers for over two decades because they have proven themselves to be powerful, efficient, and provide a quality product.
Philippines is ranked second in the BPO worldwide, just after India. Its growth is largely the reason the service sector in Philippines is increasing in terms of contribution to GDP. The BPO boom in Phillipines is led by demand for offshore call or contact centers. Finance BPO is the second largest area.
According to Philippine Economic Zone Authority (PEZA), there are 788 BPO companies composed of large and SMEs. The US and Asia (Asia-Pacific) remain the top markets that many BPOs cater to.
But automation is threatening BPO jobs in Philippines, where most jobs consist of low-level transactional jobs. This is because machines are now able to replicate some of the tasks including customer relations. There are discussions on reskilling if automation takes over the jobs.
Philippines is experiencing one of its strongest economic growth. To continue its momentum, it is placing emphasis on infrastructure development. This will help improve economic development and reduce poverty, which is similar to China's strategy. China focused on infrastructure development for more than three decades to drive economic growth and it brought them success.
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References
Doing Business in the Philippines, Outsourcing in Philippines: The IT BPO Industry, https://doingbusinessinthephilippines.com/offshoring-outsourcing-it-bpo-industry-in-the-philippines/, published 17 March 2019
Manila Bulletin, PH should take advantage of youth population to effect change, says UN, https://news.mb.com.ph/2018/09/16/ph-should-take-advantage-of-youth-population-to-effect-change-says-un/, published 16 September 2018
World Bank, Philippines Poverty Rate Declines, Well-Paying Jobs and Opportunities Needed, https://www.worldbank.org/en/news/press-release/2018/05/30/philippines-poverty-rate-declines-more-well-paying-jobs-and-opportunities-needed, published 30 May 2018
World Economic Forum, The Global Competitiveness Report 2019, http://www3.weforum.org/docs/WEF_TheGlobalCompetitivenessReport2019.pdf