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An East Asian Renaissance Philippines Manila June 4, 2007 Philippines: Trade Reduction in tariffs since the late 1980s from more than 23 to less than 5 percent Plugging into regional trade networks, and moving up the value chain:

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philippines trade
Philippines: Trade
  • Reduction in tariffs since the late 1980s from more than 23 to less than 5 percent
  • Plugging into regional trade networks, and moving up the value chain:
    • Share of intraregional exports up from 42 to about 50 percent of total since 1990
    • Share of machinery in exports up from 20 to 66 percent
    • Share of parts and components trade is more than 56 percent, up from 18 in 1990.
    • Philippine exporters compete with countries with per capita incomes of $12,000 PPP-adjusted dollars, almost three times its own (adjusted) income
  • Some displacement by China in third markets, but Philippines is increasing exports to China
    • More displacement than Thailand and Indonesia but less than Malaysia
    • Share of China in exports has gone up from 1 to 5 percent since 1990

An East Asian Renaissance

philippines finance
Philippines: Finance
  • Bank assets, equity markets, and bond markets have not grown as rapidly as for neighbors since 1997
    • Bank assets rose from 56 to 63% of GDP (Emerg. EAP: 95-150)
    • Equity market capitalization rose from 31 to 40% (37-71%)
    • Bonds outstanding rose from 22 to 37% (Emerg. EAP: 18-40%)
  • Moderate regional integration in finance
    • Philippine equity markets have become more integrated with countries in the region since 1998
    • About 40 percent of FDI flows into the Philippines are intra-regional since 2000
  • But access to finance does not seem to be a major problem for firms in the Philippines
    • Less than 15 percent of firms cite this as a problem

An East Asian Renaissance

philippines innovation
Philippines: Innovation
  • Main source of new technology is new machinery
    • FDI and purchase of foreign technology (large royalty payment)
  • Weak overall R&D effort at about 0.1 percent of GDP
    • Has fallen from 0.2 percent in 1992
    • Malaysia is five times more, China ten times more
  • Share of business in R&D is about 60 percent of total
    • Share of government is about 20-25 percent
    • Philippines does not rely much on universities, and industry-university linkages are weak
  • Poor innovation climate in general
    • Credit market depth low
    • Researchers per million residents (50) lowest in emerging East Asia;
    • Quality of research institutions low
  • Philippines has invested in quantity of higher education; it should pay more attention to R&D in firms and universities
    • Else it may be difficult to maintain strong trade performance

An East Asian Renaissance

philippines urbanization
Philippines: Urbanization
  • High urban share in population, rising rapidly
    • At 61 percent, close to Malaysia’s ratio at 65 percent, though its income is less than one third that of Malaysia
    • Urban population will grow at 2.8 percent per year, rising from 52 million to 88 million by 2030, or by about 1.5 million every year
  • Cities in the Philippines are showing strains
    • Manila’s livability is about what can be expected of countries at its per capita, but
    • Slums comprise a larger share of the Philippines’ urban population than the East Asian average
  • Sustainable city development requires a tailored approach
    • Urban development is of three institutional types: comprehensive (China), mixed metropolitan (Vietnam), and fragmented (Philippines)
    • For the Philippines, the solution lies in greater private sector and community involvement

An East Asian Renaissance

philippines cohesion
Philippines: Cohesion
  • Modest progress in reducing poverty levels since 1990
    • At $1/day, noticeable decrease: from about 20 percent to 10 percent today (12 to 9 million poor people)
    • At $2/day, small increase (34 to 35 million), though ratio fell from 52 to 42 percent
  • Increase in consumption inequality since 1990
    • Philippines now has highest income inequality among East Asia’s middle income countries
  • Progress in human development indicators, but wide spatial differences persist
    • Income: Rural-urban gaps high; widened between 1990-2000
    • Human development: Large rural-urban and other spatial gaps

An East Asian Renaissance

philippines corruption
Philippines: Corruption
  • Corruption levels are high
    • About what to expect from a country with Philippines’ per capita income, or somewhat lower (Malaysia better than expected)
    • Decentralization can exacerbate corruption in the short term
  • Government effectiveness are better than what would be predicted from its control of corruption index
    • For public service delivery
    • For regulation of private sector
  • But corruption is seen as a constraint to enterprises
    • More than one out of three firms in the Philippines see it as a severe constraint to doing business

An East Asian Renaissance

philippines
Philippines
  • Is integrating strongly into regional production networks
    • Intra-industry trade
  • Must strengthen innovation to maintain this integration
    • Research effort and institutions
  • Lags in all aspects of domestic integration
    • Urbanization
    • Inequality
    • Corruption

An East Asian Renaissance