Monthly Archives: March 2013

What we need are Jobs, Jobs, Jobs

Like any other country be it the US, the European Community or even Australia, the Philippines needs to create more jobs for the many still without. So while strong GDP growth is always good, matching jobs growth is even better.

From BusinessWorld

By Benjamin Diokno

March 05, 2013

Of policy makers and joblessness

THE PHILIPPINE government is committed to strong, sustainable and inclusive growth. The latter means that the poor should not be left behind in the development process. Since the government does not collect annual poverty incidence data, the measure that comes nearest to individual welfare is employment. A decent job gives an individual a more than even change that he won’t be left behind in the development process.

Thus far, the Aquino III administration is losing the war against unemployment. Employment growth which averaged 2.8% in 2010, when Aquino took power, was significantly down, to 1.2% in 2012.

In 2010, the number of new jobs generated was 974,000. This was down to 430,000 in 2011. Since 1.1 million new workers join the labor force every year, and rising, such rate of employment generation is simply inadequate.

In general, a strong economic growth leads to the creation of a lot of decent jobs. But not always. Last year’s economic growth was job-losing: the economy expanded by 6.6%, yet some 882,000 jobs disappeared. Clearly the unexpectedly strong economic expansion did not benefit a lot of Filipino workers and their families.

In comparison with its ASEAN-5 peers, the Philippines has the worst unemployment rate: 7.0% compared with Indonesia’s 6.4%, Vietnam’s 4.5%, Malaysia’s 3.1%, and Thailand’s near full-employment at 0.7%. Thailand which grew the least in 2012, managed to keep unemployment low at 0.7%.

Moreover, having a job does not necessarily guarantee a good life. The quality of the job matters. “With the significant proportion of working poor in the country… having a job is not a guarantee of being spared from poverty, particularly if [those] employed are ‘underemployed,’” the Bureau of Labor and Employment Statistics (BLES) said. (see table)

Indeed a large chunk of the employed work force is considered underemployed — working less hours, looking for a job that would provide more hours, and, in many cases, looking for a better job. The underemployment rate has worsened: 18.8% in 2010, 19.3% in 2011 and 20.0% in 2012.

The sum of the unemployment rate and underemployment has deteriorated since Aquino took over. It was 26.2% in 2010, 26.3% in 2011 and 27.0% in 2012. Translation: Now, close to three out of 10 who are in the labor force, are either unemployed or underemployed.

One can’t argue that less are being employed because those who are employed are working longer hours. On the contrary, the mean hours worked has edged down: 41.7 hours in 2010, to 41.1 hours in 2011 and 2012.

The quality of employment needs to improve to ensure that economic growth is felt by the marginalized workers.

Joblessness is especially harsh for the young. Among the unemployed, workers 15 to 34 years old account for 45.7% in 2010, 44.5% in 2011, and 43.8% in 2012. A slight improvement is noticeable, but still close to half of the unemployed are below 34 years old. Young workers who can’t find a job, especially after completing their high school or college education, could be permanently scarred in their lifetime.

Unemployment among the educated is rampant. Some 41.3% of the unemployed have either post-secondary education or college undergraduate or college graduate.

The challenge for providing jobs for Filipino workers is enormous. It is estimated that some 14.6 million new jobs have to created between now and 2016 in order to solve the unemployment problem in the Philippines.

The measures needed to create a lot of jobs are well known. The puzzle is why they are not pursued vigorously. The government has to accelerate the implementation of its stalled public-private partnership programs and public works projects provided for in the national budget. The Executive Department has to submit to Congress a higher budget request for public infrastructure, somewhere in the neighborhood of 5% of GDP.

The government should adopt the necessary reform measures in order to attract more foreign direct investments (FDIs) into the country. Some of these measures — relaxation of the 60:40 foreign equity rule for several vital industries and land ownership — may require amendments to the Philippine Constitution. FDIs will be the key to massive job generation.

Thus far, the Aquino administration is not focused on job creation. And because unemployment and underemployment continue to worsen, I won’t be surprised if the 2012 Family Income and Expenditures Survey results would show that there has been no improvement in the standard of living of most Filipinos.

Benjamin Diokno was secretary of budget and management from 1998 to 2001. He is professor of economics at the University of the Philippines School of Economics.

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Making good in 2013 for the long-run

Let’s hope this year some action is taken to make investing in the Philippines more fun.

From the Wall Street Journal

Investing: It’s More Frustrating in the Philippines

Manila needs to attract long-term investors before short-term money flees.


Few investment stories in Asia were quite as exciting as the Philippines last year. The headline growth rate increased dramatically, to 6.6% in 2012 from 3.9% the year before. And the government of President Benigno S. Aquino III, elected in 2010, launched several encouraging measures to tackle endemic corruption and jumpstart long-overdue public-works projects. Foreign capital has flooded into the Philippines. This is a boon for the Philippines, but also a significant challenge.

The problem is the kind of investment the Philippines is attracting. Nearly $4 billion flowed into its asset markets last year from hedge funds, mutual funds, pension funds and the like, fueling a greater than 40% run-up in stock prices. This portfolio investment may accelerate later in the year if, as is expected, the Philippines attains an investment-grade rating on its sovereign debt, which global investors would interpret as a sign of economic strength.

Although portfolio investment is often decried as short-term speculation, it does serve a useful purpose. A buoyant stock and bond market enables local companies to raise more capital at a lower cost to fund pro-growth expansion.

But as a coalition of foreign chambers of commerce note in a report released this week, the country’s $2 billion in foreign direct investment (FDI) in 2012—longer-term capital that builds factories, opens offices or expands retail stores—lagged both the Philippines’ intake of portfolio money and the FDI of its Southeast Asian peers. Although there’s some dispute about the precise numbers, by consensus the reality of direct investment falls short of the country’s potential.


AFP/Getty ImagesWorkers are seen at the warehouse of Nestle Philippines Tanauan Factory in Batangas.

The shortfall in direct investment could have debilitating consequences for the economy if Manila doesn’t address it. For one thing, it represents a serious missed opportunity to import foreign management expertise and competition to build a stronger economy. This is a necessary step to develop an economy that’s more resilient in the face of external shocks.

Meanwhile, the Philippines is hardly the only Southeast Asian country to experience an investment mania in recent years. Vietnam has found itself in the limelight several times. Indonesia was a global darling for a while. Those booms frequently turn to busts, and can do so very quickly since portfolio money is highly mobile.

Direct investment serves as a buffer against rapid portfolio outflows, since it operates on a longer time horizon. During the global financial crisis, for instance, Asia except Japan and China witnessed significant net outflows of portfolio investment, but only a somewhat slower rate of increase in direct-investment inflows, according to HSBC .

In essence, Manila is in a race against time to deepen its base of direct investment before portfolio investors find a new flavor of the month. Unfortunately, attracting portfolio money is relatively easy. Winning direct investment is a lot harder.

Consider some of the reforms Manila needs to undertake to boost long-term investment in key industries. The constitution prohibits foreign ownership of land, with residential condominiums being the only exception in practice. Foreigners wishing to buy property must find a local partner to formally own the land, and then sign a long-term lease with that partner.

Manila also maintains some of the most restrictive policies in Asia on foreign investment in specific industries. In areas such as telecommunications, electricity transmission, media and banking, the Philippines imposes tighter caps on foreign investment than its peers, according to the World Bank’s “Investing Across Borders” survey.

Such restrictions can have knock-on effects that work at odds with Manila’s other economic goals. The government is anxious to develop the tourism industry, and this should be a natural growth area. But since foreign hotel and resort developers can’t own their properties outright, they are less willing to invest in the Philippines—making it harder for the country to develop the high-quality facilities that attract more travelers from overseas. Lower-than-the-Asian-average caps on foreign ownership of airport operators and airlines deter foreign investment in transport services.

There are other examples of how investment protectionism affects even those industries that are open to foreign investment. Manufacturing is almost entirely open to 100% foreign ownership, but electricity transmission remains highly restricted and thus uncompetitive. This means that even though a potential direct investor can own his factory outright, he may well have to pay higher electricity prices if he builds his factory in the Philippines compared to other locations.

Mr. Aquino appears to understand this, or at least several of his high-profile appointees do. Trade Secretary Gregory L. Domingo said this week that the government is preparing legislation that would cut the length of the negative investment list of industries from which foreigners are barred. But such liberalization is invariably contentious, and will require concerted political will. Officials hope to pass reforms this year, but there’s no telling whether they will succeed.

That makes 2013 a high-stakes year for the Philippine economy. Continued low interest rates in the West and a probable credit upgrade for Manila will incline a growing number of long-term investors to give the Philippines a serious look. Manila needs to undertake the reforms that will leave those investors liking what they see.

Mr. Sternberg edits the Business Asia column.

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