Thursday, January 8, 2015

“Beauty is in the eye of the beholder”

The prognosis of PHL as an economy or a people or a nation is in our hands. But we have to look ahead and move forward in our worldview. The science of the mind, fairly recently (20 years ago), postulated that the brain is not static. I’ve been asked if a people can change its culture, and if everything starts in the mind, then the question is moot given the state of the science, i.e.,“neuroplasticity – it has replaced the formerly-held position that the brain is a physiologically static organ, and explores how – and in which ways – the brain changes throughout life.” [Wikipedia]

Halfway around the world, the euro zone has stagnated since 2011, reports The Economist. And it’s in times like this when men are separated from the boys. I’ve enjoyed the way of life in Europe but behind it all is a continent that has yet to confront its major challenges. And these are mostly developed economies and have had a history of prosperity. And if Europe is to regain its old glory, it can’t sit still. Even Pope Francis has waded in. That Europe must reinvigorate itself (welcome immigrants) instead of retreating into its shell (being parochial) and be disoriented. It needs to reinvent itself and that demands visionary leadership.

There’s the problem of the future of the euro and the continuing debate on how to manage errant countries like Greece – to stay with austerity measures and force discipline as prescribed by the Germans, or not. In the meantime, Europe appears tired and weary like the Italians; and Spain still has staggering unemployment (24%). And the Brits appear ambivalent about their being part of the EU, similar perhaps to the ambivalence of the Scots about their being part of the UK.

The problem is once mediocrity rears its ugly head, it’s vicious like a plague. And it stands to reason the world believes this is the Asian century. I gave a French airport staff member a piece of my mind as we’re going through security check at Charles de Gaulle. “This ought to be an efficient process; look at this line of people that can miss their connections.” Everyone had sighed in despair as those manning one of the two x-ray machines simply shut it down. “You all have to see how the Singapore airport is run.” Traveling around Europe, I have resigned to the reality that a checked bag would most likely not arrive at my destination with me, and make certain that my carryon would bail me out at least for a day.

On the prior leg that started at London Heathrow, they were using two x-ray machines and Terminal 4 is many times bigger than Sofia’s Terminal 2, where they used 3 machines. In short, in Europe they don’t run the airports like they do in Singapore. And I can also point to Warsaw, not only Sofia, both constantly raising the level of their game. These newer economies are showing tired and weary Europe that the world is poised to turn upside down.

And back to PHL. How do we stay abreast with the better players? For example, every time I’m back in Eastern Europe, I would relate to them how vulnerable the older economies are. “We have to stick it to the old guard. They cannot lead the world forward. And that explains why the world is in a funk. If we are to be a contributing member of society, we have to be committed to doing better. And the rewards are there too, let’s not forget. Competition is not a bad word, it makes the world a better place. And that means being committed to excellence.”

We all like the Philippines although we complain about corruption (e.g., FVR about Tagaytay and, of course, Sen. Miriam Santiago that we're a failed state), about persistent poverty, about traffic (including FVR and Senate President Drilon), and about this (e.g., NAIA and now Cebu Pacific) and about that (e.g., infrastructure like power, EDSA, LRT/MRT, etc.). And while we have to give an “A” for effort every time public servants deserve it, we cannot assume that all is well. In reality we are being left behind! We've the distinction of being a Third-World nation for the longest time – and thus our persistent poverty!

Yet indeed beauty is in the eye of the beholder. “Manufacturing to drive investments growth–DTI,” Catherine Pillas, Business Mirror, 6th Jan 2015. And not to be outdone, we have this from Manila Bulletin: “Editorial: Agriculture remains our greatest hope,” 7th Jan 2015.

Earlier this blog discussed why many of us Pinoys thought that our economic fundamentals are solid even when Moody saw it differently, i.e., we still owe it to our OFWs. Although we like to see it as the glass being half full? But what are our vital signs saying? It’s another way of expressing Pareto’s principle.

Investments: For sure, from 6 years ago when this blog started, PHL’s gross investments have risen from the 14%-range to the 20%-range. And we have in fact caught up with Malaysia (percentage-wise) but still lag Thailand and Vietnam, with the latter doing north of 30%, though not surprising being still an “emerging market.”

Industry/manufacturing: We have our work cut out for us. For example, precisely because of our OFWs, services account for over 57% of GDP while industry is much lower, close to 30%; and in Malaysia and Thailand industry is stronger at the 40%-range with Vietnam not far behind. (Thailand, in fact, has practically balanced industry share of GDP with that of services. And as the rest of the vital signs of Thailand would suggest, they are miles ahead of PHL. And here’s a little spiel on benchmarking: GM once upon a time didn’t bother to benchmark against competition. But Toyota and Hyundai would both strip down cars from the West and, not surprisingly, they would come out with truly competitive if not better products. We Pinoys like “to see the glass as half full” but that’s not the way Toyota and Hyundai became major competitive global players.)

Savings rate: Where will investments for industry come from? Internally from our own savings and externally from FDIs. And how do we stack up? Our savings rate is, unfortunately, the lowest at almost 30% while the 3 countries referenced above are at more than 30% with Vietnam doing almost 40%.

FDIs: And with FDIs, as we all know, we are an even bigger disappointment, taking merely a fraction of what these countries have under their belts: Vietnam with over 2.5 times our accumulated FDIs, Malaysia over 4 times and Thailand almost 6 times.

What about Agriculture? Malaysia and Thailand are like us with agriculture accounting for 11%-12% of GDP and with Vietnam showing the way at almost 20%. But which countries have more legs in their agriculture, meaning, whose produce travel the farthest because they address the needs of more people and thus have a wider market?

“The United States is one of the largest trade partners of the Association of Southeast Asian Nations,” US-Asean agri-food trade: Who is faring better (?), Roland T. Dy, Philippine Daily Inquirer, 5th Jan 2015. “The Philippines faces challenges in the US market. The level of US imports is far lower than its Asean peers, except for Singapore, a non-agricultural country. While it is third in vegetable oils, it is behind in rubber products, fresh seafood (shrimp and fish), processed seafood, coffee and many others . . . Much needs to be done if the country can expand its agri-food exports, promote off-farm and non-farm jobs, and create a vibrant agro-industry . . . More than ever, this country needs more resolve and problem solvers.”

Where do we net out? In industry and agriculture we indeed lag our neighbors. And with a low base number in manufacturing, growth trends would appear bigger than life and manufacturing has yet to be a major driver of the economy – e.g., like electronics which account for over 40% of our $50-billion+ exports. Sadly, our exports are still only a fraction of those of the 3 countries. And electronics have its own limitations being intermediate products or semiconductors. We’re not into competitive finished products as in consumer electronics that can command a wider market.

That's a roundabout way of explaining Pareto's principle: OFW remittances, the BPO industry and electronics would represent a big chunk, a quarter, of GDP. But they’re not the ideal portfolio given OFWs and semiconductors. Science 101 says we need another hypothesis – a paradigm shift, another portfolio. Enter the six industry winners from the JFC . . . But where is the leadership – it won’t come from an oligarchic economy?

At the end of the day, we must step up to reality! ‘Political will’– does it exist (?), Mike Wootton, The Manila Times, 6th Jan 2015. “. . . [T]here has to be within the whole of government a better focus and strength of political will to do what is right for society despite the objections of the powerful.”

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