(This article illustrates why a fairly large and competitive domestic economy has not delivered for us an economy comparable to our neighbors.)
We can indeed count our blessings, among them: the monthly remittances from OFWs (Overseas Filipino Workers), our large population, our spirit of entrepreneurship. And pulling them together makes us proud of our resiliency as a people. (They also account for our domestic economy being larger than those of Malaysia and Thailand.)
Yet we talk with growing concern about our country and our alarming poverty rate. We realize that the positives in our economy merely allow us to eke out or survive amid the challenges we and the rest of the world are facing. And the picture becomes stark when we measure ourselves against other countries, not just the Asian tigers – as summarized below, i.e., where we stand against 7 other countries. Yet, they present to foreign investors great opportunity.
Is the psyche of a developing country one of survival? In developed countries they have the luxury to “think things through”?
For instance, when global electronics companies came over they viewed us as a piece of a broader manufacturing process; that piece where they would yield the best or the lowest costs. Yet that piece is an input – or an intermediate product, i.e., semi-conductors – as opposed to the final product. In short, we are not truly turning out high value-added products in the industry that is our biggest export. And hence from the outset competitiveness was not a factor in our export equation.
Indeed the electronics industry especially developing and producing high value-added products is a big challenge. But that is precisely why we should not go it alone. We need to partner with the right players or those that can work with us in developing and producing high value-added electronics products.
We may not necessarily win a partnership with Apple but given that they have demonstrated the ability to grow despite the current global economic crisis with their higher value-added products, it is the type of partnership that we ought to be pursuing. The iPod and the Mac are higher value-added products compared to the MP3 and the PC given better functionality and operating system flexibility, respectively, on top of their emotional appeal, i.e., “cool”; while the iPhone’s internet capability gives it higher value against other smart phones.
And in this type of partnership we need to put on the table the requisite elements to achieving competitiveness: from equity ownership to R&D (staffed by the right scientists not necessarily confined to ours; our recent partnership with Taiwan is laudable) to partnerships with world class universities to infrastructure to logistics to tax incentives, etc. That is how we can approximate global competitiveness as opposed to upfront imposing restrictions on ownership of educational institutions or restricting foreign professionals from practicing in the country, for instance? In an interconnected and highly competitive world we ought to keep pushing the envelope, i.e., widening our perspective instead of narrowing it?
For instance, as reported by the Economist (April 25th), Qatar and Kuwait are in talks with Cambodia to supply these oil-rich nations with food, being non-agricultural countries. The subject is controversial since it means allocating vast tracts of lands specific for the benefit of these countries – as much as 50,000 hectares – that will be appropriately developed to ensure productivity, i.e., with the requisite power supply, irrigation, roads and other supporting infrastructure as well as food processing. But in an interconnected world, more and more specific country needs would require cross-border mechanisms. And this means growing not declining competition.
Other investors who came to the Philippines saw the gaps in our infrastructure and which is why they chose neighboring countries over us. As an example, while we were beaming with pride about our export processing zones, now we realize that we only have a handful that is truly world class. A couple of them, as one columnist stressed, were courtesy of the US Armed Forces.
In short, as a developing country we don’t have the luxury of thinking things through like developed countries do? Because we are in a survival mode? While developed countries are in a problem-solving mode, in pursuit of the next big thing, e.g., the next killer app or product category?
Do countries then instinctively manage their economy for survival or success?
Our OFWs in generating billions of dollars are doing so because of the instinct to survive, i.e., there are not enough jobs locally to meet their needs? And yet we may have pinned our hopes on managing our economy from something that was not designed for success, i.e., the end may look enviable but the means in reality equates to draining talent. And talent is a key element in successfully managing an economy.
A fairly good population size is a blessing yet it can be a challenge especially when we cannot generate sufficient GDP to drive a dynamic and sustainable economic system; and instead yields an alarming poverty rate.
Given our GPD per capita at a low $ 3,300 for 98 million people the ongoing China argument to spur the global or the local economy does not apply? The global financial crisis has made us spend less and save more; and more and more are engaging in cottage industry. Consequently, as noted before, our domestic economy is larger than those of Malaysia and Thailand. China, given a GDP per capita of $ 6,000 and a population of over 1.3 billion people, can indeed aggressively drive their economy via local consumption. Hence, U.S. and other Western financial institutions are encouraging China to step up domestic consumption and to temporarily set aside the traditional Chinese family focus (or value) on savings, and China’s reliance on exports to the US.
We don’t have a lack of entrepreneurs: thanks to the remittances from OFWs. Our retail industry as evidenced by the number of malls that we have, has spawned countless entrepreneurs that supply the vast array of merchandise in these malls. And on a much broader setting, every other corner in our typical neighborhood is a business enterprise. But then again these businesses (e.g., cell phone SIM cards and load outlets) are driven by survival instincts? Some of them no doubt will succeed and probably join the ranks of our tycoons.
We talk about European and Asian versions of a market economy since the American model is probably not suited for us. Yet what we do instinctively is follow the US model, i.e., individual-driven initiatives. (And besides, the US is a well-developed economy and hence not the ideal model for us.)
As economists tell us, GDP is simply the aggregate of a country’s output of products and services. And to generate greater products and services the fundamental requisite is investment. And in today’s interconnected world, a new variable has emerged and that is, investment must likewise drive competitiveness, i.e., to win overseas markets.
If we examine the Singapore experience, they had a coherent game plan from the get-go: They wanted to become a regional hub and partnered with the oil companies to put up refineries that formed the core of their early industry. And they erected a modern port and airport and touted their ideal regional location. They started their industrialization efforts with light industries and had created an economic zone for the purpose and later moved up the value chain via higher value-added products.
Similarly they had a blue print to make Singapore a regional financial center, which they are today. And they are a model in providing housing to the average citizen that fuels the mortgage market. But there is no free lunch as Lee Kuan Yew told us; we need a foundation of discipline if we are to emulate Singapore.
Taiwan, on the other hand, worked with Western manufacturers to develop a manufacturing hub, first for consumer products and later for electronics and high-technology industries. Of course Taiwan benefited from the West’s two-China policy and thus was supported accordingly. But we have to credit the Taiwanese for taking advantage of their opportunity.
Today foreign chambers of commerce are talking to us, encouraging us to gear up and realize the potentials of the country. That’s the good news. They don’t view us like some exotic Caribbean or South Pacific islands that have been stereo-typed as simply a holiday resort for tired Western tourists.
What potentials are these foreign chambers seeing in the Philippines?
The writer went down the list of countries alphabetically, excluded those with very small or very large population and picked 8 familiar ones at random: Argentina, Malaysia, Peru, Philippines, Romania, Thailand, Turkey and Vietnam.
With the exception of Vietnam (whose population size is close to ours), we have the lowest GDP per capita in PPP terms or purchasing power parity. Vietnam has just about half of our GDP which is not surprising being a more recent entrant to the free-market system (and, of course, the Vietnam War). Yet, foreign investors are betting on them and have invested more in Vietnam than the Philippines; and they have more than two-and-a-half times our investment rate. In short, given the multiplier effect that economists tell us, Vietnam is poised to generate greater economic activity than we do. They already export more than we do.
And with the exception of Peru, we have the highest poverty rate among these 8 countries. Peru has a very interesting profile compared to the Philippines.
They have less than a third of our population and registers a GDP per person better than the Philippines, $ 8,400 versus $ 3,300 but with a lower total GDP, i.e., a function of population size. They have a larger investment portfolio at 24.4% of GDP against our 16.8%. And they also have a greater equity of foreign direct investments at $ 32.14 B against our $ 20.78 B.
But Peru’s economy is domestic-focused, much more than ours; their exports are at a low $ 33.27 B against our $ 49 B. (The rest of the countries have greater exports than the Philippines.)
And finally, Peru has a far bigger poverty problem than we do at 44.5% of population against our 30%. And similarly we have a slightly better distribution of income or Gini index of 45.8 against 49.8.
The bottom line: for Peru greater investments including foreign direct investments principally focused on the domestic economy do not equate to or yield lower poverty or better distribution of income. What it says in this instance is that exports have a far greater multiplier effect in a country’s economy than domestic activity. (And exports also explain why Latin America lags behind the Asian tigers in economic development.) This is not surprising since products geared for export must by definition be competitive and hence go through a more rigid development process generating incremental economic activity, i.e., they benefit from technology, research and development, higher value-added via a rigorous product-architecture modeling, etc.
(Product-architecture modeling is not new to us given our well-developed marketing discipline. Marketers constantly update their product architecture in search for more competitive offerings or higher value-added products. As an example, Jollibee has successfully competed against McDonalds by developing products that suit the local taste. They went up the value chain from the original McDonalds value-proposition: fast and convenience.)
And this brings us back to why Malaysia or Thailand, despite our larger domestic economy, have a far better economy than we do, i.e., higher investments geared for exports, greater GDP and lower poverty rate.
How can we then respond to the foreign chambers urging us to realize our economic potential? Can we follow the Singapore model of having a coherent game plan in pursuit of economic development?
Given the greater multiplier effect of exports, exports ought to be the starting point of our blue print. For instance, the foreign chambers see our current exports at a low $ 49 B against Thailand’s $ 178.4 B and Malaysia’s $ 195.7 B.
How do we build on our current export portfolio and volumes? Which of them give us a competitive advantage or conversely, which of them are at risk? In short, we have to build competiveness into our planning process and focus our efforts accordingly.
And how can our interaction with the foreign chambers look like? As spelled out before with regards to electronics? It can be the model we can use to pursue other potential export industries whether agri-business, BPO, etc.? And that means developing and producing high value-added products while putting on the table all the requisite elements for the right global players to partner with us; and as importantly to become truly competitive in today’s interconnected and highly competitive world?
We can indeed count our blessings, among them: the monthly remittances from OFWs (Overseas Filipino Workers), our large population, our spirit of entrepreneurship. And pulling them together makes us proud of our resiliency as a people. (They also account for our domestic economy being larger than those of Malaysia and Thailand.)
Yet we talk with growing concern about our country and our alarming poverty rate. We realize that the positives in our economy merely allow us to eke out or survive amid the challenges we and the rest of the world are facing. And the picture becomes stark when we measure ourselves against other countries, not just the Asian tigers – as summarized below, i.e., where we stand against 7 other countries. Yet, they present to foreign investors great opportunity.
Is the psyche of a developing country one of survival? In developed countries they have the luxury to “think things through”?
For instance, when global electronics companies came over they viewed us as a piece of a broader manufacturing process; that piece where they would yield the best or the lowest costs. Yet that piece is an input – or an intermediate product, i.e., semi-conductors – as opposed to the final product. In short, we are not truly turning out high value-added products in the industry that is our biggest export. And hence from the outset competitiveness was not a factor in our export equation.
Indeed the electronics industry especially developing and producing high value-added products is a big challenge. But that is precisely why we should not go it alone. We need to partner with the right players or those that can work with us in developing and producing high value-added electronics products.
We may not necessarily win a partnership with Apple but given that they have demonstrated the ability to grow despite the current global economic crisis with their higher value-added products, it is the type of partnership that we ought to be pursuing. The iPod and the Mac are higher value-added products compared to the MP3 and the PC given better functionality and operating system flexibility, respectively, on top of their emotional appeal, i.e., “cool”; while the iPhone’s internet capability gives it higher value against other smart phones.
And in this type of partnership we need to put on the table the requisite elements to achieving competitiveness: from equity ownership to R&D (staffed by the right scientists not necessarily confined to ours; our recent partnership with Taiwan is laudable) to partnerships with world class universities to infrastructure to logistics to tax incentives, etc. That is how we can approximate global competitiveness as opposed to upfront imposing restrictions on ownership of educational institutions or restricting foreign professionals from practicing in the country, for instance? In an interconnected and highly competitive world we ought to keep pushing the envelope, i.e., widening our perspective instead of narrowing it?
For instance, as reported by the Economist (April 25th), Qatar and Kuwait are in talks with Cambodia to supply these oil-rich nations with food, being non-agricultural countries. The subject is controversial since it means allocating vast tracts of lands specific for the benefit of these countries – as much as 50,000 hectares – that will be appropriately developed to ensure productivity, i.e., with the requisite power supply, irrigation, roads and other supporting infrastructure as well as food processing. But in an interconnected world, more and more specific country needs would require cross-border mechanisms. And this means growing not declining competition.
Other investors who came to the Philippines saw the gaps in our infrastructure and which is why they chose neighboring countries over us. As an example, while we were beaming with pride about our export processing zones, now we realize that we only have a handful that is truly world class. A couple of them, as one columnist stressed, were courtesy of the US Armed Forces.
In short, as a developing country we don’t have the luxury of thinking things through like developed countries do? Because we are in a survival mode? While developed countries are in a problem-solving mode, in pursuit of the next big thing, e.g., the next killer app or product category?
Do countries then instinctively manage their economy for survival or success?
Our OFWs in generating billions of dollars are doing so because of the instinct to survive, i.e., there are not enough jobs locally to meet their needs? And yet we may have pinned our hopes on managing our economy from something that was not designed for success, i.e., the end may look enviable but the means in reality equates to draining talent. And talent is a key element in successfully managing an economy.
A fairly good population size is a blessing yet it can be a challenge especially when we cannot generate sufficient GDP to drive a dynamic and sustainable economic system; and instead yields an alarming poverty rate.
Given our GPD per capita at a low $ 3,300 for 98 million people the ongoing China argument to spur the global or the local economy does not apply? The global financial crisis has made us spend less and save more; and more and more are engaging in cottage industry. Consequently, as noted before, our domestic economy is larger than those of Malaysia and Thailand. China, given a GDP per capita of $ 6,000 and a population of over 1.3 billion people, can indeed aggressively drive their economy via local consumption. Hence, U.S. and other Western financial institutions are encouraging China to step up domestic consumption and to temporarily set aside the traditional Chinese family focus (or value) on savings, and China’s reliance on exports to the US.
We don’t have a lack of entrepreneurs: thanks to the remittances from OFWs. Our retail industry as evidenced by the number of malls that we have, has spawned countless entrepreneurs that supply the vast array of merchandise in these malls. And on a much broader setting, every other corner in our typical neighborhood is a business enterprise. But then again these businesses (e.g., cell phone SIM cards and load outlets) are driven by survival instincts? Some of them no doubt will succeed and probably join the ranks of our tycoons.
We talk about European and Asian versions of a market economy since the American model is probably not suited for us. Yet what we do instinctively is follow the US model, i.e., individual-driven initiatives. (And besides, the US is a well-developed economy and hence not the ideal model for us.)
As economists tell us, GDP is simply the aggregate of a country’s output of products and services. And to generate greater products and services the fundamental requisite is investment. And in today’s interconnected world, a new variable has emerged and that is, investment must likewise drive competitiveness, i.e., to win overseas markets.
If we examine the Singapore experience, they had a coherent game plan from the get-go: They wanted to become a regional hub and partnered with the oil companies to put up refineries that formed the core of their early industry. And they erected a modern port and airport and touted their ideal regional location. They started their industrialization efforts with light industries and had created an economic zone for the purpose and later moved up the value chain via higher value-added products.
Similarly they had a blue print to make Singapore a regional financial center, which they are today. And they are a model in providing housing to the average citizen that fuels the mortgage market. But there is no free lunch as Lee Kuan Yew told us; we need a foundation of discipline if we are to emulate Singapore.
Taiwan, on the other hand, worked with Western manufacturers to develop a manufacturing hub, first for consumer products and later for electronics and high-technology industries. Of course Taiwan benefited from the West’s two-China policy and thus was supported accordingly. But we have to credit the Taiwanese for taking advantage of their opportunity.
Today foreign chambers of commerce are talking to us, encouraging us to gear up and realize the potentials of the country. That’s the good news. They don’t view us like some exotic Caribbean or South Pacific islands that have been stereo-typed as simply a holiday resort for tired Western tourists.
What potentials are these foreign chambers seeing in the Philippines?
The writer went down the list of countries alphabetically, excluded those with very small or very large population and picked 8 familiar ones at random: Argentina, Malaysia, Peru, Philippines, Romania, Thailand, Turkey and Vietnam.
With the exception of Vietnam (whose population size is close to ours), we have the lowest GDP per capita in PPP terms or purchasing power parity. Vietnam has just about half of our GDP which is not surprising being a more recent entrant to the free-market system (and, of course, the Vietnam War). Yet, foreign investors are betting on them and have invested more in Vietnam than the Philippines; and they have more than two-and-a-half times our investment rate. In short, given the multiplier effect that economists tell us, Vietnam is poised to generate greater economic activity than we do. They already export more than we do.
And with the exception of Peru, we have the highest poverty rate among these 8 countries. Peru has a very interesting profile compared to the Philippines.
They have less than a third of our population and registers a GDP per person better than the Philippines, $ 8,400 versus $ 3,300 but with a lower total GDP, i.e., a function of population size. They have a larger investment portfolio at 24.4% of GDP against our 16.8%. And they also have a greater equity of foreign direct investments at $ 32.14 B against our $ 20.78 B.
But Peru’s economy is domestic-focused, much more than ours; their exports are at a low $ 33.27 B against our $ 49 B. (The rest of the countries have greater exports than the Philippines.)
And finally, Peru has a far bigger poverty problem than we do at 44.5% of population against our 30%. And similarly we have a slightly better distribution of income or Gini index of 45.8 against 49.8.
The bottom line: for Peru greater investments including foreign direct investments principally focused on the domestic economy do not equate to or yield lower poverty or better distribution of income. What it says in this instance is that exports have a far greater multiplier effect in a country’s economy than domestic activity. (And exports also explain why Latin America lags behind the Asian tigers in economic development.) This is not surprising since products geared for export must by definition be competitive and hence go through a more rigid development process generating incremental economic activity, i.e., they benefit from technology, research and development, higher value-added via a rigorous product-architecture modeling, etc.
(Product-architecture modeling is not new to us given our well-developed marketing discipline. Marketers constantly update their product architecture in search for more competitive offerings or higher value-added products. As an example, Jollibee has successfully competed against McDonalds by developing products that suit the local taste. They went up the value chain from the original McDonalds value-proposition: fast and convenience.)
And this brings us back to why Malaysia or Thailand, despite our larger domestic economy, have a far better economy than we do, i.e., higher investments geared for exports, greater GDP and lower poverty rate.
How can we then respond to the foreign chambers urging us to realize our economic potential? Can we follow the Singapore model of having a coherent game plan in pursuit of economic development?
Given the greater multiplier effect of exports, exports ought to be the starting point of our blue print. For instance, the foreign chambers see our current exports at a low $ 49 B against Thailand’s $ 178.4 B and Malaysia’s $ 195.7 B.
How do we build on our current export portfolio and volumes? Which of them give us a competitive advantage or conversely, which of them are at risk? In short, we have to build competiveness into our planning process and focus our efforts accordingly.
And how can our interaction with the foreign chambers look like? As spelled out before with regards to electronics? It can be the model we can use to pursue other potential export industries whether agri-business, BPO, etc.? And that means developing and producing high value-added products while putting on the table all the requisite elements for the right global players to partner with us; and as importantly to become truly competitive in today’s interconnected and highly competitive world?
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