By ARSENIO M. BALISACAN
Secretary of Socioeconomic Planning
New World Hotel, Makati City
28 June 2013, 9:30 am
Ladies and gentlemen, good morning.
Congratulations to the Philippine Council for Industry, Energy, and Emerging Technology Research and Development (PCIEERD) on your third anniversary. We are happy to see that your organization has taken this opportunity to deepen the discussion on inclusive growth and competitiveness, particularly through partnership with the industry sector and the science and technology (S&T) community.
From the start, we have emphasized the crucial role that industry, particularly manufacturing, plays in development. This is why we are very encouraged to see the latest data on the performance of the Philippine economy. Not only did we have a very good growth rate of 7.8 percent for the first quarter of 2013, after a better-than-expected full-year growth of 6.8 percent in 2012; industry was also able to contribute 10.9 percent of the growth, with local manufacturing growing at an impressive rate of 9.7 percent despite the 8.4 percent drop in our goods exports. The main contributors to the strong growth of manufacturing were manufactures of food, radio, television and communication equipment and apparatus, chemical products, basic metal, machinery and other equipment, and transport equipment. The next highest contributor to growth is construction, whose 32.5 percent strong growth indicates a good positioning towards an industry-led economy.
The industry sector has great potential to boost inclusive growth. For instance, the results of the April 2013 Labor Force Survey showed that while total employment fell by about 624,000 workers, employment in the industry sector grew by 3.8 percent or 224,000 workers from April 2012 to April 2013. The quality of employment in the industry sector also improved, with the number of persons working 40 hours and over per week increasing to 79.4 percent in April 2013, from 64.0 percent in April 2012. This trend is also reflected in the increasing percentage of wage and salary workers, which rose to 57.5 percent in April 2013 from 55.8 percent in April 2012.
Despite these positive developments, however, we are aware that there is still much that needs to be done for growth to be sustainable and inclusive. For instance, compared to other Asian countries, the Philippines still has the lowest total investment share to GDP from 2010-2012 relative to India, Indonesia, Malaysia, Thailand and Vietnam. Poverty incidence remains high, and so does income inequality. Moreover, about than 60 percent of the entire country’s economic growth is concentrated in Metro Manila, CALABARZON, and Central Luzon.
Most of us are aware that rapid economic growth is necessary to reduce poverty and promote inclusion. Evidence shows that the substantial poverty reduction that was achieved in developing countries in the past two decades was due to rapid economic growth and structural transformation in these countries, particularly in Asia. Globally, this growth contributed nearly two-thirds of the observed poverty reduction in the developing world. Roughly, based on World Bank data, a 1% increase in GDP per capita reduces poverty by 1.7%.
However, the case of the Philippines is quite different. While economic growth in most East Asian countries has been remarkably rapid during the past three decades, the same cannot be said for the Philippines. The country’s economic growth during this period has barely exceeded the population growth rate which has continued to expand relatively rapidly at about 2.0% a year. Thus, serious students of Philippine development contend that shifting the economy to a higher growth path—and keeping it there for the long term—should be first and foremost on the development agenda.
But we are also realizing that there is a two-way relationship between growth and inclusiveness. Without greater inclusion, rapid and sustained growth will not be possible. Inequality in incomes and opportunities can weaken the power of economic growth as a key strategic vehicle for eliminating acute poverty. Rising inequality can also undermine political and social stability, which is a necessary condition for sustainable development and prosperity.
Thus, there is now a great sense of urgency to reduce poverty and inequality. We cannot afford to simply wait for the benefits of growth to “trickle down”. What we need is inclusive growth – a growth process that deliberately enables more to participate, and where the benefits of growth are shared by all.
Inclusive growth does not come by chance. It requires deliberate policies that expand opportunities for remunerative employment and human development. It also demands development in the periphery through integration of the lagging areas or regions with the fast-growing, leading areas or regions of the country. Large-scale targeted programs also need to be in place to directly assist those who are unable to participate in the growth process.
The measures and strategies that are needed to promote inclusion are also the ones needed to increase the country’s long-term competitiveness. The World Economic Forum defines competitiveness as the set of institutions, policies, and factors that determine the level of productivity of a country, which in turn, influence its income levels, returns to investment, and growth potential. In other words, according to the WEF, a more competitive economy is one that is likely to sustain growth.
What is government doing to promote inclusion, competitiveness, and economic growth?
To promote rapid, sustained growth, we are anchoring public investment to areas and programs that will improve the investment climate for private investors. Our strategic framework envisions the public sector as the provider of enabling conditions for the private sector to invest in productive sectors, thereby creating decent and remunerative employment opportunities for our rapidly growing labor force. Macroeconomic stability will still be the major strategy to fuel positive expectations. Government will continue to exercise fiscal prudence. We will strive to maintain, if not improve our credit ratings, so that businesses and employers can enjoy a lower cost of capital.
To sustain the growth, we need to ensure that economic growth benefits everyone, regardless of location or social status. To do this, we need to shift the structure of the economy from being largely consumption-driven to one that is increasingly led by investments. In particular, we need to improve the efficiency of public investment to serve as a catalyst for greater private sector participation; connect the regions to facilitate access to markets and basic services; and address critical constraints to investments, particularly high power cost, poor infrastructure, policy inconsistencies, and administrative inefficiencies.
We are creating new drivers of growth that will generate high quality jobs and strengthen regional competitive advantage. The PDP: 2011-2016 and the various regional development plans have identified priority industries which will be located across the country. These have been prioritized because they present the “highest growth potentials and generate the most jobs.”
For the remaining Plan period, we will put more emphasis on employment generating sectors such as manufacturing, agriculture, tourism, IT-BPO, agri-business, and housing. These are industries with high growth potential and which are dispersed across the country. Infrastructure projects have been programmed to support growth in these industries that are in the peripheral regions. We think that this will greatly increase our chances of achieving inclusive growth.
To boost the competitiveness of our productive sectors, we are investing heavily in infrastructure, human capital (particularly education and health), and governance. Admittedly in infrastructure development, especially those involving public-private partnerships, the pace of implementation has been slower than desired. We expect to speed up implementation of the key infrastructure programs in the remaining years of this administration.
To further increase the capacity of industries to grow and to generate employment, we are pushing for measures to support new investors and to improve access to financing, especially for small and medium enterprises. We are also reviewing the foreign investment negative list and rationalizing fiscal incentives, giving preference to generators of high-quality employment and investment outside of NCR and Metro Cebu.
To propel our economy towards a higher, sustainable and inclusive growth path, we need growth that is driven not by perspiration, that is, increases in inputs such as areas of land or higher labor use per unit of land, but by technology, improvements in policy, and institutional reforms. As economic history tells us, it is technological change that drives long-term economic development. But technological change is not a manna from heaven. Countries must invest in R&D and good governance to achieve rapid growth of incomes and employment, and thus provide enduring sources of improvement in living standards for their populations.
For Philippine S&T, we need to channel our efforts towards increasing the productivity of agriculture and industries, and improve the links between agriculture and industry so that high quality jobs can be created, especially for the unskilled. S&T innovations that directly improve the quality of life, especially those related to health, safety, and environmental quality, are also crucially needed. Other sectors in the economy also have critical issues that could be addressed by advances in S&T.
Enhancing the country’s S&T capacity depends on good policies and practices that foster the appropriate environment and promote the interconnectedness of the areas upon which S&T stands. Policies that promote greater human resource development, facilitate demand for knowledge from the private sector, enhance public support for and management of knowledge institutions, and facilitate access to information and communication technologies (ICT) infrastructure must be coordinated and harmonized in order to create the conditions in which S&T capacity deepens and consolidates. A major part of the R&D work will still be initiated by government. But we hope that the private sector would increase their R&D efforts as well.
Investments in human capital will also address the problem of low employability among new job entrants. We have started the phased implementation of the K to 12 Basic Education Program, which aims to improve the quality of basic education and to better prepare our students for the world of work. We are also increasing investments in technical education while encouraging higher education institutions to partner with business and employers to ensure the relevance of their program offerings.
Successful implementation of these strategies demands a greater sense of urgency among us in government, as well as better coordination between and among the various agencies charged with implementing programs and projects. Under the leadership of our President, we are coordinating our programs and projects to maximize efficiency and effectiveness.
As we in government work to improve the business environment and invest in S&T and human capital development, we hope that our partners in the S&T community and in the industry sector will also take the necessary steps to increase their efficiency, productivity and competitiveness. As mentioned earlier, one way to do this is to increase research, development and innovation efforts. To lessen our export dependency on mainly electronics and semiconductors, we hope that our private sector partners will also diversify and expand production of high value-added products, and increase investments on backward and forward linkages to boost the multiplier effects of our industries.
Economic growth, inclusion, and competitiveness are not mutually exclusive; on the contrary, these factors enhance and reinforce each other. In the same way, our work in government can only be strengthened and enhanced with the continuing support of our partners in industry and in the science and technology community. Together, let us promote a culture of multi-disciplinary collaboration, knowledge sharing, open dialogue and cross-fertilization of ideas, as we work to harness the benefits of science and technology to improve the lives of our people.
Thank you and good morning.