Financial Executives Institute of the Philippines

43rd Annual Conference

14 October 2011

Neeraj Jain Country Director Philippines

Stagnant Investment
(gross fixed capital formation, % of GDP)
Stagnant Investment (gross fixed capital formation, % of GDP)
50
45

40
35

30 25 20 15 10 5
0

Indonesia

Malaysia

Philippines

Thailand

Vietnam

1960 62 64 66 68 70 72 74 76 78 80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10

14 October 2011

Economy-wide labor productivity (Y/L)

Constant 2000 $
7,500 12,500 6.0

Annual average growth rate, %

Indonesia
MAL
(RHS)

1980 - 2007

1990 - 2000

2000 - 2007

Philippines
10,000
5.0

6,000

Thailand
4.0 4.0 3.8 3.4 3.5 3.3 2.7 2.2 2.0 2.0

4,500

THA

7,500
3.0

Malaysia (RHS)
2.9 2.6

3,000

PHI

5,000

1,500

INO

2,500

1.0 0.4

0.6

0
1980 1983 1986 1989 1992 1995 1998 2001 2004 2007

0.0

INO MAL PHI THA

INO MAL PHI THA

INO MAL PHI THA

14 October 2011

Long-term growth performance

Once upon a time.
Real GDP per capita 1960
($ constant)
2,500
18,000 16,000

After five decades.

Real GDP per capita 1950 2008
($ constant)

2,000

14,000 12,000

1,500
10,000

1,000

8,000 6,000

500

4,000 2,000
PRC Taipei,China

0
Indonesia Malaysia Thailand Philippines

Korea

India

0
1950 1955 1960 1965 1970 1975 1980 1985 1990 1995 2000 2005

Indonesia Thailand India

Malaysia Viet Nam

Philippines PRC

14 October 2011

Chronic problems
High unemployment
(% of total labor force)
12 10

Slow poverty reduction

(headcount ratio at $2 a day PPP, % of population)
100 85.7 80

8 6 4 2 0
1982 1984 1988 1990 1996 2002 2004

61.9 60 45.0 40 44.0 48.4

20
2008
1980 1986 1992 1994 1998 2000 2006

12.3 7.8

11.5

Unemployment rate (%)

Korea

0 Malaysia (1984-2004) Philippines (1985-2006) Thailand (1980-2004) Viet Nam (1993-2006)

PRC

Indonesia

Malaysia

Philippines

Thailand

Viet Nam

14 October 2011

Service-led growth
% Contribution to GDP Growth: 1980-2008
100
11.4 7.2 7.1 8.6 11.7 9.6

80
38.5 43.5 66.6 43.2 61.9 43.5

60
40
50.1

20 0

49.4 26.3

48.3 26.5

46.9

INO
14 October 2011

MAL

PHI

THA

IND

PRC

Industry

Services

Agriculture

Investment Climate
MAJOR POSITIVE FACTORS Stable Macroeconomic Environment: - Fiscal consolidation program - Low inflation - Healthy banking system - Ample Liquidity Robust BOP Position: - Stable and growing inflow of remittances - High international reserves - Modest external debt Favorable Demographics: - Young population - Relatively well skilled - English speaking population Location Advantages: - Gateway to emerging Asia - Well positioned to benefit from emerging Asian giant economies - ASEAN economic integration Prominent Success Stories: - From coconut chips to computer chips story of the electronics industry - Spectacular growth of BPO industry - Liberalized telecom sector MAJOR NEGATIVE FACTORS Challenging Governance: - Weak institutions - Red-tape; corruption - Lack of policy predictability, continuity, and coordination (also between NG and LGUs) - Weaknesses in legal and regulatory processes and institutions Regulatory risks in PPPs Labor laws Lack of holistic competition protection and promotion framework Contract enforcement Inadequate Infrastructure - Expensive and unreliable electric power - High road and maritime transport costs due to specific sector policies and poor quality of road network and port infrastructure - Low infrastructure investment by the government (fiscal constraints) and by private sector (due to high risks) Security Concerns in Southern Philippines Prominent Investment Disputes - NAIA III Terminal

14 October 2011

Central Government Capital Expenditures and Net Lending

(average annual % of GDP)
1996-2000
Philippines Malaysia Thailand Viet Nam Sample mean 3.6 6.0 5.4 6.9 6.1

2002-2008
2.7 7.3 3.5 9.2 6.6

14 October 2011