Challenged

Despite domestic economic expansion last year, unemployment continued to rise. That indicates the growth we have seen is exclusive rather than inclusive. Our dismal failure to meet the Millennium Development Goals we committed to reinforces that assessment.

The key factor disposing our economy towards exclusive growth is the fact that investment is consumption-driven instead of investment-led. Growth in consumption demand is fueled largely by remittances from our large expatriate workforce.

We need a comprehensive strategy to shift our growth from being consumption-driven to being investment-led. We do not have such a strategy. The administration seems content coasting along with a moderate, consumption-driven growth pattern although this may not be sustainable for long.

There are many reasons investment growth has not happened in our economy.

Very little has happened the past few years towards upgrading our infrastructure. Because of that, the infrastructure gap between us and our closest competitors widen by the day. Check out all the other economies of the ASEAN: improvement in infra is moving at a feverish pace.

This administration seems more intent on improving our capacities for war than on improving our capacities for trade. We are purchasing more warships even as we have not solved the classroom shortage.

Another reason we are losing out in the race to attract investments is policy uncertainty. The protracted process of arriving at a “mining policy” last year resulted in a dramatic drop in income from minerals.

Add to these the old, unresolved problems we have had with red tape and bureaucratic corruption. Whatever is left of our industrial base is threatened by unmitigated smuggling.

Over the next few years, China will become a major exporter of capital. This is due to rising production costs in China as the world’s second largest economy increases its reliance on growing domestic demand to drive its growth.

Trillions of dollars will flow out of China to the Southeast Asian economies. Because of our diplomatic issues with Beijing, however, the Philippines is unlikely to be a major investment destination for Chinese investments.

Our prospects for growth have been elevated for this year. A 6% growth rate is well within reach. The rule of thumb, however, is that we have to sustain a growth rate of over 7% for close to a decade if we are to dramatically bring down our poverty rate to approximate those pertaining in the core ASEAN economies of Malaysia, Thailand and Indonesia. Singapore is, of course, in a class of its own in the region, with incomes resembling those in the developed economies.

Although our prospects for growth are brighter this year, we will continue to be hampered by the problematic financial situation in the US and the Eurozone. Both are important markets for our exports and historically strong sources of investments.

As I write this piece, frantic eleventh-hour negotiations are still underway in Washington DC to avert the “fiscal cliff.” Should those negotiations fail to produce decisive results, the American economy will almost certainly slip back into recession. Unemployment could climb up to beyond 9% in the coming months due to a package of tax hikes and spending cuts that kick in today.

The US is a major trading partner. Should her economy contract, this will have adverse implications on the performance of our companies, from electronics exporters to business process outsourcing firms that absorb many of our youngest entrants to the labor force.

The Eurozone, for its part, will remain in a financial quagmire for many more years. Most of the European economies will likely slide into recession this year, especially if the US steps into the fiscal cliff. That implies limited markets for our exports and continued instability in the currency markets.

For the remainder of this decade, at least, China will be the major growth driver for the global economy. There is little possibility Japan will step out of the rut her economy has been in for two decades now.

We will have to navigate our own economy through these difficulties in the next few years, finding new markets and sources of investment. Global economic growth will likely remain moderate in the next few years.

We will see a rebalancing of the global economy, with China, Brazil and India, the most populous countries, playing increasingly influential roles. Resource-rich countries like Russia and Kazakhstan along with the other oil-producing countries will contribute to the reconfiguration of the markets.

Meanwhile, lower mineral prices (a reflection of lower optimism globally) as well as policy uncertainty discouraged several mining investors in our economy. Typhoons damaged our export plantations in Mindanao. The cost of rehabilitating communities devastated by Typhoon Pablo will be staggering, considering their means of livelihood were wiped out by the calamity.

So far, our respectable economic performance has been influenced more by the BSP’s interest decisions rather than by strategic economic investments by government. Government’s large outlay for the conditional cash transfer program may be justifiable in terms of providing a social net for the poorest Filipinos. It does not, however, create a sustainable economic sector.

Given the challenges confronting our economic growth, we deserve to be told by those who lead us how we might thrive in this thrilling dynamic between opportunity and peril. Modern governments are supposed to provide their citizens a roadmap by which each one might plan out options.

Nevertheless, we face the New Year with guarded optimism. We always do.

A joyous and prosperous New Year to all!