Our highway to wealth generation

The Philippine Development Plan (PDP) for 2023-2028 was recently published by the National Economic and Development Authority. For those unaware, the PDP is a roadmap for socio-economic development. It contains the policies, programs and legislative agenda to enable the country to reach its development goals.

What exactly are these goals? Among them is to reinvigorate job creation, accelerate poverty reduction, increase income-earning abilities of the populace and safeguard their purchasing power. In short, to uplift the economic well-being of our people by 2028.

The PDP cited seven ways in which to achieve its goals. These are: to strengthen agriculture, industry and services; to promote trade and investments; to enhance competition; to improve regulatory efficiency; to pursue infrastructure development; to maintain macroeconomic stability and practice good governance.

I found the PDP to be well considered in that it touches on most critical areas of development. What I found lacking, however, is the identification of the predominant sector to drive wealth generation.

Successful emerging economies single out predominant sectors as a vehicle to drive wealth generation. For Vietnam, it is manufacturing and exports. For Thailand, it is tourism and auto manufacturing. For Singapore, it is the service industry led by finance and trans-shipment logistics. For Bangladesh, it is garment manufacturing. For Taiwan, it is semiconductors, chemicals and machineries. The list goes on. These predominant sectors are supported by government to such an extent that all barriers are eliminated to allow its rapid development.

Certainly, the Philippines’ predominant sector cannot be traditional agriculture nor manufacturing. Scaling up agriculture requires a total re-do of the laws and bureaucratic framework of the sector which cannot be done in five years. The most we can hope for is to merely increase farm outputs to achieve a degree of import substitution.

As for manufacturing and industry, the Philippines is hard-pressed to compete with Vietnam, what with our expensive power cost, fragmented supply chains, bureaucratic inefficiency and corruption (especially from extortionist governors and mayors). Sure, the Philippines can compete in certain categories like food processing, electronics and electric vehicles – but in the grander scheme of things, conditions prevent us from being a global manufacturing hub like Vietnam or China.

Our fortunes lie in the service sector, particularly in the IT-BPM and innovation space. This encompasses business process outsourcing; engineering, legal, medical and financial services; software and systems solutions; disruptive technologies; e-commerce; data management; research and education, among others. Collectively, this is known as the “knowledge sector.”

The Philippines possesses the qualities needed to be highly competitive in the knowledge sector. While most countries suffer from an aging population whose skills are misaligned with their needs, the Philippines has a young, productive and tech-savvy workforce whose average age is 25.7 years old. Educated and/or trainable talent is readily available and priced at the lower wrung of global wages. Moreover, the Philippines is the third largest English speaking nation where 95 percent of the population is fluent or passable in English. This shouldn’t be minimized given that international business in conducted in English.

Boding well for the Philippines too is that our perennial competitors – the Vietnamese, Thais and Indonesians – find it difficult to compete in the knowledge space. Not only do language constraints stand in the way, more significantly, their business culture differs from that of the west.

We should count ourselves fortunate to be in a position to excel in the knowledge sector. Why? The knowledge sector does not rely on raw material extraction, which is a finite resource. This makes our growth horizon infinite. It doesn’t depend on cheap labor or cheap power costs to thrive. It allows us to climb the value-chain with relative ease through education, skills capacitation and research and development. It is far simpler than the manufacturing space where massive capital and foreign technology are needed to add value to a product. Also, scale-ups are steeper and more robust in the knowledge sector than they are in agriculture or industry.

While we concede that the Philippines has made significant inroads in the knowledge sector since 2005 (thanks to the IT & Business Processing Association of the Philippines), there is much government can do to further enhance the country’s position in this realm. We are barely scratching the surface of its potentials.

As of mid-2022, the Philippine IT-BPO industry employed 1.43 million Filipinos and generated $29.1 billion worth of revenues. Compare this against the trifecta of knowledge superpowers – India, Ireland and Israel who realized $194 billion, $69 billion and $44 billion in revenues in 2021, respectively.

How do we get from where we are to the level of India? The reforms needed are so many that it would require a separate article. Suffice to say that building a workforce adept in science, technology, engineering and mathematics is fundamental. Education is key and our leaders must make a serious commitment to it. We must mandate our youth to be proficient in at least two languages outside of English. This will prepare the to become technology specialists beyond our borders.

Apart from this, government needs to accelerate investments in research and development, foster greater collaboration between the academe and industry, create a more vigorous intellectual property culture, break-down barriers in building a culture of innovation and entrepreneurship, create a better financial ecosystem for start ups and scale ups and, of course, better broadband infrastructure, among others.

Again, our fortune lies in the talents of our people. It always has and always will. While the PDP is already written, it is not too late to lend special focus on the knowledge sector. All it needs is a mandate from the President to push for market leadership in this space and it shall be done.

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Email: [email protected]. Follow him on Twitter @aj_masigan