A perspective for P.A. Frederick Go

We are starting the year right with two positive developments. The first is the creation of the Office of Special Assistant to the President for Investment and Economic Affairs (SAPIEA), according to Executive Order 49. The second is the appointment of Frederick Go as the head of SAPIEA.

SAPIEA’s mandate is two fold – to provide cohesive direction to the economic cluster consisting of the Departments of Finance, Budget & Management, Trade & Industry and NEDA. Simultaneously, it is also tasked to ensure that investment commitments secured by the President in his foreign travels come to fruition.

Frederick Go is an acquaintance of more than 30 years whose company (Robinsons Land) I have worked with for the same amount of time. I count him as a good man and very much results-oriented. I have high hopes for what he can do at SAPIEA.

An agency like SAPIEA is urgently needed. You see, there is a great disparity between the investment commitments secured by the President in his foreign trips and what has actually materialized. As of Dec. 30, $72.178 billion had already been pledged to the Philippine government but only $5.88 billion was realized as of September, according to the BSP.

The actual investment intake is also miles away from the $21.1-billion pledges generated by the Board of Investments as of Dec. 18.

Something is amiss. Either the DTI is unable to seal the deal and convert pledges to actual investments or these pledges were not serious in the first place. I believe the former. Hence, the need for SAPIEA.

Let me provide some perspective to Presidential Advisor Go as to why his role in SAPIEA is so important.

The very structure of the economy is flawed and as such, is unable to sustain high growth. This puts in peril our long-term ambitions of becoming an advanced, high income economy by 2040.

This is because 70 percent of the economy is driven by consumer and government spending and not by investment and exports. Industry comprises only 19.7 percent of the economy and manufacturing a meager 5.1 percent. A weak manufacturing base has made us so dependent on imported goods that our imports now constitute 157 percent of our exports (2022 Exports 78.8B vs Imports 137.12B). This leaves us with a huge trade deficit. The situation is getting worse as merchandise exports declined by 6.6 percent as of last June.

Exacerbating matters is the low level of foreign direct investments, as mentioned earlier. This too declined by 15.9 percent as of last September.

The economy relies on OFW remittances to fill its massive trade deficit and this is a sign of a weak economy.

Our gaping trade deficit and low levels of foreign investments are the reasons why our current account deficit was at 4.4 percent of GDP in end-2022. Although poised to slightly improve in 2023, it is still a cause for worry. As we all know, operating with high current account deficits leads to ballooning debts, a weaker currency, constrained economic growth and economic imbalances.

Speaking of debts – given low export revenues and low investment intakes, government has no choice but to rely on debts to finance its ambitious infrastructure program and other capital expenditures like the modernization of the armed forces. This is why the DOF’s target of attaining a debt-to-GDP ratio of 53 percent by 2028 is highly improbable.

All these are connected to per capita income. Government aims to attain a per capita income of $6,571 by 2028 and $11,000 by 2040. This is not going to happen – at least not according to schedule. This is because those moving away from agriculture are migrating to low-value jobs in the service sector like retail and hospitality. We lack high value sectors like manufacturing and industry.

So the need to transform the economy from one that is driven by consumption and government spending to one propelled by investments, manufacturing and exports is urgent. Doing so will improve our balance of trade and consequently, our current account. It will lessen government’s reliance on debt whilst providing high income job opportunities.

I realize that making this transition is easier said than done. It involves amending our flawed Constitution, improving infrastructure and the logistics chains, solving ease in doing business, among many others. In short, enhancing the overall competitiveness of the economy. This is why I recommended the revival of the National Competitive Council.

SAPIEA must also build on our strengths. Unbeknownst to many, the Philippines is already a global leader in IT-BPM. We are the world’s number one provider of contact centers and health care service. We are number two in IT and digital services and Global In-House Centers.

Last year, the industry generated $35.9 billion in revenues and 1.6 million jobs. With government’s support, the industry can generate $59 billion in revenues and 2.8 million jobs by 2028, according to the IT-Business Process Association of the Philippines (IBPAP).

The challenge to SAPIEA is to help the industry expand further and climb the value chain. To stay on track, the Philippines should become a center for excellence for AI, machine learning, robotic automation, nanotechnology and the like.

IBPAP attests there is no shortage of foreign investors wanting to set up IT-BPM operations in the Philippines. The choke point is skilled workers. There is a dearth of workers who possess an IQ above 95 and capable of critical thinking. Even more scarce are graduates in the sciences and engineering.

To this, I offer two stop-gap solutions: That one million gifted students be granted scholarships for advance STEM learning through funds from the Office of the President; that the DepEd and CHED work with industry groups to improve senior high school immersion and higher education internships.

The task before P.A. Go is daunting. But it is not impossible. Nguyen Nam of Invest Vietnam is doing it, so is Ridha Wirakusumah of the Indonesian Investment Authority. Surely, our very own Frederick Go can do better.

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