Saturday, 9 May 2009

Philippines--why the economy is strong

By Tony Lopez
Manila Times

PEOPLE have been asking me why the economy is so strong and will have positive growth this year, unlike Thailand, Malaysia and Singapore, all of which will show deep negative economic growth.

There are two major reasons for the Philippine economy’s strength. One is strong remittances by Filipino expats, the so-called overseas Filipino workers. The other is robust domestic consumption, which is probably an offshoot of the first.

OFW remittances amounted to $16.4 billion in 2008. Remittances this year will probably be the same, $16.5 billion, if not higher. There are some ten million Filipino expats. If each of those expats is a head of family and there are 16 million Filipino families, then ten million expats mean ten million middle class families.

As for the strong domestic consumption, with 90 million population, the Philippines has a very large domestic market. Personal consumption expenditures grew 15 percent at current prices and by 4.5 percent in real terms, in the fourth quarter of 2008. The biggest spending growth rates at current prices were registered by food, of course, by 19.7 percent to P726.6 billion, transportation and communications (that includes your jeep and bus trips and probably cell phone bills) by 16.2 percent to P159.58 billion, household furnishings by 15.1 percent to 18.9 billion; and fuel, light and water by 13.1 percent to P59.24 billion. These are quarterly figures. Multiply them by four to annualize figures.

The Philippines is the world’s 12th largest country in population and the 36th biggest in terms of size of GDP in purchasing power parity (PPP), with $323 billion. Being 36th out of 200 countries makes the Philippines upper middle income.

Our economy is bigger than Hongkong, Switzerland, the Czech Republic, Romania, Norway, Chile, Vietnam, Singapore, Peru, Portugal, Denmark, Israel, Ireland, UAE, New Zealand, Qatar and Libya. Some of these countries hire Filipinos as if they were richer than us or worse, routinely insult or look down upon the Philippines.

An indication of the country’s wealth is the very high savings rate, 28 percent of GNP. Per capita GNP is $2,060.8. Multiply that by 90 million, the size of the population, and you get total GNP of $185.5 billion which if multiplied by 49 (the peso-dollar rate) gives you P9 trillion. Get a third of that, which is P2.54 trillion, that is the savings of all Filipinos. That amount is almost twice the national budget.

In 2008, reports Lance Gokongwei Jr., of JG Summit, “we had strong growth in all consumer-related businesses like branded food, malls, airline and cell phones.” Cebu Pacific carried 6.4 million passengers last year, up 23 percent from 5.2 million in 2007. Flying is no longer a habit of just the rich. JG’s food business increased revenues by 20.5 percent, airline by 31 percent, telco by 37 percent, real estate and hotels by 33 percent, and petrochemicals by 80 percent.

These growth numbers do not support IMF’s contention that the Philippines will register zero growth this year. In fact, Manny Pangilinan, the chair of PLDT, thinks the economy grew by four percent in the first quarter this year. “The economy is showing resiliency,” he notes. SM and Shangri-La report that same-store retail sales in the first quarter are up five percent over same period in 2008.

“Banking has been highly positive. Retail is positive. We will see growth for the balance of the year.” True, exports and investments are down but Pangilinan clarifies that “our economy is not overly dependent on exogenous factors like exports or foreign investments.”

Half of Filipinos have cell phones. PLDT Smart has 25 million subscribers, Globe 15 million, and Sun Cellular nine million. It takes at least P4,000 to buy a decent Nokia cellular unit. Millions of Filipinos have two cell phones.

Jose Sio, the chief financial officer of SM Investments Corp., says the group will hit its profit growth of 12 to 14 percent this year. SMIC made P14 billion in 2008.

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