Monday, 10 January 2011

A 2020 Vision for the Philippine Economy (Part II)

By Dr. Bernardo M. Villegas

MANILA, Philippines—In the power sector, non-oil sources of energy will account for 70 percent or more of power generation, especially geothermal, natural gas, coal, biomass, hydro, wind, and solar.

I would also venture to say that by 2020, the construction of a nuclear plant somewhere in the island of Mindanao would have started to reduce the dependence of that second largest and most populated island on the very unreliable hydro power.

Also, by 2020, I am confident that the reforms recommended by Daniel E. Chalmers, chairman and CEO of GN Power, in the 7 Big Winners Summit last 28 October 2010 would have been fully implemented: a) the promotion of open access and retail competition and the choice and the responsibility given to a consumer; b) users of power to be more proactive and educated in contracting their power supply as a prudent measure for their power requirements; c) encouragement of private investors for additional capacity to support demand growth and create stability both in the grid and the market.

A major portion of the yearly FDI flows of $7 to $10 will be invested in the energy sector led, among others, by AES, one of the largest energy companies in the US. Some of the largest conglomerates in the Philippines, e.g. San Miguel Corporation, the Metro Bank group, the SM group, the Aboitiz group, the Metro Pacific group will be heavily invested in energy, raising significantly the efficiency of the sector. Electricity rates in the Philippines will no longer be the highest in the region.

In the manufacturing sector, food and beverage will continue to be the largest component. Auto parts manufacturing will survive competition in the Asean, with the appropriate incentives (not necessarily tax) from the government. By 2020, the total domestic market for cars can exceed 500,000 units a year, enabling some local car parts manufacturing to reach the necessary economies of scale to be regionally competitive.

Electronics exports will continue to fuel the manufacturing of electrical machinery, with higher-value products replacing the merely labor-intensive items of the last thirty years. As recommended by John Forbes of the American Chamber of Commerce, manufactured exports will have diversified by 2020 to creative industry products (e.g fashion goods), minerals, processed foods, and solar panels, among others.

In mining, the Aquino administration will be able to implement the desired key reforms identified by Benjamin Philip G. Romualdez, president of the Chamber of Mines of the Philippines, to wit, a) resolution of all the issues surrounding conflict between local government units (LGUs) and national government in the development of mineral resources, such as the legality of local ordinances banning mining and open pit mining and imposition of taxes by LGUs on mining companies, in addition to those specified in national laws; b) maintaining stable investment environment to promote local and foreign investment in the mining industry; c) transparency and good governance to reduce cost of doing business.

With these desired key reforms, by 2020 exports of mineral ores can be contributing more than $10 billion of revenues, especially from gold, copper, and nickel exports, considering the rapidly expanding demand for these commodities in China, India, and the other emerging markets. More than 500,000 workers will be employed in the mining sector by 2020. The mining companies will be exemplary in the practice of corporate social responsibility (CSR), especially as regards protection of the environment and the humane treatment of indigenous people in the mining areas, as the CSR Guidebook for the Mining Industry launched in 2010 is fully implemented. The mining sector will make a major contribution to the reduction of poverty since mining operations are in the remote rural areas, where 75 percent of the Philippine poor reside.

In the tourism industry, there will be some seven million foreign tourists traveling to the Philippines as the Open Skies policy is implemented during the Aquino administration, allowing more foreign airlines to fly directly to the Philippines, especially to airports outside the National Capital Region.

Among the new airports to be constructed in the next five to six years will be the Panglao Airport, Laguindingan, Puerto Princesa, Daraga International Airport, Kalibo, and the NAIA Terminal 3 upgrade full operationalization. The Clark International Airport will replace the Metro Manila airport as the main gateway to the Philippines from abroad. Angeles City will be the hub of a new metropolitan area that will develop in Central Luzon.

Even more important as an engine of growth of tourism is domestic tourism as 20 million middle-income Filipinos are expected to travel out of their usual place of residence to tourist destinations all over the archipelago, many of them taking advantage of the Philippine Nautical Highway that was started during the Arroyo administration and will undergo continuous improvement in the next six years under the Aquino government. To accommodate these tourists, there will be a mushrooming of bed-and-breakfast facilities all over the countryside, giving a boost to small family-run enterprises in the tourism industry.

I do not claim this 2020 vision to be an accurate forecast. It is my vision of what could be a reality 10 years from now if the government, the business sector, and civil society will cooperate to implement the reforms and programs identified in several symposia, conferences, workshops, and consultations that I have attended over the last few months since the inauguration of the Aquino presidency.

I repeat my most important assumption: The persons put in charge by President Aquino in all the departments that have to do directly with the accomplishment of the objectives for which the state is responsible are highly qualified, experienced, and honest individuals who will work for the common good of Philippine society. I do believe we are in good hands. Anyone who disagrees with this assumption will, of course, highly doubt the realism of this 2020 vision.

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