Thursday, 24 February 2011

Philippines expected to deliver high growth over next 40 years

Philippine potential cited

Louella D. Desiderio
BusinessWorld
http://www.bworld.com.ph/content.php?title=Philippine%20potential%20cited&id=26912

A COMBINATION of sustained fast economic expansion and a young population makes the Philippines one of 11 countries with highest growth potential in the 21st century, global financial services firm Citigroup said.

Citigroup Global Markets, Citi’s brokerage and securities arm, in a Feb. 21 report, titled: "Global Growth Generators: Moving beyond Emerging Markets and BRIC," included the Philippines in its "3G" or "global growth generators" grouping.

These are countries that, based on its assessment, are expected to deliver high growth and profitable investment opportunities over the next 40 years.

"In our view, the countries that are most promising in terms of their growth potential are Bangladesh, China, Egypt, India, Indonesia, Iraq, Mongolia, Nigeria, Philippines, Sri Lanka and Vietnam," Citi said.

These countries performed well on its 3G index, which is the weighted average of six growth drivers, namely: domestic saving or investment, demographic prospects, health, education, quality of institutions and policies, and trade openness.

The Philippines got a score of 0.60, which was higher than Nigeria’s 0.25, Sri Lanka’s 0.33, Egypt’s 0.37, Bangladesh’s 0.39 and Iraq’s 0.58. But it was still less than Mongolia’s 0.63, Indonesia’s 0.70, India’s 0.71, China’s 0.81 and Vietnam’s 0.86.

The report did not provide the score the Philippines got per growth driver but noted that "investment in education and health should help it improve its score and its growth prospects, while institutional quality, which also pulled down its 3G index score, should be raised next."

Citi expects the Philippines to grow by an average of 5.5% from 2010 to 2050, the same growth rate projected for Sri Lanka.

This is faster than the projected 5% growth rate for Egypt and China, though slower than the 5.6% seen for Indonesia, 6.1% for Iraq, 6.3% for Bangladesh and Mongolia, 6.4% for Vietnam and India and 6.9% for Nigeria.

Citi said it expects the Philippines’ population to grow from 93.6 million last year to 146.2 million 2050, with the population of working-age people rising by 66.2% over that period.

Aside from the need to raise its investments in education and health, Citi said the country’s investment rate -- "unbelievably" low at 14.5% of gross domestic product (GDP) for 2006-2009 -- should be raised for the growth projection to materialize.

Governance and institutional reform should also be carried out if the country were to become one of the Asian tigers.

But working in its favor, "the Philippines has a widely dispersed diaspora sending home remittances and establishing personal, professional and commercial contracts, links and networks that will benefit the country in the future," Citi noted.

The Philippines posted a 34-year-high growth rate of 7.3% last year, topping the government’s 5%-6% target. For this year, the government has set a higher growth goal of 7%-8%.

University of the Philippines economist Benjamin E. Diokno said via text that a 5.5% average GDP growth for the next 40 years will not be much of an improvement "if the quality of growth is the same as the one we’ve experienced in the last 10 years and if population grows at 2.25%."

Citi said its 3G methodology presents a new way of viewing countries, regions, cities, sectors or industries, pointing out that the usual approaches have failed to identify sources of global growth and investment opportunities.

Citi said it sees strong global growth until 2050, with an annual average of 4.6% until 2030 and 3.8% until 2050. Developing Asia and Africa will be the fastest growing regions until 2050, driven by population and income growth. "We forecast Developing Asia will grow by 7% between 2010 and 2030 and by 5.6% between 2010 and 2050, accounting for 55% and 54% of total world GDP growth over these two periods," it said.

The Philippines also forms part of Goldman Sachs’ Next Eleven countries, along with Bangladesh, Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, South Korea, Turkey and Vietnam.

Philippine electric rates highest? False

JOHN MANGUN
OUTSIDE THE BOX
Business Mirror
http://www.businessmirror.com.ph/home/opinion/7862-philippine-electric-rates-highest-false

What a time we live in. As I mentioned several weeks ago, this Year of the Rabbit would turn out to be anything but resemble a sweet bunny.

The Middle East is exploding in revolution that may play out to create disastrous results. The global financial crisis is going into the potential of a hyperinflation stage. Governments around the world are raising debt levels to extremes never seen in history, forecasting a significant drop in the standard of living for billions of people. Individual freedom in countless nations is being threatened by governments fearful of being unable to maintain their power.

Perhaps, the events causing the chaos that we see around might be connected.

We have heard so much in the last weeks of how the ability of people to connect through the Internet, whether
on social sites such as Facebook, or with the general access to information. And yet as the ease of access to information available to the average citizen of the world grows, there is a comparable distrust that governments are telling the truth.

Then the question might be asked, are governments “lying” more often, or is it just that people are more aware of the facts today? Or are people just more skeptical of governments?

This Age of Information has given us all the ability to check and recheck almost everything we hear as “truth.” However, maybe the opposite has happened. Maybe because we have so much access to information and we know that everyone else has this access also, we have come to assume that everything we hear is the truth. We seem to take for granted that whatever an “expert” tells us is correct. Perhaps, because we have all this access to information, we are less critical about what we hear.

We tend to accept so much without any critical analysis on our own part. Perhaps, the best example is the supposed settled science of all the nonsense about climate change. I say nonsense, because there is no scientific consensus. Look it up for yourself. The “facts” are manipulated and the data have been proved to be falsified. How much more that we accept as “truth” the hazards of mineral development, or the impact of legal logging on flooding, for example, may simply not be true?

In one of the major daily newspapers yesterday ran the headline “PHL has world’s highest power rates.” “The Philippines, which ranks among the most corrupt countries, also holds the unenviable record of having the highest residential power rates not only in Asia but in the entire world.”

That headline and statement is unequivocal with no room for any interpretation. But is it true?

To quote further: “The residential rate here [the Philippines] is about 18 US cents per kilowatt-hour. It is 17 cents in Japan, 15 in Singapore, 8 in Thailand, 7 in Malaysia, 5 in Indonesia and 3 in Vietnam, he [a member of Congress] said.”

I looked at my own electric bill. Last month it was P4,166.55 for a consumption of 396 kWh. So that is P10.52 per kWh. At the current peso-dollar exchange rate of P43.685, I am actually paying 24 US cents, not 18 cents. Before government taxes, the rate is 21 US cents. I am now confused.

The Napocor generation charge is 10 US cents and the Meralco distribution charge I pay is 7 US cents, so maybe that is where we get the 18 cents mentioned above.

Although not mentioned, I looked at rates from Hong Kong Electric. HK Electric is charging 18.6 US cents before taxes and other charges, the same as the combined Napocor and Meralco basic charges. That’s interesting.

The 3 cents figure for Vietnam must be old news. The government is raising prices by 15 percent on March 1 and each kilowatt-hour will cost (much cheaper by comparison to PHL), 6.5 US cents.

But then, I look at Singapore through Singapore Power Group. As of January 2011, the per-kilowatt-hour rate to residential users is 24.10 Singapore cents, or 18.89 US cents. That’s impossible! We have been told that the Philippines has “the world’s highest power rates.” Or maybe not.

Also not mentioned in the specific country examples given in the newspaper article, Europe is part of the world the last time I looked. So I went to http://www.energy.eu/#domestic, which is “Europe’s Energy Portal,” “A commercial organization, strongly rooted within the EU, but run independently from the European Commission.” This organization has current residential electricity prices for all of the European countries.

The per-kilowatt-hour residential rates for several European countries in US cents, including value-added tax: Denmark, 33.79; Germany, 31.31; Austria, 26.58; Italy, 26.71; and England, 18.49. Two of the lowest were Greece (14.56) and Bulgaria (11.86).

With all these numbers being thrown out, you are probably as confused as I am. But I am perfectly clear on one thing. If I lived in Denmark, my electric bill last month would have been not P4,166.55, but P5,845.42. An American example? Rates in Hawaii are 21.53 US cents in Honolulu and New Yorkers pay US 21.27 before taxes.

The facts are clear and simple. The Philippines does not have the highest average residential electricity rates in the world. The newspaper headline and article were false.

How can the government, private business and the people address problems when we do not have accurate information about the problem? Note that all this about the Philippines having the highest rates is a result of a hearing by the House energy committee on the high cost of electricity in the country. And these legislatures are crafting policy on this false information?

Are power rates high in the Philippines in comparison to many countries? Yes. Why? Because we generate most of the power from imported fuel. We do not use enough domestic coal. We do not capitalize on our geothermal resources. We are being talked into the inefficiencies and uselessness of large-scale solar- and wind-power generation. No wonder. False and inaccurate information.



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Tuesday, 22 February 2011

Friedrich Hayek and Practical Economic Theory

JOHN MANGUN
OUTSIDE THE BOX
Business Mirror
http://www.businessmirror.com.ph/home/opinion/7761-friedrich-hayek-and-practical-economic-theory

The continuing global economic crisis has prompted many ordinary people to look closer at the way economies function. Or perhaps I should say, people are trying to understand why economies stop functioning properly.

The crisis has highlighted a distinction between the two most prominent schools of economic thought. It is incorrect to assume that there are only two divisions in economic theory. However, in this age of simple black-and-white thinking, it basically comes down to 1) a belief that the government can effectively control and manage a nation’s economy and 2) that the private sector, free-enterprise system is best qualified.

The former is embodied in some but not all of the writings of John Maynard Keyes, called Keynesian economics. A simple definition would be that “Keynesian economics argues that private-sector decisions sometimes lead to inefficient macroeconomic outcomes and, therefore, advocates active policy responses by the public sector, including monetary-policy actions by the central bank and fiscal-policy actions by the government to stabilize output over the business cycle.” Or let the government take care of the economy. The ultimate logical conclusion of Keynesian economics would be for private ownership of business but with very rigid government control over production, wages, privies, and completion.

The other theory is that the private sector is better qualified and the role of the government is to facilitate the private sector’s strengths and step in to help smooth private-sector weaknesses. This idea is sometimes called a “laissez-faire” system where the government stays completely out of the picture. But this is not accurate. Even the most strident belief in the free markets acknowledges that the government has a critical role to play in an economy. However, the government cannot effectively or successfully control the economy.

One important economist, a proponent of what might be called “anti-Keynesian” economics, was the late Austrian economist Friedrich Hayek. Hayek died in 1992 after winning the Nobel Prize for Economics in 1974. He is of the “Austrian School” of economics. Hayek’s Nobel Prize was for his work in the theory of money and economic fluctuations and analysis of the interdependence of economic, social and institutional phenomena. Perhaps the key to his thesis is the interdependence of various factors that make up an economic system. His most important work for public consumption is Road to Serfdom. A well-known quote from the book is “When economic power is centralized as an instrument of political power it creates a degree of dependence scarcely distinguishable from slavery.” Too much government economic control leads to economic slavery.

We would like to believe that economics is only numbers. Not true at all. Producing wealth as well as spending that wealth is as much a function of the emotions as it is of the brain. Otherwise, all cars would be painted white and there would be only one style of shoes. In fact, an ideal function economy would be best served if manufacturers only produced one model of white car and only one type and color of shoes. That way, there would never be unsold inventory and it would be much more economically efficient to produce a limited variety of goods.

But Hayek knew that people want different colors of cars and that it was the private sector that could best, from a profit standpoint as well as serving consumer interests, adapt to the emotions of the marketplace. Not so the government.

The Heritage Foundation, a Washington, D.C., conservative think tank, assembled “Hayek’s Top 10 Dos and Don’ts in a Recession.” The following is abbreviated from their web site with my comments. It is important for us to understand what Hayek has to tell us as economies with the proper government intervention have created the best wealth creating engines for their citizens.

1. Recessions are bound to happen: it is all about the normal ups and downs of the business cycle. “Downturns are not aberrations but rather painful and necessary medicine for restoring equilibrium to the economy”.

2. A stimulus will only stimulate the deficit: what is the last thing a failing business does to try to solve the problem (just before they go under); borrow more money. And that is what has happened in the US where the stimulus has only dug the economic hole deeper because of taking on more and more debt.

3. Pure laissez-faire doesn’t work either: ‘Some regulation is necessary for individuals to carry out their plans and for the market to function. Hayek, therefore, endorsed “general rules, equally applicable to all people and intended to be permanent, which provides an institutional framework within which the decisions as to what to do and how to earn a living are left up to the individuals.”

4. Central planning and excessive regulation do not work: “The desire to plan and to subject the economy to the rule of experts endangers liberty.” The more a government tries to control business, the more business fails. Price controls create shortages. Wage controls create unemployment. They never have worked even in the short term. No examples of success, not one. Hayek: “The more the ‘state’ plans, the more difficult planning becomes for the individual.”

5. The economy is too complex for precise forecasting: you cannot accurately forecast consumer habits in the future. That is why department stores have sales; to get rid of items that they were sure shoppers would buy and then did not.

6. The rule of unintended consequences: History shows that when trying to realize certain ends—particularly when their achievement involves interfering with the workings of the price mechanism—all sorts of pernicious effects will occur that were not part of the original plan. See No. 4 above.

7. Leave social justice out of it: “Free markets necessarily lead to an unequal distribution of wealth and, just as inevitably, fuel calls for egalitarian social justice.” The ultimate “social justice economics” is communism. Not one successful example, unless you consider everyone being poor economic justice, exists in communism’s 100-year history.

Why have the less-developed countries including the Philippines performed better in the last three years? Because in the 21st century, these are the freest economics on the planet.

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