PHL urged to diversify markets after achieving scale in services
THE Philippine service industry has achieved sufficient scale to start exploring diversification into new markets even during the looming global recession, economists said.
“The goal is to be able to expand our investments and trade in services, such as in food, business activities and health, beyond our borders since economies of scale in the service sector can now be feasible given new technology. Through research and development, we can create niches in agricultural and industrial markets through an expanded service sector,” Ateneo de Manila Economist Leonardo A. Lanzona, Jr., said in an e-mail.
China Banking Corp. Chief Economist Domini S. Velasquez added in an e-mail that the Philippines “is in a good place to take advantage of the growth momentum from 2022. Given the fiscal constraints brought about by the pandemic, the government has limited budget for investment-led spending. It needs to be able to prioritize investments that create quality jobs and that are climate resilient.”
In its recently released Global Economic Prospects report, the World Bank said the effects of the pandemic and the war in Ukraine are expected to extend the prolonged and broad-based slowdown in investment growth seen in the 2010s.
“Compared to the years following the global financial crisis, the investment recovery following the COVID-19 pandemic is proceeding more slowly. The slow recovery partly reflects the widespread impact of the pandemic on investment, which shrank in nearly three-quarters of emerging markets and developing economies (EMDEs) during the pandemic,” the World Bank said.
It also noted that both private and public investment growth were more sluggish during the 2010s than in the previous decade.
“For all EMDEs, projected investment growth through 2024 will be insufficient to return investment to the level suggested by the pre-pandemic trend. Investment weakness dampens long-term output growth and productivity, is associated with weak global trade growth, and makes meeting the development and climate goals more challenging,” it added.
According to the report, commodity-exporting EMDEs were projected to have lower investment growth rates than tourism-reliant EMDEs.
“It is not hard to imagine that export-dependent EMDEs will be facing limited investment growth in the next few years because this had been happening even before the pandemic. This can be attributed to the huge market share that China has in the export market,” Mr. Lanzona said.
“The Philippines is somewhat different from the region in that it is not a heavy resource exporter nor is it particularly reliant on tourism compared to our neighbors like Thailand. Nonetheless, the Philippines should still benefit from increased investment outlays to bolster productive capacity on both fronts in particular by improving infrastructure quality and quantity,” ING Bank N.V. Manila Senior Economist Nicholas Antonio T. Mapa said in a Viber message.
Terry L. Ridon, a public investment analyst, said tourism can be a growth driver but will require enhancements to infrastructure.
“In the same manner that the BPO (business process outsourcing) and semiconductor sectors are pillars of economic growth, the tourism sector generates growth due to the inflow of foreign spending… However, it will be difficult to grow the tourism sector without adequate infrastructure supporting tourism areas and facilities, as the country will be competing with world-class infrastructure and tourism facilities in other countries, particularly our ASEAN counterparts,” Mr. Ridon said in an e-mail.
Mr. Ridon said that the government should identify where it intends to improve tourism infrastructure.
“This includes improving our international airports, such as the Ninoy Aquino International Airport, and expediting the construction of new ones, such as the New Manila International Airport in Bulacan. The government should also determine whether adequate transport options are available for tourists, to bring them to both well-known tourist hubs and developing areas,” he added.
The World Bank recommended that resources be allocated away from subsidies to fund investment growth in EMDEs.
“Macroeconomic policy can support investment in EMDEs in a variety of ways, including through preserving macroeconomic stability. Even with constrained fiscal space, spending on public investment can be boosted by reallocating expenditures, freeing resources by moving away from distorting subsidies, improving the effectiveness of public investment, and strengthening revenue collection,” the bank said.
“Structural policies also play a key role in creating conditions conducive to attracting investment. Institutional reforms could address a range of impediments and inefficiencies, such as high business startup costs, weak property rights, inefficient labor and product market policies, weak corporate governance, costly trade regulation, and shallow financial sectors,” it added.
Setting appropriate, predictable rules governing investment, including for public-private partnerships (PPPs), is also important, the World Bank said.
“The government’s plan to use PPP should be able to augment infrastructure needs. In the next few years at least, the private sector would need to step up to spur economic growth. But at the same time the government should exert efforts to boost competitiveness and ease the cost of doing business to pave the way for private investment,” Ms. Velasquez said.
“PPPs can help, but a more accommodative policy environment may also help boost investment outlays in the medium term,” Mr. Mapa added.
Mr. Lanzona cited the need to invest in human capital.
“While infrastructure may seem to be important, investments in human capital would be more vital if we are to maximize our potential in digital technology. In fact, we have been frontrunners in this area through our business processing outsourcing (BPO) companies, and it is just a matter of expanding this sector further,” he added. — Luisa Maria Jacinta C. Jocson