Bernardo M. Villegas
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Rebalancing Strategy Should Include Spain (Part 1)

          A looming engine of growth of the Philippine economy in the coming years is without doubt tourism.  Already there are annually close to 40 million domestic tourists and counting.  It won’t be long before we will be talking about 10 million annual foreign visitors, especially from our neighboring countries like China, Japan, South Korea and Taiwan, not to mention our increasing integration with our Southeast Asian neighbors.  We have to fast track our learning from the leading countries in the world about how to manage and grow this industry that has tremendous potentials for reducing our unemployment rate.  It has been estimated that for every foreign tourist, two or more jobs can be created, especially in the countryside where underemployment rate is highest.  In some rural areas, underemployment can be as high as 40 percent.

         As we implement the “rebalancing strategy” suggested by the Duterte Administration, we have to go beyond the first priority, i.e., developing closer relations with our East Asian neighbors.  I am already seeing some fruits of the Government’s greater emphasis on attracting trade and investments from China, Japan, Taiwan and South Korea.  As I have mentioned in previous columns, I am actively planning and implementing road shows in these Northeast Asian countries.  When it comes to tourism technology and experiences, however, no country can beat our former mother country, Spain.  In the Travel and Tourism Competitiveness Index (TTCI 2017) of the World Economic Forum, Spain unsurprisingly obtained the Number 1 ranking, followed by France and Germany.  I am not surprised because after having lived in Spain for a total of three years of my life, I can really attest to the way the Spaniards have perfected the science and art of catering to foreign tourists from all over the world.  Last year alone they attracted 70 million foreign travelers (there are only 45 million permanent residents in Spain) to their numerous destinations that combine the joys and pleasures of the beaches, mountains, cultural and artistic heritages, culinary delights, and religious pilgrimages. 

         Spain has much more to offer than their experiences in developing a world-class tourism sector.  It is not well known in the Philippines that Spain is now considered the fastest growing economy in the European Union.  In an article that appeared in the Financial Times last April 7, 2017 that was entitled “Boom to bust and back again”, the good news is that Spain is set to return to its pre-crisis size in 2007, after nearly nine years, two recessions and billions of euros in bailouts.  I can identify very closely with this good news because I saw the peak of the boom while teaching in a business school of Barcelona in 2007 and also witnessed the beginning of the bust just before I returned home to Manila in July of 2008. I saw with my own eyes the frenetic growth of construction, especially housing, and the accompanying explosion of credit.  Involving some of the entrepreneurs and executives that experienced the construction boom of the 1990s in our own efforts to build infrastructures and meet the backlog in housing at the low and middle-income segments of society may help us avoid the excesses that eventually led to the recession of the last nine years in Spain.

         As the Financial Times article pointed out, the relatively strong recovery of the fourth-largest economy of the Eurozone shows that the unpopular policies pushed through at the height of the crisis worked.  “Despite causing initial pain, Spain’s decision to reform the labor market, overhaul the banking system and cut the deficit paved the way for a return to growth.  It is a message Madrid would like to resonate beyond Spain’s borders.”  Our monetary and fiscal policy makers are well advised to study closely the experiences of Spain over the last nine years for lessons we may learn in avoiding a real estate bubble and in not granting excessive increases in wages and benefits that are not accompanied by improvements in labor productivity.  A great part of the recovery of the Spanish economy can be attributed to an export boom that reflects the country’s recent competitiveness gains.  Spanish labor costs have fallen 14 per cent since 2010, in response to long years of wage restraint as well as the new flexibility granted to companies by the 2012 labor market reforms. Thanks to a more diversified economy, growth rates are nearly back to levels during the boom years.  The economy expanded by more than 3 per cent in both 2015 and 2016, far ahead of its European peers.  In 2017, Spain will continue to lead the other countries in the EU, with GDP rising at least 2.5 per cent.

         A healthier Spanish economy should encourage both our government and private sector to seek actively possible investments by Spanish companies in the Philippines, especially in the area of infrastructures, tourism, agribusiness, financial services, food manufacturing, logistics, information technology and the creative industries.  Like our Northeast Asian neighbors such as Taiwan and South Korea, Spain upgraded its infrastructures to world class levels only in the last twenty or thirty years.  They have all the technology and know how to help us construct airports, toll ways, power plants, train and metro systems, sea ports and mass housing.   Already, some of the largest construction companies in Spain like OHL are actively looking for ways to participate in the various Public Private Partnership Programs (PPP) that are more aggressively being promoted under the Duterte Administration.   We should actually put Spain in the same category as our Northeast Asian neighbors from the standpoint of infrastructure development.  For example, I personally know of some of the advanced technologies in waste disposal for cities that are available from Spanish companies.  They also have invested heavily, sometime not so profitably, in solar, wind and other alternative energy sources.  We can learn both from their successes and failures.  (To be continued).