Bernardo M. Villegas
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published: Sep 27, 2019






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Benefiting from Double Sweet Spots (Part 3)

          The twenty first century as the Asian Century will see also a three-cornered competition among China, India and the ASEAN Economic Community (a free market union with some 650 million people belonging to ten countries in Southeast Asia).   In an article written for the Financial Times (July 20, 2017), economist Martin Wolf vividly described how the epicenter of global growth will shift to the Asia Pacific region, away from the developed countries.  According to him, between 1990 and 2022, the high-income countries share of world output, measured at purchasing power parity, is forecast by the IMF to fall from 64 percent to just 39 percent.  It would be the Asian emerging and developing countries that would account for the entirety of the rise in the share of emerging and developing countries.  The share of Asian emerging and developing countries is forecast to rise from 12 percent to 39 per cent of the world total over this period.    By 2022, the share of Asian emerging and developing countries in world output is forecast to be the same as that of the high-income countries.  The rise of China is the principal reason for this dramatic shift in relative economic power, though India’s rise is also significant.  China’s share in world output is forecast to jump from 4 percent in 1990 to 21 percent in 2022.  India’s share is forecast to climb from 4 percent to 10 percent. The AEC will not be far behind India, with also close to 10 percent of world output.

         Even more favorable to consumption and investment growth in the Asian region is the fact that hundreds of millions in these three countries constituting the Asian Century (China, India and the AEC) will be transitioning from low-middle-income to high middle-income status (from average annual per capita income of about $3,000 to about $8,000).  This is the range at which demand for all types of consumer goods, both durable and non-durable, grows geometrically.  To illustrate, as GDP rises annually on the average at 6 to 8 percent, demand for appliances, cars and similar products as well as educational and health services will be growing at double-digit rates, a phenomenon that was already experienced in China after the market revolution started by Deng Xiao Peng in 1978.  In fact, China is estimated to have today 500 million high middle consumers that constitute the biggest consumer market in the world today.  India and the AEC will not be far behind generating similar numbers of high-middle-income consumers.  It won’t be surprising that investment flows from all over the world will be in the direction of the emerging and developing economies of Asia.  This is the second sweet spot that will benefit the Philippine growth prospects in the coming decades.  Already, for example, Chinese tourists coming to the Philippines represent the second largest nation group, after South Korea.  In no time at all, the Chinese will top the list.  Our ASEAN neighbors and the Indians will not be far behind if the Philippine hospitality industry does a good job of marketing the Philippines to our Asian neighbors.  Palawan, with 2,000 islands and three international airports, can be the new Bali in the coming decades, thanks to its being free from volcanoes, earthquakes and tsunamis.

         There are two major challenges to our leaders so that we can fully benefit from these double sweet spots.  The first one is to continue improving the quality of education at all levels.  The demographic sweet spot will be wasted if we do not have the appropriate educated and trained manpower for the various industries that will attract high investments from both local and foreign investors.  The second is to finally address the perennial problem of very low agricultural productivity.  Food security is on top of the concerns of the most populous countries in Asia, i.e. China, India and Indonesia.  Unlike our neighbors like Thailand, Malaysia and Vietnam, we are unable to take advantage of the big demand for food products in the region. We ourselves are facing food insecurity.  By addressing this age-old problem of the backwardness of our agricultural sector, we will also solve the most acute problem of mass poverty.  With 21 percent of our population living below the poverty line, we stick out like a sore thumb in East Asia.  The Build Build Build program is the first step to endowing our poor farmers with better infrastructures.  The bulk of the government’s budget for infrastructure is being spend in the countryside, not the urban areas. The Duterte Administration believes that whatever improvement in infrastructure may be needed by Metro Manila and Metro Cebu should be done through Public Private Partnerships (PPP). 

     An indispensable next step is to review our agrarian reform program so that we can allow the millions of small farmers to consolidate their units in order to attain economies of scale through various models that have already worked in some of our neighboring countries, such as cooperativism (Taiwan and South Korea);  nucleus estate (Indonesia);  and the FELDA and FELCRA model of Malaysia; and what the Land Bank officials call corporatives.  The sweet spots will go to waste if we do not address the underdevelopment problem of the Philippine agricultural sector.  As topnotcher Senator-elect Cynthia Villar commented in a post-election interview, we should especially focus on the coconut industry where the small farmers are among the poorest of the poor and where a quantum leap in value added can be made if we are able to consolidate the small coconut farms, using any of the afore-mentioned models.  I am glad to note that a nucleus estate-type model as applied to coconut farms has already been successful in Brooke’s Point Palawan.  Thanks to the FLG Management & Development Corporation, a leading business group in the areas of media, shipping, power and logistics, Cardinal Agri Products is already producing virgin coconut oil (VCO), coconut flour, skim milk, and coconut water, the higher-value products from the coconut plant.  I hope this model can be replicated in many other coconut regions like Quezon Province, Bicol, Eastern Visayas and all over the island of Mindanao. For comments, my email address is bernardo.villegas@uap.asia.