Page last updated at 07:51 CST6CDT, Thursday, 18 June 2020 PH
The food industry has been, without doubt, the most resilient in the midst of the pandemic. What other sectors can we expect to bounce back more quickly than the others once there is some amount of normalcy (even if it will have to be a new normal)? Let us take off from the fact that Philippine economic growth over the last ten years has been mainly propelled by consumption, which accounts for some 70 percent of the Philippine GDP. It is to be expected, then, that if the Expanded Community Quarantine (ECQ) is sufficiently modified to allow much greater movement of consumers, goods, and services, the sectors that will be able to recover faster are those that will be in big demand from the 110 million Filipino consumers, i.e. the domestic market. As we mentioned above, the Philippine economy is still able to grow at above-average rates in the global economy even in the midst of a global recession (which is expected over at least the next two years) because we are among the least globalised of East Asian countries. Our export-to-GDP ratio at 30 percent is one of the lowest. Our local businesses thrive on what they sell to the domestic market.
More than ten years ago, when the Philippines was still a low middle-income country with an annual per capita income of less than $3,000, I used to say that the Fast Moving Consumer Goods (FMCG) can be summarised with the Four F’s: Food, Fashions, Furnishings and Fun. The first three correspond to food, shelter and clothing which are the basic human needs. The fourth F (Fun) which consists of entertainment and tourism is a basic need of any human being in modern times, especially the Filipino who, no matter how poor he or she is, cannot live without having some fun, even it is just to watch a favourite teleserye or telenovela, follow the lives of their favourite movie stars or play some game on an inexpensive smart phone. As we moved in the last ten years or so from a low middle-income (per capita of less than $3,000 annually) to a high middle-income ($4,000 or more per capita income) economy, there are three other F’s of consumer goods or services that have become “sunrise sectors.” They are Fitness, “Facebook”, and Formation. Fitness refers to all the goods and services that contribute to the total health of the individual which would include pharmaceutical products, vitamins and other food supplements, health services, sports activities, physical fitness gyms, etc. “Facebook” symbolises all the products and services spawned by the digital age, such as smart phones, laptops, internet services, social media, data analytics, and now teleconferencing, etc. Formation refers to all forms of imparting knowledge and skills to human beings, whether formal, non-formal and informal education. Education and skills training have become big business in the last decade or so. Many business conglomerates have invested heavily in education, such as the PHINMA group, the Ayalas, the Montinolas, the SM Group, the STI Group, the Yuchengcos, etc.
All these seven Fs, except the travel and tourism part of “Fun”, will grow at rates significantly above the expected GDP growth rate for 2020 which can range from 0.6 % to 4 %. As the one-armed economist that I want to be, I forecast a growth of about 2% for the whole of 2020, with close to 0 percent in the first semester and 4 % in the second semester. I am assuming that despite all the hesitation to introduce a modified quarantine, our Government officials will have the guts to take the calculated risk of allowing more freedom of movement of individuals and vehicles (still with all the safety measures and safeguards) by July 1. Then I see that there will be a V recovery in the second semester, with consumption expenditures leading, Government pump priming a close second and Private Investment and Export lagging very much behind. I am assuming that by the end of June, President Duterte will be convinced to implement one of the last pieces of advice given by his former NEDA Director General and Secretary of Economic and Social Planning, who as early as mid-April 2020 was already suggesting the calibrated opening of shopping malls and other retail establishments where there can still be the necessary safeguards against contracting the Coronavirus, among which was his advice for employers to provide shuttle services for their staff to practise social distancing. These shuttles can take the place of public commuting at least for some of the workers. I also assume that by July 1, businesses offering personal services like haircuts, laundry, house repairs and cleaning that contribute to comfortable living even if not strictly essential will be allowed to open. Given this assumption, I see the Philippine domestic market of 110 million people bouncing back during the second semester like a spring that has been compressed.
Where will consumers get their purchasing power to spend on the seven F’s? The first would be the continuing contribution of Overseas Filipino Workers (OFWs) to the Philippine economy in the form of remittances which I expect to remain at close to $34 billion. This is, I admit, a contrarian view in today’s turbulent environment. Last April 23, the Financial Times carried a front page story that poorer nations are in peril from a likely $100 billion slump in remittance flows, plummeting from US$554 billion in 2019 to $445 billion in 2020. This will be the largest decline in recent history. I submit, however, that much of the $445 billion in 2020 will still flow to the Philippines which is always a preferred source of OFWs especially in health-related, domestic and hospitality services. In the seafaring industry, for example, I think the Filipinos will be the last ones to be laid off. In fact, more and more of them are being promoted to the level of officers. The alternative sources of seafarers, i.e. India, China and Mexico, will be the ones to suffer the brunt of the collapse of sea travel and trade. A similar competitive advantage of Filipino overseas workers can also be posited for the world hospitality industry that is also expected to take a big hit.
I completely disagree with all the prophecies of doom about OFWs coming back in droves and those abroad significantly reducing their remittances to their relatives. If there is one piece of economic statistic that I have followed with eagle eyes over the last fifteen years, it is the annual figure for OFW remittances. Through all the global crises of the Great Recession, the Arab Spring, the collapse of oil prices, and the threat of war in the Middle East there was not a single year when OFW remittances dropped. Year and year out, our more than ten million OFWs faithfully sent home their remittances that increased annually at 3 to 5 % without fail. The year 2020 will be no different. Whoever will be rendered unemployed by the pandemic in one occupation will easily shift to another occupation or will be replaced by new OFWs especially in the health and domestic services. Another reason for optimism as regards OFW remittances is the experience in the past that during times of crises, Filipino workers abroad tend to be more generous in the amounts that they send to their relatives precisely to protect the their loved ones from suffering a decline in their standards of living.
Just witness the recent controversy between our Secretary of Foreign Affairs and some labor officials about Filipino nurses being prevented from returning to their jobs abroad. Fortunately, the issue was resolved in favour of the opinion of Secretary Teodoro Locsin, Jr. who strongly objected to the prohibition. It is no exaggeration that some services sectors, like the health services of many developed countries will collapse if we withdraw our nurses, care givers and other health workers. It was very moving to hear the British commentator, Pierce Morgan, heap praises on the indispensable role of Filipino nurses in the NHS of the United Kingdom. In fact, in a recent interview with ANC, Christopher Nelson, President of the British Chamber of Commerce Philippines, reported that there are some 19,000 Filipino health workers in the UK who are in the front line in fighting COViD-19. Without them, their NHS would face an even more serious threat.
Even if the developed countries like the United States will suffer from very high rates of unemployment, Filipino service workers are irreplaceable because of their unique human qualities. Without being frivolous, let me recount what I learned when I lived for a few years in Europe and asked Europeans why they prefer Filipino immigrant workers to others with different nationalities. In addition to the usual reference to their language and social skills (quick to smile, affectionate, caring or as we say in Filipino “may malasakit”), they would invariably refer to the well known habit of the Filipino from whatever social class to “take a bath every day.” Our reputation of being very hygienic is clearly a comparative advantage during these days of the COVID-19. To be continued.