Bernardo M. Villegas
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Avoiding Depression During Philippine Recession (Part 2)

          The newest global forecasts from the IMF and other international organisations show the global economy suffering a GDP decline of -4. 9 percent.  Advanced economies are expected to register the largest average decline of -8.0.  The EU and the U.S. will experience the worst drop of -10.2 percent and -8 percent, respectively.  Emerging markets, to which category the Philippines belongs, are expected to experience GDP decline of only -3.0 on the average.  The Asian emerging markets will actually have a smaller decline of  -0.8 percent with China even managing a 1.0 percent positive growth, India with -4.5 percent and the ASEAN Five (Indonesia, the Philippines, Malaysia, Singapore and Thailand)  contracting by -2.0, a figure which I think the Philippines will attain.  The prognostications for the recovery in 2021 are encouraging.  The global economy will rebound at a positive growth of 5,4 percent, with the US growing at 4,5 percent and the EURO zone bouncing back at 6.0 percent.  The emerging markets in Asia are expected to have a strong recovery at a positive growth of 7.4 percent with China growing at 8.2 percent and India at 6.0 percent.  Estimates for the Philippines range from 6 to 9 percent, indicating an appreciation of the strong foundations identified above, i.e. a young, growing and English speaking population which can provide human resources for many developed countries in the world and a large domestic market which augurs well for a consumption driven growth.

         Like in the Great Depression of the 1930s, the Government will play a lead role in pump priming the economy.  Thanks to many years of fiscal discipline practised by successive Philippine Governments, at least since the Administration of former President Gloria Macapagal, the Philippine public sector has  greater leeway than many countries also suffering from recession to borrow heavily to subsidise those who have been rendered unemployed and to help both big and small enterprises to recover.  In addition to these subsidies that directly prop up demand by consumers, there are the large sums from the government budget that are being spent on the aggressive Build, Build, Build program that started even before the pandemic hit the country.  There is greater resolve on the the part of the public sector to implement these public works projects, especially in the countryside.  It is heartening to see that there are regions in the Philippines that are already growing much faster than the National Capital region, such as Central Luzon, Southern Luzon, Western Visayas (especially Iloilo), Davao City and even former lagging regions like the Bicol region.  In addition to these capital expenditures of the Government, there is also a noticeable increase in the percentage of the operating budget of the Government spent on the two critical sectors of health and education.  In fact, these encouraging trends in government spending, given a greater boost by the need to address the COVID-19 pandemic in the case of the health sector and the need to democratise online learning among the school children, are being matched by private sector investments in the sectors of education and health and wellness—two of the sunrise industries that have been identified by private investors, both local and foreign.

   Common to the growth sectors is the digital transformation of operations and services made necessary by the various lockdowns, such as blended learning, e-trade, telemedicine,  electronic banking and fintech, webinars, working at home and many other components of the so-called Fourth Industrial Revolution.  In a Webinar organised by the Philippine Contractors Association (PCA) last June 18, 2020, Kristine Romano, Managing Partner of McKinsey in the Philippines estimated how the pandemic accelerated the digital transformation of various economic services.  What would have taken 10 years in digitalizing delivery of goods and services happened in eight weeks during the pandemic; online entertainment was digitalised in two months instead of the 7 years it would have taken in the old normal.  There were 250 million more people engaged in remote learning in two weeks during the pandemic. There were twenty times more participants in Zoom. There were ten times more subscribers in telemedia within five weeks of the pandemic.  There is no question that the whole sector made up of digital devices (laptops, smart phones, computers, etc.) and digital services has greatly benefited from the adverse circumstances brought about by the pandemic.  The expression “a blessing in disguise” would be an understatement in describing the great leap forward made in the digital industry because of COVID-19!

         There is, of course, the downside of the pandemic.  As mentioned above, the unemployment rate has reached a 15-year high of 17.7 percent which means that there are some 7.2 million Filipinos without work.  This means that there are many households, such as those of jeepney  and bus drivers, restaurant  and hotel employees, workers in the travel and tourism sector, and former OFWs who lost their jobs who were low and even middle-income earners who have now  joined those below the poverty line.  Before the pandemic, we celebrated a decline of those below the poverty line from 21 percent five years ago to 16.1 percent in 2019.   I am afraid that with the massive unemployment resulting from the lockdowns required to combat the pandemic, poverty incidence must have gone back to over 20 percent.  Instead of being depressed by such a development, both the Government and the private sector must seize the challenge of converting the crisis into the opportunity of giving a more human face to our market economy.  By providing the needed infrastructures as farm-to-market roads, irrigation systems, post-harvest facilities and the necessary financing, the Government can foster the enabling environment to encourage numerous  private entrepreneurs to venture into the whole agribusiness sector which will be critical in ensuring food security.  It must be emphasized that agribusiness encompasses the wide range of farming, post-harvest, logistics, processing, and retailing of food products first for the domestic market and for export (in the case of bananas, pineapples, mangoes and other tropical fruits).

         Business people, both large, medium-scale and small, who go into any of the phases of agribusiness can rest assured that they are among the leading social entrepreneurs who venture into business, not only for the reasonable profit to be sustainable over the long run, but first and foremost to generate employment for both farmers and urban dwellers and to help the country attain food security during these trying times.  The biggest consumer market for a country like the Philippines that is  transitioning to become a high-middle income economy is that of food and beverage.  There is room for such large corporations as San Miguel Corporation, Mega Sardine, Mondenisin, Century Tuna, Nestle, etc. as well as for numerous small and medium-sized high-value farming projects in the urban areas; food processing done by small and medium-sized enterprises; large logistics companies like Fast Cargo as well as small food delivery services.  To finance these social enterprises there are the corresponding “social bonds” that are meant to fund projects that directly aim to address the social objectives which are quite obvious in the agribusiness sector, i.e. helping small farmers overcome poverty, generating employment in both rural and urban areas, and attaining food security.  To compensate for their historical failure to invest in agri-agra projects, large commercial banks are now considering issuing social bonds that will be used to finance eligible micro, small and medium-sized enterprises (MSMEs) that will significantly contribute to the all-important goal of food security.   Of course, these social bonds may also be useful in the funding of projects directly related to health and wellness, social concerns that will be given a great deal more importance with the realisation that the COVID-19 threat will be with us for a long, long time.  For comments, my email address is bernardo.villegas@uap.asia