Bernardo M. Villegas
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The Philippine Economy in 2050 (Part 3)

             Assuming that there is a great probability that the Philippine economy will go the way that South Korea tracked in the last thirty years, as discussed in the two previous articles, adding some features of the agricultural revolutions in which Thailand, Malaysia and Vietnam excelled during the same period, by 2050 the total per capita GDP of the Philippines will be close to $17,000 in today’s prices.  Using current international criteria for classifying economies into the different economic levels, such a figure would entitle the Philippines to be considered as a high-income or advance economy by then. Today, the threshold to high-income status is  $12,500.   We are assuming that the average GDP growth for the Philippines for the next 30 years will be 6 percent (below the South Korean average).  Since population growth will slow down to 1 percent annually during this period, GDP per capita will grow at 5 percent annually.  Starting from the base of $4,000 in 2023—the year of the full recovery from the pandemic—an amount close to $17,000 will result using the compounding calculation.

            As an advanced economy by 2050, the Philippine economy will resemble today’s GDP and labor force composition of South Korea as regards the predominance of services.  In 2050, services will account for 60 percent of Philippine GDP and 70 percent of the labor force.  Still predominant 30 years from now will be the contribution of OFW remittances to both GDP and GNP.  The fertility rate of the country will not go down below replacement rate, considering the pro-life and pro-children bias in Filipino culture.  The country will continue to have a young and growing population. All the developed countries of the world then, especially China, will be suffering from rapid ageing with 25 to 30 percent of their population over 65 years old.  The demand for Filipino workers, most of whom will already be knowledge-based workers like doctors, nurses, care givers, teachers, IT professionals, and hospitality workers will  intensify.  Because of the continuing demographic dividend with which the Philippines will be blessed, there will be enough for both domestic and foreign demand for Filipino workers.  As the Government spends an increasing percentage of GDP on basic education (from 2 percent historically to 4 to 5 percent in the coming decades), education at the K to 12 level will improve in quality, making it possible for the country to produce the mid-level talents that will be in greatest demand both locally and internationally.  The Philippines will not yet be able to compete with such countries as India, China, South Korea, Japan and Taiwan in producing high-level talents in sciences and engineering for us to produce high-technology goods and services, especially for exports.   We will not be ahead of the curve in Industrial Revolution 4.0 because we delayed for too long our completing the first three stages of the Industrial Revolution and not to mention our still struggling to complete the pre-required agricultural revolution.

            In the service sector, the second leading employer in 2050 will be the Information Technology-Business Process Management (IT-BPM) sector, providing mid-level talents to the more developed countries, especially in North America and Europe, with increasing demand from the non-traditional markets like Japan, South Korea, China and Taiwan, countries that will be hardest hit by the demographic crisis in the coming years.  As can be gleaned from the very thorough demand analysis contained in the Frost and Sullivan study for the IT and Business Process Association of the Philippines (IBPAP) as AI and robotization reduce the demand for workers in contact centers and business process outsourcing, there will be an acceleration of demand for animation and game development, health information management (especially after the pandemic), information technology outsourcing and global in-house centers. This service-oriented sector can account for 8 to 10 percent of Philippine GDP.

            Also a dominant force in the service sector will be the tourism and travel industry.  Having some of the best island resorts in the world (Palawan being on top of all them), the Philippines in the Indo-Pacific region will be what Spain is in the European Union.   As the Build, Build, Build program, a major engine of growth of the economy for the coming decades, continues to improve the country’s infrastructures, more and more of the remote but  very attractive tourism destinations will be accessible to both domestic and foreign tourists.  These tourists are expected to come mostly from the Northeast Asian countries like South Korea, Japan, Taiwan and China.  Filipinos themselves are known to be avid travelers and will constitute the bulk of tourism as the middle-class Filipinos will constitute some 80 percent of the population by 2050 and will actually be the primary engine of growth of the Philippine tourism industry.

            The industrial sector (manufacturing, construction, mining and public utility) will constitute in 2050 some  30 percent of GDP.  The manufacturing sector will be predominantly focused on the domestic population that could reach some 150 million by 2050, a market big enough to enable mid-technology industries to attain economies of scale for them to produce at globally competitive levels.  Still predominant in the manufacturing sector will be food and beverage, tobacco, textiles, coke and refined petroleum, chemical and chemical products, basic pharmaceutical products and pharmaceutical preparations, rubber and plastic products, basic metals, fabricated metal products, computers, electronic and optical products, furniture, and machinery and equipment. Since the Philippines will not be a major exporting nation of high-technology products even in 2050, our major exports will continue to be ignition wiring sets and other wiring sets used in vehicles, aircrafts and ships, metal components, cathodes and sections of cathodes of refined copper, electronic equipment and parts, chemicals, and electronic products. We will continue to import high-technology products such as electric vehicles, airplanes, ships, construction machinery, and advanced pharmaceutical products.  Since labor-saving technology such as AI, robotization, the Internet of Things and other tools of Industrial Revolution 4.0 will be most applicable to industry, only 15 percent of the labor force will be needed for this sector.

            Agriculture will account for 10 percent of GDP. As Government invests more and more through the Build, Build, Build, program in farm-to-market roads, irrigations systems, post-harvest and other facilities needed by the small farmers, there will be a significant increase in agricultural productivity.  The rice tariffication policy will lead to a shifting of more farm lands towards higher value crops, following the Thai and Vietnamese models.  The appropriate consolidation of small farms, especially in the coconut industry through cooperatives or the nucleus estate system perfected by the Malaysians in the growing of palm oil and rubber will attract more investments, both local and foreign, to such products as coffee, cacao, durian, mangosteen, mangoes, longans, lychees, avocados and other higher-value food products that can be added to bananas and pineapples among our major agricultural exports.  Through the consolidation of the millions of hectares of coconut farms, higher-value coconut products such as coconut water, coconut sugar, coconut milk, nata de coco, and many other derivatives from the coconut tree will lead to a significant reduction of rural poverty since coconut farmers and farm workers are among the poorest of the poor in this country. Also contributing to higher incomes in the coconut industry is the increasing practice of intercropping between the coconut trees of high value crops like coffee, cacao, papaya and vegetables. With the significant increase in agricultural productivity as more capital and technology are poured into it—reversing the many decades of neglect by the Government—the labor force in this sector will decline from its present 22 percent to about 15 percent in 2050. The trend to replace labor with capital and technology will be an absolute necessity because today, the average age of a Filipino farmer is already close to 60 years.  The farmers of the future will have to be agritechnicians who will need an education similar to the training obtained by those who go to TESDA-type schools producing skilled workers for industry.

            To summarize, the vision of the Philippine economy in 2050 presented here will be realized if the Philippines is  able to avoid the middle-income trap by an intensification of the Build, Build, Build program, especially as regards infrastructures in the countryside; higher investments in education that can be complemented at the post-secondary level by foreign direct investment; a more level playing field in business avoiding Philippine-style crony capitalism; the opening up of strategic industries such as telecom, mass media, advertising and higher education that are vital to the technologies required by Industrial Revolution 4.0; and the restructuring of  agricultural lands to allow for consolidation of small farms so as to attain economies of scale, especially in the coconut industry; and the diversification of agricultural production to higher-value crops following the examples of Southeast Asian neighbors such as Thailand, Malaysia and Vietnam. All these enlightened measures will lead, not only to advanced economy status by 2050 but to a Philippine economy that enjoys a more equitable distribution of income and wealth.   For comments, my email address is bernardo.villegas@uap.asia.