Bernardo M. Villegas
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Is 8 Percent Growth Possible?

         The first days of May 2023 brought not only the first signs of the cooling waters of rain.  They also came with some encouraging news for the Philippine economy.  Many private sector economists were surprised with the announcement of the Philippine Statistical Authority (PSA) that the first quarter GDP grew by 6.4 percent.  Even more surprising was the refreshing news that Philippine agricultural production posted a 2.1 percent growth during the first three months of the year, after declining for the last three years.  Finally, elation rose even further when it was announced by the Bangko Sentral ng Pilipinas (BSP) that Foreign Direct Investment (FDI) net inflows rose by 13 percent in February, its highest level in 14 months.  The BSP attributed the year-on-year increase in FDI to the higher non-residents’ net investments in debt instruments, which offset the drop in net equity capital placements and reinvestments of earnings.  An increase in net investments in debt instruments signals a more positive perception of the investment climate in the Philippines and is expected to be followed by an increase in actual Foreign Direct Investments in equity.  I personally saw a heightened interest among infrastructure companies in Spain in investing in some very important sectors like airports, railways, bridges, and renewable energy projects in the Philippines.

            It is significant that, despite the headwinds of a looming global recession and higher domestic inflation in the Philippines, its GDP grew faster than those of China (4.5 percent), Indonesia (5.0 percent), Singapore (0.1 percent), Thailand (2.7 percent) and even the new dragon in the region Vietnam (3.3 percent) during the first quarter of the current year.  We can be confident that the Philippine economy can continue to grow at the rate of at least 6 to 7 percent per annum for the coming five years, even if there are no dramatic improvements that will be introduced by the present Administration to the institutions and enlightened economic policies already in place after more than 30 years of reforms.  We have already witnessed this from 2011 to 2019, the pre-pandemic years.  Without fail, during that period, Philippine GDP grew at an average of 6 to 7 percent year after year.  This sustained growth at over 6 percent annually was especially meaningful because they happened under two very different types of leaders, President Benigno Aquino III (2011-2916) and President Rodrigo Duterte (2016 to 2019).  I conclude from this fact that as long as the best and brightest are in control of the key economic levers, the political leadership is of secondary importance.  I am especially encouraged by my perception that we have one of the best economic teams put together by President Marcos Jr. that we have seen over the last thirty years.

            The news of the first quarter of 2023 have bolstered my optimism that it is possible for the Philippine economy to register an 8 percent GDP gro years of the BBM Administration.  As I have written before, what this present Administration can contribute to the existing institutions and enlightened economic policies already in place have to do with three vital sectors.  The first has to do with food security that is directly linked to the agricultural sector.  If the BBM Administration can introduce the appropriate policies and programs that will enable the agricultural sector to grow at 2 to 3 percent annually (instead of declining year after year as it did over the past three years), then that can contribute to a possible 8 percent growth in GDP.  That is why the 2.1 percent growth in the first quarter of agricultural production (especially livestock at 4.1 percent and poultry at 3.2 percent) is a good omen.  The private business sector can help the President sustain such growth rates by helping in the consolidation of small farms into bigger units (through the nucleus estate model or cooperatives), diversifying into higher-value crops other than rice, digitalizing many of the operations in the agribusiness value chain, and processing more of the raw materials from our farms through greater industrialization.  I am glad to see some of our conglomerates that have not been traditionally in agribusiness venturing into large-scale farming and food processing, such as the DMCI group, Benguet Corporation and the First Pacific group.

            The second major requirement for accelerating the GDP growth rate to 8 percent per annum is to increase the Philippine investment rate to GDP from the low of 23 percent to over 30 percent (as practically all our East Asian neighbors have already attained) by attracting an annual flow of $15 to $20 billion of FDIs yearly, as Vietnam has already accomplished.  This can be attained if we focus on inviting the large infrastructure companies of such countries as Japan, South Korea, Spain, Germany, the Scandinavian countries and others to take advantage of the opening up to a 100 foreign equity ownership of vital infrastructures with the amendment of the Public Service Act. It is worth noting that Copenhagen Infrastructure New Markets Fund ((CINMF), an affiliate of Danish fund manager Copenhagen infrastructure Partners (CIP), is undertaking $5 billion worth of offshore wind projects in the Philippines, making it the country’s first 100-percent foreign-owned offshore wind development.   Just consider that the NEDA lists 3,600 potential infrastructure projects worth as much as $372 billion for implementation through 2028.  Investing in infrastructures literally kills three birds with one stone:  there is a big increase in employment, there is significant reduction of transport costs that will be benefit the agribusiness supply chain, and improved infrastructures will help transform the Philippines into the leading tourism center of the Indo-Pacific region.

            The private business sector can do much to help the Government bring home the bacon.  One can only admire the unflagging efforts of President BBM in trying to attract FDIs.  Since the start of his Presidency, he has been to more than six countries all over the world trying to bring in FDIs.  Just since the start of 2023, he has traveled to Japan, Switzerland (for the World Economic Forum), China and the United States as part of his selling efforts.  But he can only do so much, as he himself has admitted.  The backing of the private business sector is needed to make his message more credible.  It is incumbent especially to investors in real estate, industrial zones, tourism assets, and human resources companies to organize private road shows to these targeted countries (and many more) to put the finishing touches to the marketing efforts of the Government in attracting FDIs.  These road shows (as I have personally experienced) can be led by investment bankers, officers of chambers of commerce on both sides of the transactions, independent economists from think tanks and academic institutions.  They can be organized in key cities of the targeted countries (as we recently did in Madrid and Barcelona).

            The third means of attaining an 8 percent growth rate is to seriously tackle the problem of corruption in both the public and private sectors. Much can be gained from stopping the leakages of billions of pesos associated with corrupt practices. This cannot be done by the Government alone. We need the active participation of such business groups as the Makati Business Club (and its regional equivalents), NGOs like the Institute for Corporate Directors, the various chambers of commerce and industry, and various schools of law and governance of the leading universities.  Big business can especially play a role in funding some of these private efforts to improve governance through their programs related to CSR (corporate social responsibility).  For comments, my email address is