Bernardo M. Villegas
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Benefiting From Double Sweet Spots (Part 1)

          The Philippine economy has two “sweet spots” going for it in the next twenty years at least.  No wonder, a good number of international agencies and think tanks have been coming out with glowing forecasts for the Philippine economy in the last few months.  Credit rating agencies have been giving us the highest ratings ever.  At the beginning of this year, the prestigious think tank The Oxford Institute listed the Philippines as the second most promising emerging market in the coming ten years, next only to India and followed by Indonesia and China. Despite the temporary slow down of the economy in the first quarter because of the budget impasse, many forecasts still consider a GDP growth for the current year of over 6% possible, still one of the highest in the region. Despite our obvious weaknesses such as a non-performing agriculture sector, difficulty of doing business arising from our very Constitution and continuing corruption in some government agencies, what do outside observers see in the Philippines that make them generally optimistic about our long-term economic prospects?

         The first attraction, I think, is our “young, growing, and English-speaking population.”   I see this phrase in almost all the positive assessments of the Philippine economy.  Our “demographic sweet spot” is in stark contrast with practically the whole Western world and the developed territories of East Asia such as Japan, South Korea, Taiwan, Singapore, Hong Kong, Macau and even surprisingly China and Thailand that are still relatively poor countries.  Our fertility rate at 3.1 babies per fertile woman is still significantly above the replacement rate of 2.1.  Our population continues to grow and is expected to peak at about 150 million people by 2050, making for a population density that is approximately equal to that of South Korea today.  South Korea has much less natural resources than the Philippines. The growing population is increasingly being turned into a real asset by very significant increases in government spending on education (especially basic education) and health services.  Many large conglomerates are also contributing to better quality of higher education by investing in universities and technical institutes that are improving the quality of technical and professional personnel.

         The demographic sweet spot of the Philippines stands out in stark contrast with emerging markets like China and Thailand.  These are two countries that are ageing rapidly before they become rich.  A recent article by Anna Fifield that appeared in The Washington Post (May 4, 2019) chronicles the failure of the Chinese government to encourage Chinese women to have more children even as the one-child policy has been abolished.  China’s population is forecast to peak at 1.45 billion as early as 2027, then start falling for several decades hence.  By 2050, as much as one-third of the population will be over the age of 65, putting great pressure on the working-age people who will be carrying such a heavy burden supporting the ageing population.  Care givers will be especially in short supply.  Yi Fuxian, a researcher at the University of Wisconsin at Madison lamented: “A great nation with thousands of years history and a brilliant civilization is rapidly degenerating into a small group of the old and the weak, thanks to these wrongheaded population-control policies.”    The Chinese Government is now actively promoting larger family sizes just like the way the late Lee Kuan Yew of Singapore changed his tune from “Stop at two” to “Please have four” without success.  Not surprisingly, the Chinese government’s new pro-birth policies have little influence on procreation in modern China.  The country’s family-planning authority had forecast 20 million births in 2018, anticipating a baby boom after the end of the one-child policy.  Instead, there were only 15.23 million births in China last year, a whopping 2 million less than in the previous year.

         Another article entitled “China’s Women Spurn Call to Have More Children,”  by Tom Hancock and Wang Xuequiao that appeared in the Financial Times also discusses the negative consequences of the demographic crisis on the Chinese economy: “A decline in the population of young people and their small number of children ought to have profound repercussions for the Chinese economy,” said Wang Feng, a demographer at the University of California, Irvine.  This demographic crisis will reduce gross domestic product growth by 0.5 percent annually over the next few decades, said Professor Wang.  The article points out that an ageing population has been associated with falling growth rates in most countries, notably Japan and western Europe.  A greater portion of economic activity will be devoted to the elderly as compared with productivity-enhancing investment.  The experience of East Asian societies—especially Singapore, South Korea and Taiwan—shows that when the total fertility rate drops to a very low level, it seems that regardless of the measures taken, the fertility level decreases.  (To be continued)