PRESENTATION OF SEC. BALISACAN 2013 MANAGERS ASSOCIATION OF THE PHILIPPINES (MAP) FIRST ECONOMIC BRIEFING AND GENERAL MEMBERSHIP MEETING 21 February 2013 The Peninsula Manila

Good morning.

It is my pleasure to present the performance and outlook of the Philippine economy in this General Membership Meeting and First Economic Briefing for 2013 of the Management Association of the Philippines (MAP).

As you may recall, the government, in 2011, presented the Philippines’ overall development framework to achieve inclusive growth in the medium term.  Anchored on the bedrock of good governance, the Philippine Development Plan for 2011-2016 has been in full swing since then, and I am pleased to present to you the progress our country has achieved in implementing the PDP, the challenges that need to be addressed in order to sustain the growth momentum, and the prospects for the Philippine economy in 2013 and beyond.

Let me start with our recent economic performance.

In 2010, the economy grew by 7.6 percent, spurred partly by domestic spending associated with the national and local elections that year. The high economic growth was not sustained in 2011 due partly to external and domestic shocks, such as the debt problems in Europe and the US, flooding in Thailand and tsunami in Japan that disrupted our trade links, conflict in Middle East and North Africa, and weather disturbances that affected particularly our agriculture sector.

However, despite a weak global economy in 2012, the Philippines registered one of the highest GDP growth rates in the Asian region at 6.6 percent. This growth was broad-based as almost all sectors significantly contributed to the output. It also brought us closer to the 7 to 8 percent growth target set in the Philippine Development Plan.

In 2012, the 6.6 percent real GDP growth of the Philippines was higher than that of Thailand (6.4%), Indonesia (6.2%), Vietnam (5.0%), and Singapore (1.2%).

Where did our growth in 2012 come from?

On the supply side, the Services and Industry sectors were the main drivers of the country’s growth.

Among these subsectors are trade and manufacturing; real estate, renting, and business activities (particularly BPOs); and other tourism-related services. Construction was also a main contributor due to the accelerated government spending in the first semester, and this was further driven by private construction in the second half of 2012.

On the demand side, real GDP growth was driven by private consumption, net exports, and government consumption.

While household consumption continued to dominate the demand side of the Philippine economy, worth noting is the improving shares of fixed capital investments and net exports. Fixed capital investment reflects the faster pace of the public sector’s infrastructure development spending and the private sector’s as evident spending in construction and durable equipment.

Our country has also been commended for its sound macroeconomic fundamentals marked by low and stable inflation, favorable interest rates, improved fiscal and external position, and strong financial sector.

Let me now turn to sharing with you our outlook on 2013 and 2014.

Despite some possible external risks, the Philippine economy is expected to remain strong in 2013 and 2014 as the country is seen to maintain its sound macroeconomic fundamentals and continue improving its investment climate through policy and regulatory reforms and infrastructure development.

For this year, we expect the economy to grow 6 to 7 percent. For next year, the growth is expected to accelerate to 6.5 to 7.5 percent.

What will drive this growth?

On the supply side, agriculture will be buoyed by the government’s conscious efforts in pursuing programs and projects that will increase the efficiency of producing staples and high-value commodities and crops. The positive agriculture outlook benefits from improvements in infrastructure, logistics, and the reduction in price volatilities.

The Industry is set to expand faster in 2013 and beyond, mainly driven by manufacturing and construction. Construction is expected to grow robustly due to strategic public and private infrastructure projects. Likewise, manufacturing is expected to be more vibrant, particularly semiconductor and electronics, food manufacturing, and light manufacturing industries.

Meanwhile, services is expected to remain robust brought about by the upsurge in the number of domestic and local tourists, domestic trade, real estate, renting and business and BPOs.   

On the demand side, household consumption is expected to remain as the main driver of growth bouyed by the sustained inflow of OF remittances, better employment and job opportunities and low inflation. However, private sector investment and exports are expected to increasingly account for a greater share of overall GDP growth in the next two years and beyond.

Notwithstanding the positive economic outlook in the near-term, the government remains vigilant of the global and domestic risks to growth.

Global risks to growth include the uncertainty in the Euro zone and the fiscal problem in the US, which can adversely affect the global economy. We are also mindful of the possibility of oil price increases due to a higher global demand for petroleum products.

On the domestic front, the agriculture sector remains highly vulnerable to typhoons and other weather disturbances.

Finally, passage of urgent and critical bills, including the national land use and rationalization of fiscal incentives, as well as the implementation of necessary institutional reforms and policies, is crucial to strengthening the fabric of rapid, sustained, and inclusive growth. 

Half-way through the Aquino administration, the most challenging question of whether we have attained our goal of inclusive growth remains.

Given the fiscal space and business confidence the past year, 2013 opens opportunities to sustain the growth momentum and achieve inclusive growth. As we have underscored in the Philippine Development Forum, these two objectives need not contradict each other. Inclusive growth is not only a goal but a growth strategy.  To sustain the growth of our economy, we must ensure that economic growth benefits everyone, regardless of location or social status.

Although we do not yet have official data on poverty for 2012, it appears that self-rated poverty and severe hunger are on the decline, based on the most recent SWS Survey on Hunger and Poverty.

At the heart of the poverty problem is the inadequacy of jobs, especially decent, high-quality jobs. Although job creation between 2010 and 2012 has been quite significant, the level of unemployment has been quite high — 7.4 percent in 2010 and 7.0 percent in 2012.

Currently, 60% of the country’s GDP is concentrated in three regions in Luzon. This shows that we have yet to tap the full potential of other regions, especially those in Mindanao.

Hence, we need to focus our infrastructure and policy priorities to ensure that the rest of Luzon, Visayas and Mindanao actively take part in the growth process. It is important to connect these regions, physically (through infrastructure) and economically (through trade).

The rest of Luzon has the advantage of proximity to the fastest growing regions of the country. In the Visayas, the strategy involves strengthening its comparative advantage in tourism, fisheries, ship-building and ICT. In Mindanao, the government is mindful of the opportunities and challenges, as we move forward with the Bangsamoro Framework Agreement. We are very optimistic about Mindanao’s contribution to the country’s growth and development, particularly in agribusiness, tourism and halal industries. 

In order to sustain the growth, one of the objectives set out in the PDP is to shift the structure of the economy from being largely consumption-driven to one that is increasingly led by investments and exports. To do this, we will continue to put in place measures to diversify production and trade. We also need to improve the efficiency of public investment to serve as a catalyst for greater private sector participation in the economy.  We will continue improving the investment climate to offer profitable opportunities and channel these savings to productive use that generates jobs.

There is also the need to address the critical constraints to investments, particularly high power cost, poor infrastructure, policy inconsistencies and administrative inefficiencies.

Furthermore, we will improve revenue and tax efforts to increase the resources available for infrastructure and social spending.

Infrastructure development will be guided by a transport infrastructure roadmap toward ensuring efficiency in the flow of goods and services and mobility of people.

Also, we will ensure energy security to support the economy’s growth and also take efforts to reduce the cost of power.

Going forward, we need to create new drivers of growth which have the potential of creating high quality jobs, particularly manufacturing, BPO, tourism and agribusiness.

Our initial estimates suggest that US$3 billion in investments in these sectors will create 621,000 jobs, both directly and indirectly through multiplier effects. This represents an average investment of roughly about Php 200,000 per worker. The amount needed to create jobs would be much less in rural areas, particularly in agriculture.

To generate more and better quality of employment, we need to simplify labor regulations to enable industries to adapt to the country’s changing economic structure. We will also continue to address problems of skills mismatch.

We will provide the necessary environment to encourage not only the big companies but also the micro, small and medium enterprises to be our partners in development through marketing assistance, access to credit and reduced red tape. We will also make our industries and our workforce competitive and productive by investing in R&D, technology and human resource development.

We will also push for efforts to provide a level playing field to encourage greater competition among industries to maximize the country’s economic potential and reduce wage cost.

Agriculture will remain a priority sector to meet the needs of our growing population and to take advantage of market opportunities in fast growing countries in Asia. Increasing productivity in the sector is key to poverty reduction in rural areas.

Keeping in mind that economic growth and development is directed towards improving the quality of life of all Filipinos, both the present and future generation, we are committed to set high priority to health and education of our people. Our program on CCT addresses not just current poverty but also equips the children in CCT households to escape the binds of inter-generational poverty.  Furthermore, the K+12 program in education will improve the competitiveness of our graduates against their counterparts in the rest of the world.

On climate change adaptation and mitigation, we will focus on building climate change resilient infrastructure, which, together with preparedness and the use of technology that will minimize the costs entailed by disasters and climate change on human life, property and businesses.

Good governance will continue to be the platform upon which we will achieve these objectives.  As we encourage greater participation in governance to promote transparency and accountability, we will also undertake measures to address inefficiencies and implement measures to minimize corruption. 

Some of these will require institutional reforms, and we in government have been putting our acts together and convening more often to ensure consistency of policies, alignment of plans and priorities, and efficiency of regulation.

The reforms and measures that we will undertake and prioritize this year are crucial. The sooner we can address the challenges ahead of us, the sooner we can achieve inclusive growth and development for our country.

A pleasant day to all of us.

Maraming salamat po.

M.R. No. 2013-025                                                                                

25 February 2013