The Philippine economy is growing fast. GDP expanded by 6.8% in 2012 and, whilst remittances climbed to a record high of US$23.8 billion in 2012, their share of GDP actually dropped to 8.5%, down from 9% in 2011. The key point here is that the Philippines is starting to realise its potential domestically.
This is underlined by the meteoric rise of the Philippines in the Grant Thornton Global Dynamism Index (GDI) 2013, which ranks the business growth environments of 60 of the world’s largest economies. We climbed 25 places to rank 21 in the index this year. This means our business growth environment improved more than any other in 2012.
The biggest improvement comes in the area of labour & human capital where the Philippines rose 40 places to rank five globally, driven by labour productivity growth of 5.4%. Only in China (7.4%) did worker output rise faster in 2012.
The economy also showed remarkable development in the economics & growth category of dynamism, moving up eleven places to rank four overall, level with Peru. The expansion in GDP last year was the third highest of the 60 economies researched, and private consumption growth (9.8%) was the tenth highest globally.
Aside from remittances, which have recovered well since the global financial crisis, private consumption has been boosted by the so-called 4Ps, a conditional cash transfer programme started in 2008 which aims to keep 3-11 year olds in school, increase immunisation and increase investments in health and education. This is particularly key as Filipino children spend an average of just 11.3 years in education according to the GDI 2013, placing the economy down at 55 on this measure. Only students in Kenya, Morocco, India, Nigeria and Pakistan spend less time at school.
But there is also a less positive side to the GDI 2013 results: The Philippines ranks 51 for science & technology. This category describes the infrastructure improvements that allow dynamic businesses to expand. Whilst IT spending increased by 9.5% in 2012, just 0.1% of GDP went to R&D, the fourth lowest of all 60 economies.
The government recognises that local infrastructure needs to be improved. 80 public-private partnerships with around US$17.6bn of capital to boost the investment environment were supposed to be launched between 2011 and 2016, but progress is well behind schedule. Add to this a rank of 44 for business operating environment, which looks at how easy and risky it is to operate in an economy, and you can clearly see there is some room for improvement.
The good news is that both total and worker output is expanding rapidly. The key now is to combine this growth with infrastructure and operating environment improvements. With the right mix of policies in place, our economy could offer even more opportunities for dynamic businesses.
Marivic Españo is Chair and CEO of Punongbayan & Araullo Grant Thornton.