2016 was a tough year. Although the economy grew apace, the year ushered insweeping changes in the world order. From Brexit, to American protectionism, to a weakening NATO, to China’s aggressive expansionism and President Duterte’s bias against western democracies – all these changed global geopolitical conditions for us completely.
The writing on the wall is clear. Our traditional allies are now looking inwards and we can no longer rely on them for military protection or preferential treatment for trade and aid. To survive, we need to be more self sufficient, economically and militarily.
Change brings its fair share of threats – but also opportunities. We must work smart in 2017 by making these changes work to our advantage.
The good news is that the Philippines possesses certain competitive advantages that allow it to leverage upon shifting global conditions.Among them is our strong consumer-driven economy. The voracious consumer appetite of our 102 million population insulates our manufacturers and service providers from weakening markets abroad.
Too, we possess a demographic advantage where the majority of the population are now of working age. In addition, some 350,000 workers enter the professional pool every year contributing to productivity and further firing-up domestic demand.
Finally, our fiscal position remains strong with a low debt to GDP ratio and comfortable Gross International Reserves of more than 25 percent of GDP (or some $82 billion). Our robust fiscal status allows us easy access to loans for developmental projects at prime rates.
Unlocking our potentials, however, requires the right mix of policies. For lack of space, let me enumerate five policies which I believe should beprioritized.
First is the obvious need to bridge the infrastructure gap. There is no way out of it. We must build the infrastructure today to avoid the economy choking on itself tomorrow. Fortunately, government has a plan to spend P8 trillion on vital infrastructure projects within five years. The caveat is that it needs emergency powers to do it without being encumbered bylegalities. The sooner Congress grants the executive branch emergency powers, the better. Its importance cannot be over-emphasized.
Second, “The Comprehensive National Industrial Strategy” is an existing program designed to foster aresurgence of the manufacturing sector. It must be pursued aggressively even if it was designed by the previous administration. Inthe heart of the programis what is called “development roadmaps.” These roadmaps provide the framework and chronological steps to elevate certain industries from its current state to a level of global competitiveness. There aresome 45 industry roadmaps including those for automobile manufacturing, electronics, consumer appliances, IT-BPM, chemicals, etc. For us to take advantage of our consumer-lead economy, we must manufacture more and import less. Manufacturing is key because it generates jobs, boosts productivity and reduces our import bill.
Third, the drop in Foreign Direct Investments (FDIs) must be arrested. Government’s confusing foreign policy and seeming animosity towards western democracies have caused FDI’s to drop by 45 percent in the 3rd quarter across all seven of our investment promotion agencies. Government needs to work in concert to attract FDI’s, not dissuade them. FDI’s build economic capacities and infuse technology.
Fourth, personal and corporate income tax structure must be amended. The present tax code was enacted in 1997 when one peso was worth P2.27 in today’s terms. Through the years, currency depreciation and inflation have eroded the peso’s purchasing power. Hence, what P10,000 could buy in 1997 can only afford P4,400 worth of goods today. The tax brackets must be adjusted to today’s conditions so as not to erode the purchasing power of the low income sector. The ability of the masses to consume moregives the economy the legs it needs to grow not withstanding weakening exports. In terms of corporate income tax, our 30 percent must be rationalized to the level of Indonesia’s 25 percent or even Thailand’s 20 percent, if we are to be competitive.
Fifth, we need to unite the nation towards our common goals and challenges, not divide it. The Presidential Election Tribunal is set to decide on Bongbong Marcos’ petition to invalidate the ARMM votes. The intentions of the Marcoses will undoubtedly drive a wedge across the nation not to mention perpetuate social unrest and political turmoil. In these trying times, the last thing we need is political instability. It is a cancer that can negate the economic advantages we have.
2017 could make us or break us. Its all in the hands of our leaders. Let’s hope they work smart and not let politics get in the way
Andrew is an economist, political analyst, and businessman. He is a 20-year veteran in the hospitality and tourism industry. For comments and reactions, e-mail firstname.lastname@example.org. More of his business updates are available via his Facebook page (Andrew J. Masigan). Follow Andrew on Twitter @aj_masigan.