Philippine Economy

1. General information The Philippines are located in Southeast Asia in the Western Pacific Ocean. 7,107 Islands are part of the republic. The islands are divided into three major groups: Luzon, Visayas, and Mindanao. The South China Sea defines its western borders and the Pacific Ocean its eastern limits. The country- Area covers 300,000 sq. km. The Philippines’ neighbouring countries include Taiwan, Hong Kong, China, Japan, Singapore, Malaysia, Vietnam; and Indonesia in the south (Universitet Gen, 2010).

The population in 2012 was 103,775,002 (world population review, 2013). The Philippines is a representative republic, where the president takes the role of the head of state and government as well as the commander-in-chief of the armed forces (SEA Economic IBSN). The current president of the Philippines as the follower of Gloria Macapagal Arroyo is Benigno Aquino (BBC, 2013). The president is elected by popular vote every 6 years. The country is a democratic and republican state with the three branches of government executive, legislative and judicial.

The Philippines are more over divided into 16 regions, where one of them is an autonomous region – the Autonomous Region of Muslim Mindanao (ARMM). In Manila the seat of power is settled (Universitet Gent, 2010). The GDP of the Philippines in 2010 was $382. 5 billion with a growths rate of 7. 6% caused by consumer demand, a rebound in exports and investments, and election-related spending. In 2011 there was a 3. 9% decrease and an increase in 2012 to $416. 7 billion, which is a growth of 4,8%.

The economic growth had an average of 4,5% during the time frame of 2001 and 2010 when Macapagal Arroyo used to be president (CIA World Factbook, 2013). Unfortunately the unemployment rate in the Philippines is with a number of 11,4% twice as high as of their neighbouring countries. This is a result of the Asia crisis and the competitors that came after allowing import to the Philippines. Firstly the local companies could not compete with the low prices from outside and secondly the growth rate of the population increased about 2,32% a year.

Consequently it is said that there are more than 40% living under poverty boundary. For instance in Manila 3,5 million people live in slums, 42% of the people are defined as poor, 32% live under poverty boundary and 10% are even poorer than that. In order to improve the economic situation in a long term view the population growth needs to be reduced, minimum wages have to be moderated and economic stability due to political engagement must be reached (SEA Economic IBSN) 2. Agriculture.

The products that are produced in the agricultural sector of the Philippines are rice, coconuts, corn, sugarcane, pineapples, mangoes, pork, beef and fish. Agriculture is a very important sector for the Philippines as it plays a big role in reducing the number of people living in extreme poverty. The agricultural sector is crucial for reaching the Millennium Development Goals , which include reducing the extreme poverty by 50% by 2015, starting from 1990. Contrary to that is the fact, that although the economy is growing, the biggest poverty is in the agricultural sector.

At that point, it is also noticeable that many investments in modernizing the agriculture were made by the former administrations of the Philippines, but that they failed to lift the farmers out of their poverty. However, the importance of agriculture for the Philippines has shrunken drastically. Whereas in 1946 almost 30% of its economy consisted of agriculture, nowadays merely 11 % are contributed by agriculture (National Statistical Coordination Board, 2012). In the table below one can see the development of the share of agriculture to the GDP for the last 25 decades.

Considering the Gross Regional Domestic Product, (Like Gross Domestic Product but broken down into regions) it shows that the region of Muslim Mindanao, which has the highest share of agriculture to its economy, has one of the highest poverty rate at the same time. Taking employment into consideration, the share of agricultural employment for the last 20 years was always more than 30%. In 2010, the share was 31. 2%, which is interesting because the contribution to the total GDP of agriculture was only 12. 3%. Moreover, employees of the agricultural sector receive the lowest average daily wages compared to non-agriculture sectors.

(National Statistics Office, 2012) Farmers and fishermen belong to the least paid workers in the Philippine economy with 157Php and 179Php which equals 37000 IDR and 42000 IDR (Bureau of Labour and Employment Statistics, 2013) Not surprisingly, the agricultural sector has the lowest labour productivity which is simply explained by the large number of people working there, compared to the low share of total economy. The low productivity and the wage rates cause e. g. fishermen a 41. 1% poverty incidence, to be almost 15% higher than the country average in 2009.

Furthermore, the majority of working children (estimated at 56. 6% in 2011) are working in the agricultural sector. Although these numbers do not seem to offer a great perspective for people working in that sector, the Philippine government runs several programs to fight the poverty and uplift the lives of these people. Whereas in 2007 only 0. 5% of the total budget was spend on that matter, in 2013 the number was already 4. 7%. In addition, the government tries to improve the situation by giving agricultural production loans which should help the farmer to finance their inputs to the process of production.

The current administration, through the Department of Budget and Management, has also started to compile its Registry System for Basic Sectors in Agriculture (RSBSA), an electronic compilation of basic information on farmers, farm and fishermen – the target beneficiaries of agriculture-related programs and services. The RSBSA is intended to be used to improve the targeting of subsidies and aid to proper beneficiaries, and likewise serves as an auditing mechanism to ensure that resources are given to those who need them. The trend towards declining the share of economy in agriculture goes for most Asian countries. E. g.

Vietnam has almost halved their share from over 40% in 1985 to barely 22% in 2011. 3. Industry The Philippines have five industries that are most important for the country. These are electronics, garments, footwear, pharmaceuticals and food processing. Products worth 50. 96 billion US-Dollars that were produced in the Philippines were exported in 2012. (CIA, 2013) To start out, the electronics industry makes out 50% of total Philippine exports. Especially semiconductors and other components remain to be the driving force of the electronics industry. These products are mainly exported to China, the US, Europe and Japan.

(InvestPhilippines, 2013) Moreover, the textile and garment sector in the Philippines is a vital part of the country’s economy. There are 320,000 people working in the garment sector, making it the largest employer in the manufacturing sector with 11% of the national total. An additional 700,000 people are employed as home-workers and small sub-contractors. The industry expanded rapidly during the 1960s and 1970s but has recently experienced a decline. This has been due mainly to tougher conditions in export markets and a failure to invest in new manufacturing technology.

Furthermore, the Philippines now have to compete with other strong Asian countries like China for example. Therefore, it is urgent for the Philippines to restructure into larger manufacturing units, and to re-equip itself with modern high-tech machinery in order to secure greater economies of scale, higher productivity and an improvement in its competitiveness. (Research and Markets, 2006) Besides electronics and clothing, also the footwear industry plays an important role in the Philippines. This industry includes the production of sports shoes, dress or casual shoes, slippers and sandals.

Materials range from leather, rubber and plastic to textile and other components. Production of footwear in the country is concentrated in Metro Manila, where about 43% of all shoe manufacturers are situated. Within the area, City of Marikina is the center of the footwear business wherein almost three fourths of all shoe producers. Moreover, most of manufacturers in the industry are micro to small in size. Firms usually have their own shop facilities, although a small number rely on subcontractors for production work. Another key sector of the Philippines is the pharmaceutical industry. The products are mostly sold on the domestic market.

85 % of the products are sold through drug stores and 15% are distributed to end users in hospitals and doctors clinics. It is interesting to know that 14 of the top 20 pharmaceutical companies in the world have manufacturing facilities in the Philippines. This underlines the high quality and good conditions for the pharmaceutical industry in the Philippines. In addition, the pharmaceutical patents and trademarks are well-secured in the country. (Triple i Consulting, 2012) The food processing industry is a very important sector in the Philippines as well. It contributes approximately 20 % of GDP per year.

Most of the companies are owned by a single proprietor that is common among micro, cottage and small industries. There are a few large multi-product firms, some of which operate in partnership or as a subsidiary of foreign or multinational companies. (Trade Chakra, 2008) Examples for famous global companies that produce their products in the Philippines are Nestle and Adidas. 4. Service Industries The services sector in the Philippines has been experiencing a robust growth in recent years, prompting proposals for the country to “abandon” the manufacturing sector and shift its policy in support of the services sector.

The capital of the Philippines, Manila is the center of the economic life and is also the main reason for a long success story of the economic life of the Philippines. The bay and its harbor has been a strategic important harbor for the conqueror which has been among other things developed the South-East-Asian industrial area. In Greater Manila one third of the Philippines BIP is generated. Due to the fact, that many inhabitants speaking English, Manila is an important location of the South-East-Asian services sector. Services in Philippines contribute 54.

8 percent of the country’s total GDP, and are estimated to grow further as part of its economic development plan. In 2010, it employs 52 percent of the total workforce. The Services Sector in the Philippines consists of 4 main parts, Health Sector, Retail Sector, Tourism Sector and at least the BPO Industry (The Business Process Outsourcing). Especially BPO emerged as one of the best performers in services exports, particularly in business process outsourcing, thanks largely to its rich human capital and good telecommunications infrastructure.

Further reforms in the services sector, particularly in travel and tourism, could provide more channels by which the country could diversify its economy, achieve high and sustained growth, and reduce poverty. The Philippines is currently the third largest player in business process outsourcing (BPO) in the world, accounting for 15 percent of the global BPO market, after India (37 percent) and Canada (27 percent). Finally, the Philippines Service sector is seen as an engine of growth. 5. Conclusion One of the biggest problems of the economy of the Philippines is the high unemployment rate.

For the reason that the population growth is incredibly strong, the actually increasing employment rate cannot solve the problem. In addition the GDP is slow and labor productivity poor. Furthermore growing minimum wages are contributing to the problem. As a consequence it can be summed up that in order to improve the economic situation in a long term view, the population growth needs to be reduced, minimum wages have to be moderated and economic stability due to political engagement must be reached.

A reduction in the population might take away the pressure on the labor market even though impacts are only long-term. If the birth rate would fall rapidly in coming years the population entering workforce, that means population over 15 years of age, would still grow relatively quickly as one third of the current population of the Philippines is under 15 years of age. Other key solutions to solve unemployment are macroeconomics stability, structural reforms, reduction of poverty and better governance (SEA Economic IBSN).

In conclusion, it can be said that the Philippine economy is growing steadily and is now the 44th-largest economy in the world (according to HSBC estimates). Moreover, it could leap to the No. 16 spot by 2050, if current trends are holding on. A newly industrialized country, the Philippine economy has been transitioning from one based on agriculture to one based more on services and manufacturing. Of the country’s total labor force of around 38. 1 million, the agricultural sector employs close to 32% but contributes to only about 13. 8% of GDP. The industrial sector employs around 13.

7% of the workforce and accounts for 30% of GDP. Meanwhile the 46. 5% of workers involved in the services sector are responsible for 56. 2% of GDP. The service sector is expected to continue to benefit from robust private consumption and investment. The Business Process Outsourcing industry employed approximately 638,000 Filipinos in 2011 and this number is expected to rise by at least 20% by year end. However, the economy needs to create more job opportunities to link economic growth to poverty reduction, the Asian Development Bank (ADB) said in its update of Asian Development Outlook 2012.

By looking at the agricultural sector of the Philippines, it is noticeable that although approximately one third of the workforce works in agriculture, the total share of the GDP is merely above 11%. It can be concluded, that the Philippines are transitioning from and agricultural based to an industrialized country. This aligns with many other Asian countries which are more and more transitioning to industrialized countries. The key sectors of the Philippines’ manufacturing industry are electronics, garments, footwear, pharmaceuticals and food processing.

These sectors are driving forces of the economy and contribute highly to the country’s exports. Especially the electronics sector plays an important role in export. The only manufacturing sector that should be improved in order to stay competitive and generate sustainable growth is the garment production. The manufacturing technology is not advanced enough. Therefore, the companies cannot produce as much and in as good quality as their competitors from other Asian countries. A sector, that is very advanced and produces in high quality, is the pharmaceutics production.

The fact that 14 of the top 20 global pharmaceutical companies let their products produce in the Philippines underlines this. Furthermore, the food processing sector contributes with 20% to the GDP. Even the famous company Nestle has production facilities in the Philippines. Sources AmbiWeb GmbH (n. d. ), Wirtschaftsmetropolen Sudostasien (Economic Metropolises in South East Asia). Available from: http://www. metropolen-suedostasien. de/wirtschaft-manila-philippinen. html [Accessed 20th April 2013] CIA (2013), Philippines, World Factbook. Available from: https://www. cia. gov/library/publications/the-world-factbook/geos/rp.

html [Accessed 20th April, 2013] InvestPhilippines (2013), The Philippine Electronics Industry, The Philippine Trade and Investment Center in Silicon Valley. Available from: http://investphilippines. org/siliconvalley/business-oportunities/electronics/ [Accessed 20th April 2013] Research and Markets (2006), Prospects for the Textile and Garment Industry in the Philippines. Available from: http://www. researchandmarkets. com/reports/363760/prospects_for_the_textile_and_garment_industry_in [Accessed 20th April 2013] Triple i Consulting (2012), Philippine Pharmaceutical Industry.

Available from: http://www. tripleiconsulting. com/main/philippines-investment-resources/value-propositions/philippines-pharmaceutical-industry [Accessed 20th April 2013] Trade Chakra (2008), Food Processing Industry in Philippines. Available from: http://www. tradechakra. com/economy/philippines/food-processing-industry-in-philippines-255. php [Accessed 20th April 2013] National Statistical Coordination Board, 2013, Beyond the numbers. Available from: http://www. nscb. gov. ph/beyondthenumbers/2013/04122013_jrga_agri. asp#tab2 [Accessed 20th April 2013].