Philippines and Japan agree to strengthen economic ties

The Philippines and Japan have agreed to further strengthen economic and bilateral ties following the seventh meeting of the sub-committee on the improvement of business environment under the Japan-Philippines Economic Partnership Agreement (JPEPA).
 
 
During the meeting, both countries noted increasing interests and commitments shown by Japanese investors as evidenced by a series of opening of new factories in the Philippines.
 
Both sides welcomed the strengthening strategic ties between both countries highlighted by the recent visit of Prime Minister Abe and other high-level delegations from Japan.
 
Issues discussed in the meeting included tax-related issues, affordable, predictable and sustainable supply of electricity, utilization of Batangas and Subic Ports, additional surcharges introduced by SBMA, technical cooperation on global value supply chain analysis for priority sectors, development of the Philippines as a Human Resource Development (HRD) hub and other issues and initiatives related to the improvement of business environment.
 
Both countries also agreed to ensure transparent, predictable and consistent business environment through the concrete progress made in resolving specific issues. Both sides agreed to make further efforts to reduce outstanding issues before the next meeting of the sub-committee and agreed that continuous dialogues with business communities are important to attract more investments into the Philippines. 
 
JPEPA which entered into force in December 2008, is an important framework for enhancing economic relationship between the two countries. Both sides noted that recent figures related to trade and investment had been very encouraging despite difficult economic situations around the world.
Japan was the largest importer of Philippines’ export marking US $5.19 billion in the first semester of 2013. Philippines’ import from Japan amounted to US $2.61 billion, making Japan the country’s third top source of imports.
 
Statistics showed that  Japan is the second largest investor in the country in terms of investments worth P4.2 billion in the second quarter of 2013 and  approved by the investment promotion agencies (IPAs).

Phililppine economy to remain strong at 6.7% growth

The International Monetary Fund (IMF) is expecting the Philippine economy to remain strong at 6.75 percent this year and easing to about 6 percent in 2014.
 
In its latest assessment, IMF noted that brisk economic activity continued into 2013, underpinned by dynamic private and public demand.
 
After growing 6.8 percent in 2012, the economy accelerated further in the first half of 2013 to 7.6 percent on robust consumption and investment, while external demand was subdued.
 
“As in other emerging markets following the announcement of prospective tapering of asset purchases by the U.S. Federal Reserve in late May, Philippine assets saw selling pressure that caused the peso to weaken and market interest rates to rise,” said IMF.
 
“Recent delay in the commencement of tapering led to some reversal of previous market developments. When tapering does eventually begin, the Philippines’ strong fundamentals—including strong current account receipts, its net creditor status, steady reductions in public debt, and low foreign participation in government securities markets—position the economy to adjust smoothly to the accompanying capital flow reversal and slow down in regional growth.”
 
“Liquidity released through the more restricted access to the Bangko Sentral ng Pilipinas’(BSP) special deposit account (SDA) will also provide some cushion to growth.”
IMF also noted that recent peso depreciation and sustained demand pressures are expected to raise inflation gradually from below the target band to the middle of the band.
 
“The current account—and the overall balance of payments—are expected to remain in small surplus, supported by remittances and receipts from business process outsourcing.”
 
“The fiscal deficit will come in within the 2 percent of GDP budget target in 2013, despite a 10 percent real increase in primary spending in the first half of the year that was offset by higher revenue collections,” said IMF.
 
“Risks to growth continue to lie more on the upside. Absorbing the ample liquidity into productive sectors may prove challenging. Part of the liquidity could finance credit that is used to fuel demand for real estate, potentially with a strong procyclical effect on the economy but with some attendant financial stability risks.”
 
IMF said the BSP’s generally proactive approach to oversight of the banking sector particularly expanding the coverage of banks’ real estate exposure is welcome.
“Rapid growth of nonbank financial intermediation also calls for the Financial Sector Forum (FSF) to continue to fill data and regulatory oversight gaps.”
 
IMF has recommended amending the BSP’s charter to enhance its financial stability mandate and allow the issuance of its own securities.
“Looking ahead, benefitting from the opportunities of deeper integration within the Association of Southeast Asian Nations (ASEAN) requires significant, broad-based improvements to the investment climate,” said IMF.
 
“To build on the good progress on macroeconomic outcomes and public financial management, further efforts are needed to enhance revenues through tax administration reforms and parallel efforts to broaden the tax base, particularly the rationalization of tax incentives. This would help level the playing field, and finance regional connectivity and infrastructure.”
 
IMF stressed that allowing more foreign ownership in economic sectors, executing public private partnerships in a timely and transparent manner, and removing regulatory bottlenecks would promote foreign direct investment, expand competition, and catalyze private investment in productive sectors.

Need to create 14 million jobs in next 4 years

The Philippine Institute for Development Studies (PIDS) has underscored the need to create 14.6 million jobs in the next four years by keeping the country on a sustained path of economic growth.
 
PIDS said this would be possible through a “broad reform coalition” that will work to make growth inclusive and support policies to generate more and better jobs.
 
“People want to earn a living, they don’t want handouts,” said Axel von Trotsenburg, World Bank vice-president for East Asia and Pacific Region, as he opened the “Dialogue on Creating More and Better Jobs” at One Global Place in Bonifacio Global City, organized by the World Bank Philippines and PIDS as part of the activities for the 11th Development Policy Research Month.
 
Trotsenburg noted that job creation is a real concern as it has a direct link to poverty, and considering that four billion people around the world live on less than $D4.00 a day.
 
Karl Kendrick Chua, World Bank senior country economist, said transforming the Philippine economy to yield more and better jobs would be the challenge for everyone.
 
“More and better jobs should be created for 10 million Filipinos who were either unemployed or underemployed as of 2012,” said Chua as he presented highlights of a draft report titled “Philippine Development Report (PDR): Creating More and Better Jobs,” which provides an in-depth discussion of the country’s jobs challenge.
 
With an estimated 1.15 million Filipinos entering the labor force every year in the next four years, a total of 14.6 million jobs would be needed, he said.
 
The problem is that the Philippine economy has failed to undergo a structural transformation, and its inability to produce a massive number of jobs is due to a long history of “policy distortions”.
 
Chua pointed to the country’s historically weak economic growth record at an average of just 4.1 percent in the last three decades, slower than the average 6.5 percent of its more dynamic East Asian peers over the same period.
 
Chua said the share of manufacturing to gross domestic product has stagnated at around 25 percent since the 1960s, while other countries steadily increased theirs before moving on to growth driven by high-skill services.
 
PIDS Vice-President Rafaelita Aldaba called for a comprehensive industry roadmap that will link all sectors, including agriculture and services. “We need to improve the competitiveness of industries. Effective government policies and complementary actions such as competitive exchange rates would also be needed.”
 
Structural transformation would require rebuilding capacity, a shift to high value-added activities, and deeper participation in regional production networks, said Aldaba.
 
The needed reforms include secure property ownership, fair competition, more investments in health, education, and infrastructure; and simple business regulations to decrease the cost of doing business in the Philippines.
 
Businesses need to embrace the principle of a level playing field and recognize freedom of association, while labor needs to recognize valid flexible contracts and reduce calls for minimum wage hike as food prices fall to facilitate job creation, Chua said.
 
“A broad coalition would be needed to tackle these issues. Instead of tackling policy reforms one by one, the government, business, and labor, with the support of civil society, need to work together to come up with a package of reforms in creating more and better jobs in the Philippines,” Chua added.

Foreign investments up 159%

Foreign investments approved in the second quarter of 2013 amounted to P58.8 billion, 159.6 percent higher than the P22.7 billion recorded in the same period last year. 
 
The National Statistical Coordination Board (NSCB) reported that the total approved foreign investments in first half of 2013 reached P93.4 billion, up by 126.9 percent from P41.2 billion recorded in the same period last year.
 
The top three prospective investing countries include the USA, Japan and the Netherlands. The USA topped the list, pledging P43.2 billion or 73.4 percent share during the quarter.
 
Following behind are Japan and the Netherlands, committing P4.2 billion and P3.8 billion, or  7.2 percent and 6.5 percent of the total approved foreign investments, respectively, during the quarter.
 
Electricity, gas, steam, and air conditioning supply industry contributed the largest amount of committed foreign investments in the second quarter of 2013.
 
The investment pledges for the industry was registered at P43.3 billion or 73.7 percent of the total foreign investments during the quarter.
 
Manufacturing came in second with investment pledges valued at P7 billion, contributing 11.8 percent, followed by administrative and support service activities, which accounted for 5.2 percent  or P3.1 billion.
 
Approved investments of foreign and Filipino nationals reached P176.8 billion in the second quarter of 2013, increasing by 2.1 percent from last year’s P173.2 billion.
 
Filipino nationals continued to dominate investments approved during the quarter, sharing 66.7 percent or P118 billion worth of pledges.
 
Bulk of the investments committed by Filipinos are intended to finance activities in electricity, gas, steam and air conditioning supply, contributing P118.9 billion and with a share of 67.2 percent, followed by real estate activities at P33.5 billion or 19.0 percent share, and manufacturing at P12.1 billion or 6.8 percent share.
 
Total projects of foreign and Filipino investors approved by the seven investment promotion agencies for the second quarter of 2013 are expected to generate 41,845 jobs, an increase of 25.4 percent from last year’s projected employment of 33,381 jobs in the same period.  Out of these anticipated jobs, 79.1 percent would come from projects with foreign interest.

Philippines earns biggest climb in business growth ranking

The Philippines posted the biggest climb in business growth environment rankings, rising 25 places to land on the 21st spot among 60 countries, according to the Grant Thornton Global Dynamism Index (GDI) 2013.
 
The GDI is an annual research commissioned by Grant Thornton that assesses and ranks the dynamism of business growth environments based on five key areas: business operating environment, science & technology, labour & human capital, economics & growth, and financing environment.
 
Dynamism refers to the changes in an economy over the past 12 months that are likely to lead to a fast rate of future growth. The index ranked the world’s largest economies by how much their business growth environments improved in 2012.
 
“The fast-paced growth of the Philippine economy certainly underlined our substantial rise in this year’s GDI,” says Marivic Españo, chair and CEO of Punongbayan & Araullo (P&A), the Grant Thornton member firm in the Philippines. “This means our business growth environment improved quicker than any other country in 2012.”
 
In the area of economics and growth, the Philippines moved up 11 places to rank 4 overall, level with Peru. The country’s GDP expansion last year was the third highest of the 60 economies researched, and private consumption growth – 9.8% – was the 10th highest globally.
 
But the Philippines posted the biggest improvement in the area of labor and human capital. It rose 40 places to rank 5 globally, just behind China (1), Australia (2), Thailand (3), and Indonesia (4).
 
This means the Philippines has the fifth best labour & human capital in the world for growing businesses. The boost was driven by labour productivity growth of 5.4%. Only in China (7.4%) did worker output rise faster in 2012.
 
“I think the key point here is that the Philippines is starting to realize its potential domestically,” explains Españo. “Aside from remittances, which have recovered well since the global financial crisis, private construction and government spending on infrastructure contributed to our above-target expansion. Domestic demand in the form of private investment and consumer growth has also helped the country outpace its Southeast Asian neighbors, which are showing signs of slowing down.”
 
The Philippines ranks 51 for science and technology, a category that tracks the infrastructure improvements that allow dynamic businesses to expand. While 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 recognizes that local infrastructure needs to be improved,” explains Españo. “Eighty public-private partnerships with around US$17.6 billion 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,” says Españo. 

Education makes better employment opportunities accessible

 
Education leads to career and salary advancement as 90 per cent of Filipino online respondents believe that education makes better employment opportunities accessible.
 
The latest Nielsen survey noted 87 per cent of online Filipino respondents believe that education also makes it possible to earn higher income, well above the global average of 72 per cent.
 

“We saw a strong correlation between Nielsen Consumer Confidence Index scores—which measures perceptions of job prospects, personal finances and spending ability—and perceptions for advancement opportunities,” said Stuart Jamieson, managing director of Nielsen Philippines. 

 
Jamieson pointed out those respondents in countries where consumer confidence scores were at 95 or above showed the highest per cent agreement that better employment and higher income were available because of education attainment.
 
Respondents in countries where consumer confidence scores were below an index of 70 showed the most pessimism that education would lead to better jobs and salaries.
 
“The Philippines belong to 78 per cent of respondents who agreed that receiving higher education is important,” Jamieson said. “Although the cost to education can be prohibitive, Filipinos strive to allocate money for education more importantly now that the pace of technological change is creating new opportunities and presenting new challenges for today’s children. Education is seen as a levelling factor that will help them compete for better jobs and better salaries,” he added.
 

Philippine respondents said they allot 15.4 per cent of their monthly household budget for education expenses, far exceeding the global

average of eight per cent.
 
The survey noted that many developing countries across Latin America, Asia-Pacific and the Middle East/Africa regions beat the global average for monthly allocation on education expenses while many European respondents said they allotted the least amount to monthly spending on education due largely to subsidized education programs.
 
Perception on local educational opportunities is high among Filipino respondents with 95 per cent agreeing that opportunities to receive outstanding primary education are abundant in the places where they live, while 93 per cent and 89 per cent showed optimism for secondary level and higher education opportunities.
 
Philippine respondents join respondents from Indonesia, India and Thailand who also surpassed the global average for all levels of educational programs.
 
Concerning the perception of consumers on companies which support education initiatives, 77 per cent of Filipino respondents said that are likely to buy products from a company that supports education initiatives, this is more than the global average of 68 per cent and Asia Pacific average of 74 per cent.
 
“Getting more involved in education initiatives can go beyond monetary contributions. Companies can help promote innovation in the classroom by calling on the expertise of its employees to share knowledge or facilitate access to tools that will aid young people,” recommends Jamieson. “It’s a win-win situation for both corporations and students—employees become more engaged while students benefit from an enhanced learning experience.

Export earnings up 2.3% to $4.8 billion

Export earnings in July 2013 posted a 2.3 percent growth to $4.83 billion from $4.72 billion recorded in the same period last year.
 
The National Statistics Office (NSO) reported that on a monthly basis, export earnings grew by 7.7 percent from $4.49 billion posted in June 2013, supported by five major commodities – machinery and transport equipment, woodcrafts and furniture, chemicals, electronic products and cathodes.
 
The aggregate merchandise exports for the first seven months of 2013 showed a decrease of 3.4 percent from $31.48 billion in 2012 to $30.42 billion in 2013.
 
Electronic products emerged as the country’s top export with total receipts of $1.893 billion, up by 11.2 percent from $1.702 billion registered in July 2012. 
 
Semiconductors which comprised 26.1 percent of the total exports, shared the biggest among the major groups of electronic products with export earnings worth $1.261 billion, down by 6.2 percent from $1.344 billion registered in July 2012.
 
Machinery and Transport Equipment was the second top export earner in July 2013 with export revenue of $516.46 million, up 131.7 percent.
 
Other manufactures recorded as the country’s third top export with revenue valued at $285.25 million, down by 37.6 percent compared to $457.41 million in same period a year ago.
 
Ranked fourth in July 2013 and contributing 5.3 percent share to the total export receipts was woodcrafts and furniture with earnings amounting to $255.08 million, up by 44.2 percent from $176.84 million last year.
 
Chemicals with 3.4 percent share to the total export receipts, ranked fifth with value posted at $165.37 million, up by 22.8 percent from $134.72 million recorded in the same month last year.
 
Other top exports were other mineral products with export earnings of $156.90 million, down by 21.3 percent; cathodes with export receipts of $140.59 million; articles of apparel and clothing accessories with earnings at $122.81 million, down by 19.5 percent; ignition wiring set with export earnings of $114.05 million, losing by 16.6 percent and coconut oil with total receipts of $113.87 million slightly down by 0.9 percent compared to same period in 2012.

Unemployment rate inches up to 7.3%

Philippine unemployment rate has slightly increased to 7.3 percent in July 2013 from 7 percent in the same period last year.
 
Socio-economic Planning Sec. Arsenio Balisacan said the pool of unemployed persons consists largely of young people who lack competency and experience, which are important requirements of firms and key factors for successful entrepreneurship.
 
Balisacan noted that high school graduates constituted the biggest share of the unemployed at 32.8 percent followed by college graduates with 21.8 percent and college undergraduates at 13.6 percent.
 
“These figures stressed the importance of intensifying government efforts to make education programs more responsive to the needs of the business sector as well as to encourage entrepreneurship in the country,” said Balisacan.
 
In the latest labor force survey conducted by the National Statistics Office, the number of wage and salary workers decreased by 1.6 percent while the number of unpaid family workers went up by 6.4 percent in July 2013 compared to the same period in 2012.
 
In terms of hours worked, part-time employment grew faster at 3.9 percent compared to full-time employment, which increased by 0.5 percent in July 2013.
 
“These suggest to us that recent gains in improving the quality of available employment have yet to take root. Hence, the urgency  to ensure that the growth momentum is sustained and supported by  strategies that will create the conditions for  stable, productive, remunerative, and  decent employment,” said Balisacan.
 
The underemployment rate has improved to 19.2 percent in July 2013 from 22.8 percent in the same period last year.
 
“Even though this decline does not indicate a sustainable downtrend, underemployment decreased across all major industry groups.”
 
Double-digit declines were recorded in the sectors of agriculture by 13.9 percent, industry by 13 percent, and services 15.1 percent.
 
Underemployment also decreased across all categories of class of workers: wage and salary workers down by 20.8 percent, own family-operated farms or business by 23.4 percent, unpaid family workers by 10.2 percent, self-employed without any paid employee by 1.3 percent.
 
Balisacan stressed that employment creation remains a big challenge in the country. 
 
“While positive growth in agriculture employment is encouraging, this was accompanied by employment losses in manufacturing and accommodation and food services activities sectors, which are crucial employment-generating sectors in an emerging economy. This is why it is necessary to accelerate the revival of the manufacturing subsector.”
 
Balisacan said this can be done through well-designed and carefully-targeted interventions in certain sectors of the economy that have the potential to deliver massive employment creation and meaningful growth.
 
He noted that the manufacturing sector has the highest backward and forward linkages with the other production sectors of the economy.
 
“Manufacturing is the heaviest user of agricultural output, meaning that growing the sector means increasing demand for agricultural output, which means better business and more gainful work for our farmers and fishermen.”
 
“The government and the private sector working together have already developed industry roadmaps which should be further reviewed and strategically implemented,” said Balisacan.
 
He underscored the urgency in addressing infrastructure gaps particularly in logistics and power.
 
“The government must relentlessly continue its catalytic role in job creation in the country as pointed out in the current updating of the Philippine Development Plan.”
 
Balisacan said sustaining and improving enabling conditions for the private sector to invest in productive sectors of the economy would help rapidly increase employment opportunities.
 
“Maintaining a positive sentiment from local investors, entrepreneurs, and households is crucial in building up the confidence of foreign direct investors in the country,” he added.