July 27, 2022
BETWEEN 1980 and 2010, the Philippines established its reputation as the “sick man of Asia,” growing by only 3.6% annually -— much slower than the “Tiger economies” of East Asia, which grew by over 6% a year over the same period. The Oxford Economics Country Economic Forecast in May has concluded that the country “missed a step” in industrializing. Now the question of the hour is how the country can make up for those years — and some experts believe investment in agriculture and technology will help it make up for its lost decades.
“These neighboring countries took advantage of export-driven industrialization, which the Philippines failed to do. Instead, the country essentially missed a step in the structural transformation process by quickly transforming from agriculture towards a services-driven economy,” Oxford Economics said, adding that its inability to move up the value chain was caused by “policy distortions that favored import substitution and foreign exchange and credit rationing.”
The absence of export-driven growth made the Philippines rely less on global trade, which insulated it from global economic downturns. That partly explains why the Philippines performed strongly relative to the rest of the region in the 2010s, growing at an average of 6.3% per year during the decade.
“The Philippines is a market with a lot of potential and prospects for foreign investors, especially now that the world economy is recovering from the pandemic,” European Chamber of Commerce of the Philippines (ECCP) President Lars Wittig told BusinessWorld in a Viber message.
He cited opportunities in agriculture, digitization, electronics and information technology and business process management (IT-BPM).
“Agriculture is and has always been a high-priority sector of the ECCP,” Mr. Wittig said. “It plays a vital role as one of the key sectors of the Philippine economy and is a crucial source of livelihood for the rural population.”
Opportunities in the industry may be enhanced if the government pursues connectivity projects like farm-to-market roads in a strategic manner, while increasing investment in agriculture-related infrastructure projects like irrigation systems, production and post-harvest facilities, processing and marketing facilities, and automated weather stations, he added.
The chamber also recommended that the Philippines amend the Agri-Agra law, noting that its implementation will make access to finance easier for the industry. The law prescribes lending quotas for banks in financing farmers and agrarian reform beneficiaries, though banks have been largely non-compliant because they view lending to farmers unacceptably risky.
“Lastly, we push for intensifying youth engagement efforts by furthering education, training, and extension programs to equip young farmer leaders and ‘agri-preneurs’ with the necessary skills to attract and encourage the younger population to pursue agribusiness opportunities,” Mr. Wittig said.
British Chamber of Commerce Philippines Executive Director Chris Nelson said his organization is looking to bring and attract more UK investors to the Philippines’ agriculture and food and beverage industries.
However, it said that to become an attractive destination, the Philippines must join the Regional Comprehensive Economic Partnership (RCEP), which is expected to improve market access and increase foreign direct investment (FDI).
The RCEP will provide for cheaper access to raw materials, broaden markets, make trade easier, and attract investment in smart agriculture and research and development, Mr. Nelson said. By not joining, the country’s neighbors will be in more advantageous positions and be more competitive.
Being a party to the world’s largest trade bloc will also allow the Philippines enhanced market access for its durian, papaya, preserved pineapple, coconut juice, coffee, canned tuna, and dried tilapia.
According to the International Trade Centre, agriculture, food, and beverages as a group have an export potential of approximately $10 billion, 51% of which is untapped. East Asia is currently the largest export market for these products, followed by North America.
“Unrealized export potential for these products, however, is greatest in the EU (European Union), where frictions are currently high. Identifying and addressing the frictions that prevent exports to the EU may thus open up significant opportunities,” the Department of Trade and Industry’s Export Marketing Bureau (EMB) told BusinessWorld in an e-mail.
“Single products and simple value chains, as well as complex value chains, have significant export growth potential in agriculture, food, and beverages,” it added.
The bureau specifically noted the potential for single products like bananas, pineapple, and tuna, as well as for products with complex value chains like coconut and processed food.
A few other products with promising growth prospects include cocoa, it added. Coffee and palm oil are two new products with export potential for the Philippines and are likely to be in high demand in global markets, it said.
The EMB has set its sights on more investments in the fishing industry, noting that it has “strong potential for further expansion and development in view of the availability of vast resources.”
Fisheries also have a great impact on food security, it added.
According to the Fisheries Statistics of the Philippines 2018-2020, the Philippines had 4.6 million square kilometers of marine resources and 1.3 million hectares of inland resources.
“However, in the case of the Philippines, more integrated infrastructure support is required,” the EMB said. “Improved logistics and transportation systems could help to boost the fisheries sector’s growth and competitiveness.”
“Sustained investment in an integrated infrastructure system would reduce production and transportation costs across the various supply chains associated with the country’s fisheries management areas,” it added.
Encouraging private sector investment in cold storage, where various technological adaptations may be applied, will also enhance the industry, the bureau said. Residents of fishing communities are among the poorest in the Philippines.
Philippine Chamber of Commerce and Industry (PCCI) President George T. Barcelon told BusinessWorld that agriculture will need more attention from the government as food security remains top of mind all over the world.
“We have to reinvigorate,” Mr. Barcelon said. “We need to tweak the agrarian reform law since it is a little restrictive, and then (pursue) some of the infrastructure needed like post-harvest storage facilities and insurance for the farmers.”
Technological advances will make the younger generation more interested in the industry, as well as increase productivity, he said, adding: “The farmers need to learn and digitize.”
“Agriculture digitalization, in which farmers use digital technology to access customized, actionable agricultural information in real time, has the potential to revolutionize how agricultural communities secure and improve their livelihoods,” the EMB said.
“The massive deployment of a decentralized extension system led by the provinces and catalyzed by digital technology could have a significant impact on agriculture digitalization and science-based innovations,” it added.
Some of the technology priorities for investment include sustainable water technologies, drones, smart farms, greenhouses, biosecurity measures, and aquaculture and fish farming technologies.
Regarding digital transformation, the EMB pointed out potential growth in trade and investment in the electronics and electrical machinery industry; and IT-BPM, which includes game development, animation and telemedicine.
PhilExport President Sergio R. Ortiz-Luis, Jr. told BusinessWorld that the Philippines has an advantage in electronics since it has “very skilled manpower that also has industrial design capability.”
However, he noted the need for “industry-academe coordination to develop job-ready workers especially in this Fourth Industrial Revolution and the trend towards a circular economy.”
Mr. Ortiz also expects higher demand for so-called “soft skills’ in the near future, with companies and enterprises needing to implement their own skills upgrading programs to keep up with rapid change.
Mr. Nelson noted the need to enhance the digital competency of the workforce to meet the increasing demands of work, including strengthening foundational skills through education.
He expects the government to encourage new entrants and opportunities in the financial sector, telecommunications, business services, manufacturing, and IT-BPM, and to maintain a stable environment for e-commerce and the digital economy.
Mr. Barcelon, on the other hand, said the Philippines should seek out major investments to enhance connectivity.
“We need to have more players in our broadband and telecom because our pricing compared to other countries is still rather high, while the availability is limited to the developed regions and urban cities, but the outskirts barely have connectivity,” he said.
Improving connectivity will be beneficial to economic activities like tourism, he said, by persuading people to look beyond cities and developed areas as coverage of blind spots in far-flung areas improves.
“We trust the incoming government leaders to look out for the best interests of the country,” Mr. Nelson said, noting that easing regulation will also promote entry and innovation in financial technology.
“We stand ready to work with them in accelerating recovery and progress, as well as in shaping a more inclusive and sustainable growth story for the Philippines through increased trade and investment, improved competitiveness and ease of doing business, as well as relaxation of restrictions on foreign ownership,” he added.
The British chamber said it sees “improved export competitiveness on Philippine key products of interest such as agricultural products, automotive parts, processed food, and garments in the 14 countries (of RCEP)” in the coming years.
It is also looking forward to a stable and predictable business environment for investors as well as professionals.
“Given focus and support, the Philippines can break ground in those areas,” Mr. Barcelon said. “We are cautiously optimistic.”
“Nothing comes easy. Our growth based on what we can see is around 7-8% GDP (gross domestic product), but that is still using our old playbooks (that conceive of the Philippines as) a consumption economy. Now if we factor all of these new areas of focus… I don’t see any reason why we should not grow,” he added.