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[Philippines Addicts Forum]

Seen this and thought I share. Post can be viewed on http://www.mb.com.ph/articles/350663/thailand-and-the-philippines-a-study-in-contrasts-in-devt

MANILA, Philippines — In 1985, per capita gross domestic product (GDP) for Thailand and the Philippines was just under US$1,000. Growth in Thailand was set to take off, and it did, primarily fueled by foreign direct investment (FDI) in manufacturing. Growth in the Philippines, in contrast, was set to stagnate, with the economy limping along thanks to heavy reliance on the export of people, who send home billions of dollars annually.

In 2010 Thailand’s per capita GDP was approaching US$3,000 while the Philippines was threatening to pull per capita GDP back up to about US$1,100, matching record per capita GDP in the early 1980s when the population was less than half as big. Since 1985, both countries have experienced successive political crises, repeated natural calamities, and the impact of two global financial crises. Aside from population growth the only difference is this: Thailand has attracted billions of dollars more in job- and revenue-generating FDI nevertheless.

During the 2000s, Thailand took in more than US$71 billion in FDI according to the Asian Development Bank (ADB) while the Philippines absorbed US$18 billion, or just a quarter of the investment dollars that went to Thailand. As a result, manufacturing — which requires high levels of development FDI — in the Philippines contributes about half as much to the economy as it does in Thailand.

From 1980 — when FDI into Thailand first jumped dramatically—to 2009, labor productivity in manufacturing grew better than 90%. In that same period, in the Philippines manufacturing productivity contracted 3.8%. Although services accounts for almost 70% of Philippine GDP compared to less than 45% for Thailand, labor productivity in services grew just 25% from 1980 to 2009 while labor productivity grew almost 80% in Thailand during that same period. Thailand was pulling away competitively from the Philippines.

Growth in exports for both countries contracted at the onset of the 2009 global financial crisis but recovered in months. However, in January last year growth in Philippine exports began to fall precipitously, while growth in exports from Thailand remained steady. In mid-2011 exports from Thailand were up year-on-year over 20%, while exports from the Philippines were flat. By September, growth in Philippine exports was negative.

Part of the reason is the Philippines’ dependence on semiconductors and electronics, which account for close to 70% of exports, and its failure to diversify export markets. Thailand exports a much broader array of manufactured products to more markets. The Philippines has continued to enjoy robust growth in IT-BPO, which grew approximately 20% last year, but ADB economist Norio Usui suggests the Philippines needs two economic legs to stand on to grow significantly.

The contrasts presented by Dr. Usui at the recent Philippine Automotive Manufacturing Summit show that Thailand has succeeded since the mid-1980s in becoming both globally competitive and resilient. Its resiliency is largely the result of Thailand’s success in diversifying its economy. Over 90% of the Thai economy is accounted for in roughly equal amounts by manufacturing and services, with agriculture making up the difference.

While this diversity ensures that Thailand is not overly reliant on one sector, the more significant impact is its capability to generate economic value from two economic legs, unlike the Philippines. The reasons for the Philippines’ inability to match industry-bound FDI are myriad, ranging from the cost of energy to inadequate investment incentives and a highly regulated business environment that exploited investors instead of nurturing them.

The economic and employment cost of that failure is about to hit hard. According to officials of the Philippine Automotive Competitiveness Council, Inc. (PACCI), the Philippines is at a crossroads. At stake are some 410,000 direct and indirect jobs, according to University of Asia & the Pacific senior fellow Thomas Aquino. Many of those jobs are vocational, and don’t require the educational credentials that work in the IT-BPO sector does.

Direct employees contribute about P325 million in income taxes annually. The industry pays about P2 billion in duties and business taxes every year. In 2010, vehicle and parts manufacturers exported US$3.2 billion in vehicles and parts, despite a decline in locally manufactured vehicles as a percentage of new vehicles registered that year. Dr. Aquino told reporters last week that locally manufactured vehicles fell to 44% of new vehicles in 2010, down from 55% in 2006 and 96% in 2000.

PACCI members — which represent 90% of the vehicle and parts manufacturers in the Philippines — believe that the Philippine auto industry can compete globally under the right conditions, and that recent supply chain interruptions demonstrate the importance to the global industry of an alternative manufacturing hub within Southeast Asia. Department of Trade and Industry Secretary Gregory L. Domingo agrees.

Last month, Mr. Domingo said his department will “recraft” the Motor Vehicle Development Program, signaling that two decades of neglect of the industry is coming to an end. Thailand’s example shows that’s a good thing. And that the alternative is a senseless one

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