MANILA, September 24, 2018 – Sustaining higher productivity growth will be key for the Philippines to achieve its vision of becoming a prosperous society free of poverty by 2040, according to a new World Bank study released here today.
Titled Growth and Productivity in the Philippines: Winning the Future, the report finds that the more efficiently the country can use its resources (human capital, natural resources, machines, technology, knowledge, among others) the better chances it will have to generate high-paying jobs and reduce poverty. Productivity growth is particularly important for the agriculture sector where many poor families derive their incomes, the report adds.
“The Philippines’ ability to sustain its current high growth rate will depend primarily on two factors: how the country can accelerate investment in improving its physical infrastructure, and how it can make better use of capital, labor, and technology to increase productivity,” said Mara K. Warwick, World Bank Country Director for Brunei, Malaysia, Philippines and Thailand. “In the long-run, a persistently booming economy will require constant boosts in productivity.”
The Philippines has introduced reforms in the late 1980s and 1990s that transformed the country into one of the top performers in East Asia today. Since 2010, it has been growing at an average of over 6 percent, and income per capita nearly doubled between 2000 and 2017. The Philippines is clearly in a better position now to speed up reforms to achieve its development goals, Warwick said.
To achieve its long-term vision of becoming a prosperous middle-class country free of poverty by 2040, the Philippines will need to triple its income per capita in the next two decades, the report says. To reach that level of income, the Philippine economy will need to grow at an annual average rate of 6.5 percent in the next 22 years, faster than its average growth rate of 5.3 percent since 2000.
According to the report, sustaining higher productivity growth will require removing constraints affecting the country’s entrepreneurs, potential investors, farmers, and other producers. Among these constraints are low domestic and foreign competition, especially in key sectors like telecommunications, transport, and electricity; regulations that are stifling entrepreneurship and small and medium-enterprises; and restrictions on foreign participation in the economy.
“By creating an equal playing field and simplifying business regulations, firms will be encouraged to enter the market and invest, grow, and innovate, leading to higher labor productivity,” said Rong Qian, World Bank Senior Economist and lead author of the report. “Market competition, coupled with a flexible labor market, allows higher productivity and raises the real incomes of Filipino workers.”
Some of the specific recommendations identified by the report include:
- Increase competition in the telecommunications, electricity, and transport sectors;
- Streamline burdensome procedures to start new businesses and pay taxes;
- Reduce restrictions on foreign investors (e.g. allow foreign competition in sectors and reduce equity limits);
- Reduce trade costs by improving port and logistics infrastructure;
- Pursue more balanced regulations between employees and employers by lowering the costs and simplifying procedures for hiring and firing workers; and
- Make regular employment contracts more flexible.
By “productivity,” the study refers to “total factor productivity or how the country’s economy efficiently and intensely uses the inputs to produce goods and services that the local and global markets need.