Feature Post: Is the Philippines really a Somalia in the making?

This will probably not endear me to some readers who've sent me some pointed questions and have been waiting for me to answer them, but since (1) I'm the "editor-in-chief" of this blog, (2) I'm not getting paid to do this anyway, and (3) I really want to do my own little bit of cheerleading for the Philippines before the year 2010 is up, I'm going to go ahead and ignore the questions waiting to be answered and write a little bit about why I think -- despite all the seemingly nonstop negative press the Philippines has been getting lately (thanks in no small measure to the Philippine Supreme Court!) -- things are actually looking up for the country.

I also want this post to serve as my counter-argument to prognostications that the Philippines is well on its way to becoming the "Somalia of Asia," as warned by University of California's Malcolm Potts and GlobalBalita's Perry Diaz.  The two, among others, have identified population explosion, environmental problems, warlordism and paramilitarism as their main causes of concern.  While these are certainly serious issues that need to be addressed and addressed soon and addressed seriously (along with other structural and systemic problems they did not even mention), I wish to point out here nonetheless that, these problems notwithstanding, the country appears on track for a better future ahead. 

The Philippines: A Somalia in the making or a good investment bet?

The ascendance of Benigno Simeon "Noynoy" Aquino III (P-Noy) to the Philippine presidency after the last May elections ignited a lot of optimism among Filipinos in the Philippines and worldwide.  Finally, many people thought, here's clearly a decent guy from a nonpareil political couple who had given so much for the Filipino people.  His candidacy inspired hope; his election garnered widespread support; and his inauguration promised a major change from the unpopular administration of his predecessor. 

Over the course of six months following his inaugural speech, however, people witnessed the blunders, bad calls, and outright failures of leadership.  Many thereafter became disillusioned, even disgusted.  The coming final verdict, it seems, is that the country is poised to have another failure of a leader, another missed opportunity for the country to advance.  Or worse.

I'm going to go out on a limb here and predict that, when the final tally is made years from now, he's going to prove many of the dire predictors wrong even if he ends up less popular among those Filipinos who were originally hoping for a messiah in him.

For me, the reason is simple:  The Philippines actually has several things going for it right now economically, which, along with its innate strengths, mean that it does not really require much from its leaders except an abundance of honesty -- and to get out of progress' way.  Put another way, if P-Noy, who comes across as an honest (albeit also flawed) politician turns out only half as effective a leader as former President Fidel Ramos (who ably led the country in the 1990s), the country is going to outrun many of its problems and be in a better shape down the road.

I.  Review of Economic Fundamentals

A short review of the country's economic statistics at the moment supports my thesis.  Consider: 

(1)  According to the latest Country Report Philippines produced by the Economic Intelligence Unit, the economy grew by a decent 7.5% year-on-year in the first three quarters of 2010, as measured by real GDP (or Gross Domestic Product, which means the total market value of goods and services produced locally);

If -- and it's a big IF but definitely doable --the country can maintain this rate, the Philippine economy will double in less than 10 years.  But if it grows at China's rate (approx. 10% p.a.), the economy will quadruple in about 14 years -- which translates to just a little over two presidential terms (at 6 years per).  When you think about it, this means the country only really needs P-Noy and his next two successors to do well enough in order to elevate the game of the Philippines and place it in a higher league.

(2) Interest rates -- specifically, lending rates -- are at single digits, hovering less than 8%.  This figure may appear high to folks in the West, but for a country whose people are used to borrowing even at annualized rates exceeding 60% through what are known as 5-6 loans, an 8% loan is a godsend.

(3) Official unemployment rate is also at single digits, averaging about 7.5%.  Note that this is actually lower than the US figure which is near 10% and substantially less than the figures from hard-hit states like California.

(4)  The peso-dollar exchange rate has been relatively stable, lately trading at a narrow range of PHP44 to 47 per USD.  This stability is going to be good for exporters and importers alike because it lessens transaction costs and currency exchange risks.

(5) Consumer prices are also stable.  The inflation rate has averaged about 4% this year and core inflation (which takes out the more volatile food and energy items in the calculation) is even lower.

(6) Meanwhile, exports grew by a whopping 38.5% in the first three quarters of 2010, the fastest pace since records began.  The main reason?  High-tech electronics, which accounted for over 60% of the $38.3 billion total.

(7)  The central bank's foreign exchange reserves has more than tripled in the past four years, successively hitting all-time highs this year and ending last month at over $61 billion.  This rise reflects the influx of foreign money coming in and gives investors the confidence that the country can meet its foreign obligations, which is a major statement to make considering the PIGS -- countries of Portugal, Ireland, Greece and Spain -- have needed or will need help in this department in order to stay afloat and not default on their loans.

(8) The country's stock market also hit record territories this year, growing by over 45% year-on-year last month before correcting a bit this month.

Bottomline, ladies and gentlemen:  These are NOT the economic figures of a Somalia in the making! 

II.  The Country's Inherent Strengths

But I mentioned that the Philippines has innate strengths which, paired with a strong economic foundation, will pay dividends for the country.  What are they?

(1) Geography 

Fortunately for the country, it is located in the world's most commercially busy region nowadays.  No other region in the world even comes close.  Forget about Japan for now: China, India, Korea, Taiwan, Vietnam and Indonesia, among others, make for a giant economic neighborhood whose rising prosperity is bound to spill over to the Philippines in a fashion much more tangible than if a similar prosperity boom is happening in the "far-flung" regions of United States and Europe. 

This rising prosperity will substantially impact intra-regional tourism, trade and investments.  That's why the Chinese and Koreans are increasingly becoming regular visitors to the country's golf courses and beach resorts; more Philippine companies like the SM Group and Jollibee have dared to expand in China and build shopping malls and fastfood restaurants; and Indian technology companies have expanded operations in Manila.  These types of activities are only bound to increase.

(2) Natural resources

If there's a time when the country can really take advantage of its natural resources, this is it.  The giants China and India are in a global struggle with the developed countries of the West for cheap sources of raw materials, and the Philippines has them.  Metals like nickel and copper are abundant.  And because the country has lots of arable lands and littoral towns and coastlines, harnessing agri- and aqua-cultural resources for healthier commercial profits should start happening soon. 

Investments in resource-related commercial projects would translate to more commercial activity and job growth in provincial cities and towns outside the National Capital Region.  This is more than just a welcome development, if ever -- it's actually badly needed because NCR is, to put it mildly, bursting already at the seams: one of its major cities, Manila, has the world's highest population density.

(3) Local population

While not as populous as India and China, most people overlook the fact that the Philippines is a potentially big market too.  Population-wise, it's the size of Germany and all Scandinavian countries -- Denmark, Sweden, Norway, Iceland and even Finland -- combined.

And because it's a former colony of the United States, a distinguishing characteristic of the population is its proficiency with the language of global business: English.  This is an asset that will redound to the country's benefit if paired sensibly with other advantages. 

One advantage was revealed to me during a conversation I had with a top executive of a company in the top 10 of Fortune 500 companies.  I found out that one major reason the Philippines has now overtaken India in the business process outsourcing (BPO) services is because of the fact that Filipinos not only speak English with an accent better understood by Americans, we also can chit-chat with ease with American customers about the latest on, say, Kobe Bryant's exploits on the hardcourt.  This cultural affinity is not negligible:  After all, we also sing the same songs, watch the same movies and TV shows, and patronize the same pop trends. 

And despite all the negativity which the global media fixates on especially if the news relates to Muslim Mindanao, because an overwhelming majority of the populace is Christian, the country is really not prone to toxic religious divisions, extremism, and violent riots which sporadically erupt in other countries.  Moreover, unlike China which is bound to soon feel the impact of its long-running one-child policy, and Korea and Japan with their graying populations, most of the country are also young and have decades of productive lives left to allow them to contribute immensely to the economy. 

(4) The global Filipino diaspora

The Philippine national football team, nicknamed The Azkals, just showed the country a formula for winning: by harnessing the strengths of the global Filipino diaspora and hiring the right people who can get the job done.

Recruiting high-caliber half-Filipino international players from the UK, US, Holland and Iceland, the football team played great team football, shocked the defending champion Vietnam in the ASEAN Football Federation's Suzuki Cup, and advanced for the first time to the tournament's Final Four.  While footballing nations may pooh-pooh it, the team's performance was really so incredible that Sports Illustrated rated it one of the "Top 10 soccer stories of 2010," right up there with the story about Spain's winning of this year's World Cup.

There is no reason why the country cannot replicate the Azkals feat in other fields.  With an estimated 10 million overseas Filipinos scattered all over the world regularly remitting about $2 billion each month, the country actually has produced experts in all sorts of fields and industries, many of whom are just waiting to be tapped and/or encouraged to come home and help in nation-building, as former President Bill Clinton himself suggested in a talk in Manila recently.  

China and India have both made this "reverse brain drain" a conscious policy and have actively sought to get their nationals who have achieved international acclaim and expertise to move back.  The Philippines has to do the same. 

In any case, ladies and gentlemen, these innate Philippine strengths, Somalia does NOT have! 

III.  Other Miscellaneous Considerations + A Movie Trailer

Largely due to its domestic orientation and limited exposure to international capital markets, the banking sector is sound and has generally escaped the withering impact of the global financial crisis.  According to the Bangko Sentral, the industry's non-performing loans (NPL) ratio is remarkably low: below 4%.  This should encourage local banks to increase lending and grow their balance sheets.  Moreover, according to CB Richard Ellis, the conditions in the real estate industry are also positive across ALL commercial sectors -- be it office, retail and hotel, or residential property.

If you need further proof that confidence in the future of the Philippines is high and getting higher, consider also (1) Asia's first Versace-branded condominium building is being planned to be built soon in Manila's Century City; and (2) a Maserati dealership in Makati, the country's premiere buisiness district, was just launched last June.  Now, I'm one of those who find these developments a bit on the obscene side given the still-pervasive poverty in the country, but objectively speaking, these still tell us something about investor and consumer sentiment.

But if there is one thing that convinces me that the Philippines is far from being a Somalia in the making, it is a movie.  Specifically, I am talking about a 3D animated film released just this month in time for the 2010 Metro Manila Film Festival: Metanoia.

Honestly, the film made my jaw drop.  It made me really realize that, with technology and knowhow, the world is indeed now flat!

I've read that the movie's character development leaves much to be desired, but humor me and watch the movie's trailer below. Then, tell me after watching it -- if you're one of those who subscribe to the alarmist prognostications about the Philippines, of course -- if you still believe the Philippines is on track towards becoming another Somalia.



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