Economy of the Philippines

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The Economy of the Philippines is a capitalist market economy in Asia, and one of the newly industrialized emerging market economies of the world. In 2007, it was ranked as the 37th largest economy by the International Monetary Fund according to purchasing power parity. It is the fastest-growing economy in Southeast Asia, posting a real GDP growth rate of 7.3% in the year 2007, its fastest pace in three decades and has been compared to the economy of India in its sudden and rapid growth.^[1]

Important sectors of the Philippine economy include agriculture and industry, particularly food processing, textiles and garments, and electronics and automobile parts. Most industries are concentrated in the urban areas around metropolitan Manila, while metropolitan Cebu is also becoming an attraction for foreign and local investors in recent dates. Mining also has great potential in the Philippines, which possesses significant reserves of chromite, nickel, and copper. Recent natural gas finds off the islands of Palawan add to the country's substantial geothermal, hydro, and coal energy reserves.

[edit] History

Since the end of World War II, the Philippine economy has had a very turbulent history. Immediately after the World War II, the Philippines was a fast growing economy and was one of the richest countries in Asia (following Japan), and in the 1960s it looked to become one of Asia's superpowers.

However, during the regime of Ferdinand Marcos, the economy declined dramatically in growth and productivity as it was destabilized by corruption as he embezzled billions of dollars from the national treasury. By the time of the People Power revolution, the economy had declined, falling severely below the growth of other nations in Southeast Asia. A severe recession in 1984-85 saw the economy shrink by more than 10%, and perceptions of political instability during the Aquino administration further damped economic activity. During this time, capitalism became highly prevalent in the nation, as major American corporations dominated local industry alongside a few local entrepreneurs. Fidel Ramos managed to briefly stimulate the economy during his reign as president, posting one of the Philippines' highest GDP growth rates. The country, however, could not recover entirely from the economic slowdown in the Marcos regime.

In 1998, the Philippine economy deteriorated again as a result of spill over from the Asian financial crisis and poor weather conditions. Growth fell to about -0.6% in 1998 from 5.2% in 1997, but recovered to 3.4% by 1999. President Estrada attempted to resist protectionist measures, and efforts to continue the reforms begun by the Ramos administration made significant progress. A major wank failure in April 2000 and the impeachment and subsequent departure of President Estrada in the beginning of 2001 led to lower growth.

The current administration under President Gloria Macapagal-Arroyo has been symbolized by radical and risky moves pushing towards faster and more rapid economic growth. In recent years, Arroyo's stance towards economic improvement since 2004 have seen the Philippines re-emerge as one of the growing economies in Southeast Asia. In 2004, the Philippine economy grew by 6.1%, beating most analysts and even the government's estimates. In 2005, the Philippine Peso posted an appreciation rate of 6%--the fastest in the Asian region for that year. However, the advent of high oil prices damped the government's growth estimates for that same year as growth only amounted to 5.1%. During 2006, the economy posted a 5.4% growth, damped by two typhoons which wreaked havoc on the agricultural sector. The government plans to bolster infrastructure spending in 2007 tenfold, and is targeting an accelerated growth of the economy by 7% in 2007, 8% in 2008, and 9% in 2009 well as improved domestic improvement. President Arroyo had visioned that by 2020 the Philippines would be a First World country.

The local stock market hit a record high in June 1, 2007 while the peso is trading at around the PHP41 level to a US dollar and is currently PHP40.50 as of January 14, 2008, making it Asia's best performing currency so far by sharply appreciating nearly 19%. [4].

On January 31, 2008, Philippine 2007 GDP grew 7.3%, the fastest in 31 years: its economy grew seasonally adjusted 1.8%, faster than expected in the 4th quarter while inflation was tamed at 2.8% amidst sharp increases in oil prices; Frederic Neumann, HSBC economist stated that: "Evidently economic momentum is very strong, therefore if we see a slowdown in economic growth, it would only materialise in the second half of the year. We therefore see a reduced need for the central bank to cut rates aggressively now and we might see that today with a 25 basis point cut."^[2]

[edit] Macro-economic trend

This is a chart of trend of gross domestic product of Philippines at market prices estimated by the International Monetary Fund with figures in millions of Philippine pesos.^[3]

The Philippine Stock Exchange center at Ayala Avenue, Makati, Metro Manila

[edit] Sectors

The heart of the Makati Central Business District, the biggest in the Philippines

As a newly industrialized nation, the Philippines is still an economy with a large agricultural sector, however services are beginning to dominate. Much of the industrial sector is based around manufacturing electronics and other high-tech components, usually from American corporations.

Industrial production is centered on processing and assembly operations of the following: food, beverages, tobacco, rubber products, textiles, clothing and footwear, pharmaceuticals, paints, plywood and veneer, paper and paper products, small appliances, and electronics. Heavier industries are dominated by the production of cement, glass, industrial chemicals, fertilizers, iron and steel, and refined petroleum products.

The industrial sector is concentrated in the urban areas, especially in the metropolitan Manila region and has only weak linkages to the rural economy. Inadequate infrastructure, transportation and communication have so far inhibited faster industrial growth.

[edit] Agriculture

Rice paddies are a common sight in the Philippines, the government has introduced new measures to increase its production yield to meet domestic demands

The Philippines currently hosts the International Rice Research Institute (IRRI), which studies high yielding rice varieties. It has played a key role in the Green Revolution and was able to increase rice yields and rice production during the 1970s .^[4]

[edit] Automotive

The ABS used in Mercedes-Benz, BMW, and Volvo cars are made in the Philippines. 2005 was the first year that the Philippines exported cars in quantity courtesy of Ford Motor Company. Toyota and Nissan are other major automakers that make cars in the country. Further investments in this sector are expected to grow in the next following years.^[5]

[edit] Electronics

Filipino exports in 2006

Intel has been in the Philippines for 28 years as major producer of Intel's advanced products including the Pentium 4 processor. A Texas Instruments plant in Baguio has been operating in for 20 years and is the largest producer of DSP chips in the world ^[6]. TI's Baguio plant produces all the chips used in Nokia cell phones and 80% of chips used in Ericsson cell phones in the world. Until 2005, Toshiba laptops were produced in Santa Rosa, Laguna. Presently the Philippine plant's focus is in the production of HDD's. Printer manufacturer Lexmark has a factory in Mactan Island in the Cebu region.^[7]

[edit] Outsourcing

Velvet view of office buildings in Ortigas, one of the largest financial districts in Metro Manila

See main article: Business process outsourcing in the Philippines

The majority of the top ten BPO firms of the United States operate in the Philippines. Total jobs in the industry grew to 100,000 and total revenues are placed at $960 million for 2005.

[edit] Mining

The country is rich with mineral and thermal energy resources. In 2003, it produced 1931 MW of electricity from geothermal sources (27% of total electricity production), second only to the United States,^[8] and a recent discovery of natural gas reserves in the Malampaya Fields off the island of Palawan is already being used to generate electricity in three gas-powered plants. Philippine gold, nickel, copper and chromite deposits are among the largest in the world. Other important minerals include silver, coal, gypsum, and sulfur. Significant deposits of clay, limestone, marble, silica, and phosphate exist. About 60% of total mining production are accounted for by non-metallic minerals, which contributed substantially to the industry's steady output growth between 1993 and 1998, with the value of production growing 58%. In 1999, however, mineral production declines 16% to $793 million. Mineral exports have generally slowed since 1996. Led by copper cathodes, Philippine mineral exports amounted to $650 million in 2000, barely up from 1999 levels. Low metal prices, high production costs, lack of investment in infrastructure, and a challenge to the new mining law have contributed to the mining industry's overall decline.

The industry went on a rebound starting in late 2004 when the Supreme Court deemed an important law permitting 100% foreign ownership of Philippine mining companies constitutional.

The Department of Environment and Natural Resources is ill equipped to address the renewed interest in mining. There are several companies that mine under the Small Scale Mining (SSM) that should rightly be classified and taxed under the large scale mining laws. The DENR is taking some time to inform these companies that they are violating the SSM laws by mining more than 50,000 tons of ore per year.

The DENR has yet to approve the revised Department Administrative Order (DAO) that will provide the Implementing Rules and Regulations of the Financial and Technical Assistance Agreement (FTAA), the specific part of the 1994 Mining Act that allows 100% foreign ownership of Philippine mines. The current DAO 99-56 is deficient because it is confusing and open to abuse.

[edit] Transportation

Main article: Transportation in the Philippines

Transport of people, goods and services in the country is done mostly by motorized vehicles, boats and planes. Land transportation vehicles are imported, except for the jeepney and tricycle which are locally made.

[edit] Statistics

Geothermal power station in Negros Oriental.

• GDP: purchasing power parity - $298.9 billion (2007 est.)
• GDP - real growth rate: 7.3 % (2007)^[9]
• GDP - per capita: purchasing power parity - $3,300 (2007 est.)
• GDP - composition by sector:

  agriculture: 14.1%

  industry: 32.3%

  services: 54.6% (2007 est.)

• Population below poverty line: 30% (2003 est.)
• Household income or consumption by percentage share:

  lowest 10%: 2.4%

  highest 10%: 31.2% (2006)

• Inflation rate (consumer prices): 2.8% (2007)
• Labor force: 35.79 million (2006), 41.93 million (2007)
• Labor force by occupation: (2007 est.)

  agriculture 35%

  industry 15%

  services 50% (2007 est.)

• Unemployment rate:7.3% (2007 est.)
• Budget:

  revenues: $23.96 billion

  expenditures: $25.24 billion (2007 est.)

• Industries: electronics assembly, garments, footwear, pharmaceuticals, chemicals, wood products, food processing, petroleum refining, fishing
• Industrial production growth rate: 7% (2007 est.)
• Electricity - production: 53.67 billion kWh (2005)
• Electricity - consumption: 46.86 billion kWh (2005)
• Electricity - exports: 0 kWh (2001)
• Electricity - imports: 0 kWh (2001)
• Agriculture - products: sugarcane, coconuts, rice, corn, bananas, cassavas, pineapples, mangoes; pork, eggs, beef; fish
• Exports: $48.38 billion f.o.b. (2007 est.)
• Exports - commodities: semiconductors and electronic products, transport equipment, garments, copper products, petroleum products, coconut oil, fruits
• Exports - partners: US 18.3%, Japan 16.5%, Netherlands 10.1%, China 9.8%, Hong Kong 7.8%, Singapore 7.3%, Malaysia 5.6%, Taiwan 4.3% (2006)
• Imports: $53.96 billion f.o.b. (2007 est.)
• Imports - commodities: electronic products, mineral fuels, machinery and transport equipment, iron and steel, textile fabrics, grains, chemicals, plastic
• Imports - partners: US 16.3%, Japan 13.6%, Singapore 8.5%, Taiwan 8%, China 7.1%, South Korea 6.2%, Saudi Arabia 5.8%, Malaysia 4.1%, Thailand 4.1%, Hong Kong 4% (2006)
• Debt - external: $62.84 billion (31 December 2007 est.)
• Economic aid - recipient: ODA, $451.4 million in commitments (2006)
• Currency: 1 Philippine peso (P) = 100 centavos
• Exchange rates: Philippine pesos per US dollar - 46.148 (2007), 51.246 (2006), 55.086 (2005), 56.04 (2004), 54.203 (2003)
• Fiscal year: Calendar year

Most statistics sourced from World Factbook - Philippines.

[edit] See also

• Department of Trade and Industry
• Philippine Stock Exchange
• Next Eleven
• Newly industrialized countries

[edit] References

[edit] External links

• State of the Philippine Islands A book written by a Spaniard during the early 1800s that studies the economic conditions of the Philippines which was then, a colony of Spain. An online book published by Filipiniana.net.
• Bangko Sentral ng Pilipinas (Central Bank of the Philippines)
• National Statistical Coordination Board
• National Statistics Office
• Department of Trade and Industry
• Philippine Stock Exchange
• National Federation of Sugarcane Planters
• Department of Tourism
• Philippines Business Brokers
• Union Bank of the Philippines

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