Faster growth not possible with infrastructure bottlenecks

By Cai U. Ordinario, BusinessMirror

Posted at Feb 26 2014 07:40 AM | Updated as of Feb 26 2014 09:00 PM

MANILA - The Philippines is seen unable to grow faster than 7 percent and sustain the pace if the country’s infrastructure constraints, particularly the relative lack of power, persists over the medium horizon.

At the general assembly of members of the Management Association of the Philippines (MAP), Socioeconomic Planning Secretary Arsenio M. Balisacan said attaining local output growth, measured as the gross domestic product, of 8 percent to 10 percent is unsustainable given the country’s infrastructure constraints.

Balisacan added that while the country’s power supply is sufficient to cover the country’s needs until 2015, there is a need to increase power investments down the line to ensure there is enough energy supply to cover greater growth beyond 2015.

“I’m very pragmatic. The kind of constraints we have now, we have power constraints, infrastructure constraints, inasmuch as you’d like to grow fast, 8 [percent], 9 [percent], 10 percent, I don’t think we can sustain that. We have to build the base strong enough to be able to sustain a rapid growth,” Balisacan said.

“As of now, just to be frank with you, can we sustain 7-percent, 8-percent growth? Yes, we could [but] the No. 1 binding constraint [is] power. Where’s the power? And I keep mentioning that of course we are addressing this in government. We are assured that we have the power investments. But the problems in Mindanao, the shortage of power, we have to invest much more. We have enough up to 2015 but not enough to really make you comfortable because the reserve is still thin,” according to Balisacan.

He explained that ensuring sufficient power supply is the key to increasing the growth, potential of the manufacturing sector. He said the manufacturing sector should, as a consequence, be able to generate sufficient jobs that millions of Filipinos need.

He said the manufacturing sector currently accounts for 20 percent of the country’s growth, while the manufacturing sector in other countries or peers of the Philippines account for around 30 percent of the growth of their respective countries.

Based on data from the World Bank cited by former Budget Secretary Benjamin Diokno, there are 1.2 million new workers in need of jobs every year. With this, the World Bank said the government must create 14.6 million jobs until 2016 and provide decent employment to 21 million other Filipinos who are currently informally employed.

“We are introducing some changes in legislation that have high priority. Things like that we need to fix, and at the current rate of infrastructure development, there’s a threat to easily push inflation. It is a real threat if you don’t address those bottlenecks. To me, if you can sustain 7 percent for the next 20 years, 30 years, I think we should be okay,” Balisacan said.

Apart from these bottlenecks, both Balisacan and Diokno agreed that agriculture issues, particularly land reform, should be addressed sufficiently to increase the sector’s contribution to economic growth.

The agriculture sector is key to reducing poverty in the Philippines. The country’s poverty situation has not significantly improved from 2006 and that 80 percent of the country’s poor are in rural areas engaged mainly in agriculture.

Both said the granting of individual titles as part of the land-reform program will significantly improve farmer access to credit. Under the current land-reform system, farmers only receive collective Certificates of Land Ownership Awards which are ineligible as collateral for a bank loan.

In his 2009 inquiry, Balisacan also said that as recipient or beneficiary of the Comprehensive Agrarian Reform Program even acts as a hindrance for farmers looking to tap credit facilities since banks immediately consider them “risky” borrowers simply because they are poor and may not have enough means to repay loans.

In Photo: Socioeconomic Planning Secretary Arsenio M. Balisacan (right) and former Budget Secretary and University of the Philippines economics professor Benjamin E. Diokno, at the meeting of members of the Management Association of the Philippines, rule out high, self-sustaining growth for the $250-billion economy, unless so-called infrastructure restraints are effectively eliminated. (Stephanie Tumampos)