Over the recent months, the Philippines had been experiencing consistent economic growth despite global uncertainties, which range from supply chain bottlenecks to geopolitical tensions. If it continues along that trajectory, the Philippines is expected to join the upper middle-income tier group during the Marcos Jr. administration, where the country will eventually become a burgeoning USD 500 billion economy in a few years. Even though economic constraints are stipulated in the current 1987 constitution, such economic expectations for the Philippine archipelago is music to the ears of most Filipinos. However, two significant threats to the Philippine economy are still present and must be addressed proactively as Filipinos attempt to attain better standards of living through continuous economic growth.
The first significant threat that should be addressed is the resource curse. This is where resource-rich countries, despite of their natural assets, have the tendency to experience unproductive and uncompetitive economies. Initially, investments are poured into extractive means to obtain these limited resources, which generates wealth as these products are being sold in international markets. In turn, this showers their respective governments with ridiculous amounts of foreign currencies. Temptations to mismanage these financial gains are high, where populist measures that perpetuate politicians’ hold on power are practiced through graft and corruption. When these natural resources catch a hefty price tag in global markets, economic benefits will continue to flood their respective countries, often with fiscal discipline taking the backseat. However, when the prices of these products become volatile or take a hit, economic uncertainty blankets the whole country inviting social unrest and civil disobedience. The Democratic Republic of the Congo and the Soviet Union have experienced this aforementioned curse in their industries related with mining and hydrocarbons, respectively.
Also named as the Dutch disease, the resource curse was observed in the Netherlands. Hydrocarbon fields were discovered in Dutch territory and were extracted to fuel its and its immediate neighbors’ economic growth. With the turbulent geopolitical tensions of the 1970’s running high in the Middle East, prices of oil reached record heights. Oil-dependent countries ended up rationing gasoline, while oil-producing countries raked in the profits. As Paris and Bonn were hungry for hydrocarbons, the international demand for guilders rose, pushing up the value of the Dutch currency. The appreciation of the guilder was a major disincentive for the Dutch manufacturing sector to export high-value commodities. In turn, the economy of the Netherlands became less productive and less competitive in comparison to its highly developed European counterparts.
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With the world transitioning towards a sustainable green economy, international and local investors are eyeing the mineral deposits of the country. Lithium, cobalt, copper, and nickel, which are present in the Philippines, are integral elements in the development and production of modern technologies like electric vehicles and energy storage batteries. In the eventuality of the extraction of these minerals, wealth will be generated in the Philippines, opening many employment opportunities. However, wealth created through resource extraction will not last forever, thus the Philippine government must be both pragmatic and prudent in utilizing these economic gains.
The second significant threat that should also be confronted is the middle income trap. This can be commonly observed in South American countries where middle income countries languish in that grouping. It is a region where economies stagnate and economic development often comes to a halt altogether. It is also noteworthy that countries trapped in the middle income classification have a sluggish manufacturing sector. Numerous factors can be attributed to this trap, which includes but is not limited to populist policies, economic protectionism, absence of fiscal discipline, political polarization, and corruption.
In the case of Venezuela, a double whammy of the middle income trap and Dutch disease can be observed. Blessed with beautiful beaches and massive hydrocarbon reserves, Venezuela is a South American country that has been spoiled by foreign currencies. Geographically positioned to take advantage of the expanding capitalistic society of the United States, Venezuela was poised to maximize its geo-economic location. Aside from its tropical climate that attracts wealthy North American tourists, it has tremendous agricultural potential to export coffee and cocoa which are considered as high demand goods in advanced economies of the West. In addition, its proximity to the Panama Canal gives it an advantage in the export of hydrocarbons to the Asia Pacific market. However, instead of maximizing its geo-economic advantages, economic stagnation occurred. Venezuelans and their politicians lived decadent lifestyles, where investments in the manufacturing sector that could have diversified its economy were nearly absent. This was further exacerbated when the Bolivarian government adopted populist-socialist measures that drained the country’s financial resources. Eventually, as the petrodollars were being siphoned away from the Venezuelan coffers, hyperinflation and political turmoil spread like wildfire. With social order being replaced by crime and violence, foreign investors lost confidence in the Venezuelan economy as capital flight left Caracas with very bleak employment prospects.
Learning and avoiding the bitter experiences of the Democratic Republic of the Congo, the Soviet Union, and Venezuela is a must for middle-income Philippines. This should be further emphasized as Filipinos have the tendency to be envious of decadent lifestyles in numerous occasions. Such can be observed when many Filipinos obsess themselves in rags-to-riches soap operas in the hopes that they themselves can enjoy splurging money by getting married with foreigners, who they treat as their personal wallets. Instead of celebrating hard work and ingenuity, numerous Filipinos easily fall for instant gratification. Nevertheless, there are two notable examples that the Philippines can learn from to avoid these pitfalls.
One good example of a nation that has managed its economy and natural resources superbly is Norway. This sparsely populated Scandinavian country was initially, an economy highly dependent on its fishing industry. With oil exploration in the Norwegian seas, the Norwegians struck gold when oil and gas deposits were confirmed in their exclusive economic zones and territorial waters. However, Oslo didn’t allow itself to be spoilt by hydrocarbon windfalls. They created and institutionalized of a sovereign wealth fund. This Norwegian wealth fund was derived from the financial gains earned from hydrocarbon trade, where it is currently valued at USD 1 trillion, which is roughly double the size of its current GDP. These funds are currently being invested in various sectors of the global economy, diversifying the Norwegian economy as a whole.
Another notable example is Botswana, which initially had a double digit GDP per capita during the 1960’s before it eventually joined the ranks as an upper middle-income country. Its Human Development Index (HDI) is one of the highest in Sub-Saharan Africa and boasts relatively high living standards. Despite being classified as a British protectorate, the Tswana people took advantage of British protection to keep its inclusive political institutions intact. When decolonialization occurred, Botswana was still experiencing abject poverty, but they kept their tribal and political participation highly exclusive eventually allowing diamond mining on their lands. Earnings from the mining industry were later channeled to develop its human capital through education. With a literate, educated, and productive workforce, Botswana is poised to transition its economy from resource extraction to more high-value industries.
What Norway and Botswana have in common are inclusive economic and political institutions which are absent in many South American countries. Paired with a strong state and a strong society, the leaders of Norway and Botswana were able to maneuver their countries out of these economic pitfalls. Instead of adopting South American policies, which many left-leaning analysts in the Philippines are advocating for, avoiding these critical mistakes are of utmost importance, so as to accomplish a more inclusive economic growth for the general Filipino populace.
A no one who enjoys the fun things of life in private.
A believer of freedom, capitalism, and conservative brand of politics.
A no one who cares less about popular public opinion.
A believer that life can be better, if every one is a tad more responsible.