Trying to get a read on the unpredictable post-pandemic economy
IT’S BEEN about a year and a half since the first hard lockdown was declared in March 2020, and everyone has spent the past months basically winging it, with no firm roadmap emerging as yet for how the coronavirus disease 2019 (COVID -19) has reordered the world, or for how it may be about to reorder it some more before everything is done.
The losses to the economy have been estimated at about P2 trillion 2020 — the equivalent of between 40% and half of recent national budgets, so a proper read on the pace of the recovery is job one for many businesses trying to time their full-on return to the market.
“It will take some time before we’re able to go back even to 2019 per capita GDP (gross domestic product) levels, especially for hard-hit industries like the services sector,” Philip Arnold P. Tuaño, chairman of Ateneo de Manila University’s Department of Economics, said in a Zoom interview.
“Maybe in a few years we will be able to return back to some sort of normality.”
The economy slumped by a record 9.6% in 2020 due to the COVID-19 pandemic. While the government is aiming for a 4-5% rebound this year, economic managers have said that the economy will return to pre-crisis GDP level by 2022.
International development organizations like the Asian Development Bank, the International Monetary Fund (IMF) and the World Bank consider the economic recovery to be fragile, with growth this year likely to disappoint those who had been counting on a quick rebound.
The multilateral banks’ forecasts for Philippine GDP growth in 2021 are at 4.5%, 5.4%, and 4.7%, respectively, based on estimates issued in August.
While it may take time, there are some opportunities to be had for an economy where the new rules of the game have yet to be written, many of them to do with boosting long-term competitiveness and diversifying its sources of growth. Mr. Tuaño sees promise in boosting value chains, going into customization of services and diving deeper into sustainability.
There is no reason the Philippines can’t be a pioneer again, having joined the early Asian industrializers like Japan in the early 1900s in the so-called 5% industrial growth club. A United Nations in the Philippines policy brief issued in August (“Diversification, Jobs and the COVID-19 Recovery”) provides a helpful recap of the wrong turns taken by the economy since the 1980s. “The Philippines has missed several waves of industrial catch-up in the last century,” it said. “(The economy featured) weak industrial competitiveness and lack of productive employment, combined with the quiescence trap that keeps investment and demand for skills low.”
Mr. Tuaño said the areas of opportunity may lie in emerging sectors that have not yet been fully explored.
“The emerging economy will just accelerate some of the trends that we’ve had even before the pandemic, so one thing we have had was accelerating towards industry 4.0, like the increasing use of smart devices and digital finance. The pandemic has accelerated this because we’re forced now to go digital,” he said.
Conventional sources of growth like business process outsourcing (BPOs), retail and food processing have been successes for established conglomerates in the past, but sticking to these industries is no longer ideal as the pandemic drives massive change, Mr. Tuaño said.
“How do they ensure long-run growth even if all of the traditional sources of ’90s, 2000s economic growth become less and less important?” he said.
Stay-at-home orders, quarantine restrictions and fear of contracting the virus during the pandemic helped drive change by encouraging — even compelling — the use of electronic commerce and digital payments.
In the area of customization of services, companies can explore big data offerings optimized for various business models, according to Mr. Tuaño.
Developing local value chains by ramping up production of goods domestically is also another opportunity to invest in, especially after the pandemic exposed the vulnerability of economies when global trade flows are disrupted.
The Philippines can also go big on renewables where the market remains unsaturated but the resource potential is strong, he said.
The country is ripe for diversification, being a consumptiondriven economy, in which household spending accounts for 70% of total GDP each year, while government spending amounts to around 20%.
BUSINESSES NEED TO GO WHERE THE GROWTH IS
The moves businesses make now will go a long way towards establishing their long-term viability, according to Benedicto V. Yujuico, president of the Philippine Chamber of Commerce and Industry.
“Going forward, they must learn how to innovate to remain competitive and profitable. Pandemic or not, businesses must use technology to implement digital transformation to stay ahead of the game,” he said.
The economy had been projected to become the 18th largest economy in the world by 2050, with an estimated GDP of $4.86 trillion, leapfrogging its ranking in 2019 of 30th, according to a report by Capital Economics issued in February.
What is the view from industries on the cutting edge? The need of the moment is having a vision of the future, responding quickly to the needs of the emerging environment, and taking calculated risk, according to Angelito M. Villanueva, the founding chairman of the industry group Fintech Alliance.ph and the chief innovation and inclusion officer for Rizal Commercial Banking Corp.
“To survive and thrive in this current situation… You really have to stay two to three steps ahead of everyone in the field and be able to understand the landscape, knowing what’s emerging and what the future holds,” he said. “It’s how you create the future now that will make you competitive.”
Mr. Villanueva, who was named “Chief Innovation Officer of 2021” by The Banker, said his industry has always anchored its innovations on the need and appetite of consumers, ensuring that any new products are supported by solid potential demand.
“That’s why innovation is not just a process of just-for-theheck-of-it innovating; you have to be able to have a grasp of your environment or your ecosystem; otherwise, it will just be a shot in the dark. Pushing for any innovation has to be a calculated risk,” he said.
To help businesses thrive, the government will also play a key role in providing an enabling environment for innovation to flourish and allow the private sector to diversify into improving the quality of its goods and services.
Mr. Villanueva said some of the reforms he considers key are Republic Act No. 11293 or the Philippine Innovation Act, which supports and incentivizes innovations, and Executive Order No. 127, which promoted the use of satellite broadband nationwide, especially in far-flung areas.
However, he said digital infrastructure remains uneven especially in remote towns, hampering the digital sector’s potential growth.
Mr. Tuaño, the Ateneo economist, warns that much still needs to be done to close the widening income gap and support the vulnerable middle class in a prolonged public health crisis.
“The post-pandemic world will also show that the crisis has also exposed the socioeconomic disaggregation in society,” he said.
“I’m cautiously hopeful that we will still be able to compete with the rest of the region... because there’s a next generation of young professionals who are really interested in these areas; we see young entrepreneurs thinking of how services can be provided more to the rest of the society,” he added.