It’s a VUCA world

VUCA stands for Volatility, Uncertainty, Complexity and Ambiguity. It was coined in the 1990s by a confused American military establishment after the collapse of the Berlin Wall and the disintegration of the former Eastern European Soviet bloc led by the USSR. Suddenly, the American security forces, dedicated to combating Communism during the Cold War era (1940s-1980s), had no identifiable enemy to slay.

VUCA was immediately embraced by a number of management gurus and human resource managers. It became a handy tool in describing the dynamics of competing and working in a globalized and liberalized economic environment—constantly changing, uncertain, complex, contradictory, so many gray areas, and so on.

Today, VUCa is back on the geo-military and geopolitical screen, no thanks to the impetuous and transactional donald J. Trump. By recklessly eliminating iran’s top general, Qassem soleimani, and iraq’s leading militia leader, abu Mahdi alMuhandis, Trump has managed to stoke the hostility toward america by iran, iraq and the islamic community worldwide. instead of dividing iran, Trump’s action has strengthened iranians’ unity against the “evil american empire.” iraq, which george Bush tried to liberate from the dictator saddam, has also asked american military forces to leave the country. There are global fears on the unpredictable outcomes of the escalating conflicts in the Middle East and their repercussions on the rest of the world.

The economic impact of the adventurous American action is incalculable. It is roiling the oil and stock markets of the world. Oil prices are rising and there are forecasts that petroleum is likely to return to $100 a barrel or so. The uS-Iran war also adds more fuel to the rising xenophobic attitude among the populist politicians in the OeCD countries. With the unsettled uS-China trade war and with the World Trade Organization in a limbo (given Trump’s anti-WTO unilateral attacks), some economists are openly predicting a global recession that is harsher and more difficult to tame compared to the 2008-2010 global financial crisis or the 1997-1998 Asian financial contagion.

The world clearly sits astride a precarious VuCA environment. how should the Philippines respond to this VuCA environment?

Immediately, what comes to our attention is the situation of Filipino workers in the Middle east.

Malacañang has organized a team to arrange for the orderly return of overseas Filipino workers (OFWs) from Iran and Iraq.

Malacañang has also discussed the possibility of repatriating a larger number of OFWs coming from Kuwait and other Arab countries. The possibility that the whole Middle east, divided between the Iran-led Shia community and the Sunni community controlled by the pro-American Saudi Arabia, might get engulfed in an all-out war involving all countries in the region is real and looms darkly on the horizon. As it is, there is an ongoing proxy Shia-Sunni war in tiny Yemen pitting both Iran and Saudi Arabia as backers. A region-wide war will naturally include Israel, the favorite target of Iran-backed hezbollah.

At any rate, the possibility of a larger war in the Middle east, temporary or prolonged, can lead to a mass return migration for OFWs based in the region. This prospect has dire implications on the country.

In the past, the closure of a garments factory in South Korea or Taiwan involving Filipino workers had limited impact on the economy and the Philippine labor market because the OFWs involved usually numbered at the most a thousand or so. But an OFW mass return migration from the Middle east would have a direct and immediate destabilizing impact on the Philippine economy. The total number of OFWs in the whole Gulf Area is around 3 million. They are also the biggest foreign exchange remitters (Note: the statistics on remittances tend to show lower Middle east remittances because OFW remittances are coursed through American banks operating in the region). As everyone knows, these remittances constitute the lifeblood of the economy, which keeps growing despite a stagnant industrial sector and a shrinking agricultural sector at home.

how prepared is the Philippines for the scenario of an OFW mass return migration? We still have to hear from our economic and labor officials, including those in Congress, on whether there is a viable and workable program on how millions, not thousands, of returning OFWs shall or can be absorbed by the domestic economy. No outline even.

And how prepared is the Philippines for the global recession that some economists are predicting to happen due to the uncertainties spawned by the uS-Iran conflict, the unresolved uS-China trade war and the protectionist sentiments among politicians in various parts of the world?

Will the call center-BPO sector serve as the country’s savior? But Neda itself admitted in 2017 that the sector was already in a growth “plateau.” American service “offshorers” have been reducing business deals related to the voice segment of the CC/BPO sector because of the rise and application of do-it-yourself (DIY) and chat-bot technologies. With America in recession, global offshoring of services and outsourcing of industrial production are likely to intensify.

Will China then become the country’s savior? This is doubtful. China, with its huge domestic debt problem and hong Kong dilemma, is facing uncertain restructuring challenges and has difficulty meeting its ambitious goals under its ambitious Belt and Road Initiative, or BRI. As it is, China’s share in the Philippines’s borrowing program in support of the “Build, Build, Build ” program is quite small compared to the contributions of Japan, World Bank and ADB. This despite the so-called China debt-trap policy reporting by Forbes Asia.

however, if there is one area where China can help, it is on the trade sector. The Philippines has chronic and widening trade deficit with China. The latter is also the primary source of smuggled goods, including shabu. A number of Philippine industries collapsed in the 1980s-2000s because of China’s trade juggernaut. efforts to balance or rebalance China-Philippine trade relations should be a welcome development.

Perhaps, the best thing that Malacañang and Congress can do under the global VuCA environment and the double threats of OFW mass return migration and global recession is to take a historic reassessment of the country’s national development strategies as reflected in the 20172022 Philippine Development Plan. The VuCA environment can be a good opportunity for revisioning and taking a fresh look on what the Philippines can achieve amid a confusing global economic and political order.

A good starting point is an examination of how the domestic economy can be developed given the country’s large population of 110 million. More on this in the next issue.