Economy of the Philippines

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The Philippines is a newly industrialized country in South-East Asia. In 2004, it was ranked as the 24th largest economy by the World Bank according to purchasing power parity. It is the fastest-growing economy in Southeast Asia, posting a GDP growth rate of 7.5% in the second quarter of 2007, 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. In the period immediately following World War II, the Philippines was one of the fastest-growing economies in the world and one of the richest countries in Asia (following Japan), and up until the 1960s looked to becoming one of Asia's major 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 dampened 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 in the early 1990s, however regained little ground compared to what it lost during the Marcos regime.

In 1998, the Philippine economy deteriorated as a result of spill-over from the Asian financial crisis and poor weather conditions. Growth fell to about -0.5% in 1998 from 5% in 1997, but recovered to 2.9% by 1999. President Estrada tried to resist protectionist measures; and efforts to continue the reforms begun by the Ramos administration made significant progress. A major bank 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 dampened 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, dampened 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 PHP41.31 as of December 11, 2007, making it Asia's best performing currency so far by sharply appreciating nearly 19%. [5].

[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.^[2]

[edit] Sectors

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

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 .^[3]

[edit] Automotive

The ABS system 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. Further investments in this sector are expected to grow in the next following years.^[4]

[edit] Electronics

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 ^[5]. TI's Baguio plant produces 100% of all the chips used in Nokia cell phones and 80% of all 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.

[edit] Software

One of the software houses established in the country is Trend Micro, an anti virus software maker with its main product PC-Cillin. The company develops its "cures" for viruses in Eastwood City, Libis, Quezon City^[6]

[edit] Outsourcing

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,^[7] 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

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.

See main article - Transportation in the Philippines

[edit] Statistics

• GDP: purchasing power parity - $508.1 billion (2006 est.)
• GDP - real growth rate: 6.9 % (2007 est.)^[8]
• GDP - per capita: purchasing power parity - $5,700 (2006 est.)
• GDP - composition by sector:

  agriculture: 14.5%

  industry: 32.3%

  services: 53.2% (2003 est.)

• Population below poverty line: 24.7% (2003), 16.4% (2007)
• Household income or consumption by percentage share:

  lowest 10%: 1.7%

  highest 10%: 38.4% (2000)

• Inflation rate (consumer prices): 8.3(2003) 2.7%(2007)
• Labour force: 35.79 million (2006), 41.93 million (2007)
• Labour force by occupation: (2007 est.)

  agriculture 33%

  industry 30%

  services 37%

• Unemployment rate: 10.4% (2003),7.9% (2007)
• Budget:

  revenues: $19.53 billion

  expenditures: $20.74 billion, including capital expenditures of $NA (2006 est.)

• Industries: textiles, pharmaceuticals, chemicals, wood products, food processing, electronics assembly, petroleum refining, fishing
• Industrial production growth rate: -0.1% (2003 est.)
• Electricity - production: 45,210 GWh (2001)
• Electricity - production by source:

  fossil fuel: 70.12%

  hydro: 10.75%

  nuclear: 0%

  geothermal: 19.13% (1998)

• Electricity - consumption: 42,040 GWh (2001)
• Electricity - exports: 0 kWh (2001)
• Electricity - imports: 0 kWh (2001)
• Agriculture - products: rice, coconuts (copra), maize, sugarcane, bananas, pineapples, mangoes; pork, eggs, beef; fish
• Exports: $47.2 billion (2006 est.)
• Exports - commodities: electronic equipment, machinery and transport equipment, garments, coconut products, chemicals
• Exports - partners: United States 20.1%, Japan 15.9%, Hong Kong 8.5%, Netherlands 8.1%, Taiwan 6.9%, Malaysia 6.8%, Singapore 6.7%, China 5.9% (2003)
• Imports: $51.6 billion (2006 est.)
• Imports - commodities: raw materials and intermediate goods, capital goods, consumer goods, fuels
• Imports - partners: Japan 20.4%, US 19.8%, Singapore 6.8%, South Korea 6.4%, Taiwan 5%, China 4.8%, Hong Kong 4.3% (2003)
• Debt - external: $56.16 billion (2003)
• Economic aid - recipient: ODA commitments, $1.2 billion (2002)
• Currency: 1 Philippine peso (P) = 100 centavos
• Exchange rates: Philippine pesos (P) per US$1 = 41.40 (2007), 49.28 (2006), 53.10 (2005), 56.052 (2004), 54.203 (2003), 40.427 (January 2000), 39.089 (1999), 40.893 (1998), 29.471 (1997), 26.216 (1996), 25.714 (1995)
• Fiscal year: Calendar year

[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 the na 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
• Philippine Stock Market Forum
• National Federation of Sugarcane Planters
• Department of Tourism
• Philippines Business Brokers
• Union Bank of the Philippines

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