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The Philippines economy is ready to be on the rise again—To regain its old growth momentum, that is.
That is according to a just-concluded McKinsey Global Institute (MGI) study, which mentions the Philippines among the few emerging market economies that are well-prepared to achieve sustained growth over the next decade– provided that inflation, corruption, and revolution don’t stand in the way, it should be added.
Despite being only second to Indonesia in terms of the number of internet users in Southeast Asia (SEA), the Philippines’ internet economy is the smallest among the 6 SEA nations in Google’s latest SEA internet economy study.
The Philippine internet economy, measured as gross market value (GMV), is currently at $5 billion, with Malaysia being the closest at $8 billion, and Indonesia leading the region at $27 billion. In the next seven years, the Philippines’ internet economy will more than quadruple in size, reaching $21 billion by 2025. It follows the general trend for SEA, whose internet economy will collectively triple from $72 billion to $240 billion by 2025 – a projection that’s $40 billion higher than initial estimates.
Now, achieving sustained growth over the coming years and longer is among the top challenges for emerging economies. Only about 18 countries out of the emerging 71 economies studied by the MGI achieved certain growth benchmarks. Like more than 3.5% per capita GDP growth over 50 years or 5% growth over 20 years, they are lifting millions of people out of poverty.
Malaysia, China, India, Ethiopia, Vietnam, and Uzbekistan are among the countries that made the list. But not the Philippines. The country’s high growth rates of the ’60s were interrupted by the familiar villains: corruption, inflation, and revolution.
Still, in recent years, the Philippines economy has shown a great deal of resilience beating China’s at some point. At the end of 2017, it grew at an annual 6.9% in the September quarter, the strongest growth since the third quarter of 2016. That is slightly more than China’s third-quarter annual growth, which grew 6.8% in the third quarter of 2017, that country’s weakest pace of expansion since the fourth quarter of 2016. And by the end of 2018, the Philippines’ economy was still growing at 6%.
The annual GDP growth rate in the Philippines averaged a 3.72% from 1982 until 2017, reaching an all-time high of 12.40% in the fourth quarter of 1988 and a record low of -11.10% in the first few months of 1985.
The Philippines gross merchandise value generated by internet-based products only accounts for 1.6% of its gross domestic product (GDP) – the lowest in the region, hence the most room for growth.
Crucial too for the development of the internet economy is the availability and affordability of mobile internet access. In a country where more than 90% of the users connect to the internet via smartphones, the speed and affordability of mobile networks is critical for the development of a robust internet economy
A study described the Philippines’ internet economy as “a relatively untapped opportunity,” having “not yet generated unicorns nor shown the dynamism of the Indonesian and Vietnamese markets.”
It says that the growth in the Philippines economy will be ushered in by increased investments and focus by startups and young regional e-companies that are already successful such as Singapore’s Grab and Shopee, and Lazada, owned by China’s Alibaba Group.
A number of pro-growth policies under the Duterte administration have helped the Philippines’ economy. Like tax reforms, a stable macroeconomic environment, market liberalization, and brisk infrastructure spending.
That explains why the MGI study includes the Philippines together with Sri Lanka to the next group of emerging market economies ready to achieve sustainable growth. Provided, of course, that inflation, corruption, and revolution — which are still present in Filipino society — don’t cut the country’s rise short again.