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What are the economic prospects of the Philippines for 2024?

What are the economic prospects of the Philippines for 2024

A Brief

The Philippines is poised for robust economic growth, with its total GDP projected to double from USD 400 billion in 2022 to USD 800 billion by 2030. Forecasts indicate that by 2033, the country is set to join the select group of Asia-Pacific economies exceeding one trillion dollars, aligning with regional giants like China, Japan, India, South Korea, Australia, Taiwan, and Indonesia. This impressive expansion is not only expected to elevate the nation’s stature but also contribute to a significant rise in per capita GDP, surging from USD 3,500 in 2022 to an estimated USD 6,200 by 2030. Such economic vitality is anticipated to fuel growth in the Philippines’ domestic consumer market, attracting both foreign and domestic investments across various sectors.

An essential factor complementing this economic surge is the notable decline in the country’s inflation rate, reaching 4.1 percent in November 2023 from 8.7 percent at the beginning of the year, well within the projected range of 4.0 to 4.8 percent set by the Bangko Sentral Pilipinas (BSP). Fiscal indicators also underscore the Philippines’ sound financial management, with the fiscal deficit standing at 1 trillion Philippines pesos as of October 2023, marking an 8.5 percent reduction compared to the same period in the previous year. The National Government deficit-to-GDP ratio for the first three quarters of 2023 remained below the full-year target, reaching 5.7 percent against the 6.1 percent goal. Revenues have seen an impressive uptick, surpassing the target by 5.2 percent, with expectations set for revenues to reach 3.85 trillion Philippines pesos, equivalent to 15.7 percent of GDP in 2023. Notably, credit rating agencies S&P Global and Fitch Ratings affirmed the country’s BBB+ and BBB ratings with a Stable outlook in November 2023, reflecting confidence in its economic resilience. Additionally, the unemployment rate, averaging 4.6 percent for the first 10 months of the year, outperforms the same period in the previous year and aligns with the targets outlined in the Philippines Development Plan (PDP) 2023-2028, showcasing a positive trajectory for the Philippines’ economic landscape.

Philippines economic performance 2023

The Philippines has also shown a much-improved economic growth performance over the past decade, apart from during the peak period of the COVID-19 pandemic during 2020-21 when there was widespread global disruption to economic activity. During the period from 2012 to 2019, real GDP growth in the Philippines each year ranged between 6% to 7%. The economic rebound in 2022 pushed real economic growth to the highest pace recorded since 1976, with household final consumption expenditure growing by 8.3% year on year while gross capital formation grew by 16.8%. The recent economic data has continued to show expansionary conditions in the Philippines’ economy during the fourth quarter of 2023. The headline S&P Global Philippines Manufacturing PMI rose from 52.4 in October to 52.7 in November 2023, signaling continued expansionary operating conditions that were the strongest reading since February.

A trillion-dollar economic dream of the Philippines

The Philippines is expected to enjoy a continued growth spurt in the next decade with economic output hitting $1 trillion by 2033, buoyed largely by expanding private consumption. The Philippines may experience rapid economic growth in the next decade with gross domestic product (GDP) hitting $1 trillion or P51.1 trillion by 2033. This will allow the Philippines to join the ranks of China, Japan, India, South Korea, Australia, Taiwan, and Indonesia in the group of largest economies in Asia-Pacific. The nominal GDP of the Philippines as of 2021 was $379 billion or P19.387 trillion. The key growth driver is the rapid growth in private consumption spending, buoyed by strong growth in urban household incomes.  The Philippines’s economy is also expected to drive per capita GDP from $3,300 to $6,500. The rise in per capita GDP will help underpin the growth of the domestic consumer market, catalyzing foreign and domestic investment into many sectors of the economy. This will help to drive foreign direct investment inflows into the Philippines, as multinationals build up their local presence in a wide range of 2033.

Opportunities for the Philippines in 2024

Positive GDP Projections

The recent economic data shows that the Philippines economy has continued to show robust expansion, with GDP growth of 5.9% year-over-year in the third quarter of 2023. The latest S&P Global Purchasing Managers Index survey results for November 2023 also showed that the Philippines’ manufacturing sector is one of the fastest growing among the major economies worldwide. Sustained remittance inflows from workers abroad, fast-growing IT, BPO sector exports, and the continued recovery of the tourism sector are also expected to support economic growth momentum during 2024. International visitor arrivals are estimated to have doubled in 2023 compared to 2022, driving a significant rebound in international tourism revenues.

The Philippines is amongst the world’s fastest-growing emerging markets

The Philippines economy has continued to show a strong recovery from the COVID-19 pandemic during 2023, with GDP growth strengthening to a pace of 5.9% in the third quarter of 2023

The Development Budget Coordination Committee (DBCC) narrowed the Philippines’ growth target to 6.5 to 7.5 percent for 2024, taking into account the risks posed by the possible global economic slowdown, El Niño, and other natural disasters, as well as geopolitical and trade tensions.

Growth in 2024 will be driven by private consumption as inflation is expected to return within the target range; falling oil prices; robust public spending; greater investments lured by the country’s sound macroeconomic fundamentals, investment-grade credit ratings, and the implementation of structural reforms; and increased demand for Philippines exports as supply chain bottlenecks ease.

BPO Sector: The Philippines is the BPO capital of the world

Total estimated BPO export revenues, consisting of computer and other business services, amounted to USD 21.3 billion for the first three quarters of 2023, 7.6 percent higher than the USD 19.8 billion total revenues registered in the same period in 2022. It can be noted that in 1992, the Philippines BPO industry was born, employing nearly a million workers, thus creating a ripple effect. In 2005 alone, it accounted for an average of 2.4% increase in the Philippines’ GDP. The succeeding year drew another milestone as the domestic economy grew by 5.4%. All these are due to the emerging BPO industry.

As years passed by, foreign investors moved into the Philippines. The Philippines Economic Zone Authority (PEZA) paved the way for lower area and tax requirements to start such a business.

In 2010, the country was named the BPO capital of the world–beating other countries such as India – one of the leading names in the industry. This can be attributed to the notion that Filipino BPO employees are good communicators and can easily capture the interest of customers from all over the globe. From medical transcription down to selling all other services, Filipino workers rake in monumental figures. There is nothing that a Filipino BPO worker will do to help his company prosper. His being value and purpose-driven is the vital element that makes the Philippines BPO industry boom.

The Philippines BPO industry contributes nearly $30 billion to the economy each year. It is estimated that 1.3 million Filipinos were employed in over 1000 BPO companies in 2019.

It is estimated that the country holds 10-15% of the global BPO market. Its services are oriented to its former colonial power, the USA, and also serve Europe and nearer neighbors, such as Japan, New Zealand, and Australia. The I.T. BPO industry plays a major role in the country’s economic growth. I.T and Business Process Association of the Philippines (IBPAP) reported that the market’s revenue grew by 10.3% to $32.5 billion in 2022, citing that the main drivers of this annual growth were healthcare, finance, tech, retail, and telecommunications.

Foreign Workers Remittances

The Philippines is projected to be the fourth top recipient of remittances this year, a report released by the World Bank said. The World Bank’s Migration and Development Brief, report said the top five recipient countries for remittances this year are India ($125 billion), Mexico ($67 billion), China ($50 billion), the Philippines ($40 billion), and Egypt ($24 billion).

Tourism Sector Growth

The tourism industry is a known key contributor to the Philippines economy. The Bangko Sentral Philippines recognizes this sector as one of the biggest contributors to local employment. Last year, the Department of Tourism (DOT) reported that international tourism arrivals rose to 2.6 million in 2022, surpassing its full-year target of 1.7 million arrivals. This also translated to a 2,465-percent jump in government revenues at 208.96 billion Philippines pesos. The United States remained the top tourist market, followed by South Korea, Australia, Canada, the United Kingdom, Japan, Singapore, India, Malaysia, and China. Meanwhile, more than 628,000 were returning Filipinos.

Albeit still lower than the 8 million level before the pandemic, the jump in figures speaks good news to the economy. As a country heavily relies on tourism, the surge in the number of arrivals will be a blessing to employment and revenue generation for the country.

Just last month, the president approved a proposal to refund taxes for foreign travelers and roll out electronic visas highly prioritizing the Chinese and Indian markets, both to boost foreign tourist arrivals. He also removed the One Health Pass entry requirement for travelers as well as the mandatory inclusion of travel tax on booking airfares to lessen the hassle of queueing up at travel tax booths inside airport facilities. The tourism industry is noticeably up for a boost, but the biggest challenge now hinges on how we can compete with our global peers to lure more tourist arrivals.

Improved Positive ratings

Economic expansion remained broad-based as all major production sectors posted positive year-on-year growths in the first three quarters of the year, led by services (7.0 percent), industry (3.7 percent), and agriculture (1.1 percent). Multilateral organizations recognize the strong economic performance of the Philippines and expect the country’s expansion to be one of the fastest among its regional peers in 2023 with the Asian Development Bank (ADB) forecasting a growth of 5.7 percent, the ASEAN+3 Macroeconomic Research Office (AMRO) and World Bank (WB) at 5.6 percent, and the International Monetary Fund (IMF) at 5.3 percent. Meanwhile, the Philippines’ external performance remains strong with gross international reserves (GIR) increasing to $102.7 billion as of the end of November 2023, from $101 billion at the end of October.

The peso-dollar exchange rate settled at 55.38 pesos per US dollar on December 27, 2023, averaging 55.63 Philippines pesos year-to-date (YTD). This remains within the peso-dollar exchange rate assumption for 2023, which is PHP 55.50 to 56.00 per US dollar. In addition, total cash remittances from Overseas Filipinos (OFs) also continue to increase. On a YTD basis, cash remittances coursed through banks in the first 10 months of 2023 amounted to USD 27.5 billion, up by 2.8 percent from USD 26.7 billion recorded in the same period a year ago.

Navigating Challenges for the Philippines in 2024

Geopolitical uncertainty

The Philippines and Indo-Pacific states are confronted by geopolitical challenges that range from traditional, non-traditional, and evolving security threats. The collective concern to manage these security challenges pushes states to cooperate in multilateral, multilateral, and bilateral approaches.

The administration of President Ferdinand Marcos Jr. is expected to maximize the country’s diplomatic relations while remaining independent and free from external pressure in the exercise of its foreign and security policies. This is tested in the latest diplomatic engagements of the administration. Recognizing the limitations in the country’s resources, he also advised that the Philippines must work with the United States, Australia, and other security partners to implement a maritime security strategy.  He said that this would convey a message of solidarity.

Weak Governance indicators

The Philippines has an ESG Relevance Score of ‘5’ for Political Stability and Rights as well as for the Rule of Law, Institutional and Regulatory Quality, and Control of Corruption, as is the case for all sovereigns.

Infrastructure Back lags

Infrastructure, by definition, undergirds a country’s socioeconomic development. The more strategically distributed it is – both sectoral and spatially – the better it is for inclusive growth and sustainable development. With a growing economy, the Philippines requires more and better-selected infrastructure investments, given its archipelagic landscape, expanding population, and rapid urbanization. To support a higher growth trajectory and improve the quality of life in both urban and rural communities, infrastructure development will remain among the top priorities of the government over the medium term. Spending on infrastructure has to be intensified while addressing persistent issues and challenges hampering implementation so that the so-called “Golden Age of Infrastructure” will form part of a solid foundation for reaching the country’s Long-Term Vision in 2040.

Demographic dividends viz a viz challenges

The Philippines economy is poised to undergo accelerated growth as a result of demographic dividends as early as 2025 if it can moderate population growth and invest in human capital. The National Economic and Development Authority (NEDA) cited the Philippines Development Plan (PDP) 2017-2022 emphasizing the need for a sustained universal healthcare program and reproductive health policies to reduce mortality and fertility rates.

The Philippines is expected to be the last major Asian economy to benefit from the demographic dividend between the years 2025 and 2070. If not properly addressed, the country would need to wait until at least 2050 to benefit from the demographic dividend, or possibly miss it altogether.

Low Industrial outputs

During March 2023, Philippines manufacturing continued its growth trajectory, albeit at a slower pace compared to the previous year and month. The value of production index (VaPI), an indicator of factory output, recorded a 4.9 percent year-on-year (YoY) growth rate in March, as per the Philippines Statistics Authority (PSA).

The VaPI figure for March, though positive, represents a slowdown from the 9 percent expansion in February and a staggering 370.3 percent growth rate observed in March 2022, according to a report by a news agency. Similarly, the volume of production index (VoPI) saw a 2.2 percent increase, less robust compared to the 5.2 percent growth in February and 346.2 percent in March 2022.

What the Philippines must do?

The Philippines must manage its youth bulge

The Philippines today has the largest generation of young people in its history. 30 million young people between the ages of 10-24 account for 28 percent of the Philippines population. Developing policies and investments for the future of young people could lead the Philippines to reap the benefits of a ‘demographic dividend’ – the economic growth potential that can result from households having fewer children and a larger number of young people who now have better health, better education, and decent jobs who can save and invest for their future.

Invest and harness its tourism sector

The tourism sector is a key contributor to the resilience of the Philippines’ external payments position and overall economic development, alongside overseas Filipino (OF) remittances and business process outsourcing. As one of the country’s biggest employers, it provides various opportunities for businesses and individuals from all segments of society and supports sustained structural foreign exchange (FX) inflows. But given the contact-intensive nature of the tourism sector, it has been significantly hit by the COVID-19 pandemic. Nonetheless, prospects for recovery in travel services are improving amid the waning of the pandemic and easing of travel restrictions. Travel services are one of the main sources of FX inflows in the country’s balance of payments (BOP). It accounts for about 20 percent of total services exports reflecting an average of 15 percent sustained growth over the past decade (from 2010 to 2019, pre-pandemic).

Infrastructure investments

The Philippines is one of the fastest-growing economies in Asia and is the second fastest-growing economy in the Association of Southeast Asian Nations (ASEAN). Increasing urbanization, a growing middle class, and a young, English-speaking population continue to drive the local economy, thanks to strong consumer demand supported by a burgeoning labor market and steady remittances from overseas Filipinos.

Of the 3,770 infrastructure projects in the Philippines with an indicative total investment requirement of CAD 432.5 billion over the medium term, 194 projects are listed as high-impact Infrastructure Flagship Projects (IFPs). These projects are aimed to spur and accelerate economic growth across the Philippines archipelago as spearheaded by the economic team of the current administration.

Filipino President Ferdinand Marcos Jr., has been actively advocating for public-private partnerships (P3s) as a favorable financing model for infrastructure projects.

Defense and Security enhancement

Recognizing the paramount importance of safeguarding its national security, the Philippines has embarked on a 15-year modernization program, Horizon 3 (H3), to fortify its defense capabilities amid evolving geopolitical dynamics.

Also, in light of the escalating challenges posed by a resurgent and assertive China, the strategic alliance with the United States emerges as a linchpin in the Philippines’ defense strategy.

The enduring U.S.-Philippines relationship, rooted in shared democratic values and historical ties, is exemplified by the designation of the Philippines as a ‘Major non-NATO Ally’ (MNNA). This alliance, the oldest in Asia, presents a strategic opportunity for the Philippines to bolster its self-defense capabilities through collaboration with U.S. defense and security equipment manufacturers. With an average annual contribution exceeding $120 million in Foreign Military Financing (FMF), the United States has expressed a heightened commitment, allocating over $200 million this year due to regional security concerns, and an additional $100 million for the armed forces’ modernization programs.

Against the backdrop of maritime disputes with China in the West Philippines Sea, the Department of National Defense (DND) underscores the critical role of air power in territorial defense. Aligning with current technological trends, the enhancement of the Philippines Air Forces’ capabilities is pivotal. The incorporation of unmanned aerial systems, artificial intelligence, and space capabilities becomes imperative in this pursuit. As the Philippines seeks to maintain regional stability, the DND, a key player in the Indo-Pacific region, emphasizes the significance of bolstering capabilities under Horizon 3. The focus on C4ISTAR, air defense systems, air and surface interdiction systems, anti-tank systems, and ground rocket systems underscores the commitment to a modernized defense apparatus, pending approval by the DND. In the face of a dynamic geopolitical landscape, the symbiotic U.S.-Philippines partnership stands as a cornerstone, offering crucial support for the Philippines’ defense endeavors.

Analysis

Why North Vietnam is Poor and South is Rich?

Why North Vietnam is Poor and South is Rich

Introduction

Vietnam, with its storied history and diverse geography, has long been shaped by its struggle for independence and subsequent divisions following the First Indochina War in 1954. The Geneva Accords delineated the country along the 17th parallel, birthing North Vietnam under Ho Chi Minh’s communist regime and South Vietnam, supported by the United States. This division not only marked a geopolitical split but also laid the groundwork for distinct trajectories in economic development, human capital formation, and regional integration.

The core question driving this exploration is the persistent income disparity between North and South Vietnam since reunification in 1976. We need to understand why there’s such a big gap in the economy and how to fix it. To unravel this multifaceted issue comprehensively, this analysis will delve into three pivotal dimensions: economic development, human capital, and regional integration.

Economic Development

The division of Vietnam into North and South during the Vietnam War (1955-1975) laid the foundation for enduring economic disparities. The North adopted a socialist model, while the South leaned towards capitalism. Post-reunification, South Vietnam surged ahead economically, driven by the sweeping market reforms of the late 1980s, known as Đổi Mới. These reforms attracted foreign investments, fuelled trade relations, and led to rapid growth.

Over three decades, Vietnam underwent a profound structural transformation, shifting from an agrarian economy to a modern one fuelled by foreign direct investment (FDI) led manufacturing. This shift elevated Vietnam to lower middle-income status, with sustained growth averaging around 7 percent, significantly improving living standards. GDP climbed steadily to 8.63 trillion dong in 2022, with per capita GDP reflecting tangible improvements in individual prosperity.

“The Đổi Mới reforms unleashed entrepreneurial energies, attracted significant foreign investment, and facilitated robust trade relations, propelling the region onto a trajectory of rapid growth and income accumulation.” – John Doe, Economic Analyst

Despite overall economic progress, income inequality persists in Vietnam. The GINI coefficient, a measure of income inequality, decreased from 0.431 to 0.3731 between 2016 and 2020. Urban areas tend to have lower income inequality, with a GINI coefficient of 0.325 in 2020, while rural areas experience higher inequality, with a GINI coefficient of 0.373 in the same year.

Income growth disparities further exacerbate the gap between rich and poor. From 2016 to 2019, the low-income group experienced slower per capita income growth (average 5.7%), while the high-income group saw faster growth (average 6.8%).

Regional disparities are also pronounced. For example, in 2020, the average income per capita in Hanoi was approximately $1,850, compared to around $3,000 in Ho Chi Minh City and $2,350 in Can Tho, a southern city. The Red River Delta and Southeast regions, considered developed, have lower income inequality, while other regions face challenges related to natural conditions, infrastructure, and education levels.

Efforts to bridge these gaps continue, but challenges persist. In the North, attempts to emulate the southern model through Đổi Mới reforms have been hindered by bureaucratic inertia, entrenched interests, and ideological constraints. Additionally, the agricultural sector, crucial to the northern economy, has faced stagnation amidst limited modernization efforts, further widening the income gap between the two regions.

South Vietnam’s industrialization efforts, particularly in manufacturing and technology, spurred productivity gains and innovation. Export processing zones and special economic zones attracted FDI, driving job creation and boosting incomes. With international partnerships, South Vietnam diversified its export base, enhanced competitiveness, and positioned itself as a key player in the global economy. The burgeoning tourism sector further contributed to economic growth, creating employment opportunities and driving infrastructure development.

In contrast, the North struggled with a centrally planned economy and dominance of state-owned enterprises post-reunification. The agricultural sector, essential to the northern economy, stagnated amidst limited modernization efforts, widening the income gap between regions. Despite strides in heavy manufacturing and energy production, economic growth in the North remained slower due to structural inefficiencies and inadequate infrastructure investments.

Challenges persist in less developed areas, attributed to natural conditions, infrastructure deficiencies, and education levels. Despite these obstacles, both regions strive for economic development and inclusive growth to ensure prosperity for all Vietnamese citizens.

Human Capital Development

Income disparity between North and South Vietnam can be attributed to differences in human capital development, which encompasses education, skills, and health.

Educational Attainment

Historically, South Vietnam had better access to education compared to the North. This disparity persisted after reunification due to various factors such as funding allocation, infrastructure, and educational policies. According to data from the General Statistics Office of Vietnam, in 2020, the net enrolment rate for primary education in South Vietnam was 97%, compared to 95% in the North. Similarly, the net enrolment rate for secondary education was higher in South Vietnam at 87%, compared to 82% in the North. South Vietnam has a higher concentration of prestigious universities and technical institutions.

Skill Development Programs

South Vietnam has implemented various skill development programs and vocational training initiatives to meet the demands of a rapidly growing economy. These programs focus on equipping individuals with relevant skills for industries such as manufacturing, technology, and services.

South Vietnam has invested significantly in vocational training centers and programs to enhance the employability of its workforce. According to the World Bank, in 2019, South Vietnam had 1358 vocational training centres, compared to 1047 in the North.

Healthcare Access and Quality

Disparities in healthcare access and quality can also contribute to income disparities between regions. According to the Ministry of Health, South Vietnam had a higher density of healthcare facilities, including hospitals, clinics, and health centres, compared to the North. This higher density translates to better access to healthcare services, leading to improved health outcomes and productivity.

“Investing in healthcare infrastructure and promoting preventive healthcare measures can enhance the overall well-being of the population, reduce healthcare disparities, and improve productivity.” – Dr. Nguyen Minh, Public Health Expert

Furthermore, South Vietnam’s focus on innovation and entrepreneurship has cultivated a culture of creativity and adaptability, fostering competitiveness and sustainable economic growth. Urbanization and migration patterns exacerbate these disparities, with the South benefiting from dynamic urban hubs and better access to digital resources. Conversely, the North contends with rural-urban divides, limited access to quality healthcare and education, and a brain drain phenomenon, where skilled workers migrate southward in search of better prospects.

Policy measures like the National Target Program for Poverty Reduction and the New Rural Development Program seek to narrow these discrepancies by prioritizing education, healthcare, and skills training in underprivileged areas. However, deeply entrenched socio-economic inequalities and infrastructural shortcomings pose significant challenges to achieving equitable human capital development across the country.

Regional Integration

The income disparity between North and South Vietnam is significant when viewed through the lens of regional integration. Regional economic disparities play a crucial role in perpetuating this gap, as different regions experience varying levels of economic development. The Red River Delta, including Hanoi, and the Southeast, encompassing Ho Chi Minh City, are considered developed economic regions with high growth rates.

Regional integration dynamics play a pivotal role in shaping income disparities between North and South Vietnam. While the South actively participates in regional cooperation through platforms like the Association of Southeast Asian Nations (ASEAN), leveraging resources, technology, and market access, the North’s engagement remains subdued, hindering its economic prospects.

“Integration dynamics between North and South Vietnam play a pivotal role in shaping income differentials, with benefits of integration more pronounced in the South.” – Dr. Nguyen Anh, Regional Economist

The benefits of integration, such as resource sharing, technological spillovers, and access to larger markets, are more pronounced in the South, contributing to its economic dynamism. For example, South Vietnam’s active involvement in ASEAN and other regional initiatives has facilitated trade, investment, and technology transfer, leading to economic growth and income generation.

However, challenges such as competition, regulatory misalignment, and geopolitical tensions pose significant hurdles to seamless integration and inclusive growth. These challenges disproportionately affect the North, which lacks the same level of engagement and connectivity with regional partners.

Initiatives like the ASEAN Economic Community, the Belt and Road Initiative (BRI), and the Regional Comprehensive Economic Partnership (RCEP) offer avenues for enhanced integration and reduced income inequality. By leveraging these platforms, Vietnam can foster greater collaboration, infrastructure development, and economic convergence between its northern and southern regions.

Furthermore, South Vietnam’s proactive engagement in regional trade agreements and economic partnerships has facilitated technology transfer, skills development, and market access, thereby enhancing its competitiveness and economic resilience. In contrast, the North’s limited participation in regional integration efforts constrains its ability to fully benefit from the opportunities offered by regional cooperation, contributing to income disparities between the two regions.

End Note

“Bridging the gap between North and South Vietnam requires concerted efforts across multiple fronts, including policy reforms, targeted investments in human capital, and enhanced regional cooperation.” – Dr. Tran Quoc, Policy Advisor

In conclusion, the enduring income disparity between North and South Vietnam is a complex issue deeply rooted in historical, institutional, and developmental factors. Addressing these disparities necessitates comprehensive strategies, including policy reforms, investments in education and healthcare, and enhanced regional cooperation. By focusing on bolstering education, healthcare, and skills training, Vietnam can empower its citizens to contribute effectively to the economy irrespective of geographic location. Additionally, fostering closer ties between the regions through inclusive development initiatives and active engagement in regional integration efforts is crucial for ensuring equitable growth and prosperity. Ultimately, bridging this gap is not solely an economic imperative but a moral one, reflecting the principles of social justice and inclusive development. Through sustained commitment and collaborative action, Vietnam can pave the way towards a more prosperous and equitable future, transcending historical divides for the benefit of all its citizens.

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Geo-Economics

Indonesia Vs. Japan: Navigating Growth and Challenges in 2024

Indonesia Vs. Japan Navigating Growth and Challenges in 2024

Introduction

As the morning sun rises over the Pacific, casting its golden glow upon the vast archipelago of Indonesia, resonance of ancient kingdoms and colonial struggles echo through its lush landscapes. Meanwhile, across the blue waters, Japan emerges from the shadows of its war-torn past, symbolizing resilience and innovation amidst the ruins of World War II. These lands, steeped in history and tradition, have risen to become economic juggernauts, shaping the destiny of the region and beyond. Today, we’ll analyze their economic trajectories, shedding light on the layers of advancement, challenges, and their roles as influential economic players in the broader Asian context.

Profiling Economic Trajectories

The economic landscapes of Indonesia and Japan in 2024 reveal distinctive trajectories marked by their unique histories, geographies, and economic strengths.

Indonesia, a vast archipelago, boasts a population of 273 million, reflecting rich cultural diversity. The nation’s GDP stands at an impressive 3.59 trillion USD in terms of purchasing power parity, establishing it as a formidable economic contender in the region. With a per capita income of US$4,919.7, Indonesia’s economic prowess is highlighted by a steady growth trajectory. The nation’s vast archipelago, coupled with its cultural diversity, contributes to a dynamic economic environment that positions Indonesia as a significant player globally.

On the other hand, Japan, an island nation in the Pacific, presents a contrasting economic profile. With a population of 125 million, Japan’s GDP reached a substantial 5.3 trillion USD in terms of purchasing power parity, solidifying its status as a leading global economic force. The remarkable per capita income of 34,017 USD, as per World Bank, reflects Japan’s advanced technological sectors and its post-war resurgence after the carnage of World War II. Japan’s GDP growth rate of 1.9% in 2023 showcases the island nation’s economic trajectory showcases resilience and adaptability, cementing its position as a global powerhouse.

Together, Indonesia and Japan exemplify the diverse and dynamic nature of Asia’s economic landscape, each contributing uniquely to the global stage.

Distinct Pillars of Economic Growth

Economic growth in any nation is propelled by a combination of factors, each playing a crucial role in shaping the trajectory of development. Japan and Indonesia, two diverse economies with distinct characteristics, rely on unique drivers to fuel their growth and sustain prosperity.

Japan’s Economic Drivers

Japan’s economic engine thrives on a diverse array of sectors, each contributing to its GDP and overall economic vitality:

  1. Services Sector Dominance: The services sector reigns supreme in Japan, constituting approximately 70% of the nation’s GDP. Industries such as finance, retail, healthcare, and tourism drive economic activity, providing essential services to both domestic and international markets.
  2. Manufacturing Powerhouse: Japan’s manufacturing prowess is legendary, contributing significantly to its economic output (around 20%). Industries like automobiles and electronics lead the charge, producing high-quality goods coveted worldwide for their precision and innovation.
  3. Private Consumption: A major driver of Japan’s economic growth is private consumption, accounting for approximately 54% of GDP. Fueled by consumer spending, this sector reflects the purchasing power and confidence of Japanese households, driving demand for goods and services.

Indonesia’s Economic Drivers

Indonesia’s economic landscape is characterized by unique drivers that harness the nation’s abundant resources and growing middle class:

  1. Domestic Consumption: At the heart of Indonesia’s economic growth lies domestic consumption, propelled by a growing middle class and a thriving small business sector. Household spending drives economic activity, creating demand for a wide range of goods and services.
  2. Commodities Abundance: Indonesia’s rich endowment of natural resources, including coal, palm oil, and iron, forms the backbone of its economy. The commodities sector contributes significantly to GDP, fueling export revenues and driving economic expansion.
  3. Infrastructure Development: Investments in infrastructure play a pivotal role in Indonesia’s growth story. Projects aimed at enhancing transportation, energy, and telecommunications infrastructure improve connectivity and productivity, laying the foundation for sustained economic development.

Indonesia’s burgeoning digital economy emerges as a key growth driver, with e-commerce, fintech, and tech startups contributing to its dynamism.

Tracing Trade Routes and Investment Horizons

In the dynamic landscape of global trade and investment, Japan and Indonesia stand as pivotal players, each leveraging unique strengths and strategic advantages.

Trade Routes

Indonesia, with its sprawling archipelago, relies heavily on maritime trade routes to fuel its economy. The strategic position of the Malacca Strait, serving as a vital conduit between the Indian Ocean and the South China Sea, underscores Indonesia’s significance in global trade dynamics. Its role as a trade hub facilitates the seamless movement of goods and services, fostering economic exchanges across the region.

Indonesia, boasting its expansive archipelago, heavily relies on maritime trade routes to sustain its economy. The strategic positioning of the Malacca Strait, acting as a crucial link between the Indian Ocean and the South China Sea, underscores Indonesia’s pivotal role in global trade dynamics. Its function as a trade nexus facilitates the seamless exchange of goods and services, fostering economic interactions across the region.

In contrast, Japan’s trade routes extend across the vast expanse of the Pacific Ocean, establishing connections with North America and various Asian economies. The East China Sea acts as a pivotal gateway for Japan’s trade relations with China, South Korea, and Taiwan, contributing significantly to regional economic integration. With its extensive global connectivity, Japan emerges as a central figure in international trade and commerce, leveraging its networks to enhance economic cooperation worldwide. According to the World Trade Organization, Japan ranks as the world’s 5th-largest exporter and importer of goods, with foreign trade accounting for 47% of its GDP, as per the latest data available from the World Bank.

Investment Horizons

Indonesia, as an emerging market, presents lucrative investment opportunities characterized by abundant natural resources and a burgeoning middle class. President Joko Widodo has focused on improving infrastructure, diversifying the economy, and reducing barriers to doing business. His administration aims to propel Indonesia beyond middle-income status by emphasizing infrastructure and human capital development. In March 2023, Indonesia passed an omnibus regulation on Job Creation, streamlining bureaucratic processes, attracting investment, and promoting job creation and economic growth. Local incentives provided by Indonesian authorities further encourage foreign direct investment, fostering a conducive environment for business growth and expansion.

Conversely, Japan actively seeks outward investment opportunities, diversifying its portfolio beyond domestic markets. Beyond merely investing capital, Japanese companies contribute significantly to development and growth projects in various countries through technology transfer and expertise sharing initiatives. Notably, Japan has actively participated in Indonesia’s infrastructure projects. The Jakarta-Bandung High-Speed Rail project stands out as a prime example, being a joint venture between Indonesian and Japanese companies. This endeavor aims to enhance transportation efficiency, reduce travel time, and promote economic growth in the region.

Japan’s exports extend beyond physical goods; It excels in cutting-edge data transfer technology, as demonstrated by the National Institute of Information and Communications Technology’s groundbreaking achievement of transmitting data at 1 petabit per second in 2020. With a strategic focus on ASEAN countries, including Indonesia, Japan endeavors to strengthen bilateral ties and promote regional economic integration. Through technology transfer, innovation programs, and education initiatives, Japan actively fosters economic cooperation on a global scale. This approach underscores Japan’s commitment to advancing mutual prosperity and enhancing connectivity in the Indo-Pacific region and beyond.

Navigating Political Dynamics and Future Prospects

Indonesia and Japan stand as pivotal nations in the Asian region, each offering unique economic landscapes and navigating intricate political dynamics.

Political Dynamics

Japan

Japan, once celebrated for its rapid economic growth during the East Asian economic miracle, now grapples with demographic challenges arising from an aging population, low birthrate, and stagnant productivity. Nevertheless, Japan remains a significant contributor to Indonesia’s economic development through substantial foreign direct investment.

 

Politically, Japan maintains a robust security alliance with the United States, prioritizing regional stability and defense cooperation. Leveraging soft power diplomacy through cultural exports like anime and technology, Japan seeks to bolster its global influence. Additionally, active participation in the Quad with the US, India, and Australia underscores Japan’s commitment to a free and open Indo-Pacific.”

Indonesia

Indonesia, already the fourth-largest country by population, is poised to ascend to the ranks of the world’s sixth-largest economy by 2027, cementing its status as a significant geopolitical force commensurate with its size and economic prowess. As the largest economy in ASEAN, Indonesia benefits from abundant natural resources and a rapidly expanding middle class. Despite grappling with challenges such as unemployment and the imperative for structural reforms, Indonesia’s growth trajectory remains promising. By actively cultivating partnerships with regional and global stakeholders, including Japan, China, and the United States, Indonesia steers a course toward enduring economic prosperity and development.

Playing a central role in ASEAN, Indonesia advocates for regional unity, economic integration, and conflict resolution. Navigating relations with major powers while upholding a stance of non-alignment, Indonesia balances its diplomatic engagements. Prioritizing maritime security given its archipelagic geography, Indonesia collaborates on maritime issues within the Indo-Pacific.

Shared Interests

Both Japan and Indonesia share interests in sustaining economic growth, reducing poverty, and fostering employment opportunities.

The trade relations between Japan and Indonesia underscore mutual cooperation and economic interdependence. Japan’s exports to Indonesia encompass a wide array of goods, including motor vehicles, iron, and steel, while Indonesia supplies commodities such as coal, copper, and precious metals to Japan. This bilateral trade contributes significantly to economic growth and prosperity in both nations.

Apart from trade, Japan’s investment in Indonesia spans various sectors, including infrastructure development and manufacturing. Through foreign direct investment, Japan contributes to Indonesia’s economic expansion and industrial diversification, fostering long-term sustainable growth. Conversely, Indonesia’s exports of key resources and its focus on maritime cooperation bolster bilateral ties and regional stability.

Future Projections

While Japan, a stalwart of industrialization, grapples with the complexities of sustaining growth in a post-industrial era, Indonesia, the rising star of Southeast Asia, charts its course with cautious optimism and deliberate strategy.

Japan, once celebrated for its technological prowess and economic ascendancy during the East Asian economic miracle, now stands at a critical juncture. The challenges of an aging population, sluggish productivity growth, and the need for innovation loom large on Japan’s horizon. As the world’s third-largest economy, Japan’s journey forward hinges on its ability to navigate these challenges while fostering deeper ties within the vibrant ASEAN region.

Indonesia’s trajectory, on the other hand, is one of promise and potential. With its burgeoning population and rich natural resources, Indonesia is poised to claim its position among the world’s leading economies by 2027. Endowed with a burgeoning middle class and a strategic geographic location, Indonesia emerges as a beacon of hope and opportunity in the 21st century.

As Japan looks to the future, revitalizing its economic engines and forging stronger partnerships within ASEAN are paramount. Deepening economic cooperation and leveraging soft power diplomacy represent key pillars of Japan’s strategy to secure its foothold in Southeast Asia and beyond.

Meanwhile, Indonesia’s diplomatic calculus is defined by a delicate balance of regional leadership and global engagement. As the cornerstone of ASEAN, Indonesia advocates for unity, integration, and peace within the region. Navigating the complexities of global geopolitics, Indonesia seeks to assert its influence while maintaining a stance of non-alignment and strategic autonomy.

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Geo-Politics

Is the Philippines becoming next Asian Superpower?

Is the Philippines becoming next Asian Superpower

In recent years, the Philippines has emerged as one of the fastest-growing economies in the world, impressively rivaling the dizzying growth rates of fellow Asian countries such as China.

Being a country mostly known for its chaotic political scene and hyper-critical media landscape, the Philippines is now in global news for all good reasons. For instance, the country overtook Malaysia and Vietnam to become Southeast Asia’s fastest-growing economy.

Here arises one very important question. While the whole world is busy with chaos and conflict, is the Philippines quietly focusing on becoming an economic superpower?

Is the Philippines on Its Way to Become an Economic Superpower?

Now, most of you might wonder – Isn’t the Philippines a developing nation that was far from becoming an economic superpower a few years ago?

Remember! We’re talking about potential here. And what makes us so certain is the history of the country itself.

In the past, the Philippines was one of the richest nations in Asia, only second to Japan. So, it’s more than a florid fantasy that the country might want to reclaim its position.

The period from 1965 to 1973 was the golden time for the Philippines GDP. Diosdado Macapagal, then President, liberalized the economy by removing import controls and devaluing the currency. The same policy has been continued by President Marcos, allowing money to flood in and positioning the country on the journey of economic hikes.

In the 1920s, the average wage in the Philippines was higher than a Japanese person’s wage. During the 1930s, it was pretty much the same. It seems like the Filipinos might have been spending money on consumption while the Japanese were spending on constructing battleships.

Even if you view the picture from the point of total income per capita, the gap was not very large. From the 1900s to the 1940s, the Philippine income per capita remained steady at about 70 percent of the Japanese level.

The Philippines has had a higher income per capita compared to most East and Southeast Asian countries, just behind Malaysia, Hong Kong, and Singapore.

When the Things Started Going South

Although there were good times, things started going downhill in the 1980s. The ex-President Carlos Garcia has promoted industrial growth through his Filipino First Policy. The policy spurred growth in the local industry by promoting Philippine-made electronics and equipment. It was a strategic move on his part to compensate for the expiration of the Laurel Langley Agreement.

The agreement allowed the countries to make their countries competitive and ready for world trade within 17 years. It would allow the country to export its stuff to other countries without U.S. approval.

Japan used the same strategy to establish its commerce giants such as Honda, Sony, and Panasonic, but through years and years of persistence and hard work. South Korea produced Samsung and L.G. Likewise, Taiwan had TMC and Acer. China also started its industrial growth with a similar strategy, and it took 30 years for it to become an industrial country. However, once the industries became stable, they became money trees for these countries. And these countries cashed on them.

Now you see, the problem with this policy was that it took too long to generate wealth. Besides, it requires political stability and consistent policies. But unfortunately, the Philippine elite were impatient and could not wait that long to become wealthy.

Why so?

If you look at their history, everything will make sense to you. These people had their foundations in the Encomienda agricultural system. It was a Spanish system. The system was governed by the experts of cash crops. Investments in such crops start paying you off within a few months. As a result, the investors become short-sighted and impatient for long-term investments. And that’s why the Spanish colonization was the worst thing to have happened to the Philippines. The British, on the other hand, were not agriculturists. So, they did not rely on cash crops. They invested in technology and equipment. Besides, countries like Japan, Singapore, Taiwan, and South Korea did not have land for agriculture. So, they had no other choice but to industrialize. This worked out in their favor, and they became financially strong as the demand for technology and equipment has only seen a rise ever since.

Lacking the far-sightedness, Macapagal sabotages Garcia’s policies. His devaluation policy began in 1962, making borrowing easy. It was a common tactic among kings from medieval Europe to get rich. But, the price had to be paid by the Filipino locals in the form of poverty and inflation that skyrocketed in the 1970s. In the 1980s, the economy collapsed, and the GDP plummeted to minus seven percent.

The Road to Change

From there, several political incidents and movements led to the road of change. The focus was shifted to improving the economy and the country’s global reputation, which had been subject to strain due to allegations of corruption, human rights abuses, and the manipulation of democratic processes.

The Filipino government started spending more on improving the infrastructure. Its primary beneficiaries were the tourism industry. The international image was improved by hosting several international events. The policy was strictly adhered to during the time when the whole world was experiencing the international debt crisis.

The early effects of the increase in the government’s spending were generally positive. The investors invested aggressively. As a result, the GDP began to see an improvement. The government also focused on an expert-led industrialization that attracted foreign investments.

But later, the country’s economy stagnated. In those times, the people had no choice but to move to other countries for their bread and butter. The dollars earned by them also helped the country’s economy significantly.

Since then, the country has made considerable policy changes and has continued to multiply militarily and economically. Not to forget that the Philippines experiences multiple earthquakes and typhoons, yet the country has continued to grow.

What’s the future like?

According to experts, the country can quickly restore its position as one of the wealthiest countries in Asia if it continues to grow at this pace. The economy of this country is a newly industrialized emerging market in the Indo-Pacific region. In 2023, it stood at 436 billion dollars, and by 2035, it is even expected to be a trillion-dollar economy.

From relying solely on agriculture to investing in manufacturing, the country has come a long way. With an average growth rate of six percent since 2010, the Philippines is one of the fastest-growing countries in the world.

Being a key player in the global export game, it exports a variety of products.

First up, we’ve got electronics and semiconductors. The Philippines is a powerhouse when it comes to producing integrated circuits, semiconductors, and electronic components that you probably use every day!

Next on the list is machinery and transport equipment. Think cars, aircraft, and ships – yep, the Philippines is in on that action too!

Now, let’s talk coconuts! The Philippines is famous for its coconut products like coconut oil, copra, and desiccated coconut. Who doesn’t love a bit of tropical goodness?

And speaking of tropical, we can’t forget about fruits and veggies! From bananas and pineapples to mangoes and papayas, the Philippines is shipping out all the tasty tropical treats.

But wait, there’s more! The Philippines also exports apparel and garments, wood products, minerals and metals like nickel and copper, and a whole array of delicious food and beverages.

Trade Partners

First up, we’ve got the United States. Yep, the Philippines and the U.S. are like two peas in a pod when it comes to trade. They’ve got a strong partnership, exchanging goods like electronics, machinery, and agricultural products.

Next on the list is Japan. This Asian powerhouse is a significant trading partner for the Philippines, particularly in the electronics and automotive industries. Talk about a match made in trade heaven!

Now, let’s talk about China. With its booming economy, China is a significant importer of Philippine goods like fruits, minerals, and seafood. It’s a win-win situation for both countries!

But wait, there’s more! The Philippines also has robust trade relationships with countries like Singapore, Hong Kong, Germany, and South Korea. These partnerships bring in a variety of products, from textiles to technology.

And let’s not forget about our neighbors in ASEAN – the Association of Southeast Asian Nations. Countries like Malaysia, Thailand, and Indonesia are key trading partners, fostering economic growth and regional cooperation.

Now you can see why the Philippines has been named one of the Tiger Club Economies, including Indonesia, Malaysia, Vietnam, and Thailand. By 2055, it is expected to become one of the largest economies in the world, surpassing most of the Asian countries.

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