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Is the Philippines a rich or poor country?

Is the Philippines a rich or poor country

Introduction

The classification of the Philippines as a rich or poor country hinges on various criteria. According to the World Bank, it falls into the lower-middle-income category, reflecting progress in economic growth but persistent challenges like poverty and inequality. Its nominal GDP of $435.67 billion (2023 est.) ranks 34th globally, and when adjusted for purchasing power parity (PPP), the GDP rises to $1.27 trillion, indicating a higher standard of living. However, factors like income inequality, as reflected in a high Gini coefficient, contribute to the perception of poverty despite economic growth. The Human Development Index ranking of 117th underscores the need for improvement in health, education, and living standards. The Philippines exhibits a complex economic profile, showcasing traits of both developing and developed nations, emphasizing the ongoing struggle to balance growth with addressing social disparities and fostering human development.

Country Profile

The Philippines, an archipelago comprising more than 7,000 islands, is characterized by a predominantly concentrated population on just 11 of its landmasses. Featuring mountainous terrain and facing geological challenges with around 20 active volcanoes, the country is frequently subjected to typhoons and storms. Historically a Spanish colony for more than three centuries, it transitioned to American rule in the early 20th century following a protracted rebellion against Spanish governance. The enduring influences of Spanish and US legacies are evident in language, religion, and government. Achieving self-rule in 1935 and full independence in 1946 under a US-style constitution, the Philippines maintained a close alliance with the United States, receiving military aid to address internal challenges, particularly Islamist and communist insurgencies. In the May 2022 election, Ferdinand Marcos Jr., son of the authoritarian President Ferdinand Marcos, secured a sweeping victory, succeeding Rodrigo Duterte. Widely known as “Bongbong,” President Marcos unified two populist right-wing dynasties by enlisting Sara Duterte, the outgoing president’s daughter, as his vice-president. This political transition marked a significant shift from the Duterte era, promising a new chapter in Philippine leadership.

Economy of the Philippines

According to World Bank Economic update data during the initial quarter of 2023, strong domestic demand drove a growth rate of 6.4%, compensating for the decline in global demand. Following its peak in early 2023, inflation decreased to 6.1 percent in May due to the tightening of monetary policy by the BSP. Nevertheless, it remains considerably higher compared to other ASEAN countries. The national government debt has reached a stable level of around 61 percent of GDP, and the fiscal deficit is gradually decreasing to 7.3 percent of GDP in 2022. As a result, the strategy to achieve fiscal consolidation over the medium term is mostly progressing as intended. In the future, strong domestic demand will drive the economy to grow at a rate of 6.0 percent in 2023 and then gradually realize its long-term potential. The economic recovery will contribute to poverty reduction, notwithstanding the existing inclination of the labor market towards low-productivity roles.

Newly Industrialized nation

The Philippines’ economy is classified as an emerging market, making it one of the most vibrant economies in the Asia-Pacific region. The country is striving to attain enhanced industrialization and economic expansion as it progresses as an economy in development. The Philippine economy in 2023, ranked as the 34th largest economy in the world based on nominal GDP and the 14th largest in Asia.

The economy is undergoing a shift from an agrarian-based structure to a more service- and manufacturing-oriented one. The economic recovery is progressing smoothly, with growth accelerating to 7.6 percent in 2022 from 5.7 percent in 2021. In the foreseeable future, the expansion prospects will be sustained by resilient domestic demand, propelled by a vigorous job market, ongoing public investments, and the favorable consequences of recent reforms in investment policies that have the potential to enhance private investment.

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Population dynamics of the Philippines

The population of the Philippines currently stands at over 110 million individuals. The yearly population growth rate has experienced a substantial decline from 3.3% in 1960 to approximately 1.3% at present. The fertility rate in the Philippines has experienced a substantial decline throughout the years. The fertility rate in 1969 was 6.4 children per woman. Currently, the fertility rate stands at 2.1 offspring per woman. One contributing factor is the growing utilization of contraceptives and contemporary techniques of family planning. Given an annual population growth rate of approximately 2 million individuals, it is projected that the population will undergo a twofold increase within approximately 40 years.

The present growth rate is expected to decrease by 50% by 2050. According to predictions, the population is expected to reach 125 million by 2030. The Philippines currently ranks as the 13th most populous nation globally.

GDP Growth rate, GDP per capita of PH, GDP by sector, and ranking

The Philippine Gross Domestic Product (GDP) experienced a growth rate of 7.6 percent in 2022, compared to 5.7 percent in 2021. This marks the most significant rate of increase documented since 2017, exceeding the target range of 6.5 percent to 7.5 percent set at the end of the plan.

In October 2023, the country’s employment rate was predicted to be 95.8 percent, which is the highest reported rate since April 2005. This rate is also the same as the estimated rate in November 2022. The number of individuals aged 15 and above who were employed reached 47.80 million in October 2023, surpassing the figures of 47.06 million in October 2022 and 44.63 million in July 2023.

The country’s unemployment rate in October 2023 stood at 4.2 percent, a decrease from the 4.5 percent rate in October of the previous year and the 4.8 percent rate reported in July 2023. The recorded unemployment rate in October 2023 reached its lowest point since April 2005.

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Approximately 2.09 million individuals were without employment in October 2023, considering their significant number. This figure was below the officially reported number of unemployed individuals in October 2022, which stood at 2.24 million, and in July 2023, which stood at 2.27 million.

In October 2023, the labor force participation rate (LFPR) stood at 63.9 percent, indicating that there were 49.89 million Filipinos who were either employed or jobless. The labor force participation rate (LFPR) was lower than the reported rate in October 2022, which stood at 64.1 percent, but higher than the LFPR in July 2023, which was recorded at 60.1 percent.

An estimate suggests that the mean number of hours worked per week by an employed person in October 2023 was 41.2 hours. The weekly hours in November 2022 were above the 40.2 hours recorded in October 2022 but fell short of the 42.3 hours observed in July 2023.

In October 2023, there were 5.60 million employed Filipinos out of the total 47.80 million who were either underemployed or stated the wish to have more working hours in their current job, to have an additional job, or to have a new job with longer working hours.

In October 2023, the services sector remained the largest employer in terms of the number of employed individuals, accounting for 60.1 percent of the total employed population of 47.80 million. The agriculture and industry sectors constituted 22.2 percent and 17.8 percent, respectively, of the employed workforce.

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Population below the poverty line

In 2021, the poverty rate among the population was predicted to be 18.1 percent, which translates to around 19.99 million Filipinos living below the poverty line. This is 0.6 percentage points below the limit of the anticipated aim, which is set between 15.5 percent and 17.5 percent. Poverty incidence among the population refers to the percentage of Filipinos whose individual income is inadequate to cover their essential food and non-food requirements.  According to the Family Income and Expenditure Survey conducted by the PSA, the country has a total of 19.99 million people who are living below the poverty threshold. This accounts for 18.1 percent of the total population. The number of impoverished Filipinos in 2018 amounted to 17.67 million. Simultaneously, the population of those experiencing food scarcity rose by 1.01 million. The PSA also disclosed a 7.8 percent unemployment rate, corresponding to a total of 3.71 million unemployed individuals in the Philippines.

Income inequality in the PH

In the 2022 study conducted by the World Bank (WB), it was determined that the Philippines is positioned in the 15th spot out of 63 nations in terms of income inequality. “Income and consumption disparities in the Philippines remain more pronounced compared to neighboring countries.” The World Bank research states that the Philippines is ranked 15th out of 63 nations in terms of income inequality, with an income Gini coefficient of 42.3% in 2018. The analysis reveals that a mere 1% of earners in the Philippines possess 17% of the total national income, whereas the bottom 50% of earners jointly receive 14%.

Average gross salaries and saving rates

The average salary in the Philippines is approximately 44,800 Philippine pesos. In December 2022, the gross savings rate of the Philippines was recorded at 10.8%, which is the same as the rate in the preceding quarter.

This represents the median remuneration, encompassing accommodations, transportation, and additional perks. The salaries in the Philippines exhibit significant variations among different professions.

Based on a poll conducted in the fourth quarter of 2022, more than 50% of households in the Philippines with savings belonged to the high-income bracket, earning 30 thousand Philippine pesos or more. Conversely, approximately 18 percent of households with an income below 10 thousand Philippine pesos reported having savings.

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Main industries of the PH

The Philippines is a burgeoning market with a progressing economy. The country is comprised of a diverse range of industries that require fresh individuals to join their workforce. The sectors encompass oil, gas, and other valuable resources, technology; health care; tourism; and hospitality, among others. The real estate sector is a prominent industry in the Philippines.

The robust economic growth and expanding population in the Philippines have resulted in a rising need for available condominiums and residential properties for sale. The nation’s construction sector is one of its most significant, employing a substantial workforce and making a substantial contribution to economic expansion.

The construction sector in the Philippines is a robust business with a market value of $54.5 billion. As of June 2021, it provides employment opportunities for over 45 million individuals. The sector in question holds significant importance within the nation’s economy, as it catalyzes several other industries, including manufacturing and retail.

The Philippines is a highly popular tourist destination in Asia. Preliminary calculations indicate that the number of individuals who visited the nation before the onset of the epidemic exceeded 8 million. As per the Philippine Statistics Authority, the tourism sector contributes 5.2% to the nation’s gross domestic product and will employ around 4.9 million individuals in 2021. Additionally, numerous jobs are generated by enterprises that serve tourists.

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The Philippines has emerged as a prominent center for business process outsourcing (BPO) businesses and the service sector, particularly in the healthcare field, owing to its abundant supply of highly qualified English-speaking workers. Currently, the number of Filipinos employed in contact centers exceeds 1.4 million. It is projected that by the end of 2022, these call centers will contribute over $29 billion to the economy.

In the Philippines, the manufacturing industry is currently the leading sector, surpassing other industries, with a significant share of 65.5% in total investments during the third quarter of 2021.

The manufacturing industry refers to the collective processes and activities involved in transforming raw materials into final products. This encompasses a wide range of industries, spanning from the processing of food to the manufacturing of automobiles, computers, and even garments.

The advent of e-commerce has facilitated the acquisition of goods and services by individuals without necessitating their physical presence outside their residences. E-commerce has emerged as a prevailing influence in the retail sector, particularly for individuals seeking convenience and cost-effectiveness.

The Philippine government aims to enhance its position as a worldwide e-commerce leader by raising e-commerce revenue to $24.2 billion, as stated by the Department of Trade and Industry (DTI).

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The retail sector in the Philippines is a leading business due to its substantial scale, wide range of offerings, and promising prospects for expansion.

The Philippines boasts a population of over 100 million individuals, providing the country with substantial potential for increased levels of consumer expenditure. The retail industry in the Philippines sustains a workforce of over 4 million employees and generates billions of dollars in annual revenue through the collection of sales taxes and income taxes from workers.

Major exports and export destinations

According to OEC, the primary exports of the Philippines include integrated circuits ($27.5 billion), office machine parts ($11.1 billion), insulated wire ($3.05 billion), electrical transformers ($2.49 billion), and semiconductor devices ($2.44 billion). These exports are mainly sent to China ($15.1 billion), the United States ($13.3 billion), Japan ($11.5 billion), Hong Kong ($11.4 billion), and Singapore ($6.19 billion).

In 2021, the Philippines held the position of the largest global exporter of nickel ore, with a value of $1.5 billion, and gold-clad metals, with a value of $62.5 million.

Major imports and import destinations

The primary imports of the Philippines consist of integrated circuits valued at $14 billion, refined petroleum valued at $9.04 billion, office machine parts valued at $3.11 billion, broadcasting equipment valued at $2.84 billion, and cars valued at $2.77 billion. These imports are predominantly sourced from China ($48.9 billion), Japan ($10.4 billion), South Korea ($9.23 billion), Indonesia ($9.21 billion), and the United States ($8.16 billion).

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The Philippines held the position of the largest global importer of iron sheet piling, with a value of $284 million, and copra, with a value of $32.8 million, in 2021.

FDI, Current account, and gross external debt

The Philippines had substantial growth in its external debt, as indicated by the most recent data from the central bank. The figures reveal a 10.12 percent rise as of the end of September, reaching $118.833 billion. This represents a $10.923 billion increase compared to the same period last year when the debt stood at $107.91 billion. According to data from the Bangko Sentral  Pilipinas (BSP), the external debt increased by 0.8 percent or $915 million every quarter, reaching $117.9 billion by the end of June this year.

The UNCTAD’s World Investment Report 2022 reveals that foreign direct investment inflows to the Philippines rose from USD 6.8 billion in 2020 to USD 10.5 billion in 2021, surpassing the Central Bank of the Philippines’ annual objective of USD 8 billion. In 2021, the amount of foreign direct investment (FDI) stock experienced a significant rise, reaching a total of USD 113 billion.

The Bangko Sentral ng Pilipinas (BSP) has updated its balance of payments (BoP) forecasts, anticipating a current account deficit of $19.1 billion, equivalent to 4.6% of the gross domestic product in 2022. The current projection contrasts with the March estimate of a $16.3 billion shortfall for this year, equivalent to 3.8% of the gross domestic product (GDP).

Government debt and foreign debt

The current outstanding debt amounts to $254.99 billion, which represents 58.3% of the gross domestic product (GDP) as of June 2023. Domestic debt stands at $174.80 billion, which accounts for 40.0% of the country’s GDP as of June 2023. The external debt of the country amounts to $80.19 billion, which is equivalent to 18.3% of the GDP as of June 2023. The gross external debt for the fiscal year 2021–22 amounts to $111.3 billion, which is equivalent to 27.5% of the country’s GDP.

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As of the end of September, the Philippines’ external debt reached a record-breaking amount of $118.83 billion. According to the Bangko Sentral ng Pilipinas, this increase is a result of the national government’s increased borrowing and statistical adjustments.

According to BSP data, the Philippines’ foreign debt increased by over 10 percent in the nine months compared to the previous year, reaching a figure of $107.91 billion.

End Note

Conclusively, the Philippines has a multifaceted economic profile characterized by both encouraging development indicators and enduring problems. Although the country’s nominal GDP is ranked high on a worldwide scale, there are significant issues with income inequality, high poverty rates, and hurdles in human development indices, which provide a more complex and detailed perspective. The Philippines is categorized as a lower-middle-income nation, and despite making progress in terms of economic expansion, a substantial segment of the populace still falls below the poverty threshold. The imperative to tackle social inequalities, improve education and healthcare, and promote inclusive economic development underscores the persistent challenge of uplifting the nation and countering the perception of it as a poverty-stricken country.

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Analysis

Malaysia to Investigate Leaked Classified Chinese Note on South China Sea Dispute

Malaysia to Investigate Leaked Classified Chinese Note on South China Sea Dispute

Malaysia’s Ministry of Foreign Affairs has launched an internal probe into the leak of a classified diplomatic note sent by China concerning oil exploration activities in the South China Sea. The move follows an article published by the Philippine Daily Inquirer on August 29, which detailed the contents of the confidential communication. The Malaysian government expressed grave concern over the breach, as the document constitutes an official communication channel between Beijing and Kuala Lumpur.

Background

In February 2024, China sent a classified diplomatic note to Malaysia, expressing concerns over Malaysia’s oil and gas exploration activities in the South China Sea. This note was leaked by the Philippine Daily Inquirer on August 29, 2024, drawing attention to ongoing regional tensions. The focus of China’s concern was Malaysia’s exploration near the Luconia Shoals, an area situated roughly 100 kilometers off the Malaysian state of Sarawak. While Malaysia asserts its rights to this region, China claims the area under its controversial nine-dash line, which covers nearly the entire South China Sea.

The diplomatic note highlights China’s longstanding claim over the South China Sea and highlights Beijing’s opposition to Malaysia’s exploration activities. According to the document, these activities infringe upon China’s territorial claims, and the note urges Malaysia to halt its operations immediately. This is not the first time such concerns have been raised, but the leak has brought the issue into sharper focus, putting additional strain on the diplomatic relations between the two nations.

Malaysia’s response to the leak has been swift. The country’s Foreign Ministry has initiated a police investigation into how the document was made public and launched an internal probe. Malaysia’s stance remains firm, with officials emphasizing that the country will continue to protect its sovereignty and pursue its interests in its maritime areas, in accordance with international law, specifically the United Nations Convention on the Law of the Sea (UNCLOS).

Malaysian Prime Minister Anwar Ibrahim further reinforced this position, stating that Malaysia will persist with its oil and gas exploration in the South China Sea despite the concerns raised by China. This development reflects the broader regional dynamics, as Malaysia, along with the Philippines, Vietnam, and Taiwan, all have overlapping claims in the South China Sea, making the area a significant flashpoint for international relations.

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Recent Developments

The leaked diplomatic note highlights the sensitive and contentious nature of the territorial disputes in the South China Sea. It also sheds light on the careful balancing act Malaysia is attempting, as it seeks to assert its rights in the region while managing its diplomatic ties with China.

In its statement released on Wednesday, the Ministry of Foreign Affairs confirmed it is conducting an internal investigation and will be filing a police report to further scrutinize the incident. While the ministry refrained from naming the Philippine media outlet or verifying the authenticity of the note, it emphasized the need for swift action to prevent further leaks of classified materials. 

Malaysia Urged to Halt All activities in the South China Sea by China

The note in question reportedly urged Malaysia to halt all oil exploration and drilling operations in the Luconia Shoals, a resource-rich area located about 100 kilometers off the coast of Sarawak. According to the Inquirer, China claimed that Malaysia’s activities in the region violated its sovereignty under the controversial nine-dash line. China’s nearest landmass, Hainan Island, is situated approximately 1,300 kilometers from the disputed shoals.

The South China Sea dispute involves competing claims from multiple nations, including Malaysia, the Philippines, Vietnam, and Taiwan. China claims nearly the entire sea based on historical maps, despite a 2016 international arbitration ruling that dismissed the nine-dash line as legally baseless. Malaysia, while sharing strong economic ties with China, has now become entangled in the broader geopolitical tensions over control of these vital waters.

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Malaysia’s Ministry of Foreign Affairs reaffirmed its stance on the South China Sea, pledging to defend its sovereignty and interests in accordance with international law, including the United Nations Convention on the Law of the Sea (UNCLOS). The ministry noted that while Malaysia seeks peaceful resolution through dialogue, the country will remain firm in protecting its maritime rights.

Beijing has not commented on the leaked note. However, diplomatic tensions have flared in recent months, with China’s aggressive presence in the South China Sea leading to repeated confrontations, especially with the Philippines. Just this year, multiple stand-offs occurred between Chinese and Philippine coastguards near Second Thomas Shoal.

Prime Minister Anwar Ibrahim has maintained a more diplomatic approach toward Beijing, stressing the importance of balancing national interests with regional stability. However, the leak has raised concerns about Malaysia’s ability to maintain this balancing act amid increasing pressure from China. Anwar has acknowledged China’s concerns over Malaysia’s energy activities but remains open to negotiations on resolving maritime disputes.

This incident marks the second time in recent months that China’s activities in the South China Sea have drawn public attention in Malaysia. Earlier this year, a standoff between Malaysian state oil company Petronas and Chinese vessels occurred near the same contested waters. Chinese survey ships have increasingly patrolled the area, challenging Malaysia’s economic activities within its Exclusive Economic Zone (EEZ).

Despite these challenges, Malaysia’s foreign ministry highlighted that Kuala Lumpur and Beijing have committed to handling the South China Sea dispute diplomatically. Both nations co-chair discussions within the ASEAN framework aimed at reaching a Code of Conduct (COC) for the region, with negotiations expected to finalize in the coming years.

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China’s claims over the South China Sea are based on the nine-dash line, a boundary dating back to 1947. However, the Permanent Court of Arbitration in The Hague ruled in 2016 that this claim had no merit under international law, siding with the Philippines. China has disregarded the ruling, continuing to assert its claims through military and diplomatic means.

Malaysia’s role in the dispute is further complicated by its reliance on China as its largest trading partner. Since 2009, bilateral relations between the two nations have strengthened, even as Malaysia faced pressure from the international community to stand firm against Chinese encroachment on its EEZ.

The Luconia Shoals, where the recent conflict has surfaced, are located within Malaysia’s EEZ, recognized by UNCLOS. However, China’s claim extends beyond its geographic proximity, relying on historical maps to justify its territorial ambitions in the South China Sea.

While the dispute escalates, Malaysia’s foreign ministry reiterated that its focus remains on diplomatic engagement. The government has called on all nations involved to respect the principles of peaceful negotiation and avoid any actions that could lead to violence or further escalation in the region.

End Note

The leak of China’s diplomatic note adds complexity to Malaysia’s foreign policy strategy, as it seeks to maintain both economic ties with China and its sovereign rights in the contested waters. Analysts believe that Malaysia’s next steps will be closely watched, both by regional partners and global powers like the United States.

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Malaysia remains engaged in ASEAN-led efforts to establish a Code of Conduct for the South China Sea, aimed at reducing tensions and fostering long-term peace.

The investigation into the leak is ongoing, with the Malaysian government prioritizing both national security and diplomatic engagement with China. As tensions persist, Malaysia faces the challenge of navigating its position in a rapidly evolving geopolitical landscape.

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Analysis

Can Saudis Survive Without Oil?

Can Saudis survive without Oil?

“Russia, Iran and Saudi Arabia depend on exporting Oil & Gas. Their economies will collapse if Oil & Gas suddenly give way to Solar & Wind.” (Yuval Noah Harari)

Oil has long been the backbone of Saudi Arabia’s economy and the driving force behind its development. As the world’s largest oil exporter, it’s challenging to envision a Saudi Arabia without oil. However, the country is now on a bold mission to reduce its dependence on oil revenue as the bedrock of its national economy. This push for economic diversification comes in the wake of a decade marked by oil market volatility, which has intensified the economic and political challenges faced by the ruling Al Saud family. Saudi Arabia possesses approximately 17% of the world’s proven petroleum reserves, making it one of the leading net exporters of petroleum and home to the world’s second-largest proven oil reserves. Saudi Aramco, one of the world’s largest integrated energy and chemical companies, operates across three segments: upstream, midstream, and downstream. In 2022, Aramco’s average hydrocarbon production was 13.6 million barrels per day, with crude oil accounting for 11.5 million barrels per day. The company proudly claims to produce the lowest-carbon barrel of oil in the industry and has committed to achieving net-zero emissions by 2050, ahead of the government’s 2060 target. Saudi Arabia continues to invest in cleaner conventional engines, carbon capture, utilization and storage (CCUS), hydrogen, and renewable energy sources. Despite these efforts, Saudi Arabia remains heavily reliant on oil, which contributes 42% to the country’s GDP, 90% of export earnings, and 87% of budget revenue.

Historical Context 

(March 3, 1938 CE: Oil discovered in Saudi Arabia) 

On March 3, 1938, an American-owned oil well in Dammam, Saudi Arabia, tapped into what would become the world’s largest petroleum reserve. This discovery profoundly transformed Saudi Arabia, the Middle East, and the global landscape—politically, economically, and geographically. Before the discovery, the majority of Saudi Arabians were nomadic, and the nation’s economy largely depended on the tourism industry, driven by religious pilgrimages to Mecca. The company responsible for the discovery, which later became Chevron, set the stage for a seismic shift in the country’s future.

In the wake of the discovery, Saudi engineers developed an extensive infrastructure of ports, refineries, pipelines, and oil wells. Today, oil accounts for 92% of Saudi Arabia’s budget, making the nation one of the world’s leading producers and exporters of petroleum. This wealth from oil has fostered high-level diplomatic relationships with the West, as well as with China, Japan, and Southeast Asia. Some argue that Saudi Arabia’s oil wealth allows it to wield significant influence over international foreign policy decisions, particularly those involving the Middle East.

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The kingdom’s demographics have also been reshaped by the oil industry, attracting millions of foreign workers from the Middle East, South Asia, South East Asia and other regions of the world. The first oil discovery site near Dharan is now connected to a vast pipeline network that transports petroleum across the region.

Petrodollar System

Petrodollars refer to the revenues generated from oil exports, denominated in US dollars, and are not a separate currency but rather US dollars accepted by oil-exporting countries in exchange for their oil. In 2020, the global average for daily crude oil exports was around 88.4 million barrels. With an average price of $100 per barrel, this would translate into an annual global supply of petrodollars exceeding $3.2 trillion.

For many members of the Organization of Petroleum Exporting Countries (OPEC) and non-OPEC oil and gas exporters like Russia, Qatar, and Norway, petrodollars are a primary source of income and wealth. The term “petrodollar” reflects the common practice of these nations accepting US dollars for crude oil transactions rather than a global trading system or a distinct currency. The US dollar is favored by oil exporters because of its global value in international investments, making it a practical store of value for oil revenues that need to generate returns.

A significant example of petrodollar recycling is the 1974 agreement between the United States and Saudi Arabia, where Saudi petrodollars were invested in U.S. Treasuries. The profits from these investments were later used to finance American arms sales to Saudi Arabia, as well as various development and assistance programs in the country. Today, many oil-exporting nations channel their petrodollars through sovereign wealth funds, investing in stocks, bonds, and other financial products. For example, one such fund holds nearly 1.5% of all publicly traded shares worldwide, with 72% of its investments in equities.

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The petrodollar system has been crucial in facilitating smoother international trade by standardizing oil pricing, simplifying transactions, and reducing exchange rate risks for oil-importing nations. This system underpinned the strategic alliance between the United States, Saudi Arabia, and other oil-producing countries—a partnership that has significantly influenced global politics for decades. For oil-exporting nations, petrodollars have provided essential income, enabling reinvestment in infrastructure, drilling, and exploration projects, which in turn boosts oil production and drives technological advancements in the energy sector.

The petrodollar system has reinforced the US dollar’s status as the world’s primary reserve currency, driving global demand for it. Oil-exporting countries typically hold large reserves of US dollars, which they often invest in US government securities, thereby strengthening the US economy. This high demand for US dollars, fueled by oil trade, helps maintain a favorable US trade balance and ensures ample liquidity, making the dollar the most traded currency in the forex market.

However, the future of the petrodollar system is increasingly uncertain due to shifting geopolitical dynamics. On June 9, 2024, Saudi Arabia ended its 50-year petrodollar agreement with the United States, an event widely regarded as the “end of the petrodollar.” This agreement had been the cornerstone of the petrodollar system, and its termination marks a significant shift in the global economic landscape. With the end of this agreement, oil transactions may now be conducted in various currencies, including the yuan, euro, yen, and possibly even virtual currencies like Bitcoin.

These developments reflect a growing desire among nations to diversify economic risks and reduce their reliance on the US dollar. By diminishing the dollar’s dominance, these changes could lead to a more multipolar monetary system, granting countries greater financial independence and potentially creating a more balanced global economic environment. The rise of new economic alliances and the global shift towards sustainable energy alternatives further challenge the traditional oil-US dollar system. The transition to renewable energy could reduce global reliance on oil, thereby diminishing the significance of the US dollar and prompting a reevaluation of the current system.

As global energy and financial systems evolve, the role of the petrodollar is increasingly being questioned. The recent end of the US-Saudi agreement is a clear example of the shifting geopolitical and economic landscape. These changes may result in market volatility and the revaluation of various currencies, presenting both challenges and opportunities for the global economy. 

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Diversification Efforts

Saudi Vision 2030 

“Given the nation’s climatic advantages, the Vision 2030 statement stresses the growth of renewable energy sources, such as solar and wind. Opportunities for Western businesses specializing in solar and wind technology, energy storage solutions, and green construction technologies arise from the target of producing 9.5 gigawatts of renewable energy by 2030. The country is a rich ground for renewable energy projects because of its large, sunny deserts and substantial investment in green energy.” (Rana Maristani) 

Saudi Arabia’s Vision 2030 is a comprehensive plan launched on April 25, 2016, aimed at reducing the nation’s dependency on oil and diversifying its economy. Centered around three main themes, the framework outlines specific objectives to be achieved by 2030, including the development of ports, cultural assets, and tourism destinations to leverage Saudi Arabia’s strategic position at the crossroads of the Arab and Islamic worlds. A key element of the plan involves partially privatizing the national oil company, Aramco, and enhancing the resources and influence of the Saudi Public Investment Fund.

For decades, Saudi Arabia’s economic growth has been driven by oil, but this reliance has exposed the nation to the volatility of global crude prices. In the 1990s, while oil prices remained stagnant, government policies encouraging larger families led to a population boom. This growth, combined with a young, highly educated workforce, resulted in rising underemployment and unemployment rates, particularly among the youth.

Vision 2030 seeks to address these challenges by transforming Saudi Arabia’s economy over 15 years. The plan aims to improve the quality of life for citizens through world-class healthcare and education, equipping young people with the skills needed for future jobs. It also focuses on creating a diversified economy, emphasizing trade, tourism, high-tech industries, and a business-friendly environment to attract foreign direct investment and entrepreneurs. Key areas of diversification include cryptocurrency, artificial intelligence, and environmental sustainability.

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In a significant milestone, Saudi Arabia’s non-oil sector contributed 50% of the GDP for the first time last year, signaling the success of the ongoing economic transformation. With Vision 2030, the Kingdom plans to inject $3 trillion in foreign investment into its economy, driving further growth and offering new opportunities for multinational companies. As the nation continues its economic revolution, it is well-positioned for a promising future.

“Saudi Arabia is becoming more welcoming to foreign investment as it works to advance living standards, build non-oil sectors, and upgrade infrastructure. The Kingdom has taken the initiative in recent years to improve the investment climate by enacting policies that improve business regulations, providing incentives, and establishing special economic zones that offer advantages like tax breaks and business support services.” (Rana Maristani)

Difficulties and Vulnerabilities 

The Kingdom of Saudi Arabia is confronted with various obstacles and weaknesses, chiefly arising from the vagaries of international markets and oil prices. The country urgently has to diversify its economy and lessen its reliance on oil revenue, as this instability in the economy highlights. The country also needs to deal with environmental issues and the global shift to renewable energy sources, which puts further strain on its established economic structure. Given that oil exports account for a sizeable amount of Saudi Arabia’s national income, the country’s economy is greatly impacted by the volatility of oil prices. It is challenging for the nation to keep a solid economic outlook due to the unpredictability of the world oil market. As a result, the kingdom has been actively pursuing measures for economic diversification through its Vision 2030 project, with the goal of fostering the growth of non-oil industries including technology, entertainment, and tourism. The world’s need for oil is predicted to decrease as it moves toward renewable and sustainable energy sources. The adoption of greener technologies and investments in renewable energy projects are imperative in light of this worldwide trend. Saudi Arabia, seeing the need to change with the energy environment, has begun to investigate and invest in solar and wind energy. The main issues facing Saudi Arabia are its dependency on oil for its economy, the instability of the market, and the necessity of embracing environmental sustainability. For the country to have long-term economic stability and growth, these problems must be resolved.

Financial Resilience  

After a year of minimal growth in 2023, the Saudi economy is expected to start recovering in 2024, though its success will largely hinge on the government’s oil production policies. The economic downturn in 2023 was exacerbated by the monarchy’s unilateral decision to cut oil output by one million barrels per day from July 2023 through the end of the year to support oil prices. This move led to a self-inflicted economic slump. However, with an anticipated increase in oil production and exports, along with continued expansion in the non-oil sector, real GDP growth is projected to rise by approximately 2% in the latter half of 2024, aligning with historical averages since 2014.

A significant budget deficit is likely to persist, potentially dampening energy and construction projects, particularly with the resurgence of regional conflicts. Despite these challenges, Saudi Arabia is expected to continue investing heavily in large-scale projects.

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Saudi Arabia’s reliance on agri-food imports, particularly grain, remains substantial, but the kingdom has managed to find alternatives due to its purchasing power. Inflation is projected to remain around 2%, supported by substantial export earnings, significant reserves that maintain the currency peg with the US dollar, and a rigorous monetary tightening cycle that began in March 2022 alongside the US Federal Reserve.

Oil prices will continue to be a key driver of the economy, providing essential funding for Vision 2030’s long-term objectives. Decisions made by OPEC and its partners, including Russia, Kazakhstan, Azerbaijan, Mexico, and Oman (OPEC+), have struggled to maintain crude oil prices above USD 80 per barrel, a level deemed necessary for most OPEC+ countries to balance their trade and fiscal needs. Attempts to increase production limits have been hindered by renewed geopolitical tensions in the Middle East, benefiting countries not constrained by output limits. 

Non-Oil Prospects

In 2022, Saudi Arabia’s economy grew faster than any other G20 nation, with overall growth reaching 8.7% and non-oil GDP expanding by 4.8%. The non-oil sector saw its most robust growth since Q3 2021, increasing by 6.2% in Q4 2022. For 2023, the non-oil sector is expected to grow by 4.7%, driven primarily by strong private consumption and significant private sector investments, particularly in construction, retail, wholesale, and transportation. This shift highlights the growing role of the private sector in Saudi Arabia’s evolving economy.

Vision 2030 aims to increase the non-oil GDP share to 50% by 2030 and diversify non-oil exports. Key sectors for focus include finance, insurance, transportation, communication, non-oil manufacturing, and agriculture. In 2023, non-oil revenues surged by 9%, while oil revenues fell by 3% due to declining crude prices. To reduce reliance on oil, the Saudi government has implemented significant budgetary reforms including revenue enhancement, spending rationalization, Treasury Single Account implementation, energy price reforms, fiscal risk assessments, improved budget transparency, and strengthened debt management.

The non-oil sector is seen as a crucial component for managing the increasing number of Saudi nationals entering the labor market each year. It offers greater stability, sustainability, and job creation compared to the volatile oil sector.

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Geographical Consequences 

The stability of the region and worldwide alliances are greatly impacted by Saudi Arabia’s strategic position in the world oil markets. Being one of the world’s top oil producers, the Kingdom has significant influence over the availability and cost of energy worldwide. Saudi Arabia is able to shape alliances and regional dynamics thanks to its advantageous geopolitical position. The potential of the Kingdom to influence or destabilize the oil markets can have significant ramifications for countries that import and export petroleum products. Global markets closely follow Saudi Arabia’s decisions about the amount of oil produced, as these decisions have the potential to affect global economic conditions. Its position in the Organization of the Petroleum Exporting Countries (OPEC), where it frequently takes the lead in coordinating member states’ production policies, is another example of this power. Saudi Arabia’s energy policy and geopolitical ambitions are closely related on a regional level. Part of the reason for its partnerships with major world powers, especially the US, is shared energy interests. Additionally, the Kingdom can support or oppose different regional actors due to its money and influence, which has an impact on regional stability. Saudi Arabia’s oil interests and the need to preserve its dominant position in the region play a major role in its engagement in crises and diplomatic attempts throughout the Middle East, particularly its attitude on Iran.

Inference 

When one considers Saudi Arabia’s transition from an oil-dependent economy to one that is more diverse, one can see that the Kingdom is at a turning point. Although there is uncertainty about the future during this shift, it emphasizes how important it is to be resilient and adaptable. By adopting strategic planning, encouraging innovation, and making a commitment to sustainable development, Saudi Arabia is managing this transition. Even though there are still obstacles to overcome, the Kingdom’s initiatives to lessen its reliance on oil earnings and investigate new business opportunities represent a substantial step in the direction of a more diverse and sustainable future. In essence, Saudi Arabia’s long-term economic growth and stability will depend greatly on its capacity to adjust to these changes. Although the road ahead is difficult, the Kingdom’s proactive strategy presents a viable way forward.

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How Benito Ebuen Air Base in Cebu provides strategic depth to the Philippines?

How Benito Ebuen Air Base in Cebu provides strategic depth to the Philippines?

From the Soviet Union’s vast geography repelling German forces during World War II to Israel’s control of the Golan Heights providing a defensive advantage, nations have relied on strategic depth to protect their territories throughout history. In the Philippines, Benito Ebuen Air Base on Mactan Island serves a similar purpose, offering the nation a crucial military hub at the heart of the Visayas region. Positioned centrally, this base is more than just a runway; it plays a vital role in the rapid deployment of air assets, enabling the country to respond swiftly to threats and emergencies. As regional challenges evolve, the strategic significance of Benito Ebuen Air Base becomes increasingly apparent, highlighting its essential role in national defense and regional stability. What makes Benito Ebuen Air Base so essential, and how does its location help keep the country safe? Let us explore this vital base and find out.

Overview of Benito Ebuen Air Base

Benito Ebuen Air Base is a pivotal military facility located on Mactan Island in Cebu, established in 1958. It is named in honor of General Benito Ebuen, a distinguished figure in the Philippine Air Force. Over the decades, the base has grown into a key component of the Philippine Air Force’s operations, playing a vital role in air defense and operational readiness. Its evolution reflects the Philippines’ commitment to a modern and capable air force.

The strategic significance of Benito Ebuen Air Base is amplified by its central location in the Visayas region. Situated on Mactan Island, the base is ideally positioned to provide comprehensive coverage and support throughout the central Philippines. This central placement allows for efficient coordination and rapid deployment of air assets across the archipelago. Its location facilitates quicker response times to both regional and national emergencies, enhancing overall defense and operational flexibility.

Historical Background

With its beginnings during the American rule of the Philippines, Benito Ebuen Air Base has a rich past. Founded on Mactan Island, it served as a key location for regional military operations. The base supplied vital air support and logistical support in the defense of the area against Japanese forces during World War II.

A new era began when the base was turned up to Philippines authority after the war. The base has undergone significant renovation and modifications over this time, making it an essential part of the Philippine Air Force. Thanks to these improvements, Benito Ebuen Air Base will continue to be a vital resource for the nation’s operational and air defense requirements.

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Strategic Importance

Because it is home to important Philippine Air Force units like the 220th Airlift Wing and the 205th Tactical Operations Wing, Benito Ebuen Air Base is very valuable militarily. The base’s involvement in regional security and defense is strengthened by these units, which are essential for carrying out a variety of tasks, from tactical missions to strategic airlift.
The Enhanced Defense Cooperation Agreement (EDCA) between the United States and the Philippines significantly increases the base’s strategic significance. The objective of the April 28, 2014, agreement, which was signed by President Benigno Aquino III, is to enhance security cooperation between the United States and the Philippines by increasing the rotational deployment of US soldiers at specific sites, such as Benito Ebuen Air Base.

Recent events have highlighted how crucial this agreement is. The EDCA’s implementation has accelerated despite early setbacks and difficulties, such as opposition and judicial review, particularly in reaction to China’s forceful moves in the South China Sea. The US and the Philippines expedited their plans in February 2023 to fully implement EDCA, adding four new facilities to the list of places already in place. In addition, the agreement has resulted in the approval of other new projects and increased funding.

Significant turning points in US-Philippine security relations occurred in April 2024. In order to support freedom of navigation, a maritime cooperative activity including the US, Australia, Japan, the Philippines, and the Philippines was carried out in the South China Sea on April 7. The first trilateral summit between the US, Japan, and the Philippines was held on April 11 with the goal of advancing an open and free Indo-Pacific. In addition, the two countries’ continued strategic cooperation in the face of escalating regional tensions served as a highlight of the EDCA’s tenth anniversary.

In essence, the strategic significance of Benito Ebuen Air Base is enhanced by the continuous EDCA relationship, making it not only an essential operational hub but also a crucial component of the larger framework of US-Philippine defense cooperation.

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Strategic Depth and Regional Stability

The Philippines benefits greatly from Benito Ebuen Air Base’s strategic position on Mactan Island in Cebu. Its central location within the Visayas allows it to respond quickly to different parts of the archipelago. During emergencies, this centrality is essential because it enables the effective deployment of manpower and resources to impacted areas. Beyond military, the base plays a crucial role in aiding humanitarian and disaster relief efforts. For example, its close proximity makes it easier to mobilize quickly in the event of a disaster, as demonstrated by the recent typhoon emergencies in the area.

The base’s continued expansion and enhancement of its infrastructure serves to emphasize its strategic relevance even more. Under the Enhanced Defense Cooperation Agreement (EDCA), the Philippine government and the US government will continue to improve the base’s amenities in 2024. To handle additional aircraft and equipment, these modifications include enlarging runway capabilities and enhancing logistical support systems. The goal is to guarantee that the facility can efficiently support tasks pertaining to both international cooperation and national defense.

Future plans include for a possible augmentation of the military’s presence at Benito Ebuen Air Base. The infrastructure improvements and strategic adjustments are intended to support a wider variety of military actions. This growth is in line with the Philippines’ overarching plan to improve its defense capabilities and better address threats to regional security.

Current Operations and Facilities

The runways that Benito Ebuen Air Base shares with Mactan-Cebu International Airport (MCIA) are vital to the aviation industry in the area. MCIA managed about 17,000 international aircraft movements in 2023, highlighting the agency’s significance for both military and commercial aviation. The base’s operating flexibility and efficiency are improved by this integration.
The facilities on the site are capable of supporting various military activities. Its infrastructure has been updated recently to support combined missions and modern aircraft. For instance, U.S. Air Force F-22 Raptors performed operations at Benito Ebuen on August 8, 2024, showcasing the base’s capacity to handle high-performance aircraft.

Major enhancements are in progress under the Enhanced Defense Cooperation Agreement (EDCA). Expanding and updating facilities to accommodate bigger and more varied aircraft is the main emphasis of recent improvements, which are in line with strategic objectives to improve operational preparedness and regional security.

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In order to guarantee that Benito Ebuen Air Base continues to be a vital asset for the Philippine Air Force and allied operations, future plans call for ongoing upgrading initiatives. The base’s strategic significance in the area is bolstered by its developing infrastructure, which supports its participation in joint exercises and tactical actions.

Geopolitical Context

In order to address security concerns in the Visayas region, Benito Ebuen Air Base is essential. Threats from terrorism and insurgency have been present in the region, and local military units are actively involved in counterterrorism and counterinsurgency activities. Along with its brigades, the Joint Task Force Spear of the Philippine Army’s 3rd Infantry Division fights armed militants and strengthens territorial security. For the region to remain stable and secure, these initiatives are essential. Additional resources and training possibilities are brought about by cooperation with the United States, especially through the Enhanced Defense Cooperation Agreement (EDCA).

Recent EDCA-funded U.S. military exercises and upgrades, for example, have strengthened the defense posture in the region by enhancing the capabilities of sites like Benito Ebuen Air Base.
By forming both domestic and international alliances, these cooperative initiatives highlight the significance of Benito Ebuen Air Base in the larger geopolitical context and promote peace and security in the region.

End point

The Benito Ebuen Air Base, established in 1958 on Mactan Island, is a cornerstone of the Philippines’ military strategy due to its strategic location and critical role in national defense. Over the years, it has evolved into a vital air operations hub, key to both regional security and the nation’s quick reaction and humanitarian aid efforts. As the base undergoes upgrades and expands its capabilities, it will play an even greater role in addressing emerging threats and collaborating with international allies. Its central position in the Visayas not only enhances its strategic importance but also reinforces its contribution to regional stability.

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