|
An Orgy
of Good News?
By Michael Alan Hamlin
September 3, 2001
Although the headlines continue to be dominated by
sensational revelations in the Senate (Senator Panfilo Lacson no
doubt finds himself with truckloads of new friends now that his
personal net worth is in the public domain.) and in Basilan, the
administration's economic managers have organized a veritable orgy
of good news in the run up to last week's surprising second quarter
results. Good news in this mess? Well, there're plenty of good reasons
to be cynical. But surprisingly, these guys may be right this time.
The good news offensive began August 21 when trade
secretary Manuel Roxas announced that foreign and direct investment
in the seven months to July climbed five times compared to the year-ago
period. That's an increase to P86.88 billion from P17.44.
Significantly, most of the increase - P50.46 billion
- was approved in July. That suggests that the administration may
actually be gaining investors' confidence - or at least the confidence
of telecommunications investors, who accounted for P65.61 billion,
most of it by Globe. Unfortunately, that confidence isn't yet mirrored
in fresh foreign direct investment (FDI). Investment from Singapore,
Japan, and Sweden totaled a paltry P14.3 billion,
So taken alone, while an encouraging sign despite the
technology-heavy character of domestic investment, the uptick isn't
that much to shout about. Increased confidence among local investors
is a natural precondition to recovery of FDI, but FDI doesn't automatically
follow. But the investment surge is not all Mr. Roxas and other
government executives have been crowing about.
Finance secretary Jose Camacho in a CNN interview late
last week said that surprising growth in agriculture and services
have the country on track to grow at the administration's revised
(and ambitious) goal of 3.3 - 3.8 percent for the year. In fact,
agriculture grew 3.1 percent in the first quarter and 4.5 in the
second. Services grew 4.5 percent in the first, and 4.9 percent
in the second quarter. But agriculture and services turn out to
be only part of the story. Manufacturing grew 3.5 percent for the
second quarter, but a surprising 7.7 percent in April and May, according
to the Monthly Integrated Survey of Selected Industries, and an
even more surprising 11.3 percent in June according to the National
Statistics Office.
What accounts for that growth? With exports depressed,
it's not external demand. When we look at the service sector, about
a third of the service GDP in the first quarter was accounted for
by wholesale and retail trade, and telecommunications accounted
for another 28 percent. The bet is that telecommunications services
is mostly mobile telephony, which is consumer driven, like wholesale
and retail trade. Growth in credit card purchases so far this year
supports this conclusion. According to industry sources, if current
trends continue the rest of the year, growth in credit card purchases
will be around 30 percent. And that's impressive indeed.
It seems pretty clear for these reasons that the Philippines
is enjoying a modest but significant consumer-driven recovery. But
will it continue?
Despite the downturn in the U.S. economy, which grew just 0.2 percent
in the second quarter, consumer confidence and spending has remained
high - until recently. It seemed pretty clear that rising unemployment,
brutally curtailed capital expenditures by corporations, and the
woefully deflated stock market had finally taken a toll when the
Conference Board reported last week that consumer confidence had
fallen below expected levels in August. At least that's what investors
thought. As a result, both the Dow and the Nasdaq tumbled to new
lows.
While the Philippines is actually growing, it is thanks
to (mostly middle-class) consumers, and the faith domestic investors
- especially in the telecom sector but likewise in lifestyle appliances
like stereos and TVs - have in consumers. What will keep them spending?
And will the negative publicity over the Senate and House investigations
affect them the way dour economic news has affected, it seems, American
consumers?
To answer that question, we have to consider where
the bulk of job-creating investment is really coming from. It's
doubtful that many of the 24,570 new jobs, for example, to be created
by new equity investments are being created by the sector responsible
for most of that investment, telecommunications, which is capital
equipment intensive. And remember, telecom accounted 76 percent
of total investment. So the bulk of new jobs were generated by that
paltry FDI and other domestic investment.
How's that possible? High-tech "underground"
investment is the answer. Certainly not because of the sheer volume
of investment, but because of the number of jobs it creates, which
is high relative to raw investment levels. By high-tech underground
investment, I mean investment in call centers, software development
operations, and systems and software support services. I call this
underground investment because the products of all these investments
are almost exclusively exported over the Internet, meaning that
proceeds are unrealized here in the Philippines in any meaningful
way except the generation of jobs.
Now, precisely because developed economies, and especially
the U.S. and Japan economies, are depressed and their corporate
sectors continue to cut expenses, the chances that these types of
jobs will continue to be exported to places like the Philippines
and India are excellent. If that proves to be the case, then the
consumer-led recovery will continue, no matter what the government
does, or doesn't do, because what FDI there is will keep creating
jobs. And that's pretty good news, although not quite the orgy of
news the government has produced.
Now, I bet you were surprised when this column started
out so enthusiastically, and so uncharacteristically, suggesting
that the administration might have gotten something right. Sorry
to disappoint. But unfortunately - or fortunately depending on how
you look at it - the recovery just goes to prove my usual point:
government doesn't matter, at least not very much.
But that's okay, because the good news sure feels good.
(Mr. Hamlin is managing director of the consultancy
TeamAsia and the author of three books on Asian economies and managing
in Asia. His latest book is Marketing Places Asia, which
is coauthored. His e-mail address is mahamlin@teamasia.com.ph.
If you use a Smart/Talk N Text GSM user, you can text a message
to Mr. Hamlin's mailbox by typing the keyword mikehamlin and sending
it to 200.)
|
