Aat Cotabato Airport travelers must join a long, sweaty queue to pay a tax of ten pesos (less than $0.20). After handing over their money (cards are not accepted), they must wait until three officials, without hurrying, present them with a paper receipt and stamp it. If they could avoid this hassle by adding the tax to their ticket, most would be happy to do so, even if the tax was ten times higher. Yet this simple reform did not happen, perhaps because it would cost these three slack officials their jobs.
Visitors to the Philippines have plenty of time to imagine ways to make the transportation system less frustrating. When they’re not waiting in line at rickety airports, they’re often stuck in traffic jams. A typical journey from an outer suburb to the center of Manila, the capital, takes two hours, including nearly 30 minutes of waiting for a bus to arrive.
However, things are improving. The roads are paved, the bridges built. In February, the government selected a private consortium to renovate and double the capacity of Manila’s main airport. Later this year, it is also expected to award contracts to upgrade several regional airports. Manila is expected to have its first underground metro line by 2029.
The Philippines is often a secondary concern for investors: neither a giant like India nor a manufacturing superstar like Vietnam. But growth has been strong since 2012 (except during the pandemic). The economy has enjoyed a quiet boom under various regimes, from liberal President Benigno Aquino (2010-16) to rogue President Rodrigo Duterte (2016-22). Today, under President Ferdinand “Bongbong” Marcos, growth is expected to be around 6% over the next few years. The World Bank says the Philippines will soon be an upper-middle-income country (see chart).
This may seem surprising, given his politics. Mr. Marcos, the son of a fearsome kleptocrat, was elected to the highest office in 2022. He was aided by a massive disinformation campaign aimed at rehabilitating the family name. However, businesses believe his administration is more competent than that of his predecessor. While Mr. Duterte filled key posts with his drinking buddies from Davao, the city where he served as mayor for many years, Mr. Marcos appointed mostly technocrats. His economic team is widely praised. “We appreciate the high level of collaboration between the government and the private sector,” says Alberto De Larrazabal, chief financial officer of Ayala, a conglomerate.
Most reasons to be optimistic about the Philippines have nothing to do with who is in charge. The country is in an ideal demographic situation, with a high proportion of citizens of working age. With half the population still living in the countryside, there are many opportunities to move from agriculture to better-paying urban jobs. But governance also matters, and Mr. Marcos is nowhere near as bad as many observers feared.
He continued his predecessor’s efforts to modernize infrastructure connecting the archipelago’s 7,600 islands to each other and to the world. Returns on investment in physical and digital infrastructure in the Philippines are higher than in neighboring countries because “the gaps are huge,” says Ndiamé Diop of the World Bank. Improved respect for human rights also helps. While Mr. Duterte has strongly urged police to assassinate drug suspects, leading to thousands of extrajudicial killings, Mr. Marcos emphasizes the treatment of drug addicts. The police still shoot a lot of people, but the country no longer has a leader who says things like, “If it’s about human rights, I don’t care.” » This probably makes investors less reluctant to do business there.
Mr. Marcos has attracted foreign investment by improving access to broadband, which is extremely unequal; Congress is considering a bill to stimulate more competition in this area. The rollout of a national digital identity system is expected to make it easier for Filipinos to do business and access government services online. Since its launch in 2020, around 70% of Filipinos have signed up: an impressive figure, although far behind the nearly 100% rate recorded in India, a poorer country.
Asian exceptionalism
Like many of its neighbors, the Philippines is worried about a new Donald Trump presidency. Tariff hikes could harm its exports of electronic products. But it has convenient sources of foreign currency that could be Trump-proof.
One of them concerns remittances from its 2 million citizens working abroad, steering ships on the high seas or caring for patients in the Gulf (see chart 2). Although their numbers amount to only 4% of the Philippines’ workforce, they send home the equivalent of 9% of the Philippines’ workforce. GDP, a source of liquidity that has flowed steadily even during the pandemic. Remittances revive small businesses in every village. Norhaya Daud, a young mother from Cotabato, says she earned five times what she could have earned at home as a domestic worker in Qatar, and used her savings to buy land. Today, she grows corn and coconuts and runs a store in the village.
Another source of income is tourism, which could see a boom when airports improve. The Philippines has enormous untapped potential: a warm climate, pristine beaches, coral reefs and a culture of hospitality. Yet it attracted only a fifth as many international tourists as Thailand in 2022, partly because it is very difficult to get there. CLSAa bank, predicts that annual tourist arrivals will increase from 5.5 million in 2023 to 43 million by 2030, and that tourism revenue will increase from 9% of the total. GDP at 22%.
The biggest threat to this rosy scenario is geopolitical: The Philippines often clashes with China over its unfounded claims to Philippine waters, and the Chinese government may warn Chinese tourists not to go there.
The third source of resilience lies in service exports, which may be less affected by a future trade war than physical goods. Thanks to their fluent English and familiarity with baseball, Filipino call center workers are in high demand among American companies. The country’s business process outsourcing companies employ more than 1.7 million people. Jack Madrid, the head of IBPAPthe industry association, forecasts revenue growth of nearly 9% in 2024, to $40 billion, as banks and health insurers offshore more of their back-office operations.
Some expect artificial intelligence to destroy call center jobs, but Dominic Ligot, research director at IBPAP, I doubt. Today, the sector’s growth is hampered by the lack of sufficiently qualified personnel. AI could help make the less capable more productive, he predicts.
Obstacles remain. In the Philippines, no farmer can own more than five hectares, so farms remain tiny and inefficient. Several laws discourage foreign investment: foreigners cannot own stakes greater than 40% in a wide variety of sectors, from public procurement to commerce. Mr. Marcos promises to relax rules on foreign ownership, but faces fierce resistance.
And the global environment is profoundly unpredictable. When Mr. Marcos visited the White House earlier this month for a summit with President Joe Biden and Japanese Prime Minister Kishida Fumio, he received a warm welcome. But Mr. Biden may not be president next year, and Mr. Trump may suddenly declare war on outsourcing. Relations with China, meanwhile, are disastrous and could deteriorate. Nevertheless, “Filipino businesspeople are cautiously optimistic, despite everything that is happening in the world,” says Mr. De Larrazabal. ■