By Lila Ramos Shahani
GMA News
Photo: Lito Estelimbergo/DILG
PNoy won the presidential elections largely on the promise of drastically reducing poverty. While the mid-term elections have yet to make poverty reduction a major issue, the recent release of poverty statistics by the National Statistical Coordination Board (NSCB) is bound to renew questions about this administration’s ability to live up to this pledge.
The media has understandably focused on the fact that poverty has remained largely unchanged from the 1st semester of 2006 to the same period in 2012.
In fact, as of the first semester of 2012, the percentage of poor Filipinos stood at 27.9% (compared to 28.6% in 2009 and 28.8% in 2006).
Unemployment was at 7.1%, while underemployment (i.e., those looking for additional work) was at a high 20.9%.
NSCB Secretary General Jose Ramon Albert observed that Filipinos living in “extreme poverty” — in this case, a family of five earning less than P7,821 a month to satisfy both food and other essential needs — stood still at 10.8%, nearly identical to the figures from 2006 and 2009.
These poverty rates stand in stark contrast to the impressive strides the economy has made, growing at 6.6% last year, leading Fitch Ratings to give the country its first-ever investment-grade rating.
This strange conjunction of economic growth and persistent poverty certainly cries out for explanation. How do we understand these divergent patterns, and what can be done by both the government and the business sector to close this gap?
Structural versus short-term causes of poverty
Economists tell us that poverty will persist if at least one of the following holds: a) growth has either been slow or unsustainable for long periods of time; b) certain sectors of the economy are left behind by rapidly growing sectors, leading to uneven development; or c) the frequent recurrence of shocks, both natural and man-made, drive already precarious lives into states of deeper destitution.
In this country, all of the above apply. The bottom line: we have not grown fast enough, nor has the growth been sustained for long enough. In fact, the International Monetary Fund (IMF) notes that a cutoff of 3.5% per capita growth has to continue for at least 5 years before we can call it “sustained growth.” Regrettably, we have not had an episode of sustained growth in the Philippines since 1960.
The stagnancy of poverty rates is due to a combination of factors, some structural and long-standing, others contingent and short-term. According to Dr. Arsenio Balisacan, NEDA’s Director General, these factors include environmental calamities, the falling price of specific agricultural commodities, underemployment in sectors like agriculture, and the protracted lack of peace and security in Mindanao.
Brisbane Times
Without a doubt, the high incidence of natural disasters in the country remains a serious impediment. In 2011 alone, the Philippines topped the international natural disasters list with 33 major incidents (United Nations International Strategy for Disaster Reduction). The regularity of such disasters has made investors reluctant to invest; worse, the fall-out for small farmers has been astronomical.
Our archipelagic topography is also such that there are natural barriers (e.g., mountains, seas, etc.) that routinely constrain linkages between different areas. This lack of geographic contiguity makes infrastructure critical, but it is unfortunately not always affordable. For instance, farm-to-market roads (FMRs) in subsistence areas are vital if poor farmers hope to sell their produce in local markets. But the Department of Agriculture points out that, as of today, only 17% of FMRs deemed necessary by the agency have been built: despite the need for about P75B to complete these projects, only P5B can be provided for this purpose.
Given this context, it is not altogether surprising that short-term and contingent problems in agriculture (the declining world price of such commodities as coffee; diseases affecting mango and seaweeds; and seasonal problems with sugar) have become all the more compounded. The recent fishing ban to regenerate depleted fishing areas in Zamboanga and the Visayan Sea, for example, also had a significant impact on agricultural employment, which decreased by 4.1%.
The lack of security remains another significant source of concern. In the Autonomous Region of Muslim Mindanao (ARMM) alone, for example, poverty incidence rose from 49.7% to a high 52.9%.
Another major obstacle is the phenomenon of underemployment. The government has sought to address this problem in various ways: for example, the Commission on Higher Education (CHED) and the Department of Labour and Employment (DOLE) are seeking to redress the mismatch between education and jobs. CHED has sought to shut down diploma mills producing graduates who fail board exams in such fields as nursing. Students are now being encouraged to study disciplines where more jobs might be found. Certain sectors like business outsourcing (BPOs) are booming, but lack of educational training means that many are excluded from jobs in this area. But it is in agriculture (where the majority of food poor remain) where underemployment is a particular source of concern, since this affects both the incomes of poor farmers and the food security of the entire country.
By far, however, the most glaring structural problem we have in this country is still income inequality. Robust growth in countries like Taiwan can largely be attributed to the success of its land reform program – a phenomenon that has yet to be completed in this country, where disparities in income remain alarmingly wide.
Consider the following: for the first semesters of 2006, 2009 and 2012, the bottom 20% of Filipino families had a share of a mere 6% of our national income, while the upper 20% had a staggering share of almost 50%. This suggests that the top 20% of Filipino families own approximately 8 times the total income of the bottom 20%. If we were to measure our income inequality by way of the Gini co-efficient, one might simply say that there has been negligible improvement in wealth distribution since 2009. As 2009 figures from the US government indicate, we rank a high no. 42 among 136 countries in terms of income inequality.
Private sector responsibility
In considering a wide range of solutions to poverty in this country, one glaring fact must be kept in mind: the government is responsible for generating under 15% of our Gross Domestic Product (GDP). It therefore cannot be expected to be the sole agent for dealing with poverty. In contrast, the private sector’s contribution to GDP is over 85%, but most of this wealth continues to be monopolized by corporations and better-off families.
Indeed, as some economists have argued, government agencies the world over have a limited capacity to create jobs. Job generation ultimately happens through the invisible hand of the economy itself, although it can certainly be buttressed by programs for inclusive growth. A natural corollary to vigorous economic growth, then, is the generation of jobs by the private sector.
Unfortunately, much of this sector’s growth has come largely in the form of luxury real estate development and elite consumption of non-essential products, which only accrue benefits to those who are already wealthy rather than generating badly-needed jobs for the poor.
Witness the booming economies of Malaysia, Thailand, Singapore and India, where the economic elites have stepped up to invest in domestic manufacturing. This has led not only to higher GDPs in general but also to a significant improvement in both the quality of labor and amount of income generated for their workers.
Studies by the United Nations Development Program (UNDP) have further shown Overseas Filipino Workers (OFWs) up to a certain income bracket sending a significant amount of remittances back to the country. Unfortunately, such investments drop off dramatically as they become more financially and socially stable abroad. This stands in stark contrast to countries like India, where Non-Resident Indians (NRIs) in Europe and the United States contribute significantly both in terms of remittances and Foreign Direct Investments (FDI). Moreover, OFW remittances lead primarily to conspicuous consumption on the part of their families, with a lesser percentage on their personal health and education. Only in very rare instances does it actually lead to local development, which suggests that remittances contribute little to alleviating the structural roots of poverty in the country.
Investors, both foreign and domestic, have been quick to point out that the investment climate leaves much to be desired. While our global competitiveness rankings could certainly use some improvement, it should be noted that imperfect investment climates in countries like India did not prevent NRIs and the Indian business elite in general from investing in their own country: with greater amounts of revenue coming into the country, improvements in India’s investment climate took place as a matter of course.
Others complain that a smaller arena for private investment — Public-Private Partnerships (PPPs) with the government — have been slow and cumbersome, shot through with bureaucratic demands and inconveniences. But it is important to keep in mind recent history, where PPPs were abused and corrupted into venues for the illicit accumulation of wealth by politicians and their cronies. This is why it has been necessary to subject all PPPs to closer scrutiny to ensure transparency and a level playing field, allowing a larger swathe of the business community to take part. The renewed vigilance over PPPs, the government hopes, will inspire confidence among private investors to invest more in the Philippines.
What is the government doing to address the problem?
Despite the importance of private enterprise in poverty reduction, the government continues to play a crucial role. Ways must be found to sustain the impressive growth from last year for at least four more years if it hopes to significantly address poverty.
To improve competitiveness and the investment climate as a whole, the government is crafting strategies to improve energy security so we can access cleaner, renewable and more affordable energy sources in the long-term. Foreign firms have often expressed the desire to have more than a minority share in the businesses they invest in. At present, the Constitution mandates that ownership of any Philippine Domestic Market Enterprise be 60% Filipino and 40% foreign. This understandably nationalist concern for safeguarding Filipino ownership over the nation’s resources has created a significant disincentive for foreign investors. Since changing the Constitution is bound to be cumbersome and politically unpalatable, crafting legislation that reassures local businesses and encourages higher rates of foreign investment might be a better alternative.
Other measures include: reducing regulatory burdens on private enterprises; streamlining business registration procedures to weeks rather than months; de-linking tax policy and firm size; simplifying tax procedures; securing property rights to help reduce risks; ensuring the sanctity of contracts; legislating a strong competition policy; and enforcing peace and order.
The government also hopes to mobilize the Filipino diaspora, which consumes many of our exports overseas. Overseas Filipinos, with their newly-acquired know-how and extensive networks, can be important investors. NEDA is proposing their active involvement in development, particularly in provinces that typically send large numbers of migrants overseas.
And what of the recurrence of natural calamities? What has the government done to mitigate their disastrous effects? One way is to manage risk and increase disaster preparedness. The Department of Science and Technology (DOST)’s Project NOAH — Nationwide Operational Assessment of Hazards – provides vulnerable communities with a six-hour lead time warning against impending floods through the use of geo-hazard vulnerability maps. The Mines and Geosciences Bureau (MGB) also offers Local Government Units (LGUs) with multi-hazard mapping training and services so they can proactively prepare for environmental disasters.
Another fundamental challenge to poverty reduction has been that of ensuring more inclusive growth. To do so, the Department of Social Welfare and Development (DSWD)’s Pantawid Pamilyang Pilipino Program (4Ps or the national Conditional Cash Transfer program) addresses aspects of poverty beyond income, such as health and education. But the gestation period before the full effects of these investments can be fully appreciated is not instantaneous.
Studies by the Philippine Institute of Development Studies (PIDS) demonstrate that the program has already increased enrollment rates and improved health among the poor. However, the effects on improving income will take time since the program ultimately addresses inter-generational poverty in the long-term rather than in the present.
More importantly, the NSCB estimates that the total cost of poverty eradication for the period in question would be P79.7B (or P180B for the entirety of 2012). Unfortunately, the budget for CCTs in 2012 was only P39.4B – only a quarter of the amount needed to eradicate poverty. So the latest poverty results should not come as a complete surprise.
There are many other government efforts that, taken as a whole, are designed to create long-term solutions. These include: increasing the budget for infrastructure (from 3-5% in the next two years) while encouraging public-private investments in infrastructural development; accelerating public disbursements to generate more movement in the economy; lengthening high school education by two years to make our graduates more internationally competitive; extending health coverage; and passing a Reproductive Health (RH) Bill to afford the poor with greater opportunities and control over their own lives.
The Human Development and Poverty Reduction Cabinet Cluster is also working on an Action Plan to expand employment opportunities that also address the problem of underemployment. Although 1.8 million jobs were created from 2010-2012, there are still 2.8 million people needing jobs: given our population levels, the rate of job-creation will simply have to be more swift. This means prioritizing tourism; BPOs; mining; agri-business and forest-based industries; logistics; shipbuilding; housing; electronics; infrastructure and other industries with high growth potential.
Since over half of the visibly underemployed work in agriculture, this sector is being strongly emphasized. The Department of Agriculture (DA) has instituted a program designed to shift the country away from rice import dependence to focusing on local production. It has also prioritized increasing investments in public goods, such as irrigation and post-harvest facilities. To ensure sustainable fishing resources, it has vigorously restrained illegal fishing and sought to systematically replenish fishery resources. Finally, the government is increasing its budget for infrastructure so more FMRs can link farmers to distant supply chains, while cooperatives are already being established to aid smaller farmers.
In terms of agricultural development, a broad agro-industrial framework for the coconut industry is being studied carefully (the National Anti-Poverty Commission is recommending a budget of P1.59B for 12 coconut-producing provinces). Such plans call for creating alternatives to copra by developing and processing a wide range of coco-based products. Areas with the greatest concentration of poor families will stand to benefit from such developments. Instead of relying solely on the vagaries of the world market and the shifting prices of copra, coconut farmers will be able to sell products made from crude coconut oil produced in agro-industrial hubs in their communities. Given the recent global interest in coconut products, such a shift will provide a boon for poor farmers. Already, these value-added products have led to triple digit increases in the exports of coco-based products beyond copra.
The strange conjunction between growth and poverty is neither new nor particularly perplexing. As we have seen, there are many reasons for such a phenomenon. Understanding these reasons does not make our task any easier. The problems of income inequality, job creation and equitable development continue to be a challenge.
But long-term development in the context of reform will take time: we must be as patient as we are steadfast in our goals. Time, too, for the public to start thinking of the poor with a greater sense of civic responsibility. In the end, the conditions in which they find themselves reflect on us all.
Assistant Secretary Lila Ramos Shahani is Head of Communications of the Human Development and Poverty Reduction Cabinet Cluster, which covers 26 government agencies dealing with poverty and development. She would like to thank the officials of NSCB, NEDA and DA, as well as many members of civil society, for their invaluable inputs to this article.
I was advised several times by some pundits that we in Asia must strive towards a modus vivendi with Red China. I reiterate this need, which is becoming more urgent each day. Before long, Communist China will have increased its striking power a thousand folds with a sophisticated delivery system for its nuclear weapons.
