Will a Global Value Chain help The Philippines

Published by buyer33 on

The Philippine economy contracted at 11.5% in the 3rd quarter. The previous Philippine quarter GDP declined by 16.9% and was the worst quarter recorded in Philippine history (two negative quarters of GDP is the definition of a recession). Having two quarters of double digit declines is unheard of, and puts the Philippines in one of the world’s most severe recessions. The third quarter double-digit decline was much more severe than what the market projected and more severe than regional peers. The 3rd quarter decline of 11.5% was significantly  deeper than the median estimates of 9.6%.

“With unemployment still elevated at 10% and business sentiment negative, we do not expect a quick rebound in growth with GDP remaining in negative territory until a base effect-induced bounce in Q2 2022,” said Nicholas Mapa, senior economist of ING Bank Manila.

Singapore and Indonesia posted slower contractions of only 7% and 3.49%.  So far, only the Philippines has reported a double-digit dip in the 3rd quarter in Southeast Asia. Brazil, Russia, India, China, and South Africa are expected to recover quickly, according to The Economist Intelligence, while the Philippines and others will take up to 4 years to return to pre-coronavirus GDP levels.  In contrast to the Philippine, its neighbor Vietnam resisted the global downturn and posted 2.6% growth in the 3rd quarter. How can the Filipinos change from being an economic underperformer into having a robust economy?

Possibly the fastest and most economically successful way for Filipinos to change to a pro growth economy is for companies to increase their export growth by aggressively adopting a Global Value Chain (GVC).  A recently published study shows that countries using Global Value Chains have proven to increase their economies faster than almost all other economic activities; raising country incomes while also increasing manufacturing and the quality of life.

So what should the Philippines do to improve its economy and become a leading South East Asian country not an economic underperformer? They need to focus on providing quality, often labor intensive, global exports.  For The Philippines, and other labor advantaged nations, the most important accelerator according to studies is providing a truly GVC – the best example we could think of is the free to list ShopTheGlobe – as GVC raises incomes while reducing poverty.

The facts are undeniable that when countries like The Philippines expand their use of GVC, it allows them to utilize their country’s very strong (low cost labor) comparative advantages to take advantage of new and growing markets.  Once a product gains a market beachhead, often achieved by providing a low cost labor solution, it becomes often very easily justify capital investments based on return on investment (ROI) to expand and increase production in the now proven market.  All of which leads to more capital expansion, job increases and reduced poverty.

Today, small companies in the Philippians need to focus a lot more on exports, accelerating their GVC to gain a global foothold. Filipino leaders also need to increase the national economy by supporting big and small business, providing more and improved global free and or fair trade, and accelerating the country’s GVC. The ShopTheGlobe platform is a good working example that would greatly accelerate Filipino global product adoption and provide a path to improving economic growth.