Both are lower middle income, developing countries with similar GDP but different industry/sectors. Here the strengths and weaknesses:
Philippines is a consumption based / service oriented economy relying on the local population (internal market) to drive growth. Large, young highly educated english speaking workforce which recieve huge remittances from Overseas Filipino Worker (OFW), strong IT/ Business Processing Outsourcing (BPO) and a focus on government spending (Duterte’s Build, Build, Build program)
However, the Philippines is over reliant on BPO and OFW remittance which is not sustainable. Overpopulation and less diversified industry sector is not creating enough jobs, losing its skilled workers ( nurses, engineers, trades, etc) to other countries contributing to “Brain Drain.” The country is experiencing premature deindustrialization where its losing manufacturing jobs due to higher operating cost, corruption, red tape, restrictive foreign ownership, logistical infrastructure, etc. Trade protectionist laws in the constitution (60/40) that limit foreign ownership and competition. There oligarchy where a group of family businesses ( Mestizo/mixed Spanish and Tisnoy / Filipino Chinese) control the market and holds economic & political power. As a result created social inequality, poverty, unemployment in terms of wealth distribution.
Where as Vietnam is a export based economy and relies on foreign direct investment (FDI) and trade (external market) to drive growth. The country has a moderately skill workforce, strong information and communication technology (ICT)/ electronic manufacturing, stable government, friendly foreign investment policies like industrial parks & tax incentives, low cost of living, growing middle class and closer to China supply chain. Its made market reforms and liberalized trade through free trade agreements like (CPTPP, EVFTA, RECP, etc) The privatization of State Own Enterprises (SOEs) and massive investments in infrastructure, education & health care.
However, Vietnam depends too much on low cost labour, attracting low quality FDI ( simple assembly, outdated technology & environmental impact) and almost half of the export comes from foreign invested companies. It's affected by the external market (supply & demand) and commodity prices. Corruption, bureaucracy and red tape is still a huge problem. Some state owned enterprises (SOEs) dissolved or declared bankruptcy due to mismanagement, lack of transparency, accountability which affected the growth of the private sector. The manufacturing sector is mainly light industry which is labour intensive and low value added (apparel, foot wear, furniture, agriculture, electrical machinery & consumer electronics).The lack of supporting industries and supply chain requiring the import of spare parts, machinery and raw materials mainly from China. The country has a relatively young population, however its experiencing low birth rates and rapidly aging which is a big concern where the people will get old before they get rich.
The Philippines is a newly industrialized country (NIC), however the service sector is the main driver of GDP growth overtaking the industrial sector accounting for more than half of the jobs and revenue. At this stage of development it leap frogged the industrial stages without creating industrial foundation (Light, Heavy Industry) which is the main engine of growth for industrialized and emerging economies. This is what made the East Asian tigers ( South Korea, Taiwan, Singapore and Hong Kong) prosperous today.
Where as Vietnam primary GDP growth was mainly from agriculture. It industrialized much later and grew faster because it started from a low base, primary industry (agriculture, fishing and natural resources) toward the secondary industry sector (Light, Heavy industry). The country is now focused on attracting and developing high value added manufacturing like semiconductor, pharmaceutical, aerospace, defense, medical equipment, robotics, biotech, heavy equipment & machinery, advanced ship building, buses, trains and aircrafts.
In order to advance into a developed country it requires good infrastructure, education and health care. Good governance, effective socioeconomic policies and new growth model to avoid the middle income trap and move up in the value chain. Cheap labour provides a competitive edge in the short term, however growth slows down as wages and cost of living goes up. Companies are using automation, industrial robotics to increase productivity, reduce labor cost by replacing low skill workers while others relocate to countries with cheaper labour.
The country needs to attract high quality FDI, invest in human capital and high skills training. Acquire foreign tech transfer through joint venture, acquisition and merger. Build supporting industries and local supply chain. Gain technical expertise, adopt industry 4.0 (5G, IoT, M2M, cloud computing, AI) Invest in research and development (R&D) to create high technology, scientific & innovative products. Foster entrepreneurship by encouraging startups to create, develop products and services. Improve the competitiveness of small & medium-sized enterprises (SMEs) and establish multinational corporations with local brands.
No comments:
Post a Comment