What are Iloilo’s economic strengths after the pandemic?

By Joseph B.A. Marzan

Iloilo’s economic rebound from the coronavirus disease 2019 (COVID-19) are on the top of mind of public and private sector leaders of Iloilo City and province.

The imposition of the Enhanced Community Quarantine (ECQ) has worried local governments, the business sector, and the public due to the temporary and permanent closures of businesses which led to lack of employment and income losses.

To see the way forward, the Iloilo City government hosted an online forum last July 27, 2021 focusing on local economic strengths and opportunities as well as the challenges it faces.

Dr. Winston Padojinog, an Ilonggo professor of economics at the University of Asia and the Pacific (UA&P) discussed the drivers of the local economy and what economic recovery will look like.

Padojinog said the COVID-19 lockdowns last year affected Western Visayas’ economic output, with its growth rate between 2019 and 2020 falling to –9.7 percent, lower than the national rate (–9.6 percent), based on Philippine Statistics Authority (PSA) data.

He also broke down the output growth rates per industry between 2019 and 2020, also based on PSA data.

Only agriculture, forestry and fishing (6.2 percent), information and communication (3.7 percent), financial and insurance activities (3.3 percent), and public administration and defense and compulsory social activities (3.9 percent) grew.

household spending, investments, and trade also contracted.

The region’s economy, as well as Iloilo’s, tend to closely reflect the numbers in the national level.

“Iloilo tends to magnify whatever happens in the national scene, that is why it is very important for Iloilo to consider not only its current situation, but also its key linkages with other sectors of the economy,” Padojinog said.

Padojinog imparted his analysis of the 2015 and 2018 Family Income and Expenditure Survey (FIES), which showed that Iloilo accounted for 37 percent of the region’s economy.

This is demonstrated by the 2018 average household income in Iloilo (P332,067) being higher than that of the region (P278,337), and the entire nation (P329,557).

Average household expenditure in 2018 in Iloilo (P220,083), while lower than that of the national average (P238,641), is still higher than the region’s (P202,394).

An Ilonggo household in 2018 saved proportionately more (34 percent) than Western Visayas (27 percent) and the entire nation (28 percent), which explains the proliferation of financial institutions in the city and province of Iloilo.

Another analysis Padojinog shared was of the sources of Ilonggos’ household incomes based on the 2018 FIES, where 30 percent comes from regular employment, largely from the Business Process Outsourcing (BPO) sector.

This is followed by income from abroad (16 percent), other sources (14 percent), seasonal work (8 percent), wholesale and retail (7 percent), agriculture and from other domestic sources (5 percent each), logistics (4 percent), entrepreneurship, investments and security, and gifts (3 percent each), and manufacturing (1 percent).

As to income from abroad, Overseas Filipino Workers’ (OFW) remittances remained intact in 2020 and 2021 amid the pandemic, making it one of the income sources that kept the local economy afloat.

But Padojinog said these will not be enough amid the current lockdown if people cannot return to work.

“If you look at the last statistics in 2020, you will realize that while the whole domestic economy was slowing down, OFW remittances was typically flat, meaning Filipinos continued to remit, and in the first quarter of 2021, Filipino remittances were up this time. That gives Iloilo’s economy some degree of resilience and it can be insulated to some extent by the economic lockdown. But nevertheless, a large sector will really lose their purchasing power if they don’t go back to work,” he said.

As to the spending direction of Ilonggo households, Padojinog said his analysis of the 2018 FIES indicated most of the income goes to food (40 percent), utilities (19 percent), transport and miscellaneous goods and services (7 percent), special family occasions (5 percent), health (4 percent), clothing and footwear, furnishings and household maintenance, education, and furniture and equipment (3 percent each), alcoholic beverages and tobacco, communication, and other expenditures (2 percent), and recreation and culture (1 percent).

Changes in the economy should not be underestimated, as every 1 percent change in the nominal Gross Regional Domestic Product (GRDP) could change a household’s average income by 0.13 percent.

Based on the region’s GRDP of 2018 (P189.5 billion), a 1 percent change means an additional income of P6.45 billion (P11,290 per Ilonggo household) with additional spending of P4.27 billion (P7,483 per Ilonggo household).

According to the PSA, the GRDP measures the economic performance of a region through the value of goods and services produced in the region at a given time.

These changes also affect Ilonggos’ household expenditures, with the highest increases in education (8.3 percent) and health and furniture and equipment (6.2 percent each), while food will have the lowest change in spending (1.1 percent).

“The moment you just give an improvement in the household income of Ilonggos, you will see what sectors they tend to immediately respond to like health, education, and even selling of furniture and equipment. These are what I refer to as key drivers that will drive the recovery of Iloilo when the time comes,” Padojinog said.

Padojinog said one of the best solutions is to work on programs and projects which will avoid trade-offs between health and economic objectives to preserve Iloilo’s economic gains and preserve future growth.

“I understand the trade-off to deal with, but if the wheels of commerce must start to roll, it is necessary to preserve Iloilo’s economic gains and boost its future growth. My general strategic direction in dealing with this delicate balancing act is to more or less try to get out of that situation where we have to work towards projects and decisions that will ultimately remove these trade-offs,” he said.

ILONGGO FUNDAMENTALS

Dr. Bernardo M. Villegas, also a professor at UA&P and Research Director of the Center for Research and Communication, also discussed in the same forum the possible economic outlook of the country in the next 6 to 12 months.

Villegas said economic recovery seemed “bleak” within 6 to 12 months, citing President Rodrigo Duterte’s “poor leadership”, and that recovery may only begin in the second half of 2022 onwards.

He attributed his take on the economy on the management of the pandemic, largely from the length of the lockdowns as well as the current rollout of the COVID-19 vaccines.

He also projected more lockdowns and more difficulties with vaccination until next year due to the recurring “mismanaged” nature of the national government’s handling of the pandemic.

Villegas also described Iloilo City as a “microcosm” of the country that is still smarting the current COVID-19 lockdowns but with recovery also coming very slowly.

“People are surprised when they compare growth projections of different institutions and different economists. They see my projection as the lowest. I don’t think we can grow more than 4 percent for the whole year of 2021. I see even geo-national organizations, World Bank, ADB, still talking from time to time of 5 to 6 percent. I don’t see any way we can grow at those levels,” Villegas said.

In the second half of 2022, Iloilo’s economy will be buoyed by strong fundamentals which Villegas said remained during the pandemic. These fundamentals will be in synch with the national recovery rate of 6 to 8 percent and will be sustained over a 5- to 10-year period.

Villegas likened the country’s post-pandemic recovery to that of China when former leader Deng Xiaopeng introduced market reforms in the late 70s, resulting in explosive economic growth of around 10 to 12 percent.

He also cited India when former Prime Minister Manmohan Singh liberalized the Indian economy in the early 90s, which saw a growth of 8 to 10 percent.

These “strong fundamentals”, which existed prior to the Duterte administration, include:

-The “best infrastructure built” even before the current Build, Build, Build program;

-A strategic location which cannot be taken away, citing Iloilo City’s inclusion in the top 3 cities that will take the place of Metro Manila as domestic, regional, and international commercial and industrial hubs, identified by a research funded by the United States Agency for International Development (USAID); and

-An outstanding human resource pool and educational center, citing contributions to human resources in sunrise industries of health and wellness, the BPO-IT industry, food and agribusiness, and seafarers.

Villegas said the long-term opportunities in a post-pandemic scenario include:

-Demographic dividend with a young, growing, English-speaking population;

-Geographic dividend, as the Philippines is at the epicenter of most dynamic economic region (Asia-Pacific region);

-Temporal dividend, or a timely shift from low-middle income to upper-middle income status, where demand for consumer goods explodes;

-Abundant natural resources, especially for tourism;

-The current administration’s Build Build Build program, which should address separation of islands and may improve logistics and make agribusiness a sunrise sector, particularly between Metro Iloilo, Bacolod, and Guimaras; and

-Faster growth in regions outside of the National Capital Region (NCR).

But these also come with long-term challenges, which include:

-Low agricultural productivity compared to Thailand, Vietnam, Malaysia, and Indonesia;

-Obstacles to doing business, especially for foreign direct investors;

-Low quality of basic education;

-Shortage of technical skills;

-High rates of electricity;

-Corruption and poor governance; and

-High frequency of natural calamities.

Villegas enumerated the sectors which are showing “V-shaped” economic outlook, or those which recover the fastest, such as food and agribusiness, health and wellness, the digital industry, and the education sector.

Industries with an “L-shaped” outlook, which will take time to recover, probably fully by 2024, include travel and tourism (except domestic tourism), transport and automotive industry, malls and retailing outlets, dine-in restaurants, public entertainment, and high-end real estate.