Honorable Secretary Arsenio Balisacan of NEDA;
Honorable Secretary Renato Solidum, Jr. of the Department of Science and Technology;
Other Government officials; The panelists of this forum; Leaders of academia, civil society, the private sector; Development partners;
Esteemed guests, colleagues, and friends.
Good morning!
The Philippines is on track to enter upper middle-income status in the next couple of years. This is because income per capita has increased at a solid 5 percent on average in real terms over the past 14 years, placing the Philippines among the top quintile of fastest growing countries in the world. Put differently: an average Filipino family is today twice as well off, in real terms, as it was in 2010. The credit for this goes to good macroeconomic management, continuity in structural reforms that helped expose the economy to increased competition, such as the amendment to the Public Service Act or the opening of the renewable energy sector to foreign direct investment, circulation of technology and ideas, the decisive and continued infrastructure push that helped the investment rate of the economy increase by 15 percent over the past 14 years and steadfast financial support of Filipinos working overseas to their families back home, which financed consumption and investment in child schooling and entrepreneurial activities.
But merely reaching Upper MIC status is a low bar for the Philippines. The aim should be to catch up with Upper MIC not just in income per capita, but also in the population’s access to quality education, good quality and affordable health care services, quality jobs and effective social protection, all of which are critical for maximizing productivity, and all of which are highlighted in the Philippines Development Plan.
While the Philippines has been making progress on some of these dimensions, it still lags regional peers. Indeed, the Philippines’ Human Capital Index (HCI) is estimated at 0.52, which means that a child born in 2020 can achieve only about half of their productive potential by the age 18. This HCI is well below those of neighboring upper-middle income countries, such as Malaysia whose HCI is 0.62 and Thailand whose HCI is 0.61. It is also lower than lower middle-income peers, Indonesia, and Vietnam. Yet, human capital is capital and is necessary for growth. Today, the Philippines is losing out on nearly half the productive potential of its human capital. Human capital investments start early, even before a child is born. Adequate nutrition and mental stimulation are foundational for physical growth, brain development and future learning potential. Here the Philippines could make substantial progress. At around 27 percent, the stunting rate in the Philippines is about 12 percentage points above what would be expected given the country's per capita income level.
Investing in human capital is now urgent and important. The Philippines can and must catch up with regional peers. And the long-term payoff for the Philippines is immense. The Philippines is indeed one of the very few countries in East Asia that can potentially become rich before getting old. While China, Vietnam, Thailand, and Malaysia are aging fast, the proportion of the working age population in the total population of the Philippines is projected to continue increasing for about another generation.
But for this vast reservoir of labor to drive growth and technological progress, the country needs to invest more and better in its children, and early. Early means before birth, starting with pregnant women, immediately after birth and in the subsequent ten years. It needs to equip them with the skills to meet the demands of industries and innovators. It needs to invest more in STEM areas and leverage technology. For instance, by complementing workers’ abilities, the Artificial Intelligence revolution can make the BPO sector in the Philippines an escalator for more of the jobs that pay middle class wages. And yet, today, Filipino teenage students’ average scores in standardized math and science tests rank in the 94th and 98th percentiles worldwide. Only one out of every seven applicants to BPO jobs pass the industry’s required competence bar.
The long-term future of growth and whether the Philippines will become a high-income economy in a generation or so depends on the quality of the country’s talent management. This has two dimensions. First investing in the human capital of children in the first decade. The second dimension is to better utilize the country’s large reservoir of talents, including Filipinos working abroad in various industries such as healthcare, hospitality, maritime and others. The Philippines should not just invest in human capital, it should maximize the utilization of its talents, both in the country and abroad.
In brief, the wealth of this country is its people, and its prosperity is generated by people. Prosperity is maximized when two things happen: people reach their maximum productivity levels, and their talent is allocated to the best possible use. For the former, they need to be in good health, well-educated and well protected from shocks. That is achieved by investing in human capital. For the latter, the economy – at home and abroad – needs to provide a diverse set of opportunities for quality employment and entrepreneurship.
The report provides some details on the important question of "How". Let me emphasize three recommendations.
First, don’t miss the first 10 years. That’s when the social, emotional, and cognitive skills are shaped and when children's potential to learn, earn, innovate, and compete is formed. That’s when the return on human capital investment is the highest. Good nutrition in early years as well as positive early experiences affect the quality of the brain’s architecture, laying the foundation for future learning, health and development.
Second, avoid a single sector lens. Investments in the nutrition, primary health care, basic education and social protection are synergetic and complementary. They need to be coordinated for maximum results. For instance, if children are not well-nourished, they may not do well at school. Without social protection, poor families may pull children out of school when they face shocks.
Third, the role of LGUs is essential in the Philippines context. While geographical disparities are large, a lot of the growth over the past decade was geographically diversified. The disparities narrowed, with poorer provinces gradually converging. This is why sustaining that convergence requires an active role of LGUs. LGUs are where multisectoral interventions and programs come together and are implemented. I visited many LGUs where I saw transformative change led by reformist local executive. These reform champions should be encouraged and supported. But many LGUs do not prioritize enough investment in human capital in the early years and lack the capacity and resources to invest adequately. Effective partnership with the central government, the private sector, CSOs, development partners is important to improve the situation.
After four wonderful years living and working in the Philippines, I am leaving convinced that this great nation could reach new heights by leverage more its greatest wealth: Filipino people.
Download The Philippines Human Capital Review
Watch the report launch with keynote address of National Economic and Development Secretary Arsenio M. Balisacan
