Why is the Philippines Poorer than Its Neighbors?

Why is the Philippines poorer than its South East Asian (SEA) neighbors?” This is one question that I have been asking myself since I was in my teens. It is not an easy question to answer, but let me offer my opinion now on why I think this is so. First, let’s establish the fact that we ARE indeed poorer than our neighbors, and one way to do that would be to look at our Poverty Rate or the Percent of our Population Below the Poverty Line. Below is the data for Poverty Rate of various SEA countries including us taken from the excellent Central Intelligence Agency (CIA) World Factbook website[1] which will be my main reference for most of the statistical data I will be using in this blog.

Comparison of the Poverty Rates of South East Asian Countries.

Comparison of the Poverty Rates of South East Asian Countries.

As we can see in the above data, out of ten countries we are Number Two in terms of the highest Poverty Rate, next only to Myanmar with approximately one out of every four Filipinos being poor. Our Poverty Rate is at least TWICE of that of other SEA countries with large populations like Thailand, Vietnam and Indonesia. This establishes the fact that yes, we are indeed poorer than most of our neighbors in that a bigger portion of our population is below the poverty line than they do. So why is this so?

’The Corruption Scapegoat’
One of the main reasons Filipinos would tend to first say about this is it’s because of “Corruption”. However, I am not so convinced that this is so, because corruption happens everywhere, a quick search on the internet will yield corruption news happening also among our neighbors. Now people will then say, it is because Corruption is worst in the Philippines compared to the others, but is it really? What does the available data say?

Transparency International is an organization that monitors and fights corruption around the world, and as a result they have come up with a Corruption Perceptions Index,[2] which is basically a theoretical way to monitor just how Corrupt a country really is. Based on the Index, the higher the score, the more corrupt a country, and vice versa the lower the score, the less corrupt a country is. Below is the data for SEA countries for 2014:

Comparison of the Corruption Perceptions Index of South East Asian Countries.

Comparison of the Corruption Perceptions Index of South East Asian Countries.

Now as we can see, Singapore is the least corrupt country in SEA followed by Malaysia. However, Thailand is tied with us, and Indonesia and Vietnam are deemed to be more corrupt than we are. These three countries (Thailand, Indonesia and Vietnam) have higher Per Capita Incomes and lower Poverty Rates than us, indicating that even if their corruption levels are the same or worse than ours, their people still end up having better quality of lives and/or they have less poor people. This data goes against our perception that corruption is the main problem why we are lagging behind our neighbors, so there has to be other factors why we are poorer than our neighbors.

’Population Size versus GDP’
One of these main factors I see is the size of our population compared to the size of our economy. Below is the data for Population Size,[3] Gross Domestic Product (GDP)[4] and Per Capita Income (PCI).[5] GDP simply means the value of all the products and services made by a country within a year. PCI is derived by dividing the GDP with the Population Size, indicating the value contribution of each individual to our GDP. A higher PCI in theory means a better Quality of Life for the country’s individuals, and vice versa a lower PCI value means a lower Quality of Life for each individual.

Comparison of the Population Size, Gross Domestic Product and Per Capita Income of South East Asian Countries.

Comparison of the Population Size, Gross Domestic Product and Per Capita Income of South East Asian Countries.

The Philippines is number four in terms of GDP in the region, next only to Indonesia, Thailand and Malaysia. Most people will be very surprised to find that in terms of GDP, our country is bigger than that of Singapore and Vietnam, two countries that have lower Poverty Rates than we do, especially Singapore whose Poverty Rate is close to zero. The reason for this is that while our economy is bigger than Singapore, we also have a LOT more people than they do. Singapore has only five million people compared to our 101 million, so most of our GDP ends up being diluted by our large population.

The Philippines is number two in SEA in terms of Population Size, next only to Indonesia, while the rest of the SEA countries have much lower population sizes than we do. So being number four in GDP and number two in population size means we end up only number six in terms of PCI, with countries like Singapore, Brunei, Thailand, Malaysia and Indonesia ahead of us.

However, Population Size is not the ONLY reason why we are poorer than our neighbors. Indonesia has a much higher population than ours, and yet they have a higher PCI than we do. Countries like Myanmar, Cambodia and Laos have lower population sizes than us and yet also have lower PCIs and high Poverty Rates. So there has to be another factor, which now brings to the issue of OIL.

’Oil Production and Exports’
Below now are the data for the Number of Barrels Exported per Country[6] in terms of Barrels per Day (B/D). Note that these are not the amount of Oil each country produces, these are just the ones they get to export and sell abroad. It means that each country’s Oil Production per day is likely higher if we include the ones used for domestic consumption.

Comparison of Crude Oil Exports of South East Asian Countries.

Comparison of Crude Oil Exports of South East Asian Countries.

Now as we can see here, the Philippines is only ranked sixth out of ten countries in terms of Oil Exports, with five SEA countries exporting a lot more Oil than us. ALL of the Oil that we export are taken from the Malampaya Oil and Gas Field, and we have seen and felt its benefits already, so imagine if it were 21 times bigger as it is in the case of Indonesia, for example. Or how about Vietnam, whose Oil Exports are thirteen times bigger than that of ours? No wonder then that even if Vietnam’s PCI is lower than ours, their Poverty Rate is less than half that of ours.

Take particular note of Malaysia and Brunei, these are countries with much lower population than ours, Malaysia with only 30 million people and Brunei only 430,000 people, and yet Malaysia exports 17 times more Oil than we do while Brunei exports nine times more. Now that’s what I call, “Jackpot!!!”

The difference is even more impressive when we try to convert those exports into monetary values. Take note that what I did is just a very rough estimate, multiplying the daily output by 365 days to get the yearly output, and then multiplying that by the latest value of the most common Crude Oil in the world today which is Brent Oil at USD 38 per barrel. This then shows the total POTENTIAL earnings of a country in terms of Oil Exports in a year, and the result shows our potential earnings to be only around USD 190 million per year while the others in the top five get at least USD 600 million per year, with Indonesia getting as much as around USD 4 billion per year.

So Indonesia, Malaysia, Vietnam, Thailand and Brunei has more Oil than us and would thus explain why they have higher PCIs and lower Poverty Rates than us. However, that is not the entire story as Singapore doesn’t have much Oil, and yet is the King of the SEA Region when it comes to PCIs. So what gives with Singapore?

’Singapore’s Real Estate’
Singapore is UNIQUE in that it is one of the few countries in the world that is blessed with a STRATEGIC LOCATION which is the source of much of their wealth.[7] Singapore is between two of some of the oldest and traditionally most populous countries in the world. To the West thru the Malacca Strait you have India and to the East thru the West Philippine Sea you have China, so as early as the 14th Century it was already an important Trading Post in Asia.

Map showing the Strategic Location of Singapore.

Map showing the Strategic Location of Singapore.

As a result, 75% of Singapore’s economy is driven thru Services,[8] mainly Trade, more than any other country in SEA. The Singapore government estimates that up to 80% of the World’s Commodities are traded in Singapore, while up to 35% of the Asia’s Financial Instruments are traded there.[9]

Comparison of the contribution of the Services Sector to the Gross Domestic Product of South East Asian Countries.

Comparison of the contribution of the Services Sector to the Gross Domestic Product of South East Asian Countries.

Now of course, decades of Lee Kuan Yew’s (LKY) Honest, Efficient and Competent leadership of Singapore is another main reason for its success, but for me while it ENHANCED Singapore’s viability as a Trading Outpost, it is less important than its Strategic Location. You take away LKY and Singapore’s location will still be there, but probably a lot less affluent than they are now. If you do the reverse, meaning leave LKY and take out Singapore’s location, and I have doubts it will be much of a success, much like the other small countries in SEA like Cambodia or Laos.

So for me, Singapore’s success is an exception rather than the rule, it is something that cannot be easily replicated elsewhere, you either have good location or you don’t.

’Importance of Oil and Location’
Now even if the Oil our neighbors are exporting are nowhere near those being exported by Middle Eastern countries, it is still quite considerable and have a significant impact on improving the Quality of Life of their country’s citizens. Let’s take a look at more data to illustrate this, like Land Area, Water Area,[10] and Population Density. Water Area refers to inland Freshwater sources that are important for Agriculture, allowing a country to irrigate their lands more. Population Density on the other hand, is derived from dividing the Population Size to the Land Area.

Comparison of the Land and Water Areas and Population Densities of South East Asian Countries.

Comparison of the Land and Water Areas and Population Densities of South East Asian Countries.

Countries like Myanmar, Cambodia and Laos are blessed with large Land Areas with respect to their Population Sizes, and even have considerable Water Areas for Irrigation. However, all three have, like us, low PCIs and high Poverty Rates.

On the other hand, Malaysia has low Freshwater sources, and yet have high PCIs and low Poverty Rates, all because of Oil. Or how about Singapore, which has a very low water source and very high Population Density and yet they rival any major European country in terms of PCI and Poverty Rate because of their Strategic Location.

Another important factor to consider is how money generated thru Oil and Trade could be used to spend for other stuff like INFRASTRUCTURE or DEFENCE. In the case of Infrastructure, money invested there tends to generate a better Business Climate overall and thus attract more businesses, resulting in more local and foreign investments. Foreign investors often cite the Philippines’ poor Infrastructure as the reason for them investing instead in our neighbors where the Infrastructure is better.

Well, our neighbors have better Infrastructure because they have more money to invest there from Oil and Trade, so in effect they are already rich and yet they keep getting richer while poor countries like us struggle to keep up.

’Summary and Reflection’
So Indonesia, Malaysia, Vietnam and Brunei are blessed with Oil while Singapore is blessed with its Strategic Location. We, on the other hand, don’t have a lot of Oil and our location as not as strategic as Singapore for Trade. For me, this means that the die is loaded against our favor, meaning in order to succeed as well as our neighbors, we will have to TRY HARDER, WORK SMARTER, and be more PRAGMATIC in our approach to life.

Unfortunately, we haven’t been doing much of that so far. For example, instead of limiting our population to maximize whatever meager resources we have, we instead allowed it to grow very large and in effect worsening our situation.

On the issue of Corruption, while Thailand, Indonesia and Vietnam can get away being as corrupt or more corrupt than us and still have low Poverty Rates and/or higher PCIs because of their Oil resources, we can’t do the same. Corruption depletes even more our already meager resources allowing less things to be accomplished. So to maximize our resources, we have to minimize corruption to be better than our neighbors in that regard.

The way I see it, the vaunted Tiger Economies of SEA were fueled largely in part by money from Oil and Trade being invested into Infrastructure that resulted in more Foreign Investments, thus starting an upward Cycle of growth for those countries. So the situation is bleak for us, unless our neighbors run out of Oil, or unless we find more Oil ourselves then it is likely that we will always be in the tail end of indicators like Poverty Rate and PCI in SEA.

We can try to prioritize Oil Exploration also, but these are expensive ventures that are reliant on Scientific assessments on the possibility of Oil. So if the assessments are bleak, then there is much less incentive to go and explore and area and spend all that money.

’Parting Shot’
I think it is very important to set the record straight regarding our poverty because when I go around Social Media, I see a lot of angst about it, especially among the young people who tend to end up blaming a lot of other things like corruption alone, our democracy, etc. They just couldn’t understand why we have all these misery in our country and thus tend to lash out at something, or anything.

Another motivation was seeing how some (not all, just some) of our SEA neighbors tend to look down upon us because our weak military, high poverty and high number of Overseas Filipino Workers.

What we can do now is try to minimize the growth of the size of our Population as much a possible as to not worsen our Poverty Rate even more, and we will need to find ways to minimize Corruption to maximize our earnings so we could use it to improve our Infrastructure and generate more Investments in business.

SOURCES:

^[1] CIA Factbook – Population Below Poverty Line,
https://www.cia.gov/library/publications/resources/the-world-factbook/fields/2046.html

^[2] 2014 Corruption Perceptions Index,
https://www.transparency.org/cpi2014/results

^[3] CIA Factbook – Population,
https://www.cia.gov/library/publications/resources/the-world-factbook/fields/2119.html

^[4] CIA Factbook – Gross Domestic Product,
https://www.cia.gov/library/publications/resources/the-world-factbook/fields/2001.html

^[5] CIA Factbook – Per Capita Income,
https://www.cia.gov/library/publications/resources/the-world-factbook/fields/2004.html

^[6] CIA Factbook – Crude Oil Exports,
https://www.cia.gov/library/publications/the-world-factbook/fields/2242.html

^[7] Why Singapore became an economic success, http://www.economist.com/blogs/economist-explains/2015/03/economist-explains-23

^[8] CIA Factbook – GDP Contribution per Sector,
https://www.cia.gov/library/publications/resources/the-world-factbook/fields/2012.html#af

^[9] Reasons to Trade from Singapore,
http://www.iesingapore.gov.sg/Trade-From-Singapore/Overview

^[10] CIA Factbook – Areas,
https://www.cia.gov/library/publications/resources/the-world-factbook/fields/2147.html

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6 thoughts on “Why is the Philippines Poorer than Its Neighbors?

  1. nice one sir, am enlightened by the facts you have laid on the table…. i hope the next presidency can address the outlying reason of our misery….

    • That is another myth: We were never near the top in Asia, or even South East Asia. In those days, Indonesia had bombers, missiles and submarines while we had none.

      And even then Singapore’s Per Capita Income were already higher than ours.

      But yeah, that would be a good topic to look into. Let me look around that a bit.

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