THE PHILIPPINES must improve its ability to attract investments to take advantage of its favorable demographic, according to Bank of America — Merrill Lynch (BofA).
In a report, “Asia in Focus: Demographic Divide and Peaks”, BofA said that based on the United Nations’ (UN) latest population estimates, the demographic divide among Asian countries over the next decade will become more stark, which could have implications on the region’s economy.
“The UN revisions bring forward the demographic peaks of several countries in terms of working-age population, including China (2015), Thailand (2017), Malaysia (2047) and India (2050); while deferring the peaks of Indonesia (2058) and Philippines (2085),” the bank noted.
“The next decade for Asia will therefore be very different from previous decades when most of Asia was still experiencing demographic dividends, including China and Korea,” it said.
The bank said that based on the demographic peaks noted by the UN, labor forces of the majority of Asian countries will likely shrink significantly over the next decade.
“This will have important implications on GDP (gross domestic product) growth, consumer spending and asset prices, judging from Japan’s experience,” it said.
The Philippines’ demographics, though, look encouraging, BofA noted, as its peak — projected by the UN to be reached in 2085 — remains far off. This means that the population remains young, with more people expected to enter the labor force in the coming years.
“Demographic peaks will be the most favorable and distant for the Philippines (2085), Indonesia (2058), India (2050) and Malaysia (2047),” it said.
“Philippines, Malaysia, Indonesia and Singapore — in that order — will likely see the strongest labor force growth in Asia over the next decade,” BofA said.
Meanwhile, Thailand — whose demographic is seen to peak in 2017 — is emerging as the “old man” among Southeast Asian economies, the bank noted, and will see its working age population shrink, along with those of Japan, Hong Kong, Korea and China.
“Still, Philippines, Indonesia and India have struggled to attract FDI (foreign direct investments) despite their resource advantage,” stressed BofA.
Thus, there is much room for improvement, it said, as Asia continues to rebalance its economy.
“This is the opportune time for the Philippines, Indonesia and India if the governments can capitalize on their abundant labor resource and lower labor costs to attract greater foreign direct investment,” the bank said.
“Barriers to foreign investments however remain daunting. The outcome has been more an outflow of workers and talent to a growing diaspora outside their borders, rather than investments flowing in,” it said.
This is especially important as production, consumption, and investment patterns across Asia continue to change amid the availability of labor, BofA noted.
According to data from the Bureau of Labor and Employment Statistics, the country’s labor force as of April stood at 40.905 million, up 0.6% annually from 40.645 million in the same month in 2012. The labor force participation rate stood at 63.9% as of the same month this year, slightly lower than the year-ago rate of 64.7%.
Meanwhile, net FDI inflows stood at $1.522 billion as of May, lower than the $1.666 billion recorded in the comparable 2012 period, based on Bangko Sentral ng Pilipinas (BSP) data.