It was Michael Porter, a competitiveness among nations guru, who once identified the quantity and quality of a nation’s domestic market as a crucial factor for competitiveness. As explained by UAP’s Dr. Bernie Villegas, "a large and growing population endowed with higher incomes and sophisticated tastes can bring competitive advantages to an economy in a wide range of consumer products."
In other words, it is not enough that we have a large population of over 75 million. We do not have a sizeable consumer base to power our economic growth. A high proportion of our population is relatively poor and can only afford basic needs – mostly, food. The middle class is growing, particularly with the growth in the number of workers going overseas.
Food is on top of the buying list of most Filipinos, showing how basic our needs are. Among low income families, food accounts for 63.3 percent share of total expenses. Among middle income families, half of their earnings go to food. Upper income families only allocate 29 percent of their expenses to food.
A survey on Family Incomes and Expenditures shows that the lower income families account for 32 percent of total, middle income families for 57.8 percent and upper income families for 9.83 percent. Because the lower income families constitute a majority of families, this only shows how they must be missing even on basic needs like food, clothing and shelter. If they are given purchasing power to help them cover all their basic needs, one can imagine the cost this will give the economy as well.
Put another way, Pinoy consumers can only start buying other goods if they have more disposable income. Manufacturers and marketers will have wider consumer base if anti poverty programs of government and the private sector work.
This is also why we are not as attractive to investors compared to Thailand, which has a comparable population size. That’s because our market is considerably smaller for so long as a majority of our people are mired in poverty and without buying power.
Hopefully our post election environment will finally bring about political stability, a vital ingredient in cleaning up our image to attract investors. But on top of that we need to be successful in fighting poverty and in the process improving the buying power of a broader base of our population. That will make us really attractive to investors who are after markets for their products and services.
This kind of SMS came to mind the other week when we attended a dinner hosted by new Equitable PCI Bank chairman Tony Go. When we asked him what will be the business thrust of the bank under his leadership, he quickly replied SMS. He explained that he wants to go back to the roots of the bank when his father founded it.
Tony observed that SMS clients are very loyal and it is very gratifying to see them grow. And he does not think they are more risky than corporate accounts. In fact, he said catering to the SMS will broaden their portfolio, spreading out risk over more accounts.
But then again, the administration costs of handling more accounts would be higher. I guess Tony Go considers that a minor concern given that good corporate accounts are also difficult to come by these days. And the spreads for SMS accounts would be wider, and well fatten the bottom line.
What I found significant is a big bank, in fact the country’s third largest, is now interested in supporting small and medium scale industries in a big way. Well, to see is to believe. Let us wait and see how Tony Go gets this program going.
"I missed your column on the subject but read Bobby Tordesillas’ e-mail to you. Excessive personal savings, when put into banks does not necessarily depress the economy as the banks recycle them in form of biz loans that would generate activities in the economic cycle. If the savings are put into closets, he is right. But it is true that direct personal spending creates more economic activities than putting the money into banks.
"He is also right in stating that man places more security in himself. So Bobby’s wealth-redistribution suggestion, while correct is difficult, and also does not answer the "How" question.
"While it is true the Bible tells us the basis of solutions (more on spiritual), the practical answer to the issue would be a revision of the income tax code. I know that a lot of Pinoys will resist this, but if the well-to-do Filipino people are sincere in saying that they want to help the poor, this should not pose a problem.
"I suggest an imposition of a 1/4 of one percent mandatory tax applied to the gross income of taxpayers (domestic entities and individuals). OFWs would be taxed on their remittance at 1/4 of one percent. Cash foreign currencies exchanged locally would also be taxed at 1/4 of one percent.
"This special tax would go to a Special Fund to be appropriated exclusively for assisting the underclass for (1) income source generation, (2) shelter, (3) education and (4) health, (but perhaps not for food and clothing as income would provide for these). And if my arithmetic is correct, this fund could total a ballpark figure of a hundred billion pesos a year. So in addition to other funding, the government’s problem on funds for the poor would be solved.
"If my memory does not fail me and the tax code is not yet revised, in Saudi Arabia, Saudis (only) are mandatory taxed ("Zakat" for the poor) at two percent of their net income and net fixed assets, but they don’t pay individual and business income taxes."
Optimist: A person who starts taking a bath if he accidentally falls into a river.
Pessimist: A person who says that O is the last letter in ZERO, instead of the first letter in word OPPORTUNITY.
(Boo Chanco’s e-mail address is boochanco@yahoo.com).