Crossroads (Toward Philippine economic and social progress)
Philippine Star, 25 November 2015

 

The APEC Summit was successful, but at a very high cost to the nation. In sponsoring the meeting, we had options to make it less costly.

The government threw away that opportunity by the unwise decision to hold it in Manila where the country incurred big losses in output as a consequence.

Losses in GDP during four days. Four days of extra holidays during the week when production work is at peak for Christmas cost the nation between P18.4 billion to 29.8 billion!  These numbers represent my “middle” and “low” estimates of the costs (explained further, below).

By sponsoring the meeting in Manila, the government literally reduced the metropolis we know as the National Capital Region (NCR) in order to improve the security and ease the movement of the participants. Thus, the region’s industrial, commercial, transportation, financial and services industries came to a grinding halt.

The nation’s output and disruptive holidays. Below, I use GDP (gross domestic product), the measure of output, to illustrate the economic losses.

(In doing so, I use a range of educated assumptions based on economic knowledge. This is one way to explain the cost to the nation in a manner that is simple and easy to understand.)

Since there are 365 days in the year, the GDP of P12.6 trillion amounts to P34.6 billion per day worth of GDP. The per day GDP is critical in drawing the losses.

Assumption of per day GDP is on ‘low’ side. Three reasons make the estimates of GDP loss on the conservative side. We use “average” GDP per day.

First, by averaging the GDP per day, each day of the year is equivalent in productive contribution. The working days, Mondays to Fridays, are more productive than weekend days. (On Saturdays fewer establishments are open and on Sundays, the nation is on holiday. So weekend days are when production is quite low.)

Second, productive activity varies in each month due to seasonal factors. The month of November – when the APEC was held – is a seasonal high month when production builds up as we move toward Christmas.

Third, the estimates are anchored mainly on the level of the GDP of 2014 without introducing any growth factor for the year 2015.

Our calculations of economic loss are based on these measures of daily GDP are therefore on the conservative side.

Output distribution of GDP by regions. The country’s GDP, as estimated by our national income statisticians, is also disaggregated by region. Thus, GDP can be disaggregated into four regions: the NCR (National Capital Region, which we call “Manila”); the rest of Luzon, Visayas, and Mindanao.

Manila is the economic pulse of the nation. It is a compact geography and accounts for 36.8 percent of total GDP. The rest of Luzon contributes almost the same amount of output, 36.3 percent.  So, together, the island of Luzon including Manila accounts for 73.1 percent of the nation’s GDP.

By crippling Manila, the rest of Luzon is through direct land and air transport connections. Visayas accounts for 12.4 percent of the nation’s GDP, and Mindanao, 14.4 percent.

The nation’s central logistics is in Manila. Manila’s airports were closed to private traffic for those days so that several airlines (international and domestic) had to cancel numerous scheduled flights, spreading the bad effects nationwide.

Though the government tried to distinguish between non-working holidays and government closure days, it was essentially a four day disturbance. The APEC holidays were much more disruptive than simply the declaration of “non-working holidays” in that they also disturbed the logistics of transport operations.

Economic disruptions by regions: Manila, rest of Luzon, Visayas and Mindanao. The greatest negative impact on production is in Manila. The impact on Luzon is milder, although it was significantly much more important than on either Visayas or Mindanao.

Thus, a combination of negative impact on the productive impact on the regions could be assessed. Three ranges of calculations are used to assess the economic damage.

A “high” combination of reduction of productive activity is: minus 50 percent for Manila; with corresponding minus 20 percent for the rest of Luzon and 10 percent for both Visayas and Mindanao.

A “middle” negative impact is the following: minus 40 percent for Manila; rest-of-Luzon, minus 15 percent; and for Visayas and Mindanao, five percent.

Finally, a “low” estimate of negative impact has the following: minus 30 percent for Manila; minus five percent for rest of Luzon; and minus 1.5 percent for Visayas and Mindanao.

The summary below gives a presentation for the “middle” and “low” level assumptions. To get the total losses incurred during the four days, we simply multiply these numbers by four.

Summary. The amount of daily damage to GDP using “middle” estimates is P7.45 billion, of which P5.1 billion was the reduction of GDP in Manila. The brunt of reduction falls on Manila. It accounted for 72 percent of the total reduction in GDP.

Using the “low” estimates, the drop in GDP in the country is P4.6 billion, where the loss of P3.8 billion was in Manila. This represented 81 percent of the total drop in GDP.

In terms of the four-day forced holiday on the nation, the middle estimates amounted to a loss of P29.8 billion and, in the case of the “low” estimates, around P18.4 billion.

Low-cost and more effective option for the meeting venue. Many commentators have suggested that Clark would have been the safer and more practical venue for the APEC meeting, especially because of the large and relatively less used airport runway.

I agree. There would have been no reduction in the nation’s productivity in doing so.

Another reason is that the government’s budgeted spending for that occasion could have been put to better use by building facilities in that area to enhance it further for future investment promotion.