From drift to direction: 10 sustainable shifts for the Philippines to regain momentum

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MANILA, Philippines — As the Philippines posts its weakest non-pandemic quarterly GDP performance since 2009, I’m reminded of a pointed question I was recently asked by a frustrated business leader: “Why are we stuck?”

I’ve heard versions of the question for years, from Filipinos and foreigners alike. But lately it feels heavier. As our neighbors race to embed themselves into the supply chains of future industries, we’re once again distracted by scandals. It feels like taking one step forward, two steps back.

It is a dispiriting contrast to what the Philippines once represented.

In 1960, we were the region’s economic leader. Our GDP stood at $6.6 billion, ahead of South Korea, Taiwan, Thailand and Singapore. Our per capita income was nearly double South Korea’s and Taiwan’s. Manila hosted the ADB; we were the “Hollywood of Asia,” a beacon of education and modernity.

Sixty-five years later, the per capita GDP numbers tell a story of missed opportunities. Malaysia and South Korea raced past us by the 1970s; Thailand by the 1980s; China and Indonesia by the late 2000s. In 2023, Vietnam, our closest peer, overtook us. Over the last decade alone, Vietnam nearly tripled its income per head; we merely doubled ours. Had we matched Vietnam’s pace from 2010 to 2023, our economy could be roughly $275 billion larger today.

How did the region’s early leader drift so far behind, and more importantly, what can we still do about it?

I. Six major forces setting us adrift

The last half-century of Asian growth can be viewed as a series of “waves.” Our neighbors caught them and rode the thematic drivers of each decade’s growth; we largely watched from the shoreline.

In the 1960s and 70s, while the Asian Tigers pursued export-oriented industrialization, we retreated into import substitution, protecting domestic industries that never matured. When China launched “Reform and Opening-up” in 1978, we collapsed into a debt crisis and lost a decade to fiscal and political upheaval. As Thailand and Malaysia diversified into manufacturing and electronics exports, we struggled to sustain a stable investment environment.

The next wave came in the 1990s and 2000s. Vietnam launched Doi Moi reforms in 1986 and made itself indispensable to global value chains. We remained overly reliant on consumption and services, missing the industrialization boat again.

No single administration bears sole responsibility. But if we zoom out, the drift was shaped by six persistent forces:

1) A policy architecture that constrained competitiveness

While East Asia rolled out the red carpet for foreign capital, we rolled out the red tape. Constitutional restrictions, the Foreign Investment Negative List and various layers of national and local government bureaucracy limited our ability to plug into global value chains.

While our neighbors streamlined, we fragmented. Metro Manila is effectively a collection of 17 independent fiefdoms each with its own mayor, traffic laws and permitting systems. Meanwhile, Ho Chi Minh City is roughly three times larger in land area than Metro Manila, yet it operates under one central authority, streamlining the regulatory framework.

2) Premature deindustrialization meant we skipped a critical growth phase

Unlike our neighbors who moved from agriculture to manufacturing then to services, we skipped the industrial middle. We transitioned from farms to call centers and overseas work. Manufacturing has a higher “multiplier effect” than services: it creates supply chains, transfers technology and absorbs low-skilled labor. By skipping this phase, we missed the mass job creation engine that lifted millions out of poverty in China and Vietnam. We became a consumption-driven economy without a strong production base.

3) Personality-based politics that prevented continuity

The country’s policy agenda rarely outlast our leaders. We never implemented the long-range industrial policy that powered the rise of our peers. In those nations, economic master plans spanned decades; in the Philippines, major projects were often cancelled or renegotiated with every change of administration. This unpredictability discouraged the long-gestation manufacturing investments that require decades of stability to yield returns.

4) Education that prioritized employment over innovation

We produced workers for the world, but too few builders of the future. While our neighbors aggressively funded STEM (Science, Technology, Engineering, Math), we spent only roughly 0.32 percent of GDP on Research & Development, far below the global average. This lack of engineering depth meant we could assemble electronics, but we rarely designed them.

5) Chronic infrastructure gaps that became a ‘silent tax’

For decades, public infrastructure investment averaged roughly two percent to three percent of GDP, far below the five percent to seven percent standard set by our high-growth neighbors. This underinvestment created a “silent tax” on every Filipino producer, with expensive power and logistics costs stifling growth.

6) Fiscal strangulation crowded out productive social investments

The debt crisis of the 1980s cast a long shadow. For nearly two decades, debt servicing ate up 25 percent to 40 percent of the national budget, crowding out vital investments in human capital. While our neighbors were upgrading their workforce, we were paying off interest.

From 1995-2010, the Philippines spent about 2.8 percent of GDP on education, much less than Malaysia (~5.2 percent), Vietnam (~4.9 percent) and Thailand (~4.1 percent). During the same period, we spent around 1.2 percent of GDP on average on public health expenditures, while the same three countries spent around twice the proportion. The compound interest of that neglect is a price future generations pay.

The global order is again reorganizing. Supply chains are shifting. The race to decarbonize and digitize is accelerating. Investors are searching for more reliable partners in an uncertain world. The waves of opportunity are forming again.

II. The pivot: Ten shifts to help us race ahead

The Philippines is endlessly rich in potential – but too often, potential is where we stop. The good news is that the path forward is not a mystery. We have 65 years of regional evidence showing what works, from South Korea’s industrial discipline to Vietnam’s manufacturing ascent.

Think of the way forward as ten “gear shifts,” grouped into three clusters: the economic engines, the enablers and the governance framework.

I. The economic engines

1. From slogans to a supply-chain tourism strategy

Treat tourism not as marketing, but as an industrial strategy – a practical “third leg” that can generate jobs and foreign exchange while longer-horizon industrial upgrading takes root. Unlike other engines, tourism is hard to offshore and hard to automate, and it spreads opportunity beyond a few metros if we build it deliberately.

Tourism is our most scalable convergence sector. Every arrival activates a value chain: farm demand for high-quality produce; a captive MSME market for furniture, textiles, crafts and packaged goods; stronger transport and logistics networks; a creative economy showcase for Filipino design, culture and wellness; and a digital layer of seamless payments, bookings and mobility.

Currently, intra-ASEAN travel accounts for 45 percent of total regional arrivals. Despite a massive flow of over 100 million annual travelers within the region, the Philippines captures only a negligible fraction of this intra-regional market.

The Philippines has superior natural assets – biodiversity that dwarfs Singapore’s and beaches that rival Thailand’s – but we have inferior systems. To unlock this potential, tourism must be treated as a national convergence project rather than a standalone department’s responsibility. By aligning all government agencies with tourism figures as a KPI hinge, we can transform destinations into self-sustaining economic hubs.

2. From ad hoc incentives to focused industrial ecosystems

Instead of chasing dozens of “priority sectors” every administration, we should consistently pursue what Finance Secretary Frederick Go has been pushing since his time as the President’s investment and economic adviser: name a tight set of strategic sectors, then organize government around making them investible, with faster approvals, clearer rules and fewer bottlenecks.

Sec. Go pointed to a practical shortlist that lines up with where the Philippines can play specific roles in regional value chains, including semiconductors/electronics, renewable energy, tourism, food and agriculture, critical/green minerals (e.g., nickel/copper), pharmaceuticals/medical devices and steel.

The discipline is the strategy: pick one or two roles we can do exceptionally well, then build complete ecosystems around them: supplier development, skills, power reliability, logistics corridors, predictable permitting and performance-based incentives. This way, investors can make decisions not on the most attractive tax breaks (which can be a race to the bottom), but on the strength of an integrated platform.

3. From household cash support to productive investment-backed remittances

In 2024, remittances hit a record $34.5 billion – roughly 8.5 percent of our GDP. Most inflows understandably go towards household consumption. But we can build an opt-in pathway that lets overseas Filipinos convert a small slice of remittances into productive capital.

Practically, this might be an always-on diaspora investment channel embedded in remittance apps and payroll systems, with small minimums, frictionless onboarding and hard-currency options, all paired with transparent reporting that links diaspora savings to a credible pipeline of infrastructure and productive zones. Capturing even five to 10 percent of remittance flows this way would create a stable, domestic pool of long-term capital, turning our overseas workers from passive senders of cash into long-term stakeholders in national development.

4. From consumption-led to a balanced mix of growth drivers

Household consumption accounts for about 70 percent of our GDP, while our Gross Capital Formation (Investment) hovers around 22 to 23 percent. Vietnam reinvests around 30 percent of its GDP back to its own capacity. We cannot shop our way into prosperity.

What we need is a deliberate push to raise investible supply (projects that banks and long-term capital can actually finance) so more domestic savings and foreign capital flow into productivity, not just property and retail.

Some starting suggestions:

• Make investment easier: streamline permits through true one-stop shops with fixed timelines, reduce duplicative local clearances.

• Targeted, performance-based incentives: tie tax incentives to measurable outcomes (export sales, local supplier development, training slots, R&D spend, energy-efficiency targets).

• Unlock long-term capital: deepen corporate bond/infra bond markets; standardize project contracts to reduce risk premiums; crowd in pension/insurance capital with credible pipelines and stable regulation.

• De-risk priority projects: use guarantees, viability-gap funding, and standardized offtake frameworks where needed – especially for renewable energy, transmission and logistics – so projects clear financial close.

• Build plug-and-play industrial sites: expand ready-to-go zones with reliable power, water, data connectivity and fast customs – so investors can build in months, not years.

II. The enablers

5. From stand-alone projects to infrastructure systems and clusters

We cannot upgrade the entire country all at once. The winning approach is to sequence: start where readiness is highest, build “islands of excellence” that meet global standards and then connect those islands through trade corridors as capacity and revenues grow.

That means thinking in systems, not isolated projects: roads to ports, ports to zones, zones to reliable power. Leaning on PPPs lets us do more with limited public funds.

Practically, prioritize a few corridors where density already exists and spillovers are immediate: for example, Subic–Clark–Manila–Batangas, and similar clusters that link gateways, industrial estates and labor markets. Match best practices in travel times, port dwell times, power cost and uptime, permitting speed. Once those clusters work, scale outward and connect them – corridor by corridor – so growth becomes compounding rather than scattered.

6. From basic connectivity to deep digitalization

We have digitized payments; the next step is to digitize the state. Some concrete starting points to consider:

• Digital-by-default, paper-by-exception: Make every national-government transaction available end-to-end online (application - payment - approval - release). Require agencies to justify any paper requirement.

• A national digital ID (with safeguards) like India’s Aadhar: A single, verifiable ID that works across government and finance, enabling e-KYC, benefits delivery, licensing and business registration – paired with strong privacy rules, consent, audit logs and penalties for misuse.

• One government account, single inbox: One login for citizens/investors; one portal showing every filing, permit, request, status and deadline across agencies and LGUs.

• Interoperability mandate (government as APIs): Force agencies to connect via standard APIs and common data definitions so information can be reused – no more “bring your own documents” between offices.

• E-procurement and open contracting by default: End-to-end digital procurement (tenders, bids, awards, contract variations) with public dashboards and machine-readable data to reduce leakage and speed up delivery.

• One-stop investor setup: A “Start a Business in 72 Hours” pathway: incorporate, register tax, enroll employees, secure local permits and open basic utilities through one digital workflow with hard service-level timelines.

• Digitize land, permits and logistics chokepoints: Prioritize the highest-friction areas: land titling/registries, building permits, customs clearance, port community systems. These are where delays become an economy-wide tax.

• Shared government cloud and reusable components: Stop each agency from building its own system. Provide shared modules (ID, payments, forms, case management, notifications) so rollout is fast and cheaper.

7. From schooling to skills and innovation

Recent news of plummeting proficiency rates mean we are graduating millions who are technically eligible for employment but realistically unprepared for it. A renewed focus on literacy and numeracy, paired with technical-vocational training tied directly to employers and stronger university – industry linkages in fields like agriculture, climate tech and digital manufacturing, could move us from an education system that produces employees to one that produces innovators.

We must pivot to industry-linked dual training systems, where technical-vocational institutes are co-located with Economic Zones.

III. The governance framework

8. From political cycles to national planning

The Philippine Development Plan (PDP) should be a rolling 10–15-year framework that survives political transitions, enacted as binding law and amendable only by a supermajority.

Consider a Fiscal Responsibility Act with a strict “PAYGO” (Pay-As-You-Go) provision: For every bill that has an expenditure component, it must have a revenue component.

9. From personality-based anti-corruption to systemic integrity

Countries that cut corruption did so by redesigning systems, making honest behavior the path of least resistance: digitized procurement, transparent contracts and less face-to-face permitting. We cannot arrest our way to honesty; we must engineer our way there.

10. From political leadership to national stewardship

Ultimately, reforms only stick when politics matures from personality contests to institution-building. Cross-party compacts on “no-regret” priorities could anchor a more stable development path.

From personalities to institutions

These 10 shifts are lessons drawn from neighbors who started where we were, and managed to turn potential into real progress. They are not a complete set of prescriptions, but possibilities for further ideation: a menu of practical approaches we can learn from, adapt and make our own.

My hope is that our national conversation gradually moves away from who our “best” leader is or which camp is better, and focuses more on how we can actually operationalize these shifts across sectors, across administrations, through institutions that last more than a lifetime.

The work of steering a country’s destiny should not fall on a single personality, but on the collective: each of us, in our own niche, contributing incrementally to the institutions that will outlast us.

Development is a relay for all, not a sprint for the few.

(Cesar Purisima served as secretary of Trade and Industry and later as secretary of Finance. He is an Asia fellow at the Milken Institute).