APEC 2015: How to make economic growth inclusive

MANILA, Philippines – The Philippines' sunny economy has been growing faster than most of its neighboring countries over the past years. Yet its sunny face has a gloomy flip side.

The growth has not been fully inclusive, as poverty and inequality remain entrenched. (READ: VP Binay: Where is inclusive growth?)

But for the Asia-Pacific Economic Cooperation (APEC) Business Advisory Council (ABAC) 2015, inclusive growth is slowly becoming a reality.

"The whole area of inclusive growth is already becoming a reality," Jaime Augusto Zobel de Ayala, chairman and CEO of Ayala Corporation and a member of the 3-person ABAC, said during an interview with Rappler on November 10. 

Although the Philippine economy has been growing for an average of 6.5% for the past 5 years, the country continues to have high unemployment and underemployment rates. But for Zobel de Ayala, the "tone has been set for the need to be inclusive."

"The models have changed and emerging markets are seen as exciting new spaces for both local companies like us and multinationals addressing the needs of lower income groups. We give them products and services that engage them and formally help them enter the economy," he added.

Big guns initiate inclusive growth

Some of the country's business leaders cited their own initiatives to link small players to the supply chain.

"We look at our own group of companies as an example. Over the last 10 years, we fundamentally transformed ourselves," Zobel de Ayala said.

He said that when the Philippines faced a water supply crisis in the mid-1990s, Ayala Corporation participated and won a bid to provide affordable water and deliver 24/7 potable supply for marginalized communities. (READ: Making region MSME-friendly could be APEC 2015's major success)

Ayala's water unit Manila Water then began exporting its expertise to other markets in the region such as Vietnam and potentially, Myanmar and Indonesia. 

Using a sustainable model developed to suit poor households through flexible financing options and a socialized tariff scheme, community-based cooperatives were involved as part of the supply chain and as business partners, making them part of the solution to the problem, Zobel de Ayala said. "About P60 million ($1.27 million) in jobs were generated across 1,000 low-income families."

"For our housing, we now have have 5 brands across the spectrum of different price ranges and we even deal at subsidizing housing at the very bottom. The list goes on," the Ayala chairman said. "This is not just a Philippine trend. It's a trend that’s happening globally. All of those are inclusive in nature. They bring sectors that were not in the kind of legitimate, recognized economy before."

"Part of the APEC agenda is to take that trend and facilitate it even more. Countries understand that if you can't get growth to happen at lower levels in the income chain, then you are really not achieving the kind of value creation the whole population needs," he added.

SCALING UP. 'Moving forward, the question now is, how do we scale it up further?' Jollibee's Tony Tan Caktiong asks. Photo by Franz Lopez/Rappler

SCALING UP. 'Moving forward, the question now is, how do we scale it up further?' Jollibee's Tony Tan Caktiong asks.

Photo by Franz Lopez/Rappler

Tall order: Grow quickly and equally

For Tony Tan Caktiong, Jollibee founder and chairman, his business started including farmers in the supply chain years back.

"We started the farmers program a few years ago, and it was quite a difficult process to start with. People were saying the success rate is so low and asking why we were picking such a difficult project. But after a while, it works both for the company and farmers. Farmers' income went up like 3 to 4 times now. Our procurement department is so happy with the quality of goods," Tan Caktiong said.

"Moving forward, the question now is, how do we scale it up further?" he asked.

Growing economies in a manner that is quick and equitably distributed is the tall order of the heads of APEC member-economies and this year's ABAC.

"Probably one way is for companies to start putting a certain ratio of procurement and say we want this to come from smaller suppliers. Of course, it will be very difficult to start with, but as things smoothen out later on, it will be a good process for both companies and small players," Tan Caktiong said.

In a positive path

Moving forward, Zobel de Ayala said the Philippines is "in the positive path."

"If there were to be some negative headwinds that will hit the country, our strong consumer demand equation has stood in good stead. I think what happened in many other countries, inflation have hit and the growth models slowed down and people don't really have the purchasing power to keep the economy prime," he explained.

Meanwhile, the Ayala chairman said, "our model has been alive and kicking for a while now. It can withstand shocks that will come our way [because] our balance sheet is strong, external debt numbers are very favorable, and our highest level inflation has been very low."

For Guillermo Luz, co-chairman of the National Competitiveness Council, the Philippines and the rest of the APEC region will soon see strengthened cooperation between governments and private sector to boost inclusive growth.

"Generally, inclusive growth has been sort of attached to governments. The flip side of that coin is inclusive business. You've heard plans on how to incorporate small- and medium-scale businesses to large corporation supply chains, so that is the whole inclusives business model," said Luz, who is also the ABAC Philippines alternate member.

"Whether it is a service or a manufactured product, you will hear that (inclusive business) come up more and more often," Luz said. (READ: APEC 2015: Where PH stands in the Trans-Pacific Partnership)

The Philippines, for the second time, is hosting APEC, under the theme, Building Inclusive Economies, Building a Better World. The first time the Philippines hosted the APEC leaders' summit was in 1996, initiating an action plan on facilitating free trade in the region. 

The APEC Leaders' Summit is on November 18 and 19. – Rappler.com