Duterte Has Grand Ambitions to Share Manila's Wealth

(Bloomberg) -- Seeking to close the gap on the entrenched wealth inequality in the Philippines, President Rodrigo Duterte is pushing a controversial constitutional change to adopt a U.S.-style federal structure.

The president will ask lawmakers to back his plan to create 18 federal regions with powers to impose taxes and build economic zones. They will get at least half the revenue collected by the national government, which will remain in charge of monetary and currency matters, defense and foreign affairs.

In his annual speech to Congress on July 23, Duterte is expected to pitch for federalism that will give greater power to regions and help bridge the gap between the rich and the poor. He argues that strong economic growth isn’t enough to reduce inequality, and instead, giving greater power to the regions is the solution.

“President Duterte wants federalism through charter change to be his legacy to the public,” presidential spokesman Harry Roque said on Thursday. “As long as the power over most of the budget remains with Congress, there cannot be any initiatives that would lead to empowerment of local government units.”

Power Grab

Former Chief Justice Hilario Davide, a group of professors from top Philippine universities and most senators are opposing the plan. They say that changing the charter could allow Duterte, who is scheduled to step down in 2022, to extend his reign as well as scrap the 2019 mid-term Congress and local elections.

Two-thirds of Filipino voters are opposed to the plan, according to a June poll, and even Economic Planning Secretary Ernesto Pernia has said a shift to federalism isn’t necessary.

The Philippine economy is among the world’s best performers this decade with growth of more than six percent a year, driven by an outsourcing boom, remittances, rising foreign investment and a massive infrastructure push. Yet industries are concentrated in and around the capital that Duterte often refers to as "Imperial Manila", while around a fifth of the nation’s more than 100 million people live on less than $3.20 a day

Here are five charts that highlight the glaring regional disparity:

Dominant Capital

The capital region known as Metro Manila accounted for almost half of the economy last year, according to the statistics authority. The region just south of it -- a manufacturing hub and host to companies like Toyota Motor Corp. and Mitsubishi Motors Corp. -- has the second-largest share that amounts to a measly 8.2 percent.

Down south where Duterte hails from, Mindanao’s six regions remain dependent on farming and fishing and account for just 13 percent of the economy. The Muslim peace bill that will create a new autonomous region and help end four decades of insurgency is expected to be signed into law by the president before his speech on Monday.

Duterte Has Grand Ambitions to Share Manila's Wealth

The nation’s top-earning industries are concentrated in the capital and surrounding regions, creating a wealthier pool of residents. Manila’s per capita gross domestic product is about $4,600, three times the national average.

Duterte Has Grand Ambitions to Share Manila's Wealth

“Some regions are likely to remain dependent on central government subsidies which would defeat the purpose of economic decentralization,” University of the Philippines professor Herman Kraft said.

The richest regions have huge outsourcing and manufacturing sectors, while the poorest are largely agricultural.

Top Industries in Richest RegionsTop Industries in Poorest Regions
  • Metro Manila: communications, real estate, financials
  • Region IVA: manufacturing, real estate, transportation
  • Region VII: manufacturing, communication, real estate
  • Autonomous Region in Muslim Mindanao: agriculture, fishing, real estate
  • Region XIII: mining, agriculture, forestry
  • Cordillera Administrative Region: manufacturing, agriculture, services

Over four-fifths of the nation’s 11.5 million square meters of office space is in Manila, according to brokerage Leechiu Property Consultants Inc. And Metro Manila will bring in 71 percent of the 4.5 million square meters of new workspace in the six years through 2023, it forecast.

Duterte Has Grand Ambitions to Share Manila's Wealth

A country’s wealth center also provides the bulk of its revenue. Metro Manila’s tax accounted for 80 percent of the Bureau of Internal Revenue’s collection last year.

Duterte Has Grand Ambitions to Share Manila's Wealth

"Federalism is not a silver bullet that will automatically bring investments and improved infrastructure in the countryside," said Bob Herrera-Lim, Teneo Strategy managing director in Manila. "You have to train local governments on how to use their powers and how to use them efficiently and effectively. That will also take time."

Investors are also still waiting for Duterte’s federalism proposal to take a more definite shape, he added. "The plan is so unformed that they can’t analyze it effectively."

©2018 Bloomberg L.P.