Electricity and Philippine Growth: amateur detective work

I can understand why the recent GDP growth figure of 7.5% has elicited a lot of skepticism and hostile criticism , and most of the justification has to do with the fact that even the middle class, especially in Metro Manila don’t feel better off compared to last year.

Let me first disclose that I am confident about the professionalism and integrity of the people who compile and estimate the growth statistics. I have worked for long periods with NEDA assistant director general Estrella Domingo, mainly in the nineties, and mostly in regard to estimating the environmental impacts of growth. She and her people are competent and open to criticism and suggestions, especially in regard to methods.

First let us grant that the statistics are correct. The natural questions to ask are where did the growth come from, which sectors and which regions?

Growth in electricity consumption

My preferred method of validating economic growth figures is through looking at electricity consumption. So I examined the sales figures of Meralco for the first semesters of last year and this year. The second row of the following table shows percentage growth in kilowatt-hour consumption by customer class. The Meralco service area comprises about 60 percent of value added (GDP) in the Philippine economy.

Residential	Commercial	Industrial	C+I	Others	Total
3.02	5.78	3.59	4.83	-1.80	4.18

From the figures above, here are my initial observations, not necessarily in order of importance:

The NSCB claims growth is consumption-led. Clearly growth in residential consumption is much less than overall growth, and is also less than growth in personal consumption expenditures of nine (9) %.. Thus the elasticity of demand for household electricity is less than 1 (0.33), which means an additional peso of income creates much less demand for electricity in the Meralco area. This could be higher in areas outside MM (AOMM)., which is intuitive because these areas are starting with less electricity consuming appliances.

1. But looking at C+I in electricity consumption in Metro Manila, which is much less than growth in the value added of the service and industrial sectors (8%) per NSCB nationwide, I can only surmise that growth in these sectors must be happening in AOMM. Unfortunately, the NSCB does not provide a spatial disaggregation of value added and growth. But this is the most likely explanation I can find.
2. If we assume that GDP growth in Metro Manila is the same for the rest of the country, it would mean that the elasticity of demand for electricity overall with respect to GDP growth would be .56, which is contrary to historical experience and incredible.

From the above, if we assume the NSCB figures are correct, these can only be explained by higher growth in AOMM.

To whom is credit due?

Here I will allow myself some political bias, which you might agree is justified. The effects of policy always come with a lag, and it would be fungus-faced (to quote my favorite senator) for the Arroyo administration to claim credit for the growth figures. It is probable that phenomenal growth occured inspite of its incompetence and erratic responses to threats of its survival. One thing I can concede, without offering empirical proof, is that the value added tax did and does lead to a higher growth trajectory.

Equity and skepticism

Among the more reasoned essays with respect to equity and healthy skepticism published in cyberspace recently are those of Ricky Carandang and Manolo Quezon.

On the matter of equity, the Central Bank used to publish a disaggregation of GDP into returns to capital and labor but it stopped doing this sometime in the 1980’s. A simple way of ascertaining whether growth is equity-enhancing would be compute the growth in the ratio of labor's share per capita (simply divide the labor share of value added by population growth). Unfortunately I have no method to estimate this, though I suspect that if domestic demand is fueled by OFW income, growth, and if consumption growth accrues to sectors in the economy with market power, growth might be inequality enhancing. Note that I am not sure about this.

For those interested in the structure of the economy and the growth figures click here. The NSCB has one of the better government sites, but please write the webmaster and demand that it present data files in downloadable format.