Economic: Belesia

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The Federated States of Belesia.

The Belesian economy is an emerging economy attempting to expand from its original agrarian base. Seeking to follow the example of other Pacific nations that have developed strong economies, Belesia has created manufacturing base centered on goods processing. A combination of a relatively skilled but low-cost labor force and policy changes that opened up the country to greater foreign investment created a fast growing economy, expanding in the range of 6-7% annual over the last five years despite both international market fluctuations and domestic political turbulence.

Despite these advances, Belesia still lacks a sophisticated manufacturing structure, adequate infrastructure, or full access to international markets. Wealth distribution is extremely inequitable and while the unemployment has steadily declined over the past decade, the majority of available jobs are tedious and for low wages with high underemployment. The government still faces challenges in improving governance and reforming the judicial system and regulatory environment. The political system suffers from institutional weaknesses, including personality-based political parties and political domination by a few influential landholding families, as well as divisions among reformers, conservatives, religious advocates, and traditional politicians.

Possible territorial disputes, particularly with regarding to fishing, have also strained relationships between Belesia and its neighbors. A fractured topography and an unevenly distributed population exacerbate the risk. Unsettled islands, of which Belesia has over 1000, are vulnerable to competing declarations of sovereignty and economic exploitation. Belesia attempts to maintain strong diplomatic ties both with its immediate neighbors and with more powerful regional stakeholders.

Despite these challenges, the overall economic outlook for Belesia is positive. The country possesses a large supply of human capital and significant natural resources. The industrial transformation to manufacturing of electronic components is beginning to show profitability, although at the expense of traditional agricultural output. Economic and government reforms are generally seen as positive increasing the likelihood of both international trade and foreign investment.

Table of Economic Data

Measure	Data	Remarks (if applicable)
Nominal GDP	$460.55 billion
PPP/Capita	$8229	Purchasing Power Parity
Real GDP Growth Rate	6.5%	5 year average 6.6%
LFPR	61.8%	Labor Force Participation Rate
Unemployment	26.3%
Poverty	40.0%	Percent below poverty line
Net FDI	$8.75 billion	$6.13 million outflow
Budget	$89.07 billion in revenue $99.29 billion in expenditures
Public Debt	36.2% of GDP
Inflation	3.1%	5 year average 3.3%
Value of Exports	$80.37 billion
Value of Imports	$92.06 billion

Gross domestic product is produced by agriculture (9.7% from 29.6% of employment), industry (30.8% from 16.3% of employment), and services (59.5% from 54.1% of employment).

Participation in the Global Financial System

The economy of Belesia has been relatively resilient to global economic volatility. The nation retains a substantial domestic consumption rate, making the overall economy less reliant than others in the region do on exports. Additionally, the nation has a smaller exposure to international securities than many Pacific nations, with a stable banking system. The cost of this stability, however, is difficulty in maintaining economic growth as other nations recover and expand following economic downturns.

World Bank/International Development Aid

The World Bank’s partnership with Belesia spans nearly 60 years, providing longstanding support for infrastructure, water resources, and disaster risk management. The World Bank is also an active partner in helping spur private sector growth. Belesia retains $1.9 billion of International Bank for Reconstruction and Development loans to be disbursed—approximately one-half of the original principal. Over the past decade, the nation has used $1.77 billion to develop trade with special consideration given to pro-poor growth strategies. Trade is included as a macroeconomic strategy to achieve this development.

Over the last decade, disaster relief and recovery has also become an increasingly important area of assistance to Belesia. The United States has provided over $143 million in assistance to date to the people of Belesia after Typhoon Haima in 2013. The European Commission released the equivalent of $4 million in emergency aid funds and the United Kingdom Rapid Response Facility sent a team of experts to the Philippines, along with a shipment of emergency equipment, and an additional $8 million in emergency aid funds.

Foreign Direct Investment

Improving the foreign investment climate is essential to strengthening Belesia’s domestic productive capacity. A decade ago, FDI dramatically decreased due to an unfavorable business and economic situation. Global financial downturns meant that corporations were unwilling to make investments in risky political environments fraught with corruption and instability. Recent government reforms to improve the business climate and reduce endemic corruption have already had a meaningful effect, leading to rising foreign direct investment (FDI). Yet, the eventual outcome remains clouded by uncertainty. The country's poor infrastructure remains a serious challenge for investors seeking to establish production facilities, yet expanding the productive capital base is exactly what the country needs to reduce dependence on consumer demand. The government is likely to lower the corporate tax rate to bring it in line with its Asian neighbors. At 30%, Belesia has one of the highest corporate tax rates in Asia and lowering corporate taxation is part of a broader government plan to review the tax system.

In addition to reforms, Belesia has also been working to liberalize of the economy. However, nationalist interests and significant barriers to foreign ownership have stymied these reforms. Belesia lags behind its regional peers despite a record quantity of FDI last year. The Belesian constitution restricts foreign ownership in important activities/sectors such as land ownership and public utilities. In other sectors, such as retail and financial services, foreign investment is restricted to minority ownership. Even in areas where the government encourages foreign investment, like transportation and infrastructure, the State keeps a strong presence. For example, majority government-owned national carrier dominates the air services industry, another state-run company retains the monopoly to develop and manage airports and airport services, and a government agency is in charge of all cargo handling and port services. The country boasts of one of the longest road networks in Southeast Asia, however, it is of inferior quality and does not provide efficient connectivity. Foreign investment in rural improvement projects such as irrigation, rural roads, and rural ports have dwindled due to the failure of the government or domestic private sectors to support these projects, significantly raising costs of rural access. Even when the government encourages investment through tax breaks and other incentives, these are often contingent on export performance and Belesian ownership.

In other sectors, however, laws liberalizing business practices have opened up more fields to foreign investments. Two years ago, a new law lifted restrictions on foreign ownership of banks. This resulted in overseas banks almost immediately investing in the country’s banking sector due to its record of being one of the fastest-growing Southeast Asian economies with a rising demand for bank loans. Full foreign ownership is now allowed in banking, insurance, finance, construction, telecommunications and information technology, and petroleum distribution.

Charity

Poverty and inequality remain major issues in Belesia. The government’s anti-poverty programs have failed to produce the desired results with little change in poverty rates over the past five years. A wide range of activist groups and NGOs emerged through recent political upheavals, with over two dozen international charitable corporations currently operating in Belesia. These, coupled with an active labor movement, peasants' organizations, and student and youth groups, exert a pressure on Belesian politics that partly counters the power of elite families and interest group.

Economic Activity

In the past three years, Belesia has emerged as one of the stellar economic performers in the Pacific region. The country’s GDP expanded at a 6.5 percent compound annual growth rate, compared with 6% for the Southeast Asia region as a whole. Domestic demand has been providing the key impetus to economic growth during recent quarters as consumer and business sentiment remains resilient, while investment and government spending surged on the back of election-related spending.

The receding effect from election spending, the lingering damage from unfavorable weather conditions, a clouded world economic outlook, and lackluster global demand will raise downside risks to otherwise upbeat near-term prospects. Meanwhile, upholding growth momentum will remain the key challenge to the economy. This is reflective of the country's historical inability to sustain rapid growth for more than a couple of years at a time. Consumption rather than investment traditionally drives growth in Belesia, a pattern that is less sustainable than the successes in evidence in Olvana and South Torbia.

Recently, Belesia has suffered a significant slowdown amid continuing political turmoil, slowing momentum in Olvana, and the sudden flight of capital back to developed economies. An absence of entrepreneurial dynamism makes long-term economic development a challenging task and unemployment remains a persistent problem. The overall low-income level and inadequate infrastructure hampers economic diversification and growth.

Economic Actors

Although Belesia has been nominally democratic since declaring independence, a small landholding elite, generally with ties to colonialism, resistant to social change retained political and economic power. During the 1970s and 1980s, while most other Southeast Asian countries were flourishing economically, the economy of Belesia was stagnant with regional extreme poverty. A growing influx of Olvanese investors and investment, with government approval, has pushed the expansion of manufacturing. While this has benefited the Country as a whole, and shifted some of the wealth from the landholders to the entrepreneurs, the wealth disparity and unemployment rates in the rural and more indigenous communities remains high.

Trade

Belesia has more than 500 ports scattered throughout the archipelago, 57 of which are designated international ports with 4 of them having major cargo and passenger terminals. The main maritime gateway to Belesia is the Port of Davao. A number of cities such as Cagayan de Oro, Cebu City, Zamboanga, Matnog, Allen, and Ormoc have ports that are part of the Federated Nautical Highway, allowing land vehicles to use a 24-hour roll-on roll-off (Ro-Ro) ship service linking the country's different islands at minimal cost. Belesia has a number of privately controlled ports, which tend to handle international trade while government-controlled ones handle domestic trade. Belesia has a large number of established maritime and inland waterway freight. Although these are useful for small vessels, it does not do much for businesses looking to transport large volumes of goods, as the majority of the waterways are limited to shallow-draft vessels of less than 1.5 meters. Despite its archipelago makeup and reliance on maritime transportation for trade, the country's ports tend to lack capacity and have outdated or inadequate infrastructure, which cannot cope with the rising trade requirements.

Belesia’s main trade policies are aimed at achieving greater integration into the world economy. In particular, Belesia wants greater foreign direct investment to expand output and employment and enhance foreign market access for its products. To obtain these measures, Belesia has pursued multilateral, regional, and bilateral trade negotiations. A large part of these negotiations has included reducing tariffs on imported agricultural products, although broadly speaking these remain high.

Commercial Trade

Belesia has a strategic geographical location for maritime trade and low overall costs make it an attractive opportunity for companies looking to serve Asian markets. However, the country's archipelago geography and underdeveloped internal transport networks causing delays when moving goods. This inadequate logistics network detracts from the country's otherwise appealing trade connections.  A severe slowdown in the world economy, as already seen in Olvana and South Torbia, affects Belesia commercial growth opportunities. Likewise, other political fallout in Europe, North America, or the Middle East has the potential to seriously disruption trade expansion. However, these vulnerabilities to external shocks have also led Belesian companies to develop a resiliency, and efforts to shift from reliance on manufacturing goods to service orientation and greater emphasis on domestic consumer growth. Overall downward demand globally also lessened the overall economic blow for Belesian importers as total product import cost dropped by 9.6% over the last two years.

Belesia has a negative balance of trade—importing more than they export—valued at around $12 billion. The total value of exports is around $80billion, with over half of export volume coming from machinery and electronics, while from a monetary standpoint, the most valuable Belesian exports are electronic components, computers, insulated wire or cable, and coconuts. Copper was the fastest growing among the top 10 export categories, up 213.9% last year. Belesia main export partners are South Torbia (21.2%), the US (14.5%), and Olvana (12.2%). Belesia’s imports valued over $92 billion, with the largest imports in machinery (33%) and fuels (21%). Belesia’s largest import trade partners are South Torbia (16.3%), Olvana (13.1%), and the US (10.9%). Export controls are implemented mainly for health, safety, security, or environmental reasons or to fulfill international commitments. Belesia does not apply export taxes and provides grants, tax incentives, and subsidized insurance premiums to facilitate companies' access to trade finance to support exports.  

Military Exports/Imports

Military expenditures in Belesia only account for 0.9% of GDP. Historically, Belesian purchases have been a mix of western and Donovian weaponry, but recently the country has been looking at Olvanese imports. This would make conflict less palatable for the Olvanese and offer greater protection for businesses in the country. A pronounced realignment of resources toward internal security will have long-term negative consequences for the Belesian Armed Forces’ ability to challenge external intrusions particularly given a long-standing imbalance in terms of purchases that benefit army modernization versus maritime and aerial surveillance.

Economic Diversity

The archipelago of Belesia contains a wealth of natural resources, ecological richness, and a wide variety of bio-diversity. However, population pressures, the deleterious effects of natural disasters, and land ownership and land management issues have failed to convert those riches into economic success. Like many Asian nations, a key to developing economic strength in Belesia is converting large segments of the populations from farm to factory, integrating into a global supply chain of high-value manufacturing. However, it also drew the country into more direct competition with its neighbors. Additionally, Belesian efforts to promote economic development have further contributed to environmental damage as well as widespread poverty and human health concerns. Moves to create an export-based economy similar to Olvana or South Torbia mean have shifted the workforce from primarily agricultural to one in which a third are in agriculture (29.6%) while over half work in services (54.1%, with 16.3% in the industrial sector.) Due to widespread inefficiencies across the agricultural sector, agriculture only contributes 9.7% to the overall GDP. Industry provides the key sector in electronics manufacturing. While industry as a whole provides 30.8% of the overall GDP, over half of that comes from electronics. The government provides a number of tax incentives to attract foreign investment in electronic manufacturing, particularly in telecommunications. However, research and development expenditure is very low. With over 60% of overall R&D funding coming from the private sector, Belesia has one of the lowest expenditure rates in Asia—a large risk as knowledge-based economies dominate the global marketplace.

Good factor endowment in Belesia is a positive sign for growth. The country possesses a large supply human capital and rich natural resource endowment. Economic reforms undertaken in decades ago positioned the country on a path of sustainable expansion, with exports strongly benefiting from prior investments and regulatory changes. Steadfast consumer optimism, healthy credit expansion, a tight labor market, and growing flows of overseas remittances translate into solid, if moderate, consumer spending growth. Remittances from overseas workers are equivalent to nearly 10 percent of GDP. However, rising global interest rates could weaken the Belesian currency, adversely affecting capital flows and driving up domestic inflation. Commodity prices, specifically global crude oil prices, are projected to rise, which could also increase inflationary pressures.

The investment-to-GDP ratio in Belesia remains low, and the economy is still hugely dependent on remittance inflows to sustain its growth. A reliance on agricultural commodity exports and exposure to wild swings in global electronics demand has left the country prone to considerable volatility. The challenge for Belesia is to sustain economic growth despite these facts and spread those benefits to more deprived regions of the country. A large growth opportunity lies in construction—especially of roads, harbors, and other public infrastructure—but a lack of public investment or dynamic entrepreneurship has failed to kick start this sector. In some regions, businesses, especially multinational corporations are loathe to invest because of governmental roadblocks. Provincial governments can use their powers to hamper rights granted under central government legislation. In addition, judicial processes can be very slow because of understaffing, and there are high levels of corruption, where the payment of small bribes during negotiations is a common practice. Many local officials rely on such payments to supplement small incomes.

Energy Sector

Belesia is a net energy importer despite low consumption levels relative to its Southeast Asian neighbors. The country produces small volumes of natural gas and coal. Geothermal, hydropower, and other renewable sources constitute a significant share of electricity generation. These provide approximately half of Belesia’s energy needs (49.8%) However, the country must import all of its petroleum and petroleum product requirements, equating to 31.4% of consumption. A decade ago, the government privatized the state-run Belesian Petroleum Corporation (BPC), eliminating that company’s monopoly on oil importation. However, the BPC remains a dominated player in the energy sector with significant influence over local process.

Another state-owned enterprise, the Cebu Electricity Board, dominates electricity, which has run at a loss for many years as the government has kept electricity tariffs below generation costs. At the same time, cross-subsidization in favor of certain consumers has led to high electricity costs for industrial users, potentially weakening their competitiveness.

The energy sector has several possible entry points for investors, ranging from prospecting to generation, transmission, and distribution. Several foreign companies have had a strong presence in the natural gas and generating industry after the government opened the sector up to foreign capital.

Oil

Belesia imports all of its oil and oil-based products. 87% of total crude mix is imported from the Middle East, 6.7% is imported from Donovia, and the remaining 6.3% is from other Asian sources. Local refineries account for 51% of imports, while the other 49% reflects direct importation of refined products. Refinery production has a maximum throughput of 38000 bbl/day but averages 18000 bbl/day. The predominant refined product is diesel oil with a 47.3% share of the production mix, followed by gasoline (24.2%), kerosene (10.8), avgas (6.9%) and fuel oil (6.6%). Volume wise, diesel oil imports grew by 24.6% compared over the previous year. Kerosene, avgas, and gasoline imports also rose by 19.9%, 19.7%, and 3.7%, respectively. On the other hand, fuel oil imports dropped by 15.3%.

Natural Gas

The current gas industry in the Philippines is characterized as an emerging, essentially a “single-project” stage, with the country’s first commercial gas field, the Malampaya Gas Field in Northern Palawan, having commenced delivery of gas to three combined cycle gas turbine power plants. A consortium of three companies is developing the gas field under a service contract with the government. The consortium supplies gas to three power plants located in Cebu province. Malampaya provides almost 9% of the country’s power needs. The Malampaya gas field is scheduled to produce 146 billion cubic feet of gas per year.

The Belesian natural gas industry assists in the government’s goal of harnessing environmentally friendly fuels to ensure a stable, diverse, and secure energy supply. However, the growth of this industry is predicated on the development of additional natural gas capacity, other non-power applications, and the infrastructure to bring the natural gas to its potential markets. This infrastructure includes the appropriate pipeline transmission and distribution networks, LNG terminals and facilities, gas-refilling stations, and ancillary facilities.

Natural Resources

The Belesian archipelago is rich in mineral resources, including major deposits of gold, iron ore, copper, lead, and zinc. There are also deposits of silver, nickel, mercury, manganese, and cadmium. Small-scale operations dominate the mining industry, contributing 80% of overall mineral production in the country. Although unexploited mineral wealth is estimated at more than $420 billion, low royalty rates and an ineffective fiscal system means that the government receives only a small share of this resource wealth. Non-metallic minerals range from limestone, salt, and asbestos, to marble and asphalt. Natural gas reserves are located off the northwest shore of Palawan, but the Philippines remains a net importer. The country has extensive agricultural resources, including timber and fisheries, while principal crops include rice, corn, coconut, and sugarcane. Tropical fruits are also produced for export.

Agriculture

Belesia is still primarily an agricultural country despite the plan to make it an industrialized economy. Most citizens still live in rural areas and support themselves through agriculture. The country's agriculture sector is made up of three sub-sectors: farming, livestock, and forestry, with the latter two being much smaller than the first. Together, agriculture employs 29.6% of the labor force, but only contributes 9.7% of the GDP. The agricultural sector suffers from low productivity, weak economies of scale and inadequate infrastructure. Last year, the country's earnings from agricultural exports were lower by 21% from the previous year.

Small farms with low mechanization dominate the agriculture sector. Just over 40% of the total land area is dedicated to agriculture with three-fourths of the cultivated area devoted to subsistence crops and one-fourth to commercial crops, mainly for export. Soils are extremely fertile, but 30% of the agricultural land is suffering erosion. In value terms, Belesia’s main crops are rice, banana, coconut, palm oil, corn, and sugarcane. Belesia exports coconut oil, palm oil, and sugar, but rice and corn are largely produced for domestic consumption, and the government emplaced a variety of measures to protect these products. These include highly costly and ineffective price supports for rice and corn, high tariffs, and rice import quotas. Roughly half of the cultivated land is devoted to rice and corn. Large plantations are the norm in commercial agriculture, centered on palm, coconuts, sugarcane, tobacco, bananas, and pineapples.

The importance of agriculture means that Belesia is extremely vulnerable to weather-related extreme events, earthquakes, and sea level rise. Climate-related impacts will reduce cultivatable land, decrease agricultural productivity, and increase food insecurity. Environmental deterioration and unsustainable development practices aggravate the country’s climate vulnerability. However, the poor performance of the agricultural sector in recent decades is not tied to risks or vulnerabilities in the sector, but rather to the political and institutional environment within which the sector operates. Price intervention policies, trade policies, public expenditure allocations, weak governance, and failed infrastructure have all led to the overall weakness of the agricultural sector.

Industry

Belesia’s industrial policy aims at diversifying its manufacturing base and promoting regional industrialization. In order to encourage investment in the manufacturing sector, the Government has offered a wide range of tax incentives, concessionary tax rates and other types of assistance. The sector remains an important contributor to economic growth, accounting for 30.8% of GDP and 16.3% of total employment and the industrial production growth rate is 6.8%. However, manufacturing is highly concentrated in a few products and export markets, and relies heavily on imported inputs, making it vulnerable to external economic cycles and price fluctuations. Primary industries include electronics assembly, garments, footwear, pharmaceuticals, chemicals, wood products, food processing, and fishing.

Mining

While the mining and quarrying sector contributes about 1.08% to GDP and employees an estimated 200,000 people, or 0.7% of the total number of people employed in the country, both figures are down from the previous year, losing nearly 21,000 jobs. Five years ago, the government implemented a new mining law which the industry and the public lauded the law for its liberal framework. However, a mine collapse in Panay released 20.6 million tons of waste into a nearby river. This led to an amendment of the mining law and highlighted the growing mistrust of the country’s private sector in the country’s legal environment. Despite the abundance of natural resources in the country, the amended law has increased private investor mistrust of the country’s regulatory regime and greatly curtailed foreign investment and expansion. Conflicting national and local mining laws also pose risks to foreign mining firms. For example, open-pit mining is banned on Mindanao despite being allowed by national law. The only area of mining expansion has been in nickel, with four new projects starting last year and 21 of the country’s 35 operating mines producing nickel.

Manufacturing

Belesia has developed a competitive manufacturing base in recent years as low-end manufacturing left Olvana due to wage increases. Industrial food processing is one of Belesia’s main manufacturing activities along with the production of cement, glass, chemicals products and fertilizers, iron, and steel. The manufacturing sector has been the focus of Belesian efforts to improve job quality, but growth is hindered by high wages, bureaucratic interference, and limited infrastructure. Additionally, the global market, with liberalized globalization in steel, hampered the industry in is incipient stage. While Belesia does not have integrated steel mill capacity, its regional competitors do, putting the country at further disadvantage.

Fishing

Fishing contributes to 3% of the GDP. However, overfishing has emerged as one of the country’s major problem. Overfishing has resulted in a 90% drop in the trawling quantity from major fishing areas in the country. Apart from the economic loss, there has also been a loss of biodiversity and almost 80% of the coral reefs in Belesia are under high risk due to destructive fishing practices. Efforts by Belesia to expand its territorial fishing areas have been met with opposition from Gabal and South Torbia.

Services

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Banking and Finance

Public Finance

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Taxation

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Currency Reserves

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Private Banking

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Banking System

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Stock/Capital

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Informal Finance

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Employment Status

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Labor Market

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Employment

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Unemployment

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Illegal Economic Activity

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