AI and Philippine’s economic strategic directions

(First of two parts)

THE economist Joseph Schumpeter observed that especially capitalist economies climbed to the next stage of development by adopting new technologies. The process is necessarily disruptive as in the process of creating the new, the old is destroyed and thus, the term “Creative Destruction.” Historically, this incessant process of development encompasses diverse products, from railroads to smartphones to electric cars etc. The latest, and potentially the most trans-formative in decades, is Artificial Intelligence or AI.

AI is reconfiguring global economic structures with the speed and force of a truly revolutionary technology that transforms production, trade, services, governance, and the nature of work itself. Its impact is now comparable to historical technological shifts that altered national trajectories. In Asia, AI is accelerating competitive realignments that echo, though on a far more rapid scale, the economic divergences I previously explored in my analysis on Vi-etnam and the Philippines.* As a young Central Bank economist, I also published with the Central Bank Review on the Thai economy catching up with the Philippines.

This broader regional transformation provides a useful context for assessing how the Philippines can position itself strategically, and thus, a closer examination of the country’s AI readiness becomes vital. While I draw on the broad priorities outlined in the National Artificial Intelligence Strategy Roadmap (NAISR) 2.0, it goes beyond the roadmap by offering a critical evaluation of implementation gaps, assessing sectoral vulnerabilities, and grounding the discus-sion in current economic data. Thus, the analysis complements but does not duplicate NAISR 2.0 by situating AI within the Philippines’ broader development, labor-market, and competitiveness challenges.

THE GLOBAL AI SHIFT
Globally, AI has become embedded in manufacturing, logistics, healthcare, agriculture, public finance, defense, and education. Nations that recognized the catalytic role of AI early -— such as Singapore, South Korea, China, Japan, India, and increasingly Vietnam — have aligned national policy, industrial strategy, talent pipelines, and digital infrastructure to position themselves for long-term competitiveness. AI is now central to shaping global productivity trends and the distribution of economic opportunities.

This shift is particularly consequential for emerging economies like the Philippines, where the challenge is not whether AI will arrive, as it already has, but whether national institutions, industries, and governance systems can respond ef-fectively. The cost of inadequate response is high: countries that fail to adopt AI risk loss of competitiveness in services, manufacturing, and even agriculture. In this environment, the Philippines must address the widening gap between aspiration and execution.

WHERE THE PHILIPPINES STANDS
The Philippines enters the AI era with both strengths and vulnerabilities. Its demographics is one of the most favorable in Asia, with a young, English-proficient population and a long-established global services industry. The IT-BPM sector alone employs over 1.6 million Filipinos and remains a vital anchor of forex earnings. Digital adoption has accelerated across enterprises and households, and private-sector interest in AI is growing, particularly in financial services, retail, logistics, and telecommunications.

There are, however, structural challenges. A 2025 Philippine Institute for Development Studies (PIDS) survey revealed that only 14.9% of Philippine firms use any form of AI. This is striking since over 90% of these firms have access to computers and nearly 80% have internet connectivity. The disconnect suggests that the necessary infrastructure is not sufficient. Firms face organizational, financial, and skills-related barriers. Regional disparities also remain pronounced, with the locus of AI adoption still highly concentrated in Metro Manila and Cebu.

The country is at a critical juncture as while the digital foundations exist, the capacity for high-level AI adoption including research, modeling, advanced computing, and algorithmic governance remains limited. The country’s long-term competitiveness hinges on whether it can bridge this capability gap.

CRITIQUE OF THE NATIONAL AI STRATEGY
The Philippines has articulated a framework for action through the Department of Trade and Industry’s National AI Roadmap (2021) and the more ambitious National AI Strategy Roadmap 2.0 unveiled in 2024. These documents ap-propriately identify key sectors for transformation, emphasize data governance, outline plans for regional AI research hubs, and envision a national high-performance computing (HPC) backbone. They reflect the recognition that AI requires cross-sector alignment and institutional coordination.

However, the gap between strategic ambition and implementation remains wide. The Roadmap is strong in vision but short in operational detail. Perhaps, as it is a Roadmap it recognizes the need for talent develop-ment but does not specify a scale of investment commensurate with national needs. It outlines a plan for HPC capacity but faces a reality where electricity costs remain among Asia’s highest, and public R&D expenditure remains below 0.4% of GDP which is far below regional peers. Moreover, the Roadmap is limited by the fragmented institutional landscape of Philippine governance. AI-relevant responsibilities are dispersed across the departments of Trade and Industry (DTI), Science and Technology (DoST), Information and Communications Technology (DICT), Economy, Planning, and Development (DEPDev), the Commission on Higher Education (CHED), and individual agencies, without a centralized authority empowered to coordinate budgets, standards, and accountability. While there are nascent coordination efforts (the National Innovation Council, DICT, DoST), there is a need to fast track and involve other stakeholders.

Most importantly, the Roadmap addresses AI largely from a technological standpoint, with insufficient economic framing. It does not fully integrate AI into industrial policy, export strategy, agricultural modernization, or sector-specific productivity programs. Without such integration, government efforts risk being siloed, producing isolated programs rather than systemic transformation.

The Roadmap is not misguided; it is incomplete. It provides the scaffolding but not yet the structural supports necessary for national-scale AI deployment. n

(To be continued.)

*https://tinyurl.com/26ppbzyd and https://tinyurl.com/26ucp4e8

Cesar Polvorosa, Jr. is professor of Economics and International Business at a Canadian University. He is an occasional contributor to current affairs publications including the Philippine Star and Interaksyon. His literary publications in North America and Asia have been anthologized.