The Philippines: the brightest star in emerging Asia
June 05, 2014 00:00
AS DECISION-MAKERS descended on Manila for last month's World Economic Forum (WEF) on East Asia, concerns about slowing growth were bound to dampen the sentiment. However, delegates may wish to take heart from the extraordinary example of the host nation.
The mood among international businesses and investors continues to turn more positive in favour of the Philippines as a destination for investment. In fact, the country stands out as one of the most improved on WEF’s measure of global competitiveness in recent years.
As a bank that has been doing business in the Philippines since 1872, we strongly echo the positive sentiment, which we’re also seeing among our own international and Philippine clients.
The recent perpetual bond issue by Philippine conglomerate San Miguel’s power arm, drawing more than three times its offer, with a final book value of USD1 billion, is testament to the continued confidence in the investor community.
After GDP growth of 7.2 per cent in 2013 – despite the devastating and lingering impact of the Bohol earthquake and Typhoon Yolanda last autumn – we expect the Philippines to grow by another 6.7 per cent this year, making it one of the fastest-growing economies in Asia, after China.
In the past year, we have seen the Philippines become significantly more investor-friendly, helped by President Benigno Aquino’s efforts to improve the country’s economy and governance. As work continues to boost investment, deepen capital markets and tackle corruption, we believe the climate will improve further and help to generate more economic growth and employment.
The central bank is expected to keep inflation and interest rates low, securing an environment in which business can flourish. And remittances from overseas workers – still a hugely important component of the Philippine economy –are expected to grow at a faster pace of 8.5 per cent this year (up from 8 per cent in 2013), which will underpin domestic consumption.
The upgrade earlier in early May by credit rating agency Standard & Poors is a significant achievement for the Philippines, coming only a year after the country was upgraded to investment grade. It is a vote of confidence in the government’s ability to manage the public finances and improve the investment environment, and it means the Philippines is now rated higher than countries such as Spain, Russia, Brazil and India.
Another strongly positive factor is that the Philippines has made great strides in developing not only its service industries – a primary driver of Philippine growth in recent years – but also its manufacturing sector, which expanded by more than 10 per cent in 2013.
Earlier this year, the Asian Development Bank launched its US$1 billion Supply Chain Finance programme, helping cash-strapped small and medium-sized enterprises (SMEs) in the Asia-Pacific region to access capital that can help them grow. More than $800 million of transactions are expected to be financed in this way, most of them involving SMEs supplying large companies, which will lend further support to Philippine manufacturing.
In the important electronics industry, more companies are expected to expand or open new plants in the Philippines this year. The country is also expected to build on rapid growth in its business process outsourcing sector, now a major export for the Philippines.
The global recovery is set to boost foreign direct investment, with potential for more investment coming from Japan and the US, historically big investors in the country. At the same time – with its large, skilled and English-speaking workforce, the youngest in Asia – the Philippines could benefit as higher labour costs in China lead more companies to move production to lower-cost economies in Southeast Asia.
Infrastructure investment in particular offers a massive opportunity for international companies to play a role in the Philippine growth story, through public-private partnership (PPP) projects. After a slow start, the country had awarded seven PPP projects thus far, and the pipeline is robust. We were proud recently to provide a funding facility to Bright Future Educational Facilities, a winning bidder for the Department of Education’s project to build 10,000 new classrooms across the country.
Perhaps the most exciting potential – both for the Philippines and for Asean more widely – comes from increasing regional trade. Almost one-fifth of Philippine exports went to Asean in 2013.
The growing affluence of domestic consumers – along with urbanisation – is a key driver of intra-regional trade, which has been growing strongly in recent years, and helps to explain some of the resilience of economies like the Philippines, even in the face of weak demand from export markets in the West.
The Philippines may be the region’s brightest star, but it is worth noting that most of the 10 Asean nations are expected to record growth of more than 5 per cent this year, compared to 2.4 per cent in the US and 1.3 per cent in the euro area.
With the recovery in the West now underway, and just a year away from the formation of the Asean Economic Community – a $2 trillion trading bloc of more than 600 million people – we continue to see great economic opportunity in the Philippines and the region more broadly.
How businesses, banks, governments and regulators can make the most of this opportunity – ensuring it pays dividends in terms of jobs and prosperity for people right across the region.
L The author, Jaspal Bindra, is Group Executive director and CEO for Asia, Standard Chartered