News

Riding the growth curve

December 03, 2018 News

According to experts, the country is expected to remain one of the fastest growing economies in the region and in the world.

WITH the rise of the fourth industrial revolution, industry leaders have agreed that the Philippines has been—slowly but steadily—climbing up the economic ladder both in the ASEAN region and the global economic ranking.

Seven expert speakers, from both private and government agencies, affirmed the positive outlook through their talks during The Manila Times’ 8th Business Forum, held at the Marriott Hotel Manila, in Pasay City, on Nov. 20.

Focusing on the theme “Philippine Investments: Ride the Growth Curve,” the forum explored a number of possibilities for the Philippines’ business landscape to grow under the administration of President Rodrigo Roa Duterte that will last until 2022.

Continued growth

“The Philippine economy has sustained 79 consecutive quarters of positive growth, breaking the boom-bust cycle of the past,” Diwa Guinigundo, deputy governor of the Bangko Sentral ng Pilipinas (BSP)’s Monetary Stability sector, declared.

The boom-bust cycle, Guinigundo explained, is characterized by a sustained rapid growth [boom] followed by an economic deflation [bust].

Even as the country hit an all-time high inflation rate of 6.7 percent just in October, Guinigundo noted that such rate has become more manageable since 2002, while the country’s fiscal crisis ended in 2005.

“Sustained commitment to pursue the national government’s infrastructure and reform agenda will support high, inclusive, and sustainable growth,” the BSP official said.

With the government’s growth target of up to 8.0 percent by next year, the Philippine economy secures its place as one of the fastest-growing economies.

With growth, however, come risks and challenges.

Guinigundo said the challenges are domestic and global risks such as large infrastructure gap, high inflation, trade conflict between the United States and China, geopolitics in the oil industry, and normalization of the US monetary policy.

In response, the official added, the Philippine economy has built domestic sources of resilience as a buffer against external and domestic challenges.

He also highlighted the country’s improving debt profile, which is going down to $72 billion compared with its highest record of $80 billion from 2011 to 2012.

He assured that the Philippines is far from falling into a “debt trap” even as the government continues to borrow additional funds from other countries to realize the various programs of the Duterte administration.

“We are not into that trap because before we go into one loan we examine the feasibility and the financials of each project. There is a careful due diligence (study) of external debt whether it’s coming from Japan, China, or other bilateral sources,” he emphasized.

Investors’ requisite

Seeing the Philippines as an emerging robust economy, international investors are keen on investing in the country among other Southeast Asian nations, an executive from PricewaterhouseCoopers (PwC) Philippines said during the forum.

In her talk titled “Deal or No Deal: What Investors Look For,” Mary Jade Roxas-Divinagracia, PwC’s chartered financial analyst, deals, and corporate finance managing partner, said, “The Philippines remains to be an attractive investment destination—even considered by most investors operating within the Asean region as one of the ‘VIP’ economies.”

According to the results of PwC’s Investors Pulse Survey, the other VIP countries are Vietnam and Indonesia. The survey shows that about 75 percent of financial investors put top priority on the three countries.

“Even if these countries are emerging economies and have a lot of business risks, investors see (in them) a tremendous amount of opportunities,” Roxas-Divinagracia said.

She also pointed out that the three countries have the biggest populations in the Asean region, responsible for about 72.5 percent of the region’s overall population of 500 million.

Roxas-Divinagracia cited huge domestic consumption, strong economic growth, improving infrastructure, high disposable income, and young and English-speaking population among other top reasons that investors choose the Philippines.

“Middle age for Vietnam and Indonesia is around 39 years old while in the Philippines it is just 23 years old. This means that at least 50 percent of the population of these three countries would be of that age that they can be molded and trained to actually adapt to the new jobs that would be demanded for the fourth industrial revolution,” she added.

On the other hand, investors are concerned about corruption, competition, finding the right business partner, political uncertainties, poor corporate governance, and foreign exchange volatility in the country.

Roxas-Divinagracia, however, remains positive that the Philippines will continue to become a competitive investment hub in the region.

“The Philippines should continue to pursue reforms involving foreign ownership limitations, taxes, human capital, research and development, and information technology,” she advised.

Optimistic outlook

The Philippine Stock Exchange (PSE) is optimistic in bringing in more market investors in 2019 as its top executive cited as plus factors the country’s economic fundamentals and expectations of lower inflation, among other indicators of growth.

“When your exchange rate is volatile, foreign investors are apprehensive to invest in your market,” PSE President Ramon Monzon stressed in his talk during the forum.

He said since the start of 2018, the PSE index (PSEi) has been experiencing unrest, dipping further as the year progressed brought about by both domestic and global developments, recording a high of 9,058.62 on January 2018, and dropping to 6,843.33 according to its recorded close.

On Nov. 20, however, the index managed to close at 7,302.94 after a 2.6-percent surge on Nov. 19, owing to the arrival of Chinese President Xi Jinping, gaining 0.45 percent or 32.68 points.

Moreover, the Philippine peso gained 18 centavos on Nov. 2, closing in at P52.39 against the US dollar, after falling to a record-high of P54 to $1 in the past months.

With this, Monzon sees lower global oil prices, subsequent domestic pump price reduction, the peso’s strengthening pace against the dollar, and he listed firms’ strong results in the past nine months as “hopeful signs” of a growing economy.

“Oil prices have gone down, (tariff) on rice has been approved, President Duterte has suspended the imposition of excise tax on oil for January—so these are good indicators that inflation is now under control and, in fact, it’s reflected in the forex bills,” he said.

High-value products

After recording a double-digit growth in 2017, producing high-value products could help stimulate further growth in the manufacturing sector, a Board of Investments (BOI) official said during The Times’ 8th Business Forum.

In her talk titled “PH Manufacturing: The Resurgence,” BOI Executive Director Ma. Corazon Dichosa pointed to the medium and high technology sectors in manufacturing as the record holders of the double-digit growth.

“If you look at these sectors with double-digit growth, (you will see) these are the medium and high tech sectors,” Dichosa said. “These are the sectors that can provide high-quality income for Filipinos.”

Notable in these sectors are non-metallic mineral products, which grew by 22 percent; petroleum and other fuel by 13 percent; furniture and fixtures by 20 percent; transport equipment by 12 percent; and radio, television, and communication equipment by 12 percent.

“That means we are capable of doing high-value products. If we have this capacity, we can actually develop these [sectors] and grow these more by a lot of government intervention with the help of the private sector,” she added.

Dichosa also said that the BOI and the Department of Trade and Industry (DTI) are currently implementing a new industrial policy dubbed Inclusive Innovation Industrial Strategy, or i3s, to help spur growth in these sectors.

The i3s aims to grow innovative and globally competitive manufacturing, agriculture, and services while strengthening linkages with domestic and global value chains.

Dichosa said that the policy focuses on five major pillars: new industries and clusters, human resource development, helping MSMEs (micro, small, and medium enterprises), pushing for innovation and entrepreneurship, and promoting ease of doing business.

Moreover, Philippine Statistics Authority (PSA) data show that the manufacturing sector went up by four percent as of the third quarter of 2018, and continues to be one of the main driving forces of the growing economy.

Trabaho transition

In light of the government implementation of the Tax Reform for Attracting Better and High-quality Opportunities (Trabaho) bill, the Philippine Economic Zone Authority (PEZA) seeks the approval of the Department of Finance (DoF) for a 15-year transition period.

Speaking at The Times’ Business Forum, Emmanuel Cortero, an engineer and manager of the Ecozone Development Department of PEZA, announced PEZA’s proposal of a 15-year transition period, that, he hoped DoF would permit.

“We wanted our locator companies to actually have that grace period to do their financial projections because they have their five-year financial projection,” Cortero explained.

“If that [Trabaho bill] will be implemented, then operations of companies will be derailed,” he said.

Under the bill, corporate income tax will decrease by 10 percent, from the current 30 percent to 20 percent, as well as remove the five percent tax on the Gross Income Earned (GIE) currently beneficial for PEZA locators.

In addition, Cortero said PEZA is pushing for the authority to become a separate customs territory.

“If there’s an economic zone proclaimed by the President, it becomes a separate customs territory,” he explained.

Improving mobility for a strengthened economy

Finding solutions for the worsening traffic in major thoroughfares would boost economic growth to about 8 percent, a mobility speaker said in the business forum.

Robert Siy, a development professional and columnist of The Times said in his talk titled Investing in Inclusive and Sustainable Mobility: “Today we have a GDP growth of 6 plus percent. With better mobility, we can add two percentage points to that…I see Filipinos becoming more creative, productive and certainly, this is the good news that we must meet.”

Siy added that transportation initiatives under the Duterte administration’s Build, Build, Build program are not sufficient to realize improvement expectations.

He aspired for a fast and reliable public transit, such as the transportation systems in Japan, to lessen the private vehicle volume which is a major cause of the traffic jam.

Siy pointed out that present-day daily commute takes up three to six hours on the road. He said that aside from the government ’s infrastructure initiatives, one other solution to the traffic mess is to encourage the public to take cycling and walking as alternatives.

“If we invest in sustainable mobility, we will actually get significant returns … [such as] more efficient movement of goods and services. People will be healthier and happier, become more productive. We will have a higher growth trajectory,” Siy concluded.

State of the real estate

A growth in the number of real estate, residential, office, and commercial spaces is seen as a sign of improvement by a real estate speaker at the recently concluded forum.

Sheila Lobien of the European Chamber of Commerce of the Philippines gave an update on the country’s real estate market in her talk titled “The Philippine Real Estate Industry: Interesting Times Ahead.”

“I always see it as one of the best indicators of a growing economy—the office space take-up in the market… when there are companies taking spaces that means there’s confidence in the market—companies are investing, and jobs are being created,” Lobien said.

Forecasts for 2019 show the Philippines growth percentage at 6.6 percent, getting near to India which records 7.5 percent.

Lobien predicts that the country will finish the year at about 6.4 percent—second to Vietnam.

BSP data shows a steadily increasing rate in various sectors— from foreign investments to employment.

The industry expert pointed at two key factors of growth: the GDP from construction and BSP’s loan for real estates.

“From 2016 up to today, GDP from construction (has been) going strong, going up… So, for the last 10 years we’ve seen, at the commercial front, a 600 percent increase from 2008 to today, and in the residential market—450 percent.”

Meanwhile, from 2015 to present, the demand for office spaces has increased, with more than one million square meters released in 2017. This developed after Chinese companies and business process outsourcing industries emerged in the Philippines.

Developers have also been moving outside of Metro Manila to bring urbanization outside the very compact CBD (central business district).

Provincial areas, according to Lobien, are seeing improvement and growth owing to developers building spaces in the area, mostly driven by the BPO industry. Mixed-use areas are gaining a steady demand as well.

“(We have a) big population, more than half of that in the labor force […] that’s why a lot of the investors are curious about the Philippines. They really want to set shop here—start in Manila and grow from there.”

Substantiating their forecasts with facts and figures, the experts see a bright future for the Philippine economy in 2019 and beyond.