Fundamentals Are Firm

Fast-tracking Growth in the Philippines over the Next Five Years

The Philippines, Southeast Asia’s top economic performer, has finally begun to reveal its potential and display the dynamic growth to come over the next five years.

Growing at over 6% per annum, analysts see 7%-8% as reasonable in the medium term provided the Philippines continues to ramp up infrastructure spending, energy supply and investment rate while de-bottlenecking business processes and reducing red tape.

“It was unthinkable seven years ago but the Philippines is the best economy in Southeast Asia today,” said Oxford Business Group (OBG) Managing Editor Paulius Kuncinas at a news conference earlier this year. “Investors no longer ask why but where and what sectors they should invest in.”

The past few years have given investors ample reason to be optimistic as the economy has been consistently growing above 5%. Since 2008, the Philippine Stock Exchange Index has nearly doubled from 3600 to 7000 and Foreign Direct Investment (FDI) has tripled in the same period from $1-2 to $6 billion.

As the new administration looks to attract more investments and accelerate infrastructure spending, the latest growth figures continue to exceed expectations.

The Philippines has a lot going for it. A large, young (average age of 23), growing population of proficient English-speakers has attracted the global business processes outsourcing industry like French call center operator Teleperformance who has created 42,000 jobs and plans further investment; top financial institutions such as HSBC have also joined the trend.

Rising household incomes and growing domestic consumption combined with low commodity prices and strong foreign direct investment (FDI) are offsetting concerns about slowing global economic growth.

With macro-economic policies, particularly the focus on infrastructure, getting green lights from the likes of JP Morgan, the country’s account surplus, reserves and robust banking system are hailed for mitigating downside risk.

It’s all about expansion as the Philippines strives to become a middle-to-upper-middle income country and there are numerous sectors to watch. While key drivers have thus far been IT-BPO, tourism, retail and construction, the next wave should also see significant growth in agriculture, food-processing, manufacturing, energy, ICT, banking and property.

“The economic agenda is broader and will open up new opportunities in the countryside with a stronger push for infrastructure projects and increased support for agriculture, a sector that provides for about 50% of the population,” says SVP for Investor Relations and Corporate Communications Cora Guidote at property, retail and banking leader SM Investments Corporation (SM). Currently, robust fixed asset investment growth indicates policies are working and accelerating investment growth is a strong sign that local people see it worthwhile to invest in their own economy.

The country’s status as a sound financial hub is further solidified with the island nation’s ability to effectively deal with debt and the country’s ability to raise capital in the bond market fuelling growth and solidifying its reputation as an issuer of sovereign bonds.

Such a sound economic foundation allows the Philippines to enjoy close trade links with the rest of Asia, the world’s fastest-growing region, and the manufacturing sector is set for significant further growth with semi-conductors, consumer goods, automotive and pharmaceuticals leading the way as groups like Toyota Japan increase production and localization.

Meanwhile, micro-economic policies are swinging decidedly pro-development. “There is a greater emphasis on de-bottlenecking business processes as they’ve started to significantly reduce red tape and stamp out corruption in the bureaucracy. A tax reform agenda is also being crafted that aims to rationalize income taxes and reduce corporate tax rates, among others,” confirms Guidote.

Areas that were previously slow to develop, like agriculture and small-to-medium size enterprises, are now slated to receive more support, which is good news for both rural dwellers as well as entrepreneurs and start-ups.

And while the most focus in recent years has been on the Metro Manila area, as infrastructure ramps up and incentives kick in, both the Visayas and Mindanao regions, home to large segments of the population, should become more powerful drivers of growth.

Over the next half-decade, sentiment will continue to remain high, topped by President Rodrigo Duterte’s outreach to regional powerbrokers such as Russia and China that will only add confidence into one of the fastest-growing economies in the world. This leaves investors optimistic that now is the time to invest in the Philippines.

Source: Wall Street Journal By Brandon Zatt / Advertorial