Economic Data Government Investments News Analysis

As a matter of fact …

a report released less than a week ago by the US State Department’s Bureau of Economic and Business Affairs entitled,” Investment Climate Statements for 2017" was extremely bullish about the Philippines as an FDI destination
a report released less than a week ago by the US State Department’s Bureau of Economic and Business Affairs entitled,” Investment Climate Statements for 2017" was extremely bullish about the Philippines as an FDI destination

The picture for investment in the Philippines looks increasingly bullish – despite the backdrop of the Islamist insurgency presently raging in Marawi City, Lanao del Sur on the southern island of Mindanao; despite too, the cloud of negative publicity which the government and its president, Rodrigo Duterte, have been under for most of the past year. Despite all that, according to recent barometric readings, the country’s investment climate looks bright.

Right now, the Board of Investment – an agency under the Department of Trade and Investments (DTI) – believes that approved pledges could hit PHP500 billion for 2017. If they do, that will be a 13.7% leap from last year’s PHP441 billion. Fingers crossed, then, cash flowing into all sectors of the economy could climb to record highs this year.

It’s certainly on the way. Just-released DTI data show a 17% rise in investments to PHP78.94 billion in the first quarter of the year as business confidence edged up by 4% from May to June.

But it’s not just business confidence that’s climbed; consumer confidence has too. And dramatically. In the last three months it’s reached a record peak of 13%; up 4.3% on the previous quarter. That contributes to an average rise of a positive 8.37% for each of the past four quarters – July 2016 to July 2017 – all of them giving plus readings.

The results, then, are further evidence that Filipinos believe in the effectiveness of the government’s policies which in turn reflects on the president’s high-performance ratings. 
Let’s put that in perspective. Over the previous year – July 2015 to July 2016 – the Consumer Expectations Survey Indicator recorded an average quarterly confidence rate of negative 7.95%. That translates into a spread increase over the past 24 months of 16.32%.

This confidence is based on the perception by Philippine households that the country’s outlook is positive in key areas such as peace, law and order, business activity, employment prospects and wages. The results, then, are further evidence that Filipinos believe in the effectiveness of the government’s policies which in turn reflects on the president’s high-performance ratings.

What they also do, is put the lie to doom-and-gloom reports issued by the likes of Anders Corr, the founder of New York-based ‘research provider’ Corr Analytics. Writing in Forbes magazine on 13 May, he cautioned: “the Philippines is at a crossroads”.

Evidently no fan of Duterte, he proceeded to pour scorn on the president’s US$24 billion investment-pledges bonanza which the president picked up during his state visit to China last October. Part of this money – US$11.2 billion worth – has already been earmarked for large, much-needed infrastructure projects; everything from sea ports to rail networks, energy projects to mining.

According to Corr, however, it’s nothing of the sort. He believes it’s basically a scam to offload Chinese industrial capacity and rip off the Filipino people for billions of dollars from loans at “unknown interest rates” set by Beijing. He claimed this would be “costly infrastructure for which no proper cost-benefit analysis has been done … The Philippine people must be forewarned about the dangerous China deal,” he wrote.

Naturally, he didn’t offer any evidence to support his claim – that, though, seems to be the new normal for press reports emanating from the coastal US. We can assure him, however, that the Philippine financial team under Finance Secretary, Carlos Dominguez, and the investments team under Ramon Lopez, will not have had the wool pulled over their eyes by anyone in Beijing. They’ll have done the ‘cost-benefit analysis’ down to the last centavo.

These are extremely capable and well-qualified individuals who will not be making any deals that are not beneficial to the Philippine people. And to suggest they would – that somehow they’re not up to the job – is rather insulting to put it mildly. 

This pours cold water on predictions that Duterte’s policies would stifle employment by deterring investment – both domestic and foreign. It looks very much like the reverse is happening.

To get back to the present, it’s also been better news for jobs, with the unemployment rate falling by 0.9% to 5.7% in the April-June quarter, compared to the same period last year. This gives a three-month average of 5.60% unemployment over the past 12 months, against 5.98% for the previous 12 months. Over the past 24 months, then, the unemployment rate has diminished by 0.38%.

Of course, there’s a long way to go; but what these numbers show is that things are progressing in the right direction. This pours cold water on predictions that Duterte’s policies would stifle employment by deterring investment – both domestic and foreign. It looks very much like the reverse is happening.

We recall the warnings, for example, issued by the American Chamber of Commerce in the Philippines (AmCham-P) at the end of last year and the beginning of this one – all debunked by The Volatilian™ as baseless nonsense that had more to do with the Chamber’s views on Duterte’s War on Drugs than on any serious economic research.

According to them then, the country’s business process outsourcing (BPO) industry was set to reap the whirlwind from the drugs war with US investment pulling out big time. “[AmCham-P] voices growing concern over developments that could harm the long-standing optimism of American business to invest in the Philippines’ … [because] Duterte’s War on Drugs and the death toll associated with it was damaging the country’s image”.

American investors – whether in the BPO sector or anywhere else – who ignored that warning have been vindicated and are probably sighing with relief they didn’t heed it. Last month, ING Bank Manila’s senior economist, Joey Cuyegkeng, forecast that BPO revenues would grow this year by 16% kicking in around US$24 billion.

Ironically, a report released less than a week ago by the US State Department’s Bureau of Economic and Business Affairs entitled,” Investment Climate Statements for 2017″ was extremely bullish about the Philippines as an FDI destination.

Here’s what it said: “The Philippines is becoming a more attractive destination for foreign direct investment … [with top executives regarding the Philippines as] “among the most promising host countries [for FDI] … The country’s middle class is growing and Filipinos quickly spend disposable income in a fairly stable political environment”.

Coming from that quarter, that’s a resounding endorsement for this administration. We can only presume the US State Department didn’t resort to AmCham-P for its intelligence before writing that report; not would it seem did it avail itself of Mr Corr’s Philippine insights.

The MBC – say what you want about them – but they know how to read this economy as well as anyone. It looks like they were right on the money.
It may, however, have tapped into remarks made in mid-March by the Makati Business Club (MBC) – a private-sector think tank comprising some 800 C-Suite executives from across the Philippines’ corporate world.

Following a members’ survey, the MBC released some bullish remarks. “On investments for 2017,” read its statement, “the projection remains bright. A positive outlook remains in terms of corporate performance for 2017…”

The survey showed that “a large majority” of those polled projected both gross-revenue and net-income increases for their companies this year. Around 74% said they’d be making additional investments in the coming year; while 51% or respondents said they’d be increasing the size of their workforces.

The MBC – say what you want about them – but they know how to read this economy as well as anyone. It looks like they were right on the money.

And so it’s investor optimism which is leading these results. From January to May this year, total pledged investments with the BOI increased by 25% to PHP174.47 billion year-on-year. This comes on top of the news that net FDI inflows leapt to US$7.93 billion in 2016 – a 41% jump from the US$5.64 billion generated in 2015.

Furthermore, foreign investment in the second half of 2016 practically doubled that of the first half. That, says the DTI, is “a clear indication of the growing foreign investor confidence in the country’s sound economic policies and attractive business environment.”

The DTI also shows where the money’s going. Among the sectors that have received approved investments – some 218 projects to date; expected to create 51,847 new jobs – are: PHP48.47 billion, construction/public-private partnerships; PHP28.31 billion energy projects (renewable and power); PHP15.75, manufacturing.

Those destinations, however, shouldn’t come as any surprise – they’re among areas identified in the government’s 2017 Investments Priorities Plan (IPP) which was approved by Duterte at the end of February and put into effect on 18 March.

The thrust of the IPP is innovation and job creation across all sectors from agriculture to industry to services. It seek to prioritise a resurgence in manufacturing; offers a stimulus to environment and climate-change initiatives and a boost to the drug-rehab building programme as well as delivering cash resources everywhere from tourism to information technology.

Taking as its theme, “Scaling Up and Disbursing Opportunities”, the IPP’s overriding goal is to make inclusive growth a reality, in line with the government’s socio-economic agenda. This administration is determined there will be a trickle down from economic growth.

This then makes for refreshing reading and shows that the Philippine economy is on the right track. It might take some time before the new infrastructure starts to takes shape in a comprehensive national sense. But once it does, and as it continues, the benefits to the country and its people will be felt at an ever-increasing rate.

We also predict that by the end of Duterte’s presidential term in 2022, FDI to the Philippines will have reached its highest level in history, as well as achieving its highest FDI ranking in the 10-member Association of Southeast Asian Nations where it’s badly trailed the major emerging economies for decades.

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