Economic Data Investment News Analysis

Land of the rising regions

Among newly industrialised countries (or, NICs), the Philippines is gathering momentum. Within this group – Brazil, China, India, Indonesia, Malaysia, Mexico, South Africa, Thailand and Turkey – the Philippines is posting some impressive scores. Its gross domestic product growth (GDP) at 6.8%, for example, is second only to India’s 7.1% and could possibly outstrip India this year.

But it’s what’s behind the figures that colours out the picture. There’s a new energy in the country – and this time it’s not just around Manila and the National Capital Region; it’s not just the tired old players. It’s countrywide. Every region wants in on the act and this time around they believe they have a good shot.

The reason for that is that the economic direction of the country is being radically changed. What’s taking place in the Philippines is an historic event. In its own way, the opening up of the country now underway, by directing investment to the regions, by moving the political accent away from the capital, is as significant as China’s ”Open Door Policy” of 1978 or Vietnam’s Doi Moi (Reconstruction) of 1986. The scale might be different but the impetus is not. And while on the surface it might appear more domestic than international, the shifting of the plates of the Philippine economy are set to rumble through Southeast Asia and beyond.

This is nation building like the Philippines has never witnessed before – and it’s why nerves are raw in certain quarters. The status quo is falling away and to some that’s not a welcome change. They want business as usual; to control economic development in the Philippines as they always have done. To keep the economic power at the centre; to contain that of the provinces and the regions. They want to remain big fish in a small pool and not become medium-sized fish in a much bigger pool – one open to foreigners who’ll threaten to reduce consumer costs putting pressure on their bottom lines as they raise competition.

In the regions they know that President Rodrigo Duterte is committed to spreading around the wealth. They know, like he does, that they have a lot to offer; that they can make major contributions to the national economy while individually developing their own. They know that if they’re given the chance they can move this NIC economy closer to a developed one. And quickly.

Part of all this is in line with the government’s socio-economic agenda which seeks to spread wealth and the opportunities for acquiring it right across the archipelago – to all 18 regions (17 administrative, one antonymous) by flowing in investment to the provinces like never before. But it’s also to tap the country’s huge potential – both its human and natural resources – that will build the Philippines into the economic powerhouse it could have been many years ago.

A Tiger Cub economy, it lost out to being a full-grown Tiger like Hong Kong, Singapore, South Korea and Taiwan, but it always had claims. And part of this failure to reach Tiger adulthood was that the huge store of latent wealth in the regions was left to languish there. It was never properly tapped – nor was the human energy, the labour pool there; the entrepreneurial skills. That’s why so many – millions and millions of them – forsook the provincial towns and swelled into the capital, Manila. This was an endless tide of human desperation – a quest for jobs and the prospects, often dashed, of a better life.

Manila has always been the business story, possibly occasionally Cebu – but not the further flung reaches of the rest of the country that rests on 7,000 islands. That never rated much coverage. Nothing was happening of much significance – the odd new power plant; a new resort build – nothing to get excited about though. Makati, the central business district of Manila was virtually the sole focus.

And so, despite its economic credentials as a founder member of the Association of Southeast Asian Nations (Asean), the Asia Pacific Economic Cooperation, and the East Asia Summit, economically the Philippines has lagged behind most of its peers in those organisations. While many of them pushed economic development – in Asean, Thailand and Vietnam spring instantly to mind – by galvanising the rest of their territories, the Philippines’ efforts in that respect were relatively muted.

All this is now changing. Duterte is firmly in the driving seat and he’s steering the economic engine to all parts of the country, eventually allowing the regions to become viable economies in their own right. Infrastructure spending in the regions over the next five years is going to be in the mega billions. Energy-sufficient ‘smart cities’ will emerge; road, rail and air linked. Industrial parks will spring up everywhere. Agriculture will become more industrialised. And once all this is up and running, there’s every chance that the human wave that swept from the provinces to Manila will reverse its flow.

But there’s another part to this story and one which largely explains what’s also behind Duterte’s Doi Moi – why he’s propelling it. And that’s his plan to create the Philippine Federation – to replace the present unitary system of government with a federal one. This is a long-standing ambition of the president and, aside from drastically reducing poverty levels – which he also believes this changeover will assist – making federalism a reality is probably the biggest goal he’s set himself.

And certainly, under that system the potential of the regions will be unleashed at a pace. Not only will they be developing and expanding their own economies but they’ll be competing with each other for investment and assistance packages in a free-market spirit that has never existed in the Philippines on this scale before, or anything approaching it.

There’s a long way to go before federalism can be introduced to the republic – a full proposal of the system needs to be worked out through deliberations with many sectors and many varied interests; a Constitutional Assembly needs to be convened to discuss the proposal and hammer out the terms; then it needs to be put before a plebiscite for ratification by the people. All being well, this could happen in time for the mid-term elections in 2019.

The shape of the Philippine Federation no-one knows right now, but possibly it will comprise 12 states – 11 federal and one federal administrative region. Geography will be a factor in determining the states’ boundaries – as will economics, with lower-income areas grouped where possible with wealthier ones. Dialect, religion and tribal culture will also need to be taken into account.

And so, while all that’s going on in the background, the regions will continue to be opened up and be ready to provide the building blocks for the country’s federal future.

What will emerge from all this is a whole new generation of businesses and corporations – one’s with head offices in unfamiliar places. They won’t be on Ayala Avenue or elsewhere in Manila’s Makati; they’ll be on streets in the business hubs of the new state capitals.

Investors then need to take stock of what’s happening in this country or they’ll miss the boat completely. There’s a long-term plan here which can more or less be mapped by joining up the dots – by listening to what ministers in Duterte’s Cabinet are saying; by not listening to the doomsayers who continue to pursue their political agendas; by studying the government’s sector priorities, by getting a feel for the new energy that permeates commerce in this country; by tracking the upwards swing in exports; by looking at the current investment interest, by watching where that investment is being directed, among other things.

Two days ago, Bangko Sentral ng Pilipinas (BSP), the central bank, announced that foreign direct investment (FDI) in 2016 had risen 40% year on year – from US$5.7 billion to US$7.9 billion, a staggering increase of 38.6%. It even surprised the BSP, coming 17.9% above its FDI target for the year of US$5.7 billion.

When we compare the Philippines with that group of NICs we mentioned earlier – Brazil, China, India, Indonesia, Malaysia, Mexico, South Africa, Thailand and Turkey – its prospects look good. It’s located in one of the fastest-growing regions of the world, Southeast Asia. And in that region it has the largest working-age population (15-64 years) of any country. At 66.6% it’s even ahead of Indonesia which has a total population which is 155% bigger than the Philippines’ 103 million. Furthermore, the Philippines is going to sustain that workforce strength for more than a decade. In the next 13 years, the size of the country’s working-age demographic is projected to increase to 68% by 2020 and grow to 70.6% by 2030.

In 2011, Citigroup put out a report entitled “Global Growth Generators: Moving beyond ‘Emerging Markets and BRIC” (the acronym for the Brazil, Russia, India and China economic bloc). The report identified Asia and Africa as the fastest growing regions, driven by population and income per capita growth, and listed 11 3G countries of which the Philippines was one. The two others from Southeast Asia were Indonesia and Vietnam. And among the key reasons for the Philippines inclusion was its large young population; its tremendous asset in human capital.

That capital, along with investment dollars which are now building, is what will establish Duterte’s Doi Moi. This is no pipe dream; this is now moving along the pipe line. It’s happening and it’s happening at an increasing pace. Certain interests in Manila may not be happy with this development but they’re going to have to adjust. The regions are set to become the new centre.