Investment News Analysis Trade

Druganaut, Philippines bound

Indian pharmaceuticals investing in Philippines

India, the world’s seventh largest economy, is exploring opportunities for its companies to set up in the Philippines – specifically, in the world’s most profitable industry; the druganaut, pharmaceuticals.

Discussions are already advanced between the Department of Trade and Industry and India’s Ministry of Commerce to establish a “pharma zone” in the archipelago – an industrial park facility in which Indian pharmaceuticals companies could manufacture their products for both the domestic Filipino market and for sales overseas.

In principal the two sides seem to be equally keen on reaching an agreement. The idea came out of bilateral trade talks last year. Following on from those a joint working group was formed to study the proposal, and as far as we can tell there have been no objections to the initiative; everyone seems to be on board.

Currently, India is the Philippines 16th top trading partner and its 13th largest source of foreign investment. If this project gets off the ground, however, it could be moving up those rankings. To date, Indian companies in the Philippines are engaged in commercial trade and services such as in the Philippines booming business process management sector. They have no manufacturing presence.

Pharmaceuticals – Big Pharma as it’s often known – is hugely lucrative. Last year, yet again, it topped the list of the world’s top 10 most profitable industries. In research compiled for Forbes magazine by multinational financial-data company, US-based FactSet Research Systems, Big Pharma produced net margin profits in 2016 of 30% for generic or copies of brand-made drugs and 25.5% for brand-made drugs. By comparison, the tobacco sector notched up net profits of 27.2%; IT services, 23%, and major banks, 22%.

Indian pharmaceuticals companies in a future Philippine pharma zone would be involved in making generic drugs of which Filipinos are large consumers. But the Indians will also be looking to penetrate other markets in the region – those of the other Association of Southeast Asian Nations (Asean) states where they can benefit from low tariffs by shipping from the Philippines.

Greater access to Indian trade and investment would also mean greater traction for the Philippines within the BRICS – the trade block, comprising Brazil, Russia, India, China and South Africa. China and increasingly Russia are pursing stronger trade ties with the Philippines following President Rodrigo Duterte’s political swing away from its traditional partner, the US, shortly after taking office last July.

These three countries, China, India and Russia are all members of the ‘Trillion-Dollar Economies Club’. Last year, based on their gross domestic product, the metric by which a country’s economic health and size is gauged, they scaled out as follows: China, US$11.3 trillion; India, US$2.25 trillion; Russia, US$1.26 trillion.

Given Duterte’s geopolitical realignment of his country away from the West – specifically away from the US and the European Union – India would seem to be a logical addition to the nexus he’s forming.

So far he’s concentrated on East and Southeast Asia – China, Japan, South Korea and the Asean countries, a grouping of which the Philippines is a founder member. Russia is also very much part of this grouping, with some 60% of its territory in Asia – everything in fact east of the Ural mountains, the dividing line between Asia and Europe.

South Asia, then – the entire Indian Subcontinent comprising India along with Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka – would complete the geopolitical jigsaw and swell the Philippines’ family of friends considerably as well as massively multiplying market potential for Filipino products.

India currently has a population of 1.34 billion people and is expected to overtake China’s population – now at 1.39 billion – by 2022, just five years away. Like China and the Philippines, it too is an emerging market (EM) and shares the same EM problems in competing in the globalised world, the rules and regulations of which have been determined by the developed world.

In the bid for trade and opening up new markets, cheap manufacturing bases, along with fast, efficient and cost-effective product distribution are the name of the game. The Philippines has the potential to supply much of this and more so as it countries to industrialise under the government’s economic plan. It’s one of he main reasons for Duterte’s clear focus on infrastructure spending – Bumps in the road and Boost to build big, build far.

Economically then, expanding trade and investment ties with India makes a lot of sense. But politically too, forging closer foreign relations between them looks to be a sound move. Like the other members of the Duterte envisioned nexus, India has been traditionally reluctant to do the West’s bidding.

Historically – and to some extent ideologically – it’s always been in the Russian camp. During the Cold War Years, 1947 to 1991, it was a strategic, military, economic and diplomatic partner of the Soviet Union which the Russian Federation replaced. If anything, today that relationship is even stronger with the two fellow BRICS members having set a bilateral trade target for 2025 of US$30 billion.

But there’s further synergy not least in the areas of trade and civil liberties. Like the Philippines, China and Russia, India also has strong reservations over US, European Union (EU) and United Nations interference in its internal affairs.

In 2015, India claimed that human rights, such as LGBT rights, were being used by the US and the EU as “instruments of foreign policy”. Under the Indian Penal Code, for example, homosexuality is illegal in India. Then, in 2016, then-US president Barack Obama decided to provide Pakistan – a country with which India is regularly close to a state of war – with nuclear-capable F-16 fighter aircraft plus other sophisticated military hardware.

While the Indian Government summoned the US Ambassador to India to express its disapproval, Congress Party of India member, Shashi Tharoor, said that “continuing to escalate the quality of arms available to an irresponsible regime that has sent terrorists to India, and in the name of anti-terrorism, is cynicism of the highest order”.

Furthermore, Duterte shares Indian Prime Minister, Narendra Modi’s view that regional powers should expand their influence and no longer be left on the periphery of global decision making.

The two men also share a personal experience of American foreign policy. In the past, both have been denied visas to travel to the US; both on the grounds of alleged human-rights abuses. In Duterte’s case the refusal related to extrajudicial killings which he’s alleged to have condoned during his terms as mayor of Davao City in Mindanao; in Modi’s case for his alleged role in the 2002 riots in Gujarat when he was chief minister of that state.

Holistically, a closer tie-up between these two countries makes a lot of sense. For India, the Philippines, apart from providing an offshore manufacturing and distribution base along with a market for its pharmaceutical products, also provides a gateway to the nine other markets of Asean.

For the Philippine, apart from benefitting from inward Indian investment including greater job creation, and expanding the potential for Philippine exports by bringing the vast India market into closer reach, it will provide it with greater political clout by having a voice in a wider Asian chorus. And for Duterte, replacing the illegal drugs industry in his country – which his War on Drugs is determined to do – with a legal drugs industry would be a coup.

Facebook Comments