Investment News Analysis

Spreading around the cash

2018 Investment increase BOI DTI Ramon Lopez

Here’s a number to conjure with – 538%. That’s the increase in investment pledges approved by the Philippines’ Board of Investments (BOI) in January compared to January last year. In hard money terms, in January 2017 the BOI notched up PHP8 billion worth; last month that figure ballooned to PHP51.3 billion. With fund flows at 6.4 times greater, to put it mildly, that’s a massive leap.

For BOI chairman, Trade Secretary Ramon Lopez (photo), this result is both a vindication of the government’s often much-maligned economic strategy, the reform policies of President Rodrigo Duterte, and is a resounding endorsement by the investment community.

Here’s what he said: This reflects the strong confidence on the Duterte administration and all the positive reforms and programmes being undertaken that created a sustainable growth momentum moving forward. This is the economic breakout we have been working for”.

Furthermore, this puts the BOI firmly on track to meet its investment-approvals target of PHP680 billion by the end of the year – outstripping the record-high PHP617 billion in investment approvals achieved in 2017. If this holds true, it’ll mark an increase of 10.2% year-on-year.

What’s also interesting is where these funds are going – both in terms of geographically and sectorally. This clearly shows where the government is focusing its development plans. Here’s a breakdown of that.

First, geographically. Some 78% of all approved major projects for January go to the provinces – Cavite in Luzon, six projects valued at PHP17.9 billion (39.9% of the total); Davao City in Mindanao, two projects, together worth PHP13.6 billion (26.5%), and Nueva Ecija, Luzon, P8.6 billion (16.8%).

Clearly continuing last year’s trend of dispersing investments to the provinces, these disbursements are in line with the Philippine Development Plan (PDP), approved by Duterte 12 months ago. The PDP is the National Economic and Development Authority’s medium-term economic blueprint which aims to boost development spending in rural parts of the country.

These are the parts which traditionally have starved for investment and have never been allowed to realise anything like their output potential. Between 2010 and 2015, for example, more than 60% of the country’s gross domestic product was generated by the National Capital Region of Metro Manila and its immediate area.

Righting this hopeless imbalance which has squandered untold rural resources, leaving agriculture lingering while abetting chronic rural poverty, lies at the heart of the Duterte administration’s socio-economic agenda. The country’s economic planners also know that sustainable growth can’t be achieved without the full involvement of the provinces.

Secondly, the sectors. The lion’s share, PHP27.43 billion – 53.5% of the total – will go to renewable-energy projects. This is very much in line with the administration’s commitment to pursue low-carbon economic development by bolstering its renewable-energy sector. The target, set back in 2011 by the previous government, was to produce 15.3 gigawatts (GWs) of renewable power by 2030.

That may be a little ambitious, but the Philippines has among the most aggressive renewable-energy policies of anywhere in Southeast Asia. It also has the infrastructure underway to produce 5GWs of wind, solar biomass, geothermal and hydro-electric power.

Although the Philippines remains dependent on coal for the bulk of its energy production – and will for some time – it’s far from being a global carbon polluter. According to a World Energy Market Observatory report released last year, it contributed just 0.4% to world wide carbon emission in 2016. But in any case, building up its renewable-energy sector makes sound economic sense.

For one thing, it’s another string to its bow – it means that it won’t be wholly dependent on the costly importation of coal to feed its coal-fired plants. But it’ll also help the Philippines to realise its electrification ambitions – to bring more-reliable electricity services to remote villages, for example. There’s no question, the Philippines is well positioned to reap the benefits from these alternate energy sources and so it’s not too surprising that a large piece of these investment pledges are being directed there.

In a separate report last year, Adnan Amin, Director-General of the International Renewable Energy Agency said this: “The Philippines’ more than seven thousand islands hold great renewable energy potential that includes solar, wind, hydro, bio-energy, and geothermal resources … the country is in a strong position to reap the socioeconomic benefits of renewables and grow the Philippines economy”.

He added that renewable energy can help the country achieve greater energy security.

The next biggest investment recipient was in the area of water supply and distribution – another of the administration’s top priorities. That received PHP13.67 billion, or 26.64% of the total.

Oddly enough, despite the tremendous amount of rain deposited on the Philippines from tropical storms and typhoons throughput the year, many places regularly suffer water shortages – particularly in the south of the country.

A study by the United States Agency for International Development (USAID) in late 2015, showed that every major Philippine city will face some degree of water shortage by 2025. The USAID findings were endorsed at the end of 2016 when the Asian Development Bank released its own study – Asian Water Development Outlook 2016 – which concluded that the Philippines would face water shortages for everything from drinking and sanitation to agriculture and industry, within 10 years.

In other words, this isn’t a cosmetic problem; it’s serious – and the Philippines has been taking it seriously. In 2013, the archipelago scored 35 on the 0-to-100 scale for ‘national water security; in 2016 it had achieved a score of 40.4. And the fact that such a big lump of January’s pledged investment is going to water-supply and distribution projects shows that the administration is determined to raise the level of the country’s water security.

After all, this doesn’t simply affect human needs – water supply directly impacts on agriculture, a sector that’s long suffered from a plethora of water-system deficiencies, including supply to irrigate rice and other crops.

What’s apparent from all this is that the government is putting its money where its mouth is – it said it would spread investment across the country and it’s doing so; it said it would focus on energy and water security projects and it’s doing so. We expect this trend not just to continue, but to be thrown into higher and higher gear over the course of this administration.

The fact is, the provinces – and particularly the countryside parts of them – have been brutally neglected for decades. There have been many plans – concerning everything from irrigation systems to agrarian-reform projects – but, sadly, little has been achieved.

Now finally – and we keep our fingers crossed – there’s evidence of a real commitment to get the rural ship upright; to bring jobs to the impoverished countryside, boost farm output and the export of that produce and give the rural Philippines the opportunity to make its own sizeable contribution to the national economy.

In the past, that’s been tough without adequate water and energy supplies. These investments, therefore – and others like them which we suspect we’ll be hearing about throughout the year – will help to redress those inadequacies.

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