Government Investment News Analysis

The Volatilian™ Investment Assessment

This is Day One of a new government in the Philippines and The Volatilian™ is taking this opportunity to provide its broad outlook for the country’s economy.

The act which the new administration follows was one which saw GDP rise by an annual average of 6.21% from 2010 to 2015, inward foreign investment go from US$1.06 billion to US$5.72 billion over the same period, the Philippine Stock Market become the darling of the Asian bourses, and business-process outsourcing revenues hit nearly US$22 billion last year from US$8.9 billion in 2010.

Welcome though these developments are – and former president, Benigno Aquino, can take much credit for tackling many of the huge problems he inherited from his predecessor, Gloria Macapagal-Arroyo, and for getting the economy at least part way on the track – we don’t believe it is a hard act to follow.

Certainly, there will be teething problems for the economy – that goes with the territory when any new administration takes over the reins – but overall the outlook for foreign investors in the Philippines looks bright. Five days after Rodrigo Duterte won the presidency with a landslide victory, markets-intelligence provider, the London-based Oxford Business Group, gave the country a new accolade, bestowing on it the title, “the best economy in Asia”.

There is a definite commitment by Duterte to wrestle the country’s ills to the ground and provide the economy with the structure and the stamina it needs to evolve and operate competitively in the 21st century.

That said, you might want to engage the seat belt for the next six months as phase one of Operation Clean-up takes its toll on criminal elements across the country. Expect to see a fairly high degree of adverse Philippines publicity over this period. Duterte, himself, has warned that it will be a bloody campaign, which given the scale of what is involved looks very likely.

Politicians and rights groups from San Francisco to Sydney will cite human-rights violations and loss of liberty. The words, Dictator, Strongman, Martial Law, and Abuse of Power, are likely to appear regularly in the headlines of the Western media’s Philippine coverage. For the Western press, Duterte’s appointment is already a cause célèbre.

Our job is not to join that chorus – Levelling the investment playing field – it is to explain the broader picture and the investment implications it throws up.

The crime crackdown, for example, is based on sound economic reasoning. Both Duterte and his government are of one mind: that economic growth in the Philippines cannot develop and expand while commerce is held hostage by crime bosses, drug lords, smugglers, people traffickers and their foot soldiers. The people’s will to aspire cannot be given breath while thugs and thieves and petty criminals run amuck through their barangays. New businesses can’t flourish while scam merchants, credit-card fraudsters, and con artists have the freedom to operate.

Here, then, is why we believe the outlook is bright. Throughout much of Duterte’s campaign for the country’s top job, he emphasised that those who put their money in the Philippines will be fairly treated and will receive “good” returns on their money. This was not window dressing; there is much to support that commitment.

• The appointment of a talented pro-business Cabinet with a wealth of business experience. Carlos Dominguez at Finance, Ramon Lopez at Trade and Industry, Arthur Tugade at Transport, Rodolfo A. Salalima at Information and Communication Technology, Manny Piñol at Agriculture.

• An undertaking that the economic reforms put in place by the last administration will stay. Point 1 of the Duterte government’s socioeconomic agenda: “Continue and maintain current macroeconomic policies, as well as fiscal, monetary, and trade policies”.

• A commitment to redoubling the effort to remove red tape and simplify the bureaucratic structure of government. This goes beyond a cleaning exercise to being a policy issue for every department of government. Started by the previous administration, it is another sign of continuity.

• A stepped-up war against corruption – not just within the public sector, but in the corporate sphere also. Monopolies, cartels and the like are to be tackled; sectors opened up. Duterte’s direct warning to the country’s two big telco providers that he is prepared to give foreign providers access to the telecom market – “All can come in” – is an example of his intentions.

• The pledge to speed up the pace of Public-Private Partnership projects. New infrastructure is to be the priority and potential foreign-investor partners will be put on an equal footing with domestic bidders for the contracts allowing projects to be won solely on the merits of the bids.

• The plan create more economic zones, tourism estates and an innovative idea to lease some of the thousands of smaller islands that make up the archipelago to wealthy foreigners or overseas developers to create Dubai-style fantasy-island homes. Termed “business islands,” it is an idea which Duterte is keen on: “If we can lease our land for military bases, why not lease an island (to investors) to create their own version of Hong Kong, Taiwan or Singapore?”

• Simplification of the rules and regulations surrounding investing. Improve the ease of doing business. A 2015 study by PriceWaterhouseCoopers ranked the Philippines 127th of 189 economies in terms of ease of paying business taxes.

• The lowering of income tax rates, along with instituting further tax reform. Presently, the Philippines has the highest tax rate in Asia.

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