Philippines an ‘unexpected’ Asian Tiger—OBG

By Riza Lozada

A survey of top busi­nessmen in the country showed a unanimous positive economic outlook mainly as a result of the improved busi­ness climate.

The London-based Ox­ford Business Group (OBG) indicated in its “OBG Business Barometer: Philippines CEO Survey” that 100 percent of re­spondents have either positive (75 percent) or very positive (25 percent) expectations for local business this year.

Paulus Kuncinas, OBG Asia managing editor, said the the Philippines continues to confound critics by solidify­ing its position as an emerging Southeast Asian economy fol­lowing decades of underper­formance.

Kuncinas called the Phil­ippines an unexpected Asian Tiger. “In contrast to other Asian tigers like Thailand, Ma­laysia, South Korea, Singapore and Japan, the Philippines’ service sector has been the driving force behind high eco­nomic growth,” he said.

He said, nonetheless, that among the challenges the country is facing was the need to improve outdated in­frastructure, lower the cost of electricity and expand its man­ufacturing sector.

Some 80 percent of CEOs interviewed by OBG said only 20 percent of their business growth was driven by govern­ment spending, reflecting the view that the economy is ex­panding thanks to private sec­tor activity.

Respondents alsoexpressed a number of con­cerns in terms of doing busi­ness. A total of 58.3 percent cited bureaucracy as their top hurdle in running operations followed by human resourc­es cited by 37.5 percent of the executives polled as a potential business risk.

Cost of capital ranked low on the list of concerns, cited by only 4.2 percent of respon­dents as a top problem.

“Perhaps the most encour­aging finding is in regards to an increase in planned invest­ment, which should support economic growth of around seven percent in 2018, accord­ing to the latest estimates from the IMF,” Kuncinas said.

Some 70 percent of re­spondents said they intended to make a significant capital investment within the next 12 months, while less than 30 per­cent said new investment was unlikely in the short term.

Among the negative fac­tors in the Philippine business environment was leadership skills that was cited by 50 per­cent of respondents.

A lack of research and de­velopment was also identified by 25 percent of CEOs; while business administration, in­formation technology (IT) and engineering skills appear to be relatively well supplied, with just 17 percent of respondents highlighting these factors as a major concern.

Philippine courts investments

Overall, the OBG Business Barometer: Philippines CEO Survey presents a compelling outlook for the Philippines as a leading investment destination in Southeast Asia, Kuncinas said.

With rapidly rising do­mestic consumption, soaring foreign direct investment (FDI) and a growing services sector, the country is set to record strong growth rates in 2017.

While soft global demand has weighed on exports, and the agriculture sector remains subdued following years of vol­atile and problematic weather, prudential fiscal management, falling public debt and legal re­forms aimed at improving the investment climate have left the country positioned to tap global debt markets and attract new investment.

“International involve­ment will be critical to the delivery of new infrastructure projects, some of which have experienced delays of late. Public infrastructure spend­ing is forecast to significantly increase in the coming years, with private sector participa­tion remaining a critical pillar for long-term transport devel­opment, presenting consider­able opportunities to foreign investors,” Kuncinas added.

He said the most criti­cal hurdle to overcome is the change in the country’s consti­tution, which caps equity hold­ings at 50 percent, restricting foreign investors’ control of their assets.

“While this is not cited as a major issue, the signal to global investment community is that the Philippines lacks the con­fidence to allow free inflows of capital,” he added.

This perception is reflect­ed in the country’s relatively low FDI per capita figures, with the Philippines trailing Singa­pore, Malaysia and Thailand in terms of investment flows.

“This is a missed oppor­tunity given that, in terms of human capital and the cost of doing business, the country is among the most competitive in Asean,” Kuncinas said. He not­ed that sectors such as tour­ism, infrastructure, mining and manufacturing would benefit greatly from further liberaliza­tion.

“In the meantime, the country continues to rely on its own internal momentum, consumption and high in­vestment rates to propel itself up the ladder of middle-in­come economies,” Kuncinas added.