Philippines among centers of economic revival in Asia

By Luis Leoncio 

The current Asian economic revival is now being led by Indonesia, Vietnam, the Philippines and India, according to an ongoing shift in foreign investments inflow away from China, investment bank Hongkong and Shanghai Banking Corp (HSBC) said in a report. 

The report said Southeast Asia’s share of global foreign direct investment (FDI) inflows, which slumped from 8 percent to 2 percent after the 1998 Asian financial crisis, was back to 7.6 percent last year, which was almost equal to China’s 8.1-percent growth during the period.

With their young populations, these countries and India should see further FDI increases from companies looking to capitalize on low-cost labor, while Chinese inflows will slow, as its population ages and its economy matures.

HSBC economist Trinh Nguyen said that as well as the economic change in China, three global trends will drive FDI increases in the rest of Asia: the weakening currencies in the advanced world, the renminbi’s appreciation, and economic stagnation in the developed economies.

While China was still the world’s largest FDI recipient in the first half of 2012, inflows have fallen in 11 of the last 12 months.

In contrast, inflows into the Association of Southeast Asian Nations (Asean) member-countries have increased and closed the gap.

HSBC says India is an obvious destination for companies seeking low-cost labor, as it has a similar-sized population to China’s but it faces serious challenges.

India has around 800 million working people aged between 15 and 64, of which 560 million are in the countryside.

China has around 1 billion workers, of which 500 million are in the rural areas. However, by the year 2020, India’s rural-worker population will rise to 600 million, while China’s will decline to 385 million based on United Nations projections.

India is increasingly competitive in terms of labor, but HSBC said it is not making the most of this advantage.

“Its cumbersome business environment, restrictive FDI policy and poor infrastructure can put off foreign investors. As a result, Asean members such as Thailand, Malaysia, Indonesia, the Philippines and Vietnam, while not comparable in size, continue to offer opportunities to investors as they also have a good demographic story to tell,” it said.

So policy matters, as Asia’s most successful emerging economies have shown, headed by South Korea.

HSBC says: While cost and the potential growth are important considerations, what ultimately seals the deal is the accessibility of the market and the ease of operating in that environment.

Multinationals don’t like limits on foreign investment of the kind that proliferate in India and are also in place in Indonesia, for example, in banking, natural resources and transport.

As China has proved, winning foreign investment is a very competitive global game. Players who deliberately handicap themselves have only themselves to blame.

Philippine scene 

An Asean briefing paper said the Philippines garnered substantial international attention in 2016, owing largely to President Duterte’s unexpected rise to power, his litany of controversial remarks, and contentious war on drugs campaign.

“Lost in the Philippines’ political drama, however, was the country’s strong economic performance,” it said.

It noted that the Philippines posted a robust 6.8 percent GDP growth rate in 2016, outperforming popular investment spots such as China (6.7 percent) and Vietnam (6.2 percent).

“This follows years of sturdy growth under the previous Aquino administration, where growth averaged 6.2 percent per year,” it added.

FDI into the Philippines also increased in 2016, reaching $6.2 billion in net inflows through the first 10 months of the year, a 22.2-percent increase over the $5.1 billion accumulated over the same period the previous year.

The Philippines’s strong economic performance is projected to continue into 2017, primarily on the back of healthy domestic spending, infrastructure development, and remittances.

As opposed to many emerging Asian economies that are reliant on affordable exports, the Philippine economy is primarily bolstered by consumer spending, which accounts for about 70 percent of GDP and grew by 7 percent year-on-year, it stated. Consequently, the Philippines may be better positioned than its more export-reliant neighbors to weather 2017’s uncertain global economic climate.

Standard Chartered projects the Philippines’s economy to grow by 6.7 percent in 2017, while HSBC projects 6.5 percent growth.

The government targeted growth between 6.5 and 7.5 percent in 2017 and a 7 to 8 percent growth per year in the medium term, while aiming to attract $7 billion in FDI over the coming year.

“Increased investment from China would help mitigate any losses that may be incurred as a result of new US president Donald Trump’s protectionist tendencies,” it said.

“There is also potential for a rapprochement between the Philippines and the US, as there appears to be more goodwill between Duterte and Trump than there was between Duterte and Obama,” it added.