The Market Monitor Minding the Nation's Business
By Luis Leoncio
Whoever wins as president in next month’s elections, investors face “some uncertainty” on the country, according to the United Kingdom-based political risk analysis firm Global Risks Insight (GRI).
In a recent assessment on the Philippines, GRI said it expects the presidency to be fought “tightly” among four presidential candidates—“Grace Poe, a first-term celebrity senator; Jejomar Binay, the outgoing vice president; Mar Roxas, incumbent President Aquino’s chosen successor; and Rodrigo Duterte, the former mayor of Davao City.”
It said investors and businesses with interests in the Philippines are following the presidential race closely, as the Philippines remains one of the fastest-growing Asian economies.
But GRI said there is “no ironclad guarantee” that candidates will follow through on their campaign promises, honor the government’s contracts, or continue Mr. Aquino’s “so-far effective economic policies and anti-corruption measures.”
GRI was founded at the London School of Economics by four graduate students seeking to revolutionize the political risk industry. It is now a global network of over 100 analysts, with experience at the highest levels in government and business.
Overall, as investors look to the elections in May they should be cautious but optimistic, GRI said.
It noted that the candidates’ commitment to continue Mr. Aquino’s anti-corruption drive would likely improve the “quality of governance” and foster a more competitive and transparent business environment.
“Similarly, the candidates’ pledges to improve infrastructure and reduce bureaucratic red tape will brighten the prospects for investors looking to invest in the growing Filipino manufacturing and construction sectors,” it added.
“Nevertheless, investors should find comfort in the fact that all of the presidential candidates have pledged to uphold the core elements” of Mr. Aquino’s policies, it said.
GRI noted that each candidate supports substantial investment in infrastructure such as better roads, power lines and ports, which are vital to attracting new investment and also pledges to continue Mr. Aquino’s anti-corruption drive, which it described as a positive development for many investors.
It, however, said candidates differed in many other ways that may have a bearing on political risk.
“In terms of general orientation and political philosophy, Poe and Roxas are both market-friendly liberals, similar to President Aquino, making them a safe bet for investors looking for continuity,” it said.
“Binay, on the other hand, is a committed populist, distinguishing himself as a candidate who will care for the poor and reduce economic inequality,” it said.
“Duterte, meanwhile is a third-way candidate who has made draconian anti-crime measures the centerpiece of his campaign. These ideologies would represent a sharper departure from Aquino’s liberalism, and create risks for investors hoping for continuity,” it added.
Governing experience dissected
“The candidates also vary in terms of their experience governing. Binay and Roxas have the most experience in national government, having both held senior positions in the Executive branch. Duterte has a long track record in local politics, but little experience in dealing with economic issues. Poe has the least experience as a first-time senator. Both Poe’s and Duterte’s lack of experience means they could struggle to adjust to the presidency and governance could suffer, creating another set of risks for investors,” GRI said.
It noted that on trade policy, Poe stands head and shoulders above her competitors, pledging to join key trade blocs like the Trans-Pacific Partnership (TPP) and craft new bilateral free-trade agreements with partners.
In doing so, GRI said Poe will create new opportunities for businesses looking to access the Filipino market and lower costs for Filipino importers, all while improving the country’s overall economic prospects.
“The other candidates are less promising. Binay has not taken a clear stance on trade, but his populist tendencies may prejudice him against broader trade agreements. Roxas, despite his patron Aquino’s support for Filipino membership in the TPP, has expressed reticence to join the trade bloc – and to engage in new trade agreements more broadly. Duterte, meanwhile, has not taken a clear stance on trade,” it added.
GRI said all the candidates have pledged to streamline approvals for new investment, reducing red tape and bureaucratic hurdles.
“(The pledge to ease investment rules) is a positive sign for investors, as the Philippines remains an exceptionally difficult place to conduct business,” it said.
GRI also looked at the presidential bets’ stand on foreign ownership, noting Poe, Binay, and Duterte all favor amending the Philippines’s Constitution to allow more foreign ownership of property and certain industries.
“An easing of constitutional restrictions on foreign ownership could prove a boon for companies looking to deepen their involvement in key sectors in the Philippines economy. Roxas, however, is less enthusiastic, arguing that these amendments are a secondary concern,” it added.
It also noted the candidates are split on tax policy.
“Poe and Binay both have pledged to cut the corporate-tax rate to make the Philippines more competitive, and to cut income taxes on low-income earners to help alleviate poverty and stimulate consumption. Corporate taxes in the Philippines are the highest in the region, and a reduction would make the Philippines a more attractive location to set up businesses,” GRI said.
It said Roxas and Duterte are less likely to reform taxes in ways that could benefit investors.
“Roxas has stated that he is hesitant to cut taxes and reduce government revenue. Duterte initially favored reducing income taxes on the poor but later backtracked, saying he would not want to cut any revenue that he might need for government programs,” it added.
GRI said Poe’s candidacy suggests the best prospects for investors at this point in the race.
“She combines a market-friendly, liberal outlook with a healthy support for trade liberalization and much-needed tax and constitutional reform. Similarly, while Roxas is less friendly toward trade and corporate-tax reductions, he is nevertheless dedicated to many of the policies that helped foster steady growth under Aquino,” it said.
“Binay’s candidacy creates some risks, given his populist bent and alleged corruption. Investors should not, however, overestimate the extent to which he would deviate from established policy and undermine their interests. Binay has extensive experience in government, and has pledged to continue anti-corruption measures and make tax rates more competitive,” GRI said.
It added that Duterte’s candidacy may carry with it the greatest risks for investors regarding his ambiguous economic platform, opposition to contractualization, and his acknowledged ties with extrajudicial “vigilante death squads” that killed over 1,000 people in Davao City.