The colorful, mercurial and impulsive style of President Duterte has prompted credit rating agencies and some foreign chambers of commerce to raise the alarm flag about the Philippine investment climate. It is possible we may not get any credit upgrade in the coming months, or even years. It is possible that some US and European investors may cancel or at least postpone their investment decisions in the Philippines until the President can modify his harsh language and/or issue more consistent policy statements. It may take some time before the cloud of uncertainty can be removed from the economic horizon. Investors would have no choice but to take chances—but then, after all, assuming risks is the very essence of entrepreneurship.
Even granting that it may take time for the President to change his style, I enjoin creditors and investors to focus on the predictables about the Philippine economy. They will realize that what we can posit for certain about the economy will make the uncertainties perceived by the likes of Standard and Poor’s pale into insignificance.
First, the Philippine economy will be enjoying for many more years the close to $30 billion in annual remittances from overseas Filipino workers. From what I have observed in the last 10 years, this source of consumption-led growth has increased at 3-5 percent annually through all the crises that the global economy has suffered (e.g., the Great Recession, the political crises in the Middle East, the precipitous decline in the price of oil).
Second, whatever happens to political leadership at the national level, our young, growing and English-speaking population will continue to make the Philippines a preferred site for the global business process outsourcing (BPO) and knowledge process outsourcing industries. In the next two years, this sunrise industry will be generating also close to $30 billion annually, and growing at 15 percent from year to year, employing close to 1.5 million highly educated Filipinos. The incomes generated by these two engines of growth will feed into the consumption sector and will generate large investments in retailing; the hospitality business (to cater to the 40 million domestic tourists resulting from the expansion of the middle class); and the expansion of manufacturing of food, fashion goods, and furniture and fixtures. Construction and real estate will continue to benefit from the demand for more middle-priced condominium and residential units and for office spaces to cater to the BPO-information technology sector, with more of the expansion in second-tier cities like Iloilo, Bacolod, Davao, Cagayan de Oro, Laoag, and others outside the National Capital Region.
We can also count as highly predictable the maintenance of a stable financial sector by a very competent central bank that has admirably institutionalized inflation-targeting tools, keeping average inflation at the level of 2-3 percent annually and moderating the depreciation of the peso. We can also consider as certain the ability of the finance and budget departments to continue maintaining fiscal discipline, which began during the administration of President Gloria Macapagal Arroyo.
There are numerous investors from our Northeast Asian neighbors (China, Japan, South Korea and Taiwan) who are less touchy about human rights and can significantly increase their investments in the Philippines, especially in infrastructure (airports, railways, power plants), manufacturing, agribusiness and logistics. It makes a lot of sense to talk about rebalancing (not “separation”) in this Asian century, when the epicenter of economic growth will be among our neighbors. Without decoupling from the West (America and Europe), we will benefit by increasing our shares of trade with investments from both our Northeast and Southeast Asian neighbors.
Following the President’s lead, the private sector should organize more investment road shows to the East Asian countries.
Bernardo M. Villegas (bernardo.villegas@uap.asia) is senior vice president of the University of Asia and the Pacific.