Philippines: Investment destination of choice

Reading Time: 4 minutes

Cristino PanlilioThe Philippines has seen strong economic growth lately and is expected to be among the top performers in Southeast Asia for the years to come. Inside Investor asked Cristino L. Panlilio, the outgoing Philippines’ Department of Trade and Industry (DTI) Undersecretary, about the pillars of this overly positive development.

Q: The Philippine economy grew more than 6 per cent in 2012 and had one of the best performing stock markets globally in the last year. What is this strength based on?

A: The stock market indeed broke an all-time record by the end of 2012, reaching the 5,800 index points level, and is now heading towards 6,000. I believe that the main driver for this development are institutional investors who will be in the market at least for a year or two, so the trend is supposed to continue. There is heavy buying in preparation for the companies’ 2012 profit announcements in March and April 2013. In terms of the local economy, the Philippines has grown around 6.8 per cent over the whole year 2012, a more than 50 per cent improvement in percentage points over 2011. The macroeconomic performance will definitely reflect at the enterprise level with regards to corporate profits, and this will further drive the stock market.

Q: How do you see the projections for the business process outsourcing industry?

A: It is very well under way, we are looking at surpassing the $13 billion gross revenue level of our BPO operators this year and expect them to hit the $15 billion mark by the end of 2013. The industry has created 730,000 jobs so far. I was frequently taking part in inaugurations or expansion programmes of new BPO providers in the last few months, one example being United Health Insurance, the biggest US health service provider, which has now expanded to the Philippines with a new BPO operation. Another new BPO firm, a specialised programming and designing company, has been opened by Goodyear Tires, and one more operator, EXL, has just lately said it will expand its staff numbers from 1,800 to 5,000 and open a new branch office in Cebu. These are the latest good news about the industry, which is indeed in very good shape and is now staffing up with value-added jobs. The concern might be how to enhance the capabilities of our workforce in the BPO sector, transforming them into higher qualified staff such as engineers, chartered accountants, financial analysts, designers, IT architects, banking specialists and so on. We basically want to upgrade all the BOP jobs.

Q: Will more money be spent on education to make this happen?

A: The idea is to move to higher-value employment and this will require more specialised education. In turn, it will lead to a higher per-capita value generation in the BPO industry. By 2016, we want to hit the 1.2 to 1.3 million job mark in the sector and programmes will be necessary to build a pool of adequately skilled people.

Q: How about the competition with India in the BPO sector?

A: We already surpassed India in the voice sector, ironically also because many Indian companies have launched branches in the Philippines. In a way, the Indians are helping us to beat themselves. However, India is still number one in the non-voice sector and we are second. We are working very hard to inch closer to them.

Q: What are the government’s investment programmes for 2013?

A: In terms of spending on industry incentives, infrastructure and the administration in general, we are keen to keep the budget deficit in 2013 at around 2 per cent of GDP. At the moment it is slightly above that mark. But we have more capital and recurring income available to support our development programmes this year. There will be at least 5 major PPP project launches in 2013, starting with the extension of the MRT-1, the mass rapid transport line in Manila, worth $1.8 billion in project costs. Such infrastructure projects will be the big drivers for sustaining our GDP performance in 2013.

Q: All three major rating agencies have upgraded the country’s credit rating in the past. What effect do you expect from this on the bond market?

A: The market has treated us very well in the past. Our Republic of the Philippines, or ROP, dollar and peso bonds are currently trading at 15 to 20 per cent premium at a coupon of 6 to 6.5 five per cent. The market obviously sees it as quite a secure investment.

Q: What role do the great conglomerates play in the Philippine economy?

A: There are more than 20 large conglomerates here that are very hungry for more investments, and they will continue to expand in 2013, not wanting to be left behind by their peers. For example, the Ayala Group, the Lopez Group, the SM Group and the San Miguel Corporation are trying to beat each other in investments, and all this at a very low borrowing rate of about 3.5 per cent.

Q: What is the role of Middle East investors in the Philippines?

A: ADIA [Abu Dhabi Investment Authority] Qataris, Kuwaitis and Saudis have been here, looking for investment in tourism, PPP projects, property development, etc. We are putting them together with potential partners and industry players. There are also investors from the Middle East interested in agriculture and plantation projects, or in manufacturing. We are registering a rising interest from this region.

Q: What other industries are in the focus of investors?

A: When the domestic economy is doing well, with the remittances of our “invisibles”, the Overseas Filipino Workers, growing at a rate of 5 to 6 per cent annually, it reflects in increased demand for goods and services and attracts more investors. These goods and services in higher demand are food, clothing, shelter, transportation, medication, power and utilities. The present providers of these goods and services will expand further, triggering an economic velocity that underpins growth. Our institutions, DTI and the Board of Investment, are promoting the prime movers in the sectors, those that are availing incentives according to our Investment Priority Plan, or IPP.

Q: Which part of the world have you made your priority to attract investors from?

A: The Philippines has always looked at its traditional investment partners, and those are mostly coming from East Asia and Northeast Asia, such as Japan, China, Taiwan, South Korea and Hong Kong. The US is also a traditional investment partner. However, interestingly enough, we are now getting a lot of interest from non-traditional investors such as the Middle East or Europe and our Southeast Asian neighbours, and – as latest new players – Australia and New Zealand. The main objective of my department is to attract investors from as many parts of the world as possible to make the Philippines visible. We do our country branding accordingly and trumpet that the Philippines is open for business and is an investment destination of choice. Those are the two prime messages I want to deliver.

 

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Reading Time: 4 minutes

The Philippines has seen strong economic growth lately and is expected to be among the top performers in Southeast Asia for the years to come. Inside Investor asked Cristino L. Panlilio, the outgoing Philippines’ Department of Trade and Industry (DTI) Undersecretary, about the pillars of this overly positive development.

Reading Time: 4 minutes

Cristino PanlilioThe Philippines has seen strong economic growth lately and is expected to be among the top performers in Southeast Asia for the years to come. Inside Investor asked Cristino L. Panlilio, the outgoing Philippines’ Department of Trade and Industry (DTI) Undersecretary, about the pillars of this overly positive development.

Q: The Philippine economy grew more than 6 per cent in 2012 and had one of the best performing stock markets globally in the last year. What is this strength based on?

A: The stock market indeed broke an all-time record by the end of 2012, reaching the 5,800 index points level, and is now heading towards 6,000. I believe that the main driver for this development are institutional investors who will be in the market at least for a year or two, so the trend is supposed to continue. There is heavy buying in preparation for the companies’ 2012 profit announcements in March and April 2013. In terms of the local economy, the Philippines has grown around 6.8 per cent over the whole year 2012, a more than 50 per cent improvement in percentage points over 2011. The macroeconomic performance will definitely reflect at the enterprise level with regards to corporate profits, and this will further drive the stock market.

Q: How do you see the projections for the business process outsourcing industry?

A: It is very well under way, we are looking at surpassing the $13 billion gross revenue level of our BPO operators this year and expect them to hit the $15 billion mark by the end of 2013. The industry has created 730,000 jobs so far. I was frequently taking part in inaugurations or expansion programmes of new BPO providers in the last few months, one example being United Health Insurance, the biggest US health service provider, which has now expanded to the Philippines with a new BPO operation. Another new BPO firm, a specialised programming and designing company, has been opened by Goodyear Tires, and one more operator, EXL, has just lately said it will expand its staff numbers from 1,800 to 5,000 and open a new branch office in Cebu. These are the latest good news about the industry, which is indeed in very good shape and is now staffing up with value-added jobs. The concern might be how to enhance the capabilities of our workforce in the BPO sector, transforming them into higher qualified staff such as engineers, chartered accountants, financial analysts, designers, IT architects, banking specialists and so on. We basically want to upgrade all the BOP jobs.

Q: Will more money be spent on education to make this happen?

A: The idea is to move to higher-value employment and this will require more specialised education. In turn, it will lead to a higher per-capita value generation in the BPO industry. By 2016, we want to hit the 1.2 to 1.3 million job mark in the sector and programmes will be necessary to build a pool of adequately skilled people.

Q: How about the competition with India in the BPO sector?

A: We already surpassed India in the voice sector, ironically also because many Indian companies have launched branches in the Philippines. In a way, the Indians are helping us to beat themselves. However, India is still number one in the non-voice sector and we are second. We are working very hard to inch closer to them.

Q: What are the government’s investment programmes for 2013?

A: In terms of spending on industry incentives, infrastructure and the administration in general, we are keen to keep the budget deficit in 2013 at around 2 per cent of GDP. At the moment it is slightly above that mark. But we have more capital and recurring income available to support our development programmes this year. There will be at least 5 major PPP project launches in 2013, starting with the extension of the MRT-1, the mass rapid transport line in Manila, worth $1.8 billion in project costs. Such infrastructure projects will be the big drivers for sustaining our GDP performance in 2013.

Q: All three major rating agencies have upgraded the country’s credit rating in the past. What effect do you expect from this on the bond market?

A: The market has treated us very well in the past. Our Republic of the Philippines, or ROP, dollar and peso bonds are currently trading at 15 to 20 per cent premium at a coupon of 6 to 6.5 five per cent. The market obviously sees it as quite a secure investment.

Q: What role do the great conglomerates play in the Philippine economy?

A: There are more than 20 large conglomerates here that are very hungry for more investments, and they will continue to expand in 2013, not wanting to be left behind by their peers. For example, the Ayala Group, the Lopez Group, the SM Group and the San Miguel Corporation are trying to beat each other in investments, and all this at a very low borrowing rate of about 3.5 per cent.

Q: What is the role of Middle East investors in the Philippines?

A: ADIA [Abu Dhabi Investment Authority] Qataris, Kuwaitis and Saudis have been here, looking for investment in tourism, PPP projects, property development, etc. We are putting them together with potential partners and industry players. There are also investors from the Middle East interested in agriculture and plantation projects, or in manufacturing. We are registering a rising interest from this region.

Q: What other industries are in the focus of investors?

A: When the domestic economy is doing well, with the remittances of our “invisibles”, the Overseas Filipino Workers, growing at a rate of 5 to 6 per cent annually, it reflects in increased demand for goods and services and attracts more investors. These goods and services in higher demand are food, clothing, shelter, transportation, medication, power and utilities. The present providers of these goods and services will expand further, triggering an economic velocity that underpins growth. Our institutions, DTI and the Board of Investment, are promoting the prime movers in the sectors, those that are availing incentives according to our Investment Priority Plan, or IPP.

Q: Which part of the world have you made your priority to attract investors from?

A: The Philippines has always looked at its traditional investment partners, and those are mostly coming from East Asia and Northeast Asia, such as Japan, China, Taiwan, South Korea and Hong Kong. The US is also a traditional investment partner. However, interestingly enough, we are now getting a lot of interest from non-traditional investors such as the Middle East or Europe and our Southeast Asian neighbours, and – as latest new players – Australia and New Zealand. The main objective of my department is to attract investors from as many parts of the world as possible to make the Philippines visible. We do our country branding accordingly and trumpet that the Philippines is open for business and is an investment destination of choice. Those are the two prime messages I want to deliver.

 

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