Author Topic: Five Fail-Proof Engines Of Philippine Economic Growth (And One Big Roadblock)  (Read 593 times)

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FORBES ASIA 2/15/2015 @ 9:00PM
Ralph Jennings
Contributor


Some country in Asia is always growing crazily on factory investment and a strong consumer base. Then when the West gets to idolizing it, the place slips. Japan is just now testing emergence from 20 years of sloth after a roaring 1980s that worried competitive Americans. China’s growth is slowing year by year to what the Beijing government calls a “new norm.” Vietnam goes on and off the watch list. Now comes the Philippines, an icon of consumption-crazed Southeast Asia where wages are low and people eager for jobs with multinationals.

Here are five reasons the Philippine economy will grow:

Corruption is down. The country known for brazen acts of graft such as a scheme that diverted millions of anti-poverty dollars to legislators has cut back corruption under President Benigno Aquino III. Since he took office in 2010, transparency of government work is up and kickbacks down as people monitor one another, using social media for ratting some of the dirt out. Graft busting is hard to quantify but saving the public money, says Jonathan Ravelas, first vice president with the Banco de Oro treasury group in Manila. “People try to be very careful in how they do things,” he says. “(Graft) has gone down significantly, but it’s still there. It’s a work in progress and it will take time.”

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Infrastructure madness: Spending on roads, airports and seaports will reach about 5% of the $294 billion economy next year. One dedicated highway will link Manila’s airports to Entertainment City, a $4 billion bayside casino complex, in minutes. Otherwise it’s accessible only after an hour on ordinary city streets clogged by motorists so angry about traffic that some intentionally drive the wrong way. New roads are good for tourism. By year’s end the country expects upgrades to power plants, energizing parts of the country where business suffers from brownouts (and high rates). Metro Pacific Investments Corp. is lengthening a 22-kilometer light rail by another 11 to ease unbreakable traffic gridlock in Manila. At sea, local port operator International Container Terminal Services Inc. said last year it would spend 3 billion pesos to expand at the otherwise cramped port in Manila.

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China Plus One: The Philippines, like other parts of emerging Southeast Asia, is encouraging multinationals to scrap plans for expanding factories in China. Do it instead in the Philippines, the government is urging. The country lags Asia in FDI for lack of infrastructure and distance from export markets. But labor costs less in the industrial parks around Manila compared to China’s east coast cities and Filipino workers know English, ideal for training them or assigning them to write product manuals for Western countries. Taiwanese PC parts contractor Kinpo Electronics invested $30 million last year and is expected to follow with the same amount this year, halting similar China plans, says Benedict Uy, a Philippine trade representative in Taipei. A slate of Japanese printer makers including Seiko Epson Corp., Brother International and Lexmark International also have expanded in the Philippines rather than China, he adds. “That’s our strategy,” he says. “We try to knock on their doors and also bring in the entire (supply) chain.” Foreign direct investment rose from 173 billion pesos ($3.9 billion) in 2004 to 274 billion pesos in 2013, government statistics show.

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Outsourcing is in: The Philippines has overtaken India in voice call centers for multinationals including Western banks and IT firms due to client preference for the local English accent, Uy calculates. It’s on its way to growing out other back-office services as the government earmarks $25.19 million to train a range of talent, including accountants and medical transcriptionists. (There’s already a surplus of trained nurses.) Call centers add jobs, creating new income and a passion for once largely unaffordable brands such as Apple and Hermes. Each of the roughly half million call center workers generates another two service jobs because “you have to feed them,” especially at night when it’s daytime in countries where the calls originate, Ravelas notes. Call center numbers are growing about 20% per decade, he says.

Money keeps coming home. Numbers of Filipino workers overseas aren’t growing now as they did in the 1980s, but the 2 million spread across the globe bring in more every year, for about $22 billion in 2014.

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What about the inevitable rest of the story?

Persistence of poverty at about 25% (including barely clothed child beggars in Manila’s entertainment quarter) sustained by lack of jobs, destruction from seasonal typhoons and lingering corruption will keep dogging the country’s economic growth. Every six years a new president will take office, sometimes overturning policies of the past administration for personal glory or lack of experience.

But the biggest spoiler is violence in Mindanao. The national government reached a peace and conceptual power-sharing deal with major Muslim rebel group the Moro Islamic Liberation Front last year, raising hope for development in the country’s breadbasket, chief unexplored mining hub and tourism paradise to-be, also home to 25 million largely impoverished people. A battle that killed 44 commandos in January has cast doubt on the peace deal, delayed passage of laws to lock in power-sharing and angered a hopeful public. “It’s just part (of the Philippines) but it plays a significant role,” Ravelas says. “The population, the potential in that area are tremendous.”

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