Liberalisation of the Philippines economy is moving forward, says leading businessman

Changes to economic provisions in the Philippines constitution could trigger a fresh surge of international investment in the country, according to a top Philippines business leader.

Guillermo M. Luz, Private Sector co-chair of the National Competitiveness Council in the Philippines, told Asia House in an interview that a commitment to economic liberalisation and integration with other Asian economies had made the country more attractive for international investors.

Mr Luz is an Associate Director of Ayala Corporation, the holding company of one of the oldest and largest business groups in the Philippines with interests across real estate, financial services, telecommunications, water infrastructure, electronics, automobile sales and business processing as well as investments in power generation, transport infrastructure and education

The interview followed Asia House’s key business conference on the country – The Philippines: Asia’s Bright Spot.

Here is the interview in full:

Why is the Philippines attractive for foreign investors?

We have a lot of features that make it attractive. At 100 million plus people, we have a strong domestic market. We are a good base from which to set up an operations because we have a large workforce that is quite young. That workforce aged between 18 and 64 is going to continue to increase, so you get both workforce and consumers in one go. Situated within ASEAN, which is integrating at the end of 2015, operations in the Philippines will give you a good jump-off point into nine other markets in the region. That integration I think is going to be a plus for companies. The workforce is not only young, but well-educated, reasonably healthy and has a high literacy in English, which also makes them very trainable as far as learning technologies. We have seen that in a wide range of industries. So I think there are good opportunities for companies to invest in the Philippines. It is an attractive place to invest.

What specific changes have been made to improve the business climate in recent years?

If we take a look at the country first from a public spending point of view, there has been a great deal of emphasis on spending on infrastructure because that was an underinvested area. So the government has tripled its spending in the last five years. Because the population is big, there have been large investments in public education and in public health. Those have doubled in the last five years. The economy, from a reform point of view, continues to be liberalised, as far as trade and investments are concerned. There has been a great deal of improvement and reforms in the area of governance both at a national and a local level. So we are trying to create overall a better investment and operating environment both for companies and for our own citizens.

How well is the Philippines performing against international measures on such things as transparency, corruption and ease of doing business?

We’ve moved up in a big way in global competitiveness indicators. In ease of doing business, we’ve overtaken 53 countries in the last four years. In Transparency International’s Perception of Corruption Index, I think we have overtaken 48 or 49 countries over the same period. On the World Economic Forum’s Global Competitiveness Index, we are up 33 over that same period. It’s the same for travel and tourism and the economic freedom index. So on most, but not all global reports, we have moved up. Not coincidentally, we have also moved up in credit ratings among the major rating agencies, whether it’s S&P, Moody’s or Fitch. The country has moved up to investment grade over that same four-year period. So the net result is, if you take a look at economic performance, the Philippines is the second or third highest in the Asia-Pacific region and investments have tripled over those four years. So I think if you take a look at all the indicators in totality, they’ve been moving in the right direction.

How deeply embedded is the liberalisation programme?

It is very deeply embedded because we see it contained in law and in policy. But even from an international and multilateral perspective, the Philippines has been moving towards liberalisation and, in a way, integration, especially within ASEAN. That’s a commitment of the country within this community of 10 nations that we will move towards an ASEAN economic community (AEC) at the end of this year and continue further economic liberalisation and integration within ASEAN. Within our work in the Asia-Pacific Economic Cooperation (APEC), which is 21 economies (more than half the world’s GDP and trade and investment) we are very much wedded to this concept of a free trade area in the Asia-Pacific as we move ahead. Everything about the country is moving towards greater liberalisation.

What further economic reforms are on the horizon inside the Philippines itself?

I think you will see a continuation of the trend to open up the economy a bit more. We have recently opened up banking and issued some new licences which we haven’t opened up since the mid-90s. We have looked at and we should get approval of a new regulation allowing more foreign contractors to come in and take part in public infrastructure projects. There is a concerted effort within our PPPs (public-private partnerships) to attract more foreign players and there is a growing movement – at least within the business community and within the Government – to begin to at least look at the possible opening up of the economic provisions of our constitution that would lift restrictions on foreign investments in the country. That constitution has not been touched since 1987 and there are certain economic portions there which we feel if they were lifted, would open up the economy to even greater liberalisation. If that happens, when that happens, I think you will see a new wave of interest among investors in the Philippines.

David Cowell is a freelance journalist working for Asia House.

To read about a private briefing that Gregory L. Domingo, Philippine Secretary of Trade and Industry gave to Asia House corporate members click here.

To read more about topics covered at the conference The Philippines: Asia’s Bright Spot click here.