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05/03/2016: CRITICAL SECTORS OF PH ECONOMY: WELL-POSITIONED TO MEET CONSUMER, INVESTOR NEEDS

PRESS RELEASE
WDC-018-2016
05 March 2016

NEW YORK CITY- The Philippine Business and Investment Forum (PBIF) held on 03 March 2016 at the Sheraton Hotel Times Square in New York City provided a venue to explore the opportunities and challenges in key areas of the booming Philippine economy. Three panels addressed the banking sector, Philippine infrastructure and the strengths of the manufacturing industry, and a dual dialogue was held on agribusiness.

Banking Panel

In his introductory keynote address for the Banking Panel, Bangko Sentral ng Pilipinas (BSP) Deputy Governor for Supervision and Examination Nestor Espenilla said that “while many jurisdictions have experienced contraction due to international financial instability, the Philippines has been expanding. Bank loans have doubled from end 2009 to end 2015.”

Under the leadership of BSP Governor Amando M. Tetangco, Jr., the BSP has implemented a menu of critical banking reforms that make the Philippines’ financial sector more competitive, more resilient, and compliant with international standards such as the Basel III Reform Agenda. These reforms include the liberalization of the banking sector to full entry of foreign banks, allowing the infusion of foreign equity to rural banks, the streamlining of procedures for establishing new banks, and the rationalization of incentives for continuing industry consolidation. These developments underscore the financial sector’s preparedness for enhanced regional and international financial integration, such as through the ASEAN Economic Community.

Deputy Governor Espenilla also outlined BSP’s efforts to enhance financial inclusion. He emphasized that while much is still required to be done to assist the “unbanked and underserved,” the BSP is committed to support activities geared towards inclusive growth. In December 2015, the BSP launched the National Retail Payment System, or NRPS, which is a framework that aims to establish a safe, efficient, reliable, and affordable electronic retail payment system that will move the country towards a “cash-lite” economy.

Deputy Governor Espenilla assured the audience that the BSP, which is mandated to operate as an independent monetary authority, will remain committed to responsibly managing the financial dynamics affecting the Philippines no matter who becomes President in the upcoming Presidential elections.

The Banking Panel that followed focused on key issues in the financial sector, economic growth expectations, and the risks associated with increasing liquidity. Deputy Governor Espenilla was joined in the panel discussion by CitiGroup Vice Chairman for Corporate and Investment Banking Mr. Jay Collins and RCBC President & CEO Lorenzo Tan, who is also President of the Bankers Association of the Philippines.

Mr. Collins highlighted the fact that new banks entering to compete in the Philippines will continue to add capacity to the Philippines’ financial sector, especially with the 51 public-private partnership (PPP) projects in the pipeline valued at Php1.62 trillion, or US$34.7 billion. More banks in the market enhance opportunities and spur more innovation.

Mr. Tan outlined the work of Philippine banks, particularly the RCBC, to enhance their own capacity and invest in new programs, such as in microfinance, and innovating financial technology, or “fintech,” to serve their customers. He said that Philippine banks are some of the biggest in the region, and they do not view foreign banks as threats in the context of regional integration.

Mr. Tan also noted the trajectory of Philippine population growth, particularly the growth of working and earning individuals, making the Philippines a prime market for implementing new mobile banking services and “fintech”. Deputy Governor Espenilla emphasized that the BSP is supportive of new technology and innovations in the sector, and is prepared to ensure that the system will give new innovations the the regulatory space to ensure such developments can thrive.

Infrastructure Panel

At the panel on infrastructure and the future of growth and development in the Philippines, it was noted that public infrastructure spending is expected to increase to US$18 billion, or 5% of the GDP, in 2016. Although the government has significantly increased infrastructure spending in the past years, the panel urged the private sector to step up in order to prompt the level of investment required to accommodate the heightened demand for new infrastructure from households as well as businesses.

Development Bank of the Philippines (DBP) Board of Directors Member Mr. Vaughn Montes noted that in order to re-ignite interest in infrastructure in the Philippines, the government must work towards enhancing its laws and regulatory framework to sustain investor confidence.

With the Aquino Administration’s efforts to reform Philippine PPP laws and procurement practice, the government was able to provide stability; however, Mr. Montes added laws that are rules based and promote predictability, consistency, and clarity must be institutionalized in order to sustain interest in infrastructure investment, particularly by foreign investors.

Makati Business Club Director Mr. Cirilo Noel emphasized the importance of policy continuity especially as the Philippines’ PPP program has gained prominence internationally.

Asian Development Bank North American Office Representative Craig Steffensen indicated that the regional demand for infrastructure investment up to the year 2020 amounts to approximately US$750 billion per year. ADB is currently working with multilateral institutions such as the World Bank in preparing the Philippines for new projects through technical assistance and training programs. The emergence of the new Asian Infrastructure Investment Bank (AIIB), he added, engenders a complementary relationship with the ADB and will help infuse the region with the financing required to support new infrastructure projects. He indicated that the Philippines is particularly positioned to handle the increase in investment.

Caterpillar Executive Director for Government and Corporate Affairs Jeffrey Hardee reiterated that the lack of infrastructure extends to the region as a whole, but sees the Philippines enhancing its position through more robust PPP laws, and proactively engaging the international businesses community. He emphasized the tremendous infrastructure opportunities due to the demand to develop water supply, energy supply, and transportation facilities both on land, sea, and air. Beyond PPPs, Mr. Hardee noted opportunities in mining as the Philippines is ranked 5th in the world with regard to natural resource reserves.

Dual Dialogue on AgriBusiness

To highlight opportunities in the agri-business sector, Agrarian Reform Secretary Virgilio de los Reyes and Philip Morris International (PMI) Vice President for International Affairs Jon Huenemann held a dialogue to unravel the perceived “blackhole” when investing in agriculture in the Philippines.

Both panelists, one from the private sector and the other representing government, demonstrated how investing in small-holder farmers can yield stable, efficient and sustainable partnerships in agribusiness.

Mr. Huenemann talked about how PMI has undertaken, for many years, contract farming with individual tobacco farmers in the Philippines with only a hectare of land or less. He related how PMI is providing contract growers with inputs and agri-extension services to produce quality output that command good prices.

Secretary de los Reyes emphasized that the government is ready to serve as an enabler of agricultural investments by delineating property rights, strengthening farmers' organizations, assisting in providing access to financing, strategic public goods and supporting infrastructure that link farmers to markets more easily at lesser cost. Success stories in cacao production with Kennemer Food Inc., and sugarcane production through block farms were also featured.

One such institution to support agri-investment is the Land Bank of the Philippines which was represented in the forum by Board of Directors Member Domingo Diaz.  LandBank operates an extensive rural branch network with more than 361 branches and 1,505 ATMs which not only support countryside development, but also supports social welfare programs such as conditional cash transfers. In his keynote message, Mr. Diaz underscored LandBank’s effort to enhance financial inclusion, which adds tremendously to the quality of life of those currently underserved.

Secretary de los Reyes invited investors to tap the vast opportunities in areas, such as Mindanao, that are not only endowed with soil and climatic conditions conducive to agricultural production but also have concrete commodity investment and business development plans and supporting infrastructure programs that will enable agribusiness enterprises and agro-industrialization to flourish in the Philippines.

Manufacturing Panel

In a panel discussion on manufacturing and the strengths of the Filipino workforce, Department of Trade and Industry Undersecretary for Management Services Group (MSG) and Chief of Staff Nora K. Terrado emphasized the Philippines’ attractiveness as a manufacturing destination due to favorable costs, quality, scalability, and, most importantly, unique traits intrinsic to Filipino workers that underscore compassion and stewardship in the work they do, which translates in Tagalog as “malasakit.”

Integrated Micro-Electronics, Inc. (IMI) President & CEO Arthur Tan supported this by emphasizing that IMI’s Philippine manufacturing facilities have low average defects per million opportunities (DPMO) in the manufacture of semiconductors, as compared to the typical average in the industry.

In addition to quality, Mr. Tan underlined that the Philippines’ labor force has one of the lowest attrition rates in the world. This was further emphasized by the Manufacturing Panel’s representatives from two of the country’s investment promotion authorities (IPA), Chairman & Administrator Roberto Garcia of the Subic Bay Metropolitan Authority and Chairman & Administrator Deogracias Custodio of the Authority of the Freeport Area of Bataan (AFAB). The Chairmen not only emphasized value propositions of their individual IPAs, but presented the ability of IPAs to promote the scalability of businesses and the favorable position IPAs have in connecting with domestic, regional, and global value chains.

It was also pointed out that in an analysis by the Japan External Trade Organization, the Filipino worker’s average annual salary in manufacturing have only increased from US$ 3,606 in 2009 to US$4,012 in 2014, or an 11.25% increase in 5 years; whereas the Chinese worker’s average annual salary has increased from US$4,107 to US$8,204, or nearly 100% for the same time period.

As manufacturing sector wage increases have occurred in small increments throughout the manufacturing sector, businesses find it more manageable for their operations to stay for a long time. With a labor force having a strong command of the English language, ability to quickly adapt to new and more sophisticated technology, and intrinsically caring and committed instilled with the virtue of “malasakit,” the Philippines’ manufacturing sector appears fully prepared to serve the demands of a rapidly changing global economy.

The PBIF was organized by InvivaLink, a company specialized in the production of business and investment conferences. ###