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Tuesday, January 10, 2017

Investors once again taking notice of the Philippines -- ADB chief

By Arnold S. Tenorio
Research Head

ASIAN Development Bank (ADB) President Takehiko Nakao said the country’s economic growth is “becoming more solid,” providing an ideal home to the regional lender, which last year marked half-a-century of existence headquartered in the Philippine capital.

‘If President Duterte can give confidence to foreign investors as well as domestic investors... I think confidence of investors will pick up and the Philippines can use its natural strength in human and natural resources for sustained growth.’ -- Asian Development Bank President Takehiko Nakao -- Bernardino P. Testa

Established in 1966, the ADB back then was run by 30 people operating out of small offices spread across several buildings in Makati. The lender in 1972 moved to a building along Roxas Boulevard that now houses the Department of Foreign Affairs, before transferring in 1991 to a 6.5-hectare compound in the Ortigas business district along historic EDSA.

Over that 50-year period, the size of the Philippine economy grew by more than 600%, or from a gross domestic product (GDP) of $24.2 billion in 1966 to $171.8 billion in 2015. GDP is the amount of final goods and services produced in the country, and as such measures economic performance.

“Philippines growth is becoming even more solid and in 2016 we are expecting it would be 6.8% and this year, 6.4%,” Mr. Nakao told BusinessWorld, citing the latest forecasts issued last month in the ADB’s Asia Development Outlook Supplement.

“This is the highest among ASEAN countries except Myanmar, which is growing more than eight percent a year because it started from a low level of GDP. But now Philippines is growing very fast, and we are expecting 6.4% this year would be a little bit higher than that of Vietnam and Indonesia (which) would be five percent,” Mr. Nakao said in his first interview to local media this year since securing a second term last November.

In the first three quarters of last year, Philippine GDP grew by seven percent, at the top end of the government’s 6-7% full-year target for 2016.

“So, very strong growth based on the services sector and on strong consumption. And we’re hoping public investment will be stronger too,” Mr. Nakao said, citing the Philippine government’s commitment to raise infrastructure spending.

Last month, Congress passed President Rodrigo R. Duterte’s first full-year budget, which included an P840-billion spending plan for infrastructure, equivalent to 5.4% of GDP.

“Generally speaking, the Philippines is enjoying remittance from abroad, investment from abroad and business process outsourcing is growing very fast,” Mr. Nakao said.

“If President Duterte can give confidence to foreign investors as well as domestic investors -- that they can deliver investments in infrastructure like road and logistics, and they can promote the idea of leveling up of education for ordinary people, and if governance like corruption and control of drugs go well -- I think confidence of investors will pick up and the Philippines can use its natural strength in human and natural resources for sustained growth.”

He said investors are “pay(ing) attention to the Philippines again” amid concern over rising wages in China, citing Japanese manufacturers that are turning again to the Philippines as an alternative site for their factories.

The Philippines is banking on a manufacturing revival to generate higher-paying jobs. Latest government data showed factory production growing for a 16th straight month last October. This brought growth in the 10 months to October last year to 12.4%, faster than the 2.1% logged in the same period of 2015.

Mr. Nakao said President-elect Donald J. Trump’s avowed America-first policy should be no cause for worry for the Philippine economy, since the US’ incoming chief executive was more concerned with manufacturing jobs being lost to Mexico under the North American Free Trade Agreement.

“But about business process outsourcing (BPO) -- to do business more, especially in the US, like manufacturing work -- they might need to resort to such services as BPO from... the Philippines,” Mr. Nakao said.

He said one lesson from the global financial crisis is that America “had to depend more on workers from abroad and BPOs to make industry more competitive.”

“So about BPOs, I’m not very worried about it very frankly,” Mr. Nakao said, referring to the prospects of the Philippine industry.

The Philippines, however, should be more concerned about bringing down poverty, ADB’s chief executive said. Government data showed that poverty incidence had dropped less sharply from more than a fourth of Filipinos in 2012 to a little over a fifth in 2015.

“The most important role that Philippines can play is to grow and to reduce poverty, and also to be a good member of ASEAN by showing progress and growth, and continue to be an important member of Asia-Pacific region,” Mr. Nakao said.

“Philippines was one of the more developed countries in Asia in 1950s and 1960s, much more per capita GDP than Korea. Some people will say it was next to Japan. But now Philippines per capita GDP is... much less than Korea, Thailand, Indonesia, Malaysia.”

Philippine per capita GDP of $2,858 in 2015 was way behind Indonesia’s $3,362 and Thailand’s $5,742, and even much less than South Korea’s $27,195.

“The Philippines has not reaped the benefits of its own human resources and natural resources as much as they can,” Mr. Nakao said.

“So one of the important things for the Philippines to decide about the Asian Century is to continue to strengthen growth and poverty reduction, and more social development such as health of the people and better education,” he said, referring to an ADB-commissioned study that forecast the region playing a greater role in the global economy.

In line with this, the ADB has thrown its support behind the Duterte administration’s 10-point economic agenda.

“We are supporting a lot of programs in the Philippines, more private-based development and conditional cash transfer,” Mr. Nakao said.

“I had a very good discussion with President Duterte last July, and he mentioned... rural development, including food chains, roads and other infrastructure, and also education sector. He mentioned Mindanao’s development,” he added.

“Those are things that we’re supporting.”

ADB provided its first loan to the Philippines in 1969 to support private enterprise development, followed by a loan for agriculture and rural development in Mindanao.

As of 2015, the lender had provided $27.2 billion, including cofinancing of $10.7 billion.

In the first half of last year, ADB approved loans amounting to $583 million for conditional cash transfers, water transmission improvement to Metro Manila and surrounding areas, and water-supply development in various municipalities.

Given the Philippines’ remaining work on poverty reduction, Mr. Nakao said the country is well-placed to remain the ADB’s home.

“There is no reason to consider other places to go as far as ADB is existing... The Philippines is a developing country. To do something related to development, it is good to be residing in a developing country,” he said, adding that this has become more important amid the lender’s emphasis on coupling financing with knowledge-sharing.

“It’s interesting that Manila competed with Tokyo and other cities in 1965 to decide where to go. Manila won the voting by 18 prospective Asian members, and in the end, Manila won 9-8, with eight going to Tokyo. Of course, Japan wanted to have headquarters in Tokyo, but it turned out it was a very good choice to come to Manila because it’s closer to the center of Asia,” Mr. Nakao said.

As country-host, the Philippines provides two-thirds of the ADB’s 3,000-strong staff -- something made possible by the country’s skilled and hospitable workforce.

In 2016, the lender’s operations for Asia Pacific -- consisting of loans, grants, technical assistance and cofinancing -- hit a record $31.5 billion, a 17% increase from the $26.9 billion the previous year. Loan and grant approvals reached $17.5 billion, nine percent more than the $16 billion in 2015.

“The increase in our development financing to Asia and the Pacific is reflective of our strong commitment to reducing poverty and improving people’s lives in the region,” Mr. Nakao said.

“Asia is growing at a steady pace, but more needs to be done to achieve development that is both sustainable and inclusive.”


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