The Unexpected Asian Tiger: Philippine CEOs Overwhelmingly Positive about 2017

08 Aug 2017

Paulius Kuncinas, Asia Managing Editor

Paulius Kuncinas
Asia Managing Editor
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View the OBG Business Barometer: Philippines CEO survey infographic

The Philippines continues to confound critics by solidifying its position as an emerging South-east Asian economy following decades of underperformance. In contrast to other “Asian tigers” like Thailand, Malaysia, South Korea, Singapore and Japan, the Philippines’ service sector has been the driving force behind high economic growth.

There are challenges ahead, however. The country needs to improve outdated infrastructure, lower the cost of electricity and expand its manufacturing sector.

This overwhelmingly positive sentiment was confirmed by the OBG Business Barometer: Philippines CEO Survey, which showed that 100% of respondents have either positive (75%) or very positive (25%) expectations for local business in 2017.

Crucially, four-fifths of CEOs interviewed by Oxford Business Group (OBG) said that only 20% of their business growth was driven by government spending, confirming the widely held view that the economy is expanding thanks to private sector activity.

However, at the same time, executives expressed a number of concerns in terms of doing business. A total of 58.3% cited bureaucracy as their top hurdle in running
operations.

The second most common issue was human resources, with 37.5% of C-suite executives identifying HR as a potential business risk.

Surprisingly, cost of capital ranked low on the list of concerns, cited by only 4.2% of respondents as a top problem.

Perhaps the most encouraging finding is in regards to an increase in planned investment, which should support economic growth of around 7% in 2018, according to the latest estimates from the IMF. Some 70% of executives interviewed said they intended to make a significant capital investment within the next 12 months, while less than 30% said new investment was unlikely in the short term.

In regards to the most pressing shortcomings in the Philippine business environment, 50% of respondents cited leadership skills. A lack of research and development was second in line, identified by 25% of CEOs; while business administration, IT and engineering skills appear to be relatively well supplied, with just 17% of respondents highlighting these factors as a major concern.

Overall, the OBG Business Barometer: Philippines CEO Survey presents a compelling outlook for the Philippines as a leading investment destination in South-east Asia. With rapidly rising domestic consumption, soaring foreign direct investment (FDI) and a growing services sector, the country is set to record strong growth rates in 2017.

While soft global demand has weighed on exports, and the agriculture sector remains subdued following years of volatile and problematic weather, prudential fiscal management, falling public debt and legal reforms aimed at improving the investment climate have left the country positioned to tap global debt markets and attract new investment. International involvement will be critical to the delivery of new infrastructure projects, some of which have experienced delays of late. Public infrastructure spending is forecast to significantly increase in the coming years, with private sector participation remaining a critical pillar for long-term transport development, presenting considerable opportunities to foreign investors.

Perhaps the most critical hurdle to overcome is the change in the country’s constitution, which caps equity holdings at 50%, restricting foreign investors’ control of their assets. While this is not cited as a major issue, the signal to global investment community is that the Philippines lacks the confidence to allow free inflows of capital.

This perception is reflected in the country’s relatively low FDI per capita figures, with the Philippines trailing Singapore, Malaysia and Thailand in terms of investment flows. This is a missed opportunity given that, in terms of human capital and the cost of doing business, the country is among the most competitive in ASEAN. Sectors such as tourism, infrastructure, mining and manufacturing would benefit greatly from further liberalisation. In the meantime, the country continues to rely on its own internal momentum, consumption and high investment rates to propel itself up the ladder of middle-income economies.

Tags:

Asia Philippines Economy

Paulius Kuncinas, Asia Managing Editor

Paulius Kuncinas
Asia Managing Editor
Follow Paulius on Twitter LinkedIn