Philippines–Is it time?
Recently, I spoke at a forum in Singapore attended by Filipino overseas workers who were considering returning to the Philippines, or at the very least, investing in Philippine instruments to prepare for eventual retirement.
They were a highly diverse group of professionals and entrepreneurs in various industries, some in the country for less than five years while others have been living there for over 30 years. A number of them have lived there so long that they spoke with distinct Singaporean accents.
But their concerns were common. Why should they return to the Philippines? What happens after 2016? Could we assure them that the country’s growth would continue? Would they have jobs or be able to put up businesses when they return? Could they get the same salaries in Manila?
Coming back, of course, is a very personal decision, but there are several factors why we believe now is a good time to be in the Philippines.
Construction, tourism and manufacturing
These industries are critical as they generate a lot of jobs and their impact reaches far into other industries.
With so much focus on the highly publicized public-private partnership (PPP) projects, numerous privately funded infrastructure projects have gone almost unnoticed. There are many of them now under way, among them sorely-needed power plants, and redevelopment of vast tracts of land. Add to this the initiatives to rebuild areas affected by Supertyphoon “Yolanda,” starting with the P361-billion fund set up by the government.
All these are generating jobs and driving spending, and over time, improved infrastructure will drive growth in tourism, generating even more jobs. As it is, tourist arrivals have increased significantly, and while hotels and casinos have been built to handle the influx, our airports have become woefully inadequate.
The manufacturing sector, on the other hand, has experienced a revival in recent years, as evidenced by increasing industrial electricity sales. With more companies reassessing their operations in other countries for various reasons, perhaps we will see more of them setting up shop in the Philippines once again.
Strong US dollar inflows
Overseas Filipino worker (OFW) remittances continue to grow, increasing almost five times from $5 billion in 2000 to $23 billion in 2014. Even more impressive has been the growth in the business process outsourcing sector, more than ten times in ten years, from $1.5 billion in revenues in 2004 to an estimated $16 billion in 2014. These have certainly fueled our economy, and are expected to continue to do so in the years ahead.
Moving up the offshoring value chain is important, however, and the founding of Analitika to build the Philippines as a global analytics center is a promising development. This has been spearheaded by IBM with the participation of various sectors—government, the academe, and big business. Building a new industry which has the potential to generate over 400,000 high-value jobs means jobs for returning professionals and the population in general, and continued dollar inflows for the country.
We now have more money than we owe. This is something I never thought I’d see in my lifetime, when interest rates soared to 60 percent in the 1980s and it seemed every Filipino for generations would be in debt. As recently as 2006 our gross reserves were $23 billion, and debt was more than double at $54 billion. But today, our reserves are at $83 billion, with debt only at $59 billion. This means the Bangko Sentral ng Pilipinas (BSP) has more weapons at its disposal to combat rapid appreciation or depreciation of the peso, which helps it stabilize the peso and manage our economy better.
Strong GDP growth
Our growth at 7.2 percent in 2013 was second only to China’s 7.7 percent among our Asian peers. I couldn’t help but point out that Singapore only grew at 4 percent, but of course they already have among the highest GDP per capita. Still, the strong growth is forecast to continue for the next few years. With a young population with increasing incomes driving consumption, we have the potential to continue to grow rapidly through the next decade.
Investment grade ratings
We continue to enjoy investment grade ratings from all three major ratings agencies. This means lower borrowing costs, but it also means that companies who would not otherwise invest in the Philippines are now looking at doing so. Indeed, we have spoken with numerous overseas parties looking for local partners or considering actually putting up subsidiaries in the country.
All these factors mean jobs and economic growth. Certainly, we all dream of the day when we no longer need to have our fathers, mothers and children go overseas to earn a living, when the dollars we generate from industry more than make up for the lost OFW inflows.
As to the 2016 question, no one can predict the future, but I believe conditions have changed. Many of the reforms put in place will be difficult to undo, and with a more vigilant populace aided by social media, wrongdoings will be harder to sweep under the rug. Addressing them is another matter, of course, as Filipinos are notoriously amnesiac and overly forgiving.
Besides, would anyone really want to be remembered as the president who reversed all the gains made over the last few years?
On investing in Philippine instruments, one need only look at the Philippine Stock Exchange index (PSEi). From the beginning of 2004 to the end of 2013, the PSEi has grown fourfold. This means that in ten years, a million pesos could have grown to around P4 million. In fact, equity funds in the country have done just that. Even investing in a much less volatile bond fund would have doubled one’s money. With the appreciation of the peso over the same period, this would have meant significant gains for OFWs investing their hard-earned money in the country.
Many may have felt burned by the rapid rise and fall of the stock market last year, but remember that the past ten years included the global economic crisis in 2008, when corporations all over the world lost much of their value and the PSEi itself tanked. Yet the PSEi still grew four times over that period. With earnings forecast to grow 16-18 percent next year and GDP expected to grow 6-7 percent annually over the next few years, expect the market to continue to post strong gains.
Of course on salaries, returning OFWs need to be realistic. Salaries here are nowhere near Singapore’s but many factors need to be considered. Lower cost of living, for one, and the comfort of living among relatives and friends. Over time, however, with the implementation of the Asean Free Trade Area (Afta) and its promise of borderless economies, we could see more parity in salaries among countries in the region. Otherwise we could see the migration of talent to better-paying locations with the expected relaxation of working visa restrictions.
Is it time for the Philippines? For overseas Filipinos, maybe the question that needs to be answered is, do they want to be part of the Philippine growth story? Coming home may entail sacrifice in the short term, hence for some it may not be the right time. But those who invest in the country now will not only have the opportunity to participate in the growth of the economy, they can also prepare a nest egg for their eventual return.
Remember an investing basic—if you expect to spend in dollars in the future, save dollars, but if you expect to spend in pesos, save pesos!
The author is president and CEO of Sun Life Financial.
