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MANILA, Philippines–The so-called VIP economies made up of Vietnam, Indonesia and the Philippines are expected to corner more foreign investments in the coming years as well as “breed an increasingly wealthy consumer class,” according to global property consultancy firm Cushman & Wakefield.
In a report published last September titled “Emerging Hotspots: The Rise of the VIP,” Cushman & Wakefield said that while the Philippines, Indonesia and Vietnam had been “considered among the region’s economic laggards,” the three Asean countries are on the rise given their “strengthening economic and demographic” prospects.
“The rise of the VIPs is very important for the future of the global economy, signifying that the advance of emerging economies is widening and deepening, extending to regions that had been previously left out. So, for now, forget the BRICs [Brazil, Russia, India and China]; take a look at the VIPs,” the report read.
Cushman & Wakefield noted that the three economies could generate a combined gross domestic product (GDP) of $1.8 trillion this year. This could even grow to more than $5 trillion by 2025, it added.
“The region has weathered the fallout from the 2008 global financial crisis better than many. Government debt in Indonesia and the Philippines is less than 50 percent of GDP, compared with over 90 percent in the UK and the euro area, or over 100 percent in the US. Sound fiscal and monetary policies have been key drivers of growth,” Cushman & Wakefield said, noting the recent upgrades in the debt ratings of the Philippines and Vietnam.
Already, investors from Japan and the United States are taking notice of these countries, Cushman & Wakefield claimed.
“US interest has noticeably increased in the Philippines and Vietnam over the past year, though the volume of investments remain relatively small compared to the entire Southeast Asian region.”
Also, Japanese investments in the “VIP” economies have increased by an average of 15-20 percent annually since 2009, it said, citing Japan External Trade Organization data.
The VIP countries have also made strides in global competitiveness rankings such as the 2014-2015 World Economic Forum (WEF) report, where Indonesia, the Philippines and Vietnam placed 34th, 52nd and 68th of the 148 economies covered, from 54th, 87th and 75th, respectively, five years ago, the report pointed out.
In the case of the Philippines, its latest WEF ranking was described by Cushman & Wakefield as a “remarkable gain,” as the jump by 35 places was the biggest posted for 2014-2015.
“The results underscore the effectiveness of the reforms of the past four years under President Aquino,” the report said.
Moreover, the Philippines is among the region’s fastest-growing economies mainly due to the robust cash remittances being sent home by Filipinos living and working abroad, Cushman & Wakefield said. The remittances drive domestic consumption, and fuel the strong performance of the country’s business process outsourcing (BPO) sector, it added.
The BPO industry now employs 1 million people and is one of the largest dollar earners for the economy as the Philippines ranks now No. 1 in call centers and second only to India in non-voice services, Cushman & Wakefield noted.
Also, the BPO sector is boosting real estate sales and leasing, with Cushman & Wakefield estimating BPO absorption in Manila’s office market to reach 3-4 million square feet per year until 2016.
Cushman & Wakefield expects “high occupancies to prevail even with a high volume of new office projects coming on stream over the next two years, and support rent increases,” it said.
But the report also mentioned that the Philippine economy would grow faster if it could rapidly improve its infrastructure.
“Recent impact from Typhoon Haiyan (Yolanda) illustrates a shortage of modern infrastructure that makes the Philippines highly vulnerable to disasters. The government needs to boost infrastructure spending from the current 3 percent to 5-7 percent of GDP in order to keep pace with its regional neighbors and sustain its growth momentum,” it said.
Better infrastructure is likewise crucial in sustaining the Philippines’ growth potential particularly in the areas of manufacturing and tourism, according to the report.
As for the entire “VIP” grouping, Cushman & Wakefield said all three economies have “evolved into a major pillar of growth in Asia-Pacific over the past five years, and we believe that their continued rapid expansion will breed a burgeoning wealthy consumer base and make them potential economic heavyweights.”
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