As British people vote today on whether to leave the European Union or not, the potential Brexit—a portmanteau for British exit—is seen to stir but not shake up the Philippines.
Being principally a consumption-driven economy, a Brexit won’t likely have a significant impact on the Philippines, said businessman Manuel V. Pangilinan, chair of local telecom giant PLDT Inc. and infrastructure holding firm Metro Pacific Investments Corp.
Because external trade accounts for only a small portion of the economy, he said the Philippines was not too prone to external headwinds that such an event would bring.
Ripples from a Brexit are seen being transmitted to the Philippines through three channels: trade, investment and remittance flows.
In a June 14 commentary Citi economist for the Philippines Jun Trinidad said the Brexit risk was correlated with direct exposure to bilateral trade and investments from UK.
However, he noted that the country’s exports to the United Kingdom accounted only for less than 1 percent of total shipments from January to April this year, amounting to $150 million out of total exports of $17.4 billion for the period.
“Imports from UK just like exports represent a puny 0.6 percent of total imports suggesting lack of strong trade dependence with UK,” Trinidad said.
On foreign direct investments (FDIs), Trinidad noted that government approvals for the four quarters ending first quarter of 2016 amounted to only P4.8 billion or 1.9 percent of total.
Meanwhile, he noted that the British pound just represented a fragment of public and publicly guaranteed debt, which was in turn dominated by US dollars (with a 69.7 percent share), Japanese yen (24.3 percent) and euros (3.5 percent).
On UK portfolio investments in the Philippines, the economist noted that these amounted to only $190 million or 2.4 percent of total 2014 portfolio investments.
“Shallow trade and investment exposures to UK imply limited financial reliance on UK markets,” he said.
In terms of remittances, Trinidad noted that overseas Filipino workers’ remittances from the UK amounted to $1.4 billion or about 5.6 percent of total money wired home by overseas workers in 2015. It was estimated that there were about 161,700 Filipino migrants in the UK, referred as “permanent” stock of overseas Filipino workers in this market. Including all other overseas workers based in the UK, the number is estimated at 218,000 or about 2.1 percent of overseas Filipino workers in 2013.
“Unless UK jobs and income prospects worsen, Brexit risk need not disrupt remittance flows,” Trinidad said.
For Trinidad, the country’s global competitiveness rather than Brexit risk remained the issue.
“Lack of sizeable trade flows with the UK easily dismisses Brexit risk implications on trade,” Trinidad said. However, he noted that the Philippines may incur opportunity losses as EU’s generalized system of preferences in trade and other investment schemes/benefits—particularly for those applicable to UK market access—could get downgraded in a Brexit scenario.
“While these EU-trade benefits/concessions play a part, Philippine competitiveness in attracting FDI from UK, EU or other advanced economies remains the key issue,” he said.
Aside from stronger local markets predicated on the next government’s policy agenda, Trinidad cited measures that cut the costs of doing business and attract FDI: liberalization of foreign ownership limits in infrastructure, utilities, and other services; allowing more competition; strengthening labor practices/standards; streamlining bureaucratic procedures/processes, and jumpstarting infrastructure projects under the public-private partnership framework and aggressive spending on national/regional infrastructure projects.
Trinidad said a Brexit scenario would have some portfolio effect as a so-called “risk-off” sentiment likely to prevail in the global markets would not spare Philippines financial markets. He said the peso was likely to resume its weaker trading range while other risk asset markets may give up some recent gains.