Sunday, March 31, 2013

The Philippines: Asia’s Next Big Thing? | The Financialist

The Philippines: Asia’s Next Big Thing? | The Financialist

| by Financialist Staff Manila

The Philippines: Asia’s Next Big Thing?

In the Philippines, developers are putting up luxury condo towers bearing names such as Starck and Trump. Japanese firms, including Canon, are building new plants. Work crews are preparing to improve run-down airports and pour concrete for new highways.

Construction is the most visible sign of growth in the Philippines, a group of islands in Southeast Asia that was long shunned by foreign investors concerned about political instability, crime and corruption. Now it looks set to succeed Indonesia as the next hot destination for investment.

The headlines have been eye-catching: The Philippines’ 2012 GDP growth was more than 6 percent, while inflation was around 3 percent. The country’s stock market soared 33 percent last year, and its currency rose about 7 percent against the U.S. dollar. The country’s leaders and many foreign banks are confident that 2013 will bring an investment-grade credit rating.

“I think people had sort of forgotten about the Philippines … they fell off the radar because governance problems and political instability masked their assets,” such as untapped mining resources and a youthful population, Credit Suisse economist Santitarn Sathirathai said.

“Now (the Philippines) are back on the map, and I think that the impact of investor visibility could be significant,” he said.

Progress has come on several fronts. The government has signed a preliminary peace agreement with Muslim rebels, which could end a long insurgency and improve the investment climate.

While previous President Gloria Macapagal Arroyo has battled several corruption charges, current leader Benigno Aquino III has vowed to crack down on such abuses, encouraging investor confidence.

The Philippines, which has many English speakers and a focus on services such as business process outsourcing, has a new opportunity to compete with China for manufacturing jobs amid rising Chinese labor costs.

Last year, as a territorial dispute between Japan and China sparked anti-Japanese protests in China, Japanese investment rose more than 10 percent via the Philippine Economic Zone Authority, which promotes investment in export-producing industries. Many Japanese companies are expanding their Philippines presence – Canon Business Machines Inc., for example, is at work on a plant to build laser printers.

Meanwhile, the government is pushing public-private partnerships to improve or expand expressways, airports and schools, while real estate developers are targeting a growing middle class and wealthy Filipinos eyeing prestige properties. Developer Century Properties Group is at work on several such projects, including the Trump Tower Manila and a residence conceived with Philippe Starck’s residential design company.

Yet the Philippines, coming from so far behind many of its neighbors, faces big challenges ahead.

Though the government is working on infrastructure, there are still deterrents for business people, such as worn-out airports and poor telecommunications, says J. Alfonso de Dios, a Filipino who has companies both in China and his home country.

De Dios, whose TVCXpress Manila sends digitized TV commercials and program content to local TV stations via exclusive broadband lines within the Philippines, says the country’s Internet infrastructure is not designed with wide bandwidths to accommodate large files. He says that it would actually be much cheaper to send the video packages his company produces from his Philippines office to a neighboring country with stronger bandwidth, and then back to his clients in the Philippines.

Tourism is another area where the country could stand to ramp up infrastructure. While the Philippines boasts thousands of islands and some of the world’s most beautiful beaches, less than 2 percent of GDP revenue comes from tourism, compared to 7 or 8 percent in Thailand or Malaysia, Credit Suisse’s Sathirathai said.

The country is pushing a new tourism campaign with the slogan, “It’s More Fun in the Philippines,” and a big casino complex is set to open in Manila Bay. Bill Barnett, the managing director of tourism consultancy and research company C9 Hotelworks, questions whether casinos are enough, and says it might be wise to diversify with theme parks or other attractions for middle-class, multi-generational Asian families.

The Philippines – which, like Japan, is in the midst of a territorial dispute with China – also needs to lure tourists from China, who prefer Thailand and Indonesia, Barnett said. The country is betting big on gaming, and if the Chinese don’t come, who will?

“The attitude toward the Chinese needs to be, ‘Let’s kiss and make up – and by the way, please come visit,’” he said.

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