Doris Magsaysay Ho, President and CEO, A Magsaysay, and Jaime Augusto Zobel de Ayala, Chairman and CEO, Ayala Corporatio: Interview

Interivew: Doris Magsaysay Ho and Jaime Augusto Zobel de Ayala

How can the Asia-Pacific Economic Cooperation (APEC) and economic integration be leveraged to boost emerging economies’ competitiveness?

DORIS MAGSAYSAY HO: The goal behind the formation of an integrated economic bloc is the lowering of barriers and impediments to giving businesses greater access to larger markets. One great example is New Zealand – a country with a small population but with the capacity to produce goods and services beyond its needs. New Zealand businesses and policymakers are major proponents of free trade as one of the founders of Pacific 4 – which was the precursor to the Trans-Pacific Partnership – with the goal of increasing exports of agricultural and other products and services.

Thus economic integration through APEC, ASEAN and trade agreements offers us significant opportunities if businesses look outward beyond our domestic markets. However, I believe we must have a strategic plan identifying sectors where we have a unique selling proposition and competitive advantage. One such area is trade in services, where technology provides different sectors, like business process outsourcing and creative industries, with amazing growth opportunities.

With inclusive growth being a theme for both APEC and the APEC Business Advisory Council (ABAC) in 2015, we also hope to develop the capacity of small and medium-sized enterprises to sell products and services through the internet. Another strategy is to help young Filipinos to be the best and brightest creators of innovative digital products. This convergence of global markets with technology is making it possible for anyone to benefit from global trade, but we must focus on building the systems to support them. This includes having an elementary educational system that emphasises science, technology, engineering and mathematics (STEM) fields since the opportunities are changing so quickly, and we must ensure our next generations have a chance to participate and benefit.

The talent in the Philippine diaspora also offers us another great opportunity to focus on certain sectors of manufacturing and agriculture, but again business and government should use 2015 to fast track the implementation of strategies already defined. One way to lower costs for power and transport and logistics is to promote manufacturing and production hubs around ports, while another is to create clusters of agricultural lands for production and processing so that logistics costs can be lowered. Today, we transport corn, feed and hogs. Our domestic shipping industry vision is to transport just the pork chop, or for that matter, disease-free chicken already skewered for yakitori restaurants in regional markets.

The anti-corruption and ease of doing business agenda of the government will be instrumental in making the Philippines an attractive place to invest. There are many measures already in place that we should put into a to-do list and implement in 2015, such as the National Single Window for Customs, among many others.

JAIME AUGUSTO ZOBEL: I think one of the main benefits of APEC is that it provides emerging economies like the Philippines with direct access to larger markets, and the opportunity to learn and apply global standards – whether through industry, society, or the legal and political frameworks that have contributed to the advancement of other countries. However, the challenge will be to achieve a balance between the benefits of opening up to free trade and the potential need to protect growing, nationally important sectors. Emerging economies must be given the opportunity to increase their long-term competitiveness by developing their innate and natural comparative advantages. Obviously, this must be done within the context of World Trade Organisation regulations. Thailand’s automotive industry is a good example of this. The Thais chose to prioritise this sector in the 1990s, protecting it through government policy and identifying a so-called champion model, a pick-up truck, to build their supplier network around. Nearly 20 years later, the country is now the automotive hub of South-east Asia and one of the largest automotive manufacturing centres in the world. In terms of barriers, the Philippines, along with other developing nations in the region, will have to continue building the infrastructure capacity to fully leverage the opportunities provided by APEC. Political and economic stability will likewise be critical in enticing both foreign and local long-term investments in the region. The current administration has done much to address these two challenges. The stable, positive environment that President Benigno Aquino III has provided has resulted in increased interest from the global business community. Our stock market has reached record highs, and the investment-grade improvements have helped tremendously in lowering the cost of doing business.

What connectivity infrastructure would help strengthen the global supply chain integration and sustainable development of the Philippines?

ZOBEL: Transport infrastructure will indeed be critical to enabling the benefits of Asia-Pacific integration for the Philippines. I recently read an Asian Development Bank (ADB) study that put the cost of the country’s physical infrastructure requirements from 2010 to 2020 at an estimated $127bn – part of the $1trn in combined infrastructure investment needed in ASEAN over the same period. However, before we can even consider building regional infrastructure networks, much work needs to be done within each nation to build out and optimise rail, sea and road transport. Several other emerging ASEAN nations – Malaysia ($188bn), Thailand ($173bn) and Indonesia ($450bn) – also require a large degree of investment in new infrastructure capacity through 2020, according to ADB figures. Our country continues to have broad transport infrastructure needs, namely roads, railways and bridges. I do not think we can prioritise one over the others. The growth of the Philippines has been so expansive in the last several years, and our infrastructure capacity needs to catch up. A Japan International Cooperation Agency study from 2014 pointed out how traffic congestion currently robs the Philippines of up to P2.4bn ($54m) per day. Improving mass transit, whether via a robust road network or increasing the capabilities of our railway system, in order to decongest our highways will be very important. A transparent, efficient and centralised public-private partnership (PPP) process, such as the one being conducted by the current administration, would best facilitate the development of the necessary infrastructure capacity. Indeed, the country’s PPP programme has served as an enabling framework that has attracted many new private sector applicants to invest in our national infrastructure.

MAGSAYSAY: A major factor for connectivity is transport and logistics for both exports and imports and for domestic distribution. It is important for policymakers to understand, however, that shipping and logistics follow trade. So strategic plans to develop manufacturing and agriculture are key for our competitiveness. Developing these production clusters around hub ports for our exports, and ports to serve cities and communities around the country to handle imports and domestic trade, will also allow us access to lower priced goods and commodities. Because of the relatively small trade volumes, the country is a feeder economy. This means that we have an added cost of trans-shipment and do not benefit from the lower cost of larger ships that serve large economies. Other feeder economies in Asia are, including Vietnam and Indonesia, working very hard to increase ready trade to lower the cost of logistics all around. One of the primary challenges for the Philippines is that it is relatively farther away geographically from markets so we must be even more aggressive in our plans. Another thrust should be to develop production clusters and hub ports around the country so we create wealth everywhere. One thrust of APEC and ABAC in 2015 is to develop our ability to build imbedded services into the global value chain of companies around the world. There is also a great role that bigger business can play to develop value-driven partnerships with smaller businesses so that we have more people both participating and benefitting from global trade.

Another focus is the sustainability of our cities, not only focusing on infrastructure deficits, but also the philosophy behind the way in which we design liveable cities. Philippine cities place very little emphasis on public places, sidewalks, parks and plazas, waterfronts, heritage conservation – factors that make the experience of a city great – especially since investors also take liveability into account when making decisions.

In what ways can skilled labour mobility in the Asia-Pacific region be encouraged, and what value proposition does the Philippines offer?

MAGSAYSAY: ABAC Philippines has been promoting the need for a regional framework for labour mobility. The initiative, called “Earn, Learn and Return” aims for policies that are fair for sending countries, like ours, receiving countries and the worker. Overseas workers must also be briefed on the Philippines’ strategy, so that they work abroad with the goal of learning global standards and practices and the aim of returning home to participate in our economy. Sectors such as tourism, health care and others are growing as key drivers of our economy and are great sectors for overseas Filipinos to return to as entrepreneurs or professionals.

The ideal future would be for this incredible talent to form the foundations for us to offer services instead of people. In shipping, Philippine companies are moving out of manning and crewing to ship management services, for example. Whatever the case, the government’s implementation of the K-12 programme, which seeks to extend the length of public education, will be a significant step towards giving future generations the opportunities brought about by regional integration and global trade. There are a few easy just-do-it action plans. For instance, let us capitalise on our bilingualism and require Philippine movies and TV shows to have subtitles. This will also make them marketable abroad. As part of APEC, there is a thrust toward regional harmonisation and recognition of skills, in addition to the development of vocational learning. While the Philippines has been historically US-oriented in its educational system, the country is increasingly looking towards European models of vocational training. And as I mentioned above, we must accelerate the focus on STEM fields because that will be the way of the future.

ZOBEL: Labour mobility is a tricky issue. While allowing workers to move more freely across countries generally has a positive impact, this type of policy has historically been a target for citizens and politicians, especially in countries where a significant portion of the labour force stands to be displaced by cheaper or more skilled foreign workers. I believe mobility of skilled labour should be encouraged given that the benefits, which include greater motivation among employees and firms having a broader pool of talent to select from, outweigh the costs. Governments across the region need to enact policies that provide for the free movement of talent, while initially protecting (in the right ways) the more vulnerable sectors of the labour force. More importantly, countries should invest in the education that prepares young people to compete in this new regional and global context. The Philippines, with its service-based economy and its strong overseas labour base, represents a rich source of skilled workers for the region. Other countries have long benefitted from the skilled, English-speaking workforce that we continue to send abroad – a workforce that now numbers over 10m. In turn, we receive more than $22bn in remittances per year, which has helped to fuel growth at home. Within ASEAN, there is even more room for Filipino worker employment to grow, as most overseas workers, some 67% of all deployments, go to the Middle East. However, I believe such an arrangement has a natural ceiling. If too many workers leave the Philippines, it puts a dent in the country’s potential for further economic growth, which has long been described as brain drain. Meanwhile, in the countries that receive large volumes of Filipino workers, a similar backlash may also occur, as the influx of foreign workers could be perceived as taking jobs away from qualified citizens.