Purchase OBG Publications

Growing an impressive 7.2%, the Philippines was one of Asia’s best-performing economies in 2013. As growth has given rise to increased business activity and boosted consumer spending power, the question that arises is whether this new-found domestic demand will be for goods and materials produced locally or imported from abroad. This is an issue that will become even more important in 2015 as ASEAN Economic Community integration further opens the market to imports from regional manufacturing powerhouses. At the same time, integration offers new-found market access to a wide and emerging consumer base, and the Philippines will need to ramp up its manufacturing competitiveness to ensure it becomes a net exporter, rather than a pure importer, of value-added products moving throughout the region. This chapter contains interviews with Edgar “Injap” Sia II, Chairman and CEO, DoubleDragon Properties; and Winstron Co, President, Emperador Distillers.

Strong economic growth and a rise in energy demand have exerted pressure on the Philippines’ energy sector in recent years. With large, easily accessible oil and gas discoveries long since picked over, a continued decline in petroleum production has encouraged a heavy reliance on imports. As the country shifts its energy priorities away from crude oil and towards natural gas, the Department of Energy has set out a road map to establish a new network of gas pipelines to transport gas around Luzon from 2017 to 2022. Exploration in new, primarily frontier areas could mitigate the country’s increasing reliance on foreign energy sources to some degree, although any significant reserves are likely to remain tied up in territorial disputes for the foreseeable future. It is clear that several challenges remain with respect to the country’s electricity supply in the short term, particularly in Luzon. However, the implementation of new projects and incentives should help to alleviate the shortfall in the medium-to-long term, even as energy demand continues to climb at a rate in excess of 4% per annum. This chapter contains interviews with Francisco C Sebastian, Chairman, Global Business Power Corporation; and Tirso G Santillan Jr, CEO, Alsons Consolidated Resources.

With development dating back nearly 200 years, the Philippine insurance sector is among the region’s most mature and competitive, expanding steadily in recent years despite serious challenges in 2014. The nation remains prone to natural disasters, as evidenced by Typhoon Haiyan, a category-five storm that caused billions in damage when it struck in November 2013. It cost the sector millions and dampened industry growth the following year. The industry stayed resilient, however, with continuing growth in investment and assets in 2014. Meanwhile, the sector remains open to foreign investment, despite a high tax burden and rising capital requirements. Indeed, recently enacted legislation, though painful for some smaller players, should improve industry stability and spur consolidation in 2015, keeping the industry on a steady long-term growth path. This chapter contains an interview with Lorenzo Chan Jr, President, Pioneer Life & Retail Organisation Head, Pioneer Group.

As domestic liquidity surged and foreign investors gradually returned after a general flight from emerging markets in 2013, Philippine capital markets were riding a wave of optimism in 2014 and early 2015. The Philippine Stock Exchange’s (PSE) blue-chip index, the PSEI, hit a fresh all-time high in January 2015 and was continuing to rise in February, finally working past the “taper tantrum” that knocked back all major emerging market indices in 2013. The Philippine market’s strong performance in a weak year for emerging markets bodes well for the capital markets sector and was an important show of confidence by investors in the country’s broader economic prospects. In addition, the development of a local corporate bond market is also a promising sign and will reduce the economy’s dependence on banks to finance investment. This chapter contains an interview with Rabboni Francis B Arjonillo, President, First Metro Investment Corporation.

As banks expand credit to a traditionally under-banked economy, the sector is enjoying a period of rapid catchup growth. A positive feedback loop is at work in which banks are increasingly driving economic growth, supported by inflows from foreign investment and Filipinos working abroad, while growing trust in the banking system is drawing greater volumes of savings. Although bank lending has risen quickly, to $122bn in September 2014, it was equal to just over 40% of annual GDP. That is about half the level in Thailand and a third of the level in Malaysia, leaving considerable room for further expansion. Indeed, by the time regional integration comes to pass, Philippine banks may be more competitive across South-east Asia than many are expecting. This chapter contains an interview with Amando M Tetangco Jr, Governor, Bangko Sentral ng Pilipinas; and a roundtable with Reynaldo A Maclang, President, Philippine National Bank; Alfonso L Salcedo Jr, President and CEO, Security Bank; and Justo A Ortiz, Chairman and CEO, UnionBank of the Philippines.

After years of lagging behind its South-east Asian peers, the Philippines is seeing a long-awaited awakening of foreign direct investment (FDI). Although FDI volumes are still smaller than what countries in its peer group attract, the Philippines has been catching up at an impressive pace. Although many of the challenges that impeded investment in the past have yet to be fully overcome, the faster economic growth of recent years and stronger efforts to attract investment have improved perceptions of the country’s prospects. FDI rose from $1.1bn in 2010 to $4.9bn in the first nine months of 2014 as economic growth has accelerated and business policies have improved. This chapter contains an interview with Arthur R Tan, President and CEO, Integrates Micro-electronics; and a dialogue with Edwin CoSeteng, President, First Philippine Industrial Park and Guillermo Luchangco, Chairman and CEO, Science Park of the Philippines.