Growing middle class, ASEAN links boost PH investment prospects

HSBC Philippines’ chief sees greater UK investor interest in the country while the head of the Philippines’ oldest conglomerate sees the ASEAN market and its growing middle class pulling in more foreign investors

By Chris Schnabel, Sep 19, 2016

MANILA, Philippines – Consistent economic growth, a young and increasingly moneyed population, and the ASEAN economic integration are magnifying the Philippines as a beacon to investors, according to two of the country’s business giants.

“You’ve got 100 million Filipinos, a 2.5% population growth rate, a GDP that has been growing at around 6% for the past 7 quarters and is expected to grow at 6%-7% for the next 6 years,” HSBC Philippines CEO Wick Veloso told reporters earlier this week.

Veloso was recalling his takeaways from an investment summit held in the United Kingdom earlier this month for prospective investors.

“What’s more, the per capita income of the country is already $3,000, and that matters because it directly correlates to consumerism, so that coupled with economic growth and the population growth rate, you can just imagine the opportunities,” Veloso said.

“You can just imagine,” he added for emphasis, “the requirements [this growth will need] in infrastructure, power, water, telecommunications, housing, medical supplies, and education and any industry related to it, like steel and construction.” (READ: Foreign direct investments in PH up 94.9% in H1 2016)

The UK has the expertise in these fields, particularly engineering and infrastructure planning, and their firms are particularly suited to the country’s needs, Veloso pointed out. He added that the recent Brexit has amplified the UK’s appetite for increased trade.

The UK is positioning itself to take advantage of the Philippines’ growth momentum, said Veloso. He noted that the summit was well-attended – there were between 150 to 200 potential UK investors present, as well as Philippine investors.

The UK’s impending official exit form the European Union has placed increased emphasis on increasing its international trade with other nations and the UK sterling’s drop due to Brexit has made British exports cheaper and more attractive.

After Brexit, the pound was down to about 1.25 to the US dollar and HSBC forecast it to drop to 1.20 by the end of the year, Veloso pointed out.

Local firms have also been on a buying spree recently, notably buying UK consumer firms like Whyte and Mackay and Quorn.

The move to strengthen trade ties between the Philippines and the UK was also amplified by the recent visit to the country of the UK Prime Minister’s trade envoy to the Philippines in a bid to drum up trade interest.

No tangible fear at the moment

Despite the sunny outlook, the country has been in the headlines in recent weeks. This is due to fallout from the new administration’s drug war and the “colorful” comments of President Rodrigo Duterte against US President Barack Obama and the US government, prompting the cancellation of a scheduled meeting at the sidelines of the ASEAN Summit in Laos.

Economist see such developments as destabilizing and may deter potential investment. The Philippine Stock Exchange took a hit earlier this month, falling by 100 basis points, which experts attributed to the negative headlines and the recent Davao bombing that led to the declaration of a national state of emergency.

Despite this, however, the country has so far maintained its investment grade credt ratings.

Veloso said that these political and security concerns were not brought up by investors at the summit. He noted that most are taking a wait-and-see approach.

“Everybody is on a wait-and-see attitude. It’s not something, I believe, [they’re] focusing [on]. What consumes the market are global market forces so let’s see how it goes,” Veloso said.

ASEAN opportunities

Veloso also mentioned that UK investors have also begun looking at the Philippines as a potential gateway into the rest of ASEAN with the growing development of the ASEAN Economic Community.

In this, they are following the lead of Filipino conglomerates that are increasingly expanding their regional reach after successfully capitalizing on the growing middle class boom in the country.

At a time of globally sluggish growth, Asia has been the world’s economic engine, led by China and Southeast Asian nations.

With all this growth, its middle class is expected to account for two-thirds of the global middle class by 2030 – and more than half of middle-class consumption worldwide, according to the US-based economic think tank the Milken Institute.

“The Philippines has been a proxy for what has happened in Southeast Asia. It’s been an extraordinary story. What we’ve seen in the recent past is that [with the Philippines] if you can get a stable macroeconomic environment in with the big and growing population, then the geometric effect on growth is astounding,” said Jaime Augusto Zobel de Ayala, CEO and chairman of Ayala Corporation.

Zobel de Ayala was speaking as a part of a panel on on the growing importance of the Asian middle-class at the Milken Institute’s Asia Summit held in Singapore from September 15 to 17.

“It’s been a great run and for Southeast Asia as a whole, every country is in similar conditions,” he added. “We have a demographic divided in our part of the world that that is unique in the world right now. Everybody is looking for consumer growth as an answer to their economic models and to a certain extent we have that in Southeast Asia.”

Zobel de Ayala projects that strong regional growth to continue especially as trade links around the region bring it towards a common regional market of 650 million people.

“I think people understand that potential and if we market ourselves as a region rather than as individual counties, that gives us a unique strength despite the disparity in economies with Myanmar on one end and Singapore on the other,” he said.

Zobel de Ayala continued: “As a community of of nations coming together with a market that is increasingly integrated, the potential is very large and I think that many of us who do business in this part of the world see not only our country as a market but the rest of the region as well and its an exciting time.” – Rappler.com