Harnessing our growth momentum

Below is the keynote speech which he delivered at the Conrad Manila during the BusinessWorld-PAL ASEAN Regional Forum held last Nov. 24.

Fernando Zobel de Ayala,
President and COO
of Ayala Corporation

AT A TIME of enormous volatility in various parts of the world, we are indeed fortunate to be operating within ASEAN which has shown consistent growth and has become such a dynamic region.

Today, I would like to touch on why we believe Philippine enterprises are in a unique position to compete regionally and globally. And how we can continue to harness the country’s growing momentum to our advantage as we look at the international markets.

As we all know, the Philippines has been on a sustained growth trajectory for more than a decade. We have stayed resilient in spite of enormous headwinds from global, political, and economic uncertainty, as well as external shocks and natural disasters. Investments have increased and there has been a dramatic improvement in the credit ratings and in the overall confidence of the business sector in the country.

I’m sure many of you will agree that this is a special time in our country’s history. A unique window of unprecedented sustained economic growth. A unique window that we should never take for granted.

So how did the Philippines get to this stage? It wasn’t so long ago that the country was deemed an unpredictable and volatile market. We lag behind our peers in attracting foreign capital and investing in industrial development. Domestic businesses were not as goodish as they are today. Many of the local companies did not have the resources necessary to aggressively invest in large-scale opportunities. Moreover, interest rates were very restrictive, access to capital was a challenge, and investment opportunities were not very transparent.

We have seen just how much the situation has transformed in recent years. Much has been said about our country’s demographic dividend and our consumption-based growth fueled by overseas remittances and the growing BPO sector. However, it is also important to know that our country’s growth has been enabled by a stable, conducive environment that inspires business and investor confidence. We have been very fortunate to have had consistently sound macroeconomic management under recent administrations. A disciplined fiscal and monetary policy and well-managed interest and inflation rates has created and continues to create an enabling ecosystem for business. This produced huge inflows, generated improved credit rating scores and a positive global attention.

In turn, Philippine businesses grew more confident with stronger valuations, greater access to funding, and increased liquidity to investors.

With stronger balance sheets or well-capitalized banking system at the lowest cost of capital in modern Philippine history, businesses looked for opportunities to diversify, expand, and deploy their capital locally or overseas.

As a result, value creation has grown significantly over the past decade. Our largest publicly listed companies have at least doubled their market capitalizations from 2006 with some even growing by more than nine times during that period.

This has given Philippine businesses an even stronger advantage to invest overseas using dramatically improved valuations, more access to capital, and lower interest rates to find growth opportunities regionally and globally.

The point that I’m going to highlight is that without the radical transformation of our economy, Philippine businesses would not be in such an excellent position for regional and international expansion. We need to sustain this unique economic environment.

To cite an anecdote from our own experience in Ayala, greater access to capital and stronger valuations have given us a strategic advantage for international investments. These allowed us to invest in a real estate company in Malaysia, various water and infrastructure businesses in Vietnam, and to acquire industrial technology businesses in Europe.

In addition, we have been backed by Philippine banks with internationally competitive rates. This is a unique time in our business history where Philippine banks have both the liquidity and the competitive rates to back the expansion of Philippine business. This brings me to my second point, that given the heightened competitiveness of Philippine businesses ASEAN economic integration clearly presents a natural compelling opportunity for regional expansion.

Aside from geographic proximity and a certain cultural alignment, ASEAN represents tremendous potential. ASEAN today consists of a very large market of 625 million people. This is expected to reach nearly 700 million by 2025. The region also has the third largest labor force trading only China and India. It enjoys a demographic dividend with 60% of the population below the age of 25. Moreover, higher-skilled workers are younger with a median age in the mid-20s suggesting an increasingly well-educated population. A productive labor force and increasing consumption have bolstered Southeast Asia’s economic expansion with the region growing at over 5% in the past decade.

Further implementation of the ASEAN Economic Community or AEC could boost the growth of countries by up to 7% by 2025. Despite challenges in the global economy ASEAN has remained resilient. In 2015, ASEAN accounted for $120 billion in global FDI inflows, around 18% of which can be attributed to intra-ASEAN investment. We should note that the Philippines was one of the countries that received the higher levels of intra-regional investment last year. This leads to the advantage that ASEAN has over other trading blocks, its pragmatic and outward-oriented approach to regionalism. The AEC takes into account the heterogeneity of the region as opposed to a common trade policy and legally binding frameworks that may not consider differences in market maturity or some of the problems that others have encountered. Clearly, ASEAN presents significant opportunities for growth.

This brings me to my last point.

Given the opportunities for regional expansion, how can Philippine businesses take advantage of this opportunity?

I believe that there are three key considerations.

First, we need to maintain a strong and sustainable business environment locally. This includes continuity in governance, structural, and fiscal reforms that spur the growth that were seen today. It also requires maintaining our traditional areas of strength in the services sector, particularly in the IT-BPO and tourism sectors while enabling other growth opportunities such as agribusiness and manufacturing. Moreover, this will also involve empowering our many micro, small, and medium enterprises (MSMEs) around the country to be able to compete and participate in the regional market.

In light of this, we believe that the implementation of the current administration’s 10-point economic agenda will help maintain our growth trajectory. There are also significant efforts under way from our new government’s economic team to boost the competitiveness of local MSMEs and to support the services sector, the revival of the manufacturing industry and other priority areas.

Second, to be successful internationally, we must continue to harness the global Filipino work force to our advantage. There is no question in my mind that our human capital is one of the best in the world and is one of the strongest advantages that we have as a country. Filipinos are recognized worldwide for our high English language proficiency, intellectual talent, creativity, and productivity. In addition, we all know that Filipinos are among the best in terms of global adaptability. Overseas Filipinos have proven to be very resilient, respectful of other cultures and highly adaptable in international settings integrating well into other societies and foreign business environments.

Interestingly, today we find ourselves in another unique position. We’re seeing a reverse movement of Filipino talent. Because of the country’s strong growth and potential, we are now able to attract back Filipinos with the best global training and experience. Together with the local work force, this puts our businesses in an excellent position to extend our footprint overseas with Filipino leadership and skills as a core strength.

Finally, to be successful regionally, Philippine businesses need to develop in-depth local market knowledge and cross-border strategic relationships with ASEAN counterparts. Despite the advantages we have today, businesses will need to remain cognizant of the challenges of executing an ASEAN expansion strategy.

Allow me to highlight a few key challenges. Disparities in cultural, social, and political structures and development across nations will not accommodate a one-size-fits-all approach. These differences also give rise to challenges on opportunities that differ from nation to nation which should be matched with the capabilities of business. Second is the lack of a local network. Finding a suitable local partner especially one with the complementary set of values is especially helpful in navigating the business environment and understanding local culture and social norms.

Finally, the relative unpredictability of policy particularly the variance between legal and regulatory frameworks and their implementation on the ground. This is a far more complex challenge with no easy solutions. These challenges underscore the need for Filipino businesses to better understand the intricacies of local markets and to develop strategic partnerships overseas. These, together with the continued strength of Philippine business environment and our human capital advantage, can help us to remain competitive in overseas expansion.

In closing, it is clear that Filipino businesses are in an exceptional strategic position to compete on a regional and global scale. With stronger balance sheets, enhanced expertise, and more progressive thinking, Philippine businesses are increasingly diversifying overseas. Some pioneers of regional and international expansion were the SGV Group, Universal Robina Corporation, San Miguel, the Carlos Chan Group, Unilab and Philippine Airlines, all of whom made inroads into Asia long before the resurgence of the Philippines and the greater regional integration. Many others have followed including Jollibee, the Aboitiz Group, Alliance Global, retail groups like Bench and ourselves.

With regional integration presenting even more opportunities, I believe this list will only continue to grow. These are just a few examples but I believe they highlight the fact that these are exciting times for Filipino businesses.

With our large corporations or MSMEs, there are a vast number of opportunities available to us in ASEAN and beyond. I have no doubt that the discussions over the rest of the day will be invaluable in spurring further thinking and meaningful insight on how companies can seize these opportunities.