CONFIDENCE among chief executive officers (CEOs) about business prospects has steadied despite the fact many of them believe the economy will barely meet the government’s growth target for 2019, according to results of an annual survey of PwC Philippines and the Management Association of the Philippines (MAP) that was distributed to journalists on Friday.
About 88% of respondents of the survey — conducted by PwC Philippines among 127 respondents (half of whom represented large firms, 27% were from medium-sized companies, while 14% were from small and nine percent were from micro businesses) — “are confident about their organization’s revenue prospects over the next 12 months, compared to 89% last year and 92% in 2017.
Some 43% cited China as “important” for business growth in the next 12 months, while 36% cited the United States, 26% cited Singapore, 22% cited Indonesia, 21% cited Vietnam and 10% cited Japan.
“Such findings… are different from the results of our 2017 and 2018 surveys, where our CEOs identified Singapore, Indonesia and Vietnam as the most relevant countries,” according to a summary of survey results that was sent to journalists, adding that “[w]hile trade tensions between the United States and China have been growing, the impact on Asia is so far negligible.”
“The Philippines’ improving relations with China have a positive impact on our CEOs’ responses. The stronger ties between the two countries, driven by both countries’ leaders, are helping facilitate economic deals and business collaborations.”
The PwC MAP 2019 CEO Survey — titled, “The future of business: Sustainability. Development. Impact” — was released ahead of the 17th MAP International CEO Conference 2019 to be held at Makati Shangri-La Hotel on Sept. 10.
The biggest segment of respondents — 49% — expect Philippine gross domestic product this year to clock in at 5-6%, while slightly smaller portion — 43% — believe it will hit the government’s 6-7% target. Six percent said they believe the economy will grow slower than five percent while only two percent said they expect expansion greater than seven percent.
The economy grew by just 5.5% in the first half — largely due to delayed project fund releases due to late state budget enactment — and economic managers said it would have to expand by 6.4% this semester in order to hit the lower end of the government’s goal.
“While falling below the government’s target growth rate of 6-7%, the Philippines remains ahead of its neighbors such as Malaysia, Thailand, Korea, Taiwan and Singapore,” the survey summary read.
“The Philippines’ growing consumption and services sector helped minimize the negative impact of the delayed government spending, helping the country maintain a faster growth rate than the other Asian countries.”
Philippine GDP expanded by 6.2% last year, slowing from 6.7% in 2017 and 2016’s 6.9%.
“Similar to responses in 2018”, CEOs believe that infrastructure (76% of respondents), domestic consumption (59%) as well as business process outsourcing and services (49%) will drive overall economic growth, while 43% cited remittances from Filipinos abroad and 30% cited investments.
The respondents cited as top threats to their business growth prospects: geopolitcal uncertainty (84%), over-regulation as well as climate change and environment change (each with 82%). Eighty percent cited availability of key skills and an equal proportion cited increasing tax burden, 74% cited cyber threats and 72% cited speed of technological change as the other key risks.
Uncertainty amid a changing tax regime — with a planned cut in corporate income tax rate to 20% from 30% in a 10-year period widely welcomed by business, which has also cautioned against parallel moves to remove fiscal incentives deemed redundant — has been blamed for foreign direct investments’ 37.1% drop to $3.145 billion in the five months to May.
SUSTAINABILITY IN FOCUS
The report also noted that more businesses are looking beyond mere profits amid worsening poverty, climate change, lack of access to quality education and environmental damage.
Hence, the survey asked respondents how they have been addressing sustainability-related issues.
About 83% of respondents said their businesses have adopted sustainable practices, with 83% citing efficient use of energy, 71% citing recycling and reuse of materials and 46% saying they are improving waste collection.
Eighty percent said they plan to change business models in the next three to five years to promote more sustainable practices, with 71% saying their businesses will consume fewer natural resources, 53% saying they will use products for various functions, 43% saying they will repair and maintain a defective product so it can be used for its original function, 39% saying they will use discarded products or parts in a new product with a different function and 38% saying they will process materials to obtain the same quality.
“The most dramatic shift will be in sustainability. When we first did the survey… less than 10% of the CEOs listed climate related issues on top of their priorities. But now it’s on top,” PwC Philippines Chairman and Senior Partner Alexander B. Cabrera said at a press briefing.
PwC Philippines Consulting Managing Principal Benjamin B. Azada noted: “This is a bit different from previous years where a lot of [concern] was around terrorism and policies.”
“But now climate change and environmental damage are coming to the forefront of CEOs concerns.”
Still, only 44% of respondents measure and report the financial impact of their sustainable practices, with cost reductions or savings remaining the traditional way of measuring such impact, as confirmed by 48% of the CEOs.
Moreover, only 33% of respondents said they have “formal plans” to adopt a “circular” business model that integrates sustainability.
“We’re a developing economy [in which] your primary focus is profit. We’re not yet at a stage where people are thinking about the damage we’re doing to the environment or the social good of the company unlike the more developed countries… but that kind of thinking is not sustainable because by 2050 we’re going to need three earths to sustain the population,” MAP President Rizalina G. Mantaring said in the same briefing.
Identified as constraints to adopting such a business model are high transition costs (46% of respondents), inadequate technology (43%), economic viability of sustainable practices (41%), existing organizational culture (39%), upfront investment (36%) and lack of talent (30%).
“The circular economy seeks to keep products and materials in use for as long as possible, minimizing the amount used, extending their life span and maximizing reuse and recycling of waste,” the report explained.
“Changing customer behavior, technological breakthroughs and resource scarcity are among the main drivers of circular solutions. Nowadays, customers demand for more environmentally friendly and socially responsible products and services.” — with Jenina P. Ibañez