Gov’t, business set sights outside Metro Manila for inclusive growth

by Krista Angela M. Montealegre, National Correspondent 

President Rodrigo R. Duterte has so far been saying the right things: accelerating infrastructure spending, cutting red tape, and reforming the tax system. The tough-talking leader has made believers out of the business elite, but more work must be done to achieve his goal of reinvigorating the countryside to spread benefits of rapid economic growth.

Speaking before some of the country’s biggest names in business, Finance Secretary Carlos G. Dominguez III said the government aims to accelerate infrastructure development in the rural areas, lining up “quite a number” of projects for implementation either through the public-private partnership (PPP) or government budget methods.

This sentiment was also expressed by Socioeconomic Planning Secretary Ernesto M. Pernia during the BusinessWorld Economic Forum on July 12 at the Shangri-La at The Fort in Taguig City.

“We’ll continue the good macroeconomic policies, but we want to make a big push toward regional and rural development, which was not given too much emphasis in the previous administration,” Mr. Pernia said.

Freshly harvested bananas are processed in Davao del Norte province in Mindanao as shown in this file photo. The country’s second-largest island is expected to become a major food basket under the Duterte government. (AFP)

The next big thing: Mindanao

Under former President Benigno S.C. Aquino III’s watch, the Philippine gross domestic product expanded by an average of 6.2% — the fastest pace since the 1970s — but his failure to make the economic gains felt by majority of the Filipinos has tainted that legacy.

Mr. Duterte — who transformed Davao once notorious for crime into a gold mine for corporates during his 22 years as mayor — plans to lure businesses to far-flung provinces in an effort to lift a fourth of the population out of poverty.

The “big story” within the next six years will be Mindanao, which is envisioned to become the country’s “major food basket,” Mr. Dominguez said.

Decades of under-investment, corruption, and violence have plagued the major southernmost island in the Philippines, leaving most parts of it impoverished.

Developing the necessary power, water, communications and transport infrastructure will be crucial to realize the government’s goal, with the Asian Development Bank (ADB) projecting that the Philippines must invest up to $127 billion in infrastructure from 2010 to 2020.

The Duterte administration intends to continue projects under the public-private partnership program — the cornerstone strategy of his predecessor to boost spending on major infrastructure that would spur economic activity nationwide.

The PPP Center — the central coordinating and monitoring agency for big-ticket infrastructure projects the government is undertaking with private companies — has 53 infrastructure projects in its pipeline, 12 of which cumulatively worth some P217.4 billion have been awarded so far.

First Pacific Co. Ltd. Managing Director Manuel V. Pangilinan said the gaping deficits in the economy such as infrastructure present investment opportunities for local and foreign companies.

Metro Pacific Investments Corp., which has interests in power generation, toll roads, water utility, and hospitals,  is one of three Philippine subsidiaries of Hong Kong-based First Pacific Co. Ltd., the others being PLDT, Inc. and Philex Mining Corp. Hastings Holdings, Inc. — a unit of PLDT Beneficial Trust Fund subsidiary MediaQuest Holdings, Inc. — maintains interest in BusinessWorld through the Philippine Star Group, which it controls.

“We all know there is poverty standing in the way so addressing it must be the business of business, not only of government’s. The optimum approach to poverty is creating jobs,” Mr. Pangilinan said, during the same event.

Vehicles in a traffic jam make their way along a highway in Manila in this photo taken in 2013. Traffic in the metropolis has gotten worse, thanks to economic growth and easy credit, allowing millions to buy cars. (AFP)

Decongesting Metro Manila

Infrastructure woes have come in the way of the Philippines reaching its economic growth potential and the improvement of quality of life, AC Energy Holdings, Inc. President and Chief Executive Officer John Eric T. Francia, who led the Ayala group’s foray into the transport infrastructure and energy sectors.

“We believe this is solvable with the help of the private sector,” Mr. Francia said.

Property developer Megaworld Corp. Senior Vice-President Kevin L. Tan said an expansion to the countryside will provide growth opportunities for the tourism and the business process outsourcing (BPO) industries. The real estate firm plans to unveil two more townships in Mindanao.

“We believe in the vision of the President…The key to decongest Metro Manila is to drive development to rural areas,” Mr. Tan said.

But bringing the private sector out of the lucrative capital may come with several challenges. Companies are chasing returns and the government must provide incentives for businesses to cater to the communities offering lower average revenue per user versus those in urban centers.

“The challenge is basically that there are densities for projects to be viable in these places. Clearly, there is a need for a lot of basic infrastructure such as electricity, water, fixed telephone, and mobile telephone and the only way they are going to develop is for these infrastructure to reach these areas,” said Aboitiz Equity Ventures, Inc. President and Chief Executive Officer Erramon I. Aboitiz.

Globe Telecom, Inc. President Ernest L. Cu said the government must help the private sector build the infrastructure in the marginalized areas to make it viable for businesses to operate there.

Mr. Cu recommended the construction of a fiber optic network in areas such as the Autonomous Region in Muslim Mindanao (ARMM) that telecommunication companies can rent from the government.

“If government builds roads, they should also be building the information highway. It’s as vital as farm to market roads,” Mr. Cu said.

“Our returns are predicated on a much shorter return in terms of time, but the government has a very long period of return and their basis case is not only predicated on the particular fiber optic it will rent [out] but also on the benefits of the community that will be sustained,” he added.

Even the President’s dream project — a major railway in Mindanao that will be linked to Luzon — may face some issues if he decides to undertake it through a PPP.

“It’s going to be missionary in nature. Rail, in itself, is already non-economic on a standalone basis for a private sector investment let alone in Mindanao,” Mr. Francia said.

The government has enabled online filing of income tax returns, reducing queues such as this one shown by a 2006 photo. However, the Philippines’ personal and corporate taxes remain one of the highest in Asia. (AFP)

Red tape, high taxes, and foreign ownership

The government’s focus on streamlining the bureaucracy and reducing the tax burden on companies and individuals will make the Philippines more competitive versus its neighbors in the region, said Rustans Supercenters, Inc. President Bienvenido V. Tantoco III.

“If taxes are more competitive and more efficient, corporations will invest more and consumers will also spend more. There may be a period where things might get worse but on a medium term that will be beneficial for corporations and businesses,” Mr. Tantoco said.

Red tape and high taxes — not the Constitutional limits to foreign ownership — have been the main deterrent for foreign companies to invest here, said Sun Life of Canada (Philippines), Inc. President Rizalina G. Mantaring.

“If you are a company and you want to build a strong industry and strong capabilities for manufacturing, why will you locate in the Philippines when you can operate much more cheaply and efficiently elsewhere?” Ms. Mantaring said.

“Those are the things we need to address because once markets open up, consumers, revenues and investments flow to where it is most efficient,” she added.

At a time of lingering global uncertainty, the Philippines must take advantage of its robust growth momentum to attract more job-generating foreign direct investments — one of the lowest in the region.

“If we’re able to simplify processes, make it easier to do business in the Philippines, then we are setting ourselves up for success,” said Alaska Milk Corp. President Wilfred Steven Uytengsu, Jr.

Vice-President Maria Leonor “Leni” G. Robredo said companies must embrace “business unusual” where shared value — not profit — is the driver of growth.

“As the private sector redefines products and pricing models to turn the swaths of population that have been left out as their new target market, shared value is created. Growth and progress happen at the same time,” Ms. Robredo said.

Citing data from the Organization for Economic Cooperation and Development, Ms. Robredo said rising inequality took away 10 percentage points of growth rates in Mexico and New Zealand, while cumulative growth rates in Italy, the United Kingdom and the United States would have been 6-9 percentage points higher had income disparities not widened.

“We need growth for all, not just for a select few. Progress that benefits only the elite is no progress at all,” she said.

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Krista Angela M. Montealegre (@_kmontealegre on Twitter) has been writing about the corporate scene for nearly a decade, the last few years or so for BusinessWorld.