TOKYO—Finance Secretary Carlos Dominguez III said the robust growth of the Philippines’ now fully reopened economy, buttressed by reforms that “widen the horizon for investments,” makes it the best place in the region to do business.
With Japan-based debt watcher Rating and Investment Information Inc (R&I) maintaining the Philippines’ “BBB+” credit rating with a stable outlook only a little over week ago, Dominguez called on Japanese investors to further invest and expand their businesses in the country as it returns to normalcy after its COVID-19 cases have continued to subside rapidly.
Dominguez pointed out that in the last quarter of 2021, the Philippines’ gross domestic product (GDP) grew by 7.8 percent, making the country’s expansion one of the highest in the ASEAN (Association of Southeast Asian Nations) region and among its credit rating peers globally.
This better-than-expected GDP expansion brought the Philippines’ 2021 full-year GDP growth to 5.7 percent, exceeding the government’s target and making one of the best economic performances among its regional neighbors and credit rating peers, Dominguez said.
“This year, we are well on our way to returning to normalcy with the Philippine economy expected to expand further between 7 and 9 percent,” Dominguez told Japanese business leaders and policymakers gathered at the Imperial Hotel Tokyo here on Tuesday, April 26, 2022 for the Philippine Investor Briefing (PIB).
Dominguez’s optimism on the Philippines’ prospects is shared by R&I, which has said that while the world continues to face the challenges of the pandemic, “The Philippine economy has been demonstrating solid growth since the second quarter of 2021” and that “the government debt ratio is expected to stabilize in the near term, supporting the country’s economic recovery.”
The investor briefing was organized by Sumitomo Mitsui Banking Corp. with the support of the Philippine Embassy in Japan to provide Japanese investors with a comprehensive update on the performance of the Philippine economy and the game-changing reforms that have been carried out to restore the country to its pre-pandemic path of sustained high and inclusive growth.
It was the first face-to-face event of the Department of Finance (DOF) with investors since the pandemic began in 2020.
The briefing was conducted to facilitate a more productive discussion compared to the usual online conferences, Dominguez said.
While the government is bullish on the Philippines’ economic prospects, Dominguez said this has been tempered by the uncertainties introduced by the Russia-Ukraine conflict.
He said the administration of President Duterte is closely monitoring this geopolitical crisis and has been doing its utmost to mitigate the impact of oil and food price increases on the Filipino people.
Dominguez thanked Japanese investors for their support of the Philippines’ Samurai bond issuances, which have consistently generated strong demand.
He recalled that last year, the Philippines’ offering of its first-ever zero-coupon Samurai bond was almost double the initial target size of 30 billion yen (JPY) to JPY55 billion, despite the pandemic.
The Philippines’ recent issuance of its first-ever ASEAN Sustainability bond transaction in the Samurai bond market yielded new investor accounts and demand of more than JPY70 billion in the midst of a volatile market environment, Dominguez noted.
Dominguez also thanked Japan for being “an extremely reliable partner of the Philippines.”
He pointed out that Japan remains to be the Philippines’ biggest provider of official development assistance (ODA), aggressively supporting President Duterte’s signature infrastructure modernization program “Build, Build, Build,” the development of Mindanao, and other areas of sectoral cooperation between the two countries.
Japan has also long been one of the Philippines’ top investment partners, the country’s top export market and second-biggest import supplier.
“As we battled the pandemic, Japan fought shoulder to shoulder with the Philippines. It supported us with budgetary aid and grants as well as donated more than three million doses of AstraZeneca vaccines,” Dominguez said.
In pitching the Philippines to Japanese business leaders, Dominguez said the recent enactment of the amendatory laws to the Retail Trade Liberalization Act (RTLA), Public Service Act (PSA) and Foreign Investments Act (FIA) complete the array of economic reform initiatives that make the country a premier investment destination in the region.
“These three forward-looking measures widen the horizon for investments. They create numerous opportunities for synergy between local and international firms. There is now enough space for international firms, especially those at the cutting edge of information technologies, to form joint ventures with Filipino companies,” he said.
Dominguez said that with the Philippines also committing to reduce its greenhouse gas emissions by 75 percent by 2030, he also expects a sharp rise in green investments in the country in the years ahead.
He urged Japanese investors to establish or expand their retail trade operations in the Philippines, now that the new RTLA has already lowered the minimum paid-up capital requirement for foreign corporations from about JPY316 million to roughly JPY63 million, among other investor-friendly provisions of the law.
Dominguez said that experienced and strategic investors from Japan can bring in their capital to the Philippines to invest in the fields of telecommunications, media, renewable energy and private transportation vehicles following the enactment of the PSA.
Under the amended PSA, businesses classified as public services are now open to 100-percent foreign ownership, while those considered as public utilities must still be majority owned by Filipinos, subject to the 60-40 ownership rule under the 1987 Constitution.
The list of public utilities is now limited to the distribution and transmission of electricity; water pipeline distribution system, wastewater, and sewerage pipeline systems; petroleum and petroleum products pipeline transmission systems; seaports; and public utility vehicles (PUVs) under the amended PSA.
Japan-based businessmen can also look at and consider the amendments to the FIA as these reforms mandate a review of the Foreign Investment Negative List every two years, and liberalizes the practice of certain professions, so that enterprises that would otherwise be unable to do business in the Philippines without foreign talent would now be able to set up shop in the country.
Dominguez noted that the Duterte administration marked its final full year with an all-time high record of foreign direct investments (FDIs) amounting to US$10.5 billion or about JPY 1.3 trillion.
The return to robust economic activity is evident in the 5-percent growth of the Philippines’ revenue collection in 2021 compared to 2020, he said.
He said revenue collection is expected to return this year to pre-pandemic levels, while total merchandise trade are already above pre-pandemic levels.
COVID-19 cases are also subsiding rapidly owing to the Philippines’ accelerated vaccination program, which has led to the full reopening of the economy and the entry of vaccinated international travelers, Dominguez said.
“Clearly, these bullish signs of recovery are a product of our hard work and preparation before the pandemic hit us,” Dominguez said.
He said the three economic liberalization measures complement the earlier array of reforms put in place under the Duterte administration, which include two tax reform programs that lowered tax rates for both individuals and corporations; an accelerated digitalization program and strengthened tax enforcement; the “Build, Build, Build” infrastructure buildup program; a National ID System; the Ease of Doing Business (EODB) Act; and rice tariffication.
Dominguez pointed out that even with a pandemic, the government never wavered in its commitment to institute reforms, as shown by the enactment in 2021 of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Law, which reduced the corporate income tax (CIT) rate from 30 percent to 20 percent for micro, small and medium enterprises (MSMEs) and 25 percent for all other businesses.
CREATE also enabled the government to choose the kind of investors it wants to do business in the country, as this law allows it to tailor-fit incentives that are performance-based, time-bound, targeted and transparent for prospective businesses, he said.
The implementation of the long-dormant Real Estate Investment Trust (REIT) Law, which has brought in US$6 billion-worth capital to the property development sector in just two years, is also among the game-changers under the Duterte presidency, Dominguez added.
Dominguez also cited the Duterte administration’s accomplishments on the peace and order and good governance fronts; and its investments in the country’s greatest asset—the Filipino people—through improved social services and free tertiary education in state universities and colleges (SUCs).
“These game-changing measures and programs made the Philippines one of the economic leaders in the region, growing over 6 percent annually. The same reforms helped us gain the financial strength to weather the worst of the COVID-19 crisis,” Dominguez said.
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