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Philippines a country that is really open for business

Interview - May 22, 2017

In this interview with The Worldfolio, Hans Sicat, former President of the Philippine Stock Exchange (PSE), discusses the reforms made by the Duterte administration, commercial relations with the U.S. and Japan, and efforts to attract more companies to listing on the PSE


The new Philippine leadership represented by President Duterte sets its objectives to play a more crucial role within the region. The Philippine economy was a top performer in South-east Asia in 2016, due to factors such as its growing middle class and an expansionary fiscal policy that emphasises on public infrastructure. GDP growth reached 6.8% in 2016, up from the 5.9% posted in 2015. What is your expectation on the new administration’s 10-point economic agenda, 2017 budget and the corporate tax reform, and what impact do you expect on the investment climate?

What is quite impressive about this team is that before they even took power, they held a round table with the private sector. We had a workshop that filtered a lot of big- and small-picture things and ended up with the 10-point agenda. The items they were focusing on were spot on in terms of what the private sector was talking about. We are delighted that they asked for our views. This is a welcome approach compared with previous governments.

I see the economy of the Philippines continuing to power through and progressing, and in my view, there are three major pillars contributing to this. The first one is the continued growth of the BPO sector reaching up to USD 26 billion in revenues. Second is that OFW transfers which generates around USD 27 billion. And the third one is the infrastructure program that the government is implementing with an estimate spending of 5% to 7% of GDP.

The infrastructure plans, along with the tax reforms, will bring a balanced growth by broadening the base of taxpayers rather than increasing taxes.

When you look at how the country has reacted to the deregulation of the electricity sector that used to be heavily subsidised, you see that the industry has improved because there is now more transparency. These are the things that we should do to improve the economy.

Another aspect that will sustain this projection is that the banking system in the Philippines is very well capitalized in comparison to even more developed countries. Here, the central bank imposed Basel II and III years before they were compulsory.


Domestic demand has been credited as one of the main drivers of growth. What role has it played in protecting the Philippines from external shocks in the current global conditions?

People may argue that the global economic shocks hurt us at some level, but not as much as other countries because we have a robust economy with strong domestic demand.


Despite of a 40.1% growth in FDI, according to COL Financial Group, the country has lagged behind its neighbors in terms of luring FDIs due to infrastructure bottlenecks, red tape and the lack of clarity on policies. How important is infrastructure spending to bring FDI levels for the Philippines closer to its main competitors such as Thailand or Indonesia?

First of all, the limited FDI into the country has been a function of two or three things. One of them is poor infrastructure and logistics. When you decide to build a factory, you will obviously prefer a country that has figured out logistics and infrastructure issues. So the focus of the current government on infrastructure is correct. If they successfully put forth projects that will address logistics concerns, the infrastructure build may help correct the FDI imbalance.

The second point might be a bit debatable but it is in the minds of many international corporations. The Philippines has been open for trade to the US and they have established operations here. Generally, they are not building new plants but are rather renewing them. That way, instead of putting up USD 300 million investment for a new factory, they create an add-on for USD 25 million. When you compare the situation with Vietnam or Myanmar you will see that they receive higher amounts because they didn’t have investment there before and companies have to build projects from scratch.


What role does regional integration play in this context and how would you describe the investment climate for the Japanese private sector under JPEPA (Japan-Philippines Economic Partnership Agreement)?

Japan has historically been the second largest trading partner for the Philippines so JPEPA is not only reducing tariffs but also provides resource access, human resources, medical tourism, retirement villages for Japanese, etc. For the Philippines, it is obvious that JPEPA is a great tool for interaction.

There are a lot of factors that could determine the development of the country’s trade. We are affected highly by global trends. For example, at the end of last year we suffered what is called a rotation of funds from emerging markets, which meant that investments went from our markets to the US. This created a downspin in our stock market. Having said that, we do a lot of things at the Exchange working with international institutions. Five weeks ago, I was in Tokyo with a Japanese institution hosting an annual Philippine Corporate Meeting. We usually take 20-25 companies from here and organize a road show in foreign countries to reach investors.

In the three years, the number of signups for online trading has been growing between 30 and 35%. We are very satisfied with the performance.

Obviously, we need to keep maintaining our relations with investors by providing the best services. Along with that, we are very mindful with corporate governance. Clearly when you boast of good corporate governance and transparency investors feel more comfortable with you as a company.


One of your most recent financial instruments is directed to PPPs and the implementation of a second trading floor for SME’s and Startups. What kind of opportunities do these instruments represent for foreign institutional investors?

In general, our target is to be more proactive. There are only 260 companies listed in the PSE so we clearly want to attract more. As per my previous experience as a banker, this is a matter of how easy it is to borrow from banks and here it is relatively easy. Therefore, we need to come up with new products that will attract companies to choose the equities market to raise funds.

We are working on reversing the trend. Last year we recorded the highest activity for corporate bonds, and the reason behind it is that many companies are beginning to reach their exposure in bank borrowing limits.

In the global markets the banking sector is never as large as that capital sector so the solution has to be the stock exchange.

The PPP came up because there is so much demand for government infrastructure and banks couldn’t fund these. If they would have lent the money, they would have been stuck with the projects for too long as they are not payable in the short term.

Usually, to be listed, companies need at least three years of profitable track record, which is not always possible for PPPs. We relaxed these rules so PPPs can go to the market to raise funds.


Are these measures already having effects in the number of IPOs?

Not yet, they are too new right now. We need a lot more education in this sense so that people feel more attracted to the capital markets. Our business environment is very young so many of our companies are still governed by the first-generation founders or early second. However, we are starting to see the new generations in more mature companies convincing their fathers to make a move towards listing on the stock exchange. In my opinion, this is good news for the near future.


Summarizing it in one sentence, what would be your message to foreign investors about the Philippines?

I would say that they can find in the Philippines a country that is really open for business, not only capital-wise but also in terms of ideas and solutions for partnerships.