CUSTOM INVESTMENT GUIDE

13-15 NOVEMBER 2017 ASEAN SUMMIT 2017 PHILIPPINES

50 YEARS OF REGIONAL INTEGRATION THE ASEAN REACHES HALF A CENTURY OF REGIONAL INTEGRATION EFFORTS IN A SPECIFIC CONTEXT THAT HAS MADE ITS MEMBERS BECOME CLOSER EVERYDAY; ON THE OTHER SIDE JAPAN IS SET TO BE THE MAIN PARTNER OF THE ASEAN THROUGH SUSTAINABLE INVESTMENT, KNOWLEDGE TRANSFER AND INFRASTRUCTURE DEVELOPMENT

FOSTER PEACE AND STABILITY, STRENGTHEN MARITIME SECURITY AND COOPERATION, PROMOTE INCLUSIVE GROWTH, PURSUE REGIONAL GROWTH WWW.THEWORLDFOLIO.COM The Worldfolio - ASEAN 2 3 The Worldfolio - ASEAN

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Alvaro Javier Llaryora CEO

Jose Antonio Santoyo Llamas Business Development

Aylin Parla Project Director

Lukas Kollenz Editorial Director

Alejandro Ruiz Luque Editorial Associate

Fabrizio Fitzgerald Farina Institutional Relations

Jonathan Meaney Chief Editor

Ignacio Plasencia Art Direction

Eduardo Bertone Art Direction

Veronica Tapia Merk Philippines Sales Representative

KNOWLEDGE PARTNERS Makati Business Club & Japan Bank of International Cooperation The Worldfolio - ASEAN 4

TABLE OF CONTENTS

7 ‘Dutertenomics’: 14 ASEAN: 23 Philippines set to Building sustainable and Celebrating 50 years of progress become Japan’s prime partner inclusive growth and achievements in ASEAN

34 Cagayan Special 45 Building a thriving 50 ‘The golden age Economic Zone and Freeport eyes agro-industry of infrastructure’ massive expansion

63 A three-point plan 66 No longer a mere contract 72 Tourism arrivals to reach for ICT electronics a record 7m this year 5 The Worldfolio - ASEAN

A MESSAGE FROM THE PRESIDENTIAL COMMUNICATIONS OPERATIONS OFFICE OF THE REPUBLIC OF THE PHILIPPINES

Secretary Jose Ruperto Martin M. Andanar, Presidential Communications Operations Office Philippines

Welcome to the Philippine-led initiative of pursuing the ASEAN priority of inclusive and innovative growth for the individual member nations and for the collective progress of the regional community as a whole. As Chairperson of this year’s Summit, President Rodrigo Roa Duterte, affirmed the unified voice of the ASEAN’s proven capabilities for reciprocal business and eco- nomic opportunities as it faces the global future.

This publication joins our Presidential Communications Opera- tions Office in presenting to the international marketplace the investment portfolio readily available in the Philippines as well as in the ten member countries of the ASEAN. Several priori- ties serve as guides for the continuing promotion of the region’s growth. “THE ATTRACTIVE

These priorities include a people-oriented, people-centered re- PROFILE OF gional group; peace and stability; maritime security and coop- OUR COUNTRY’S eration; the resiliency of each state; and the ASEAN Community INVESTMENT as a model of regionalism and as a global player. LANDSCAPE OPENS The Philippines is center-stage as it hosts the celebration of the THE AVENUES FOR 50th year of the ASEAN and as our President chairs the summit BUSINESS, TRADE, of world leaders that would include, other than the ten mem- ber countries, the leaders of Australia, Canada, China, European COMMERCE, MARKETS Union, India, Japan, New Zealand, Republic of Korea, Russia, OF TRADITIONAL AND and United States of America. NEW PRODUCTS,

The attractive profile of our country’s investment landscape PARTNERSHIPS IN opens the avenues for business, trade, commerce, markets of INFRASTRUCTURE, traditional and new products, partnerships in infrastructure, ag- AGRICULTURE AND riculture and aquatic resources, and a long list of possibilities for joint and multiple ventures. The climate of stability is assured AQUATIC RESOURCES and strongly sustained by a President who is deeply loved and AND A LONG LIST OF trusted by the people. POSSIBILITIES FOR

We commend Worldfolio for this special edition on the ASEAN JOINT AND MULTIPLE and the Philippines. There are discoveries and dimensions we VENTURES” can reach through the stories that this issue would tell; and we are confident that our regional association would be the homog- enizing force in the economic world forum of finance masters.

The Philippines and the ASEAN are the futures we are express- ing today as we write. Receive both my personal and official con- gratulations for this special publication. The Worldfolio - ASEAN 6

A MESSAGE FROM MAKATI BUSINESS CLUB

EDGAR O. CHUA, Chairman

With a sustained high rate of economic growth and its successful leadership in hosting this year’s Associa- tion of Southeast Asian Nations (ASEAN) meetings, the Philippines is demonstrating its capacity to become a significant contributor to the global economy. It is fast realizing its growth potential as the Philippine gov- ernment strategically targets and implements game- changing reforms hinged on the tenets of globalization, healthy competition and free trade and truly inclusive growth that will bring prosperity to all.

We are, therefore, pleased to support this special Worldfolio publication, a timely report presenting the vital elements that nurture the economic vibrancy of “this publication the Philippines, and the many opportunities this coun- try offers to potential investors and trading partners. offers valuable insights from top Our young, well-trained and English-speaking work- business executives force, our rich natural resources, the rising consumer demand, and our innovation-driven mindset make the who examined not Philippines an increasingly attractive investment des- only the advantages tination in Asia. And through this report, we hope to of investing in encourage foreign investors to consider doing busi- ness in the Philippines, particularly in growth areas the Philippines outside Metro Manila where talent and resources are but likewise abundant. present the real

Finally, this publication offers valuable insights from challenges faced top business executives who examined not only the by their respective advantages of investing in the Philippines but likewise industries and present the real challenges faced by their respective industries and sectors, and how these are being ad- sectors” dressed through the implementation of the govern- ment’s 10-point socioeconomic plan that is fully sup- ported by the business community.

To the companies seeking to expand their presence in Asia, we hope this report will be a valuable source of knowledge to you. 7 The Worldfolio - ASEAN Dutertenomics 'Dutertenomics' building sustainable and inclusive growth

The Filipino government is set to transform the nation through its 10-point economic agenda and by opening up the country to more foreign direct investment

Since assuming office in June 2016, the cent in 2016, the highest figure recorded to the government’s infrastructure plan, new Filipino government under Presi- in the ASEAN region. says Cecilia C. Borromeo, President and dent Rodrigo Duterte has been working Several new special economic zones CEO of the Development Bank of the towards achieving the objectives set out are also being built as further a draw for Philippines. “The success of the admin- in its roadmap to build sustainable and in- Japanese investors looking to use the istration’s infrastructure program largely clusive growth, known as the ‘0+10-Point Philippines as a gateway to tap the grow- rests on it, as it will be funded mainly by Socioeconomic Agenda’. ing ASEAN market. Strengthening ASEAN revenue gains from the tax reform.” The Agenda comprises ten pillars, regional integration, therefore, is anoth- President Rodrigo Duterte has or points, which include: maintaining er important factor for the government, pledged to pour $180 billion into infra- current fiscal, monetary, and trade poli- which, during its Chairmanship of ASEAN structure development during his six- cies; instituting progressive tax reform; in 2017, is promoting unity with and among year tenure, which the government has increasing competitiveness and the ease the member states and its global partners. dubbed the “The Golden Age of Infra- of doing business; increasing infrastruc- One of the main goals is for the structure”. ture spending to account for 5 percent Duterte administration is reducing the “For the last 30 years, no more than of GDP; and investing in human capital poverty rate from the current 22 percent 3 percent of the GDP was spent on infra- development to meet the demands of the to 14 percent by 2022. structure – a reason for the evident con- private sector. “Our major anti-poverty tool is going gestion in the country. This is an issue that The government also aims to open to be investment in infrastructure, and I must be addressed before investors get up its economy to boost foreign direct am not only talking about physical infra- discouraged to establish operations here,” investment, particularly from its regional structure. I am also talking about educa- says Benjamin Diokno, Secretary of the neighbors such as Japan and China, for tion, training, science, and technology, but Department Budget and Management. whom the Philippines is already an at- obviously physical infrastructure is what Japan is set to become a major part- tractive destination, thanks to its growing we need to primarily focus on,” says Sec- ner in the infrastructure plan. In Janu- middle class; low-priced, educated and retary of Finance Carlos Dominguez III. ary, Japanese Prime Minister Shinzo Abe English-speaking workforce; and robust The implementation of the compre- approved a one-trillion-yen aid package economic growth, which reached 6.4 per- hensive tax reform program is crucial (approx. $9 billion) for the Philippines, Dutertenomics The Worldfolio - ASEAN 8

which will include both government aid been growing also, and I am looking for- pecially the whole idea of investing vast and private investments. The package ward to seeing more investments coming amounts of money for infrastructure over will be used to fund infrastructure proj- from Japan.” the next six years,” says Peter Angelo V. ects across the country over the next five While the government is going to Perfecto, Executive Director of the Maka- years. The move serves as a clear testa- provide much of the funding for infra- ti Business Club, a non-profit organiza- ment to Japan’s intentions to strengthen structure, the private sector has ex- tion which aims to foster and promote its commercial engagement in the region pressed its support for the decentral- the role of the business sector in national – as it vies for power with rival, China – ization plan. With the privatization of development efforts. and to use the Philippines as its gateway the energy sector, for example, several “Generally, the business community to the ASEAN market. private Filipino companies are buying will be supportive of the administration. “One factor that drives Japan into up power plants that were previously in We will provide them with help by par- the Philippines is their search for a single the hands of the public sector, as well ticipating when they call for policy dia- market in the ASEAN region. There are as building new power infrastructure. logues and ensure that they succeed.” around 600 million people in the region Japanese firms are also getting in on the The development of economic zones and the Philippines offers a good loca- is another important factor in the decen- tion,” says Guillermo M. Luz, Private Sec- Japan is set to become tralization plan. Aside from the new eco- tor Chairman of the National Competitive nomic zones being developed under the Council. a major partner in the Duterte government, the Philippines al- “Another factor is the long history infrastructure plan. ready has more than 350 special econom- of Japanese investments. The Japanese In January, Japanese ic zones, which are located across the companies can leverage on these long- country and offer attractive incentives to existing relationships. If their compa- Prime Minister foreign investors. (See pages 26-33) nies can produce here, another plus is Shinzo Abe approved With subsistence farming being the the possibility of being able to export to a one-trillion-yen main economic activity in many rural ar- neighboring ASEAN countries.” eas, building a thriving agro-industry is aid package (approx. also a crucial part of the decentralization Decentralization $9 billion) for the plan. This will help to drive economic With much of economic prosperity con- Philippines, which prosperity in poorer regions. Japanese centrated around the capital Manila and investors are already supporting this ini- the surrounding area, one of the key ob- will include both tiative. Trading firms Itochu and Sumi- jectives for the Duterte administration is government aid and tomo announced that they will invest decentralization. And much of the $180 private investments. an additional 12.9 billion pesos (approx. billion pledged for investment in infra- $250 million) in 2018 to expand their structure will be used to build vital roads, The package will integrated farming projects in the Mind- rail, air, sea and power links across the be used to fund anao region. nation, in a bid to build inclusive econom- infrastructure Japan is also a major buyer of the ic growth as envisioned in the ‘0+10-Point Philippines vast variety of agricultural Socioeconomic Agenda’. projects across the products, which range from fruits such “The main strategy that we will country over the next as pineapples, mangoes, coconuts and employ is by having investments in in- five years bananas, to grains such as rice and other frastructure outside the greater Manila commodities like coffee and cocoa. area, because approximately two thirds “Maximizing local agricultural re- of our GDP is produced in this area, while act. Trading company Marubeni has in- sources is a critical factor but always a one third of the GDP is divided into the vested in a coal-fired plant in the prov- formidable task in stimulating economic other regions,” says Secretary of Finance ince of Batangas, and is looking to make growth,” says Antonio Tiu and President Carlos Dominguez III. other investments in power plants there; and CEO of AgriNurture Inc., a company “Developments nowadays are also while Toyota Tsusho Corporation has had engaged in the manufacture and distribu- extending towards other regions of the a 25 percent stake in Sarangani Energy tion of food and beverage products. Philippines like Mindanao,” says George Corp. since 2012. Investments from the “Given the Philippines’ good rela- T. Barcelon, President of the Philippine Japanese private sector will also fund the tionship with countries such as Japan, it Chamber of Commerce and Industry. construction of a high-speed train con- can be considered an opportunity, a gold- “Previously, I was in an induction necting Subic in Zambales and Clark in en era – one that must be capitalized on in ceremony at San Fernando, Pampanga, Pampanga, and the commuter rail con- order to promote the country’s resources and one of the economists there men- necting Tutuban in Manila and Las Baños and to be able to increase the income of tioned that the Philippines is becoming in Laguna. Projects like these will help to farmers. The scarcity of agricultural re- a rising star. If you look at the last four further bolster economic growth outside sources in Japan has led the country to or five years, we are doing well as a con- the capital. demand a number of off-season vegeta- sumer economy, primarily because of the “The private sector has definitely bles from the Philippines. These are then BPO industry and remittances, among welcomed the administration’s plans considered high-value items that the others. Our manufacturing industry has with regards to tax reforms and most es- Philippines can mainly offer to Japan.” 9 The Worldfolio - ASEAN Dutertenomics

LEAVING A LASTING LEGACY

The Philippines’ Secretary of Finance Carlos Dominguez III sits down with The Worldfolio to discuss the election of President Rodrigo Duterte, the issue of foreign ownership and relations with Japan

In May, 2016 president Rodrigo Duterte was the first car that rolled out with 70 percent elected with more than 39 percent of the vote, Filipino components was inaugurated not so giving him a 15-point victory over the second long ago. It is called the Mitsubishi Mirage best performing candidate. What is your take G4. So those are the areas of opportunity on the election results? we provide: a growing market for Japanese He won because our campaign was very products, and a growing supply of a young, focused on what the real problems of the energetic and smart workforce. country were. These include problems such as growth without inclusivity, authorities’ Having mentioned that the country’s need for neglect of the drug problem, and the past infrastructure would be one of the main in- administration’s failure to address the key vestment opportunities for Japan and China, issue of peace in our country. Those are the how do you see this affecting growth over the driving points of the administration until next few years? today. In line with these issues, our main As I mentioned, our major anti-poverty tool goals include what we want the country to is going to be investment in infrastructure, be in 2022 when we leave office. and I am not only talking about physical The growth numbers of the Aquino ad- infrastructure. I am also talking about edu- ministration were good, but they were not cation, training, science, and technology, shared around the entire country, thereby Secretary Carlos Dominguez III, Secretary of Finance of the but obviously physical infrastructure is what causing a lot of social unrest and violence. Philippines we need to primarily focus on. The past ad- This is also the same situation as to what ministrations have spent half of what other happened in the United Kingdom, where Korea, and Japan, it certainly looks like a ASEAN countries spent as a percentage of Brexit won, because the people did not feel smart move. This is especially true as the GDP on infrastructure. Thus, we have a big that the growth of the country was lifting U.S. has started to look inward and to limit problem here. But that problem is in fact their standards of living. The same thing international trade. an opportunity for us to use investments in happened in the U.S., and most probably infrastructure to lower poverty. the same thing will happen in France. It is a Taking into consideration that the ASEAN is For instance, Japan cannot invest in period where people are realizing that glo- a market that represents strong growth in infrastructure anymore. The opportunity balization has been a good tool in increasing consumption and general GDP, what synergies is not only to make our economy more ef- wealth, but not a good tool in spreading it. do you see between these countries and, for ficient, it is also to make sure that jobs are Therefore, reducing poverty by making our example, Japan? created in the areas that need the jobs – economic growth more inclusive is one of We have had a long relationship with Japan outside of Metro Manila. We are going to the main priorities of the administration, even prior to World War II. The Japanese use this tool, and we have raised a total of as shown by our ten-point socioeconomic in Davao, for instance, were a significant $18 billion on committed ODA and com- program. part of that population. They invested there mercial loans in addition to $15 billion for in the production of natural fiber, namely investments with the private sector. Close You mentioned that globalization is creating abaca or Manila hemp. After the 60s, Japan to half of it is investments in the private wealth, but has an issue in spreading it. What needed a lot of wood for their construction sector. To give an example from Japan, a are your expectations about your collabora- industry, and so they bought large amounts family-owned company called ISE foods are tions with other countries? of wood from us. Now, the collaboration be- planning to invest around $50 million in egg The Chinese have a very nice saying, “Better tween the Philippines and Japan relies on production at Bukidnon. It is an opportunity a friendly neighbor than a distant relative.” the fact that Japan’s population is aging. for us to lower our costs in egg production. It makes more sense to us to make sure that The Japanese are going to need workers, Many Japanese companies are follow- we are totally integrated within the ASEAN. and they would like to invest in areas out- ing the main manufacturers to set up small First of all, that is an obligation we brought side of Japan, and the Philippines is one of and medium-sized enterprises here, which upon ourselves. It is also important for us to those areas. Although most relationships is what we want. The big factories are also recognize that the Asian region is growing are rocky, in the last 50 years ours with Ja- important, but the feeder operations are also much faster than the West. Second, when pan has been smooth. quite important for us. With ODA, we will the president decided to reorient our for- There are many opportunities partic- certainly use this to implement our major eign affairs and economy towards ASEAN ularly in manufacturing, where Japanese infrastructure projects, which include rail- and our neighbors, namely China, South vehicles dominate our market here. In fact, ways, ports, roads, and bridges. Dutertenomics The Worldfolio - ASEAN 10

In terms of the bridges, we need only done. We are going to open the areas, but way stations. That is what we are seeing two bridges to finally interconnect the north not for land ownership as the president said. here: small companies that are popping up to south roads. These bridges will connect The point is to use the land, not to own it. around the country. Their only limitation is Bicol to Samar, and Leyte to Surigao. They infrastructure. are less than 30km each. We will also have In the Philippines, the middle-class accounts bridges to connect the islands in Western for around 40 percent of the population. Which We have witnessed the government being sup- Visayas – Iloilo to Guimaras, and Guimaras are the sectors that are mainly pushing the portive of the private sector. What is your to Bacolod. We also need ports. Lastly, we growth of the Filipino middle-class? expectation of the Philippines’ private sector will need three or four large railway proj- Creating a robust middle class depends on throughout this mandate? ects. One from Manila to Clark, Clark to people having good jobs. The government’s The private sector sees the opportunities Subic, and Manila to Bicol, which is almost role is to provide the infrastructure that will that our 10-point socioeconomic program 700km. Finally, a railway project around and encourage investments in various parts of is providing them. For instance, our heavy across Mindanao – that should enable us to our country. Hopefully, these jobs will be investment in education is going to make it lower our logistics costs. created by companies that will settle out- easier for them to train Filipinos to do their side of the Metro Manila area. For instance, jobs. We are reorienting a lot of our educa- What is your view on improving the ease of agri-industrial processing for domestic con- tion towards making the kids ready to work doing business in the Philippines and what sumption or exports can be done. at 18 years. From the previous educational would you say are the sectors that would We are, however, not talking of big system, we now adhere to the K-12 program, benefit most from initiatives to improve it? companies. When you look at the industries which includes 12 years of grade school and The agricultural sector will be a big benefi- in Japan, people like the look of the Sumi- high school. By the end of 12 years, people ciary, because we are also going to imple- tomo and Mitsubishi. But what drives them can get decent jobs. Most countries in the ment a lot of irrigation projects. Just simply are the small and medium-sized industries world already have the K-12 program; the lowering the costs of moving agricultural – the small companies that feed into these Philippines is one of the last to adopt it. products from the farm areas to the con- large ones or feed into the local production. sumer areas is going to be a big factor. It For instance, there is a company in Chiba Having served the country for many years and will spur investments. that produces a large percentage of the egg with experience in several departments and In CALABARZON (Cavite, Laguna, sandwiches that are consumed in the rail- administrations, what legacy do you want to Batangas, Rizal, and Quezon) during the leave behind? Cory Aquino administration, the Japanese In agriculture, what we focused on when funds were essentially used to improve the “In terms of the I was Secretary of Natural Resources was roads, and a lot of Japanese companies have to reorient the policy of the Department of located in industrial parks. This is a trigger Department of Natural Resources from exploitation to sus- for creating jobs outside of the Metro Manila Finance, what I would tainable development. It was the fact that we area. For instance, when you link Clark and like to leave behind focused on the farmers’ incomes rather than Subic together, which is around 80km, the rice. Rice is an important crop, but more manufacturing industries in Clark will cer- is a country on a important are the farmers’ livelihoods. For tainly get a big boost, because the shipments sustainable growth instance, one of the things I did there was of the raw materials can come through path. The only way to to reorient the research in agriculture, from Subic and be transported by rail quickly. researching on what the best crops are to do that is to make sure what the farmers are going to do with their One thing that is still worrying some of the we can finance the land. Maybe even the best corn will not grow investors is the subject of foreign owner- infrastructures that in all lands, so we looked at ecozones and ship, because there are still many restric- based our recommendations according to tions. How could allowing 100-percent foreign we are establishing those ecozones. ownership in certain sectors help to also through a good tax In terms of the Department of Fi- create more investments and generate more reform program … nance, what I would like to leave behind revenue? is a country on a sustainable growth path. We have a robust Negative List of industries That will bring us The only way to do that is to make sure we where foreign investments are not allowed. to what we want to can finance the infrastructure that we are For instance, media. The Negative List de- achieve as a society, establishing through a good tax reform pro- fines internet selling as media, so compa- gram. Naturally, the politicians are hesitant nies cannot come and do e-commerce. Just which is mainly a to impose taxes, but many people in our redefining those terms will open a lot of comfortable middle society recognize the necessity of the tax business opportunities in the country. class-dominated reform program to ensure the sustainabil- In manufacturing, there’s no limitation. ity of the ten-point socioeconomic program The limitation is land ownership, because society that is at peace over the years. That will bring us to what the companies cannot own the land. There with itself and its we want to achieve as a society, which is are creative ways of getting around this. For neighbors” mainly a comfortable middle class-dom- instance, one way is a long-term lease, say inated society that is at peace with itself for 50 years for a factory, and that’s been and its neighbors. 11 The Worldfolio - ASEAN Dutertenomics

OPENING UP THE ECONOMY TO FOREIGN INVESTMENT

Benjamin Diokno, Secretary of the Department of Budget and Management of the Philippines, gives his perspective on the country’s progress, infrastructure development and relations with China and Japan

While positive macroeconomic indicators such I have been part of three administrations and as GDP growth are nothing new in the Philip- I can say that the current administration is dif- pines, the government has put in place a 10-point ferent from the other two. At the time of Cory economic plan to make sure that these economic Aquino’s presidency, the Philippines was heav- gains trickle down to the real economy. How ily indebted to the point that we could not bor- important is social inclusion and economic row money anymore to finance infrastructure decentralization for the Philippines? and had experienced interest rates reaching First, our priority is to invest in public infra- up to 20 percent. structure. This will improve the competitive- This current administration is different ness of the Philippine economy, enhance in the sense that we are now able to borrow connectivity, and generate jobs. Second, it money at a very low cost. As testament to this, Benjamin Diokno, Secretary of the Department would be good to invest in the improvement Budget and Management of the Philippines Japan is actually offering to lend money with of education and healthcare so as to develop an interest rate of 0.25 percent, and 40 years to the children into agile and competent youth. vestors get discouraged to establish operations pay. This is an opportunity that the Philippines The third one would be the tax reform. in the country. should not overlook. The current tax system of the country does not We are focusing on several areas of im- However, our plan in the medium term, not compare well with that of our ASEAN neigh- provement such as the construction of rail- only in 2018, is to achieve an appropriate deficit- bors. As much as possible, personal income ways. One of the plans include building an to-GDP ratio of 3 percent. Despite the deficit, it tax should be reduced to about 25 percent, entirely new railway system from Manila is expected that our debt-to-GDP ratio will de- as opposed to the current 32 percent, which down to Legazpi, which would reach about cline to 35 percent by 2022, from its current 45 equates to one third of a person’s income. 620 kilometers. Another would be a railway percent. The plan is to refrain from borrowing Fourth is the cost of doing business. system in Mindanao, of about 1,200 kilometers. excessively abroad and to keep it at 80-20: 80 One of the focuses right now is the attempt These projects have led us to negoti- percent domestic and 20 percent foreign. to speed up the process of conducting busi- ate with China, as well as Japan, regarding Currently, the government is content with ness. Setting up a power plant, for example, specific and important projects that would how the country is fairing in terms of the econ- requires about 162 permits from the national possibly create several job opportunities for omy. The Philippines is not as export oriented government. Consider as well the fact that it Filipinos. The infrastructure itself is not the as countries like Singapore. In a slowing world takes two years to complete documentation only thing that is being taken into account economy, it is a problem to rely heavily on ex- for such matters and that delays are bound but also the approach to executing these in- ternal trade. That is why our contribution in ex- to occur. There is too much red tape in that frastructure projects and everything it entails. ternal trade does not measure up to that of other alone. It would be better to follow the example For example, shifts would be needed since the ASEAN countries, which is good at this time. of Davao, whereby a mayor’s permit must be workers cannot work continuously. However, it seems that there will be an issued within three days. Otherwise, you would increase in the country’s agricultural exports have to report to them. And thus, Project Repeal What impact do you expect to see from deeper such as fruits and high value crops that are in is being pushed in order to address laws which regional integration? demand in Japan and China. need amendment. Compared to its ASEAN neighbors, the Philip- We have a steady stream of remittances If all those things could be accomplished, pines has attracted quite a number of foreign from our OFWs (overseas Filipino workers) then the country is all set. This will further add to investments. The President is in fact contem- and BPO workers right now. Regardless of the Philippines’ already stable status as having plating on striking out the restrictive provisions the existence of a crisis, there is no need to the fastest growing economy in South East Asia. from the constitution. And so, by opening up worry about the exchange rate since currently the economy, we hope that several more in- we have a significant amount of dollars and The government plans to invest up to $200 bil- vestments would enter. A major part of the tax foreign exchange. Whereas before during the lion in infrastructure up to 2020, what impact reform involves reducing the personal income occurrence of a crisis, the country exhausted do you expect as a result of this infrastructure tax, which hopefully will benefit 99 percent of its dollars to service its debts. investment? tax payers. This will lead to consumers put- It would be more beneficial, however, if For the last 30 years, no more than 3 percent of ting more money in the bank, as well as a big we were able to export more services rather the GDP was spent on infrastructure – a reason improvement in consumer spending. than goods. I hope our country would be able for the evident congestion in the country. This to export more professional workers like doc- is an issue that must be addressed before in- What can we expect from the 2018 budget? tors and nurses, instead of domestic helpers. Dutertenomics The Worldfolio - ASEAN 12

PAVING THE WAY FOR MORE INCLUSIVE GROWTH

In this interview with The Worldfolio, Ernesto M. Pernia (PhD), Secretary of Socioeconomic Planning at the Philippines’ National Economic and Development Authority (NEDA), speaks about efforts to bring about equitable economic development and better social inclusion

Infrastructure was a big item in the 2017 bud- How far along are you and what still needs get representing 5.3 percent of GDP and the some work or more focus? government plans to invest up to 7.4 percent The AmBisyon Natin 2040 and the PDP of GDP by 2022, what impact do you expect as a have both been well received during con- result of this so-called infrastructure golden sultations. These consultations cater to age policy in real terms? a broad range of groups that include the There was large underspending during the business sector, different civil society previous administration. Since the govern- groups, non-government organizations, ment could not decide quickly on projects as well as stakeholders in the regions. to approve, project execution was inevi- This is not just an output of NEDA, but tably delayed. also of the people that have been con- Most of the infrastructure projects to- sulted. This is something we worked on day should be concentrated in the far-flung along with the different departments of regions so as to provide public services and the government. create jobs for people in those areas. Holding The PDP, on the other hand, takes just as much importance would be invest- Ernesto M. Pernia, Secretary of Socioeconomic Planning, off from the 0-10 point socioeconomic ment in social infrastructure such as in the National Economic and Development Authority agenda, and it is anchored on the AmBi- areas of education and healthcare. On the syon Natin 2040, which emphasizes the other hand, investments and spending in The first pillar is solidarity or the strength- collective long-term vision and aspira- infrastructure in Metro Manila and the sur- ening of social fabric. In Tagalog, the word tions of the Filipinos for themselves and rounding regions should focus on eliminat- is malasakit. This refers to what binds the the country in 2040. The PDP 2017-2022 ing the traffic crisis and reducing congestion. country together. With a strongly bonded will be the foundation for the three sub- Funding from China or Japan is con- society, a more cooperative spirit will be sequent development plans that will lead sidered overseas development aid (ODA), established among the people. There will to the realization of AmBisyon Natin 2040. but it can also be blended with the public- also be a boost in trust, between the citi- Aside from the three pillars of the private partnership (PPP) approach or with zens and the government, and between PDP, there are two specific strategies that the government funding from the General businesses. will support inequality reduction and in- Appropriations Act. Given the many combi- For example, there would be no need crease in growth potential. First is en- nations and permutations as far as funding to present so many ID cards to prove your abling the macroeconomic environment, is concerned, our funding from China can be identity or authority if trust within the which involves maintaining a sound fiscal co-financed with the ADB (Asian Develop- society is strong. This would allow for and monetary policy, low interest rates, ment Bank) or the World Bank. It is truly transactions to be facilitated and con- low debt-to-GDP ratio, and a low budget beneficial for us to have a variety of funding cluded quickly. Malasakit also implies deficit. Second is levelling the playing sources that we can choose from. Among compassion towards your fellow neigh- field by institutionalizing a mechanism the competing ones is Japan who used to be bors and compassion between different for implementing the National Competi- soft and reserved in terms of approaching social classes. tion Policy. us. Now, they are more active as a result of The second pillar is pagbabago, which In addition to these are bedrock strat- China becoming more aggressive. refers to the inequality-reducing transfor- egies that will support all three pillars of mation of society and the government. the PDP, such as accelerating strategic How will the three pillars of the Philippines This is significant to our country wherein infrastructure development and ensuring Development Plan (PDP) 2017-2022, aiming to the reduction of inequality should result security, public order and safety, among realize AmBisyon Natin (National Vision) in poverty reduction. This paves the way others. It may be noted that part of the 0 2040, contribute to social inclusion, the for more inclusive growth. in the ‘0-10-Point Socioeconomic Agenda growth of the middle class, the establishment Lastly, there is patuloy na pag-unlad. is ensuring internal and external security of a knowledge-based economy, and eventu- This involves enhancing or strengthening as foundations for sustainable develop- ally sustainable economic growth? the growth potential of the economy, not ment. This is the peace and order that The three pillars have already been ap- just for the short and medium term, but the president has been trying to pursue proved for official adoption just recently. also for achieving a long-term vision. and achieve for the country. 13 The Worldfolio - ASEAN Dutertenomics

‘Life is here’: investing in Davao City

Situated on the southern Philippine island of Mindanao, Davao City is a prime focal point for President Rodrigo Duterte’s plan for economic decentralization. Christian Cambaya of the Davao City Investment Promotion Center, discusses why the City is an attractive place for investment

What are the industries or sectors in Davao Our neighbor cities, such as Tanabo, have chocolate brands like Mars. They are sourc- you see interesting for investment? their own port and ecozone that is around ing in Davao, but that is not enough. We We are promoting several priority invest- 100 hectares. want investors to put up a plant here to ment areas, but we are focusing mostly on process the beans. agribusiness, tourism, real estate, and espe- All these ecozones placed Subic and Clark on Light manufacturing is one of the pri- cially manufacturing. Our manufacturing is the map. It also takes a lot of time to establish orities of the current local government of not that big as compared to those in places them. What is it that you are doing alterna- Davao because we understand that it is a like Laguna, so it is one aspect that we can tively due to the lack of ecozones in Davao? labor-intensive industry. As it is, manufac- improve on. We are working double time on our invest- turing is not yet strong in Davao. One of the We have an investment tourism road- ment promotions. Last year, we also went industries that we certainly will welcome show in Japan which we conduct at least to Manila to conduct an investment tour- in Davao is pharmaceuticals. If we can get once a year. This will just involve a Davao ism roadshow with the foreign chamber of an investor who can establish a pharma- delegation that is composed of the private commerce as our target. We went there, ceutical company here, that will help spur sector and city government. We also did office by office, just to promote Davao, be- economic growth in Davao City. that in Singapore and Dubai. In partner- cause admittedly, we lack ecozones, so we ship with the Davao City Chamber, private compensate by intensifying our promotion W hat are the key concepts you want the inter- companies, and the Philippine Embassy, we efforts and providing tax incentives priority national community to associate with Davao? will be going to four cities in Japan: Osaka, in less developed areas in Davao City. One of the things that we are also doing Kyoto, Yokohama and Tokyo. right now are investment conferences, with What are the export products that you would the recent one called the Davao Investment One of the main competitive advantages of ar- highlight here in the Mindanao region? Conference. We are holding these confer- eas such as Clark, Subic Bay, Bataan, and Cebu Aside from bananas and coconut, one of our ences and other big events in Davao in part- is that they all have large special economic priorities right now is cacao. In the Phil- nership with the private sector to show to zones (SEZs). Your closest SEZ is Zamboanga, ippines, 90 percent of cacao production is the world that there is strong public-private which is rather far away. Are there plans to from the Davao Region. Something that we partnership where you do not find in other have ‘ecozones’ in Davao? want to add is processing or value-adding big cities in the Philippines. That is the mandate of The Philippines Eco- processes for the cacao that we have. We One of the biggest success stories we nomic Zone Authority (PEZA) right now: to also understand that some of these beans have here is the owner of Phoenix Petro- encourage more local government units to are being exported and used by renowned leum. Just recently, they went public. The establish an ecozone especially for Davao. We owner did not expect the huge turnout for have ecozones here but mostly for IT parks this IPO, but nonetheless it was successful. and villages, as well as for BPOs or outsourc- “Light manufacturing There are still opportunities here, especially ing. We also have two ecozones in Davao, not in terms manufacturing and ecozones. for IT, but for export. It is just 10 hectares; it is one of the priorities is not the ecozone that we are talking about, of the current local Why do you think investors should go to Davao like those that reach 100 hectares. and not another place in the Philippines? government of Davao For several years, we have been en- I would say: why not? In terms of land area, we couraging the private sector who have huge because we understand are the biggest in the Philippines. We are con- lands in Davao. Unfortunately, for the gov- that it is a labor- sidered the de facto capital of Mindanao. We ernment, we do not have that, but we have intensive industry. As it are the center of trade and commerce in Min- big tracks of land for tourism. In the north, danao. People come here to find work, and where our ports are located, the big lands is, manufacturing is not they send their children to study here. The are owned by the private sector, and we yet strong in Davao. government has always placed a premium on are encouraging them to convert the areas One of the industries safety and order here. The president has es- into ecozones. We have also volunteered tablished the Public Safety Command Center. to implement a system in the documenta- that we certainly will If you look at our tagline, “Life is here,” there tion process just to convince them that it is welcome in Davao is is a perfect combination that other cities in the worthwhile especially for the public. That pharmaceuticals” Philippines do not have. We have the perfect is what we have been doing, because we combination of urban and rural settings, and really lack the lands for these ecozones. that is what makes Davao special. ASEAN The Worldfolio - ASEAN 14 The ASEAN celebrating 50 years of progress and achievements

This year ASEAN member states celebrate 50 years of achievements and challenges overcome. Over the next few decades, they will work towards becoming a fully integrated and politically aligned economic community, which will be the fourth largest economy in the world by 2050

For many global investors in emerging economies, the buzz acronym The ASEAN grouping has also signed free trade agreements with “BRIC” (Brazil, Russia, China and India), coined by Goldman Sachs in six key trading partners, namely China, Korea, Japan, Australia, New 2001, has been replaced by five completely different letters: A-S-E-A-N. Zealand, and India. These economies account for roughly 42 percent The ASEAN, the Association of Southeast Asian Nations founded in 1967, of extra-ASEAN trade. The Bloc is also leading negotiations for the has become one of the world’s most vibrant, dynamic, and competitive Regional Comprehensive Economic Partnership (RCEP), which now regions, where GDP growth has surpassed any other region in the world looks likely to replace the almost-defunct Trans-Pacific Partnership. In consistently over the last decade and continues to do so. Labor produc- 2017, prospective RCEP member states accounted for a population of tivity, innovation, entrepreneurship, and the realization of a regional 3.4 billion people with a total GDP of $49.5 trillion, approximately 39 common market are amongst some of the key drivers of this growth. percent of the world’s GDP. A quick glance at the figures on the opposite page shows why While significant achievements have been made in some areas investors are so bullish about opportunities in the ASEAN region and like trade, the AEC is still a long way from a fully-fledged economic its market of 622 million people, which experienced average year-on- community like the EU. Many issues need to be ironed out vis-à-vis year growth of 5.1 percent from 2000 to 2013. The combined GDP of political unity, regulatory and policy harmonization, trade in services the 10 ASEAN member states in 2016 was $2.55 trillion, with growth and free movement of labor. predictions of 4.9 percent in 2017 and 2018, and 5 percent in 2019. If “The achievements in tariff liberalization have been offset by the considered one country, the ASEAN would be the world’s seventh-largest rise in non-tariff measures. A 2016 report finds that the number of non- economy; it is projected to rank as the fourth-largest economy by 2050. tariff measures increased from 1,634 to 5,975 between 2000 and 2015. Inward foreign direct investment has grown rapidly in recent years, There are also challenges to tackling barriers to trade in services,” states from $37.9 billion in 2008 to $120 billion in 2015 (in comparison India a recent report by leading economists at the Asian Development Bank. attracted half that figure, $63 billion, in 2015, while China received “The ASEAN has yet to fully address issues of labor mobility to slightly more – $126 billion). include unskilled, not just skilled, labor. Mutual recognition agreements This year at the 31st ASEAN Summit, the representatives of the have been reached for eight professional qualifications, but these cover member states will come together to celebrate 50 years of achievements only 1.5 percent of ASEAN’s total workforce.” and challenges overcome, from the communization of Indochina, the To address the many gaps yet to be filled, the member states, in Vietnamese invasion of Cambodia; and two financial crises in 1997 2015, adopted the AEC Blueprint 2025. The Blueprint consists of five and 2007-8; to the signing of the Bali Declaration of ASEAN Concord interrelated pillars (A Highly Integrated and Cohesive Economy; A and the Treaty of Amity and Cooperation in 1976, and the adoption Competitive, Innovative, and Dynamic ASEAN; Enhanced Connectiv- of the ASEAN Charter in 2007, which established the ASEAN as an ity and Sectoral Cooperation; A Resilient, Inclusive, People-Oriented, international legal entity. and People-Centered ASEAN; and A Global ASEAN), which are aimed But perhaps the Association’s greatest achievements came just less towards achieving the vision of having an AEC by 2025. than two years ago. After several years of planning and negotiations, “The launch of the ASEAN Community in 2015, covered the the ASEAN Economic Community (AEC) common market was born three pillars: economic, political and social. Have we achieved inte- on December 31, 2015, paving the way to the establishment a single gration? That’s what we hope, but as usual you have an aspiration, market that allows the free flow of goods, services, people and capital we are not perfect yet,” says Pehin Dato Lim Jock Seng, Second – similar to that of the European Union. The AEC forms part of larger Minister of Foreign Affairs and Trade of Brunei, the AEC’s smallest ASEAN Community which comprises three pillars: Political-Security member that has the second highest GDP per capita in the Com- Community, Economic Community and Socio-Cultural Community. munity after Singapore. In 2007, ASEAN member states began eliminating tariffs on “Politically, we are not a community in that sense. We are still far goods in the lead up to the AEC, and today around 96 percent of from that, but we are working towards it. In the EU, they have a political tariff lines are at 0 percent. And this share is expected to reach 98.67 community, but to have a common political group is not easy. We believe percent by 2018. Average tariff rates have gone down from a regional that this process will be very slow, but we aspire to be a community.” average of 11 percent in 1993 to 0 percent for most countries. As Fifty years on since the establishment of the ASEAN, and the region a result of the removal of customs tariffs, intra-regional trade has is thriving economically, with members states closer than ever before. grown significantly. Expansion of intra-ASEAN trade has outpaced Over the next few decades they will continue to work towards their the growth of world trade over the past four years. Today, some 25 aspiration to become a fully integrated and politically aligned economic percent of the region’s exports of goods go to other ASEAN partners community. Where the ASEAN will be when it celebrates its centenary and that figure should grow over the coming years as economic in 2067, will be determined by the actions of the ASEAN’s business and integration is strengthened. political leaders of today. 15 The Worldfolio - ASEAN ASEAN

President of the Philippines, Rodrigo Roa Duterte, poses for a photo with the foreign ministers from participating countries in the Association of Southeast Asian Nations (ASEAN) Foreign Ministers Meeting during its closing ceremony at the Philippine International Convention Center in Pasay City, Metro Manila on August 8, 2017

THE ASEAN IN NUMBERS $2.55trn $120bn combined GDP of ASEAN states (2016) FDI in ASEAN (2015) 5.1% 622m ASEAN average y-o-y GDP growth (2000-2013) size of ASEAN Market 4.9% 125m projected y-o-y GDP Growth (2017 & 2018) no. of “consuming class” households by 2025 4th 4th largest economy in the world by 2050 largest exporting region in the world ASEAN The Worldfolio - ASEAN 16

‘Go Negosyo is the prime mover of entrepreneurship in the Philippines’

Go Negosyo is the advocacy group of the Philippine Center for Entrepreneurship (PCE), a non-stock, non-profit organization that advocates for a change in mindset and attitude towards entrepreneurship. In this interview, CEO and President, Joey Concepcion, discusses how Go Negosyo supports the nation’s micro, small and medium-sized enterprises, ASEAN integration and how the Philippines can benefit from Japanese investments

How important it is for growth to be inclu- We shall reach out to the 99 percent: en- While the +3 are our major trading sive and decentralized for the prosperity of trepreneurs who are continuously in search partners, we try to open up to as many other the Philippines? of progress and prosperity. Hence, the private countries. We also recognize the limitations For the past few years, many Filipinos have ex- sector and the entrepreneurs will serve as the prescribed in our constitution in opening up pressed their dismay with the government for drivers of economic growth and employment to other types of foreign investments. But we not being able to bring growth across all sectors generation more so as they benefit from the ca- are continuously advocating for the easing of of our society. While our economic numbers are pacity building programs that, likewise, equip these restrictions in less politically contentious growing faster than the others in the ASEAN, them to access similar programs that provide sectors and industries. most low-lying communities have not experi- assistance in the areas of technology and fi- enced the progress and development. President nance. As beneficiaries of these programs, The Philippines is known for its tycoons and Duterte has committed to the goal of inclusive the participating entrepreneurs and the private big holdings as reflected on the Asia 300. What growth for the whole country. Like what we sector as a whole will actually get to upscale are the benefits of further regional integra- always say, our mission is to bring prosperity for their operations with the valuable assistance tion and how can they or should they expand all – not just for the selected few in the higher provided by the mentors and government focal their ecosystem to include MSMEs to better levels of our society, but more so for those who points. The achieved growth of their enter- redistribute the economic gains? belong in the lower classes. prises will further usher in increased business The big corporations in the Philippines, which Over 99 percent of the business com- and market opportunities for the beneficiaries, we call “big brothers”, are encouraged to in- munity is composed of the micro and small starting with those arising from the economic tegrate an inclusive business model in their entrepreneurs. We want them to scale up and integration of the ASEAN member-countries. businesses in order help the “small broth- to graduate from their current status and move ers” or the MSMEs. Through Go Negosyo and up to the next level. These micro and small W hat impact do you expect to see from deeper the companies which have implemented IB entrepreneurs, when enabled to grow and regional integration in macroeconomic terms systems, we are promoting the valuable ad- thrive, will bring about increased economic and how will it affect the real economy? vantages of including MSMEs in their value development and employment. In fact, these Deeper regional integration amongst the ASEAN chains. Go Negosyo will soon be releasing micro and small entrepreneurs provide in- member-countries will be better realized with a book featuring 80 inclusive business com- come and job opportunities to the poor and the mobilization of the MSE-beneficiaries of the panies in the country. We aim to encourage low-income groups across all cities and towns program as businesses engaged in inter-country all entrepreneurs, regardless of their size, to of the member-countries, unlike the medium trading of raw materials, labor, finished goods collaborate and help one another in reach- and large enterprises that mostly operate in and services. Through it all, increased integrated ing success. urban centers and industrial locations. economic activities will concretely contribute to Regional integration offers ways to further economic growth in the ASEAN region. lower the costs of their raw materials, labor What role should the private sector and entre- and necessary overheads and to expand the preneurship play in this process? How can they How would you define the current investment markets for the products and services of the big be incentivized to be more active? climate of the Philippines for foreign inves- brothers. Along the way, the same big broth- The private sector in the Philippines led by Go tors, especially the ASEAN +3 (China, Japan ers are encouraged to tap the micro and small Negosyo has been largely contributing to the and South Korea)? enterprises as suppliers of their needed raw micro, small and medium-sized enterprises The current investment climate in the Philip- materials and semi-finished products and as (MSMEs) development goals of the govern- pines for foreign investors is designed to be distributors of their finished products and ser- ment. Part of the 10-point economic agenda welcoming and very friendly. The govern- vices. Being big brothers affords them the op- of this administration is to help empower the ment presents annually the prioritized areas portunity to help micro and small enterprises, MSMEs in the country with the private sec- of investments that go with incentives (i.e., tax fortifies their value chains and boosts their tor and the entrepreneur community as a key and duties exemption for the first years) and contribution to the local economies. partner. We work together in addressing the relevant government agencies are keen to as- needs of our MSMEs. If the private sector’s sist investors in setting up their businesses in How would you describe the current situation programs will be incentivized, the progress the country, especially since they bring in jobs of entrepreneurship in the Philippines and its we have now will grow tremendously. and increased economic activities. evolution? 17 The Worldfolio - ASEAN ASEAN

When we started Go Negosyo in 2005 as a private organization, en- trepreneurship was not the popular career option of many Filipinos. Since then, we have been mentoring thousands of aspiring and start- up entrepreneurs through our caravans, seminars, forums, books and our media platforms. Twelve years later, we are proud to say that Go Negosyo is one of the most recognized entrepreneurship organizations in the country. Go Negosyo has come a long way in inspiring and empowering MSMEs. MSMEs receive business tips and strategies first hand from the wide network of successful entrepreneurs. Then in August 2017, the advocacy of entrepreneurship and MSME development was further bolstered by the Public-Private Partnership forged by the Philippine Department of Trade & Industry and Go Negosyo. This partnership now undertakes to successfully implement the mentorship program that aims to upscale micro and small en- terprises (MSEs) through capacity building activities that include orientations on other ongoing government programs and laws that have all been designed to address the plight of micro and small enterprises, especially the startups that normally do not survive the first year/s of operations. Furthermore, the government services for MSEs are made accessible to the intended beneficiaries through the establishment of Negosyo Centers Joey Concepcion, CEO and President, Go Negosyo in over 1,500 municipalities, towns and cities across the Philippines. These centers are manned by business advisers that are mandated to promote The most critical and important question for MSMEs and start-ups is ease of doing business and to help MSEs access government services. where to get funding due to the lack of collaterals. How will ASEAN and the Philippines be able to address this issue and how will the public Japan is characterized by its sustainable approach to FDI. Can it help in and private sector be able to work together on this? moving agriculture to agro-industry or even manufacturing to added- Currently, there are several government programs which provide fi- value manufacturing. nancial and technical assistance to many MSMEs. The Department of Definitely. In fact, we are pleased to say that the ASEAN Japan Innova- Trade and Industry (DTI) recently launched the P3, or ‘Pondo Para sa tion Network has been established early this year so ASEAN’s industries Pagbabago at Pag-asenso’, which provides micro-finance to our MSMEs. and emerging business enterprises can leverage on Japan’s advanced For this year, one billion pesos (approx $20 million) is allotted for this technologies and innovation. The priorities and roll-out strategic plan program. are now being developed to address the key needs of ASEAN business, Additionally, DTI offers the Shared Service Facilities (SSF) which especially the MSMEs and industries. provide tools and equipment shared by members of cooperatives or entrepreneurship associations that is expected to aid them in increasing What is the role of Go Negosyo as a vehicle for entrepreneurship in their production and improve their competitiveness. The Department the country and what are the programs that are most important sus- of Science and Technology has a similar program which is called the tainable development? Small Enterprise Technology Upgrading Program (SET-UP) and pro- Go Negosyo is the prime mover of entrepreneurship in the Philippines. vides technologies to entrepreneurs to improve their operations. Since Currently, Go Negosyo has partnered with the Department of Trade 2003, DOST has assisted more than 3,000 small businesses through and Industry for the Kapatid Mentor ME which is a weekly mentoring this program. program held in many Negosyo Centers nationwide. Since its estab- The agriculture sector also receives assistance from the Depart- lishment in 2016, more than 200 MSMEs graduated from the 10-week ment of Agriculture through its Agricultural Modernization program program. For the first half of 2017, more than 1,500 MSMEs were en- which gives farmers and fishermen access to agricultural equipment rolled in the program. and other technical support. We now have 400 accredited mentors. Aside from Mentor ME, The Department of Social Welfare and Development through its Go Negosyo is also leading the Alliance Towards Prosperity for All, Conditional Cash Transfer Program provides assistance to extremely which is a long-term private sector-led campaign at the national level poor families. While this provides an alternative financial support, it to build a multi-sectoral, multi-disciplinary alliance of organizations has not proven its capacity to aid enterprising individuals to scale up. and individuals to pursue prosperity for all among the ASEAN nations. For the private sector, we are continuously promoting our entre- This alliance will be an active collaboration which will help create preneurship development programs which influences microfinance sustainable programs for MSME development. Indeed, Go Negosyo institutions and banks to improve their lending programs for micro has inspired would-be entrepreneurs to pursue their dreams and has and small entrepreneurs. Several banks have developed financial as- guided startups and MSEs as they deal with the challenges and problems sistance to fit the requirements of MSMEs. In fact, a number of private of business management. Its Kapatid Mentor Me Program is seen to banks have signified their intent to offer uncollateralized loans and concretely establish the places of MSEs in sustainable value chains of other financial packages suited to the needs of beneficiaries ofthe medium and large enterprises, thereby upscaling them and enabling Kapatid Mentor Me Program. The latter has, therefore, served to boost them to contribute more to local economies and the number of locally the bankability of startups and MSEs that hitherto have mostly been available jobs, especially in the poor regions of the country. unable to access bank services. ASEAN The Worldfolio - ASEAN 18

A TIRELESS ADVOCATE FOR A MORE EGALITARIAN SOCIETY

Senator Cynthia Aguilar Villar is a Filipino politician and wife of billionaire businessman Manny Villar. In this interview, she discusses The Philippines’ ASEAN chairmanship, the roadmap for the cacao industry, the work of her foundation, Villar SIPAG and her vision for The Philippines in 2025

What are the opportunities presented by the sion is still high on your professional and ASEAN Chairmanship to lead change for the personal agenda. How is Villar SIPAG contrib- development of the region and what is the uting to nation-building and socioeconomic role the Philippines is taking as the fastest development? growing economy within the association? The Villar Social Institute for Poverty Allevi- The Philippines’ ASEAN chairmanship fo- ation and Governance, or Villar SIPAG, (for- cuses on championing the causes of micro merly Villar Foundation) is an extension of small and medium enterprises or MSMEs, our family’s efforts to help our countrymen. which is in line with the priority of the ASE- Through the foundation, we implement our AN Economic Community (AEC). Since the advocacies—jobs livelihood generation, en- launch of the AEC in December, 2015, there vironment protection, supporting OFWs, has been now greater investor interest and youth engagement, agricultural training, confidence in the prospects and opportuni- among others. I believe, by implementing ties in the region. As ASEAN chair or host, our projects and programs for those sectors priority is given towards instituting an en- of the society, especially the poor, we are abling environment that allows MSMEs to already fulfilling the essence of socioeco- develop and internationalize through poli- nomic development and we are helping in cies that ease the cost of doing business and nation-building. For instance, we have built through support activities that nurture their nearly 1,800 livelihood projects all over the continuous growth. This is to encourage country, which have provided a source of Cynthia Aguilar Villar greater MSME participation. As you know, income for thousands of families who live 99 percent of business here in the Philip- The Philippine Cacao Industry Roadmap in poor communities. pines are MSMEs and they provide over 65 was created by the Department of Trade percent of jobs, so focus on MSMEs in the and Industry with the Department of Agri- You are a tireless advocate for a more egali- ASEAN Summit is very relevant to Filipinos culture and industry stakeholders in order tarian society. Can you enumerate some of the and the country. to put in place a competitive and sustain- latest projects you are involved in? able Philippine cacao industry by the year Pursuing legislations in the Senate Considering that Japan is widely regarded as 2022. The plan aims to contribute to the goal Chairmanship of three committees in the the finest in railway transportation. How can of attaining inclusive growth and poverty Senate: Agriculture & Food, Environment Japanese technology collaborate in bringing alleviation; increase farmers’ income to at and Foreign Affairs. Philippine National Railways to its next level? least 130,000 pesos ($2,500) per hectare per Providing training and workshops to When we extended the charter or corporate year; increase export earnings by at least farmers and their families in our own farm life of the Philippine National Railways, PNR, $250 million per year; and generate at least schools improvement of its facilities and service is 150,000 jobs by 2022. Implementing various advocacies of Vil- among the conditions we asked from them. What I did to help revive the dwindling lar SIPAG And one of the priorities is to determine cacao industry was to file Senate Bill No. most advantageous or appropriate rail tran- 320 or the Cacao Industry Development Act Where would like to see the Philippines by sit technology for the PNR lines. And since that will establish a national program for 2025? as you mentioned, Japan has one of the fin- the cacao industry. It seeks to revive the By 2025, I hope that a fewer number of Fili- est railway transportation networks, I am dwindling cacao industry in our country and pinos will be living below the poverty line; sure their railway system and technology is participate in the international markets, so a fewer number of Filipinos will be going among those that will be studied closely by our farmers will get additional income. abroad as overseas workers, because there our railway authorities to modernize PNR. will be adequate job opportunities in the You founded and chaired the Villar SIPAG in country; farmers and fisherfolks will not be During the Cacao National Congress, you an- 1992. Since its inception, the Foundation has the poorest anymore; there will be more nounced the creation of a National Program initiated and implemented various projects entrepreneurs or job creators than jobseek- roadmap. Could you give us insights about aimed at improving the quality of life of the ers; sustainable economic growth; and of the plan? people in various communities. Social inclu- course, lasting peace all over the country. 19 The Worldfolio - ASEAN ASEAN

BUILDING A COMPETITIVE ECONOMY

Guillermo M. Luz, Private Sector Chairman of the Philippines’ National Competitive Council, speaks to The Worldfolio about new government reforms to improve the business climate and infrastructure development

The current administration, under the because there will be an absorptive capac- leadership of President Duterte, aims to as- ity issue once infrastructure projects start sume a bigger and a more significant role pouring in. The country may have all the in the ASEAN economic community, and is money but lack contractors to do the work implementing various programs such as the or do sufficient work. Thus, procurement 10-point socioeconomic plan, the 2017 budget, must also be streamlined. The bidding pro- and tax reform. What is your opinion on these cess and disbursement of funds must be at programs and what possible impacts do you pace to keep the infrastructure progress expect on the investment climate? running. These programs of the administration help One of the issues encountered in this in facilitating the economic activities in the context is the right of way acquisition. We country. Given this, the private sector is have a fairly new acquisition law and its fully behind the 10-point socioeconomic implementation can help the contractors plan of the government. In particular, the move faster. The biggest hindrance is that private sector likes the emphasis put on the contractors are ready to move but the land aspects such as infrastructure, tax reform, for development is not turned over to them. ease of doing business, and simplification. Guillermo M. Luz, Private Sector Chairman, Take for example the airport expressway This economic plan has also provided National Competitive Council that connects terminals 1, 2, and 3. It is a momentum for increasing support to small public-private sector partnership project and medium-scale enterprises (SMEs). It is ernment is able to do so, well and good. that is being built by a private contractor what we refer to as the “inclusive business The private sector is hopeful to have this (San Miguel). The delay in its construc- model”. There is a very large movement to done as immediately as possible. However, tion involved the right of way has not been foster this model and much of the team for we acknowledge the fact that there is a bu- turned over to the contractor immediately. ASEAN integration is devoted to working reaucratic maze that has to be surpassed, On the business side, streamlining is on this aspect reflecting prosperity for all yet the sector remains confident that the currently the focus. Among many others, programs. The public-private partnership government can push through with it. we are working to reduce, streamline and (PPP) has also been one program that we eliminate unnecessary processes. There have been supportive of. There is an ongo- Infrastructure is among the more empha- are big projects in varying levels to address ing review and rebidding of projects and sized points in the current economic plan. this. We have it at the local and national the sector will continue its support to the It represents a large portion of the budget government levels and at a congressional extent that this pursues. 2017 which is the equivalent 5.3 percent of level. One of the most significant of these There is no question as to the support GDP. What do you think this would bring forth is project repealing. This involves revok- given by the private sector in the adminis- with regard to the competitiveness of the ing unnecessary rules and regulations. tration’s quest to improve economic stand- country and the ease of doing business for After repealing, whatever is left of the ing. The challenge boils down to the man- risk-averse countries like Japan? process must be automated. We need to ner of execution. The sector is supportive Since the Philippines significantly lacks in- put in a lot of information technology and of the programs and asks how we can help frastructure across many fronts (i.e. roads, take most of the interactions online. As to in the execution side. As for this matter, rails, ports and airports), the execution of date, this is gradually taking its place but we can help in numerous things such as such budget allocation will be beneficial. will still require several months to a year in promoting inclusive business since we Currently, there are five to six regional for automation depending on the process are direct participants in the economy. As airports and a decision has to be made involved. This will involve the Securities for the tax reform, at the end of the day about Manila International Airport. We and Exchange Commission, the Bureau of execution is reliant on the congress. The would like to think that there are at least Internal Revenue, and Local Government bill has to be passed and our participation two international airports in the country. Units as we are trying to turnout as many for now is limited to expressing support If the government can increase the portals and online apps as possible for both for the tax reform program. infrastructure spending to 7.1 percent of local and national government units. Another emphasis is put on infrastruc- GDP, it will certainly do the country good. Once these issues have been eliminat- ture where the government aims to fund In order to do this, our economy will ed, the country can move faster on develop- most of infrastructure-related projects have to be open to allow foreign contrac- ing its infrastructure. The country will be through the national budget. If the gov- tors participate more heavily in projects more competitive in this aspect. Brunei Special mention The Worldfolio - ASEAN 20

Brunei heads further downstream

An interview with Yang Berhormat Pehin Datu Singamanteri Colonel (Retired) Dato Seri Setia (Dr.) Awang Haji Mohammad Yasmin bin Haji Umar, Minister of Energy and Industry at the Prime Minister’s Office in Brunei

What is the role of the energy sector in de- delivery mechanism, with the Ease of Doing veloping the economy though job creation, Business Steering Committee and Champion wealth generation and local company devel- Groups comprising key government agencies. opment? This mechanism has allowed reforms to occur The oil and gas sector continues to be the at a more accelerated pace. main contributor to Brunei GDP, contributing The improvement in Brunei Darus- around 60 percent of the country’s GDP and salam’s business environment provides 9 percent of export revenues. This will help potential investor confidence in Brunei drive further economic growth. Darussalam as a pro-business and pro-in- The energy sector is governed by Gov- vestment destination, and shows the Gov- ernment Local Business Development (LBD) ernment’s support for the private sector, for Directives, which aim to maximize the eco- both the oil and gas and non-oil-and-gas nomic spin-off from the energy sector activi- sectors alike. As a result, Brunei Darus- ties by maximizing local content in terms of We see that Brunei has been attractive salam is seeing a progressive increase in use of local goods and services and as well to investors in the energy sector, with the non-oil-and-gas FDIs. as local employment. Since the issuance of growth of the downstream sector continuing the LBD Directives in 2011, there were 49 to accelerate. There is a further investment Vision 2035 established an objective of non- new local companies awarded oil and gas of approximately $4.7 billion from Hengyi oil sectors representing 63 percent of GDP contracts with a total annual contract value Industries and Brunei Fertilizer Industries. by 2035, for which you prioritized five indus- of approximately 986 million Bahraini dollars. Hengyi Industries has committed $12 bil- tries. How competitive can Brunei become The government is focusing its efforts lion to develop the second phase of its Pulau regionally in those different sectors? towards attracting FDI especially for the oil Muara Besar (PMB) refinery and petrochemi- The development of the five priority invest- and gas downstream energy sector. Through cal plant, making Brunei the destination of its ment sectors (Halal, Technology and Creative this downstream activity, Brunei is able to largest foreign investment to date. Industry, Business Services, Tourism, and add more value to the produced oil and gas To ensure competitiveness in the up- Downstream Oil & Gas) will leverage on through the development of new refinery stream energy sector, activities continue to the unique characteristics of Brunei Darus- and petrochemical industries. This will also strengthen, such as exploration activities salam in order to differentiate them. Brunei create the spinoff in term of business oppor- and development of oil and gas fields, and Darussalam features strong Islamic values, tunities for local companies and job creation improvements in cost optimization and ef- high-quality Halal standards, pristine un- for locals. ficiency. tapped rainforests with a rich biodiversity, a The downstream industries play a role highly educated workforce, a unique cultural generating value-added products, whose Could you tell us which are ,in your opinion, heritage as well as its proximity and close prices would potentially be less susceptible to the main reasons for this success and what cooperation with regional and international price fluctuations seen in the upstream sector. result will it have on FDI levels in the non-oil partners. As a result, the downstream sector, continues sector? The Halal standards adopted by Brunei to be developed to provide resilience against First of all, Brunei Darussalam has been com- Darussalam are widely recognized as being price fluctuations in the upstream sector. Bru- mitted to improving the ease of doing business of high quality in both conformance and cred- nei is seeking to develop more downstream in the country. Since 2006, Brunei Darussalam ibility. Brunei Darussalam is one of only two projects in the coming years. has been implementing a comprehensive re- countries in which the government directly form agenda with a joint long-term vision and regulates the Halal certification (the other be- How competitive is Brunei in attracting FDI clear objectives to further improve the busi- ing Malaysia), which is the responsibility of to the energy sector versus countries such as ness environment to support FDI, small and the Brunei Islamic Religious Council (Majlis Malaysia, Indonesia or even Vietnam? medium-sized enterprises (SMEs) and eco- Ugama Islam Brunei, MUIB), in order ensure Brunei Darussalam needs to remain com- nomic diversification. As a result, the World the highest standards are met. petitive to ensure the sustained growth of its Bank has named Brunei as the Number 1 most FDIs are encouraged to establish opera- energy sector, especially given the significant improved economy for two years running in tions in Brunei Darussalam to tap into Brunei contribution of the energy sector to the econ- the World Bank Doing Business Report 2016 Darussalam’s Halal standards and certifica- omy. We are continuously seeking to improve and 2017. tion opportunities, as well as to use Brunei Brunei’s attractiveness to FDIs in the energy The success of the reforms comes from Darussalam as a gateway to the Islamic Mar- sector and all its priority investment clusters. establishing an effective whole-government ket and ASEAN market. 21 The Worldfolio - ASEAN Brunei Special mention

BRUNEI’S REGIONAL MULTILATERAL RELATIONS

Pehin Dato Lim Jock Seng, Brunei’s Second Minister of Foreign Affairs and Trade, discusses the country’s history and ASEAN relations with the ASEAN +3

Brunei gained its independence from the edge, in the sense of cutting-edge technology. United Kingdom in 1984, and experienced So, the Japanese are still there, they are phenomenal growth during the 1990s and still a very good competitor and still contrib- 2000s, developing its wealth from extensive uting a lot, as I said, in healthcare and every- petroleum and natural gas fields. Could you thing. So, I don’t see them being played out, describe for us the culture, ideology and val- but the Chinese are coming in very strongly. ues of The Nation of Brunei? They provide funding for infrastructure, for Brunei is an old kingdom. It has existed as their silk road belt. They are competing with a Malay kingdom from the 14th century on- each other, which is good for all of us. At wards and His Majesty represents the 29th least we have two sources of funding. But generation of the dynasty. But Islam also as I said, the Japanese had their time, their came in the 14th century, so we trace his three decades, the Chinese are now. Next descent from the first Islamic ruler. We have after the Chinese, we don’t know. It maybe a tradition that goes back many centuries. Indonesia then. This is why Monarchy still plays a very im- portant part in our life here, because it’s a Pehin Dato Lim Jock Seng Second, Brunei’s Second Minister of Recent economic developments in Brunei long tradition. Foreign Affairs and Trade have re-emphasized the need for structural Secondly the introduction of Islam as I reform policies towards a more diversified said, to Brunei in the 14th century onward, one. In a sense, we are also competing here, and competitive economy. The Government of gave us that religious anchor for Brunei. but we want everybody to work together so Brunei has recently intensified its reform ef- The Malay race, the Malay population, is we are engaging them, providing them with forts to spur the private sector’s role in the the dominant ethnic group. So, there is an a platform and meeting them as they come economy with the end objective of diversifying emphasis on tolerance, friendship and on to the ASEAN region. The three of them are its export-based product and services. How good neighborliness. very good partners and we want to work with competitive is Brunei as an exporting coun- The centrality of understanding, of tol- them. Really the potential is great, but for po- try? Which sectors and products would you erance and of being friendly, are the key ele- litical reasons, it is not fulfilling its potential. highlight as the most competitive? ments to achieve a peaceful climate in any Diversification is very important, because we part of the world. But that is the missing bit Due to a decreasing demographic and an aging have been very dependent on oil and gas I think, in many of the societies that we live population, the Japanese private sector has for the last 50 years. But oil and gas maybe in. So those are sort of the underpinnings been promoting a strong internalization pro- completely useless in five or ten years when of the culture, the religious and the kind of cess. Following this, a big share of Japanese you have hydrogen and other alternatives. government that we have. That is the way companies have increased their investments So we have to look at how we diversify the we operate and we are lucky enough that levels in the ASEAN, particularly in manufac- economy, because we are too dependent on we have had stability since then. turing bases, to become more competitive oil and gas. The government is looking at globally. What are ,in your opinion, the main several sectors, one is tourism. The other Could you describe the importance of the opportunities for the Japanese private sector one is the downstream sector in the oil and ASEAN+3 (China, Japan & South Korea) and in Brunei? gas, like methanol and from methanol we more specifically the role of apan through If you look at Japan from the 60s, 70s and have the derivatives and refinery. If we look institution such as JICA? 80s, I would say that during those three de- at Singapore, they don’t have oil and gas, but The Plus Three, integrate the world’s second cades, Japan’s technology and economy was they have one of the biggest refineries in the and third largest economies. When com- the one that really provided the spur for the world. Maybe we could try our luck. bined, plus South Korea, you have a very big, industrialization process in South-East Asia. We are also looking at the Halal industry. strong and interesting economy – if you can During those three decades, Japan was The government is also looking at some of get them together, which it is very difficult responsible for the miracle that we had in the creative industries. So they are quite a lot as they have their own political problems. terms of industrialization, because they were of possibilities and here we can even look at It is a very strong organization, if you the spur. But of course now, the Chinese era education, we can look at health, but mainly have the Plus Three, which is the trilateral is coming in, so there is competition between we are focusing on tourism, the Halal market group. Economically and politically they are both of them. The Japanese at the moment, and the down streaming of the oil and gas very strong, but they don’t get on with every- I would say, have still got the competitive industry. Those are the main three. Japan Philippines relations The Worldfolio - ASEAN 22 Japan Inc. sees The Philippines among most promising investment destinations

Japan’s diminishing domestic market, a result of its aging and shrinking population, has compelled Japanese companies to search overseas for new opportunities. Many are looking to the U.S. and Europe, but right on their doorstep is the massive market of the Philippines

With 103 million people, the Philippines is the 13th most populated country in the world and second most populated in the ASEAN region, with a GDP of close to $300 billion and annual growth averag- ing 6 percent. Much like China and India, the large population offers up potential in the long-term for a large and sustainable demand-based economy. The Philippines’ market potential has not gone unnoticed by Japanese Inc. In a survey conducted by the Japan Bank for International Cooperation last year, Japanese companies viewed the Philippines as one of the most promis- ing markets for investments. The survey also concluded that manufacturing firms ranked the Philippines as the eighth most market share, sold 61,400 units, up by drives Japanese companies into consid- promising destination for overseas op- 13.52 percent. ering the Philippines,” says Guillermo M. erations over the medium term, putting it As a result of growing sales, both Luz, Private Sector Chairman of the Phil- ahead of its main regional rivals, Malay- Toyota and Mitsubishi are set to establish ippines’ National Competitive Council. sia and Singapore. production plants in the Philippines. In “They have been heavily investing The IMF estimates that GDP per January, the latter announced that it was in China and are looking for opportuni- capita passed the $3,000 mark in the building a $632 million plant in Cikarang, ties outside as an alternative. While the Philippines for the first time in 2016. West Java, which will open in 2018 and Japanese companies remain in China, With salaries growing, the young and have the capacity to produce 160,000 units. they are not going to keep investing in rising middle class in the Philippines are “I was invited to visit the Toyota the same place. The search is who will demanding more consumer items like headquarters and manufacturing plants be the plus one or the alternative loca- cars, phones, laptops and electrical ap- in Nagoya. And I saw the opportunity, tion? The Philippines happens to be a pliances – which presents big opportuni- especially with our growing Philippine good candidate as an investment des- ties for Japanese manufacturers. economy,” says Alfred V. Ty, Co-Vice tination.” The car market, for example, is Chairman of GT Capital holdings, one The Philippines manufacturing sec- booming. Local industry players predict of the Philippines largest corporations, tors include semiconductors, medical that by 2020, the Philippines will have which has interests in the power, auto devices, automotive and consumer elec- one of the region’s largest car markets, and real estate industries. tronics. Some of the Japanese manufac- and will account for 10 percent of total Electronics manufacturers in Japan turers to already operate in the country sales in the region. In 2016, Philippine are also considering relocation to the include Fujifilm, Murata Manufacturing, car sales hit a peak of 359,572 units, a Philippines, as demand for their products Canon Inc, and bicycle-part maker, Shi- 24.6 percent increase on 2015. rises. Philexport trustee Francisco Ferrer mano, which built its first factory in the Japan’s car manufacturers were said about 20 Japanese electronics com- country in 2015. amongst the big winners in 2016. Ac- panies in China are keen on relocating As the economy and consumer de- cording to the Nikkei Asian Review, their operations to the Philippines next mand continue to grow in the ASEAN Toyota Motor Philippines saw sales grow year amid higher wages in China and the region’s most promising investment by 26.95 percent to 158,728 units, and high quality of the Filipino talent pool, ac- destination, there is no doubt that more cornered the leading market share, with cording to a report by The Philippine Star. Japanese firms will follow the likes of Fu- 44.14 percent. Mitsubishi Motors Philip- “Among other factors, the need to jifilm, Canon and Mitsubishi to the Phil- pines, which captured a 17.08 percent diversify their own investment location ippines over the coming years. 23 The Worldfolio - ASEAN Japan Philippines relations

‘We would like to contribute to the sound and stable economic growth of the Philippines’

Mr. Seigo Baba, Chief Representative of Japan Bank of International Cooperation (JIBC) in Manila, discusses the benefits of investing in the Philippine and how the organization is supporting Japanese investments in the country

How would you define the investment climate coming from the small and medium scale durability of Japanese-made ones are high between Japan and the Philippines? What are companies particularly in the consumer and life time cost may be low. So, there are the advantages that the Japanese should know goods sector. possible opportunities for Japanese manu- about the Philippines? facturers in this regard. For other compa- The Philippines carries various attractive How is JBIC providing Japanese companies nies like power companies, they may also be points as a country. One is that there are assistance and a framework on how to deve- interested in investing in renewable energy many talented, young, English-speaking lop business in the Philippines? projects in the Philippines if there are some people. If you look at the country as a mar- We are trying to provide access to those Ja- reasonable-sized projects. ket, it has a big population, a large portion of panese companies willing to make inves- which are eager to spend. It is a consumer- tments. We will be providing vital informa- How do you see JBIC’s role as an engine of oriented economy. If the Japanese compa- tion relating to the investment environment development and progress of the Philippines? nies are looking into the domestic market here in the Philippines. JBIC also supports We would be willing to support high-quality of the Philippines, there is a large market. these companies set up their investment. infrastructure projects. We are also suppor- This will then attract more Japanese and As to the framework, we have fra- ting Japanese investment both large and other foreign direct investments. meworks and memorandums of unders- small to medium scale investments. These Another major point is that many com- tanding with Banco de Oro and Metrobank. will be very important and beneficial in buil- panies look at the export-oriented basis one The purpose of these MOUs is to connect ding up the manufacturing sector, especially can attain from the economic zones. When BDO and Metrobank to the regional banks in supporting industries, of the Philippines. It Japanese companies make investments Japan, which have a strong connection with is likewise significant in creating better and with the Philippine Economic Zone Authori- Japanese small to medium-scale regional sustainable jobs in the country. ty (PEZA), they are able to export their pro- companies. These connections can further JBIC is likewise interested in suppor- ducts from the Philippines. Moreover, PEZA provide the Japanese companies access to ting the agriculture sectors, healthcare sec- has been offering very attractive incentives local financing and information about local tors, and environmental-friendly projects. for investors to come into the Philippines. banks. This is one way to support the small These are just some of the ways that JBIC So, these are the advantages the Philippines to medium scale Japanese investments to could contribute to the sustainable develo- have over other ASEAN countries. the Philippines. pment of the Philippines.

What are the most pressing challenges in the JBIC together with BDO has actually provided What do you want JBIC to achieve under your Philippines for JBIC and Japan? loans for renewable energies in the Philip- mandate here in the Philippines? For us, we would be assisting the high pines. It is the first time that JBIC provided There are many, but time is very short which growth in the Philippines as well as the green finance to the Philippines. What are makes it so difficult to achieve something foreign direct investment from Japan. the advantages that the Japanese have in so concrete. As I have been mentioning, Through this support, we would like to con- renewable energies? JBIC supports various endeavours to sus- tribute to the sound and stable economic I believe there are many opportunities for tain the development of the Philippines. In growth of the Philippines. It is then essen- the Japanese coming into the renewable this regard, I would like to see more in- tial that there would be a good amount of energy market in the Philippines. One im- frastructures built in the country—not just investment coming from Japan. portant thing that Japanese companies are public or private projects but more of the For this to occur, there must be im- manufacturing are windmills. This may be PPP projects. provements made on the Philippines’ side. very efficient and beneficial in some of the We have conducted some workshops Red tape should be eradicated or at the very small islands in the Philippines. The Japa- and have been coordinating with govern- least, eased. What is more important is to nese are also producing some of the high- ment-mandated agencies to make this pos- amend the foreign investment negative list quality solar panels available in the market. sible. I would like to see more of the PPP that restricts foreign ownership in various Although, in terms of initial cost, these may projects get through, be supported by the Ja- sectors—downsizing the negative list itself. be more expensive than solar panels pro- panese companies, and probably financed by This may attract more Japanese investment duced by other companies, efficiency and us during my tenure here in the Philippines. Japan Philippines relations The Worldfolio - ASEAN 24

SUPPORTING JAPANESE COMPANIES TO INVEST IN THE PHILIPPINES

Takashi Ishihara, Executive Director of the Japan External Trade Organization (JETRO) in the Philippines discusses Japan’s role in the Philippines’ development and the attraction of the country for Japanese businesses

What is your view on the President Rodrigo Philippine companies can identify possible Duterte’s 10-point economic plan and the ad- business partners in Japan on the Internet. vantages of new tax reform? I understand that the Philippine government What is the role of JETRO in helping not only aims for sustainable development, inclusive tier-1 companies but the SMEs to come to the growth and international competitive industry. Philippines? To achieve this goal, it would be important JETRO provides Japanese companies with the to promote more investment and to secure sta- information and individual consulting service ble employment in the Philippines. Currently at no cost. We also lease free office space the Philippines has international competitive- with business facilities for up to two months. ness in export processing and IT-BPO. Furthermore, we organize seminars on the Through the industrial upgrading, the Philippines in Japan and arrange Japanese Takashi Ishihara, Executive Director, Japan External Trade Philippines will be able to gain stable employ- Organization in the Philippines delegations to the Philippines. ment as well as international competitiveness. According to our survey, many Japanese The manufacturing sector will create many Board of Investment (BOI). While incentives companies hope that a value chain with sup- jobs and create a sustainable labor market. for export processing are extensive, it would porting industries and local clients will be Improvement of infrastructure is also a be great if incentives for domestic business formed in the Philippines soon. Currently, critical issue. As the Philippines will continue will be expanded as well. export processing companies depend on im- to supply human resource thanks to its unique ported materials and parts. To increase local population composition, education and train- Will the ‘Build, Build, Build’ Masterplan im- contents and domestic production, the Philip- ing would be important for the Philippines’ pact infrastructure development? pines would need more global competitive further development. Tax reform would be According to our survey, many Japanese suppliers of parts and materials. Therefore, necessary to secure budget for the plan, es- companies are concerned about insufficient we would like to support more Japanese small pecially for infrastructure development. On infrastructure in the Philippines. Therefore, and medium-sized manufacturers that could the other hand, we hope that the Philippine we wish that the Philippine government will be a front runner of the supporting industry. government will save and expand tax incen- continue to put their infrastructure develop- To attract foreign SMEs, policies and in- tives for foreign companies. ment plan forward. The Japanese govern- centives play a very important role. Incentives ment and private sector have been working for export processing are extensive. We hope How do you assess the current investment closely with the Philippine government on this that incentives to enhance the local market, like climate in the Philippines? What is the im- matter, and Japan will play important role to the CARS (The Comprehensive Automotive Re- portance of economic zones for FDI growth implement the plan. surgence Strategy) program, will be expanded. and to attract Japanese companies? Japan has been the largest investor in the How would you evaluate your role as a job What is the competitive advantage of busi- Philippines for the past decade. From 2006 creator? ness partnership between Japan and the to 2016, Japan’s approved investment in the We are contributing to the Philippines’ econ- Philippines? Philippines was about 486 billion pesos ($9.4 omy in many ways. Mainly, JETRO has been It would be natural that the Philippines and billion) in total. supporting Japanese companies to invest in Japan will keep enhancing mutual beneficial According to JETRO’s annual survey, the Philippines in cooperation with PEZA and partnership as our relationship is comple- many Japanese companies evaluate the BOI. For example, we organize Japanese del- mentary. While Japan faces an aging society Philippines’ business environment positively, egations to the Philippines. and needs to grow global staff for overseas and consider expanding their business here. We also arrange business-matching operation, the Philippines will keep supplying There are three merits for Japanese compa- meetings between the Philippines and Ja- abundant, talented, English-speaking human nies to do business in the Philippines: tax pan in the category of food; energy-saving resources. incentives; an abundant, talented, English- technologies; and the service industries. In When the Philippines needs competi- speaking human resource; and robust eco- contrast, we have been helping several Phil- tive manufacturers, there are many Japanese nomic growth. ippine companies that consider setting up SMEs that would satisfy the Philippines’ crite- Japanese companies obviously value business in Japan. ria. Likewise, we can find many possibilities tax incentives that are applied by the Philip- Furthermore, the business matching for business partnerships between us in the pines Export Zone Authority (PEZA) and the database is available at our website so that service industry. 25 The Worldfolio - ASEAN Japan Philippines relations PHILIPPINES SET TO BECOME JAPAN’S PRIME PARTNER IN ASEAN

As Japan looks to strengthen its foothold in the ASEAN region, it sees the Philippines as its key partner in, and ideal gateway to, this growing market. As a result, the Philippines is poised to see more investment coming from Japan, which is already its largest source of foreign capital

In January, Japanese Prime Minister bloc with robust economic growth and an Shinzo Abe was the first head of state to vis- expanding middle class. it the Philippines since President Rodrigo “Technically, investing in the Philip- Duterte came to power in June, 2016. Mr. pines means having the second largest Duterte called his meeting with Mr. Abe workforce in the ASEAN. We have a fairly a “welcome and much awaited reunion”. educated workforce with high English lit- And the fact that the Japanese prime min- eracy,” says Guillermo M. Luz, Private Sec- ister was the first world leader to hold of- tor Chairman of the Philippines’ National ficial talks with his Filipino counterpart in Competitive Council. Manila is a testament to Japan’s intentions “Another factor is the long history of to strengthen its commercial ties with the Japanese investments – many of which are Philippines, as it looks to grow a stronger still doing well. The Japanese companies foothold in the growing ASEAN region. Japanese Prime Minister Shinzo Abe can leverage on these long-existing rela- “Prime Minister Abe’s presence in tionships. If their companies can produce Manila today is positive proof that Japan class. While Japanese companies leverage here, they can export to neighboring ASE- and the Philippines are fully committed on the growing Filipino market, the Philip- AN countries.” to bring this long-standing friendship and pines itself benefits from – aside from capi- Peter Angelo V. Perfecto, Executive tried and tested partnership to even great- tal injection – knowledge and technology Director of the Makati Business Club, an er heights,” Mr. Duterte said. transfer offered by Japanese companies. organization that promotes the role of the The January meeting followed Mr. Increased investment from Japan business sector in national development, is Duterte’s October, 2016 state visit to Tokyo, looks likely as the Philippines and its another firm believer that the Philippines which was his first outside of the ASEAN neighbors look towards deeper ASEAN can become a hub for Japanese and oth- region. During his visit, the Filipino presi- regional integration, which will facilitate er foreign investors looking to reach the dent held bilateral discussions with Mr. cross-border trade for Japanese compa- ASEAN market, but he says it will require Abe on security, economic and defense nies. the private sector to take a stronger role in cooperation, infrastructure development, “The Philippines is taking advantage education and training. maritime cooperation, and development of it status within the ASEAN while Japan “Multinational companies feel that the projects in Mindanao. Inc. is currently looking for ways to pen- human resource pool of the Philippines is The trade and investment ties be- etrate this trade bloc, trying to find a bridge superior. In order to live up to this, the pri- tween the two countries are already strong. to tap into the market,” says Artur Tan, vate sector really needs to make sure that Japan is the largest source of foreign direct CEO of Integrated Micro-Electronics, Inc., the educational system, K-12 program, on- investment into the Philippines, which has a Filipino electronics company. the-job training and internship opportuni- overtaken Thailand and Vietnam as the “Thailand could be very attractive ties are strengthened and expanded. This investment destination of choice in the re- for them as it has a significant amount of will secure the country’s competitive ad- gion for Japanese companies. The Philip- FDI from Japan, especially in the automo- vantage, as far as the ASEAN is concerned. pines is the only country in the ASEAN to tive and industrial market. Other options “We can achieve a competitive advan- have a free trade agreement with Japan, would be Malaysia or Indonesia. Neverthe- tage if the government can adopt an effec- known as the Japan-Philippines Economic less, again, there are historical and intrin- tive approach to its priorities, such as mak- Partnership Agreement, which has helped sic values to be considered such as what ing the Philippines a doorway to the ASEAN to make Japan the largest export market the Philippines is able to offer in terms of for Japan. The country’s relationship with for the Philippines. demographics, literacy, communication, Japan is a low-hanging fruit that we must Amongst the factors that have attract- retention, etc.” maximize on and an opportunity we must ed Japanese companies to the Philippines Mr. Abe’s visit and growing invest- take advantage of. The fact that Prime Min- are its young, educated and English-speak- ment from Japan suggests that many Japa- ister Abe’s visit turned out well and that ing workforce, steadfast GDP growth, nese business leaders see the Philippines they (Mr. Abe and Mr. Duterte) seem to which has averaged more than 6 percent as its key partner in, and ideal gateway to, have good chemistry is something to build over the last 5 years, and a growing middle the ASEAN region – a fast-growing trade on. We just have to keep our focus.” Japan Philippines relations The Worldfolio - ASEAN 26

JICA, SUPPORTING JAPANESE COMPANIES IN THE PHILIPPINES FOR OVER 60 YEARS

Susumu Ito, Chief Representative of the Japan International Cooperation Agency (JICA), talks about how JICA has supported the growth of the Filipino economy and the advantages of investing in the Philippines for Japanese companies

To what extent does the economic growth of Japanese SMEs overseas. In the Metro Manila the Philippines benefit all levels of Filipino infrastructure megaprojects, there are many society and how is JICA contributing in this Japanese private partners collaborating with matter? local ones. How does JICA work in relation to For the last several years, the Philippines this matter? has been enjoying high growth rates. Presi- As a matter of fact, we know that Japan has dent Duterte and Sec. Carlos Dominguez an aging society. This results in numerous clearly mentioned that two things must be Japanese companies having to go outside pursued: high growth and lower poverty in- Japan to find an external market. Some of cidence. JICA would like to support these these companies, mostly SMEs, are not very endeavors. experienced in the global market. Through JICA supports the Philippines through the government’s support for JICA and its three pillars: (1) achieving sustainable eco- role in SME development, we hope to be nomic growth through promotion of invest- a platform for more of these firms to test ment, (2) overcoming vulnerability and sta- their technologies or products in developing bilizing bases for human life and production countries. In the duration of this testing pe- activity, and (3) peace and development in riod, we usually provide grants and financial Mindanao. We believe that by pursuing ini- support to cover the expenses incurred in tiatives in these areas, JICA can significantly Susumu Ito, Chief Representative, Japan International bringing the product here. After which, they provide support in attaining high growth Cooperation Agency (JICA) can decide whether or not they will operate and reduced poverty incidence. in the Philippine market. For the first area, we have been sup- infrastructure such as railway, flood control, porting mainly transport infrastructure to and other socio-economic infrastructures, Finally, what would be your message to achieve and maintain higher growth. As to while the latter refers to operation capacity Japanese companies that are interested in the second area, the majority of the people development to train the government how investing into the Philippines? under the poverty line are living in rural to operate, maintain, and utilize the hard First of all, I would like to mention that the areas. In this regard, JICA supports the ag- infrastructures. Philippines is a great country with a grow- riculture sector as well as the health and Some concrete examples are the sup- ing economy. The people are also very nice education sectors to help create jobs and port given for the establishment of research and able workers. I really hope that more promote a better quality of life for all. Lastly institutes, joint activities with universities, Japanese companies will be interested in for the third area, it is important to note that and even scholarships to deserving individ- working and investing in the Philippines. poverty incidence is high in the Mindanao uals. Therefore, being able to improve both Given the growth potential of the Phil- area. Thus, supporting this area allows us to hard and soft components of the Philippine ippines, prioritizing infrastructure would address and improve the poverty conditions economy is something that strengthens the attract more foreign investors into the up to a certain extent. reputation of JICA in the country. country. Now that the Philippine govern- Moreover, when JICA supports a par- ment is advocating for the ‘golden age of Three years ago, JICA celebrated the 60th an- ticular project it is not limited to the mere infrastructure,’ we’re optimistic that it’s also niversary of the Japanese ODA. In your words construction aspect. The agency also sup- a ‘golden time for investments.’ what would be the projects that cemented the ports the masterplan, feasibility study, and In this light, JICA is not only interested good reputation of your agency in the country? the construction. Although this may require in supporting infrastructure development For the last 60 years, JICA has been sup- a longer period of time, the process ensures in the Philippines but also in supporting porting numerous projects and it is rather quality, viability, and success of the project. companies interested in investing in the difficult to limit it to three milestones. We It will further result in a construction that country, regardless of company size. Since view all these projects as equally impor- is founded on sound project capacity and we have been working in the Philippines tant. But to enumerate the strengths that we management plan. for half a century, JICA has built an exten- have honed in the Philippines for the last sive network in the country, which inter- six decades, JICA implements both hard and In recent years, the Japanese government is ested investors or companies could use for soft components—the former referring to strengthening the role of JICA as a partner for their benefit. 27 The Worldfolio - ASEAN Especial Economic Zones The Worldfolio - ASEAN 28 D uterte administration looks to expand special economic zones across the nation

Offering investors attractive incentives, excellent infrastructure and access to a large pool of competent, English-speaking workers, special economic zones are key to the government’s plan to build inclusive growth and decentralize the economy

Due to poor infrastructure, thick bureaucratic parts; and exemption from wharfage dues “Economic zones are designed to make red tape and restrictions on foreign ownership and export tax. investments and building businesses easier the Philippines can certainly be a challenging Aside from fiscal incentives, PEZA as opposed to outside the economic zones,” place to do business for foreign investors. offers simplified import and export says Francis Hernando, President of the First These are issues being addressed under procedures, through its Electronic Import Cagayan Leisure and Resort Corp., which President Rodrigo Duterte’s ‘0+10 Point Permit System and Automated Export operates out of the Cagayan Special Economic Socioeconomic Agenda’. But for the meantime Documentation System, and allows non- Zone in Northern Luzon. investors can enjoy attractive incentives, resident foreign nationals to be employed “After you set up, fiscal and tax incentives streamlined procedures, excellent transport at SEZs in supervisory, technical or advisory are far superior inside that zone. The quality links, state-of-the-art telecommunications positions. of labor inside economic zones is also facilities and uninterrupted power supply at perceived to be better. The autonomy of the any of the country’s 350-plus special economic authorities running the economic zones is zones (SEZs). “PEZA is really ag- another advantage; there are less red tapes SEZs, the majority of which are under gressive in its mar- and bureaucracy.” the control of the Philippines Economic Zone keting and promotion Authority (PEZA), fall under six categories: SEZs for Inclusive Development and agro-industrial economic zones; free ports ... What I’m doing now Decentralization and special economic zones; information is conducting brief- President Duterte has prioritized the technology parks/centers; manufacturing development of more SEZs throughout the ings and dialogues economic zones; medical tourism parks/ country as part of his plan to build inclusive centers; and tourism economic zones. The with business cham- development, spur economic decentralization SEZs are already home to almost 4,000 bers, local govern- and alleviate poverty. Several “ecozones” locator companies, which employ more have already been set up since he came to ment units and big than 1.3 million Filipinos. power in June, 2016, with many more in the Investors at SEZs can avail of a number private land owners. pipeline. PEZA said that investment pledges of fiscal incentives offered by PEZA, which We are telling every- for SEZs totaled 196.4 billion pesos ($3.2 include: 100-percent exemption from billion) in the first nine months of this year, body to turn their corporate income tax for four to six years almost double the figure over the same period (and in some special cases up to eight land properties into in 2016. Between January and September, a years); five-percent special tax on gross economic zones” total of 438 new projects were registered income and exemption from all national under PEZA. and local taxes (following expiry of the PEZA Director General Charito General Charito Plaza, corporate income tax holiday); tax and Plaza told reporters in October that this duty-free importation of raw materials, Director, PEZA year’s dramatic increase in investment capital equipment, machineries and spare pledges could be attributed to the agency’s 29 The Worldfolio - ASEAN Especial Economic Zones LEADING INVESTMENT PRIORITY AREAS ACROSS

THE PHILIPPINES 3 Cagayan Valley 7.TIEZA 1.BCDA Iloloc

SEZ 8.SBMA

2.BOI 4 Luzon 7 8 2 5 3.CEZA Manila 9.ZFA 5 1 Bicol

4.CLARK 6

5.AFAB

Visayan Islands

Mindanao 6.PEZA

SEZ 9

LEGEND

SEZ Special Economic Zones Freeports One-stop Shop For Local and Foreign investors Energy Manufacturing Industrial estate Barging Tourism Healthcare Agroindustry Electronics Residential Real BPO Estate Fashion Manufacturing Airport ICT Ship Building Diversified Economic Seaport Clusters Especial Economic Zones The Worldfolio - ASEAN 30

“aggressive” marketing strategy, targeting called ‘island cities’,” said General Plaza at members and future investors in processing both local and foreign investors to develop a press conference in September. permits (both import and export), provide more economic zones. The PEZA Director gave the example of a detailed services, such as document processing, “PEZA is really aggressive in its marketing Japanese investor, who could have a Japanese- and connect them to other PEZA offices. and promotion,” she said. “What I’m doing themed island city with Japanese companies “This is where we will be guiding our now is conducting briefings and dialogues or it can also be open to all companies, adding potential investors. The inauguration today with business chambers, local government island cities could also be tourism destinations, is also a major event because we are now units and big private land owners. We are with the establishment of retirement villages, moving towards this direction of spreading telling everybody to turn their land properties theme parks, and resorts. the development in the countryside,” General into economic zones.” “PEZA’s vision is to invite investors to Plaza said during the PBIC inaugaration One of the landmark projects signed this build a city on one island. Every capital city of ceremony in September. year is being developed by First Pangasinan the world will have an island,” she said. “We Part of the long-term plan for the PBIC Property Development Corp. The project are already marketing it. There are already is to have engineers, accreditors, examiners would initially cover 400 hectares in investors who are interested and excited and personnel from the Bureau of Customs Pangasinan Province with a project cost of about the concept.” to guide locator companies. Aside from future almost 21 billion pesos ($480 million). This investors, the PBIC will also be catering to 14 is part of a long-term $360-billion investment Davao Region agro-industrial zones and five manufacturing that will span 30 years, generating much- As part of the overall efforts to spread economic zones in the Davao Region. needed economic activity and jobs in the growth, attract FDI and generate jobs beyond Home to country’s second largest West of the country. Metro Manila (where two-thirds of the city, Davao is a focal point for economic PEZA is now looking into turning some country’s GDP is produced), PEZA recently development. Several SEZs have been of the smaller islands of the Philippine launched its first business center outside the established in the region over the past archipelago into complete themed capital in Davao City, the country’s second couple of years and are continuing to be economic zones in a bid to boost economic largest city located in the province of Davao developed. In 2015, it was announced that development. “Some of the idle lands are al Sur on the southern island of Mindanao. 14 more economic zones would be developed the islands. We are trying to be creative The PEZA Business and Investment in the region, to accompany the 14 already in by creating new types of economic zones Center (PBIC) in Davao City will assist its operation at the time.

Export Agro-industrial Export Manufacturing Manufacturing

Investment Priority Information Agro-industrial Bio- Technology Areas Fuel Manufacturing Service Export

Logistics and Tourism Warehousing Services 31 The Worldfolio - ASEAN Especial Economic Zones

Among the new SEZs is ANFLOCOR “[DICT] is offering world-class Investors in the investment priority Industrial Estate, a 63-hectare agro-industrial container terminal facilities and services areas, such as manufacturing, transshipment economic zone. Aside from the industrial in this heavily agricultural island region and logistics, BPO, ship repair, tourism and estate, ANFLOCOR also operates the Damosa in the Philippines, the DICT helps ensure agriculture, can take advantage of the ports’ IT Park, which hosts information technology the global competitiveness of Mindanao’s excellent location, attractive incentives, word- companies. export-grade products,” said Alex Valoria, class facilities and business facilitation support Officials say that with this focus on president and CEO of ANFLOCOR, the port systems. The FAB also counts on a highly development of SEZs, many investors all developer. skilled workforce, capable of supporting over the globe are now looking at Davao operations in manufacturing, semiconductors City and the entire Davao Region as an ideal The Freeport of Bataan and electronics, shipbuilding, logistics, BPO, place to invest. Investors in Davao’s SEZs will Located in Central Luzon, the Freeport energy and tourism. have access to the newly expanded Davao Area of Bataan (FAB) is strategically located By 2020, AFAB aims to turn the Freeport International Container Terminal, whose between Manila Bay and the South China Sea. into a center of trade, innovation and handling capacity has increased from 300,000 The FAB used to be the former Bataan Export sustainable development in Asia, using next- twenty-foot equivalent units (TEUs) to Processing Zone, the first economic zone in generation technologies and practices. 800,000 TEUs as a result of the 5-billion-peso the Philippines. “We have big plans for Bataan that expansion. The new container port has an “Formerly under PEZA, the Bataan could spell the difference not only for area of 11 hectares, backed up by a 15-hectare economic zone was converted to become the Bataan being the center for economic container yard. It is adjacent to a 70-hectare freeport area. Since then, we have been the activity in northern and central Luzon, export-processing zone, whose locator fastest-growing freeport in the country. We but also for the Philippines to really companies enjoy all of the aforementioned have been able to get anchor locators and it has take hold of the opportunity to become a incentives offered by PEZA. been dubbed as the high-end manufacturing leading logistics hub in the region,” says DICT is now the Philippines’ most modern hub because we are the location for several big Mr. Pineda. container terminal, thanks to its state-of-the manufacturing companies such as Fashion “We are trying to tap and maximize our art Navis N4 terminal operating system that Focus and Luenum Thai,” says Emmanuel strategic location to help in decongesting powers the efficient movement of incoming D. Pineda, Chairman of The Authority of the Metro Manila and further put the Philippines and outgoing containerized cargoes. Freeport Area of Bataan (AFAB). on a more competitive position of being

Under PEZA there are Economic Zones Being Developed: 73 29 Manufacturing Manufacturing Economic Zones Economic Zones 243 Information Technology Parks/Centers 104 Information Technology 21 Parks/Centers Agro-Industrial Economic Zones 6 Agro-Industrial 19 Economic Zones Tourism Economic Zones 2 6 Medical Tourism Tourism

s of July, 2016 (latest data available) Parks/Centers Economic Zones A Especial Economic Zones The Worldfolio - ASEAN 32

Investors in Davao’s Special economic zones will have ac- cess to the new the newly expanded

Davao International “We are currently diversifying into country’s major economic engines. The Container Terminal, the BPO sector. The move to diversifying 67,452-hectare special economic zone has whose handling ca- arose from the need to strike a balance in more than 1,500 registered companies, the freeport, given that there are numerous with $10 billion worth of investments and pacity has increased manufacturing companies already,” he says. employing more than 115,000 workers. from 300,000 twenty- “I believe we have a competitive edge with The SBMA has identified six investment foot equivalent the availability of agents for call centers. That priority areas at Subic: education, ICT, is what we offer.” logistics, manufacturing, ship building units (TEUs) to 800,000 Another competitive edge is the cheap and repair, and tourism. Like the FAB, TEUs as a result of power supply. According to Mr. Pineda, FAB Subic Bay is independent from PEZA, but the 5-billion-peso ex- investors enjoy some of the lowest electricity offers investors similar incentives, such as rates in the country, averaging 6.56 pesos per exemption from all local and national taxes pansion kilowatt hour. and duty-free importation of raw materials “This is also among the reasons why and finished goods. The SBMA also allows we are able to attract big foreign companies up to 100-percent foreign ownership and full despite our location and the lack of repatriation of profits. transportation infrastructure going to and Subic Bay’s strategic location has become considered as the established logistics hub from Bataan.” its strongest link to world trade, being at of the ASEAN region.” the center of Southeast Asia’s fast-growing Mr. Pineda also wants to tap Bataan’s Subic Bay and Clark Economic Zones commerce. It also allows investors to source large pool of high-school and college Managed and operated by the Subic Bay their manpower needs from the region’s wide graduates that are fluent in English and highly Metropolitan Authority (SBMA), Subic Bay labor pool of 3.5 million workers, which is the competent in technical skills, in order to build Freeport and Special Economic Zone, a third largest in the country. a thriving BPO industry at the FAB economic former U.S. military base located around As part of the SBMA’s building program zone, which is currently highly dependent on 100km north of the Freeport of Bataan in to improve transport links around the Subic manufacturing companies. Central Luzon, continues to be one of the Bay Freeport and SEZ, the Port of Subic will 4,000 350+ 1.3m no. of locator economic zones no.of filipinos emploed companies in PEZA SEZs under PEZA at economic zones 33 The Worldfolio - ASEAN Especial Economic Zones

“We are trying to tap and maximize our strategic location to help in decongest- ing Metro Manila and further put the see expansion of its bulk cargo-handling of 205,682 jobs, and exported $4.92 billion Philippines on a more facilities and the construction of $200-million worth of goods in 2016. New Container Terminal. The $232-million Earlier this year, officials of the Subic Bay competitive position bypass road from the Subic port to the Subic- Metropolitan Authority (SBMA) and the Clark of being considered Clark-Tarlac Expressway (SCTEx) is also International Airport Corp. (CIAC) committed as the established being constructed; as well as the $40 million to strengthening cooperation. widening of the Tipo Road leading to the “As world-class gateways, Clark logistics hub of the port. The SBMA also seeks to implement the International Airport and the Port of Subic ASEAN region” Luzon cargo railway project; and extend the can and should serve as the twin turbo- freeport land area in cooperation with local engines of growth for Central Luzon—a government units. Aside from the Port of super duo, if I may call it,” said SBMA Emmanuel D. Pineda, Subic, investors also have access to the Subic chairperson, Wilma Eisma. Chairman, the Authority Bay International Airport, which will also President Duterte has emphasized his undergo a $40 million expansion to increase desire to connect Clark and Subic free ports of the Freeport Area of its passenger and freight handling capacity. in order to turn Central Luzon into a major Bataan Also located in Central Luzon is the logistics hub, which would help to take Clark Freeport Zone, another former U.S. pressure off the overly congested Metro military base that serves as an important Manila area. gateway and economic engine of the region. Ms. Eisma also pointed out that by Together the Clark and Subic freeport zones synchronizing the operations of Clark Airport current 4.2 million passengers per annum to 8 were largely responsible for Central Luzon’s and the seaport in Subic, the two zones million in the first expansion phase, 22 million 9.5-percent economic growth rate last year. can serve the needs of micro, small, and in the second phase, 46 million in the third According to the Subic-Clark Alliance for medium-sized enterprises, as well as large and 80 million in the ultimate phase. With Development Council (SCADC), the two manufacturing industries in the region. a larger capacity, Clark could help to ease freeports attracted some $1.18 billion in CIAC has launched an ambitious plan pressure on the Manila’s overloaded Ninoy committed investments, generated a total to increase Clark airport’s capacity from the Aquino International Airport. $3.2bn 94% 438 value of PEZA investment increase in investment pledges no. of projects registred pledges (Jan-Sept 2017) (Jan-Sept 2017 compared with Jan-Sept 2016) under PEZA (Jan-Sept 2017) Especial Economic Zones The Worldfolio - ASEAN 34

Economic Zone will be New Clark City, a “HAVING A PRESIDENT WHO IS NOT FROM THE CAPITAL 10,000-hectare development by the Bases Conversion and Development Authority POSES SOME BENEFITS FOR THOSE OUTSIDE THE CAPI- (BCDA), which states the new city “is poised TAL, AS HE WANTS TO DECENTRALIZE EVERYTHING. to become the next big metropolis” of the THE GOAL OF THE GOVERNMENT TO DECONGEST THE Philippines. It is envisioned that New Clark City CAPITAL REGION AND SHIFT TO THE COUNTRYSIDE WILL will become the Philippines’ first ‘smart’ SPUR ECONOMIC GROWTH OUTSIDE MANILA – SINCE DE- city, with a mix of residential, commercial, VELOPMENT IS NOT JUST CENTRALIZED IN MANILA” agro-industrial, institutional and information technology developments. The full phase one of the city is due for Darwin Lacson Cunanan, Vice President, completion in 2022, although BCDA president Clark International Airport Corp. and chief executive officer Vivencio B. Dizon told reporters that there was “enough time” to build a portion of New Clark City in time for the country’s hosting of the Southeast Asian Games in 2019. “We need to develop Clark because our But Mr. Cunanan, points out that these Japan is one of the main investors in capital airport has to be decongested. We companies are still shipping their products the project, through the Japan Overseas are not competing with the Manila airport, to Manilla to be exported from there. It is Infrastructure Investment Corporation rather we are complementing their current hoped that with the expansion of Subic Port for Transport and Urban Development operations,” says Darwin Lacson Cunanan, and Clark Airport, these companies will (JOIN), which, in 2015, forged a cooperation Vice President of CIAC. eventually be able to export their products agreement with the BCDA to develop and Clark Airport is situated within the from Luzon, removing a lot of freight traffic build New Clark City as a major economic Clark Freeport Zone, which offers PEZA- from the road to Manila. center in the ASEAN bloc. like incentives such as exemption from local “Moreover, the development of another “BCDA is also planning to build a and government taxes, and 100-percent tax airport does Manila a favor such that a government center in order to replicate what free import importation of raw materials. significant amount of traffic will be reduced we have in Manila and to further decongest Clark is already home to a number of large given that travelers from the north and central the capital,” says Mr. Cunanan. multinational semiconductor manufacturers, Luzon need not travel all the way to Manila “Having a president who is not including Japan’s Nanox, which employs just to get a flight out,” he says. “So, this among from the capital poses some benefits for 6,000 workers and is currently expanding its others, is the importance and the implications those outside the capital, as he wants to operations at the zone; Texas Instruments, of developing Clark and having a dual-airport decentralize everything,” he adds. “The which opened its $1.5 billion facility in 2009; system.” goal of the government to decongest the and Korean-owned Phoenix Semiconductor capital region and shift to the countryside Philippines Corp., which is also expanding New Clark City will spur economic growth outside Manila its facilities at the zone to cater to growing Located just 19 kilometers from Clark – since development is not just centralized demand from new customers. International Airport and within the Clark in Manila.”

It is envisioned that New Clark City will become the Philippines’ first smart’ city ith a mi of residential commercial, agro-industrial, institutional and information technology developments 35 The Worldfolio - ASEAN Especial Economic Zones

Why choose PEZA Economic Zones?

Fiscal Incentives

• Income Tax Holiday (ITH) – 100% exemption from corporate income tax • Upon expiry of the Income Tax Holiday - 5% Special Tax on Gross Income and excemption from all national and local taxes (“Gross Income” refers to gross sales or gross revenues derived from the registered activity , net of sales discounts, sales returns and allowances and minus cost of sales or direct costs but before any deduction is made for administrative expenses or incidental losses during a given taxable period) • Tax and duty free importation of raw materials, capital equipment, machineries and spare parts. • Exemption from wharfage dues and export tax, impost or fees • 0% VAT on local purchases subject to compliance with BIR and PEZA requirements • Exemption from payment of any and all local government imposts, fees, licenses or taxes

Non-fiscal incentives

• Simplified Import – Export Procedures (Electronic Import ermitP System and Automated Export Documentation System). • Non-resident Foreign Nationals may be employed by PEZA-registered Economic Zone Enterprises in supervisory, technical or advisory positions. • Special Non-Immigrant Visa with Multiple Entry Privileges for the following non-resident Foreign Nationals in a PEZA-registered Economic Zone Enterprise

Peza is a one-stop shop

• Building and Occupancy Permits are issued by PEZA. • Import and Export Permits are issued by PEZA. • Special non-immigrant visa processed in PEZA. • Harmonized customs processes because of PEZA-Bureau of Customs Memorandum of Agreement. • Environment Clearance made easy because of PEZA-Department of Environment and National Resources Memorandum of Agreement. • Exemption from Local Government Business Permits for companies inside PEZA. • Registration requirements simplified, registration forms made simple, approval made easy. Especial Economic Zones The Worldfolio - ASEAN 36 CAGAYAN SPECIAL ECONOMIC ZONE AND FREEPORT EYES MASSIVE EXPANSION New CEO of the Cagayan Economic Zone Authority, Raul Lambino, is looking to expand the zone to cover the whole province – turning the area into an important node of economic development in Northern Luzon, a ASEAN hub for transship- ment and logistics, and a world-class eco and leisure tourism destination

Located on the northern tip of the Philippines districts. Mr. Lambino has therefore called in the province of Cagayan, the Cagayan Spe- for the creation of a new masterplan, which cial Economic Zone and Freeport (CSEZFP), aims to make the GCSEZFP a catalyst for the is set to become an important economic en- rapid development of Northern Luzon. gine for the Northern Luzon region, attract- As a separate customs territory, similar ing both investors and tourists alike, in line to Hong Kong, Singapore, Lubuan in Malay- with President Rodrigo Duterte’s plan for sia and Hamburg in Germany, the freeport economic decentralization. area is set to become a major transshipment Like at all of the Philippines special and logistics hub in the Asia-Pacific rim, of- economic zones, investors at CSEZFP en- fering investors a strategic location between joy numerous fiscal incentives and benefits, the Pacific Ocean and China Sea along ma- including: a four to six-year tax holiday; a jor Asian shipping routes. special tax rate of 5 percent on gross income Port Irene in Santa Ana town will under- (upon expiry of the tax holiday); and tax and “CEZA USED TO BE go dredging and other upgrades to position duty-free importation of articles, raw ma- it as a world-class cargo seaport and cruise ASSOCIATED WITH terials, capital goods, equipment and con- ship terminal. CSEZFP investors will also sumer items. OFFSHORE GAMING have access to a brand new international Since its establishment in 1995, CSEZFP AND IMPORTED USED airport, which launched its maiden interna- has been synonymous with gaming compa- tional flight to Macau in September. A joint CARS. OUR NEW nies; it is the first and only gaming jurisdic- venture between CEZA and Cagayan Land, tion in Asia and home to a number of casi- POSITIONING IS THAT Cagayan North International Airport’s new nos and online gaming operators. But the IT WILL BE A GROWTH runway can accommodate Airbus A320s and Cagayan Economic Zone Authority (CEZA) Boeing 737s. CEZA has also proposed the CENTER FOR NORTHERN aims to move beyond gaming to turn the development of a new inter-modal rail facil- whole area into a self-sustaining center of LUZON, A MAGNET ity and expressway to link the new airport industry, BPO, finance, agriculture, trans- FOR INVESTORS AND to Port Irene. shipment and logistics, and tourism. “With this modernized airport facility, A MECCA FOR JOB In July, President Rodrigo Duterte ap- the interconnection between the Freeport pointed lawyer Raul Lambino as the new SEEKERS” and the biggest ports and markets of East CEO of the Cagayan Economic Zone Author- Asia and the South Pacific is now possible,” ity (CEZA), replacing Jose Mari Ponce, who Raul Lambino, CEO, Mr. Lambino said. had held CEZA’s top position since 2004. Cagayan Economic Zone The zone will also feature a strategic “As the President’s personal choice, I Authority (CEZA) multimodal logistics system in the context will lead by example and turn the Cagayan of a global transpark (the Global TransPark Special Economic Zone and Freeport into (GTP)/Strategic Multimodal Logistics Sys- his vision as a vibrant economic growth tem). center that is efficient, clean and free of cor- The GTP concept is an advanced multi- ruption,” said Mr. Lambino. In September, Mr. Lambino unveiled modal infrastructure that provides logistics “CEZA used to be associated with off- his plan for the Greater Cagayan Spe- for manufacturing and distribution of goods shore gaming and imported used cars. Our cial Economic Zone and Freeport (GC- and products, and allows seamless just-in- new positioning is that it will be a growth SEZFP), which would entail expanding the time delivery of such goods. center for Northern Luzon, a magnet for in- 54,000-hecatre economic zone to all 22 mu- “It is transshipment of goods and vari- vestors and a mecca for job seekers.” nicipalities in Cagayan’s two congressional ous consumer products straight from the 37 The Worldfolio - ASEAN Especial Economic Zones

production line into the carrier and immedi- poultry raising, meat processing, fish pro- tion, with a number of investment opportu- CAGAYAN SPECIAL ECONOMIC ZONE AND FREEPORT ate delivery to the country of destination. It duction and aquaculture, and pulp and pa- nities in hotels, casinos, amusements, horse integrates just-in-time manufacturing with per production. racing and dog racing facilities, golf courses, air cargo, surface transportation, and an ad- In a move to further expand agro-indus- and other tourism-related infrastructure. vanced telecommunications system,” CEZA trial development in Cagayan, the Integrated CEZA announced that already-planned tour- has stated. Agro-Food Park (IAFP) will be established ism-related investments, which include the EYES MASSIVE EXPANSION CEZA also says that the development under a public-private partnership (PPP) at development of a 30-kilometer white-sand of a transshipment and logistics hub would Cagayan State University (CSU) in Sanchez beach featuring a marina, a yacht club and also create major investment opportunities Mira town. The IAFP will be established in a fish market, and a 72-hole, world-class golf in ancillary activities, such as warehousing, a 50-hectare area that will become the first course. cold storage, trucking and other land trans- commercial-scale one-stop-site for agri- Indeed, expanding economic activity at port services, airport and other airport ser- cultural production and processing of food the CSEZFP also poses opportunities for in- vices, sea craft and aircraft repair, banking products in the Cagayan Valley. vestors in energy. In October, Japanese com- and finance, and wholesale and retailing. Eco-tourism is another priority develop- pany Tokyo Gas announced it was interested Aside from transport and logistics, ment for CSEZFP. Endowed with white sand in installing a terminal for LNG in the area. CEZA has identified a number of investment beaches and a diverse forest environment, “Not only would Tokyo Gas provide priority areas for the special economic zone. the area is an ideal site for eco-tourism activ- clean energy,” Mr. Lambino said, “but would As the area is covered mostly by green val- ities, as well as a host of indoor and outdoor preserve the gas-fired power plants that sup- leys and lush forests and surrounded by sea, sports activities, including game fishing and ply 3,200 megawatts of Luzon’s needs, there- it holds enormous potential for agriculture, watersports. Among CEZA’s plans are the by ensuring stable power supply, which is vi- aquaculture and tourism development. transformation of Palaui island into an eco- tal in the Philippines’ drive to industrialize.” For agriculture investors, there is the tourism paradise and the development of the Following a recent trade mission to To- 800-acre Santa Ana Regional Agro-Indus- 10,000-hectare Fuga Island. kyo, Mr. Lambino stated that several lead- trial Growth Center, which comprise an in- “Fuga island would easily lure tourists to ing Japanese firms, including Kyowa Ship- dustrial zone, residential zone, recreational its pristine coastline and powdery white sand ping, are looking to establish operations at zone, and a communication zone and ex- beaches and excellent dive sites,” said Mr. the Cagayan Special Economic Zone and pansion area. CEZA has highlighted sev- Lambino, who is also looking at its neighbor- Freeport. Many more investors from around eral investment opportunities at the Center, ing island of Barit, a 500-hectare enclave, as the globe are sure to follow, as the area be- such as agriculture and development cen- a site for a cruise ship destination. comes a growing economic powerhouse, ters, fertilizer production, food processing, Aside from eco-tourism, CSEZFP will first choice tourism destination, and ASEAN high-value crops production, livestock and continue to be a gaming and leisure destina- regional hub for transport and logistics.

CAGAYAN SPECIAL SEOUL ECONOMIC ZONE TOKYO AND FREEPORT SAN FRANCISCO OSAKA SAHNGAY LOS ANGELES TAIPEI GUANGZHOU HONGKONG KOASHIUNG

BANGKOK HO CHI MINH MANILA KUALA LUMPUR SINGAPORE BRUNEI

JAKARTA

As a separate customs territory, similar to Hong Kong, Singapore, Lubuan in SYDNEY Malaysia and Hamburg in Germany, is set to become a major transshipment and logistics hub in the Asia-Pacific rim offering investors a strategic location beteen the Pacific Ocean and China Sea along major Asian shipping routes Especial Economic Zones The Worldfolio - ASEAN 38

AT THE FOREFRONT OF THE DEVELOPMENT OF GAMING INFRASTRUCTURE

Francis Hernando, President of First Cagayan Leisure and Resorts Corp., discusses the advantages of operating inside the Cagayan Economic Zone, how his company has contributed to the economic development of the region, and the technological competencies of First Cagayan’s partner, LR Data

What impact do you expect to see from deeper operators go to First Cagayan which is not as ASA regional integration and how can FDI benefit evolved as other companies? the amusement and gaming Industry? In online gaming, as with most other internet- Today, a major portion of First Cagayan’s based commerce, the level of data infrastruc- operations is inside the Cagayan Special Eco- ture quality and the efficiency of data net- nomic Zone and Freeport. Such special eco- work design are perhaps the equivalent of nomic zones are designed to attract foreign- geography in the bricks-and-mortar world. based companies to establish operations in The quality of the technology platform that those zones through fiscal incentives prima- LR Data has established is comparable with rily in the form of a simplified tax framework counterparts in other parts of the world. Francis Hernando, President, First Cagayan Leisure and duty-free privileges. Furthermore, the and Resorts Corp. Using your example therefore, European autonomy of the authority administering the operators would today find LR Data as ro- economic zone can lay the foundation for a re- saster recovery purposes. Beyond this, other bust and evolved as any other data services gulatory environment that is responsive to the possibilities include call centers to service le- provider that they are used to in that part of universal desire for ease of doing business. gally licensed online lottery and sports betting the world. Operators desiring to establish With respect to the gaming industry, the companies. LR Data has the expertise and an Asian-facing presence would be happy geographical location of Cagayan is distinctly technology platform to enable its clients to to know that the combination of CEZA, First advantageous compared to other economic undertake such services. Cagayan and LR Data is all that they would zones in the Philippines as it is closer to ma- need to set up shop in Asia. jor markets in North and Southeast Asia. How do you see yourself as a contributor to the This proximity is valuable both in terms of development of the Philippines via creating ntil now First Cagayan had the benefit of flying distance and time, as well as speed of IT and Tourism infrastructure and investment being the monopoly when it comes to issuing data transfer for business process outsour- opportunities? online licenses. Considering the new regula- cing operations. Acceptable latency in data The province of Cagayan has historically tions, how is it that you continue recruiting transfer is a key factor when online gaming lagged behind other more developed areas new customers or still give this value? companies decide on their base of operations. in the Philippines in terms of infrastructure The brand reputation that the partnership of An increase in investments particularly in in- investments. First Cagayan, in partnership CEZA and First Cagayan created over a de- frastructure, whether by way of ODA or FDI, with the Cagayan Economic Zone Authori- cade is difficult to duplicate overnight. While would significantly boost the capacity of the ty, established Asia’s pioneer online gaming this brand may have been born in a virtual Cagayan Economic Zone Authority to serve regulatory and business environment about monopoly, it nonetheless continues to attract incumbent locators such as First Cagayan and a decade ago. Over the years, we made the operators even in a drastically different regu- to attract new ones. infrastructure investments necessary for onli- latory environment. The licensing regime of ne gaming to take root and grow in Cagayan. CEZA and First Cagayan cater to both online What are the synergies you see with Japan, Online gaming companies provided the gaming operators and their service or support specifically with the online gaming sector? Cagayan Freeport with an anchor business providers. First Cagayan has quickly adapted Similar to countries that allow some form of activity that eventually spread into natural to the changes in regulations by decoupling gambling online, Japanese operators could adjunct businesses that further enhanced its its technology services under LR Data so that potentially tap resources that we currently overall economic attractiveness. These de- the latter can offer data hosting and other offer. First Cagayan’s affiliate company LR rivative local businesses that benefited from services as a “licensor-neutral” technology Data has built fairly robust data network in- the influx of online gaming locators into the platform. Thus, operators holding a license frastructure designed purposely to cater to Cagayan Freeport include hotels and resorts, other than issued by CEZA/First Cagayan can the nuances of online gaming operations. For transport services, the construction sector, re- maintain a relationship with First Cagayan example, we are in the initial stages for the tail establishments to name a few. through LR Data. In the meantime, First Ca- planning and design of a data center to be gayan, through another affiliate LR Land, is located in a “cyberpark” inside the Cagayan There are many other such jurisdictions, in concentrating on developing venues such as Freeport. At the outset, such a data center Europe, for instance, who have very advanced those inside the Cagayan Freeport to which could conceivably be attractive to Japanese infrastructure. In online gaming – something its licensees may consider transferring all or online operators as their backup site for di- that does not really have borders – why would part of their operations. 39 The Worldfolio - ASEAN Finance The Worldfolio - ASEAN 40 SOLID AND STABLE BANKING INDUSTRY OPENS UP TO FOREIGN Legislation introduced in 2014 to open up the PLAYERS banking sector to foreign banks has boosted FDI, according to the Bangko Sentral ng Pilipinas, which has signed one of the first bilateral agreements under the ASEAN Banking Integration Framework (ABIF) The health of the Philippine banking system has remained solid, supported by the country’s strong macroeconomic fun- damentals and favorable growth prospects. As of end-De- cember 2016, the banking sector was comprised of 42 com- mercial banks, 60 thrift banks, and 500 rural and cooperative banks, with combined assets of approximately $273 billion. Since 2008, the combined value of banking deposits has more than tripled to reach 10.6 trillion pesos (end-March 2017). Rapid deposit growth has enabled banks to increase lending, with loans growing at a CAGR of 15.3 percent over the period from 2012 to 2016. Filipino banks have remained prudent in their capital adequacy management, despite this double-digit growth. The sector’s regulatory capital adequacy ratio stood at 15.6 percent in 2016, which was several percentage points above the 10.0 percent minimum requirement under the Basel III framework as implemented by the country’s central bank, ASEAN Financial Integration the BSP (Bangko Sentral ng Pilipinas). With the launch of the ASEAN Economic Community in 2015, In September, Moody’s Investors Service said that the the BSP has been one of the strongest advocates of financial outlook for the Philippine banking system would remain integration between the 10 AEC members. Tapping into AEC stable over 12-18 months, reflecting the “banks’ good asset markets, whose combined GDP is $2.4 trillion, is seen as a way performance, strong loss buffers and ample liquidity capac- for Philippine banks to significantly grow their deposit bases, ity – factors that will allow banks to accommodate rapid loan while allowing the entry of banks from neighboring countries growth, against the backdrop of a robust economy”. Moody’s would lead to more capital inflows, boost financial inclusion has maintained a stable outlook on the Philippine banking and support further economic development. system since November 2015. In April, BSP governor Amando Tetangco Jr. and Governor But despite rapid growth, the size of the Philippines of Bank Negara Malaysia (BNM), Zeti Akhtar Aziz, signed the banking sector lags far behind that of its ASEAN neighbors, Declaration of Conclusion of Negotiations (DCN) on the entry Singapore, Malaysia, and Thailand. In order to further de- of Qualified ASEAN Banks (QABs) – one of the first bilateral velop the banking sector, former president Benjamin Aquino agreements to be signed under the ASEAN Banking Integration signed legislation in 2014 to further liberalize foreign partic- Framework (ABIF). The agreement allows up to three qualified ipation in the market, allowing more foreign banks to open QABs from each jurisdiction to operate in the other country. branches in the country. BSP negotiations on similar bilateral agreements with Thailand Since then, ten banks have received approval to operate and Indonesia are also ongoing, ahead of the full rollout of the in the Philippines, one of Asia’s fastest growing economies, ABIF in 2020. including Japan’s Sumitomo Mitsui Banking Corp., Singa- “Finalizing this agreement between the BSP and BNM is pore’s United Overseas Bank, Taiwan’s Chang Hwa Commer- an important step towards achieving the goal of the ABIF to en- cial Bank and South Korea’s Woori Bank. In October, Reuter’s hance intra-regional trade and inclusive growth through QABs reported that eight more banks have applied to open offices operating in host ASEAN jurisdictions,” Governor Tetangco in the Philippines. said following the signing of the DCN. Last month, BSP Deputy Governor Chuchi Fonacier said “As ASEAN integration advances, we expect to see greater the presence of foreign banks in the Philippines has attracted collaboration across different members of ASEAN and the de- foreign direct investments, facilitating $15.7 billion in finan- velopment of new channels. We think this is going to lead to cial transactions with other countries such as the U.S., Japan, greater banking activity, which then encourages greater cross China and Thailand in 2015. border investment in the region.” 41 The Worldfolio - ASEAN Finance

BPI diversifies lending to support inclusive economic growth

Cezar P. Consing, President of Bank of the Philippine Islands (BPI), sits down with The Worldfolio to discuss microfinancing, ASEAN economic integration and investment relations with China and Japan

In terms of loans, how can BPI, using your The ASEAN economic integration has been China has grown 221 percent. That is a mar- current strategy, help in the creation of eco- talked about for a while. The reason for it ket that is growing. nomic inclusion and the decentralization of to take a while before moving is a func- the economy? tion of three things. The first is the dis- Can you tell us about your Japanese partner- We allocate capital and we can choose to parity of economic wealth in the ASEAN. ships? allocate it to the biggest companies. We We have the bigger and smaller ASEAN Mizuho Bank is one of the many Japanese can choose to allocate it to the cities, or countries—they are all at different stages partners that we have. If you look at our we can say that we can take some of this of economic growth. Creating a set of rules foreign partnerships, we have Sumitomo in capital and allocate it to SMEs and rural that can harmonize these countries amid non-life insurance; we have AIA and Philam areas. There is a real effort on our part Life in life insurance; we have partners ga- now to do the latter. We can do the easy lore. We have a good understanding with thing, which is to continue to lend to the “Microfinance has been Mizuho. If it’s done right, you should be wealthier sector of society. We can do that, in the Philippines for a able to have a lot of good partners. Those it is clearly a capacity on their part to take partnerships make you better. long time. One of the more leverage. On the other hand, let us try to serve pioneers of microfi- A Japanese CEO’s vision is to build the com- the underserved. If you look at what we are nancing in the Philip- pany to last hundreds of years. They look doing now, two great examples are that we forward to long-term relationships. In your pines is a group called are creating a business bank that will sit perspective, why is there an investment race between a corporate and retail bank. Right Card MRI. It is a combi- between China and Japan? Would you go with now, we essentially have a corporate bank. nation of an NGO and the Japanese or Chinese way of doing things? The business bank focuses on the corpo- To be honest, I have not given that much bank. We are looking rate and retail. It is not something that we thought, because if you look at Chinese com- have traditionally looked at. We said that at that business model panies, their real thrust has been through we have to build a business bank, and that and said, let us take the West. You see a lot of transactions of has to be a big component of our business. Chinese companies acquiring Western that model, but focus If you look at it, we are looking at corporate companies. They do it for a whole host of and retail. Specifically, we are considering more on self-employed reasons, such as food security, energy, and microfinance. These are two big pillars: the microentrepreneurs” whatnot. If you look at Japanese companies, business bank and microfinance platform. they have come into markets on their own We are giving it serious consideration. setup and their own names. Instead of buy- Cezar P. Consing, President ing the big, local names they just set up shop. Can you tell me a little bit more about your of Bank of the Philippine They embrace the local market. It is attrac- idea on microfinance? tive for a Filipino to say that Mitsubishi is Islands (BPI) Microfinance has been in the Philippines for going to come here; they are dealing with a long time. One of the pioneers of microfi- the local market. I think we are more used nancing in the Philippines is a group called to doing the Japanese way of doing business, Card MRI. It is a combination of an NGO their differences is not easy. The second but certainly, there is room for both. and bank. We are looking at that business reason wasnthat economic integration is To me, it is significant that the Japanese model, but focusing more on self-employed the hot topic three to four years ago. But prime minister visited this country two or microentrepreneurs. There are so many of it has quietened down, because a lot of the three times – no prime minister has done them. We are focusing on them because it bigger ASEAN countries became beset with that before. There is clearly a lot of Japanese involves productive use. internal issues. The economic integration focus in the Philippines. For any rational became less of a concern. The third is the company, they look for growth here because I would like to get your vision in terms of role of a country like China. The Chinese growth is present here. Since the 60s, the the economic integration of the region and market comes up, they present such a huge Japanese have been here, there is a long how the region is going to work together to market, and so a lot of the ASEAN countries history. The Japanese ageing population is stabilize the economic momentum. find China promising. In the last 10 years, also a consideration. Finance The Worldfolio - ASEAN 42

‘We are driven by creating long-term value for our clients’

Primeiro Partners is a leading independent investment bank in the Asia-Pacific region that advises clients on decisions that impact value creation. Managing Partners, Stephen Sieh and Lorenzo V. Tan, discuss how it can help investors to make the most from the opportunities in the Philippines, as well as their move into microfinancing

How does Primeiro Partners operate and what SS: Relative to all countries part of the ASE- became the first to be part of this advocacy are the opportunities and challenges that the AN, I would rank The Philippines as being followed by BPI and BDO. I heard the rest company deals within its operations? somewhat in the middle. We are certainly are also following. Stephen Sieh (SS): We are a financial ad- not as ‘plug and play’ as Singapore, but cer- Similarly, the Japanese banks are ac- visory firm focused on three business ver- tainly not as difficult to do business in as customed to the distribution of wealth. ticals: investment banking, asset manage- some other ASEAN participants. One aspect Thus, they are big in wholesale banking ment, and strategic partnerships. We see a that I believe makes pursuing and develop- and good at consumer and private banking, wide variety of very attractive opportunities ing business in the Philippines extremely but are not familiar with products for the C in the ASEAN region. Under our investment compelling is the fact that it has the largest and D market. The distribution of wealth in banking group, we are advising companies English-speaking population of the ASEAN the Philippines resembles a pyramid where that are pursuing merger and acquisition member states, by far. the C and D markets each involve approxi- opportunities in the region, raising capital The government’s platform is “build, mately 40 million Filipinos. So, there is a for growth and/or undergoing a fundamen- build, build.” In line with that slogan, if huge portion of the population who eats tal transformation in their businesses. We the government can build a vision, build almost once a day. The challenge now is have advised in more than ten different the infrastructure to implement that vision, how to teach these people to save money industries, and currently we are particu- and build the previous two with long term over time. larly active in the real estate, healthcare, consistency we will be vastly more competi- Without a doubt, this can be done and consumer and business services. On the as- tive. From a business perspective, stability the people can be taught. When I was presi- set management side, we invest in promis- and predictability is so important, it is the dent of PNB, the average deposit was three ing entrepreneurial ventures that address basis for trust, and trust brings investment. thousand pesos per account and we were market needs primarily via technology. Primeiro Partners provides leadership, able to bring it up to fifteen thousand pe- Under our strategic partnerships, we have credibility, and commitment to clients. To sos per account by giving them incentives a number of joint ventures with mature, every engagement, investment or partner- to save. We created products that do not reputable ASEAN companies participating ship, we bring a unique combination of incur penalties if you do not have money. in the renewable energy and financial tech- global know-how, strategic, financial and For the longest time, depositors have to pay nology space. operational experience, and an unmatched a penalty if their balance falls below $200 The operational challenges that we network of relationships built on trust. a month. To encourage savings among the experience, for the most part, revolve people, PNB created products for people around the amount of resources we need What is your opinion with regard to the di- who may have zero balance at a certain to deploy to achieve successful executions rection of the banking sector? What are the point in a month. in a timely manner. Some of those chal- strategies that help the sector grow and how It is evolving, and it is good for the lenges are brought about by he regulatory is Primeiro supporting this? Lastly, how im- Japanese banks to enter the Philippines, environment that we operate under. An- portant is it going to be to maintain the growth collaborate with the local banks in creat- other critical operational component for of the Philippines? ing products for the C and D market, and us is acquiring top talent that matches our Lorenzo Tan (LT): We have a crowded successfully enter the ASEAN region. So, firm’s culture of integrity and excellence. In banking industry in the Philippines. There from 105 million people, the Japanese can our strategic partnership business, one of is still a lot of room for consolidation to grow their market to more than 630 million the key challenges for our biofuels trading promote stronger balance sheets, cost ef- people in this regard. This opportunity gives platform has been logistics. ficiency and improved customer service. We Japan or other foreign investors the key to are in a position to advice foreign or local nine other countries in the region. Not to Do you consider the Philippines as being com- investors who wish to acquire or consolidate mention, going into business in the Philip- petitive within the ASEAN region in terms of their banking interests in the Philippines. pines also give the investors the possibility the investment climate and the ease of doing The Central Bank has been advocating of finding the talent adaptable enough to be business? What could the government do to financial inclusion to the various banks and sent to the other ASEAN countries. improve the business environment and what the population. However, only a few uni- A positive phenomenon in the Philip- could Primeiro Partners do for its clients? versal banks have entered this field. RCBC pines is that you can find a lot of Filipinos 43 The Worldfolio - ASEAN Finance

we have invested in a technology company that will enable gigabit connectivity by reducing CAPEX and implementation costs by 30 and OPEX and complexity by 90 percent. We are also regularly asked to invest alongside our clients. Most importantly, we have unique, proprietary, and diverse opportunities for investments.

What are the core values at Primeiro Partners? SS: Our core values are independence, integrity, and intellectual capital. We are not transaction driven, we are driven by creating long-term value to our clients. If the transaction does not make strategic sense or does not generate incremental value, we are not pressured to say so. Independence and integrity is at the very core of Primeiro. We believe that to provide objective advice, we remain completely un-conflicted and ensure that all client matters are treated with confidentiality. Thus, we do not trade our clients’ stocks, we do not write research about them, nor do we try to push any banking product. We want to make it clear that there is no another agenda other than our client’s best interest.

In terms of financing, what do you think could be the opportunities in the electronic banking sector? LT: There are tremendous opportunities in the electronic banking sector. I always tell our staff not to look at our competitors and our past. Instead, I advise them to look at other industries and learn Stephen Sieh (right) and and Lorenzo V. Tan (left), Managing Partners of Primeiro Partners from them. Thus, we looked at Compartamos Banco and Banco Azteca in Mexico. We started the first microfinance bank in the in the financial services sector with U.S., London, or Japan train- Philippines with Compartamos as our role model. ing who come back and foster some sort of knowledge transfer. In In this light, the Filipinos could adapt quickly if one can bring fact, most of the CEOs right now are changing and are becoming these banking models here. I was told before that the older Filipi- more global. From people in the sector beginning and ending their nos cannot be taught how to use the ATM. I said if you see them careers in the country to people beginning their career overseas texting, which we do, you can teach them how to use the ATM. In and moving back to the Philippines—these reflect how the banks this sense, we are able to change behaviour. There are indeed a went through a competitive and cultural transformation. The skills lot of opportunities. In fact, we were able to grow the customers are passed on to the younger individuals working in the sector. of my previous bank from 700,000 to 7.3 million. The challenge is your operations or backroom must be scal- How important is it for Primeiro Partners to be recognized as a com- able and nimble. One cannot sell the best burger in the world, pany that make investments to help social inclusiveness here in the and tell the customer to wait 30 minutes before it could be served. Philippines? The backroom (“kitchen”) must be scalable, in order to have a LT: A key aspect of our mission is to provide consumer and financial standard when it comes to delivering one’s products. There are services for Micro and SME businesses which are often restricted a lot of opportunities, but regulators must give you the space and in their growth due to the lack of capital and expertise. We have opportunity to innovate. extensive experience in building products and services for the C and D market in the Philippines. Finally, what are your expectations with regard to business for Pri- meiro Partners in the Philippines? Could Primeiro be of help in situations where a company has the capital LT: Primeiro Partners is in a fiduciary business. People deal with but has no definite plans as to where to invest and make a significant us because they trust us. We provide more than just capital. We impact on the local setting? are in the business of managing risks and providing opportunities. LT: Our private equity arm can provide financial backing or advice We would like to see our clients transform over time from Micro in the capital structure of a start-up or an operating company. Our to SME, SME to big corporates, from corporates to conglomerates, experience and relationships span a wide range of industries in while enriching the lives of their employees, customers and their the Philippines and the Asian region. We can play a vital role in communities. helping companies realize their growth potential. SS: Lorenzo and I worked the majority of our careers for financial SS: We have setup our asset management business to do exactly institutions with very high world-class standards. Our approach is to that. A company, fund or investor can commit a certain amount of continue to grow Primeiro with such standards, and be the leading capital and provide us with their general investment parameters. firm that corporates and investors alike welcome partnering with Our asset management vertical finds the right companies and op- for advice, capital, and execution. The Philippines is an enormously portunities to deploy such capital and to monitor the direct invest- promising country, we see so many opportunities here on a daily ment. We are in the process of setting up a real estate fund, and basis. We are very excited for what is ahead. Finance The Worldfolio - ASEAN 44

SGV’s competitive edge: connecting clients with each other

J. Carlitos G. Cruz, Chairman of multidisciplinary professional services firm, SGV, sits down with The Worldfolio to discuss ASEAN integration, and the company’s competitive edge, which is the result of its long history. He also talks about the company’s vision for the future and its digital transformation

This year is the 50th anniversary of the ASE- However, if you talk to people in Ba- What is the added value that SGV brings AN, and all ASEAN leaders have been pushing colod, because it is a sugar region, there is to companies who want to invest in The for more integration. What is your vision in a shortage of farm workers. The food secu- Philippines? terms of the development that ASEAN has had rity part of the country is at risk right now, Our history has helped us to build a net- in the last ten years, and is it going to the because construction workers are given work over the years. We connect clients right direction? higher salaries. These guys do not want to with each other, especially on business ASEAN represents a big chunk of the world’s go into farming anymore. That could prob- requirements. That is something that we young population. The potential for growth ably be the same for all the growing cities could have an edge on top of all these taxa- is there, but how do we become competi- like Cagayan De Oro and Iloilo, where there tion requirements and providing business tive in the global market? We need to bind would be a shift. Another thing is that if you advice. To me, it is more on the net worth ourselves into one, big team. talk to the farmers, they send their kids to that the firm has built over the years, es- You are aware that there are several universities, and nobody returns to the farm. pecially with the clients. products already that are zero-rated within For instance, we can connect a logis- ASEAN. If we work as one, it would help “Our history has tics firm to one retailer, and see if there us to be on a different level. We, however, helped us to build is some synergy in their business. We can compete in some products, so that is one a network over the connect a client who is need of a finan- main problem. For instance, Thailand does years. We connect cial advisor or some financial facilities. not use the word subsidy, but how would our clients with each other, We could introduce a startup or an SME sugar farmers compete with Thailand? They to a financial institution so that they could especially on business produce sugar at very low prices, and their meet their funding requirements and rice technology was adopted from Manila requirements. That guide them on future endeavors. Those four decades ago. Now, they are the best in is something that we are the things that normally give us an rice production. We should be complement- could have an edge edge over competition because of our size ing the needs of one another. on top of all these and net worth. taxation requirements President Duterte is pushing for the develop- As new Chairman of SGV, where do you ment of economic zones. How is SGV working and providing business see the company over the next few years? with Japanese companies? advice. To me, it is more We have the Vision 2020 targets, but I guess Globally, there is what we call the Japa- on the net worth that like any organization today, we are look- nese Business Services Desk, I have three the firm has built over ing at digital transformation in the next Japanese managers helping us here. That the years, especially few years. We have been very aggressive is where we connect with our Japanese cli- with the clients” on this. Our learning and development ents. We regularly have these thought lead- process includes digitalization. I hope in ership programs. We do provide updates es- The result is that we have aging farmers like the next three years, we should reach that pecially on the companies in the economic the population of Japan. To my mind, the skillset that is required to address all this zones. If and when they have some requests key is for the Japanese to teach us on how digital transformation in the businesses. to meet with regulators, that is where we to use technology, because we are going On the market side, we are grow- try to facilitate meetings. to be lacking farm workers in the future. ing internationally, we are part of the EY In my latest meeting with the Director What Japan is doing in agriculture, Global Delivery Service Network. In the General Plaza, the task is to push the eco- the way I understand it, is that they have Philippines, we are part of the engagement nomic zones outside of Metro Manila. Part introduced so much technology. With that, team in the following markets—the U.S., of the inclusive growth agenda is pushing it the shortage of farm workers is being ad- Singapore, Hong Kong, Australia, and New to the provinces. To me, it makes sense for dressed, so that is one opportunity because Zealand. We do work for Japan, but on a employment and development. One thing agriculture is one part of the government’s very limited language requirement. That that I learned in my travels to the provinces, current agenda. I would say that there are is for audit, but we also do taxes. We do especially in Bacolod, is that we have been similarities between the Japanese and Fil- some tax technology work in the automa- doing well in construction and real estate ipinos. We got agricultural lands and we tion of the tax provisioning calculation or because of the demand. have complementing demographics. the tax returns of other countries. 45 The Worldfolio - ASEAN Finance

‘IT IS THE GAME CHANGING MOVES THAT WILL ULTIMATELY CHANGE THE PHILIPPINES’

Paul R. Boldy, Country Manager of Harvey Law Group in the Philippines, gives us his view on the Duterte administration and the challenges it must overcome to deliver its agenda. He also discusses his company’s business model and its expansion into ASEAN countries such as Cambodia and Vietnam

With the new administration, we are com- Frankly, there is nothing we could do to elim- ing to a point where the Philippine economy inate this. It is the Philippine law. However, is working towards solidifying growth and the current administration is working fer- establishing the needed infrastructure frame- vently to increase the ease of doing business work, banking laws, etc. in order to keep the in the Philippines. growth sustainable in the future. What is your It is important to note that the situation point of view in this regard? Do you think the pertaining to land ownership in this coun- Philippines is on the right track and what do try can be comparable to the situation in you think about the new objectives of this ad- Thailand. The law states that condominium ministration? buildings can be owned up to 49 percent by I went to a conference called the ‘Duterte- foreigners. It is a fact that a lot of the Japa- nomics’. I found it very interesting because nese would want to live in a condominium I have never seen a group of ministers who because there is security, people on site to do were equally determined in what they want- Paul R. Boldy, Country Manager of Harvey Law Group in the maintenance, and it is something you could ed to achieve. I remember saying that if the Philippines enjoy without any hassle. In the point of view government can do 10 to 15 percent of what of the Japanese or any other foreigner, the they plan to do, they are going to change this be changed in order to keep up with what land purchase entails more risks. In this case, country beyond belief. Crucial factors are is going to be an aggressive “build, build, we point out these risks to our clients not present. The rule is there, they have identi- build” program. with the objective of changing their deci- fied the low hanging fruit, the projects that sion rather to make them well aware and can be done reasonably quicker. It is the To give our readers a brief background on knowledgeable before they could finalize game changing moves that will ultimately Harvey Law Group, could you please explain to their investment decisions. change the Philippines. us the business model. How does Harvey Law I came away from that meeting feel- Group work and what are the major services How would you evaluate the opportunities that ing very positive. At present, they certainly or engagements of the company? your company has within the ASEAN region? have a lot to do; and it is good to lay out the We represent major key brands such as The ASEAN region does provide us with vari- plans first. These plans serve as the world Kempinski and Hyatt. These companies ous opportunities. One of our recent engage- map of what they ought to do. However, the have been around for years and we know ments in the region is making our services more important issues relate to the capac- they have to be managed in an exceptional available in Myanmar. Although we do not ity of the law to sustain the plans, if trans- manner. These are the type of clients we practice law yet in this country, what we do parency would be maintained at all times, partner with and provide advices to because is help people who are going to move out or and if they would be able to eradicate, or at we are ultimately a law firm and not an im- migrate. Many of the people who move out least sufficiently decrease, the occurrences migration agent. As opposed to the latter, we of the country do it for education purposes. of corruption. have a responsibility to be present to protect The families there want their kids to be edu- It is crucial to address these issues in or- our client all the way through. We stand with cated generally in the American, Canadian, der to attain the required capital and partners them, take them through the process, check Australian, or British setting. in order to implement the plans successfully. for shadows and inconsistencies, and let our Similarly, we have just moved into Cam- As you may know, the sort of things they are clients know what is the best action to take. bodia, while we have been in Vietnam for nine talking about and are planning to do will We sit down with our client and ask them first years. The latter being one of our biggest mar- need the Japanese expertise, the Chinese ex- and foremost what they want. We would not kets. We have deep roots in Vietnam. This pertise, and the European expertise among recommend them the most expensive if the is because as we assimilate ourselves in the others. The Philippines will need the world least expensive could already satisfy their market, we try to find as much similarities or to be ready to say, “Yes, we are willing to sup- need. Otherwise, we would not be doing our common ground as we can. As for the Philip- port you and we are going to invest because job for the client. pines, we would also want to be regarded in 10 we can see that things are changing.” At the years’ time as almost like a Filipino company end of the day, this is the nagging trouble In terms of the Philippine restriction laws on in terms of that we belong here, we have been with all the growth and initiatives of the ad- land ownership, how does Harvey Law Group here a long time, and we work with standards ministration: how quickly these issues could confront these limitations? in executing our craft. The Worldfolio - ASEAN 46 47 The Worldfolio - ASEAN Agribusiness Building a thriving agro-industry

Government, banks and other private investors are helping to sow the seeds for rural development

Agriculture is the economic mainstay for billion) of the national budget each year to finance the strong demand from LGUs (lo- many rural areas in the Philippines and still the agriculture sector for five years to drive cal government unites) for rural infrastruc- a significant contributor to the country’s rural development. This money will be ture support under PRDP, especially farm- GDP. But while the economy has grown used for investment in irrigation, technol- to-market roads.” impressively in past few years, agriculture ogy and R&D. To boost crop diversification, Local financial institutions such as growth has been disappointing. the Department of Agriculture has started Landbank are also engaging in rural de- The Philippines is rich in agricultural the Color-Coded Agriculture Guide Map, velopment, by expanding financial services resources, from fruits such as pineapples, which will determine the crops or agricul- and access to credit to the nation’s small mangoes, coconuts, abaca and bananas, to tural activities that would be best suited in a farmers and fishermen. As of September rice, coffee and cacao. One mistake of the specific area based on geographic, climatic 2016, just 8.2 percent (38 billion pesos) of industry has been the lack of crop diversi- and soil type conditions. the bank’s total loan portfolio was made up fication, with too much emphasis placed on Furthermore, rural communities and of small farmers and fishermen. Upon his rice, corn and coconut. And despite being farmers will be major benefactors of the appointment last November, CEO and Pres- one of the world’s largest rice producers, president’s $180 billion ‘Build, Build, Build’ ident Alex Buenaventura said he increase the country still imports more rice than it infrastructure program, which will see that figure to 20 percent (115 billion pesos) exports. In fact, in 2016, agriculture food much-need transport, power and other vi- by June 2022. trade among five ASEAN countries showed tal infrastructure built across the country. “There is a need for Landbank to focus the Philippines as the only one posting a International partners, such as the World on innovating lending programs for coun- deficit, with food exports of $5.1 billion ver- Bank are also providing funding for rural tryside development for inclusive growth to sus imports of $11 billion. infrastructure development. In 2015, the alleviate poverty,” says Mr. Buenaventura. Long-standing issues have impacted World Bank approved a $500 million finan- “Based on my 36 years of rural banking ex- the potential of the Philippines agriculture cial package for the DA-led Philippine Rural perience, I proposed launching the Corpora- sector, such as lack of access to credit, poor Development Project (PRDP). tives Development and Lending Program as infrastructure, low farm mechanization, in- Last year, agriculture secretary Em- a strategy for achieving this ambitious goal.” adequate postharvest facilities and limited manuel F. Piñol said that as of November As part of this innovative program, support for R&D. But these issues are all 4, 2016, the infrastructure component of Landbank, in June, unveiled its Joint Ven- being addressed by the administration of the Project had so far approved the funding ture Corporative plan, which aims to reset- President Rodrigo Duterte, who sees agri- for 354 infrastructure development sub- tle 3,333 poor families on 10,000 hectares of culture as an important part of his plan to projects worth 17.75 billion pesos and 215 public land. Each family will be allocated alleviate poverty, build inclusive growth enterprise development subprojects worth three hectares of land for farming purpos- and spur economic decentralization. 540.67 million pesos. es, forming a corporation to professionally The Duterte government’s fresh focus This translates to 71 of the 81 targeted manage the 10,000-hectare plantation from on agriculture has already yielded posi- provinces already having approved sub- production, to processing and marketing. tive results: agriculture in the first quarter projects under the PRDP and 18.3 billion The corporation will be a joint venture – of 2017 grew by 5.28 percent, after several pesos-worth of assistance for high-value 51-percent owned by a big agro-processing quarters of decline. This was followed by commodities such as abaca, coconut, ba- company and 49-percent owned by the growth of 6.3 percent in the second quarter nana, dairy, coffee, cacao and goat. families. of this year. “Most of the approved infrastruc- “The Corporatives Development and However, there is a long way to go ture subprojects are farm-to-market roads Lending Program is basically a corporate to transform the sector into a vibrant and (FMRs), the equivalent length of which totals approach of value-chain lending to small modern agro-industry that generates jobs, to 1,318.11 kilometers, including an addition- agri-producers and microenterprises,” ex- boosts value-added exports and drives sig- al 226 kilometer-long FMRs with bridges. We plains Mr. Buenaventura. nificant inclusive economic growth. Invest- have already completed 18 FMRs stretching With the growing support from govern- ment in technology and improving access to 57 kilometers, while 179 FMRs equivalent ment, banks and other private investors, to credit will be key for the sector develop- to 668 kilometers are at various stages of con- the Philippines may be one step closer to ment, alongside development of human struction,” said Secretary Piñol. unearthing its enormous potential in agri- capital in rural communities. In October, the government an- culture. A thriving agro-industry will help to With this in mind, the government has nounced it was is seeking an additional ensure food security, alleviate poverty and pledged to allocate 120 billion pesos (2.3 $170-million loan from the World Bank “to fuel economic development in rural areas. Agribusiness The Worldfolio - ASEAN 48

MAKING A LEVEL-PLAYING FIELD

In this interview with The Worldfolio, Alex Buenaventura, President and CEO of Landbank of the Philippines, discusses the policies and initiatives of President Rodrigo Duterte, regional integration, and epanding access to financial services to those in rural areas, particularly small farmers

What is your expectation on the new admin- the joint venture partner corporation of the istration’s initiatives such as the 10-point farmers in putting up a soy bean produc- economic agenda? tion and processing plant. The final product The 10-point socioeconomic agenda is excel- can be Kikkoman. What we can do for that lent. It focuses on infrastructure development investor is to find the needed track of land. and that addresses the basic requirements The LBP’s “corporative” development pro- for inclusive growth. The government’s main gram will identify an area of whatever size objective is to improve or reduce poverty, and is required to supply the requirements of the infrastructure development that will be that Kikkoman processing plant. Anything done extensively will impact tremendously on that involves the production of agricultural investments in the countryside especially in crops is applicable for our program. If they agriculture. When you can move agricultural are interested in investing here in the Philip- products more cost-efficiently, there will be pines, we will look for the area suitable for more incentive for investors to go into invest- them – the right size, soil, elevation, rainfall, ments in rural areas. That is particularly in- and many other factors. We will take care of teresting for Landbank (LBP), because we Alex Buenaventura, President and CEO of Landbankof the the difficult part and that is the consolida- are focused on promoting investments in Philippines tion of big tracks of land for them. the countryside, and these are mainly agri- industrial investments. will be a complete value chain company We already know the mandate of LBP and what from production to processing and market- you are trying to achieve with the whole or- Agriculture accounts for more than 10 percent ing. Since the farmers will be owning shares ganization. However, what is it that you per- of GDP and is the second largest employer. of these corporations, they will also enjoy sonally want to achieve in your position as More importantly, this sector is the primary dividends. Out of the dividends, they will President and CEO of LBP? source of income for rural and poorly acces- be able to pay restructured loans, because I want to succeed in the “corporative” lend- sible areas. Nevertheless, many farmers they should restructure the loans that they ing approach, which I tried to implement are still fighting for survival due to lack of have not paid before. Moreover, they will in 1988. Back then, I created a rice mill financial support which dampens economic be earning regular monthly salaries from corporation for the rice farmers to whom development of the entire country. How can the corporations, because they will be hired my family’s rural bank in Davao Del Norte the “Agri Agra” law be made more effective as laborers. lent. The approach provided the marketing and how can FDI complement the efforts? This corporate approach of lending to strategy and collection point for loan pay- That is precisely the mission given to me by small farmers is a hybrid between a corpo- ment, because they are supposed to deliver Secretary Dominguez for my appointment ration and a cooperative. That is why I called their harvests and produce to their own rice in LBP: to provide and revive access of small the program the “corporative” development mill. They own 70 percent of the rice mill. farmers to credit banks. Right now, we have program. We are excited about this, and However, I failed, because 20 percent of the become very stringent for farmers’ coopera- there are many potential areas, with each farmers in 1988 did not deliver to their own tives to qualify for loans. LBP requires three being 10,000 hectares. We are talking to and rice mill to avoid paying their loan to my years of profitability for a farmer to become inviting big agriculture companies involved family’s rural bank. In other words, they eligible for loans. We will now introduce a especially in palm oil, rubber, coconut, cof- “pole-vaulted.” corporate approach of lending to the small fee, and cacao production and processing. I told Secretary Dominguez that my farmers. The farmers will be allowed to In short, we have this ambition of creating main interest is to make the “corporative” participate here and have access by way an alternative way of lending to the farmers, approach succeed by reengineering it. The of signing an individual farm management because LBP failed in its lending to farm- “corporative” must manage the farms. It will agreement in partnership with big agricul- ers’ cooperatives. We must develop a new no longer be the small farmers who will ture companies. approach, because the existing approach is manage, because if they do, they do not These companies will manage the in- not working anymore. pay the bank. That is the inspiration of this dividual farms of the farmers. Most of them “corporative” development program. That were already blacklisted by LBP. We will What role would international investors play is my lifetime legacy and challenge – that I lend to these farmers’ corporations not only in this context? want to make something I did in 1988 suc- for production or land development, but also Let us take [Japanese soy sauce maker] Kik- ceed this time. This time, the “corporative” for the setting up of a processing plant. This koman as an example. The company can be will manage the farms. 49 The Worldfolio - ASEAN Agribusiness

FROM FARM TO PLATE: THE AGRINURTURE BUSINESS MODEL

AgriNurture Inc. is a company fully integrated into the agro-industry supply chain. President and CEO Antonio Tiu gives us his insight into the agriculture sector in the Philippines and discusses his company’s business model, ‘From Farm to Plate’

Agriculture accounts for more than 10percent commodity product to branded product. This of total GDP and is the country’s second larg- is a long-term strategy for us. Moving forward, est employer. What is your evaluation of the an advantage would be creating synergy of this agriculture sector? retail brand with other non-competing brands Analyzing the budget of the Department of Ag- such as Tully’s. It will also strongly improve the riculture, it can be seen that two thirds of the profitability of the company in the retail sector. budget is allocated to the rice sector. This will be a big problem for the government especially Considering the partnership you have with the now as we approach ASEAN Integration. The founder of Tully’s coffee Japan, what invest- problem will be in terms of the rice trade lib- ment opportunities or partnerships would you eralization which took effect July 1 this year. see possible for Japanese companies such as From the time of the ASEAN Integration which Calbee and Meiji Holdings? happened two years ago, we requested for a There are a few offers on the table to buy stakes two-year extension on the rice restriction. Now, Mr. Antonio Tiu, President and CEO, AgriNurture Inc in our companies. It is quite an exciting time the big challenge would be how the rice farm- and several companies can see strategic in- ers will be protected while the safety net is no diversified into several operations, following vestment value in my business. There were longer in place. If the macro-perspective of the its goal to set up a fully integrated supply chain offers from Japanese and Chinese investors to agriculture sector is not being considered, the from the crop, to manufacturing and distri- take a stake in the company. And if the price sector will not be led towards the right direction. bution. Would you be able to walk us through is right, I would seriously consider. some of your major milestones and the focus The national government is keen on growing of your operations? Within the Philippines we have seen several farm production by 2.5 percent to 3.5 percent I started as an agri-entrepreneur selling Tai- great examples of internationally successful annually starting this year until 2022. What are wanese postharvest facilities, requiring me to companies in the food business. One of them the possible investment opportunities here? travel all over the country for 20 years. It was certainly is Jollibee. How would you evaluate What is the importance of the so-called “golden not a bad business, per se, as it opened my your position in the domestic market and how crops” that you are especially involved in? eyes to the realities of the countryside. At that do you measure up to these giants in an inter- The Philippines has to realize that not all its time, I realized that selling more agricultural national context? resources can come out at the top. Maximizing equipment was my way of helping farmers to We do not compare ourselves with the big com- local resource is a critical factor but always bring their produce to the consumers. That panies. Some of these names have shown that a formidable task in stimulating economic is why we came up with our business model, they are a good model to emulate for Big Chill growth. Given the Philippines’ good relation- farm-to-plate. My focus is actually to create a and Tully’s Coffee. However, we are more on ship with countries such as China, Japan, and brand through the promotion of our Big Chill the healthy side. Our main offering includes Russia it can be considered an opportunity, a brand rather than adding a business to our ‘SSSS’: soup, salad, sandwiches and smoothies. golden era – one that must be capitalized on in portfolio. We are expanding Big Chill in Hong We want to be something new, similar to the order to promote the country’s resources and Kong as a retail brand, and it’s also available in fast-food chain but with healthy and with all- to be able to increase the income of farmers. China and soon in Southeast Asia, Korea, and natural products. Big Chill is aiming to go in If rice becomes the focus, it’s going to lead the Japan. A marketing strategy would be when that direction. It’s going to be listed soon, and sector towards total failure. The right resourc- people go to the supermarket and pass by the it will develop slowly into something like the es must be channeled to the right products. fruit section, they will correlate it with Big Chill. famous retail brands in the country. Only a few products have economies of scale My focus will still be on the main core The AgriNurture parent side is focused such as banana, pineapples, and mango. As business of AgriNurture, which is the rice on commodity. Big Chill will serve as the for commodities, we produce primarily only trade and the export of fruits as of today. That face through its visibility, even if it’s just a coconut oil and maybe a little bit of abaca, tuna, comprises about 90 percent of our total rev- small fraction of our total business. The farm and other seafood. enue, whereas coconut water and Big Chill and trading side is more important in terms contribute only a few percent each. However, of volume, but the plate side is the face. At In 1997, AgriNurture was set up as a trader of Big Chill is exciting because it creates and en- least people will appreciate AgriNurture as post-harvest agricultural machineries. It later hances the value of my products from just a the owner of Big Chill. The Worldfolio - ASEAN 50 51 The Worldfolio - ASEAN Real Estate The Worldfolio - ASEAN 52 The Philippines construction and real estate boom

Steadfast economic growth has resulted in double-digit growth of the real estate and construction industry. As development moves beyond Metro Manila, growth levels are expected to be sustained over the coming years

Office development, infrastructure invest- Such high growth naturally leads to “We can say that congestion in Manila ment, a growing middle class fueling in- fears of an impending property bubble. has twin effects,” says Ian Cruz, CEO of creased domestic consumption and com- But according to a recent report by Fitch developer FTC Group, which is currently mercial activity, and an influx of foreign Ratings, “credit growth does not so far constructing Mindanao’s tallest building, property investors are some of the factors appear to be fueling asset bubbles. Prop- the 33-storey Aeon Towers in Davao City. behind the Philippines’ construction and erty price inflation, for example, has been “Firstly, the congestion in Metro real estate boom. The construction in- moderate, averaging around 4 percent a Manila has triggered the migration of dustry has enjoyed double-digit growth in year from 1Q14 to 1Q17, according to the development to the regions. Secondly, recent years, hitting 14.6 percent in 2016, BSP’s (Bangko Sentral ng Pilipinas) house the congestion results in more construc- following growth of 11 percent in 2014 and price index.” Furthermore, Fitch notes tion and redevelopment, and Davao City 10.4 percent in 2015. According to analysis that new measures by the BSP “to enhance is one of the areas that has benefited from BMI Research, the nation’s construc- oversight of property lending and project from this.” tion sector is expected to post average finance in the Philippines could make it Megaworld Corp. is also focusing its growth of 11.2 percent between 2017 and easier to spot pockets of excess in these efforts outside Manila, and is the country’s 2021, making the country one of the best high-growth sectors.” largest developer of integrated township global performers. Like most of the economic activity in communities. To date, the developer has Similarly, real-estate loans have ex- the Philippines, much of the growth in con- built 22 large-scale township communities. panded, with average yearly growth of 21 struction and real estate has hitherto con- “There has been too much competi- percent over the last four years. In the sec- centrated in the Metro Manila area. tion in Metro Manila for the past three ond quarter of 2017, the value of property “Manila today is the Hong Kong and years. Megaworld, having properties in lending hit 1.37 trillion pesos ($26 billion), Singapore of 30 years ago. The level of de- areas outside of Metro Manila which are a 20.3 percent increase from a year earlier. velopment in the metropolis over the last untapped and are very limited in terms of Over 75 percent, or 1.03 trillion pesos, of the decade has been unprecedented and re- competition, began making its foray into real estate loans was extended to land de- flects on the accelerated expansion of the and started generating additional revenue velopers, construction companies and other property market. Manila has since become from these areas outside Manila,” says Jeri- commercial borrowers; while the remain- an important hub for industries such as IT- cho Go Senior, Megaworld’s Vice President ing P338.21 billion were residential loans. BPO with huge opportunities of growth for of Development and Leasing. “Hefty growth in lending to the prop- other sectors,” Chairman and CEO of prop- Megaworld is looking into further erty sector simply means the banks are erty consultancy firm Santos Knight Frank, expanding its development portfolio in responding to growing demand given the Rick Santos, told reporters in September. the provinces. Last year it announced improving overall incomes throughout the But the real estate market outside it would spend around 180 billion pesos country and anticipation that lower income Manila has also been growing steadily. over 10 years to develop its provincial tax rates will expand the base of mortgage And with the current focus on economic townships alone, in areas such as Iloilo borrowers after the tax reform is signed by decentralization, things are looking bright City and Lapu-Lapu City in Cebu Prov- the President next year,” said Emilio Neri for developers outside the capital, particu- ince, Davao City, Bacolod City in Negros Jr., vice-president at Bank of the Philippine larly in areas such as Davao City in Mind- Occidental Province, and Alfonso, in Islands (BPI). anao Island. Cavite Province. 53 The Worldfolio - ASEAN Real Estate

A PIONEERING AND INNOVATIVE DEVELOPER

In this interview with The Worldfolio, Jericho Go Senior, Vice President of Development and Leasing at Megaworld Corp., speaks about the company’s unique selling proposition and its operations overseas

Given the circumstances and the potential out- nese buyers. We are not new to the Japa- side of Metro Manila, it is understood why the nese market. If you are wondering why company has been strategizing towards town- Cebu, it is because the Japanese love the ship developments. There is evidently tough beaches, the weather, and the necessities competition in the Metro Manila, in addition are within reach. In turn, these people have to the fact that the Filipino market boasts a created their own Japanese community wide variety of well-known property devel- in Cebu. The amenities (i.e. zen garden, opers, constructing similar projects in the Japanese-style spa, origami room etc.) are same sectors. How does the company and its for this community. unique selling proposition of constructing in- novative and integrated projects differentiate The Department of Tourism has a goal to reach Megaworld from the other Filipino players, 6.5 million foreign tourists. Thus, there is such as ALI, RLC or SMPH? more focus given to hotel development. How First, we have been able to set it very clearly do you tap into this market on a tourism level that we are the pioneer and the leading as well as on a regional level, where partner- developer of township communities. How ships with hoteliers like Dusit, Shangri-La, we develop in a niche market: we always Lotte, and Ascot may play an important role? make sure that, whether it be tourism- Precisely the point, we have a land centric, manufacturing-centric, or office bank of 3,500 hectares all over the Phil- BPO-centric, it is always a township. ippines. Some of these have beautiful Retail, if you look at the trend right Jericho Go Senior, Vice President of Development and Leasing beachfronts (i.e. Cebu and Boracay). We now, is very challenged. The community at Megaworld Corp. created this brand called Condotel where malls are starting to see a gradual decline. we sell to foreigners as condominiums but For online shopping, without assortment to mention we also earn a percentage from are required to return the unit after some and scale, there will also be problems. As to their sales. These are some of the ways we time. After which, we lease and operate the the regional malls, there is the presence of are able to differentiate ourselves from our unit as a hotel. Put simply, the purchaser assortment and amenities, but the competi- competitors. may use the unit as the condominium then tion is very fierce. Once the use has been make money out of it while the they are in outlived, investments must be made again. Megaworld has around 18 percent of its sales their home country. This is a very beautiful Another point is that, being a destination revenue coming from foreign sales. This fa- concept in a sense that the foreign buyer mall, advertising and promotion efforts is cilitates easy investment for foreign inves- need not be in the Philippines for 12 months a must and are very high. It then becomes tors and especially OFW (overseas Filipino of a year, but is able to come back and use very costly. workers). As such, how does the company tap a unit when needed. The difference now for Megaworld into this market and how would you compare Megaworld has always been inno- is that we develop “lifestyle malls”. For your position within the ASEAN and Japanese vative in terms of our approach. It is not example, in Eastwood City, there is a markets? necessarily unique as other developers are population of 100,000 in 18 hectares. Ap- We were actually one of the first to tap also doing it, but we have always created proximately 70,000 are workers and 30,000 into this market. We have created Mega- solutions whereby an individual’s appetite are the residents. This manifests that we world International and have set up satel- for investment (i.e. tourism, office, leisure, have a captive market. These residents lite offices around the world – in Europe, rental income, etc.). We also have manufac- are able to walk around the streets and North America, and Asia Pacific. Again, the turing where foreign partnership is more there are commercial establishments like ones that understand the business the most viable. For example, in Cavite, we have McDonalds and Starbucks. We are a game would be the Filipino expatriates and there 200 to 300 hectares and we are currently changer. are over 10 million abroad. So, what we do open to tie-up with industrial partners like What Megaworld is doing is selling ‘an when we set up satellite offices is to tap Japanese, Chinese or Korean companies. experience’. For example, how can one put the Filipinos who speak the language of Megaworld will develop while the partners gourmet cuisine online? You cannot. One that country. They are the ones we appoint can have their financing to create ware- has to actually go and be there to experi- as senior executives to do the marketing houses then lease it out. Lease-hold is a ence it. From 20 percent of our retail mix, for us. better option than purchase, because it may food and beverage is now up to 40 percent. It proves to be effective. In Cebu, we be difficult to justify under the current laws Moreover, food has the highest margin not have sold two residential towers to Japa- of the Philippines. Infrastructure The Worldfolio - ASEAN 54 ‘THE GOLDEN AGE OF INFRASTRUCTURE’

President Rodrigo Duterte is implementing an ambitious $180 billion infrastructure plan which is set to boost competitiveness, address transport bottlenecks and create jobs

The Philippines is among the most attrac- tive destinations for foreign investment in South East Asia. As the economy continues to grow, so too will the number of foreign investors. But one major concern for inves- tors is the lack of adequate infrastructure. That is why Filipino president Rodrigo Duterte has pledged to pour $180 billion into infrastructure development during his six-year tenure. His so-called ‘Build, Build Build’ Pro- gram aims boost the nation’s competitive- ness, create jobs and attract foreign firms hesitant about power costs, logistics head- aches and supply chain challenges. Under the 2017 budget, the govern- The board of the National Economic and Development Authority (NEDA) has approved the first phase of the Japan-funded Mega ment increased infrastructure spend- Manila Subway Project scheduled to begin construction next year ing to more than 5.3 percent of GDP. It is an unprecedented move from a Filipino In January, Japanese Prime Minister in November, when Japanese officials are president, as the government attempts Shinzo Abe approved a one-trillion-yen aid in Manila for the ASEAN 50th anniversary to address Manila’s notorious congestion package (approx. $9 billion) for infrastruc- celebrations. problem and other transport bottlenecks. ture projects in the Philippines over the Trade Secretary Ramon Lopez – who Large-scale investments in roads, ports, next five years. met with senior executives of Japan’s airports, railways and electricity around “We will leverage Japanese technol- seven major trading houses in Tokyo in the country is key to the President’s over- ogy and know-how to the fullest extent to March, alongside Transportation Secre- all plan to spread economic growth outside positively cooperate for the improvement tary Arthur Tugade – called this the Phil- Metro Manila, and will put the country on of infrastructure in Metro Manila and the ippines’ “golden age of infrastructure”, track to becoming an important gateway to whole of the Philippines,” said Mr. Abe in which, he said, seven Japanese trad- the growing ASEAN region. during his state visit to the Philippines in ing houses (Mitsubishi Corp., Mitsui and Public spending on infrastructure is January, which was the first official visit Co. Ltd., Sumitomo Corp., Itochu Corp., expected to reach 7.4 percent of GDP by of a head of state since President Duterte Marubeni Corp., Toyota Tsusho and Sojitz the end of Duterte’s term in 2022, up from took office last year. The $9 billion will be Corp.) were determined to invest. 5.3 percent in 2017 and less than 3 percent used for 11 projects, including three com- At the end of October, the Asian De- from 2010-2016. muter railways in Metro Manila aimed at velopment Bank approved a $100 million “We are focusing on several areas of easing the capital’s crippling congestion loan to help the Philippines prepare and improvement such as the construction of problem. develop infrastructure projects. The loan railways. One of the plans includes build- In March, Filipino cabinet officials se- will support the Philippine government ing an entirely new railway system from cured Japanese funding for 14 infrastruc- “in accelerating the delivery of high-qual- Manila down to Legazpi, which would ture projects, which include a high-speed ity public infrastructure projects,” ADB reach about 620 kilometers. Another train connecting Subic in Zambales and said in a statement. would be a railway system in Mindanao, Clark in Pampanga, the commuter rail con- With the rapid increase on public of about 1,200 kilometers. These proj- necting Tutuban in Manila and Las Baños spending on infrastructure, and large- ects have led us to negotiate with Japan in Laguna, and the Mega Manila Subway scale investments from foreign partners regarding specific and important projects Project. Undersecretary of the Philippines’ such as Japan and ADB coming in to sup- that would possibly create several job op- National Economic and Development port President Duterte’s ambitious infra- portunities for Filipinos,” says Benjamin Authority, Rolando G. Tungpalan, told re- structure plan, it seems that the Philip- Diokno, Secretary of the Department Bud- porters during the Tokyo visit that more pines’ golden age of infrastructure is well get and Management. Japanese-backed projects will be unveiled and truly underway. 55 The Worldfolio - ASEAN Infrastructure

CREATING A CONNECTED AND MOBILE ARCHIPELAGO

Arthur Tugade, Secretary of the Department of Transportation (DOT), discusses the monumental challenge task undertaken by the Duterte administration to improve intra-connectivity in the 7,000-island Philippine archipelago, as well as government efforts to stamp out corruption

Several countries in the ASEAN, such as competition. Why? Because of corruption. Cambodia and Vietnam are seen to be ex- The costs of investments have become tremely competitive. These countries are higher than it should have because of different from the Philippines in terms corruption. of internal connectivity, thus making it With the efforts of the current admin- all the more attractive for countries like istration to eradicate corruption, remove Japan and China to invest. How are the these expenses and add it to the revenue. internal connectivity challenges being ad- The playing field, as I have mentioned, dressed in order to make the country more has been levelled now. The trouble is they competitive to its neighbors? have been exposed to so many anomalies That is why we are focusing now on in- before that the private sector has become frastructure. The DOT is trying to create doubtful. When the government commu- an environment of connectivity and mo- nicates a certain action, the private sector bility. We are an archipelago with more is suspicious and mistrusts. than 7,000 islands and there is a constant All I ask now is for them to trust need to connect these islands. In order us. We have a government pushing for to do so, the country must have technol- a “no-nonsense government”, a cabinet ogy and more importantly the necessary that supports this endeavour, a number Arthur Tugade, Secretary of the physical structures such as airports and of countries that are willing to support Department of Transportation sea ports. This is what we are committed the Philippines, and a myriad of projects to doing and we are aiming to complete down contracts, I agree that there are we are willing to take on. The only thing this in the next five years. This is why the reasons to be afraid or worried. Those we need now is for the private sector to secretaries of the different government firms that capitalize on good perfor- trust us. agencies refer to this as the “golden age mance, there is no reason to worry about of infrastructure.” So, we are trying to getting left out since they have the capac- If we look at the final goal that you are put all this into action. ity to compete and deliver. trying to achieve in terms of having an People must create. If there is noth- increased share of the GDP allocated to Given that foreign investors usually come ing done as to the development of skills create infrastructure that can compete with their own know-how and private sec- and levelling of playing field, firms will internationally, who are going to be the tor contractors, it seems that the domestic certainly be buried and be left out of the players that will help the government to private sector feels they are being left be- rapid and highly competitive business en- turn these goals into reality? hind. As such, what is your opinion on the vironment we have now. If competition I must say that is a good question. Given worries of the private sector? comes, you do not shy away. You develop that the environment has changed, how I I beg to differ on this. The private sec- and improve on your skills and talent so wish there will be “new kids on the block” tor is not being left out with all the in- you can compete. Ultimately, this is why or new players who are ready to trade and frastructure projects there are. For one I am putting up a railway institute. So, we trade big, for example, people who used thing, there is the transfer of technology. can compete with the big players and be to be afraid of investment or people who When we deal with foreign investors, part better in the years to come. would rather invest in other countries. of the condition is this so-called transfer You develop the economy by creating of technology. In the midst of high competition and the that new breed of entrepreneurs and in- Secondly, we need to clarify which need for skills development in order for vestors. We can capitalize on the youthful aspect of the private sector we are talking the private sector to benefit, what are your enthusiasm and aggressiveness of new about—either the ones who got “hand- expectations for the medium-term? players which drive creativity and profes- me-down” projects or the ones who got There will be a good sector and they will sionalism into the business field. This is projects because of performance on re- be ready to compete. At times, they are my belief and these are the players I hope cord. As to the firms that got hand-me- afraid of it because there is actually no could help us achieve our goals. Infrastructure The Worldfolio - ASEAN 56

DBP HELPS COUNTRY TO PROGRESS FASTER

Cecilia C. Borromeo, President and CEO of the Development Bank of the Philippines (DPB), sits down with The Worldfolio to discuss the government’s socioeconomic agenda, the banks’ role in supporting financial inclusion, and relations with Japan

As president and CEO, what are your main Regionally, several countries can be seen to goals for the Development Bank of the Phil- boast of high growth economies. An example ippines? is Vietnam that is developing rapidly and is Among the main goals of the Development therefore representing competition for the Bank of the Philippines (DBP) are to con- Philippines when it comes to attracting tinue to serve its primary mandate and to investments. What is it the Philippines can help the country progress faster. Founded offer to sustainably attract foreign invest- in 1947 as the Rehabilitation Finance Cor- ments and knowledge exchange? poration, DBP had the mandate to rebuild A lot of attraction lies in the fact that we still the country’s agriculture, infrastructure, need a lot of these projects, since we may businesses, and industries devastated by be lagging compared to other countries. war. This institution was at the forefront of We also have the availability of local talents financing basic infrastructure requirements who can work well with experts. There is for a country devastated by war. We were a very strong bond between Japan and the financing the railroads, reconstructing the Philippines, and this relationship is prob- highways, and even rehabilitating power ably not at the same level with other ASEAN plants. DBP has been doing this for over Cecilia C. Borromeo, President and CEO of the Development countries. So, we can leverage more on the past seven decades. Today, the Duterte Bank of the Philippines that kind of a relationship we have already administration would like to be known as developed with Japan. Since we have a the strongest advocate of more infrastruc- finance clean water, sewerage and sanita- young population, that is also an attraction ture projects. This will be the Golden Age tion, and solid waste management projects. for potential investors. of Infrastructure for the country, and that The Asian Development Bank (ADB) is also vision is exactly within the alley of Develop- DBP’s development partner, but we’ve had Looking towards what these investments ment Bank of the Philippines. a more active partnership with JICA. mean for the country, have you already seen any kind of change in terms of a trickling down One of the sources for the infrastructure In terms of foreign investment, each coun- effect to the lower classes and how this has expansion is ODA, which has been fueled by try can be seen to have a different kind of contributed to the government’s plans? greater regional integration. ODA has reached approach. Japan, for example, is very well- In terms of Dutertenomics, probably you an amount of $19 billion from China and Japan known for its sustainability and long-term cannot see much difference yet. The coun- alone. We are also seeing FDI from regional orientation. What benefits do you see in try, however, has already benefited a lot neighbors growing continuously. How impor- working with Japanese investors in terms from the economic decisions that previous tant would you say is it to attract the attention of quality, knowledge exchange and sustain- administrations have taken. In Duterten- especially among the ASEAN+3 to develop even ability? omics, if you look at the ten-point socio- further? Most of their loans can span up to 30 years, economic agenda, it is about continuing We have had a very long relationship with and are concessional. That is very helpful the sound monetary and fiscal policies of Japan through the Japan International for developing countries like the Philip- previous administrations. That is a very Cooperation Agency (JICA). DBP has bor- pines. For instance, most of the loans we good move by the new administration. rowed billions of funds over the past 30 to borrowed from JICA were coupled with They can further improve on those fiscal 35 years, and those loans from JICA were technical assistance. So either we got some policies to make the growth of the economy very concessional. These have enabled grants from them, or they gave us very soft more robust and sustainable. DBP to help more local governments build loans to help increase our capacity as a Based on my observations, these posi- most of the infrastructure that they need, not lender. They also deployed consultants who tive economic developments have already only to connect farms to markets, but also were very helpful in increasing the skills trickled down to the lower classes. I have to equip communities to be more resilient and knowledge of our lending officers in seen communities progressing very signifi- to the adverse effects of climate change. terms of evaluating very technical projects, cantly and dramatically when a road is built We make sure that our projects help im- such as renewable energy and management in their region. When farms are connected prove the quality of the environment. We information systems. to the market, you see tremendous benefit 57 The Worldfolio - ASEAN Infrastructure

for the masses. Farmers can now command tices that we have adopted. Maybe, other our branch network and getting deposits, better prices for their goods because there development financial institutions in the but we will probably also need to tap the is more efficiency and they can bring their region can make us a model for some of capital markets here and abroad to help produce to the markets where demand is the sectors that we serve. us match the requirements of the players stronger. In a few months, you see houses We continue to improve our processes, in the infrastructure sector. improved and renovated. You see families hire the right people, so we can be more ef- buying home appliances, which was be- fective in helping the strategic sectors that How attractive do you think are the Philip- yond their capacity to purchase before. I are in our priorities, and furthermore, in- pine banks’ equity to Japan? have seen that, firsthand, during my visits crease the financial resources of the bank. I believe you can package very good, and around the provinces. This is where partnerships with the likes the right, projects and address possible Socioeconomic progress has trickled of JICA, multilateral and bilateral agen- concerns on the risks associated with down to the lower classes, probably not as cies, ADB, and even the private sector like Philippine projects. There are fewer op- fast and not in the scale that government Daiwa, will come in. portunities for Japanese investors in their plans it to be, but definitely it is happening own country, so if we can give them the and I hope all these positive developments Can you tell us more about your partnership yield that is commensurate to the perceived will happen faster and on a much larger with Daiwa and how you try to engage more risk that they are taking, then I think the scale in the next five years. with the private sector? appetite will be there. Our current partnership with Daiwa in- DBP is the premier government financial in- volves the brokerage business. Daiwa is Several Philippine private banks have a very stitution serving as a “catalyst for a more among the top three investment houses in similar strategy in this context attracting progressive and prosperous Philippines” Japan. When we need to access the capital mature banking markets in Asia. Why would and dedicated to supporting the national markets, our partnership with them will those foreign investors decide to choose DBP government’s key development programs. become very helpful. Right now, we are over commercial banks? In this sense, it is focusing on four major mulling with the idea of expanding the DBP is very much into funding infrastruc- areas - infrastructure and logistics; so- sources of our funds to match the long- ture projects at all levels. We have a very cial services; micro, small and medium term nature of the requirements of projects good relationship with the local govern- enterprises; and environment. In order to that will benefit infrastructure sector de- ment units, and our portfolio for the local successfully implement its programs, the velopment. It is true that we are expanding government units is a very robust and low bank works hand-in-hand with key players risk portfolio. I cannot say the same for from both the private and public sectors the private Philippine banks. t is true they of national and international nature. How are more active in the bigger projects like are you achieving your goal of becoming a “IN DUTERTENOMICS, IF power plants and toll roads, but there are “regionally-recognized development finan- only so much of those that the country YOU LOOK AT THE TEN- cial institution”? can absorb. We definitely want to be a recognized de- POINT SOCIOECONOMIC At the local level, there are still a lot velopment financial institution, and we AGENDA, IT IS ABOUT of opportunities. It is like a new horizon in want to be able to help more families and infrastructure lending. There are 1,700 lo- CONTINUING THE SOUND communities, businesses and entrepre- cal government units. Most of our branch neurs. We can achieve that if we can MONETARY AND FISCAL officers have a very good relationship with increase the balance sheet of the bank. POLICIES OF PREVIOUS the administrators and local treasurers of We are targeting growth for the bank at these local governments. We know what ADMINISTRATIONS. an average of 20 percent per annum to they need, and we can discuss with them reach the one trillion peso mark in asset THAT IS A VERY GOOD in a manner such that they do not feel size. We will, then, be at par with the MOVE BY THE NEW intimidated. I say this because in some currently bigger development financial underserved and underbanked areas, ADMINISTRATION. THEY institutions in the region. DBP needs to bankers are usually perceived to be very increase its financial resources so it can CAN FURTHER IMPROVE cold and sometimes snooty. That is not the lend more. ON THOSE FISCAL case with our DBP branch managers as We are also adopting better practices they work closely with the decision mak- POLICIES TO MAKE so that efficiencies can be improved. We ers in those areas. are a member of the Association of Devel- THE GROWTH OF THE I think that is the uniqueness of a gov- opment Financial Institutions in Asia and ECONOMY MORE ROBUST ernment development financial institution the Pacific (ADFIAP), and year after year, like DBP. If the investors in Japan would AND SUSTAINABLE” we receive awards for projects that we have like to look at those subnational projects, financed, and even some of the systems that Cecilia C. Borromeo, then DBP would be the perfect match, or we have established in the bank. We are President and CEO of the development partner, for them. We can put already there in the sense of being recog- Development Bank of the these all together in a unique project and nized already, but it is a continuing process Philippines (DPB) issue bonds, then go to other communities of improving the way we do things so there and do the same thing. That is the direc- will be wider recognition of the better prac- tion we are taking. The Worldfolio - ASEAN 58 59 The Worldfolio - ASEAN Infrastructure The Worldfolio - ASEAN 60 ‘WE NEED THE USE OF GOOD STEEL IN CONSTRUCTION’

Kazuya Nohara, General Manager of JFE Steel Corporation’s Manila Office, discusses the steel industry in the Philippines

From an investor’s point of view, what are structures. We can expect increasing the advantages of the Philippines compared steel demand, but we would like to see to other countries in the ASEAN region? a breakthrough. We need the use of good The Philippines does not have a huge steel in construction. manufacturing sector. That is the country’s weak point. Maybe we can have Are your expectations of growth in JFE many parts makers here in the country; Steel directly related to the possible we can finally have the environment success of the government’s ‘Build Build to attract manufacturers here. In the Build’ Program? meantime, the Philippines’ situation is One difficulty is the shortage in labor. very different compared to other ASEAN It is also very difficult to construct big Kazuya Nohara, General Manager of countries. Those other countries already infrastructure here considering the JFE Steel Corporation’s Manila Office have big, heavy industries. narrow areas, roads, and LRT, among others. If they use these steel structures, In the Philippines, there is not much Raw steel is not the biggest market in the they can expect more demand. Now, you of a manufacturing sector. Almost all Philippines, and most of the steel is used can see there are many high-rise buildings. involve assembly lines. They do not in the construction of infrastructure. How Those buildings are not strong, so we need have subsidiaries or small companies. would you describe the potential of the Phil- high-end steel plates. We would like to The Philippines needs these small and ippines’ steel sector from now until 2020? introduce steel structures to this country. technology-focused companies. It is very I expect steel to grow in the Philippines, difficult for this country to meet downstream as well as its consumption. Currently, What is your opinion on the strategy that demand. We need more time to be mature almost all construction in the country should be taken to move the Philippines in this country. I want to introduce that uses reinforced concrete, not steel into the downstream steel industry? here, but we need more time. METRO GLOBAL HOLDINGS An interview with Robert John Sobrepeña, President and Chairman of Metro Global Holdings, which, through its interests in Metro Rail Transit Holdings, Inc. and Metro Rail Transit Holdings II, Inc., owns and operates the EDSA metro rail transit systems that comprise 13 stations from the North Triangle to Taft Avenue in the Philippines

President Duterte is concerned about the subway can be a reality. The problem with traffic congestion in Metro Manila, which elevated systems is that it increases the Robert John Sobrepeña, President and is home to roughly a tenth of the country’s traffic during the period of construction, Chairman of Metro Global Holdings 100 million people. The new subway plan con- which is what happened the time I spent necting Quezon to Taguig, will not be finished building the MRT. For three years, there booming industry in the 90s and that it before 2024, leaving the MRT (Manila Metro was additional traffic while I was building would also be a primary source of golf Rail Transit) as the sole solution to traffic it. When you go underground, you do not tourism. There is a similar situation in congestion. Would the planned subway make have that situation. Thailand, where a lot of people are there a substantial difference? for golf. I thought it would be a great The subway system is the solution for this Can you talk about the other side of Metro way to help Philippine tourism. At the gridlock that we have in traffic. Compared Global Holdings, such as the leisure and same time, in terms of real estate, I also to an elevated system, the subway is entertainment activities. What is the im- ventured into golf courses and hotels. It also four to seven timesmore expensive, portance of these activities for the future is a great place for business. If you want depending on the substructure and type growth of the company? to know your business partner better, of soil that they have to deal with. It is I got in into golf development for two invite them for a round of golf. One always a problem with costs and benefits. reasons: one is on real estate, because afternoon of golf is worth much more If we have funding available from China I was building golf communities. The than many meetings; you get to know or Japan at a very low rate, then the other was tourism. I saw that golf was a the character of the man. 61 The Worldfolio - ASEAN Infrastructure

STRENGTHENING PUBLIC-PRIVATE PARTNERSHIPS

Ferdinand A. Pecson, Executive Director of the Public Private Partnership Center, discusses Chinese and Japanese investment in the Philippines and the important role of the PPPC

There is a change of policy from the Duterte of all tasks of a project and the sharing of administration involving a shift from the project information. United States to attracting foreign investors Led by NEDA, the implementing agen- such as China and Japan. With the special fo- cies are improving on how projects are cus of the administration on infrastructure planned – starting with the priorities set in development, what kind of added value would the Philippine Development Plan, to the spa- you like to see come from foreign partners as tial plans, down to individual projects. We they come into the Philippines? have been seeing also how the Investment Japan and China have offered low financ- Coordination Committee has been having ing rates, long grace periods, and long more frequent meetings to decide on the repayment periods. Apart from cheaper fi- approval of projects. The government is nancing, both countries would bring their also working on redefining what comprises expertise in infrastructure building and public utilities, with the goal of allowing technology. Projects such as airports, rail more foreign participation in infrastructure and long, deep-sea bridges are the types of projects. Ferdinand A. Pecson, Executive Director of the Public Private projects for which the Philippines lack the The government is cognizant of the Partnership Center specific expertise and technologies and for needs of foreign investors for unambigu- which it can benefit from foreign assistance. ous, fair, open, and transparent processes. mainly the construction part of the infra- Through the proposed PPP Act, the PPP On the ASEAN sphere, many countries are opt- structure. The operation and maintenance Center is pushing for regulatory reforms ing for PPP instead of ODA to develop their will have to be dealt with separately. In this that will better address these needs. respective infrastructure. In the Philippines arrangement, there is a potential risk that however, we find that ODA is taking the lead. the infrastructure, built by a contractor who What is the PPPC centred on doing in terms In your opinion what is the advantage of the is motivated to minimize the construction of ensuring international companies that the PPP model over the ODA one? cost, will not be sufficient to enable the op- processes will be smooth, that the levels of We believe that there is no default best op- erator to meet the performance expected bureaucracy will be low, and that they will tion for financing or procuring any project. during operation. Whereas in a PPP build- not encounter or be involved in corrupt situ- One has to weigh the objectives of the gov- operate-transfer arrangement, the private ations? ernment against the project’s constraints party is fully motivated to ensure that the The elimination of corruption and the and the risks that could arise with each quality of construction is sufficient to sup- streamlining of bureaucracy is a directive procurement option. Identifying the better port the needs of dependable operation. coming from our President. The PPP Center option has to be done on a case-by-case ba- acknowledges that more can be done to re- sis. An ODA loan is a 100-percent liability What strategies are you envisioning for mak- duce bureaucracy. On the other hand, it can of the government. Moreover, there is the ing PPP more time efficient and more attrac- proudly claim that all projects that passed currency risk if the loan is to be repaid in tive to foreign investors? through it were procured free of corrup- foreign currency. PPPs on the other hand Good project planning, good project man- tion. The reduction of bureaucracy will be allocate risks between the private sector and agement, ownership of project tasks, ac- continuously pursued while corruption free the government. The risks that the govern- countability for results, and fast decision- procurement will be sustained. ment take become contingent liabilities for making are basic requirements for a the government. time-efficient execution. The challenge is How do you evaluate the collaboration be- Higher value for money is achieved enormous given the numerous tasks to be tween JICA and the PPPC? when there is open competition. PPPs are accomplished, the numerous task owners They have been strongly supporting us on open to a wider set of bidders whereas in that need to coordinate, and the multiple our capacity building activities for the na- ODA projects, the bidders are restricted by decisions that have to be made by many tional agencies. For example, for the De- the lending entity. While the financing cost persons. The PPP Center is working on es- partment of Transportation, JICA helped of PPPs tend to be higher, the private party tablishing a web-based collaboration and construct a handbook for PPPs in the rail that builds, operates and maintains the in- communication tool that will serve as a sector. This time we are in the process of frastructure is fully motivated to achieve common platform to be used by all involved getting support for capacity building that the lowest life cycle cost. ODA loans support agencies, for the planning and monitoring will benefit Local Government Units. Infrastructure The Worldfolio - ASEAN 62 THE NEW GATEWAY TO THE PHILIPPINES An interview with Darwin Lacson Cunanan, Vice President of Clark International Airport Corporation

In relation to the domestic connectivity and the upcoming project Clark is inside a freeport zone. Incentives are given; in lieu of all local implementation of Clark airport, how do you think will this af- and government taxes, companies just pay 5 percent of gross income fect the competitiveness of the Philippines? Will this be able to earned; and companies are also given allowable deductions as well. attract FDI as well? So, companies can make a 100-percent tax-free importation of goods This will certainly help in a significant way, because the Philippines being used within the freeport zone. We are very liberal on this one has a lot to offer in terms of tourism and destinations. Take Cambodia yet we maintain certain rules and regulations on how to apply for for example, Angkor Wat is what you can see there. What else? The these incentives. Clark International Airport is also the only operating Philippines, on the other hand, has more than one destination to offer. airport in the Philippines inside a freeport zone. Although Subic With the congestion of our main gateway, it is very hard to airport is inside the freeport zone, there is no operations because market all these things. The department of tourism is having a hard Subic is primarily being developed as a seaport. time to reach their tourist targets. This will continue until such time In addition to the Clark freeport zone, we still have the special that another gateway becomes available to accommodate the influx economic zone with incentives provided by PEZA that is managed of tourists in our country. With ASEAN integration, we could expect by the BCDA. This is also where the new Clark City will be located. more to come to the Philippines. Add to this the saturated gateway, We give numerous incentives to respective allocators. There we will really be at a disadvantage. are also many Japanese companies here, one of the largest is Nanox Thus, if Clark develops and gets connected to several of our – a semiconductor company. Now, they are doing their expansion, tourist’s destinations all secondary airports will follow suit, it has but there are no more areas available within CDC. Thus, we the capacity to bring in more tourists and rise the employment accommodated them in the Civil Aviation Complex. We allowed them, opportunities. This means that the economy will move much faster because we deem that Nanox is an aviation-dependent company given than it is right now. that they are manufacturing semiconductor products—everything is shipped by air. In fact, there is a pressure from them for us to bring What does Clark have to offer in terms of tourism and business in airlines that could ship their products out of Clark, because all of to complement the operations in Manila? their products are still shipped from Manila due to limited flights here.

‘A TRUE PARTNER IN EVERY SENSE OF THE WORD’ The Worldfolio speaks with UPS with more than 100 years of experience plus the way that Air21 has connected the Reuben Pangan, President of Philippines over 38 years, it is just a perfect logistics company Air21 combination. UPS wants to connect the Philippines to the world. We want to connect You are facing a lot of big challenges in the the rest of the Philippines to the world, so logistics sector, especially because there choosing the right partner is one. are three other big logistics companies in the country. What are the competitive Air21 has a portfolio of well-known quality advantages of Air21 compared to these partners. What is the importance of Japa- competitors? nese firms in this context? First of all, we ensure that we position As more Japanese companies come in and ourselves as a business partner. We have do business in the Philippines, we want to had small companies that trusted us from assure them that we are here to connect them the very start, who have now gone on to to at least the major urban centres. We will become multinationals exporting abroad not make sure they reach all these markets. If only with one particular product, but several they want to set up a manufacturing business product lines. We like challenges – if you give and market it outside the Philippines, then us a challenge, the more we strive to be able together with our partners, depending on the to deliver on what we promise you. That is mode of transport they want, we can connect one advantage; we do not shy away from a them to their markets. fight or challenge. We like to be a true partner in every Reuben Pangan, President of Air21 Second is choosing the right partner. sense of the word through the Lina Group We have been very methodical and we of Companies. More than going beyond beauty with this is you only talk with one have chosen the right partners for more logistics, if there are other things we can group. When we talk about costing, pricing, than 25 years. Now, we are partnering with do for you, such as setting up a temporary and everything, we are willing to sacrifice another giant, UPS, and we feel that with space, building a call center, eliminating and we will just share in the profits of other the worldwide network and competency of waste products – we will do that for you. The companies. 63 The Worldfolio - ASEAN Infrastructure

JAPANESE PARTNERSHIPS, HOW AND WHY?

Japan and the Philippines have strong connections beyond just profits. The Worldfolio speaks with Yvonne S. Yuchengco, President of Malayan Insurance, which merged with Tokio Marine Insurance in 2008, about the policies of the Duterte administration and its partnerships with Japan

What is your view on the government’s tax “I AM IN FAVOUR OF THE reform agenda? I am in favour of the tax reform. This is long GOVERNMENT’S PLANS overdue. In the insurance industry, if you ON DECENTRALIZATION, study the ASEAN business model, we are BECAUSE THERE IS A the highest taxed. For every peso paid to us, 26.5 centavos goes to the government. Right LOT OF POTENTIAL IN there and then, the margins are minimized. MINDANAO AND VISAYAS. I just came from an industry meeting, and THERE ARE A LOT OF they were talking about lobbying for tax reforms in the non-life insurance industry. OPPORTUNITIES THERE IN THE MINING AND In terms of President Duterte’s policies, the TOURISM SECTORS” government is moving towards the decentral- ization of the economy from Metro Manila. How do you evaluate these policies? “WHEN NEW JAPANESE I am in favour of the government’s plans COMPANIES INVEST on decentralization, because there is a lot of potential in Mindanao and Visayas. IN THE PHILIPPINES, I have always thought that Mindanao is THEY LOOK ALSO FOR more bountiful than Luzon. There are a JAPANESE INSURANCE lot of opportunities there in the mining and tourism sectors. There are also a lot COMPANIES. THUS, of plantations there. Agriculture would be TOKIO MARINE IS A GOOD one big opportunity. In Mindanao, there is a CHOICE; IT IS VERY very stable climate. They do not have many storms that destroy their plantations. The STRONG IN AUTOMOTIVE other opportunity would be marine cargo. Yvonne S. Yuchengco, President of Malayan Insurance DEALERSHIPS”

What is your perspective on the relationships Japanese have a long-term vision. Malayan Hitachi Power System Technical Services that can be built between the Philippenes and Insurance has been around also for 87 years. Corporation and Chodai Co. Ltd. ASEAN +3 nations: China, Japan and South Korea? As you say, insurance involves a lot of trust. We target the new companies that are They are good partners as they are very gen- We never ran away from our responsibilities. going to start working here, through the erous in terms of technology and knowledge That is one of the defining factors. Japanese Association and also with the help transfer. In our Enterprise Risk Manage- of the RCBC Japanese desk. ment System, they sent their people here to What are the synergies you see in the future help us develop it. They also organize fo- with the YCG Group (Malayan Insurance parent How do you evaluate your commitment to rums where ideas can be shared on what is company) and Japanese companies? society through your work? happening in Malaysia, Vietnam, and so on. When new Japanese companies invest in Tokio Marine has a very good CSR program; the Philippines, they look also for Japa- every year it goes around different parts In terms of your company, what are the ben- nese insurance companies. Thus, Tokio of Asia and plants mangroves. They went efits and strengths you see especially for Marine is a good choice; it is very strong in to Jose Panganiban and Camarines Norte Japanese companies? automotive dealerships. The government’s and they planted mangroves over several We grow together; it is a long-term relation- ‘Build, Build, Build’ program will benefit days. They bring in volunteers from differ- ship. Over 50 years ago, my father estab- companies such as Isuzu, which sell trucks, ent parts of Asia. They are very good when lished a good relationship with the Chairman engineering firms such as Chiyoda Philip- it comes to CSR. When Typhoon Yolanda of Tokio Marine at that time and we con- pines Corporation, Philippine Nippon and came, many employees of Tokio Marine tinue to benefit from that relationship. The Sumitomo Construction Inc., Mitsubishi donated money from all over the world. Energy & Power The Worldfolio - ASEAN 64

THE BALANCING ACT: BRINGING DOWN THE COST OF POWER WHILE MITIGATING ENVIRONMENTAL IMPACT

Mr. Edgar Chua, former Chairman of the Shell companies in the Philippines and current Chairman of Makati Business Club, discusses the energy sector landscape in the Philippines and the ASEAN region, as well as Shell’s operations in the country

The Philippines is currently refocusing are held back by the high cost of electricity its energies towards deeper regional in- in the country. Countries such as Vietnam and tegration. This shift in policy has already Indonesia have much lower energy prices and resulted in ODA worth over $19 billion from also do not face the same infrastructure is- China and Japan alone, both of which have sues. As a foreign company in the Philippines also recently pledged FDI worth $1.7bn and what are the key opportunities you see for $3.9bn respectively. Much of the money in- international firms? flow will be directed to the socioeconomic A number of factors contribute to cost. At the development of the county, especially fo- generation level, the cost in the Philippines cusing on infrastructure. What impact do is very similar to that of Singapore. But if you you expect to see from this deeper regional look at the electricity bill, generation cost is integration and what synergies do you see only about 40 to 50 percent of the total cost. between the two countries, especially in Other costs that are added are transmission the energy sector? cost, distribution cost, systems losses, mis- Regional integration can effectively expand sionary charge, Feed in Tariff, etc. By the the market for products enabling investors time you get to the total, it is about double to tap into a bigger market. However, it is the generation costs. The archipelagic na- not without its specific challenges since the ture of the Philippines increases the costs ASEAN operates in a very different way com- compared to a country with a single land pared to say the European Union and one mass where you can have simpler transmis- has to be mindful of the differences. sion and economies of scale. Upon the implementation of the AFTA The other reason electricity costs are (ASEAN Free Trade Agreement), it was al- Edgar Chua, former Chairman of the Shell companies in the cheaper in most of the ASEAN countries is ready observed that movement of crude and Philippines and current Chairman of Makati Business Club because they subsidize the cost of fuel be- finished petroleum products within ASEAN cause they are producers of crude, natural were at 0-rated duty. The energy sector is The Philippines needs to find that balance gas or coal. From their perspective, the oil, one of the first to have adopted this free between bringing down the cost of power gas, or coal is considered a product of their trade movement of products. and being conscious of the environmental country and the best way of pricing it is to The area in which the Philippines can impact of the kind of energy the country price it cheap for the benefit of the citizens. contribute would be in the renewable en- decides to use. While the Philippines has However, if one thinks about it, though the ergy space, given the country is quite ahead, an abundance of renewable sources of en- intention is good, it is actually the rich who especially in geothermal energy. There has ergy, e.g. hydro, geothermal, solar, wind get more benefits because the poor con- been a recent example where the assets of and biomass, there is a strong imperative to sume less energy than the rich. Chevron Geothermal, Indonesia was put up significantly bring down the cost of energy As such, the Philippine policy which for sale and three of the bidders had Philip- which actually favors lower cost hydrocar- benchmarks and follows international mar- pine partners. It was eventually sold to a bons, especially coal. The country must take ket pricing is more appropriate. The govern- consortium where one of the key members into account the externalities of each type of ment does not waste money subsidizing fuel is a Filipino company – Ayala Energy Corp. fuel and a carbon tax would be an option to and instead uses the funds to provide direct This transaction is a great example of the consider. This will also be consistent with support to the poor for social services like expertise of Philippine companies and how the country’s commitments to COP21. health, education, housing, etc. they are valued overseas. In other countries like Japan, power According to Secretary of Energy Alfonso cost is lower because they have a signifi- As a private sector player, what do you expect Cusi, foreign investors in the sector value cant amount of cheap nuclear power in their for the future of the sector? the efficiency of Filipino workers but they energy mix, especially before Fukushima. 65 The Worldfolio - ASEAN Energy & Power

The routes of Pilipinas Shell can be traced performers in a given station to motivate back to 1914 and the company has become an the employees. This provided them the op- important part of the Philippine energy sec- portunity to improve themselves and give tor. A big contributor to the economy is Shell them better opportunities. Shell provided Philippines Exploration (SPEX) and its Malam- the funding for the scholarships while the paya Deep Water Gas-to-Power Project which dealer allowed the employee to leave work jump-started the birth of the country’s natu- early to attend the classes with some dealers ral gas industry and provides approximately also providing a small allowance. 40-45 percent of Luzon’s power generation After graduation the person is free to requirements. Malampaya’s resources are choose if they want to stay at the station or projected to be exhausted within the next leave. More than 90 percent actually decide ten years. What are your alternatives for the to stay. From being a gasoline attendant, future and what may be the role of partner- some become mechanics, cashiers, book- ships in, for example, LNG with Osaka gas, keepers or supervisors. It does not stop considering your both interested in the LNG there, as Shell encourages them to continue facility in Batangas? to study part time and eventually earn a The ideal option would be to find more gas full degree. Instead of incurring cost to re- but there is no certainty more gas can be train new staff, the funds were invested on found after Malampaya. The alternative that scholarships and the benefits have definitely will definitely ensure continued supply of “While the Philippines been significant. gas is to import LNG. This will require set- has an abundance of Shell has also offered something simi- ting up LNG import facilities which should lar to drivers of its haulers. A number of start within the next year or two. renewable sources drivers actually leave to work overseas of energy, e.g. where pay is much higher as their main Your field of business is often seen as having hydro, geothermal, objective is to be able to fund the educa- mostly negative impacts on society and nature tion of their children. Because of this, Shell due to past incidents all over the world. How solar, wind and decided to organize a scholarship program would you say the Philippines and its people biomass, there is a for the children of top performing drivers so do actually benefit from your operations and strong imperative they would not have to leave the company would you be able to give us more insight and the country. While local salaries cannot into your approach to sustainability and to significantly match what is offered overseas, especially the most recent activities of Pilipinas Shell bring down the the Middle East, the advantage is they will Foundation? cost of energy not be separated from their families. This It is part of Shell’s business values and prin- scholarship program has also reduced the ciples to ensure that Shell’s operations do which actually turnover rate. not have any negative impact on the com- favors lower cost Shell has invested in many community munity and society in general, be it in terms hydrocarbons programs focusing on livelihood by teaching of safety, security, the environment, or the them about agriculture and improving farm- health of people. For Shell, it is a social in- especially coal. The ing methods, basic financial understanding vestment that will provide both short-term country must take and connecting them to the market. and/or long-term benefits. into account the Shell has also worked on health pro- The values are embedded in the way grams, one of the most significant being the Shell operates. For example, one of the externalities of Malaria program which has aided in reduc- problems Shell has encountered before, each type of fuel ing incidents and the mortality of malaria in involved the high turnover of the staff work- and a carbon tax the country by more than 90 percent. Shell ing in the retail outlets. They are not actual has received more than 70 million dollars employees of Shell, but employees of the would be an option from the Global Fund and has partnered dealer. Shell and the dealer invest greatly to consider. This will with the Department of Health, the World in training them to provide customer satis- also be consistent Health Organization and local government faction, e.g. checking the tire pressure, oil units in coming up with an effective pro- and brake fluids, cleaning of windshields, with the country’s gram. What Shell brought to the partnership etc. They must also be able to explain the commitments to was management tools, like how to analyze difference between the different grades COP21” a problem, root cause analysis and network- of fuel, their application and any ongoing ing and stakeholder engagements. promotion. Companies in the Philippines engage in The high turnover rate resulted in social investment because there is a great higher training costs and more problematic need for it and the government alone can- is the inconsistent service to the motorists. not handle it all. The private sector with As a way of addressing this, Shell provided its knowhow and resources can definitely technical vocational scholarships to the top play an important role in nation building. The Worldfolio - ASEAN 66 67 The Worldfolio - ASEAN Energy & Power

GROWING POWER DEMAND MEANS ‘MORE SPACE FOR OTHER COMPANIES TO COME IN’

Aboitiz Power Corporation is a leader in the Philippine electric power industry with a portfolio of assets located across the country. President and CEO, Antonio Moraza, discusses the power sector landscape in the Philippines, his company’s operations and its collaborations with Japanese and Norwegian partners

Japan and the Philippines are in a moment of high correlation. Japan is struggling to push up domestic consumption due to its aging popula- tion, while the Philippines has a strong and growing middle class. As a result, Japanese companies have to internationalize to expand their market opportunities; while the Philippines is fighting to attract more business to the nation. One of the key questions is the availability of resources (i.e. infrastructure, cheap and reliable energy, skilled workforce, etc.). In general terms, talking about power, is the Philip- pines ready to receive or accommodate foreign investments? As far as power is concerned, sufficiency is not an issue. There are numerous plants that have just come online and are still coming online. If potential investors are worried about the availability of power, I say do not worry. The supply is abundant at the moment, enough to sufficiently sustain us until 2027 or even longer. As to prices, they are gradually going down, but I doubt the Philippines will ever offer the lowest power costs. Given its geo- graphic characteristics, it is rather difficult if not impossible to offer the cheapest power costs. The size and physical characteristics of the Philippine grid limit plants’ size to smaller units especially in the Visayas and Mindanao regions. And smaller units mean higher cost per kilowatt/hour. However, there is a recent by Meralco study where the Philip- pines at one point used to be on top of the list of countries with the most expensive power. Recently it has gone down to the middle of the list. Because of the sufficiency, which may even be oversup- Antonio Moraza, President and CEO, Aboitiz Power Corporation ply, generation rates are coming down. It is important to point out that power seems to be the “boogeyman” – the one blamed for manufacturing companies not coming to the Philippines. From well and have products that are superior. But we partner with a lot a holistic point of view, power is normally a small component of of companies around the world. cost. I do not see how that, in itself, would discourage investment. Our partnerships reflect this diversity. For example, we have We have other issues affecting investment, such as the lack of Norwegian partners for hydropower and Japanese partners for adequate infrastructure, inland transportation costs and bureau- coal. Given that there are various good manufacturers all over cracy. All of these have to be addressed in order to make the country the world, we do not put special preference for one over the other. a more attractive manufacturing hub. Again, will the Philippines ever be a manufacturing hub? In my opinion, I could hardly see In terms of solar power, is there a movement among the conglomer- it. We have here a group of islands that make it difficult. In our ates to invest in this area? neighbouring countries, we see an interconnected land mass (i.e. If you refer to the irradiation map of the world, the Philippines is Vietnam, Myanmar, Thailand). How could we practically compete not the best location for harnessing solar energy. We are a tropical against this? country with very hot temperatures, but our weather tends to be very cloudy as well. However, as the costs go down, hopefully, solar Aboitiz is known to be counting with long-term partnerships with power would become competitive and would not require subsidies Japanese companies and other foreign counterparts. What are the main anymore. reasons for partnering with Nippon companies and how important are the technologies these partners bring in for increasing efficiency? Despite challenging geography and insufficient infrastructure, the As far as technology is concerned, we go all over the world. The Philippines still is an important generator of power. The expertise Japanese do have certain technologies that they manufacture very obtained through operating with these barriers gives you an advantage The Worldfolio - ASEAN 68 69 The Worldfolio - ASEAN Energy & Power

over developing countries such as Myanmar, “We are primarily In terms of the relationship between the Laos, or Cambodia. What are your main priori- Philippines and Japan, the latter has offered ties and opportunities in this regard? looking at hydropower a one-trillion-yen for the “Build, Build, Build” Before anything else, it is important to in the international program and other infrastructure projects point out that AboitizPower is not limited setting. We would within the Philippines. Do you expect more to power generation but is also involved in Japanese companies entering into the market power distribution. For example, we think like to operate in this as a result? we are good at the distribution aspect but we space, and our partner First of all, the relationship between Japan are limited. This is because looking around is the Norwegian and the Philippines has been strong for a ASEAN, most if not all utilities in the region long period of time. Moreover, Japan as a are government owned so it is difficult for government (SN supplier of equipment has also been here us to participate. Power). They are way before anyone else. The Philippines is about the only one very well-qualified When it comes to power generation, that has in effect a few privately-owned the Japanese are already here and are tap- distribution utilities. Until this ownership given that they ping the area. However, there is a lot of local structure in the region changes, it will be have approximately money too. The investment or the money difficult to go to other countries and tell the 15,000 megawatts of required for investing is also available lo- government that we can help. cally. The Japanese are investing more in So, the opportunity is in power genera- hydropower in Norway. power distribution. tion and that involves putting money into This also reflects the technology and using natural resources. amount of experience While there currently are several players in This is open to anyone and there is no real the domestic market, you have been mention- advantage for any one party. Thus, we are our partners have in ing the use of an M&A strategy due to the lack trying to get into spaces where we get a bet- this sector” of greenfield opportunities. Do you think that ter opportunity. the map of local power suppliers, providers and transporters is going to shrink? In a political sense, how risky is investment “Aboitiz has had joint In my opinion, that would probably be the in the power sector within the region? ventures in its history. natural tendency. The Philippines is that the Moving outside the Philippines bears a great The company actually country is growing. As a result, the power de- deal of risk. Each country has different prac- mand is likewise growing every year. Thus, tices and are governed by different laws, so had many of these. For there is more space for other companies to it is very difficult, and risky. us to do a joint venture come in. again, a company must With prices settling however, the one- In your opinion, do you think there will be plant operator is becoming less attractive. more regional integration in terms of the bring something to So, some may decide to sell some point in varying legal frameworks? the table aside from time. This does not necessarily mean it will It will definitely be very challenging because money. An example be easier to sell. We have good laws in the countries have different practices, laws, tra- Philippines that introduced competition ditions, or simply culture. It is rather im- would be technology and that is here to stay. Moreover, I do not possible to integrate all these differences among others if the see power prices spiking in the long-term. especially in legal terms. venturing company Therefore, it will be competition with advan- tages for the one who can keep costs down From your perspective and in terms of what will only contribute and build plants cheaply. the company is doing right now, what are cash, we might as well your main project priorities both locally and do it ourselves” For foreign investors or companies who would internationally? What countries provide the want to tap into the market, are there any op- biggest opportunities in hydropower? portunities for ventures with Aboitiz? Locally, greenfield is somewhat off the table. As I previously mentioned, we are not cap- There are too many plants, so it would main- So, we would like to look for spaces ital-constrained. Aboitiz has had joint ven- ly be acquisition in the event that something there. Unfortunately, hydropower is prob- tures in its history. The company actually becomes available. ably one of the power projects that have the had many of these. For us to do a joint ven- Meanwhile, we are primarily looking longest gestation. It could take years and ture again, a company must bring something at hydropower in the international setting. companies really have to be patient. to the table aside from money. An example We would like to operate in this space, and As to the countries that provide us with would be technology among others. This is our partner is the Norwegian government better opportunities in hydropower, this in- the reason why we partnered with the Nor- (SN Power). They are very well-qualified cludes Indonesia definitely. Both Myanmar wegians – we are fully equipped in the field given that they have approximately 15,000 and Vietnam have potentials as well, but we of hydropower both in terms of the know- megawatts of hydropower in Norway. This are at very early stages. Again, it would take how and the technology. But if the venturing also reflects the amount of experience our many years before we put our feet on the company will only contribute cash, we might partners have in this sector. ground and make investments. as well do it ourselves. Energy & Power The Worldfolio - ASEAN 70

CHALLENGES AND OPPORTUNITIES IN A NEW ERA IN THE PHILIPPINES

Ramon R. del Rosario, President and CEO of Philippine Investment Management, Inc. (Phinma), gives his perspective on the new government agenda, discusses ASEAN’s regional integration and touches on the Philippines competitive advantages for investors

What is your personal perspective on the Phil- ported items from various ASEAN countries. ippines’ macroeconomic position? How impor- However, it is a notion that has been accepted. tant are the government’s initiatives to achieve above 7-percent growth over next 2-5 years? Within the ASEAN region, what would you say Today, President Duterte has put in place a is the competitive advantage of the Philippines? very credible economic team as well, which Our young and growing middle class, our is respected by the private sector. In his case, trained workforce, and our ability to speak he put in a team who had experienced govern- English are three factors that are very impor- ment work in the past, or had experience in the tant. It has worked very well, and the classic private sector equivalent to being in govern- example is the growth of our BPO sector. It is ment. It is not a young cabinet; it is probably no longer just taking phone calls, it has become one of the oldest cabinets we have had. much higher quality now – we are doing in- Ramon R. del Rosario, President and CEO, Philippine At the outset, they announced the ten- Investment Management, Inc. telligence or knowledge-based work. You are point socioeconomic agenda, which was seeing more medical transcription work, as well-received by the private sector. One of its However, you can achieve greater degrees of well as software development. It is also a fact agenda is the stress on infrastructure develop- decentralization and giving more authority to that we already possess a very highly quali- ment, which was the one glaring item that was the other regions without necessarily shifting fied workforce that is well-educated, highly missing in the Aquino administration. While the form of government to federalism. Those trainable, and English-speaking. The middle the Aquino administration also aspired to put are, in my mind, two different things. In terms class with growing prosperity also makes us into place a lot of infrastructure projects, one of decentralization, you would see widespread an attractive market for investors looking at of the pitfalls was the slow phase of implemen- support from the business community. the Philippines. These ingredients coming tation. Due to the poor implementation, that together make us quite an attractive site for is one of the main reasons why the Aquino What is your perspective on how the ASEAN has investments for the rest of ASEAN. administration’s candidate did not win in the developed in terms of regional integration in last elections. the last 50 years, and in what aspects do you Considering Phinma’s business, how impor- With very high expectations also comes think the ASEAN community has not succeeded? tant will that be to attract technology into the the possibility of performing below expecta- As a general statement, let me say that the country’s power sector? tions – that is what remains to be seen. We are regional integration is still a very attractive It will be the answer for sure; we should be one year into the administration, and so far, idea in this part of the world. It is not a zero- open-minded, but it goes back to my point I would say that they have been doing good. sum game – everybody can win. It is a positive about opening our economy so that we at- However, there is a need to see the implemen- approach to economic development that has tract not only capital, but also talent. Maybe tation take more concrete shape, especially in paid off for so many of our countries. What the other way to put it is, in spite of our disad- infrastructure development. we need to do is look around and see how vantage in terms of energy costs, we are still the countries have benefitted from regional the fastest growing economy in ASEAN. There One of the major initiatives the administra- integration. That is the summary of why in must be other factors that make up the high tion is starting to put forward is the ‘Build this part of the world, it is not a notion that has costs of energy. First, there are many sectors Build Build’ Program, which is something become passé. It is still a very well-accepted where the cost of energy is a small part of the needed for the development of the Philippine notion, and it is something that will continue to overall cost. Second, the quality of the service economy; also the aim to decentralize the grow and develop as we move forward. you provide must be good. For instance, in the economy. How fast do you think the country The idea that we are a strong market and BPO sector, we have the second or third lowest can achieve these objectives? can negotiate with our partners has taken solid costs, but we make up for it by becoming more Those are big challenges, and the Philippines hold. The most important thing is that if ev- efficient or pleasant. It is not possible for us to has traditionally been centralized. It makes erybody benefits from it, there is nobody who have all of the advantages in all the sectors. sense to try and decentralize decision-making will argue against it. I am not saying that every Unfortunately, the cost of power is still one quite a bit, but I am not for shifting to a federal single person in every country has benefitted of the factors where we have not found the type of government, because there are many from it. I am sure that in every country there solution. To a certain extent, if we can attract pitfalls. It needs to be studied much more are portions of the population who feel like more technology to come in, by all means we carefully before we make a too drastic shift. they are threatened due to the entry of im- should exploit it. 71 The Worldfolio - ASEAN ICT

A THREE-POINT PLAN FOR ICT

Secretary Rodolfo A. Salalima of the Department of ICT says the government has three priority areas for ICT: expanding the broadband network with public free Wi-Fi; E-Government, with the introduction of the integrated online government portal; and moving the BPO services to the countryside

Could you please share your views on the BPO services”. BPO generated revenues of impact that the government’s 10-point eco- around $22 billion in 2015 in the Philippines, nomic plan and the National Broadband Plan creating 1.3 million jobs. We plan to double are producing in the ICT sector? the number of BPO by 2022 so that the rev- All the government plans on the ICT sec- enues from this sector will be higher than tor are managed by our Department and the revenues sent by the overseas Filipino we have focused them on creating an easy workers. business environment in the country. Access to communications is a human right and we Japanese companies are very keen to expand see it as an essential service for our people. their business in the Philippines. What is We are looking forward to fulfilling our the trigger for that; why do you think Japa- objective of building the necessary infra- nese companies have such an interest in this structure in the Philippines. The president Secretary Rodolfo A. Salalima, Department of ICT country? has ordered us to achieve three things: the I think it is a mixture of different factors: broadband network with free public Wi-Fi; cause of the globalized economy that we are we have a strategic location; our population e-Government, with the integrated online already living in. Our country alone might speaks English and we can boast of having government portal; and moving the BPO not be able to compete in the international good engineers. In some other countries, services to the countryside since they are arena as strongly as we can as part of the this might also be true, however, we are too concentrated in metro Manila. ASEAN so I see this regionalization as a very close to our client markets which makes I want to create a BPO summit to be positive measure. This is our chance to be it easier to adapt to the strict working re- prepared for this evolution of the sector. really competitive. quirements that Japanese companies usu- This will include all the stakeholders in the ally have. BPO services and related business because In this regionalization, the country has es- they are also important. For example, I was tablished a long-lasting relationship with I would like to get a bit deeper into the na- talking recently to an American company Japan. What are the synergies between both tional broadband project because it is a very that wants to localize its BPO services here countries that you would highlight? ambitious project. How is the Government and we agreed that before they settle we It is clear that countries like India, China, going to finance it? Is there room for public- will have to inform technical schools in the and of course Japan, are seeing the potential private partnerships (PPPs) in it? area so that they can prepare the workforce of the ASEAN. I would like to highlight the Yes, there are PPPs – funding from other for them. funding, which is very important, but also countries and the World Bank and some pri- We are also implementing the project the knowledge that Japan brings since it is vate companies that want to be partners in ‘Tech4ed’, which is designed to support em- more advanced technologically and we can the management of the broadband. There powerment through educational technol- learn from them. are tenders from Europe, China, and others. ogy. We have 8 offices around the country For example, recently we welcomed We are not starting from scratch because and we want to expand that to 17 to reach all the Japanese Minister of ICT because we we are connected to the national power grid the regions. We conduct seminars for people were doing the transition from analogue that has a telecommunications network within the government and outside so they to digital TV using the Japanese standard. which is not fully utilized. We will be able can learn how to implement IT solutions in to use around 10,500 fiber-optic cables. their day-to-day. Being at the forefront of the Fourth Indus- This is also intended to reach the un- trial Revolution and investing in broadband You have been in the ICT sector a long time employed so they can get the skills to finally infrastructure could benefit the Philippines and representing the country all over the find a job. greatly, considering that each 10-percent world. With this experience in mind, what increase in digitalization and broadband is the legacy that you would like to leave as The Government is making efforts to facilitate penetration increases GDP growth by 1.38 Secretary of ICT? money inflow to the country, with initiatives percent, according to World Bank data. How I would like to leave a good digital infra- like the economic zones or bilateral agree- can the Philippines be a leading country in structure for my country and train and cre- ments to attract overseas development aid. terms of ICT? ate a citizenry to be functional and digitally What is the significance of regional integra- Nowadays India is the number one in literate. Because as I said before, everyone tion when talking about ICT? global BPO with the Philippines in second has the right to communicate and have ac- Regional integration is very important be- place, but we are already leading in “voice cess to information. ICT The Worldfolio - ASEAN 72

GLOBE TELECOM DRIVES GROWTH OF DIGITAL ECONOMY

Globe Telecom is one of the two major players in the Philippine telco market. Mr. Ernest Cu, President and CEO of Globe Telecom, sat down with The Worldfolio to discuss how Globe is driving the growth of the digital economy by acting as a “conduit” for e-Financial services, entertainment services and e-Commerce; as well also supporting local film producers with the establishment of Globe Studios

With the existence of a duopoly in the tele- very difficult. Retailers are scrambling to get coms market, there is the notion that Globe coins to give out as change. Coins are actually offers services at a higher cost. But you have the most inconvenient medium of payment. mentioned that Globe is implementing various So, we want cash to be ready. That is why promotions to make the cost lower. How do we chose a partner like Alipay who will help us your costs compare to other regional players? bring the investment here into the Philippines. From a regional level, I believe we are one of Today, we have less than a million active users the companies offering the lowest per-gigabyte and we want to achieve 20 times this number in mobile data pricing. Fixed line is a completely five years. The vision is to have a street vendor different story. On the mobile data aspect, we and a usual department store to have the same believe that our pricing is at the lower quartile capability of accepting payments. in Southeast Asia. Mr. Ernest Cu, President and CEO, Globe Telecom This technology could then eliminate the This is another falsity about duopolies – vendor’s burden of dealing with cash every day. people think a duopoly is unable to price in a else can we flow into this pipe? This is how we In relation to this, Globe will also be able to re- competitive manner. However, if the prices of see our business, because if you only focus on trieve data regarding payments received. This Globe are not competitive, we could not have telco, you only have one product, data. How data coupled with the vendor’s telco loading gained market share. uninteresting is that for a company that is a could then be used by Globe as credit scores to consumer brand? lend the vendor more working capital to help We see that Globe has been partnering with That is why we tried to repurpose our dis- in the business. Just think about the power of foreign players, such as Chinese business tribution system into many different things. this strategy, which by the way we are already magnate Jack Ma, to diversify its services This is also the reason why content flows doing. This creates a new business. and portfolio. Could you tell us more about through it now. If you look at Globe, it is a On the content side, it is a different strate- your diversification into Fintech and other conduit for Disney, NBA, and Netflix. Among gy. We notice a major shift going on with regard subsectors and why it is important for the the opportunities is becoming a conduit for to consumer habits. Nobody watches linear TV Globe to keep innovating? financial services, data analytics service, or nowadays. At least for young individuals 25 What we do at Globe is truly understand what marketing services. We need to think of our years and below, there is a very limited por- our assets are. The Globe distribution system business in an innovative manner because tion of those who watch linear TV. With this is a very robust system, having one million sooner or later, call and text may be gone. change, we aim to take the revenue per user points where you can buy prepaid credits and (RPU) that is coming from cable and take it we have more than 300 stores. We also have What is your approach or strategy in terms of into broadband. To be able to do this, we need a very good marketing machine. attracting content partnerships and finance- to bring a lot of content to bear. For example, Another factor is data. We have sheer related deals as well? we want to bring the content of Netflix to more amounts of data about our consumers, both On the Fintech side: only 2 percent of the segments. Thus, we need to integrate Filipino anonymous and specific. Putting these to- population have credit cards and 86 percent content into it. The problem with this is that gether we are able to infer on areas where are without bank accounts—the opportunity Filipino content is controlled by large cable we can be active. lies there. companies. To address this challenge, we Financial inclusion is another consider- In China, we can see very quickly how have created Globe Studios. This studio sup- ation, looking at consumer needs. Eighty-six things could change when they used cards ports independent film producers to prosper percent of the population is unbanked, and for people to eliminate cash and everything in this country. We are trying to reignite local we have the distribution to reach them. So, becomes more convenient. The market is get- filmmaking through sponsoring their projects it became a very interesting business for us ting ripe for this phenomenon as e-commerce that we can now present to our partners and for the last eight to ten years. Now, we finally comes into play. In the Philippines, can you eventually include in Netflix. We have one TV realize it is time to scale up. imagine e-commerce companies servicing series and a few movies in production. From If you look at it from the perspective of their deliveries on a COD, or cash-on-delivery, being merely a telco company, Globe is strat- having a retail footprint, a distribution foot- basis? At the same time, banks are hesitant to egizing and incorporating content creation as print, and a good marketing channel—what give out coins—you have to pay for them. It is a media company. 73 The Worldfolio - ASEAN ICT

PLDT SME NATION SUPPORTS DIGITALIZATION OF MSMEs

Mitch Locsin, Vice President PLDT SME Nation, discusses the growing ICT landscape in the Philippines and how his company is helping Filipino MSMEs to get online and embrace e-commerce

What are your expectations regarding the new broadband and mobility solutions to more administration goals, such as the 10-point so- sophisticated enterprise-level ICT and Cloud cioeconomic agenda, particularly in the ICT services etc. As such, where did the idea of and Telecom Sector? establishing a specialized SME arm in PLDT’s In relation to the SME industry, these ini- operations originate? tiatives are a big help since they focus on PLDT SME Nation began nine years ago. inclusive growth. The administration’s pro- We were just referred to as the Corporate grams are devoted to ensure that the rest of Business Group (CBG) of the company. the country benefits, not just Metro Manila This CBG has always been the dominant or Cebu City for example. enterprise group carrying our PLDT Fixed, I believe that these initiatives of the Smart Wireless, ePLDT ICT services and current government are poised to spur a solutions to the enterprises in the country. lot of growth. Among its other benefits are Thus, there was a conscious effort that if increasing awareness on MSMEs and pro- we were to give more attention to the do- viding help in fueling this industry. In most mestic market, we really need to focus on of the programs, whether it be in agriculture the MSMEs as well. Since then, PLDT SME or SMEs, one can observe that everybody is Nation has been growing by double digits really working together. every year. Mitch Locsin, Vice President of PLDT SME Nation Our growth may be attributed to the One of the main goals of the government is large customer base. Micro enterprises actually to stimulate development through ing more than 7,000 islands. Compared to alone average 500,000, the small players regional integration. What benefits does it our neighboring countries like Thailand, around 90,000, and the medium players are bring to the SME and ICT sectors? Vietnam, or Singapore, it is different. From close to 5,000. As a result, PLDT SME Nation The government’s current approach is an infrastructure perspective, it is difficult. is organized per geography. very effective. Measuring the Philippines As a result, telecommunications com- The corporate relationships manage- in a per-area basis, whether it is the market panies need to lay down fiber that cuts ment group is the one enabling the SMEs share or adaptability to the Internet, there across the country with multiple rings of to adapt more to ICT and digital solutions. has been a growth spike, especially in the redundancy. For example, for PLDT alone, PLDT Alpha, handles the top 5,000 corpo- Visayas and Mindanao regions, in the past we have more than 3 million kilometers of rations and conglomerates in the country. year and a half. fiber optic cable in our domestic network, SMEs adapting more to the cloud. This Businesses from those regions are not with a capacity of 7.42 Tbps. is more agile, flexible, and affordable, thus, only competing with those from Luzon, they Just recently we were dubbed as the making it possible to compete with bigger are surpassing them. This is a very good “texting capital of the world”. But this has companies. The SMEs are more inclined example of inclusive growth. It shows that changed completely. From being a ‘call- to acquire machine-to-machine (M2M) so- these regions are getting more equipped to and-text’ country, we transformed into a lutions. These are the asset-management spur growth for the SME industries. data-driven country. Thus, telecommuni- tracker solutions. These players adapt more cation companies have had to completely quickly to these solutions. Investment in broadband and telecommuni- change their network infrastructure from The second team is the acquisitions cation infrastructure could benefit the Phil- being previously designed for voice and text team. We continuously have to acquire new ippines greatly. How do you see the Philip- into a data-driven network. With the tech- customers because year after year there pines evolving in this context and how can the nologies changing rapidly, from 2G to 3G to are new companies popping up. There is a Philippines become a major business enabler 4G – and we are talking about 5G already community engagement group. They are through increased broadband penetration and – our investment in network expansion is the ones who put the word out, promote e- digitalization? massive and unprecedented. commerce or cloud solutions, and organize In relation to the telecommunications and around a hundred events a month. These ICT industry in the country, the Philippines PLDT SME Nation has been providing en- are the mind-shaping and brand-improving is one of those unique countries that has a trepreneurs with technologies suited for events in where we include our big players big challenge given its geography of hav- their needs – from business-enabling voice, to become our ambassadors and mentors. Electronic Manufacturing The Worldfolio - ASEAN 74 NO LONGER A MERE CONTRACT ELECTRONICS MANUFACTURER thanks to their excellent transport connections, reliable power sup- ply, talented workforce, tax incentives and special regulations. The The Philippines aims to become a regional Government’s infrastructure development program should also help to drive manufacturing growth to other parts of the country, in leader in electronics innovation and R&D, with line with its plan to boost inclusive development. the support of both Japanese investors “We would be willing to support high quality infrastructure and domestic companies like Integrated projects. We are also supporting Japanese investment both large Micro-Electronics Inc. and small to medium-scale investments. These will be very impor- tant and beneficial in building up the manufacturing sector, espe- The Philippines’ electronics industry was born in the mid-1970s, as cially supporting industries, of the Philippines. It is likewise signifi- companies from industrialized nations such as the U.S. and Japan cant in creating better and more sustainable jobs in the country,” began to relocate their production facilities to developing coun- says Mr. Seigo Baba, a chief representative of the Japan Bank for tries, or outsourcing production to local electronics contract manu- International Cooperation in Manila. facturers. Since then the industry has grown impressively, and to- “Based on the ‘Survey on Overseas Business Operations by day electronics and electrical machinery and components make up Japanese Manufacturing Companies’, which we conduct once a over half of the Philippines’ exports. year asking Japanese companies having more than three factories The Philippine semiconductors and electronics industry spe- or operations abroad, the Philippines is ranked top 10 among coun- cializes in manufacturing assembly, testing, packaging and distri- tries or locations abroad where Japanese companies sees invest- bution. The country has been a preferred outsourcing destination ment opportunity in coming 3 to 5 years.” for many Japanese electronics firms, including Canon, Fujifilm, While the Philippines will continue to be an outsourcing des- Furukawa Electric and Murata Engineering. tination for Japanese and other international electronics manu- The further potential for the industry remains high, as the facturers, it is determined to transform its image as a mere out- country intends to move to higher value-added manufacturing to sourcing destination, to that of a regional leader in high technology, meet global demand. Electronics manufacturers plan to improve innovation and R&D. One pillar of the ‘0+10-Point Socioeconomic current production capacities, to expand current research and de- Agenda’ is focused on promoting science and technology to en- velopment and design capabilities, and to further develop the labor hance innovation and creative capacity towards self-sustaining, force over the next several years. inclusive development – a goal which will be supported by compa- “With the high-end products and technology being developed nies like Integrated Micro-Electronics Inc. (IMI). by the Japanese which are brought here, there becomes a transfer “Although the country has been evolving significantly, the is- of technology occurring between the two countries. In this context, sue that we are facing now is that the Philippines has remained in the Philippines will be able to sustain progress because we could that role of a simple contract manufacturer,” says Arthur Tan, CEO adopt these technologies and do the manufacturing ourselves,” of (IMI) a subsidiary of Ayala Corp. says Emmanuel D. Pineda, Chairman and Administrator of Author- “It is true that we are still very active in contract manufacturing ity of the Freeport Area of Bataan. but it has become less about assembly work and more about engi- The industry is working to drive up the semiconductor and neering to a level where new processes that are developed here have electronics manufacturing index of the country by identifying cus- been transferred to Japan. It is now a challenge to change the per- tomers’ needs, understand suppliers’ baseline, develop relevant ception about the Philippines as being just a contract manufacturer.” capabilities, match industry supply and demand, and conduct IMI has been engaged in contract electronics manufacturing periodic assessment of its performance. In addition, the industry since the early 80s and has several Japanese clients, but has since recommends that the government continue with its scholarship evolved to become a leading global electronics company. program for operators and technicians, improving the country’s “We have been one of the pioneers in contract manufactur- business environment, conducting R&D capability development, ing and were able to evolve with different technology trends and and aggressively promoting local industries and SMEs through in- develop the economy,” says Mr. Tan. “After many years of scaling vestment missions abroad. up our engineering, we are now able to produce and develop new Undoubtedly infrastructure challenges can be a deterrent product processes that can be exported to other countries.” for manufacturers, something that is now being addressed under “Companies in the U.S. that used to just do back-end assem- President Rodrigo’s $180 billion infrastructure program. But special bly work here have recognized our potential,” he adds. “They have economic zones such as Subic Bay and Clark Economic Zone have transitioned to front-end R&D and design work for products that been able to attract several investors, including many from Japan, are released globally. I think Japan Inc. should take notice of this.” 75 The Worldfolio - ASEAN Electronic Manufacturing The Worldfolio - ASEAN 76

DRIVING INNOVATION TO BECOME A GLOBAL PLAYER

Integrated Micro-Electronics, Inc., also known as IMI, is one of the leading global providers of electronics manufacturing services (EMS) and power semiconductor assembly and test services (SATS) in the world. CEO, Arthur Tan, speaks to The Worldfolio about industrialization in the Philippines and IMI’s business operations

Many Japanese companies that compete with and the rest of the world. Therefore, there South Korea and China specifically on price will be some economic growth that will need offering, are starting to shift manufacturing to be served. Serbia is one of the only coun- plans outside of Japan but are keeping R&D tries that has FTAs that cover both Russia and in the country, meaning that they are mov- Europe, so we are poised to produce there. ing their assembly plants to the ASEAN. What Similar goes for our operations in Mexico other synergies besides bringing the cost of and a small facility in California. the product down do you see for the Japanese and Philippine manufacturing industry? Additionally, to what you have already men- The change in the way the products are being tioned, having worked with the Japanese for consumed will drive that discussion. The cost many years and knowing how they pay a lot of bringing the assembly over to the Philip- of attention to the manufacturing process and pines based only on cost is not sustainable. how protective they often are of it, how did There has to be another value added to it. Arthur Tan, CEO of Integrated Micro-Electronics, Inc. you manage to penetrate that market and what We realized that in general, there are is it that you bring to your Japanese clients few differences among popular products. If will come next for IMI in the international that they cannot find domestically? we take the iPhone as an example, Steve Jobs arena to consolidate your position? I have to give credit to the ones before me. figured that out and as a result he created the When I joined the company in 2001, it was the When I arrived, we were already predomi- iPhone. When you set a manufacturing pro- largest Filipino manufacturer of Japanese nantly doing business with Japan. I real- cess based on one product, one colour, one products. It already had the quality manufac- ize that the companies that work with IMI button and then you multiply that by millions, turing label that the Japanese would accept see that the company reflects the integrity, you can operate on a different manufactur- even though it was a Filipino-run company. trustworthiness and longevity of the Ayala ing scale. Japan has been doing that so well Unfortunately, it only operated in the Phil- Group. The other thing that often is not using robotics automation. ippines. For me to acquire new costumers highlighted enough is the community side Nevertheless, the consumer market and grow, the challenge was not just to con- of the business. It is utterly important to take does not want the same product for every- vince them that the company was capable of care of your people and the nation and to body. Even Apple had to adapt to that and producing their next generation products or make sure that you are protecting the en- started producing many different iPhones enable the evolution of their manufacturing, vironment by working in a sustainable way with different colours. This means that if but also to convince them to build those in the with the resources that you are consuming. your core competencies lie solely in pure Philippines. From 2005 onwards, we began When we started, we did not have the automation, you cannot compete with some- to deploy Filipino talent in other countries. skillset that we have now and I have to one who can shift on demand. This is what This seems to play in our favor even give credit to our Japanese partners who the Philippines thrives on. We are such an more now, as today you have to have a va- gave us the knowledge-based training innovative and creative culture, that we can riety of some products that have been built that allowed us to get where we are today. manage this transition of working on a hy- in the actual country where it is going to be The same thing happened to many other brid situation with some level of automation consumed. companies and yet they have not evolved. and some level of highly-skilled work. The IMI holds on to this particular business Therefore, credit goes to the management combination of both is what will make you strategy, and that is the reason we are now team of IMI and the support from Ayala succeed. capable of producing in all the major mar- Corporation to see beyond our capabili- kets, taking advantage of individual FTAs. ties of just producing parts profitably and As one of the leading global providers of Recently, we started building in Serbia, and adopting a long-term vision, to make a electronics manufacturing services Inte- the site is set to be operational by 2018. Why difference and grow as a part of the value grated Electronics proudly represents the Serbia? Because Eastern Europeans are go- chain. Besides providing employment we Philippine electronics industry. Could you ing to experience demographic growth and want to be a part of the products and in- walk us through the key milestones which beyond that we feel that there will be a nor- novation that can be seen in the world and have made this success possible and what malization of economic policies with Russia become a global player. 77 The Worldfolio - ASEAN Tourism The Worldfolio - ASEAN 78

THE ASEAN’S GAMING HUB

The Philippine Amusement and Gaming Corporation (PAGCOR) is the regulator of the Philippines thriving gaming industry. In this interview, Chairwoman and CEO, Andrea D. Domingo, speaks about how PAGCOR contributes to the socioeconomic development of the country

In May, 2016 president Rodrigo Duterte was elected with more than 39% of the vote giving him a 15-point victory over the second best performing candidate. The people of the Philippines truly believe in the message of social inclusiveness, economic decentralization and social order; as shown by his 91 percent approval rating shortly after the election. What would be your analysis of the election results and what were the main drivers behind it? When we had a meeting with all the campaign leaders and we always felt that introducing Rodrigo Duterte to the public was a lot easier than other candidates. He seemed like a magnet, he would attract voters because he has the charisma. He is so real and so different from the other candidates and that is what makes him special. People were saying “we need a working man, we need someone like us”. He has the ability to talk to the people and find the basis of what they need. He was able to gain an exclusive right to fight crime, drugs, corruption, right from the beginning. Nobody else had the vision of doing it and knew how to solve it permanently. People got tired of people with prestigious family names and foreign education and seeing that things didn’t change. So, when he first thought about it, he was reluctant but saw that he had to do it because he understood he could be the solution to our problems. I’ve seen many presidents and I think that he is the kind of man that we need at this point in our history.

How important is social inclusion and economic decentralization for the Philippines and what role does PAGCOR play in contributing to it? We are a very religious country so in 1983 there was a lot of debate about gambling and we decided to legalise it, put some taxes on it and take profit to use it for social civic programs. In our mandate, there is a specified use for the money that PAGCOR collects and it is to fund social development projects. We opted for this option instead of making it illegal and giv- Andrea D. Domingo, Chairwoman and CEO, PAGCOR ing room to illegal gambling lords. My vision is that in the end when you work for PAGCOR or for a casino you are working for only allow projects that have 20-30 percent of their total area the poor man that can’t afford medicines or the orphans that as the casino. The rest has to be restaurants, shops, rooms and need education. other leisure spaces.

The amusement and gaming industry a is a very important pillar of How will you contribute to the country’s tourism goal of reaching the economy already and in 2017 the sector expects $3 billion revenue. 12 million visitors by 2020? Yes, that is 155 billion pesos, from which we would collect around To contribute to tourism, we are focusing on Entertainment City so 65 billion pesos. There are three criteria that we control. First is that when people think of going to Las Vegas they can also come how we regulate the sector, second, how we collect taxes, and here, which is much cheaper for them, especially for the ASEAN third, what have we do for social development with that money. nationals. We are working very hard on providing a personal touch We have to regulate so there is control and not a wild prolifera- and great service to customers so that they feel most welcomed. tion. We do not allow e-gaming, there are certain rules on where Because of our historic relation with foreign countries, we are can you establish a casino or a gaming facility. We are careful very used to sharing with foreigners, there is no discrimination on where and how we allow casinos to open. That is why we are at all in the Philippines and we think that our Asian culture and working on integrated casinos with hotels and entertainment so values are very appreciated because we know how to combine that we have a combination of tourism, gaming and leisure. We that with the understanding of the occidental way of thinking. 79 The Worldfolio - ASEAN Tourism

We are naturally a good cross-cultural “There are three was more risk and they chose to trust the society. Our overseas Filipino workers also Philippines. It wouldn’t be wise for us to bring back a lot of knowledge that stays criteria that we jeopardize their operations. here and helps cultural integration. That control. First is how We see a lot of people willing to come is one of our strong points when attracting we regulate the in but we want to grow organically and cre- tourism, everyone can feel at home here. ate a sustainable sector. Now with Okada sector, second, how coming in with $2.2 billion and employing How do you see the Philippine gaming sec- we collect taxes, over 7,000 people, we don’t want people like tor in comparison with other neighbouring and third, what have this to get scared by welcoming every other countries? project that applies so we are very selective. We have been in this for a long time, I know we do for social Entertainment city is technically full there are some countries that are nowadays development with but in other regions, we are looking for developing gaming but it takes a long time that money” options so we can open some licenses. to be like us. Our government does not put For us it is very important to analyze a single peso in us, we are the third largest the quality of those companies and what revenue generating body in the Philippines. “The benefit of services they are going to provide but also The Philippine entrepreneurial spirit having the 44 owned the kind of people behind them. We don’t is the reason why we have grown so much want anyone with a criminal record, we in this time, we have been fighting every casinos is that check all applicants to avoid fraud, and year and now we know the business very when you analyse that includes the ones that already have well because we have grown with it. We the revenues, licenses, if they don’t successfully pass the are mature. report they will see their license revoked. I see the Philippine gaming and amuse- you can see how There is also an independent audit of all ment sector as strong. We are managing all they contribute casinos and online gaming companies. our 44 casinos, we are regulating the opera- to our country. tion of the private casinos which are now 11, With the recent approval for the entertain- so I think we know how to run the sector. 72 percent of our ment business in Japan, the opening of a income actually potential $25 Billion market could become a PAGCOR had a very good year in 2016 with a goes directly to reality very soon. How do you see the syner- growth in revenues of 16 percent compared gies that PAGCOR and Japanese market can to 2015. How do your 11 licensees actually other government establish? contribute to that growth compared with institutions. Part I am sure there will appear some synergies the 44 PAGCOR casinos? of this is what we as in manpower exchange, information and They contribute a larger portion. The ben- knowledge exchange. Our mandate says efit of having the 44 owned casinos is that recently remitted clearly that we operate in the Philippines when you analyse the revenues, you can see to the office of the and we should analyse the legal possibili- how they contribute to our country. 72 per- president in the ties in the future but it is not a thing that cent of our income actually goes directly to we have in mind yet. other government institutions. Part of this is amount of 5 billion We have already rejected a proposal what we recently remitted to the office of the pesos, for which 1 from another country to manage their sec- president in the amount of 5 billion pesos, billion pesos was tor. Since we have not reached our maxi- for which 1 billion pesos was allotted for free mum here in the Philippines, we have medicines, 3 billion pesos for free hospital allotted for free enough to care about and better concen- care and the another billion for subsidies to medicines, 3 billion trate and keep doing it as well as we do. families of police who were either killed or pesos for free But of course, we would be happy to wounded. Only the remaining 28 percent is share our experience and knowledge in used for our operating expenses. hospital care and management with the Japanese. Mandated contributions are defined the another billion by law and this is very unique. But. we are for subsidies to In a more personal approach, what would be happy to give back to the people. the effect that you want to produce as Chair- families of police man and CEO of PAGCOR? Are you planning on getting more licensees? who were either When the President nominated me for the Is there room for international companies to killed or wounded. position he only told me two things: that we come and invest in the sector? needed a level playing field for the sector Attracting other licensees is something Only the remaining and we needed to eliminate corruption. And that happens, even if we don’t advertise; 28 percent is used he gave me advice on that, he said, “When we have a lot of companies applying. We for our operating you don’t know what to do, just read the law are very careful about what we approve and follow it.” I think that those two will be because we are grateful to the ones that expenses” two very good goals that I want to achieve came when this was starting when there and it would be great for any other sector too. Tourism The Worldfolio - ASEAN 80 TOURISM ARRIVALS TO REACH A RECORD 7M THIS YEAR, AS INDUSTRY INVESTMENTS CONTINUE TO GROW

Tourism numbers in the Philippines have risen steadily in recent years and are expected to reach a record 7 million by the end of this year. The government has laid out it’s roadmap for the sector in the National Tourism Development Plan 2016-2020, which aims to make tourism a key economic engine and generator of jobs across the country, in line with President Duterte’s plan for inclusive growth and economic decentralization

The Philippines is made up of over 7,000 ronmental protection, we cannot ensure islands teeming with biodiversity, rang- sustainable growth of the tourism industry ing from tropical rain forests, mangroves, nor reap its economic benefits,” explains and coral reefs to mountain ranges and Secretary Teo. sandy-white beaches. Aside from its natu- As part of the Plan, 20 tourism clus- ral sites of striking beauty, it is also known ters, nine gateway clusters and 49 devel- for its rich history, colourful culture and opment areas will be established. Building fun-loving, friendly people. And while it international airports to increase arrival may not match Thailand in terms of visi- capacity is also a vital part of the plan tor numbers, it certainly matches – if not to boost tourism and economic growth surpasses – its regional competitor in the across the nation. beauty stakes. “As envisioned in our NTDP, second- But the numbers are growing, making ary airports will be upgraded to address investment in the budding tourism indus- air traffic congestion in Manila, and to dis- try an interesting proposition for foreign perse the benefits of tourism to the coun- investors, and an alternative to less satu- tryside,” adds Secretary Teo. rated markets like Thailand. In the first half of 2017, the Philippines received 3.35 Award-winning beauty million foreign visitors, an 11 percent in- The nation has reaped numerous tourism crease over the same period in 2016, and Wanda Corazon Teo, Secretary of Tourism awards in recent years, including the 2013 that figure is expected to reach a record 7 Rising Star in Tourism by the World Eco- million by the end of the year, increasing of the Filipino economy. The government nomic Forum. It was also named among to more than 10 million by 2027. has made tourism development a priority the top 10 hottest new travel destinations “In the face of challenges, the coun- in its goal to build inclusive growth, and by Condé Nast Traveller and one of the try continues to receive a growing influx aims to invest in tourism and transport hottest travel destinations by Travel & Lei- of tourists from across the globe, desiring infrastructure to bring much needed eco- sure Magazine in 2013. to see our world-class destinations and nomic activity and jobs to poorer regions. Individual islands have also been sin- experience the renowned Filipino hospi- The vision, laid out in The National gled out for recognition. TripAdvisor.com tality,” says Secretary of Tourism, Wanda Tourism Development Plan (NTDP) 2016- named Boracay Island, in Aklan province, Corazon Teo. 2020, is to develop a highly competitive, the best beach in Asia in 2013, and was se- “We would like to close the year environmentally sustainable and socially lected that same year as the top destina- strongly for the tourism industry in terms responsible tourism that promotes inclu- tion for relaxation by Agoda.com. Palawan of visitor arrivals and carry the momen- sive growth. was voted the best island in the world in tum into the coming year.” “With the Philippines’ diversely- 2013 by Travel & Leisure Magazine, one Contributing 8 percent to GDP and rich natural environment, Filipinos offer of the 10 best-value travel destinations for employing 5.5 percent of the workforce, our guests ultimate fun experiences. But 2014 by Lonely Planet, and the fourth best the tourism industry is an important pillar without collaborated measures on envi- holiday destination by Smart Travel Asia. 81 The Worldfolio - ASEAN Tourism

“In the face of challenges, the country continues to receive a growing influx of tourists from across the globe, desiring to see our world-class destinations and experience the renowned Filipino hospitality”

Wanda Corazon Teo, Secretary of Tourism Tourism The Worldfolio - ASEAN 82

The Tubbataha Reefs Natural Park “WITH THE PHILIPPINES’ dustry, PAGCOR CEO and Chairperson, is not only a UNESCO World Heritage Andrea D. Domingo, says, “We are care- DIVERSELY-RICH site but was declared an ASEAN Heritage ful on where and how we allow casinos Park in November 2015 and was dubbed NATURAL ENVIRONMENT, to open. That is why we are working on the world’s eighth best site for diving by FILIPINOS OFFER OUR integrated casinos with hotels and enter- CNNGO.com. And the surfing capital of tainment so that we have a combination GUESTS ULTIMATE FUN the Philippines, Siargao, was voted the 9th of tourism, gaming and leisure. We only best surf spot on the planet by CNN Travel. EXPERIENCES. BUT allow projects with a 20 to 30 percent of WITHOUT COLLABORATED their total area as the casino; the rest has Gaming and Casinos to be restaurants, shops, rooms and other MEASURES ON China is the number one source of tour- leisure spaces.” ists for the Philippines, many of whom are ENVIRONMENTAL PAGCOR is behind one of the coun- drawn by the nation’s gaming and casino PROTECTION, WE CANNOT try’s most exciting developments, Enter- resorts. The gaming and casino industry tainment City, a 44-hectare gaming and ENSURE SUSTAINABLE continues to witness impressive growth, entertainment complex under develop- with total gaming revenues in 2016 in- GROWTH OF THE ment along Manila Bay that will be a ma- creasing by 22.9 percent to 53.31 billion TOURISM INDUSTRY jor draw for visitors to the capital. pesos ($1 billion). “We are focusing on Entertainment NOR REAP ITS Under the direction of the Philippine City so that when people think of going to Amusement and Gaming Corporation ECONOMIC BENEFITS” Las Vegas they can also come here, which (PAGCOR), the gaming industry regulator is much cheaper for them, especially for and operator of 13 casinos, the Philippines Wanda Corazon Teo, the ASEAN nationals,” explains Ms. Do- aims to become a gaming and casino hub mingo. “We are working very hard on to rival the ‘Las Vegas of Asia’, Macao. Secretary of Tourism providing a personal touch and great ser- But careful of the controversy and vice to customers so that they feel most reputation surround the gambling in- welcomed.” 83 The Worldfolio - ASEAN The Worldfolio - ASEAN 84 85 The Worldfolio - ASEAN Tourism

IMPROVING QUALITY OF LIFE STARTS WITH HEALTHCARE

The Duterte administration is determined to increase the Filipino quality of life and improve healthcare. The Worldfolio discusses the new administration’s vision with Secretary of Health Dr. Rosell-Ubial

It is very interesting to see how you are group of doctors who would like to put up building synergies with other countries in ex- a Filipino-owned hospital in Doha, Qatar. change of knowledge. Considering the admin- Many of the Filipinos that are working there, istration’s move to more regional integration, are earning quite decent salaries. However, what synergies do you have with countries when they need medical services, they come like Japan or other Asian countries? How do back here to get treated. With that first ini- you compare your health system with those tiative, we’re trying to see a future where countries? we have a Filipino hospital in many of the In terms of the synergies, there is a lot of Middle Eastern countries, that can cater to potential for Japanese companies that pro- the extensive population of OFWs (overseas duce vaccines. We used to have a budget of Filipino workers) there. less than 3 billion pesos ($58 million) for vaccines. Now, our budget is around 7 bil- Several international pharmaceutical compa- lion pesos for vaccine procurement alone. Secretary of Health Dr. Rosell-Ubia nies are already operating in the Philippines. This is a big jump in terms of the resources What are the benefits for these companies to that we would need. Additionally, we used every Filipino, covered by the health insur- come here? to have a budget of 1 billion pesos for drugs ance. It is, however, very difficult to go into The situation here in the Philippines is that and medicine to be distributed to the poorest PPPs, because all the financial management the labor is very cheap while their skills Filipinos. Nevertheless, if we go ahead with of the hospitals is dependent on subsidies are very high. Filipinos also have that way our annual check-up plan this will not be from the government. of adapting very easily. This comes all on enough. We are therefore looking towards top of the investment climate. We offer a budget of 3 billion pesos. So, there is a lot What will be the effects of your plans for economic zones that can also provide tax of room for synergy. Japan can help us to free health insurance, not only in the social breaks and tax holidays and also provides provide the needed supplies and equipment sphere, but also on an economic level? How the necessary infrastructure. The major at- for the gaps that we are seeing because of does it go hand-in-hand with internationaliza- traction point definitely are the economic the change in our health system policies. tion or regionalization? zones that are well-situated, and offer all This is one of the reasons why the private the facilities needed. You have been mentioning that health budget sector is expanding. They know that due might not be enough to finance your plans. to the fact that everybody is covered, they What message would you personally send to What is your opinion on the possibility of get paid. They can now take it as an op- other nations in order to invite them to come public-private partnerships (PPPs) and what portunity to attract international clients to the Philippines either as a health or medical opportunities do you see for international and investments. There are a lot of posi- tourist or as an investor? companies? tive developments now for the health sec- The strength of the Philippines is its hu- We actually have an office in Japan, which tor to expand. Not just to address the local man resources. It is the people who make is sponsored by JICA (Japan International growth, but also international expansion. this country. We might not be comparable Cooperation Agency) and dedicates its op- What we are looking at by talking to several in terms of the infrastructure at this point, erations to PPPs exclusively. It is an entire private sector partners are the pacific small but I believe that our strength lies else- office that looks at how the health sector can islands. It will be very difficult for them to where – the development and training of invite PPP projects into the country. We are put up a training center or medical school our people their compassion, their IQ etc. In therefore very active in facilitating this kind in their own countries. We would like to short, the personal relationships and caring of investment. We hope that that would fill encourage them to send their doctors or atmosphere should be highlighted. That’s in the gaps in terms of the budget require- health professionals here for training. We’re the strength of the Philippines, and we hope ments. Right now, the current trend is to trying to look at that as one of the avenues to capitalize on that. If our neighbors such have all Filipinos covered by the national for developments by the Philippines which as Japan, Korea, or China are complement- health insurance program. Setting up PPPs might create an opportunity for us to create ing this by investing in infrastructure and with Japan or with other international part- an investment climate in other countries equipment we will succeed. We are taking ners makes me confident that the hospitals for Filipino-owned and operated hospitals. the opportunity to develop medical tour- and health facilities will be able to meet I was in Qatar recently and we talked to ism and all the other healthcare facilities our commitments of offering health care for the Minister of Health. We have this Filipino in this country. Business The Worldfolio - ASEAN 86

A land of big conglomerates which aim for the big Filipino dreams

JG Summit is one of the most relevant conglomerates in the country, we speak with Bach Johann Sebastian, Chief Strategist of JG Summit Holdings to understand how they work to improve the Filipino quality of life

What is your expectation on the new admin- in improving accountability, transparency, The same is true for Japan. Japanese istration’s 10-point economic agenda, 2017 rooting out corruption, and better tax col- contractors, equipment and suppliers are budget, proposed IPPs and comprehensive tax lection. All these agendas made sense, but not the cheapest in the world, but their reform and what impact do you expect on the they delayed or hindered the PPP agenda. By design and quality are proven in the world. investment climate? the time everything was set up and potential Thus, we would probably have more con- As to how it affects the real economy and the technical partners were already attracted, fidence in the Japanese projects than the middle class, the administration’s priority on the term of the administration was done. Chinese ones. We already know as well that infrastructure development is a welcomed Thus, the finished projects were only Mactan all these will come at a cost – maybe not policy direction given that the Philippines International Airport and two expressways immediately and not by this administra- is at least 20 years behind in terms of infra- – very limited PPPs were completed during tion, but succeeding administrations will. structure development. Previous administra- the term. This is because these foreign firms will tions have failed to give enough attention to The worst part is that the most impor- try to lock in operations and maintenance this aspect of the economy perhaps because tant infrastructure project, which is Manila contracts and technical service agreements of the high cost of capital. There was also a airport, has not been addressed yet. Every- since they have provided all technical ex- deliberate focus on fiscal restraint to improve thing starts at the airport, but it was not pertise for all of the projects to run and the balance sheet of the republic. Not to men- given priority. Our airport here in Manila they neither reside with the government tion that the Philippines has been lending (the entire complex) has a rated capacity of nor the private sector. When these firms to pay off debt – a rather negative practice. 25 million passengers, and there were ap- lock in these contracts and try to negotiate From 2000, the government then has proximately 39 million passengers that came with the government, who has no pressure focused on achieving some fiscal balance. through last year. Being under capacity, you to earn returns and lower costs, then we As a result, the cost of debt began declin- can just imagine the congestion and air traf- may have saved on capital expenses but ing mainly led by the policies of the Federal fic control pressure. could end up paying for the operating ex- Reserve of the United States. Moreover, the For this administration, the airport be- penses of the infrastructure utilities built. country has achieved an investment-grade longs to the priority list, but it has not yet This operating expense could be high and rating. Although there were numerous expressed the exact direction they have for is considered as a risk when having foreign Philippine companies that already had an the Manila airport. However, one important investors participate. investment-grade rating, it was only during thing is clear, the PPP format is suspended. Nonetheless, it is a very welcome de- the term of former President Benigno Aquino The government wants to do it by itself. The velopment. If the Japanese are really able when the sovereign earned one. This made administration is also under the impression to build a subway from the north of Metro the cost of capital decline and raising funds that if the government does it, it may be ac- Manila down to the coast and if the Chinese for infrastructure possible. complished faster, because you are able to could really contribute to the railway going However, under the same administra- bypass the search for private sector partners up north, then it will really be a big help in tion of Aquino, there was not enough politi- and the bidding process. easing the traffic congestion and spreading cal will to push the agenda for infrastructure economic activity across wider areas. development. So, despite having money avail- Having mentioned all the problems encoun- able, it also made sense to the government tered in infrastructure development, how can JG Summit Holdings actually has a large to partner with the private sector. Hence, the other countries like Japan, Korea, and China stake in the development of the country. The PPP process. Lacking the experience in this contribute to the situation and help not just in holding company and its subsidiaries al- sense or having a concept that is rather new, terms of funding but also in other aspects such ready contribute greatly to the Philippines the PPP program took a while before it was as knowledge transfer? economic development and regional com- properly implemented. One reason for this Everything is driven by business. The Chi- petitiveness, being compared with some of is probably the main access to capital has nese and their contractors, equipment and the continent’s most prominent enterprises been constrained even for corporations with suppliers will definitely benefit. If their gov- including Hutchinson, Tata or Samsung. In investment-grade ratings. Thus, there was a ernment decides to sponsor infrastructure this context, how would you evaluate your lot of time spent setting up the process – bid- projects, it will go back to them, because position within Asia and what is your opin- ding and making it transparent among others. many of these companies that the Chinese ion on the role of conglomerates to increase Another explanation is that the Aquino employ for this kind of project are all state- the competitiveness of the Filipino private administrations have also put a premium owned enterprises anyway. sector regionally? 87 The Worldfolio - ASEAN Business

Regional integration is not new for our com- pany. We have been on it for the past 20 to 30 years. In fact, we built our first food manu- facturing plant in Malaysia approximately 30 years ago. We have been producing in Thai- land and have been operating in China and Indonesia for the past 10-20 years. Investing in ASEAN is not a new concept to us and we have always seen the logic behind it. Despite doing it for decades, there are still some practical obstacles involved. Move- ment of people is among the challenges we encounter. Moreover, the educational system in the country needs a serious upgrade to be at par with its neighbouring countries. There was also a period of time when the Philippines became uber-nationalistic that everything was taught in Filipino, which I believed affected the English-speaking skills of the younger generation. The ability to read, Companies that JG Summit Holdings has major holdings in include Digital Telecommunications Philippines and Cebu Pacific airlines (Photo: Maksym Kozlenko) write, and speak English is an advantage we cannot lose, because it gives us an edge in If you look at the businesses of JG Summit, economy. We have been a consumption- education—especially in technical education you may notice that it is very diverse. How- driven economy for the longest time, and which we lack. ever, there is a common theme despite the this may not be sustained without building In addition to the two factors hindering diversity—that is the Filipino consumer. For productive assets and shifting from being development (i.e. infrastructure and power packaged food or branded food, being a very consumption-driven to investment-lead. costs), I believe the third would be education. consumer-oriented product, we try to provide Hence, the investments in infrastructure is There is not enough attention given to sci- good food and affordable prices with trusted a good policy direction. ence and math, thus the seemingly decline brands that benefit the consumers. JG sum- As far as URC and RLC are concerned, in education. We need more technical insti- mit, then, benefits from the increasing dis- these are some of the ways JG Summit ben- tutions (i.e. engineering) to facilitate devel- posable income of the consumers. The more efits. Considering Cebu Pacific, we benefit opment in education. Productivity growth of disposable income the consumers have, the much more given that air travel is highly a an economy could not be supported without higher the tendency for them to snack and disposable income play. It is a well-known fact sufficient technical skills. drink. So, it benefits us and the country. that airlines model their demand projections Filipinos are actually very good com- Robinsons Land focuses on commercial from the GDP. So, the GDP growth will be puter programmers, but we do not have the centres. If you notice, the Philippines does factored in twice and this will be the airline institutions that can create credible and out- not have many parks because of the humid growth having a regression coefficient that is standing computer science education. Out- weather. If one is to hangout in parks, you high. Thus, one can see how the airline com- side the University of the Philippines and a will sweat even under the shade. So, what we pany is very predictable and is very linked with few other universities, there is not enough offer are climate control parks called malls. the GDP- and the GDP in our country is driven tech culture. It is important to note that the That is why we have an inordinate number of by consumption which is consecutively driven world is already driven by the tech culture. malls per square kilometre in this city. Most by the growing middle class and the rising But when a Filipino is put in Silicon Valley or of them also serves as government centres, disposable income. So, we ride off this theme. in Singapore, they excel because there is al- public service centres, transaction counters In summary, this is our whole portfolio. ready the presence of appropriate resources (i.e. NBI clearance, Police clearance, pay JG Summit Holdings, Inc. benefits from the to facilitate learning in addition to the innate SSS premiums, etc.). Some government of- growth of the Philippine economy whether it creativity of the Filipinos. fices and municipal or city mayors have also be in the consumption or manufacturing side. The Philippines is probably one of the located their offices within our malls. It is As consumption or manufacturing grows, last few countries where certain individu- already a lifestyle matter. trade also improves. As trade improves, so als could still program in Fortran, Cobol, or So, Robinsons Land also benefits from does the banking segment. We provide these Basic. This is source code language that we the growing disposable income because con- services and we benefit from the growth of are actually good at it. However, there is a sumption expenditure in shopping centres the economy. failure in maximizing or in taking advan- in the country is fairly strong. Over the last tage of this resource. Education has declined 36 years the consumption expenditure has Now that the region is growing closer together somehow, and because of this, we could be rarely gone below 3.5 percent in real terms because of the ASEAN regional integration pro- in the losing end in terms of movement of and has been averaging 5.5-6 percent in the gram, what impact do you expect to see out of people. We will probably get talent from recent years. Consumption expenditure is this especially in terms of partnership oppor- abroad, but if our people are not trained considered a significant driver in the Phil- tunities, market penetration in other countries, well enough then we will not have a facility ippine economy assuming 70% of the entire and competition? to move across the region. Business The Worldfolio - ASEAN 88

THE MAN WHO HAS SEEN IT ALL

A conversation with billionaire Filipino businessman Roberto Ongpin, who speaks about Filipino history, ASEAN integration and his firm AlphaLand, a property developer that focuses on high-end properties

The Philippine economy is among the top per- proposal to work and to be effective for us. formers in the Southeast Asian Region. This The ASEAN is politically and economically reality is not a merit of just the current and behind Europe, but there is so much room previous administration, but rather the merit for opportunities and improvements for the of a longer term process. In your opinion, entire ASEAN region. what would be the cornerstone that allowed We have a common market that has the Philippine economy to reach the stability been agreed upon. This is supposed to be shown in recent years? implemented by now. However, all kinds of I would need to go way back in order to stumbling blocks are encountered. We were give you a proper perspective. We were a supposed to have a unified stock market, but Spanish colony for more than 300 years, and it was recently called off. While it may be a that made us the only Christian country in good one, getting there is another matter. Asia. When we were about to overthrow Roberto Ongpin, Chairman, AlphaLand We do not have the necessary capacities yet. the Spaniards, the Americans came, thus, The great difference is in economic turning us into an American colony for ap- tration were authoritarian. I was conscript- achievement, capital incomes, etc. The proximately 50 years. The Americans, as ed into the government, and there was no mere fact that we are getting together is colonizers, were not entirely bad. They way you could decline or say ‘no’ at that already a good thing. It is just the difficulty gave us three things that became impor- time. But regardless we made important of agreeing on certain areas of concerns that tant components of our culture: the English progress at the time. is rather challenging. Honestly, I do not see language, the very high regard for education us ever agreeing unanimously and I do not (the reason why we are more about export- One of the major events in the Philippines this think that we should especially with regard ing our skilled people than our products), year is the 50th anniversary of the ASEAN. Eco- to what stance to take against China (for and the system of government which is a nomically, the ASEAN project comes at a very example). Let every country deal with it. It carbon copy of theirs. We fought on their important moment because it is one of the only is one of those things or realities that you side during the Second World War, Manila regions in the world where consumption is do not find in Europe. was totally destroyed, and then they gave actually growing. us our independence right after. Japan gave The ASEAN secretariat, when it was or- With the growing middle class, real estate is us the financial aid to rebuild. ganized, was in my SGV office. I was part one of the sectors that always benefits. What At one time, even up to the 1950s, we of the original organizing committee as are the reasons and ideas behind establishing were the leading country in the ASEAN in head of the largest accounting and man- your company, AlphaLand? almost all aspects. We lost this lead. What agement consulting firm in Asia. Then, we Before I developed AlphaLand, I first got we were unable to do is to control our popu- campaigned to have the headquarters in the involved in the development of Tagaytay lation. It is a fact that we have one of the Philippines. Although, this was a long time Highlands. I only owned 22 percent and I highest growth rates in population. ago. At one point, we were the leaders in the got kicked out by the board. After which, I used to be a managing partner of the region given that we are very well articulate. the stock price went down from 5 pesos to largest accounting firm in Asia. We had of- However, we gravely lost that lead. As for 0.3 pesos in just six months. Moreover, the fices in Seoul, Taiwan, Hong Kong, Kuala now, I admire what Vietnam is doing and I value of the membership share went from Lumpur, Singapore, Bangkok and Jakarta. I deem them as a great comer to the ASEAN. 3.3 million pesos to 400,000 pesos. would spend half the month going to these I have never developed anything be- offices back then. The firm employed 10,000 At 50 years, do you see the ASEAN in its golden fore, but I guess it was always in me. Real individuals and was the only firm, at that year or more in its mid-life crisis? estate is a function of interest rates. It is very time, qualified by the World Bank, to do Well, I would call it neither the golden year easy to invest in real estate because you consulting. However, if we compare our- nor the mid-life crisis. The ASEAN is doing know when the prices are high and when selves to Thailand at that time, they had a quite a good job. The existence and expan- the prices are low. population of 60 million and so did we. At sion of the ASEAN has been very good as Anyway, real estate in the Philippine is the moment, our population exponentially well. The work must be continued. There lagging behind because we have had some increased to 105 million while Thailand are instances when people go too overboard sort of “borrowing syndrome”. You cannot gradually increased to 63 million. and propose having one currency in the and should not borrow to finance develop- I went into the government in 1979. region – something similar to the EU. In ment if you cannot afford to pay for it. This is Former President Marcos and his adminis- this regard, it may be too early for such a basically what happened in the Philippines. 89 The Worldfolio - ASEAN The Worldfolio - ASEAN 90 91 The Worldfolio - ASEAN Business ‘A NEW PLAYER IN A MATURE MARKET’

Winston S. Co, President of alcohol products, it primarily competes Emperador Distillers Inc., one with other local vodka and gin companies that also produce ready-to-serve alcoholic of the world’s largest brandy beverages as well as imported labels. The makers, talks to The Worldfolio whisky segment in the Philippines is not well about the company’s venture into tapped at present, and the company aims to revive this segment. Our competitive edge Winston S. Co, President of Emperador Distillers Inc. the whisky market is our preparedness with respect to and our focus on premiumization. So, in the next a unique opportunity at the top end of the According to Euromonitor, the alcoholic drink five years or so, premiumization is key and market. industry in South-East Asia will continue to whisky is a growth opportunity for us. register double-digit growth over the next In this sense, Emperador has become a symbol five years. How would you describe the Having acquired a very aggressive position of the Filipino identity and spirit, which is industry and its potential within the next in the whisky segment, what is your strategy very unique. Do you consider Emperador as five years and what category do you see as focusing on maximizing the fact that most of one of the flagship brands of the Philippines? the most attractive? Asia is keen on whisky? Philippines maybe the most international Emperador Inc. competes primarily against Whyte and Mackay is a British institution country in Asia. We have close affinity with established Philippine spirits companies and the global operation is managed from Spain and the U.S. The Filipino culture is that produce and distribute brandy and the U.K. The company is now significantly highly influenced by our Spanish heritage. other spirits in the domestic market. The invested in the Asian market. The Asia Emperador has significant investment main competitors in the Philippine broad market is a new frontier for our whiskies. in the brandy producing region of Jerez distilled spirits market mainly comprise We are a new player in a mature market. We de la Frontera in Spain. Yes, we consider of Ginebra San Miguel, Inc. (GSMI) and have to be more innovative in our approach Emperador as one of the flagship brands Tanduay Distillers, Inc. (TDI). Our company and closely work with key partners in each of the Philippines being the largest brandy also competes against imported labels. With market. Yes, we have some iconic whisky brand in the world, which exports to more respect to flavored vodka, gin and other brands within our portfolio. This presents than 50 countries. NEXT STEP: COMPETING WITH THE WORLD’S BEST Lamoiyan Corporation is a Philippines company that manufactures household items such as toothpaste and dishwashing pastes. President and CEO Competition, Dr. Cecilio K. Pedro, speaks to The Worldfolio to give his view on doing business in the country

At such a competitive time, what do you South Korea) in helping to close the gap believe is the biggest challenge of doing between The Philippines and other ASEAN business in the Philippines? countries in terms of competitiveness? The problem is that the Philippine market There is always attraction happening is so competitive and highly westernized. I between the +3 nations and the Philippines, believe the country is the most westernized given the fact that we are a developing Dr. Cecilio K. Pedro, CEO, Lamoiyan Corp. nation in the ASEAN region. The challenge country. Moreover, there are neighboring is not to compete with the local companies countries which are in a similar situation. What would you say were the key strategies ,rather to compete with the top companies Indonesia, Thailand, and Vietnam are that made Lamoiyan the success it is today? of the West or the world for that matter. some of the countries experiencing Maximizing one’s marketing strategies. We Unless one is prepared to lose a big amount a similar situation to the Philippines. also engage in numerous corporate social of money, this couldn’t be possible. Malaysia is quite more advanced than responsibility (CSR) endeavors. We take The private sector, especially the SMEs, the Philippines, but still needs funds care of the deaf or hearing-impaired and is wary of this up to a certain extent. First, we for infrastructure development. Since provide education as well. So, we touch lack the kind of resources available to compete we are not fully developed, there are the heart of the consumers and let them with these giants. We are not yet in the position opportunities for big companies to invest know that we are a good company with good to join the global competition on our own. and make money. intentions. We do not compromise on our quality despite selling our products at a low How important is it to attract the attention Lamoiyan has been able to penetrate the price – averaging 20-30 percent lower than of the ASEAN +3 countries (China, Japan and market in the Philippines quite heavily. competition. Business The Worldfolio - ASEAN 92

CREATING AN ‘EXTENSIVE HIGH-POTENTIAL CORPORATE GROUP OF JAPAN’S BEST ASSETS’

Since its establishment, Japanese firm ALCONIX has continuously been evolving by adapting and providing high-quality Light Metals and Copper Products, Electronic and Functional Materials, Non-Ferrous Raw Materials, and Construction and Industrial Materials, among others. Eiitsu Masaki, President and CEO of ALCONIX, speaks about the company’s operations, as well as his visionary plans for the future

Could you tell us how ALCONIX has evolved over stage, so we can’t really expect increasing our these years and the core products and solutions exports of high-tech products from Japan to it provides? the region. ALCONIX started as a subsidiary company un- However, China poses a different sce- der the non-ferrous metals division of Nissho nario. We have started manufacturing sophis- Iwai Corporation. After trading rights for non- ticated products for the Chinese market. We ferrous metal products were transferred from now have five entities in China and we are Nissho-Iwai in April 2000, ALCONIX joined further building our local footprint. For us, forces with Mizuho Capital, and an MBO SEA and China fit into two distinct categories. (Management Buy Out) was implemented Going back to SEA, we understand that in April 2001. commodities trading is not a sustainable busi- Since 2004, we have acquired nine trad- ness practice. We therefore started working ing and six manufacturing companies. These closer with local communities. Investing in acquisitions allowed our annual revenue in local manufacturing companies and collect- sales to reach 200 billion yen per year ($1.8 Eiitsu Masaki, President and CEO of ALCONIX ing the profits from the products we forward billion) with an ordinary profit of 5 billion yen. them represents great business potential. The Our business forecast for FY2017 (Financial In accordance with the changing economic model we are implementing in SEA countries Year, ending on March 31, 2018) is that sales of environment, globalization has become in- aims at lessening the importance of Japanese manufacturing companies will merely repre- evitable. Our customers face various kinds of production by promoting local domestic trade sent 15 percent of the total gross sales. Yet, the trouble when penetrating overseas markets. to increase regional independence. From an ordinary profit will reach 64 percent of such These problems are caused by socio-cultural investor’s perspective, SEA is a reliable region total. This mirrors the success of purchasing paradigms, such as language barriers, varying for investments. At ALCONIX, our objective manufacturing companies. And despite the business cultures, ways of life etc. Thanks to is to spread the quality of our “Monozukuri”. fact that the trading component represents our unique global expertise and our extensive the majority of our business, profits come overseas network, we are able to provide solu- How does the future look like for ALCONIX? essentially from manufacturing. tions to our clients’ international expansion I have an acute sense for profitable opportuni- In a matter of years, ALCONIX has plans. Now, about 60 percent of our 200-bil- ties and I have a visionary dream for the fu- grown into one of the industry’s major cor- lion-yen turnover comes from foreign trade, ture. Currently, we are witnessing that owners porate groups. We believe that this growth and this figure will continuously increase in of the manufacturing companies are getting comes from our successes in: 1) conducting the future. older. Without withstanding the fact that they strategic M&A, 2) engaging into aggressive ALCONIX has 11 local subsidiaries: five have the technology, that they have done all business investments, and 3) fostering and are located in China; four are located in South the research and development, and that they keeping employees with highly specialized East Asia (SEA), in Thailand, Malaysia, Singa- have become knowledgeable and successful expertise. All employees of ALCONIX have pore and Vietnam; one is located in the U.S.A; in creating a profitable momentum for their been taught to overcome difficulties by co- and the remaining one is located Germany. companies; there is no one who could succeed operating with one another, to lead devel- Most Japanese manufacturers expand the ownership of the companies. opment of working towards our common into SEA countries to establish local facto- Well, I want to step in, buy those compa- goal. That is why ALCONIX has been able ries and to start selling from there. It is a nies, reshuffle their capacity and portfolio to to continue to grow and I believe it is our local endeavor with no export coming from create an extensive high-potential corporate mission to contribute both to the company Japan. Because SEA does not require trad- group made out of Japan’s best assets. Be- and our society. ers such as ALCONIX, growth in the region cause ALCONIX started as a trading company, will come from the creation of factories and we have the knowledge about that business. Can you tell us more about your international manufacturing bases. Additionally, the local The strategy we want to adopt is to acquire strategy and about the role of Asia within that demand does not require high-tech products manufacturing companies with no successors strategy? or high added-value solutions at the present and reorganize the manufacturing industry. 93 The Worldfolio - ASEAN Business The Worldfolio - ASEAN 94

TOKYO ENERGY & SYSTEMS INC. BRINGS ITS EXPERTISE TO ASEAN

A Japanese leader in the the sustainable development of the regions construction of mechanical and it operates in by transferring its accumulated knowledge to the local workforce. “By electric power facilities is eyeing contributing to the training and coaching of growth opportunities in the ASEAN local engineers, our main goal is to deliver solutions that can later on be managed by To effectively upgrade its energy supply local companies,” says Mr. Kumagai. infrastructure, the OECD estimates that the Through its focus on skill transfer, ASEAN requires $2.5 trillion of cumulative reliability and attention to detail, Tokyo investment by 2040. Faced with such massive Energy & Systems Inc. is one of those expenditure, the member nations of ASEAN companies that has chosen sustainability will have a choice to make when seeking Tsutomu Kumagai, president of Tokyo Energy & Systems Inc. over cost efficiency. When asked which partners, and within that context, Japan’s he would choose between the two, Mr. Tokyo Energy & Systems Inc. is a company energy solutions that effectively address Kumagai raises an interesting point: “If we to watch for. their needs,” says president, Mr. Tsutomu look at the full lifecycle cost of Japanese Domestically known for its high- Kumagai. infrastructure, there is a fair possibility that quality projects, tailor-made solutions and The company is currently in the midst it will become cheaper over time because sustainable infrastructural investments, this of a global expansion, and has established it requires less maintenance and technical integrated developer of social infrastructure two joint ventures in Thailand, SCI Enesys intervention thanks to the high level of specializes in the construction, operation, Co. and TES Practicum Co. “The ASEAN Japanese technology.” and maintenance of thermoelectric power, market bears huge potential,” explains Mr. hydroelectric power, nuclear and renewable Kumagai, “and that implies not just going energies. The company has built upon its for short-term projects, but developing long- historical expertise to become a domestic term interactions and support contracts with market leader. “We have a 70-year-old track local companies.” record of working together with Japanese In comparison to some of its competitors, companies towards providing tailor-made Tokyo Energy & Systems Inc. contributes to J TRUST FINDS BANKING NICHE IN ASEAN While other big banks focus on mega projects, J Trust has focused on a business approach that not only generates profits, but is improving lives and ‘making people happy’ through microfinancing and small business loans for farmers and local communities

Japan’s demographic situation is forcing we encourage individuals access to Nippon companies to look abroad. Prime credit lines that average $200 to $300 Minister Shinzo Abe has made important per person. For the individuals that need efforts to convince Japanese enterprises to buy expensive equipment, such as to look within the continent for more agricultural machinery, we can offer hire Nobuyoshi Fujisawa, President & CEO of J Trust opportunities, and they are doing so purchase and the loan amount is around within the ASEAN region. $30,000, and that is one of our focuses in religion or geography, all humans aim at While other big financial players the region. So, not having other banks improving the living conditions of their invest in mega projects in the region, Mr. addressing this consumer market and families and loved ones, and we have the Nobuyoshi Fujisawa, President & CEO of it’s suburb area means no competition capacity to support these people towards Japanese financial group J Trust, says he has for us. Furthermore, for example, J Trust achieving that,” he says. found a niche investment segment: “All of Bank Indonesia focuses on SME loans “We believe that focusing on such the other international banking institutions and it deals with corporate loans from goals will naturally produce revenues that are moving into these markets, focus roughly $1 million to over $ 5 million.” and profits. I expect to have an increase in on infrastructure or industrial projects, Today understanding ASEAN the number of banks and services across with credit lines typically ranging from markets is understanding their people South East Asia, while pursuing the same $10 million to $1 billion. and sharing their personal challenges at a business approach – microfinancing “We are very flexible in that sense, personal level. A vision that Mr. Fujisawa individual clients and making people and through our companies in the region applies to each market: “Regardless of happy.” 95 The Worldfolio - ASEAN The Worldfolio - ASEAN 96 D. EDGARD CABANGON CONTINUING HIS FATHER’S LEGACY

D. Edgard Cabangon was born with of the first business tabloid in Fili- the proverbial ‘silver spoon in his pino, The Pilipino Mirror, as well as mouth’ but, throughout his life and The Business Mirror, The Graphic career, has kept his feet planted Magazine and Cook Magazine. firmly on the ground. After having Mr. Cabangon is a long-time spent time as a working student partner of Isuzu Corporation, Ja- in the U.S., studying Political Sci- pan, through the Isuzu GenCars ence in the University of Santo To- Dealership in the Philippines. He mas, he returned to his homeland also presides over the Eternal Gar- and has worked his way up to head dens, Citystate Tower Hotel Manila many of the family businesses es- and Cherry Blossoms Hotel, as well tablished by his father, the late Am- as Batangas Ventures Inc., one of bassador Antonio Cabangon Chua, the biggest bus terminals in Batan- a renowned Filipino business mo- gas. gul who died in March, 2016. Currently, Mr. Cabangon is the Mr. Cabangon is the President president of the Philippine-Laos and CEO of the ALC Group of Com- Business Council, which promotes panies, which controls GenCars a thriving business relationship be- Isuzu Group, Eternal Gardens, D. Edgard Cabangon, President and CEO of tween the two ASEAN countries. He the ALC Group of Companies Eternal Plans, Fortune Care, For- is well-respected in Laos after his tune Life, Citystate Savings Bank, Broadcasting Corporation which active participation in keeping a PR Bank, Citystate Tower Hotel and runs DWIZ 882 KHZ AM, Home fruitful relationship with the coun- the Cherry Blossoms Hotel. Radio 97.9 FM Metro Manila and try when his father was the ambas- Having several interests in the several regional radio stations. He sador of the Philippines to Laos. media industry, he heads several is also the President of CNN Philip- Mr. Cabangon has been the re- media companies, including Aliw pines, and president and publisher cipient of several accolades dur-

HAVING SEVERAL INTERESTS IN THE MEDIA INDUSTRY, HE HEADS SEVERAL MEDIA COM- PANIES, INCLUDING ALIW BROADCASTING CORPORATION WHICH RUNS DWIZ 882 KHZ AM, HOME RADIO 97.9 FM METRO MANILA AND SEVERAL REGIONAL RADIO STATIONS. HE IS ALSO THE PRESIDENT OF CNN PHILIPPINES, AND PRESIDENT AND PUBLISHER OF THE FIRST BUSINESS TABLOID IN FILIPINO, THE PILIPINO MIRROR, AS WELL AS THE BUSINESS MIRROR, THE GRAPHIC MAGAZINE AND COOK MAGAZINE. 97 The Worldfolio - ASEAN

Pope Francis with D. Edgard Cabangon in Manila in January, 2015. His company, Isuzu Gencars, Inc., made the ‘Popemobile’ used by Pope Francis during his visit to Manila

ing his career, including the 2016 “We have, as they say, big shoes MR. CABANGON HAS BEEN International Association of Busi- to fill, but with my [siblings], we THE RECIPIENT OF SEV- ness Communicators’ CEO Excel will uphold the legacy of the com- Awards. The award is conferred pany,” he added. ERAL ACCOLADES DURING on individuals from the govern- A popular figure amongst his HIS CAREER, INCLUDING ment, business and academe for thousands of employees, Mr. Ca- THE 2016 INTERNATIONAL exceptional and ethical use of com- bangon personally speaks to them munication strategies and tools to and offers his assistance when ASSOCIATION OF BUSI- achieve both business and societal needed. The humble Mr. Cabangon NESS COMMUNICATORS’ goals. also asks for support and help from CEO EXCEL AWARDS. THE “This is not for me, this is for his employees, making them feel the whole ALC Croup of Compa- that they are a part of their growing AWARD IS CONFERRED ON nies,” Cabangon said on receiving businesses. INDIVIDUALS FROM THE the award. Continuing the great social GOVERNMENT, BUSINESS In 2015, His father received a work of his father, Mr. Caban- Lifetime Achievement award from gon supports several educational, AND ACADEME FOR EX- the Kapisanan ng mga Brodkaster health, charity and church-related CEPTIONAL AND ETHICAL ng Pilipinas (KBP) at the 23rd Gold- initiatives. He is the chairman and USE OF COMMUNICATION en Dove Awards for his dedication president of the Catholic Mass Me- in promoting responsible journal- dia Awards Foundation after being STRATEGIES AND TOOLS TO ism and communication as a busi- appointed by Manila Archbishop ACHIEVE BOTH BUSINESS ness strategy. Cardinal Luis Antonio Tagle. AND SOCIETAL GOALS The Worldfolio - ASEAN 98 99 The Worldfolio - ASEAN Discover The World’s most dynamic economies wwwl .thewor Dfolio.com

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