Yearender: Not a banner performance, but trade and investments still exceptional in APEC year

MANILA, Philippines – It was a year that would be best remembered for the Philippines’ hosting for the second time  of the Asia-Pacific Economic Cooperation (APEC) summit since the regional forum composed of 21 member economies was established in 1989.

Though the week-long leader’s summit in November may well be this year’s economic highlight for the country, 2015 offered more than just the joy of seeing US President Barack Obama share the spotlight with Filipina salt lamp inventor Aisa Mijeno and the thrill of getting up close and personal with popular APEC leaders Mexican President Enrique Peña Nieto and Canadian Prime Minister Justin Trudeau.

Numbers may not show a banner year for trade and investments this time around, but both the government and private sector agree it was another exceptional year for the country.

“The overall trade and investment climate in the country in 2015 was generally positive and is slowly improving. Macroeconomic management continued to support stronger business activity,” American Chamber of Commerce of the Philippines Inc. and The Arangkada Philippines Project senior advisor John Forbes said.

The inflow of foreign direct investments (FDIs) has taken a plunge earlier in the year but is expected to finish the year close to the record $6.2 billion in 2014, while Philippine exports have also dwindled and the Philippine Exporters Confederation Inc. believe the country would be lucky to see a flat growth in terms of merchandise exports by year-end.

The Philippine economy is still expanding faster than most Southeast Asian economies but gross domestic product (GDP) growth has been below target.

Despite external volatilities and bottlenecks at the national level, European Chamber of Commerce of the Philippines president Guenter Taus said the local economy and investment environment have somehow remained competitive.

“While GDP growth was less than forecasted, mainly due to government underspending and there has been a fall in FDI due to external and internal factors, the reality is that the Philippines has continued to register high growth rates and, most importantly, businesses remain happy with the returns on investment and available business opportunities,” Taus said.

“The Philippines posted another year of strong economic performance and growth. I believe the trade and investment climate in this country has significantly improved every year under the current administration, and the results of the policies and reforms put in place speak for themselves. The opportunities for trade and investment in the Philippines – for both foreign and domestic business – are abundant and will increase provided the Philippines stay on its current path,” added Nordic Business Council Philippines president Bo Lundqvist.

For the local business groups and foreign chambers, the adoption of much-needed legislation in 2015 such as the Philippine Competition Law, the Amendments to the Cabotage Law (Foreign Ships Co-Loading Act) and the Tax Incentives Management and Transparency Act (TIMTA) set the foundations for a fairer, more competitive, and transparent business environment.

The signing of the 10th Regular Foreign Investment Negative List by President Aquino in June was also seen as an important step taken by the Philippine government as it liberalized multiple professions previously reserved solely for domestic workforce.

“The country’s strong banking system, improvement in credit rating, controlled inflation, governance and fight against corruption made a big impact,” Management Association of the Philippines president Francisco del Rosario Jr. said.

“The government’s accomplishments for 2015 included the lack of major corruption scandals that have plagued many previous administrations, increased spending on physical and social infrastructure, budgetary and spending reforms, and sound monetary policy and foreign exchange management, among others,” Forbes added.

Such improvements did not go unnoticed by major global ratings agencies as they elevated the standing of the Philippines in several competitiveness rankings.

Of the global competitiveness indices tracked by the National Competitiveness Council (NCC) to measure the country’s performance, the Philippines in 2015 made gains in eight of the reports including the World Economic Forum’s Global Competitiveness Index, Economic Freedom Index, WEF Global IT Report, WEF Travel and Tourism Report, and the WIPO Global Innovation Index.

The country’s ranking, however, dropped in three reports including the World Bank-IFC Ease of Doing Business Report.

In general, NCC co-chairman Guillermo Luz said economic management of the country has generally gotten good marks and been rated highly by almost all global ratings agencies.

“We are encouraged by the efforts thus far. The collaboration between the government and the private sector has been extremely high, one of the main reasons why we have had progress in so many fronts,” Luz said.

In terms of bilateral agreements, the Philippines has also made great strides in 2015.

The US in July renewed the Generalized System of Preferences (GSP) program when President Obama signed the Trade Preferences Extension Act of 2015. The renewal of the US GSP program was seen to boost the access of Filipino exporters to the US market.

The 1996 World Trade Organization (WTO) Information Technology Agreement has likewise been expanded, providing huge benefits to the Philippines in terms of improved productivity and market access, particularly for the electronics and semiconductor industry.

The European business community, in particular, was satisfied to see the conclusion of the scoping exercise for the European Union-Philippines Free Trade Agreement (FTA) and the ongoing FTA negotiations with the European Free Trade Association (EFTA) group of countries.

“As 2015 comes to an end, these developments set forth a promising note for future bilateral trade and investment with European countries,” Taus said.

But while there may be plenty of gains, the Philippines also had its share of missed opportunities in 2015 which collectively could have significantly improved the country’s attractiveness as a business destination.

Local business leaders see the country’s infrastructure, which is seen as still lagging behind acceptable standards, as the main culprit for the slower progress.

Foreign chambers, meanwhile, pointed to the lack of decisiveness on some of the key investor-friendly legislation pending in both the Senate and Congress.

The groups said adopting business friendly policies such as making the changes to the economic provisions of the Constitution, a comprehensive tax reform, amendments to the Foreign Investment Negative List and amendments to procurement processes should have increased the country’s competitive edge.

“To become a truly attractive business destination, the Philippines must remove some of the hindrances to foreign investment that are currently party of the constitution, restrictions to foreign ownership being one of the priorities. As mentioned earlier, while the current administration has done a very good job in removing red tape and corruption, there is still much work to be done in this area,” Lundqvist said.

“We see these pending legislations as lost opportunities for the Philippines to fully take advantage of the possibilities which increased Asean Economic Integration brings. Furthermore, many of these reforms are integral to any potential future EU-Philippines FTA agreement or TPP partnership. Effectively, the Philippines has lost valuable time in preparing for these trade agreements,” Taus added.

Moving forward, the Philippine government is headed into 2016 cautiously as the Department of Trade and Industry will start the year minus Secretary Gregory Domingo— who has announced his resignation in September—and a new administration set to enter by mid-year.

Still, hopes remain high by the business community for the Philippines in 2016 with a general sentiment of bullishness.

“If we get the right president by preserving our strong economic gains and focusing on inclusive growth and improving peace and order we should be able to maintain a 6.5 percent GDP growth,” Del Rosario said.

“I’m confident in our outlook for next year.  It is optimistic because we see the level of cooperation is extremely high. Generally, if we can maintain the collaboration between the government and the private sector the way we have seen it, we will improve in our rankings,” Luz said.

Foreign chambers are also optimistic moving into next year with expectation of around six percent GDP growth, low inflation, and a predictable foreign exchange rate.