Ambassador Manuel M. LopezMinna sama, ohayougozaimasu.
Thank you for the kind introduction and the warm welcome. I am deeply honored by the opportunity to address the Hitachi family.
Before I continue, I would like to take this opportunity to express my heartfelt gratitude to the Hitachi family for donating 10 million Japanese Yen in humanitarian aid for the thousands of families affected by Typhoon Haiyan. We will never forget the good that all of you have done for my countrymen in times of great need.
In a way, my being here today is like a homecoming.
Before the realization of a dream for public service and to represent my country abroad at the highest level, I had been a denizen of the corporate world. In that previous life, I had been in halls such as this, speaking before stockholders, managers, and employees, updating everyone on our company’s performance and laying out its strategy and direction for the future. I too, had sat where you are now, listening to the company’s progress, knowing where we are headed and how. I too, had worked my way up the corporate ladder, learning the ins and outs and the nuts and bolts of running a company.
I should tell you now that I continue to see a very bright future for Hitachi in the Philippines.
Hitachi and the Philippines
The name, “Hitachi”, is quite well known to many Filipinos. Mention the Hitachi name to an ordinary Filipino, and he will probably affirm his familiarity with the brand, as if it were the name of an old friend fondly remembered. Hitachi stereos, televisions, refrigerators—products that all of you here today had a hand in making—have become common fixtures in the homes of many Filipino families throughout the years. Indeed, one can say that the Hitachi name had also become synonymous with technology and quality—traits that can only be associated with a world class Japanese brand.
Hitachi’s presence in the Philippines continues to be strong. Your plants in Subic, Batangas, Cavite, and Laguna have contributed immeasurably to the local economies and generated jobs for Filipinos in those areas. We appreciate the trust and confidence you have placed on the skill and dedication of our local workforce. I firmly believe, however, that it is just the tip of the iceberg. You have barely scratched the surface of the potential of Hitachi’s long-term partnership with the Philippines.
Why Choose the Philippines?
Consider my message today as your “re-introduction” to the Philippines. You will find a country that will not only buy your products and service your investments, but will also go out of its way to enhance your profitability and help secure your company’s future. You will discover that choosing the Philippines as Hitachi’s long-term partner will be the best decision you will make.
In Japan, You Have Abenomics; In the Philippines, We Have Aquinomics: Good governance = good economics
Let me first start by providing some context. It has been said many times that our country has so much potential. We are strategically located in the region, we have abundant natural resources, and we have a young, adaptable, and globally competitive workforce. But just over five years ago, we were a country in dire need of fixing. We had just barely survived the 2008 global economic crisis, which had exposed structural deficiencies that will leave us vulnerable to external shocks. Government was notoriously unresponsive to the needs of the people, and our people were beginning to lose faith in their public officials. The business community in the Philippines was jittery and uncertain about the nation’s future.
Upon taking office in 2010, President Benigno S. Aquino III knew he had to pursue sweeping political and economic reforms across government. Indeed, there was a need to level the playing field, weed out the corrupt, improve public sector management, and instill a genuine sense of public service firmly rooted in integrity. From Day One of his administration, the President has worked hard to restore faith and trust in government by making it more accountable, responsible, and responsive to the needs of the people. This is embodied in his singular platform, “good governance is good economics”, which is what we who have been working for the President have come to know as “Aquinomics.”
And it is bearing fruit. Just this year, the Philippines jumped 40 places in country surveys of Transparency International’s Corruption Perceptions Index. Investors have taken notice of the government’s renewed commitment to good governance and public sector management, and we’ve started to bring back their investments into the Philippines. These investments have, in turn, helped create 1.7 million jobs as of April 2014. Through jobs created under Aquinomics, we can deliver the benefits of inclusive growth to the less privileged and further reduce poverty incidence. The World Bank recently observed that poverty incidence in the Philippines declined by 3 percentage points, from 27.9 percent in 2012 to 24.9 percent in 2013. This means approximately 2.5 million Filipinos have been lifted out of poverty. While encouraging, we urgently need to sustain these gains and accelerate effective efforts to lift even more Filipinos out of poverty, and continue to bring home the President’s message that there is no poverty if there is no corruption.
The Philippines as the Next Economic Miracle
Aquinomics has been largely successful in part because the President’s reform-minded agenda dovetailed with our already sound economic fundamentals and natural comparative advantages. Indeed, the Philippines has been given many labels as a testament to its latent and intrinsic economic potential. We’ve been called many names, such as “ Asian tiger economy”. Lately, our consistent and resilient economic performance has prompted World Bank President Jim Yong Kim to give us a new label: “the next economic miracle in Asia.”
I must say that the Philippine growth story is truly nothing short of phenomenal. The Philippines is a frequent target of natural calamities such as Typhoon Haiyan in late 2013—the strongest typhoon in recorded history—with a level of destruction that would bring any economy to its knees. Yet our economy, without skipping a beat, grew by 6.5 percent in the fourth quarter of 2013, giving us a full-year GDP growth of 7.2 percent. This brings our count of consecutive quarters of GDP growth since the 1997 Asian financial crisis to 60. For several quarters, the Philippines has maintained the distinction of being the best performing economy in the Asian region, after China. This is certainly no fluke; between 2008 and 2012, our GDP grew by an average of 4.7%, rising to 7.2% in 2013—higher than any East Asian country except China.
Our economic managers expect full-year growth for 2014 to be within the 6.5 to 7.5 percent target, but could likely settle at or around 6.0 percent. Just recently our Minister in charge of Economic Planning had announced that for the second quarter of 2014, the economy had registered 6.4 percent growth, up from 5.7% in the first quarter. This higher growth rate could be indicative of an upward trend that might just hit our growth target for 2014—further validating the positive economic impact of the Aquino Government’s good governance approach. Our Central Bank has announced that businesses have generally responded favorably to the better-than-expected economic performance, as overall confidence index stayed in positive territory at 34.4 percent.
The expansion of the business process outsourcing industry, upbeat domestic demand, continued strong inflow of overseas Filipinos remittances, and increasing tourist arrivals help drive a stronger services sector—one of two main engines of the economy. The other engine, consumption, has consistently remained strong. One reason for this is what appears to be a rising affluence among our youth, as indicated by an increase in consumer loans and overall purchasing power. While services and consumption continues to drive our economy, industry and manufacturing has been picking up. Industry growth will get more support from construction while manufacturing is expected to remain robust.
There is a saying in the financial markets, “the trend is your friend.” What matters most to business decision-makers is not a snapshot of what the economy looks like today, or quarterly upward changes in our economic indicators, but the prospects and direction of the economy in the long-term. I can tell you now my firm belief that the Philippine economy will not disappoint. Our overall economic outlook for the medium-term continues to be positive, with the potential to grow 7 to 7.5 percent in 2015, and 7.5 to 8.0 percent in 2016. If you are looking for a high-growth place to park your investments for the long-term, then look no further—the Philippines is that place. The challenge for government is how to sustain the reform agenda of Aquinomics, to make sure there is no backsliding into old ways, and to continue making economic miracles that our global partners, such as Hitachi, can continue to believe in.
The Holy Grail of Investment-Grade Status
But let me tell you about another miracle. In 2013, we had reached a significant milestone once thought unattainable. For the first time in our history, the Philippines reached the coveted investment grade status, courtesy of the top three major credit ratings agencies in the world, namely, Moody’s, Fitch, and Standard and Poor’s. Soon thereafter, the Japan Credit Rating Agency followed with their own credit upgrade of the Philippines. This achievement reversed nearly a decade of decline in our credit ratings. And it has not stopped there. Just last May, Standard and Poor’s gave us yet another credit upgrade to BBB–two notches above the investment-grade baseline and higher than two major BRICS economies, India and Brazil.
This milestone represents much more to us than the prospect of lower interest rates on government debt. Our investment-grade status is a veritable “seal of good housekeeping”—a strong, credible, and positive signal to investors that the Philippines is a buy. It gives us more opportunities and fiscal space to allow the government to invest more on social protection, defense, health, poverty reduction, and other key development priorities.
A last note about labels. One label that the Philippines is happy to shed off is the “Sick Man of Asia.” It is however a reminder that the bitter pill of fiscal and governance reform had to be ingested. There is still a deeply ingrained negative perception of the Philippines, and it is something that I, as my country’s representative, am also working to correct, through a combination of confidence-building initiatives with the host government. And it is why, as we pass the halfway mark of the President’s term, his administration is now focusing all its efforts on institutionalizing reforms and making sure that these are carried forward across successive administrations.
The Philippine Value Proposition
I’d like to show how the Philippines can help Hitachi achieve its goals in its expanding global business.
Business process management
Business process management, previously known as business process outsourcing, did not exist 20 years ago. The complexities of cross-border business transactions, continuous upgrading of technology, and intensified international competition necessitated an intermediate business model that transcended national boundaries, is cost-effective, and seamlessly integrated information and communications technologies. Business process management, or BPM, is now universally recognized as an effective means for global companies to increase profitability, maximize efficiency, and achieve better production capacities. As a standalone industry with a global market estimated at $952 billion, BPM has reengineered the cross-border production process and revolutionized international commerce. Only countries with a unique blend of IT- and investment friendly policies, cost-effective business environment, and skilled and capable IT professionals and human capital have thrived as BPM sites, servicing transnational companies and oiling the wheels than run global production chains.
The Philippines is one such country. We are a recognized global leader in BPM, and currently the number one destination for voice outsourcing. We are second only to India in global BPM and we are poised to expand further as major ICT service industry. Our BPM industry is comprised of contact centers, animation and other creative services, game development, and software development, as well as functional and vertical areas, such as engineering, health care, legal, financial services—among many others—for the energy, banking, investment, insurance, shipping, and other industries.
The BPM industry in the Philippines today is one massive growth sector. Revenues reached US$15.5 billion in 2013, up from US$8.9 billion in 2010—a 6.6 billion dollar increase. By 2016, the BPM sector in the Philippines is expected to collect US$25 billion in revenue. On its own, BPM has filled up a lion’s share of trade in services in the Philippines. In response to the growth of BPM and expansion of BPM-related economic activities such as real estate, renting activities, transport, storage & communication, our services sector expanded by 6 percent.
The BPM industry is so critical to the Philippines because of its employment generation. The sector alone employed 900,000 individuals in 2013, up from 525,000 in 2010, and is expected to create 1.3 million direct employees by 2016, making it the largest private sector job creator. More importantly, it is the indirect employment and indirect businesses that the sector creates that promotes a virtuous cycle of job creation and income generation. For every job in the BPM industry, there are at least three other service sector jobs and microbusinesses connected to it. An estimated additional 3.2 million indirect employment will be created by the IT and BPM sector by 2016.
Why is the Philippines a top-tier offshore BPM location? First and foremost, our people. We are the 3rd largest English-speaking country, with a 100 million population and a 40 million-strong workforce. We produce more than 500,000 college graduates armed with a Western-oriented curriculum. Our workers are considered the new breed of world-class service professionals, and have been referred to as “global knowledge workers” because they are able to compete at the highest level with the best in the world.
Second, cost competitiveness. Our labor costs for English-speaking professionals are among the most competitive globally.
Third, excellent support infrastructure. We have abundant low-cost and high quality urban real estate, not just in Metro Manila, but also in other centers of excellence such as Cebu, Davao, and Bacolod. We also have reliable and redundant connectivity, through transmission backbone networks and cable landing stations across the archipelago.
Fourth, government support for the sector is solid. We grant incentives for companies that choose the Philippines as their BPM site, such as income tax holidays of four to eight years. After the tax holiday expires, BPM companies only get to pay a mere five percent tax on their gross income.
Finally, the Philippines has a proven track record in BPM and in IT in general. As I mentioned earlier, we are Number One in voice BPM, particularly in customer care, technology, financial services, sales, and collections. The Philippines already houses mature industries and a wide range of services with cross-industry capabilities, such as IT application and systems development, telecommunications, engineering and architectural design, finance and accounting, human resources, healthcare, and utilities, and we have a burgeoning analytics and knowledge process outsourcing sector.
But don’t just take my word for it. Next month, hundreds of global IT and BPM practitioners, professionals, and investors will gather in Manila to gain valuable insight, share best practices and leverage networking opportunities at the sixth annual International ITBPM Summit. Under the theme, "Drive Change. Shape the Future,” the Summit aims to attract all who are interested in the developments of the industry, including outsourcing firms, allied industries, and prospective investors. I encourage you to see for yourselves how the Philippines can service Hitachi’s BPM needs.
Manufacturing is considered the backbone of any modern economy. I believe the days of lackluster performance of our manufacturing sector are finally behind us, for three main reasons.
First, manufacturing is growing again. The growth of the manufacturing sector accelerated to 10.3 percent in 2013, from 5.4 percent in 2012. This was partly driven by robust domestic demand for chemical products, radio, television, and communication equipment, food manufactures, rubber and plastic products, transport equipment and furniture and fixtures. The overall contribution to GDP and employment generation is also on an upward trend. The share of the manufacturing sector to GDP increased from 22.2 percent in 2010 to 22.7 percent in 2013. Manufacturing also employed 3.16 million workers in 2013, up from 3.11 million in 2012 and 3.03 million in 2010.
Second, opportunities for manufacturing abound in the global market. Demand appears to be picking up in the United States and the Euro area, which could mean an expected increase in exports and concomitantly, an uptick in manufacturing. Rising production costs in China and uncertainties in Thailand could give the Philippines the chance to emerge as strong alternative site. The Asian Development Bank observed in its 2014 report that the Philippine manufacturing sector deserves a second look, based on an increase in credit to manufacturers by 12.7% year on year in January, and high manufacturing capacity utilization. This may be indicative of a resurgence in our manufacturing output both for export and domestic demand.
Much has been said about the infrastructure framework in the Philippines that would support greater inbound investment and intensified economic activity in areas that are critical to the economy, such as BPM and manufacturing. Infrastructure development has not kept pace with the demands of a growing, 21st century economy, despite relatively stable and continuous growth in the recent past. The Aquino government is working doubly hard to make up for lost time—nearly a decade of stagnant infrastructure growth—in accelerating the creation and strengthening of infrastructure our growing economy urgently needs. The challenge is how to increase private investment in infrastructure under current fiscal constraints and how to strengthen investor confidence.
The President is keenly aware that major upgrades of our economic infrastructure is vital to support increased levels of trade and investment and eases the cost of doing business. The Aquino administration is serious about ramping up infrastructure development in the Philippines through a combination of investor-friendly policies, streamlined procedures, and enhanced market-oriented vehicles such as PPPs. 47 projects are already in the pipeline for 2014 and the national government budget for 2015 has allotted roughly US$12.8 billion to infrastructure—around 4 percent of GDP. We are set to roll out by mid-2016 eighteen major infrastructure projects considered vital to multi-modal interconnectedness, mobility of goods and people, upgrading of air and sea ports, promotion of tourism, and improvement of competitiveness under the flagship PPP program. To facilitate the mobility of goods throughout the regions, the government is working on a longer-term solution to enhance port efficiencies and capacities, with a view to developing our ports as major logistics hubs that would service the growing demands of international and domestic trade. These projects are of such scale that, if completed, would fast-track the needed infrastructure support for the economy.
There are two reasons why I am telling you this: first, the Aquino administration has made infrastructure development an urgent national priority, and it will harness all available and necessary resources to meet its infrastructure targets. Second, the private sector is an indispensable partner in our drive to improve our infrastructure, and I would like to invite Hitachi to join us in this effort and to play a big role in our national development.
Like infrastructure, the energy sector is both a cross-industry enabler and an industry of its own. The Philippines is pursuing a strategy towards energy self-sufficiency, affordability, and stability by diversifying its power generation sources, such as natural gas due to its competitive cost and minimal environmental impact. Our energy policy has a strong bias in favor of renewable energy, and as an alternative source of power, it has been growing rapidly. Currently, the bulk of renewable energy is generated from hydropower, accounting for 3,400 MW of capacity in 2012. Based on the 2010 Primary Energy Mix, the country is already 38.9% renewable, 21% geothermal, 13.1% biomass and 4.8% hydro. The Aquino administration recently launched the National Energy Program, which aims to triple the Philippines’ renewable energy capacity from around 5,438.0 MW in 2010 to 15,304.3 MW in 2030.
Our quest to achieve energy security largely through renewable energy is not without difficulties. Indeed, there is much scope for greater investments in the Philippine renewable energy sector. Our Renewable Energy Law grants a number of incentives to investors in renewable energy, such as the Feed-In Tariff system, income tax holidays, duty-free importation of renewable energy equipment, and tax credits, among others. I understand Hitachi is an emerging leader in renewable energy and enabling technologies; your partnership with the Philippines in this field is certainly a win-win situation for everyone.
Philippines-Japan Economic Relations
Finally, the foundation of Hitachi’s continued partnership with the Philippines rests on the continuing Strategic Partnership between the Philippines and Japan, and the strength of this bond is best exemplified in our bilateral economic relations. Let me put it this way: when the government hosting your investment has a “strategic partnership” with your government, and it treats this partnership with the highest possible level of respect and importance, you can be assured that your investment is in good hands.
Japan remains the Philippines’ top trading partner. Two-way trade continues to rise, reaching US$ 16.64 billion in 2013. Japan was the Philippines’ top export market, roughly US$ 11.42 billion, and the Philippines’ third biggest source of imports. Indeed, Japan-Philippines trade has been on an upswing since 2009. What the numbers and charts do not show is that in 2008 the country’s first and so far the only bilateral free trade agreement, the Philippines-Japan Economic Partnership Agreement or PJEPA, had entered into force. Clearly, our FTA with Japan has benefitted our economic relationship. And this picture is consistent year after year–in the first quarter of this year, our trade with Japan has captured the largest single piece of the total trade pie.
Japan is the Philippines’ second largest source of approved foreign investments during the first quarter of 2014. This was an improvement from last year’s ranking as the third largest approved FDI source, with a total amount of 44.78 billion Pesos, or more than US$1 billion. More and more Japanese companies pour investments in the Philippines—a testament to their faith and confidence in the Philippine economy. The current investment picture is like a mosaic of familiar Japanese companies that have a wide range of interests in the Philippines. And this is only the tip of the iceberg, so to speak. Uniqlo, Lawson, Canon, Brother, and other companies have started setting up shop or expanded their presence in the Philippines just this year, and we expect many more to follow suit.
Indeed, there is a lot of room for growth and optimism, and we’ve only just begun to tap our potential as a serious FDI destination. Our Philippine Economic Zone Authority or PEZA believed in this potential and has become wildly successful in promoting the Philippines as a competitive investment destination and in hosting Japanese investments. PEZA investments have increased from 27 to 30.77 percent in the first 7 months of 2014. The President himself reported that of the US$61.66 billion accumulated investments since PEZA’s establishment in 1995, 42 percent or US$22.84 billion of that total came in just the first four years of his term.
One of the reasons for PEZA’s success is that it is committed to deliver continuous, “24-7” service to its international locators with transparency and integrity. Our PEZA lives by the credo, “There should be no red tape, only red carpet treatment.” It has been cited by the World Bank as “a shining example of successful regulatory reform improving overall investment climate in the country.” Japanese investors could not agree more. 814 Japanese locator enterprises are currently operating in PEZA Economic Zones, in industries ranging from electronics and semiconductors, automotive parts, basic and fabricated metals, rubber and plastics, chemicals, food products, I.T., shipbuilding, and other support industries. Perhaps someday, the entire Philippines could evolve into one single Economic Zone, applying PEZA’s best practices and internationally-recognized standards throughout the whole of government. Until that day comes, you can be assured that your global business will remain profitable under PEZA’s wing.
I’d like to point out that the Philippines’ aggregate inbound investment levels have not been up to par with our ASEAN neighbors. Indeed, competition for investment is very fierce. The silver lining, according to our good NEDA Secretary Arsenio Balisacan, is that the Philippines only started to have sustained growth levels comparable to or even exceeding ASEAN levels only in the last three or so years, despite the relatively low levels of FDI. While on paper, FDI levels are low compared to its Asian neighbors, this may not necessarily reflect the reality on the ground. Investors are comfortable entrusting their investments to the Philippines, perhaps more than the current ratings and FDI levels suggest.
Through our efforts at home and in partnership with Japan, we want to send a message that indeed, the Philippines is open for business, the reforms are ongoing and are now bearing fruit, and that the Philippines is a value proposition that works. Last May, we brought the Philippine model of “good governance leads to good economics” to a wider global audience during the Philippine hosting of the World Economic Forum on East Asia. Improvements in our global competitiveness resulting from good government housekeeping were validated by the recent results of the World Economic Forum Global Competitiveness Report for 2014 to 2015, which showed the Philippines moving up seven places to number 52—a leap of 33 spots since the beginning of the Aquino administration in 2010. Next year, the Philippines will once again take center stage as Chair of the APEC Economic Leaders Meeting, where we will pursue initiatives that promote inclusive and sustainable growth through greater connectivity and economic liberalization in the APEC region.
If there is one message I leave you with today, it is simply this: invest in the Philippines. It’s the best decision you will ever make. Arigatou.
Lecture of Philippine Ambassador to Japan Manuel M. Lopez before the Hitachi Philippine Committee on September 30, 2014 in Tokyo, Japan.