Good morning. Madam consul general, thank you for hosting us in this beautiful strategically located facility. Ambassador, thank you again for being our kind host, bringing us all over the world to promote the Philippines. My colleagues in the Philippine government, friends. After ambassador’s speech and that introduction, I don’t know what else to say.
They’ve said everything that’s happened in the Philippines the past 5 years. And a question I’m often asked is: What really happened? What changed? Five years after all, is a very short time. How can a country that was long referred to as the Sick Man of Asia suddenly become the Bright Spot? My answer to them is that the potential has always been there. And President Aquino basically was able to unearth that potential with better governance. With better governance, we have been able to get the confidence of our partners, our friends, and the financial markets. For the government in particular, this has allowed us to create more fiscal space.
For example, our interest expense at one point was over 30% of our budget. Now it’s down to less than 15% – that 15% was put to productive use. For the longest time, and I’m sure Ms. Canilao will talk about this later, our public budget for infrastructure which is around 2%, our public budget for education was just around 2%. In next year’s budget, our infrastructure budget will be at 5% of GDP, whereas education will be around that same figure as well. So clearly, gaining confidence from the market place has allowed us to get into a virtuous cycle. And this virtuous cycle is reinforced by you, the business people. In particular, local businessmen. Several names were mentioned by the Ambassador earlier, but with improved credit ratings, lower borrowing costs, and a stable macroeconomic environment, they’ve become more aggressive and more confident about the future. Their required returns on their investments have also decreased, allowing them to put in more capital into the Philippines, reinvesting in the Philippines. Again, allowing them to get deeper into a virtuous cycle of their own.
But more importantly, we have awakened the Filipino consumer – the potential of this very young group of ours. Lower interest rates allowed them to buy cars instead of motorcycles. Lower interest rates have allowed them to live on their own instead of living with their parents. More and more do so by buying condominiums. This has become a driver for growth. This is fuelled by the fact that the president has been successful in really improving the financial health of the country. For example, at the start of his term, our general debt to GDP was close to 50%. Now it’s about 36%. When you look at our foreign debt to GDP, it’s down to about 15%, so clearly you have a country that’s been able to rediscover its own strength. So the question in may people’s mind is what will happen after President Aquino? I think many of you have heard of the election process that has already begun in the Philippines, I think what you have to look at is the fact that this election is probably the first election where you will really have and empowered electorate. The penetration of internet and mobile telephony in the country has never been deeper. In fact we have more telephones than our population. This is where technology allows countries to leapfrog. Before, Lee Kuan Yew once said that ‘90% of our population is waiting for phone lines, and 10% is waiting for dial tones.’ Not anymore. Because you don’t even need fixed lines – we’ve gone from having fixed lines to mobile telephony. And with an informed citizenry who has been able to align their own interests with better governance, I think they will be making the right choices. After all, it’s been said that the voice of the people is the voice of God, so I’m confident so long as the process is credible and the winner has the mandate. When you look at the fundamental advantages or things that are going for the Philippines, it’s hard to go wrong. Economies are about people, we have the youngest population in the region, and our median age is about 23.5 or 24 years old. You have a young population with increasing disposable income and a young consumer base that is trading up. This, as opposed to consumers in our more advanced economies populations, who are basically trading down because of demographic issues and other challenges they face. So this economy will be driven by consumption, as it is being driven today. That consumption can be funded because we are structurally a current account surplus country, driven by foreign remittances, and increasing BPO revenues. In fact, next year, it’s expected that BPO revenues will exceed remittances. Increasingly, as our tourist friends rediscover the Philippines, tourism will become a third strong leg to that current account story. And then of course, there is the wealth in the ground that the Philippines has always had. Once commodities will turn around – and it will because these are finite resources – and by then when the regulatory environment would have already been fixed – we can then count of natural resources as a possible fourth strong leg. We can actually have many other legs to this story. And therefore, consumption is something we can actually sustain. And then increasingly, infrastructure. I remember before, in 2011, there was a BBC story about our infrastructure program criticizing it saying that nothing has been implemented. In fact, some of our friends in the banking sector in the Philippines referred to our PPP program as a PowerPoint presentation. I think Cosette Canilao will prove to you later that it’s more than a PowerPoint presentation. It is really a program that will become the second engine for growth. Increasingly, as I said, with fiscal space that we’re devoting to infrastructure, it will be a driver for growth. Not only because we have a long way to go to catch up with our neighbors, but we’re also facing challenges posed to us by climate change. If you look at climate change, it’s double edged. It’s a problem but we like to look at it as an opportunity, to again leap frog the infrastructure of our country. Again, being a late mover, we can build better infrastructure. The Philippines is estimated to need at least $125 billion in infrastructure investments. My own estimate is that it’s more because to be connected to the world, to be part of global supply chains and tourist networks, you must have world-class infrastructure. Ports, airports, everything. At the same time, the Philippines being an archipelago, will have to be connected within so that we can make movement of people and goods in the country much more efficient. So again, this is something that we cannot avoid and therefore I’d like to look at it not as a cost but as an investment in the future, an opportunity to drive further the growth of the country to an even higher level. The third opportunity for investors is the investment in people that we have to continue to make. Again, national boundaries are blurring, people are able to work not just in their home countries but here and other parts of the world. And therefore they must have skills that are globally competitive. And therefore our education system must be globally competitive. We must be able to being in the very best in terms of what technology is able to offer us. We have to educate our people in technology. So education particularly in technology is I think going to be a major opportunity. Technology will ultimately be the great equalizer. We’re starting to see it in this region. I was listening to the head of Kimberly Clarke the other week, and he was saying in Korea, 90% of their products are now sold online. In China, it used to be 0%, now it’s 30% online. So around Asia, on average, they sell 50% of their products online. Whole business models are being challenged by technology. The simple taxi driver, who used to think he was quite safe, is now being challenged by Uber and other technology-driven institutions. This is why, for a country like the Philippines with a very young population, the use of technology and education is going to be crucial if we are to really reap the demographic dividend and make the Philippines very competitive. In relation to technology, one of the things that they still have not been able to deal with is the fulfillment part that still has to be delivered the old way. And with the Philippines right at the heart of Asia, tough not part of mainland Asia, another opportunity is logistics. As we improve our infrastructure and as people gain back confidence in the country, we do hope that we will be able to again recapture the role that geography has given the country to be a logistics hub – because we’re about 4 hours away from all the major Asian capitals. Finally, talking about the aging of our more advanced neighbors, Southeast Asia now is the world’s largest medical tourism hub. This year, I think it will be able to attract 10 million medical tourists. The Philippines is still not among the top 3 in this field, the top 3 being Thailand, Singapore, and Malaysia, but we are number 1 in terms of supplying healthcare workers. And therefore I think this is the other opportunity that we have to look at that I’d like to share with you, because until science is able to discover a pill that will allow us to live forever, we’ll have to face the terminal phase of our lives. I think if we’re able to make the terminal phase more fun, hopefully, people will decide to go to the Philippines for medical treatment, and increasingly they already are. For example, the pacific island nations, Guam, Saipan, and others, do come to the Philippines for medical treatment. Our friends from Brunei have been telling me that they are now coming to the Philippines instead of Singapore because one, we’re closer, two, we’re cheaper, and three, the service is better. So here you have it, a country that used to be at the top of the region and second in Asia many years ago, went through its challenges, but now has regained its footing and has rediscovered its true potential. That’s a country that we are presenting to you today. We also have a country that I think has the freest press in the region and therefore, if you are someone who has not been to the Philippines or is just trying to understand the Philippines through newspapers, then my suggestion is to read all the newspapers, read all the internet sites. Then come up with the average because it’s hard to just make your decisions based on a press that can really exaggerate on the negative rather than on the positive. Because if you don’t, then you will miss an opportunity. 2015, 2016, and the next 10 years is really going to be important because it is the time when ASEAN, where the Philippines is the 2nd largest in population, will try to become one economic market. It will be one of the world’s largest, one of the world’s youngest, one of the world’s fastest growing disposable income populations, and we believe that ASEAN’s vision of being the hub of Asia trade will become a reality. This is something that I think is not only by design, but by strategy, because ASEAN has been aggressive in entering into trade agreements. The Philippines alone has been lucky to get GSP+ from the EU, and we’ve seen more and more investors and manufacturers come to the Philippines because of that opportunity. So as we integrate, you will realize that in an integrated ASEAN, the Philippines is one country that you have to look at. So I hope that with this seminar, kindly organized by the British government, you will see the opportunities in PPPs as well as the other sectors. We have a substantial delegation here both from the private sector and the financial sector. As they say, it’s not quantity that matters, it’s quality – and I see a quality crowd here. Again thank you Ambassador for organizing this event, and Madam Consul General for hosting us. Thank you for listening.