Address high power rates, Philippines urged

By: Amy R. Remo
Philippine Daily Inquirer
12:46 am | Tuesday, January 10th, 2012

This photo taken on April 18, 2011, shows a worker checking steel bars at the International Container Terminal Services Inc. (ICTSI) at a port in Manila. The Philippines can be the next investment hub being a low-cost country that is close to demand centers in Asia, according to Anand Kumar, Synovate's business consulting head for the Philippines. However, it has to address its high electricity rates, he says. AFP PHOTO/NOEL CELIS

The Philippine government must address its steep electricity rates and come up with more incentives for companies to set up manufacturing hubs, if it wants to step up as the next favored destination in the Asean region.

Anand Kumar, Synovate’s business consulting head for the Philippines, said these moves will allow the country to immediately seize upcoming business opportunities, particularly the full advantages that are expected to come with the Asean Free Trade Area (Afta) agreement.

In a paper entitled “Developments in Asean markets—Assessing the risks and Opportunities,” Anand identified the Philippines as one of the most promising emerging growth markets next to the giants of India and China.

“The opportunity… may not be available in three to five years so it needs to be seized now,” he added.

Explaining the trend, Anand said that for the past 10 years, export powerhouses Japan and Korea have remained stagnant. The ones leading the growth in this side of the world are the other countries in the Asia-Pacific including member-nations of the Association of Southeast Asian Nations.

“This is due to the combined exports of China, Indonesia, Malaysia, Vietnam, India, Australia, Singapore, Philippines, and Thailand that have exceeded the exports of Japan and Korea. China and India have the largest GDP in Asia while Indonesia ranks first among Asean countries,” Anand explained.

He Added that with China ceasing to be attractive as a low-cost manufacturing hub for new foreign direct investments, other countries can vie for the post vacated by the “Awakened Dragon.”

“India and Indonesia’s double digit median household income growth eliminate them from the list of alternate low-cost countries. Vietnam, meanwhile, is plagued with problems of high inflation coupled with significant currency devaluation,” he said.

“This means other Asean countries, including the Philippines, can take advantage of this niche. But potential investors must be wary of negative factors such as poorly executed governance and contracts as well as simply pursuing an ineffective mode of entry into the market,” Anand added.

Having emerged as a low-cost country in terms of wages, plus its proximity to the demand centers in Asia (China, India and Indonesia), Anand believed that the Philippines can be the next investment hub. “Usually, when they say the Philippines, people think it’s relatively expensive but that’s not the case,” he said.

“If we were to do the differential equation for the Philippines, we will notice that there is a significant variance between developed economies’ average hourly wages against the Philippines’ wages,” Anand added.

Apart from wages, the Philippines also has an inherent advantage in cultural factors—the accent and general amiability of the locals are certainly attracting more investors to the country, and this is best evidenced in the establishment of more BPOs in the country.