With elections approaching, investors in the Philippines remain cautious

With elections approaching, investors in the Philippines remain cautious

With presidential elections in the Philippines less than a year away, uncertainty regarding the future of economic policies has caused investors to remain cautious.

The Philippines have experienced huge improvement under President Aquino’s administration. His administration’s economic reform has led to solid economic growth, and his anti-corruption campaign has improved governance. Last year, GDP increased by 6.1 percent, the second fastest growth in Asia, after China.

However, Philippine economic policies face uncertainty as the country is getting closer to its 2016 presidential election. Concerns regarding what the new administration will do with economic reforms have led to a partial slowdown in foreign investment, as businesses wait for clearer policy indications from the new administration.

 Continuity, or reversal?

Investors generally make business plans based on five to ten year forecasts, and they are concerned about what exactly the new president will do in the next six years. It is not unusual in the Philippines that the new president changes his predecessor’s economic policies, or even cancels projects completely.

Should the next government decide to suspend projects or reverse policies of the previous administration, it would create doubt about sustained growth and long term investments.

A continuity of the current economic reforms would would allow Aquino to leave a durable legacy. He has formally stated that he would like the Secretary of the Interior and Local Government and Head of the Liberal Party, Manuel Roxas, to be the next president.

Presidential endorsement has been important for candidates to secure a winning outcome of an election. Fidel Ramos, for example, won the election because of Former President Cory Aquino’s endorsement. However, the rating of President Aquino has diminished due to the anti-terrorism crisis in January that led to the deaths of over 40 policemen.

Other candidates who have announced their candidacies include vice president Jejomar Binay, Senator Grace Poe, and Davao City Mayor Rodrigo Duterte. Binary is a member of the opposition party, United Nationalist Alliance, and is leading the opinion poll. However, he is accused of massive corruption that took place during his post as mayor of Makati.

Despite this, Binay remains popular amid the population that lives outside of the cities, where Aquino’s economic reform has not yet reached. If Binay comes to the office, he is likely to reverse some, if not all, of Aquino’s economic reforms.

Election campaigns will intensify from October onwards, when candidates have to file their candidacies. In the meantime, economists expect investments to remain slow.

Contiunuity is key to attract investment

In the short term, GDP will continue to grow at a moderate rate, bolstered by remittances and election-related spending. Filipinos receive over 20 billion USD in remittances every year, and with such a high level of disposable income, it will continue to drive consumption.

In addition, election-related spending will also increase, further stimulating economic growth. Various economic forecasts have projected the Philippines to grow between 5.9 percent and 6.2 percent per year, thus likely to miss Aquino’s target of 8 percent.

In the long run, the economic performance of the Philippines depends on the policies and the types of economic reforms that the new government decides to implement. Continuing to build upon President Aquino’s reforms is seen as vital from the perspective of foreign business, and should this happen, investment will return after the election. The economic reforms by Aquino have been crucial in attracting investors to Philippines, which was once perceived as the ‘sick man of Asia’.

In contrast, any reverse in policy will be forfeited by investors. Singapore-based Eugenia Fabon Victorino, an economist at ANZ Bank says “the return of the revolving door policy that plagued previous administrations will not be seen as positive by foreign investors.”  A Japanese businessman in the Philippines warned that “the The Philippines economy will go bust if vice president Jejomar Binay becomes next president,” as a sign that shows foreign investors have little faith in Binay to continue with the current administration’s reforms.

A few have remained optimistic regarding the growth of the economy despite who comes to power, thanks to a large amount of remittances that the Philippines receives. However, what investors are concerned about is the long-term growth prospective, which relies on economic reforms, a continued fight against corruption, and improved governance and regulatory standards.

About Author

Qingzhen Chen

Qingzhen is a GRI Senior Analyst and a research analyst for an international information company. Her research focuses on China and the Asia Pacific. Previously she was a market researcher for PwC. She has gained regional knowledge from internships with the UNDP, China Policy, and the Royal United Services Institute. She holds a BA in Politics and East European Studies and an MSc in Security Studies from University College London.