KEYNOTE MESSAGE OF SECRETARY RAMON M. LOPEZ
German-Philippine Chamber of Commerce and Industry
04 February 2020, Dusit Thani Hotel, Makati City
Acknowledgments
Ladies and gentlemen, good morning!
Thank you for inviting me to speak before you today. For the year 2020, we are hopeful of continuing the robust Philippine-German economic and trade relations will continue and as mentioned there’s really a lot to work on. It’s not a perfect environment. There are issues in your mind which I hope you can clarify in the panel that we that we follow. More importantly, the Philippines moves from strength to strength despite the current humanitarian crises of the global spread of the novel coronavirus and the recent eruption of Taal Volcano. In January, there is already a lot of these developments that it seems it a year already. And we have to end the year already with all these developments of nature and humanitarian character.
Economic Growth Numbers
The country is performing very well. In fact, we have a very robust and a good run of fast economic growth averaging about over 6% over 15 quarters. Just on the last quarter of the last year, we managed to grow back to 6.4% for the year except for the first two quarters where in the budget had a problem getting pass for a lot of capital expenditure the “Build, Build, Build” project. They were affected by the budget and so there’s a bit of slowdown. But that slowdown the Philippines managed to grow still of about at 5.6%. Really very respectable and we still the second fastest growing in the region.
When the budget was passed the construction sector for example went back to a double-digit growth of about 16%. For the full year however, the GDP was 5.9%. This was supported by very strong household consumption amid tamed inflation and government spending on the expenditure side and construction output and Service sector which continue to be robust. Construction continued its double-digit growth for the last two quarters, while Services maintained a very fast growth throughout the year. Agriculture, on the other hand, is strengthening its output.
While 5.9% is a notch below our target range of 6.0% – 6.5%, our GDP growth was partly affected by last year’s challenging external environment. These issues ranged from trade policy uncertainty, geopolitical tensions, country-specific shocks in emerging markets, and weather-related disturbances. On top of this, there were also local factors that hindered us from reaching our growth potential, like the national budget impasse in early 2019.
The Philippine GDP made a strong showing compared to other Asian countries, coming in second place for the fourth quarter of 2019 and third place for the full year GDP growth. Moreover, several international organizations gave our country positive GDP growth projections of at least 6%. However, our aim is to achieve 6.5% to 7.5% in 2020 to 2022.
Inflation became subdued in 2019, averaging 2.5% for the year and settling within the government’s target range of 2.0% – 4.0%. The deceleration in inflation, from a high of 6.7% in Oct 2018 to a low of 0.8% twelve months later, largely emanated from the Rice Tariffication Law which is a new liberalized rice importation. This law allowed for more rice importation and deflating rice prices, to the benefit of the 109 million Filipino consumers. The BSP expects inflation in 2020 and 2021 to hover close to the midpoint of the target range, suggesting a manageable inflation environment in the near- and medium-term.
A strong GDP, of course, only makes a difference if this economic growth is inclusive. Our unemployment rate in 2019 hit 5.1%, the lowest in nearly 40 years. On a year-on-year basis, this means 1.3 million new jobs were created. Further, our underemployment rate was at 13.0%, a record low and indicative of the improving quality of jobs for our people. The underemployment rate used to be at about the level of 22%.
More importantly, poverty incidence with this high rate of employment went down to 16.6% from about 26.6% in 2006.This translates to 5.9 million Filipinos lifted out of poverty during the Duterte administration.
The latter is an important consideration, given that our main investment advantage is its people. With a population of 108M as of 2019, our country has a demographic sweet spot with a working-age population outnumbering its dependents. Moreover, our population is quite young with a median age of 24 years old.
Having a young and dynamic working population contributes greatly to our labor force. This, in turn, has a positive contribution to our country’s economic growth. And you can imagine that since this is a relatively young population with high employment rate, low inflation, continuous fast economic growth you can imagine that this phenomenon will continue to just grow and grow creating a much larger consumer based in the coming years
Trade & Investment Relationship
The recent 2019 AHK World Business Outlook survey noted German companies’ bullishness regarding the Philippine market despite global uncertainties and local policy adjustments. The study pointed out that more than 70% of respondents saw their current business situation in the Philippines as “good,” an increase of 6% from the previous year. What’s more, for business expectations in the next 12 months, with almost two-thirds anticipating growing business opportunities.
With that in mind, trade and investment engagements between the Philippines and Germany can only grow stronger in the coming decade if we take advantage of these opportunities. This is because Germany has been one of our important trading partners in Europe over the years and continues to be our top source of investments.
For the period of January to November Germany was our 8th top trading partner, being our biggest European export market, with US$ 2.5 billion. Top Philippine exports to Germany include electronic components and semiconductors and agricultural products such as tuna and coconut. Germany was also our top import source from Europe with US$ 2.5 billion. Balance of trade during this period amounted to US$ 4.97 billion in favor of the Philippines.
Philippine products for promotion to Germany range from electronics to processed and specialty food, as well as IT services and BPM sector. Approved investments from Germany for the period of January to September 2019 amounted to US$ 33.1 million. This pushed Germany up to 9th rank from 18th within the same period in 2018, or US$ 7.5 million. These German commitments are in the areas of manufacturing, administrative and support service activities, and transportation and storage.
The approved investments indicate German multinational companies’ confidence in the Philippines’ capabilities and competencies in IT-BPM. Companies like Boehringer Ingelheim, Merck, Bayer, Bosch, Daimler, Deutsche Bank, and Lufthansa Services have chosen our country as the location of their shared service centers not only the Asia-Pacific but also the global markets.
German mittelstands—or Small and Medium Enterprises (SMEs)—also realize the potential of the Philippine market. They’ve established manufacturing operations servicing not only our domestic market but also our ASEAN neighbors. For example, Knauf Gips produces gypsum boards while Zama Corporation—a subsidiary of Stihl AG—manufactures carburetors. In recent years, we’ve seen an increase in registrations of Regional Operating Headquarters (ROHQ) from German companies in the field of maritime, construction, and engineering services.
On the other hand, the Philippines is an emerging player in the global automotive industry with local companies like Ayala and IMI putting up stakes in Bavarian companies in the automotive industry.
Meanwhile, BMW is sourcing automotive parts from the Philippines amounting at an average of €16M annually. In June 2019, our Board of Investment (BOI)—through the support of the World Bank—conducted an information session and business matching activity on how to become a BMW supplier. The event successfully gathered around 50 Philippine automotive parts companies.
The Philippines regularly participates in trade fairs in Germany, like Anuga, Ambiente, and Biofach. But we aim to participate in more trade shows to diversify exports not only to Germany but to EU. These platforms are important in supporting our programs for Micro, Small, and Medium Enterprises (MSMEs), particularly in the internationalization of their products and services.
PH-DE Joint Economic Commission
Two-way trade and investments between our two countries will grow even further with the signing of the Joint Declaration of Intent Establishing the Philippines-German Joint Economic Commission (JEC) in August 2019. We thank our German counterparts—especially the Federal Ministry of Economic Affairs and Energy (BMWi)—for their help in making this happen.
Given that the Philippines considers Germany as an important partner in the EU and in Europe, the JEC was established as a platform to discuss trade, investments, economic cooperation, and other related matters. Some of the possible areas of cooperation that could be pursued under the JEC include automotive, machinery/ equipment, electronics, aerospace, chemicals, innovation, agriculture, and labor.
I am optimistic that the full potential of economic relations between our two nations will be realized with the JEC. Moreover, we look forward to the convening of the inaugural JEC meeting with Germany later this year in Manila.
Other Economic Cooperation Initiatives
In other areas, the Philippines is pushing to host the Asia-Pacific Conference of German Business (APK). Hosting the APK—a flagship event in the region held every two years to discuss and promote economic relations between Germany and Asia—will certainly boost trade and investment engagements between our two nations. If the Philippines becomes the host of APK, German companies can have the opportunity to participate in the growth story of the Philippines, including the government’s “Build, Build, Build” program.
The Department of Trade and Industry (DTI) and Siemens likewise signed a Memorandum of Understanding on Industry 4.0 Technology for Philippine Industries last December 2019. This cooperation would help DTI in advancing Fourth Industrial Revolution (4IR) initiatives in the country.
Moreover, Germany—specifically Berlin—has been a staunch partner in DTI’s startup internationalization efforts. During the Asia-Pacific Week Berlin in 2016, Manila was identified as one of the partner cities of Berlin in the Connecting Startup Cities initiative.
In 2020, the StartUp AsiaBerlin Roadshow will include Manila in its itinerary and will push for greater start-up access to markets and distribution, financing, administrative and policy support, research, talent, networks, and direct collaboration.
Addressing Challenges to Business
Of course, we want to address any concerns by German companies who want to do business in the Philippines, especially issues cited in the AHK survey. These will be taken up in-depth in the following panel discussion and open forum.
But let me tell you on the concept that CITIRA which is the new bill that will be passed that will concern the tax reform investment incentives are not to be taken away. It will even be enhanced especially as we talk of new projects that are going to come in into the Philippines.
However, the Philippine government is already addressing policy uncertainties pertaining to corporate tax and fiscal incentives. We foresee the passage of the Comprehensive Income Tax and Incentives Rationalization Act (CITIRA) by the first quarter of this year. But of course, the main element of that, that will benefit all investments with or without incentives is the reduction of the corporate income tax from 20% to 30%.
Moreover, we have enacted policy reforms to improve ease of doing business. Aside from implementing the “Ease of Doing Business and Efficient Government Service Delivery Act of 2018,” we’ve made an impressive jump of 29 notches last year in the Doing Business 2020 survey. For the DB 2021 survey, we aim to achieve 70th range. And still a lot of reforms to be done. It’s a working progress but more serious efforts are being put into. Policy reform, more administrative reform, streamlining and automation.
Just yesterday we had a meeting with the Anti-Red Tape Council. We have committed to double up on the reforms especially in starting a business and all the indicators that are part of that Ease of Doing Business survey. We really want to make doing business in the Philippines very easy as we work more on streamlining and more automation.
With regard to the availability of skilled labor, DTI has been working on upskilling and reskilling of our workforce through an agreement with SkillsFuture Singapore. We’ve also established the SME Academy as a training facility for our MSMEs. We’re working closely with the TESDA which the skills improvement agency of the country. And align with all the requirements that might be needed by the industry sector.
Conclusion
In closing, I’d like to reiterate that the Philippine economy continues to grow strong in the face of the current headwinds. That’s why I am optimistic despite this year’s rocky start and why I encourage our German friends to partner with us and be part of our economic growth story.
Moreover, attracting investments and generating more business ultimately helps the Filipino people as it creates more jobs and employment for our people. And for every job that we create, we lift one Filipino family out of poverty.
This is what was promised by President Duterte with his vow of Tapang at Malasakit and we remain committed to this goal as we build a more inclusive nation.
Thank you and mabuhay po tayong lahat.