Philippines’ new president raises hopes

Private equity players based in Asia tell Private Equity International they are ‘cautiously optimistic’ about the Philippines’ new tough-talking president.

Lawyer-turned-politician Rodrigo Duterte won a landslide victory in the 9 May presidential elections, finishing more than 15 points ahead of the current administration’s presidential candidate. Duterte admitted he is no expert on economic policies but pledged he would spread opportunities to the rest of the country to combat poverty.

While there may be some degree of anxiety on how the economy will fare under his term, private equity practitioners told Private Equity International they are optimistic that the politician’s controversial statements will not unnerve investors.

Among Duterte’s declarations, he has pledged to execute 100,000 criminals and dump their bodies in Manila Bay and he has also vowed to wage a “bloody war” against crime and said he would a “ride a jet ski to one of China’s artificial islands” in the disputed South China Sea to plant the Philippine flag there.

A director at a Singapore-based investment firm who is looking at potential investments in the Philippines said the perception of corruption has made investors think twice about going to the Philippines, but that may now change.

“Foreign investors I have spoken to about the new president were initially concerned because they had done business with officials who were appointed by the Aquino regime. Their main concern was loss of continuity,” he said.

“The fact that it now has Duterte as president may possibly help with this given that western and local media are portraying him to be a hard man with zero tolerance for criminals and people who engage in corrupt activities. I think that should be very warmly received and may well result in the Philippines moving up the perception index,” he commented.

A managing partner at a private equity firm that has invested in the Philippines said he thinks Filipinos have demonstrated what they are looking for in a leader and that needs to be recognised by the business community.

“We have to respect that and be behind him for the next six years,” he said. “It is too early for me to tell how he will interact with the business community, but I believe he has some qualities that point to the possibility that processes may be simplified that may make things happen faster.”

The Philippines presents a compelling case for private equity: a population of more than 100 million, maturing businesses ready to absorb capital and improved ratings from the investment community. In the last six years, the Philippines has enjoyed an average growth of 6.2 percent and attracted a steady stream of foreign investment, with inflows expected to hit as much as $6 billion this year, according to the Bangko Sentral ng Pilipinas, its central bank. However, only a handful of private equity firms have invested in the country. Among them are CVC Capital Partners, Capital International, Stockholm-based Brummer & Partners, Baring Private Equity Asia, ADM Capital and Singapore’s Government Investment Corporation (GIC).

CVC acquired business process outsourcing provider SPi Global; Baring Asia and ADM have committed about $150 million to construct office spaces in Clark Freeport Zone, and GIC has investments in Century Canning and Metro Pacific.

The managing partner said that one of the main roadblocks to investing is efficiency. “A common complaint is the time it takes to get things done. In some cases, it is a lack of urgency by counter parties, in others, a lack of capacity or capability, and in others still, a result of bureaucracy.”

“For instance, it is time-consuming to secure rulings from the Bureau of Internal Revenue on tax reliefs and tax-free merger applications. While these examples are specific to a government agency, the private sector is also guilty of taking a longer time than is necessary to get things done.” With new leadership, these roadblocks have the potential to be lifted, he said.

In addition, measures are afoot to boost corporate governance. The International Finance Corporation (IFC) recently signed a memorandum of understanding with the Philippines’ Securities and Exchange Commission (SEC), its main financial regulator, to work to improve the country’s Corporate Governance Code.

The initiative, according to Yuan (Jane) Xu, country manager of IFC Philippines, will enable IFC to work directly with the SEC to revise the code as well support the SEC’s other regulatory initiatives until 2018.

New leadership, economic growth and improving business ethics all suggest the Philippines might soon begin to realise its potential as a market ripe for private equity.