CEO Insights Asia Team | Tuesday, August 13, 2024
Japan and the United States have expressed interest in financing at least $15 billion worth of projects in the Philippine mainland, according to President Ferdinand Marcos Jr.’s investment official, suggesting that greater security ties could lead to greater economic benefits.
Secretary Frederick Go, economic adviser to President Marcos, said the three countries would prioritize five key projects in the Luzon Economic Corridor program, which is likely to become Marcos’ flagship investment program. Go said the list includes an $11 billion freight rail linking Luzon’s major ports and renewable energy projects.
“We are benefiting from our strengthened defense ties with the United States and other allies in terms of promoting investment,” Ngo said in an interview on Monday. Britain is also interested in funding projects in the corridor, he added.
The Philippines, which has lagged behind its neighbors in attracting foreign investment because of a lack of infrastructure and frictional costs, has sought to leverage stronger ties with the United States and its allies under the Marcos administration to help it reap economic benefits. The move comes amid growing competition in the region as Washington and other Western nations seek to diversify sources of supply chains and reduce exposure to China.
The plan to revitalize Luzon, the Philippines’ main economic hub and home to the capital, was announced after U.S. President Joe Biden met with the leaders of Japan and the Philippines in April. The three allies are strengthening economic ties as well as defense ties in the face of China’s assertiveness in the region.
Go said the Philippines-US alliance is expected to remain strong no matter who wins the presidential election in November, adding that the goal is to launch the five Luzon Corridor projects during President Marcos’ term, which ends in 2028.
With President Marcos seeking to transform the economy from consumption-driven to investment-driven, Go said rapid gross domestic product (GDP) growth, which could exceed 7 percent annually over the next four years, is achievable.
Catching up with neighboring countries in terms of investment has been an attempt of many Philippine presidents that has failed. What’s different this time, Go said, is that the administration is using Marcos’ foreign policy agenda to benefit the economy. Part of Go’s job will be to provide the necessary follow-up to ensure that investment pledges are actually delivered.
“That is why I am focusing on improving the ease of doing business and reducing the cost of doing business as these are key pillars to achieving investment-led growth,” said Mr Goh, who was former managing director of Robinsons Land Corporation before taking up his government post.
Early signs are promising. During a trade mission led by President Biden in March, US companies pledged $1 billion in investment. The US has recently opened up more sectors to foreigners, including renewable energy. Double-digit investment growth helped GDP grow 6.3% last quarter, the highest in Southeast Asia.
But other growth drivers are fragile, with consumption growing only modestly in the first and second quarters since the pandemic began and government spending hampered by limited fiscal space. Signs of economic stress have placed the onus on Prime Minister Marcos to attract more investment.
One bright spot for investment is the “Create More” bill, which aims to cut corporate taxes and bring incentives and other policies on par with those of neighboring countries.
Goh has a particular focus on the electronics and semiconductor sector, which accounts for the country’s largest exports. He hopes “Create More” will see more investment in the sector. “We have to work on what we’re good at,” he says. “At the same time, we should benchmark ourselves against the best in the world to be more competitive,” he says.