Interview: Helen Y Dee

What sectors can benefit from the Japan-Philippines Economic Partnership Agreement?

HELEN Y DEE: Japan is the country’s largest trading partner and the only country with which the Philippines has a bilateral trade agreement. Philippine companies have always seen those strong bonds as an opportunity to identify business opportunities between both nations. This in turn has enabled Philippine companies to expand their reach and service clients via tie-ups instead of pursuing a more expensive bricks-and-mortar strategy outside the country. By partnering up with financial institutions from Japan, a Philippine bank is able to service Japanese clients looking to invest in the country. Our partnership with Resona Bank, for instance, has allowed us to target medium-sized Japanese clients looking to set up businesses in the country.

The sector that has garnered the most attention from Japanese investors has been manufacturing, particularly when located in export zones or industrial estates. Given anti-Japanese sentiment and the rising cost of labour, many Japanese manufacturers have begun to move out of China and look at the Philippines as an alternative destination for their manufacturing sites.

There has also been significant Japanese interest in the financial sector. This has come in the form of Japanese investment in Philippine banking institutions, as well as Japanese banks seeking licences to operate in the country on the back of recent liberalisation in the banking industry. With the Philippine stock exchange boosting its visibility and investors looking for opportunities, there has also been renewed interest from Japanese investors in purchasing local stocks.

How can the Philippines strengthen the competitiveness of second-tier cities as investment destinations, and what role is Japan playing?

DEE: Japanese investments in Cebu by Tsuneishi Heavy Industries have turned the Philippines into the world’s fourth-largest shipbuilder. Given the focus of President Rodrigo Duterte’s administration on countryside development and generating more investment in agriculture, these are areas where foreign investment can play a role in alleviating rural poverty.

Mindanao, for example, is the country’s fruit basket and would benefit from investment in agricultural production, with Japanese players like Sumifru already engaged in banana production. Proper infrastructure needs to be in place to facilitate this investment, including irrigation systems and rural roads.

On the infrastructure front, Japan has played – and will continue to play – an important role in providing comprehensive development assistance and funding through the Japanese International Cooperation Agency, of which the Philippines is the one of the largest recipients. Elsewhere, Japanese investment has sought to boost energy security in provincial areas, with both Marubeni and Toyota Tsusho investing in power plants.

Foreign investors do not face difficulties when they invest in a Philippine Economic Zone Authority (PEZA) area, as permits and procedures are simplified and expedited. Hurdles arise when investment occurs outside a PEZA area, where getting permits from local governments and navigating layers of bureaucracy can present a challenge to investors. The attractiveness of the Philippines lies in the quality and availability of its English-speaking workforce, and many Japanese investors are looking into labour-intensive industries where the Philippines may have an edge.

To further encourage investment, there has been discussion from the Duterte administration about the revision of certain economic provisions of the constitution, such as the 40% limit on equity for the telecommunications or public utilities industries. Given the relatively high level of bureaucracy and the lengthy steps needed to register a business outside of PEZA zones, the administration is focused on reducing the amount of red tape so as to catalyse competitiveness and reverse low foreign direct investment numbers.