OXFORD BUSINESS GROUP FORECASTS:

Infra spending through 2017 to boost economy

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The Philippine economy is set to receive a major boost from increased infrastructure spending by the incoming government this year until 2017 at least, which should in the long term ease transportation bottlenecks and foster further growth in other industries, the Oxford Business Group (OBG) said in its latest report.

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“In the Report: Philippines 2016” released on Friday, OBG Chief Executive Officer (CEO) and Editor-in-Chief Andrew Jeffreys said the Philippine economy has been in a stable uptrend since 2010—growing by an average of 6.2 percent in 2010 to 2014 and 5.8 percent in 2015—despite the dry spell that affected the farm and food-processing sectors.

“With an improved long-term outlook, we expect the economy to continue expanding on the back of continued government investment in infrastructure until 2017,” Jeffreys said.

“This is crucial in easing costly transportation bottlenecks and fostering further growth of other sectors, such as business process outsourcing (BPO) and tourism,” he added.

After some initial apprehension over the unorthodox approach to governance shown by presumptive President Rodrigo Duterte while he was still mayor of the southern Philippine city of Davao, big businessmen in the country’s financial district of Makati began considering the 8-point economic agenda presented on Thursday by the Duterte camp.

Guillermo D. Luchangco, Makati Business Club trustee and Investment & Capital Corporation of the Philippines Group chairman and CEO, said the incoming
Administration of newly-elected President Duterte should exert effort in reassuring businesses and investors of a sustained —if not improved—business environment in the Philippines, even with the change of leaders.

“The outgoing Philippine President [Benigno Aquino 3rd] has successfully created a positive business environment which paved the way for the country’s strong economic growth. The Philippines must now give the new President [Duterte] its full support to continue the success story of the country,” Luchangco said.

The business community mentioned earlier that the change in government might affect the expansion plans of businesses given uncertainty about the new government.

Paulius Kuncinas, OBG managing editor for Asia, said that the country’s strong BPO sector is seen growing in the next few years, driving economic growth with its multiplier effects of more direct and indirect jobs.

“Business process outsourcing has been key to driving wider expansion in the Philippines, particularly in construction and retail, due to stronger demand from advanced economies,” Kuncinas said.

“While the sector has so far has been dominated by voice-centric services, we expect that the industry will expand toward knowledge business process outsourcing,” he added.

The OBG economic report emphasized the potential of gas as a promising resource as the country faces obstacles related to aging fields in the energy sector.

According to the report, infrastructure spending is set to continue ramping up in 2016 to 2017, which will address major traffic congestion in Metro Manila and across the country, and will also lessen the current high costs of the logistics sector, which are in turn reflected in higher consumer prices.

It cited International Monetary Fund (IMF) data showing that the Philippines is predicted to grow by an average of 6.4 percent from 2015 to 2020, which is higher than the forecasts of 5.5 percent for Indonesia, 4.9 percent for Malaysia, and 3.2 percent in Thailand.

The report states that even with the change in administration, “the Philippines’ overall direction is unlikely to change.

“Some reform momentum will likely be lost during election season and the political transition, and there is a risk that economic weakness will spread from China to advanced economies, and from there to the Philippines. However, the BPO sector appears set to continue snowballing and increasingly leading growth across the economy, and the drop in oil prices is an important positive change, the effects of which are likely to continue to play out for years,” the report read.

“There is strong potential for growth to accelerate if the uptick in infrastructure spending that was seen in the second half of 2015 continues, and if the US economy remains strong,” it added.

The report further said that the country could benefit from “game changers” brought about by constitutional reforms and the drive to join the Trans-Pacific Partnership (TPP), which can attract foreign investments to the Philippines.

One of the key points of the incoming Duterte administration’s economic program announced on Thursday was the easing of restrictions on foreign investment through constitutional amendment or other means.

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