Interview with Hon. Alfredo E. Pascual, Secretary of the Department of Trade & Industry (DTI), Philippines

23 Jul Interview with Hon. Alfredo E. Pascual, Secretary of the Department of Trade & Industry (DTI), Philippines

Can you give us your thoughts on the Philippines’ current economic status and the key sectors fueling its growth?

The Philippine economy has been growing fast and in 2023, it was among the fastest-growing economies, with 5.6% growth — better than other East Asian and Southeast Asian countries. This year in the first two quarters, we have been able to maintain more or less the same level of 5.7% and for the whole year, 2024, we are expecting to grow anywhere from 5.6 to 7%.

The government through its expenditure on infrastructure development and consumer spending is driving the economy supported by the production of goods that go into the consumer market. We have the fundamentals for expecting a continuing growth trend given the growing middle class in the Philippines with spending power. And the unemployment rate is below 3.6% so there is a spending power for driving consumption. The government is spending 5-6% of GDP on infrastructure. The infrastructure by itself is also attracting many investments, either as participants in building the infrastructure or being attracted to invest in the Philippines, because we have the infrastructure facilities that provide physical connectivity that is very important for logistics purposes.

Why are investors investing in the Philippines? It’s because we are in a strategic location. The Philippines is in the center of Southeast Asia less than two hours away, from many capitals around the region. It can serve as a gateway to over 600 million people in ASEAN, the Association of Southeast Asian Nations. The Philippines is a key player in this regional grouping.

The second factor attracting investments is the presence of a skilled, tech-savvy and English-speaking workforce. We have the youngest workforce in the region with a median age of 26. We are producing about 900,000 college graduates every year. Our engineers and technical personnel are very much in demand in many countries in the world that are running out of working-age people like Japan.

Another big driver of the Philippine economy is the Information Technology and Business Process Management (IT-BPM) industries, also known as business process outsourcing. It’s a growing sector in the country employing 1.7 million people right now. By 2028, we expect two million people to be employed in that sector. Among the 500 largest global companies present in the Philippines, their backroom operation is done here through its IT-BPM offices. It represents about eight to 10% of the GDP in the Philippines.

We have the strategic investment priority plan, which defines which industries are eligible for which tier of investment. We have three tiers. Tier 1 is for common manufacturing. In addition, up to tier three, which involves high technology and innovation. The available tax holiday will be longer for tier three than for tier one. We also have many reform measures to improve the ease of doing business. We used to be noted for red tape but now we roll the red carpet.

The robust economic growth of the Philippines itself is an attraction. It could attract investments and with investments you create jobs and with jobs you create consumption. The whole chain gets activated. Another critical aspect to look at is the commitment of the government to create an enabling environment. We have made several policy reforms that have been done in the past few years. For example, the liberalization of many important sectors that used to be reserved for Filipinos or majority ownership by Filipinos, but now are open to 100% foreign ownership. In infrastructure we have telecommunications, railways, toll roads, shipping and airports and this has attracted a lot of investment.

One of the latest sectors to be opened to 100% foreign ownership is the renewable energy sector. Now wind, solar, geothermal and hydro can be 100% owned by foreign investors. That has opened an avalanche of investment proposals coming from those countries that are already advanced in renewable energy like Scandinavian countries and countries in Europe like Germany. A big portion of the registration for incentives is coming from the renewable energy sector companies. Quite apart from opening ownership, we have the incentive system, income tax holiday, the enhanced deduction from taxable income etc.

What opportunities are available for US firms for FDI partnership?

In addition to IT-BPM, many US companies are putting up their offices here and employing Filipino workers. However, that is the service industry. In the manufacturing industries, there is the semiconductor sector that is growing — 60% of our exports consist of semiconductors and electronic products. US companies are welcome to participate. In this, we have the ecosystem for that. However, the Japanese have been here and they are among the largest investors in the manufacturing sector.

The Philippines presents itself as an alternative or as a second supplier rather than the US companies, depending on a single source, as it used to be. The Indo-Pacific Business Forum is a show of commitment of the US to support the Philippines and make it attractive to their US companies. One indication, the International Development Finance Corporation of the US is setting up an office in Manila. From there, they can process financing for US investments. Despite global trade challenges, Philippine exports hit a record high of over USD 100 billion in 2023. According to the DTI and the Bangko Sentral ng Pilipinas (Central Bank of the Philippines), exports of goods and services reached USD 103.6 billion, a 4.8% increase from the results in 2022.

The Luzon Economic Corridor is one of many major projects underway in the Philippines. Could you provide some highlights of these projects and explain how the US can contribute to their success?

The favorite place for manufacturing companies is the province of Laguna, Cavite, and partly Batangas. They are being filled up and we are now opening central Luzon North of Manila to be the next economic corridor. This discussion on the Luzon Economic Corridor started during the trilateral summit among the presidents of the US, the Philippines and the Prime Minister of Japan last April 11th.

We had counterpart trilateral discussions at the ministerial level between myself as the secretary of the Department of Trade Industry, the Minister of Economy, Trade and Investment of Japan and the Secretary of Commerce of the US. We had our trilateral discussions and among the topics we covered was the Luzon Economic Corridor. What the Luzon Economic Corridor will do to develop it is interconnect the Subic port. It’s a seaport that used to be an American base with the Clark Airport, which used to be an air force base of the US with a railway.

Then the railway would be extended to Manila and then to Batangas where there is another important port. So, that will open up the corridor up north and provide the connectivity for goods and people between populated areas between the south of Manila to the areas north of Manila. Along that corridor, we expect agribusiness companies to be developed, as semiconductor, and manufacturing companies, including the establishment of a Wayfair publication plant, which we want the US to support.

We are already in the semiconductor value chain. We are at the two ends. We do integrated circuit design here but we can’t design into chips. Because that’s done in the Wayfair farm. 90% of the production is now in Taiwan. Taiwan is considered a risk area so there is a need to diversify sources. We are presenting the Philippines as another center of production for chips, from IC design, Wayfair Manufacturing, and then the assembly, packaging and testing of the chips.

That is what the Luzon Economic Corridor is offering. In the corridor, we are putting up our national food hub. It’s a mega food hub where crops from farms can be brought and then the institutional buyers will be buying from there. At the Clark Airport, the shipping would be either by air for high-value items and by sea at the Subic port or the Batangas port, which will be interconnected in the Luzon Economic Corridor. That’s a major undertaking which is being supported by the US, Japan and the Philippines all committed to supporting the development because that will require a significant amount of investment. If we have that, then we have a welcoming venue or location. Many industrial parks will be developed there.

A few weeks ago I went there to inaugurate one industrial park that will eventually be a 1000 hectare (2471 acres) export pricing zone. The railway will be done on a public-private partnership. We work closely with the private sector. The private sector is the engine of growth. We are confident that by providing an enabling environment, the support in terms of ease of doing business, then the private sector will be coming in. For infrastructure projects, it can be in public-private partnerships between the private sector and the government.

Do you have a final message for the millions of readers of USA Today about choosing the Philippines as their next business, tourism, or investment destination?

I am proud to extend a warm invitation to the USA Today readers, particularly investors, to consider the Philippines as their next investment and business destination. We offer a strategic location, skilled tech-savvy and English-speaking workforce, robust economic growth, a supportive business environment and our bias for innovation and sustainability, which is in line with the aspirations of the rest of the world given our existential threat of climate change.

There is a cultural affinity between the Philippines and the US. The US has been in the Philippines for more than 50 years. The Philippines is ready and eager to be your partner in success. Whether you’re looking to expand your business, tap into new markets, or invest in promising opportunities, the Philippines offers a wealth of potential and a supportive environment to help you achieve your goals. We invite you to explore the possibilities and discover why the Philippines is the next great destination for business and investment.