Philippine Development Forum 2008 Jaime Augusto Zobel de Ayala.

Philippine Development Forum 2008

Jaime Augusto Zobel de Ayala

Governance as foundation for economic Governance as foundation for economic developmentdevelopment

Economic Blueprint and Resource AllocationEconomic Blueprint and Resource Allocation

Focused infrastructure spendingFocused infrastructure spending

Support development of industries with Support development of industries with competitive advantagescompetitive advantages

Key Issues





Key Issues

Key Issues





The most problematic factors for doing business in the PhilippinesThe most problematic factors for doing business in the Philippines

0 5 10 15 20 25

Foreign currency regulations

Inadequately educated workforce

Inflation

Poor work ethic in national labor force

Crime and theft

Restrictive labor regulations

Access to financing

Tax regulations

Tax rates

Government instability/coups

Inefficient government bureaucracy

Policy instability

Inadequate supply of infrastructure

Corruption

Source: The Global Competitiveness Report 2007-2008, World Economic Forum Percent of responses

Governance as foundation for economic development

GOVERNANCE IS ONE OF THE FOUNDATIONS FOR ECONOMIC DEVELOPMENT:

Governance as foundation for economic development

Rule of Law

Transparency in Rules and

Regulations

Thriving Local Private Sector





Key Issues

National Development Plans (NDPs)

Labor Market Reforms

Fiscal Policies

Commercial Policies

Enterprise Agencies

European Integration

Purpose

Improve social and economic infrastructure Foster balanced regional development Promote social inclusion Sustain economic and employment growth

Create a skilled workforce through improved education and training

Manage wage inflation to ensure labor cost competitiveness Reverse trend toward emigration of skilled labor

Low corporate tax rate Reciprocal tax agreements with other countries

Offer financial aid in the form of grants Establish export duty exempt zones Develop specialized business parks for certain industries

Promote inward investment Encourage local entrepreneurship Invest in scientific research and development

Membership to EU Adoption of Euro

The IRISH government pursued a variety of policies to stimulate the economy

Economic Blueprint: Case of Ireland

Source: McKinsey

Inward foreign direct investment (in US$B)

Inward FDI flows subject to fluctuations, but are still higher than a decade ago

9.1

26.9

29.0

9.7

25.8

18.2

1.40.60.3

Ireland ranked 7th among FDI recipient countries

Dot-com bubble burst

U.S. companies

paying back intra-company

loans

Sources: UNCTAD; World Investment Reports, McKinsey

200420042003200319991999 20002000 200120011995199519901990 2002200219801980


GDP at purchasing power parity

Source: OECD

Source: Central Statistical Office Ireland

24 25 27 29 3236 38 40 43 46

5359

68

79

91

104

117

131139

149

19991999 20002000 20012001 200220021998199819891989 19901990 19911991 19921992 19931993 19941994 19951995 19961996 1997199719851985 19861986 19871987 19881988 20032003 20042004

10.2%

€ billion, 2004 prices

Ireland has experienced strong GDP growth since 1985






Key Issues

Philippine GDP 1985-2007

572 591 617659

699 721 717 719 734766

802849

893 888918

973 9901,034

1,0851,154

1,2101,276

1,370

0

200

400

600

800

1,000

1,200

1,400

1,600

1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

Source: NEDA

Php Billionsat constant 1985 prices

Focused Infrastructure Spending

Period Consumption Government Investment

Growth Rate

Share in GDP

Growth Rate

Share in GDP

Growth Rate

Share in GDP

1951-1960 6.5 74.9 4.5 7.3 5.8 18.4

1961-1970 4.7 74.2 5.5 7.1 6.3 20.7

1971-1980 4.7 67.7 7.0 8.7 9.5 25.2

1981-1990 3.0 70.1 1.5 7.6 3.0 21.3

1991-2000 3.5 77.8 3.5 8.0 4.0 23.0

2001-2006 4.9 78.4 0.4 6.8 -1.3 19.7

Source: Philippines: Critical Development Constraints, Asian Development Bank

Share of expenditure components in GDP (%)Share of expenditure components in GDP (%)

The most problematic factors for doing business in the PhilippinesThe most problematic factors for doing business in the Philippines

0 5 10 15 20 25

Foreign currency regulations

Inadequately educated workforce

Inflation

Poor work ethic in national labor force

Crime and theft

Restrictive labor regulations

Access to financing

Tax regulations

Tax rates

Government instability/coups

Inefficient government bureaucracy

Policy instability

Inadequate supply of infrastructure

Corruption

Source: The Global Competitiveness Report 2007-2008, World Economic Forum Percent of responses


Types of Infrastructure Urgently RequiredTypes of Infrastructure Urgently Required

Power, from generation to Power, from generation to distributiondistribution

Water supply, irrigation, and Water supply, irrigation, and distributiondistribution

National roads and expresswaysNational roads and expressways

International airports and seaports; International airports and seaports;

Mass-transit systemsMass-transit systems

Basic educationBasic education


Source: UP School of Economics

Philippines’ Core Growth Areas:Philippines’ Core Growth Areas:

National Capital RegionNational Capital Region

Central-Southern Luzon Central-Southern Luzon growth corridorgrowth corridor

Metropolitan CebuMetropolitan Cebu

Metropolitan DavaoMetropolitan Davao


Account for large and growing share of national output

NCR and Calabarzon alone account for nearly half of national GDP

Source: UP School of Economics

325 340382

418

543

634

717

809

909

986

457

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007


No. of Households Served (in ‘000)

558

1,1511,332

2,011

2,394 2,409

176123100

1998 1999 2000 2001 2002 2003 2004 2005 2006 2007

Net Income (in ‘000)

• 99% of population in East Zone now have access to 24-hour uninterrupted water supply vs. 26% before MWC took over the concession

• System losses reduced from 63% in 1997 to 24% today

• Market value of Manila Water Co. increased to P37B in 2007 from P2B in 2001

• MWC paid P800M in taxes to the government in 2007 following the expiration of its income tax holiday

Manila Water

Wireless SubscribersWireless Subscribers(in ‘000)(in ‘000)

12,404

15,660

20,318

9162,563

4,5886,572

8,860

12,514

1999 2000 2001 2002 2003 2004 2005 2006 2007


6,918

10,34511,396

10,315

11,755

13,300

4,379

1,6221,013

22

1998 2000 2002 2004 2006

Net Income Net Income (in millions)(in millions)

• Globe paid P14.8B in taxes to the government in 2007, up 55% from prior year

• Market value of Globe now at P208B from P298M in 1994

53.9

22.3

32.9 34.6

42.1

61%

20.315.712.4

12.58.9

3024.2

20.419.212.9

1.2 1.8

2.2

3.6

0.5

48.3%40.6%39.4%

27.3%

2003 2004 2005 2006 2007

Globe PLDT Others Penetration

SIM Penetration Rate (%)

• SIM Penetration levels increased from 0.7% in 1995 to 61% today giving a majority of the population access to telecom services

million subscribers

In the 2005-2006 National Achievement Tests (NATS)…

The average score among public elementary school students was 57% vs. 75% passing score

The average among public high school students was even lower at about 44%

Only a handful of students passed the test


Spending on EducationSpending on Education

Source: UNESCO data. No Retreat, No Surrender: The battle against the Philippine Education crisis


Education Budget as % to GDP

International Benchmark 6.0%

Malaysia 7.4%

Thailand 4.0%

Philippines 2.5%

Education Per Capita Budget

Singapore US$1,582

Thailand US$852

Philippines US$138





Key Issues

ESO, 70%

BPO and ITO, 28%

KPO, 2%

2005 2010

GLOBAL ADDRESSABLE MARKET PER OUTSOURCING AND OFFSHORING DIVISION

Total: US$1.067 Trillion(estimated in 2005)

ACTUAL PENETRATED MARKET

~45

~130

2006 2010

(in USD Billions)

3.3

13PHILIPPINE SHARE

CAGR+41%

~5%~5% ~10%~10%

CAGR+24%

Development of Industries with Competitive Advantages

Source: BPAP

Source: BPAP: Duke University; Booz Allen Offshoring Research

Network 2006 survey

Percentage of firms citing offshore location of choice

6

6

3China

Eastern Europe*

Other Asia*

18Others*

21India

19Philippines

14Latin America*

ITO ESO

0

7

7

9

13

45

12

6

9

7

9

6

49

13

5

8

9

2

45

19

12

B P O

# 2

Back officeCall center

# 2

2007 Outsourcing Destination of the Year – National Outsourcing Association, UK

* Contains multiple countries

The Philippines is viewed as a favorable location for O&O services


Talent developmentTalent development

Development of Next Wave locationsDevelopment of Next Wave locations

Business Environment and supportive Business Environment and supportive public policiespublic policies

PHILIPPINE ROADMAP FOR BPO INDUSTRY FOCUSES ON:

Key Components of Roadmap 2010 for Key Components of Roadmap 2010 for

Philippine Outsourcing and Offshoring:Philippine Outsourcing and Offshoring:


Source: BPAP

Key Trends to consider in shaping Key Trends to consider in shaping education policy and investments:education policy and investments:

MigrationMigration

Relationship between science and Relationship between science and technology and a country’s technology and a country’s competitivenesscompetitiveness

Effect of investment policy on Effect of investment policy on people’s decision where to workpeople’s decision where to work


Key Issues

Governance as foundation for Governance as foundation for economic developmenteconomic development

Economic Blueprint and Resource Economic Blueprint and Resource AllocationAllocation



Philippine Development Forum 2008

Jaime Augusto Zobel de Ayala

Philippine Development Forum 2008 Jaime Augusto Zobel de Ayala.

Documents

economic infrastructure

economic developmentgovernance

regional development

development membership

philippine development

certain industries

ayalakey issuesgovernance

inward investment