March 16, 2017 10:00 am JST

Duterte's six-year plan to spread the wealth

Philippine leader wants better transport links for the rural have-nots

MIKHAIL FLORES, Nikkei staff writer

Philippine President Rodrigo Duterte © AP

MANILA While running for president of the Philippines last year, Rodrigo Duterte made a point of distancing himself from the business community, vociferously refusing any campaign funding from companies. Now, however, the new leader wants their help.

In January, over dinner at the presidential palace with some of the country's most powerful business leaders, the firebrand head of state warmed a bit toward the people he once branded as "monsters" -- but not without exhorting them to invest in the provinces to make national growth more inclusive.

Duterte, the first Philippine leader from the southern island of Mindanao, has consistently lamented the country's lopsided economic growth, which has bypassed less-developed areas in recent years.

From 2010 to 2015, Metro Manila and its surrounding areas generated nearly two-thirds of the nation's gross domestic product.

RURAL BOOST The National Economic and Development Authority recently finalized a medium-term economic blueprint that calls for increasing infrastructure spending in rural areas. Duterte approved the strategy -- called the Philippine Development Plan -- at a cabinet meeting on Feb. 20.

The plan maps out the new administration's economic policies for its six-year term. It is anchored on a vision of helping Filipinos achieve middle-class status by 2040. Currently, a fifth of the population lives in poverty despite the recent economic boom. Duterte wants per capita GDP to top $11,000, almost four times the figure in 2015, when the vision was formed.

The plan calls for redirecting more growth to other parts of the country, such as Davao, Duterte's hometown, by improving transport links between rural areas and growth centers.

The president has agreed to invest over 860.7 billion pesos ($17.0 billion) in infrastructure this year, or roughly 5.4% of GDP. That percentage is to be steadily increased over the next five years, reaching 7.4% by the end of Duterte's term in 2022 -- nearly twice the 4.3% seen in 2015.

Decrepit roads and bridges have been causing gridlock in the capital and congestion on national highways, hampering economic growth. To fund its infrastructure push, the government is searching for "an optimal mix" of government financing, official development assistance and private capital.

Since assuming office last year, Duterte has approved over 500 billion pesos for large-scale infrastructure projects.

Public-private partnerships, which yielded mixed results under former President Benigno Aquino, are to remain a pillar of infrastructure development. But the institutional delays that dogged the Aquino administration have prompted its successor to look at other financing schemes, including development assistance from key trading partners such as China and Japan.

Astro del Castillo, managing director at First Grade Finance, said that while PPPs remain part of the government's infrastructure strategy, measures such as bold tax reforms and campaigns against corruption could boost revenues and enable the government to build roads and bridges without external help.

DIPLOMATIC SHIFT The government has also set guidelines for tapping Chinese funding following Duterte's visit to China in October. In his relatively short time in office, Duterte has reconfigured Philippine foreign policy, salving troubled relations with China and placing the U.S., historically the country's main ally, at arm's length.

The shift has borne fruit. On March 7, Beijing and Manila resumed formal economic dialogue for the first time since 2011. During their talks, China agreed to fund three projects worth a total of $3.4 billion, including a railway link between Manila and the southern tip of Luzon, the main island. Chinese companies, meanwhile, have committed to investing $10.4 billion, according to the Philippine trade department.

The improved relations with China have not gone unnoticed in Tokyo. In January, Japanese Prime Minister Shinzo Abe arrived in the Philippines with an investment package worth 1 trillion yen spread ($8.6 billion) over five years.

Philippine companies are responding to Duterte's focus on less-developed parts of the country. San Miguel is constructing a brewery in Cagayan de Oro, in Mindanao, as part of a $300 million expansion plan. Universal Robina is also building snack factories there. SM Prime Holdings, the nation's largest real estate company, is planning more shopping centers outside Manila.

With protectionism on the rise worldwide, the Philippines is aware of the need to support some of its key economic drivers, notably overseas Filipino workers and the business process outsourcing industry. Advances in artificial intelligence, meanwhile, could steal jobs in the Philippine business process outsourcing sector, a $23 billion industry that employs a million people.

The development plan warns that "in the face of the trend toward inward-looking policies and protectionism, concluding preferential or multilateral trade agreements may become increasingly difficult."

Faced with sluggish growth in international trade and a muted global recovery, the Philippines plans to boost exports by focusing on relatively higher-value items such as bananas, sugar cane and rubber, and high quality goods where it is competitive.

"The previous administration was successful in growing the economy," said Ernesto Pernia, Duterte's socioeconomic planner, last month. "But we will work on dispersing the wealth."

Nikkei staff writer Cliff Venzon contributed to this report.

Asia300

San Miguel Corp.

Philippines

Market(Ticker): PHS(SMC)
Sector:
Industry:
Consumer Non-Durables
Beverages: Alcoholic
Market cap(USD): 5,693.05M
Shares: 2,724.51M
Asia300

Universal Robina Corp.

Philippines

Market(Ticker): PHS(URC)
Sector:
Industry:
Consumer Non-Durables
Food: Specialty/Candy
Market cap(USD): 7,496.77M
Shares: 2,204.16M
Asia300

SM Prime Holdings, Inc.

Philippines

Market(Ticker): PHS(SMPH)
Sector:
Industry:
Finance
Real Estate Development
Market cap(USD): 18,951.41M
Shares: 28,879.23M
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