Global supply risks

Philippines: Political Noise And Investment Stalemate

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Just as we thought the IT-BPM growth story in the Philippines was looking picture perfect with solid revenues and rising “Next Wave Cities”, the statements made by President Rodrigo Duterte have managed to stir up a storm that has caught investors and businesses unaware. From his anti-U.S remarks to his pro-China foreign policy, everything has received widespread press coverage as well as criticism. Let us look at these recent events objectively and try to understand what they actually mean for the stakeholders and how they appear from a third-party perspective.

‘Separation from the U.S’, ‘Drug War’ and Everything in Between

First off, it should be noted that the Philippines and the U.S have been long-term allies. The U.S has been one of the biggest sources of foreign investment in the Southeast Asian country and has also been supportive of its economic growth. In return, the U.S has leveraged this strategic partnership to project power in Asia, where China has increasingly grown as an economic and trading superpower.

The origins of the ongoing controversy can be traced back to September, 2016, when President Duterte called for an end to the joint military drills with the U.S, as the country forges stronger alliances with China and looks to better bi-lateral ties with its regional trade partner.  There were several demonstrations with a large scale protest at the U.S embassy in Manila as well in October, with thousands protesting against presence of U.S troops in the country. However, the statement that has clearly raised concerns among the investor and business community was made at the Beijing Economic Forum on October 20th, where President Duterte announced “separation from the U.S”, which he later clarified as a reference to his administration’s intention of pursuing an independent foreign policy that was more inclined towards its regional allies such as China. However, President Duterte’s aggressive stance against presence of the U.S troops in the Philippines continued, and on October 26th he called for all foreign troops to exit the Philippines in two years. This move has been viewed as a step by the new administration towards soothing its ties with China which were previously under strain due to territorial conflicts in South China Sea. The political rift between the U.S and the Philippines is likely to further widen as the U.S recently blocked the sale of 26,000 assault rifles to the Philippines, citing concerns related to human-rights abuses amid the ongoing drug war, which since its inception has resulted in thousands of killings.

Investor Concerns and Why They Need to Be Addressed

The political noise clearly raised concerns for the U.S firms in the country as well as hundreds of businesses serving clientele in the North American market. It should be noted that as per figures by the Philippines’ industry group, IT and Business Process Association of the Philippines (IBPAP), 77% of their revenues come from U.S clients. The fact that more than two-thirds of the country’s BPO sector relies on contracts serving U.S-based clients, the statements made by the Philippine president have the potential to hurt long-term investment sentiments towards the country. What makes a positive business sentiment even more crucial at this juncture is the Philippines’ Six-Year IT-BPM roadmap, wherein the country aims to achieve $39 B in revenues and 1.8 million additional jobs, of which more than half a million would be outside NCR, by 2022. With such ambitious targets, there is clearly a need for stakeholder engagement and understanding what the implications of a change in foreign policy are. The recent meeting between the American Chamber of Commerce and the Finance Secretary Carlos G. Dominguez is a start towards allaying fears of investors in this regard, with the administration assuring that all business commitments would be protected, while also downplaying any long term impact of political climate on the country’s economy.

The outcome of the U.S elections on the other hand only adds speculation to what new direction the bi-lateral ties between the two countries would take. With comparisons already arising between Trump and Duterte, and Duterte congratulating the U.S President elect and expressing his interest on “enhanced relations”, it is all about wait-watch for now.

Why Track Political Risk?

The outcome of the ongoing controversy in the Philippines can be debated upon. However, tracking the uncertainty that it has already resulted in, and its potential impact on businesses/potential investments are key to coming up with risk mitigation strategies. Real-time alerts and analysis from Supply WisdomSM give businesses the opportunity to track Location and Supplier threats and come up with risk mitigation strategies. Contact us for more information or to get started with a free trial.