An Investment Boom in Philippines leaves Neighbors in the Dust

By 

Karl Lester M Yap

 and 

Myungshin Cho, Bloomberg TV

• Economy’s physical assets surge more than 10% on year earlier
• President Duterte plans to boost spending to a record in 2018

Capital investment in the Philippines is surging past the rest of Southeast Asia as the government and firms ramp up spending.

In the first nine months of this year, net physical assets in the Philippines grew 10.4 percent from a year earlier. That compared with a 6.9 percent increase in Malaysia and 5.8 percent gain in Indonesia, according to data from statistics offices.

There’s reason to remain bullish on the outlook. Philippine government spending jumped 28 percent in October, the largest rise in almost a year, with another record budget planned for 2018. Companies are also joining in: Metro Pacific Investments Corp. plans to invest as much as $16 billion through 2022 on road, water, and power projects, while Ayala Land Inc. is boosting capital spending to a record $2 billion next year.

President Rodrigo Duterte is building a network of railroads and highways across the archipelago in an ambitious $180 billion infrastructure program. Investment firing up adds another engine to the economy, headed for a sixth year of growth exceeding 6 percent and among the world’s best performers.

“The government is very committed to keep spending strong and that has maintained the robust momentum of the investment cycle,” said Eugenia Victorino, an economist at Australia & New Zealand Banking Group Ltd. in Singapore. “With growth firing on all cylinders, the Philippines is really standing out in a region where the outlook has turned more positive.”

Catching Up

After lagging its neighbors for decades, the Philippines is catching up. Growth in net physical assets -- or gross fixed capital formation -- averaged 14.4 percent in the five years through 2016, the fastest in Southeast Asia and almost twice as fast as Malaysia, according to the World Bank.

Duterte wants to transform the Philippines into an upper-middle income country by the end of his term in 2022, and the cornerstone of his vision is a plan referred to as “Build, Build, Build”. It includes the capital’s first subway and a 653-kilometer railway to the south.

“Capital formation goes hand in hand with the focus on infrastructure,” said Jonathan Ravelas, chief market strategist at BDO Unibank Inc. “The private sector has always been investing, but now public spending is catching up.”

Philippines and Germany to Sign New Tax Treaty in 2013

 

The Philippines and Germany are set to sign in 2013 a new tax agreement aimed at increasing German investments in the country.

In a meeting in Berlin last July 20, both countries have concluded the third and final round of negotiations on the revision of the accord, called "Agreement for the Avoidance of Double Taxation with respect to Taxes on Income and Capital, at Germany's Federal Ministry of Finance.

All outstanding issues were resolved during the last round of the five days meetings, with both parties agreeing on the adoption of new standards in the adoption in the tax treaty.

The new tax treaty is designed to protect against the risk of double taxation where the same income is taxable in the Philippines and in Germany.

the signing of the new agreement is expected to take place in Germany early 2013. Amid an unresolved airport terminal dispute between Manila and Berlin, Germany remained a strong significant partner of the Philippines  with a total bilateral trade valued US$ 2.9 billion in 2011.