Summit 2014 Speech of British AmbassadorAsif Ahmad

A SharePHIL Summit on Enhancing Share Value And Protecting Shareholders

June 18, 2014  |  Dusit Thani Hotel, Makati City

Evelyn Singson, distinguished guests, Ladies & Gentlemen

When Evelyn and members of the Shareholders’ Association of the Philippines asked me to speak at this event, I agreed for two important reasons. Firstly, in Britain we believe in wider share ownership and the active participation of minority shareholders be they individuals or corporate investors.

The second reason is that Britain and the Philippines already have very strong investment links. British companies are the largest investors in the Philippines from the European Union. Two of the sponsors of this event are British companies doing business here.

What is less known is that almost all of the top ten conglomerates of the Philippines raise their international finance from the financial markets of London and Edinburgh in Scotland.

It is not unusual to see a significant minority shareholding in a Filipino company by British investors.

Our ambition is to build from this great position of strength and make Britain and Filipino businesses think of each other as first choice partners.

Our Prime Minister, David Cameron, has appointed Trade Envoys for a very small group of countries to help develop our commercial connections. I am glad to say that the Philippines is one of the countries chosen by the Prime Minister and we have a Trade Envoy for the Philippines. He is George Freeman, a Member of Parliament. George is in Manila today on his first visit to the Philippines. He is with us at this conference. The message that George brings to the Philippines is clear.

Britain now is the fastest growing economy in the G7. And the Philippines has achieved a growth rate that is the highest in ASEAN. Together, we trade with each other and invest in each others’ businesses.

The story of investment is not just about Britain coming to the Philippines. A month ago, Andrew Tan announced his intention to invest 32 billion Pesos in Whyte & McKay. Whyte & McKay is one of the largest producers of whisky in Scotland. This foreign investment will be the second largest ever made by a Filipino company. Andrew Tan’s Megaworld is a sponsor of this conference. And if any of you are wondering why I am on Megaworld’s advertising billboard on EDSA. The answer is that I am happy to celebrate the 25th year of Andrew Tan’s company. And deliver a message about our green embassy building in McKinley Hill. The campaign also symbolises our warm welcome to this new investor in Great Britain.

Foreign investment by Filipino companies is a clear signal of the maturity and strength of the business community here. I am sure that investors who come to Britain will find that our financial markets and regulators deliver what this conference is focusing on today: enhancing share value and protecting shareholders.

We have already heard from my friend Manny Pangilinan. He has spoken about attracting foreign investment to the Philippines and relations with minority shareholders. Let me add my voice to the opportunities and challenges a foreign investor faces here. I speak from two perspectives. I was a banker in London for 18 years before I became a diplomat. In my career in banking, I was responsible for making foreign investment decisions. That led to setting up banking operations in Hong Kong, Singapore, New York and Switzerland.

In the 1990s, I could not have made a positive recommendation for investors to come to the Philippines. At that time, many country managers based in Manila set out the business case for investment citing the potential of the country. That potential was slow in coming and there were some backward steps too.

Today, the picture is entirely different. The day to day politics here is very of course lively. But democracy is now firmly established. A single 6 year term for a President means that the administration can implement its policy objectives. We recognise the focus on transparency and good governance. The dark ages of martial law is past. Shareholders in business no longer live with the threat of sequestration by the executive and their cronies.

We have seen the judiciary being more willing to be assertive. The legal profession here has a number of able practitioners. The British Embassy is working with the courts on procedures to help improve the length of trials here. No one wants an important case stuck in the system for 7 or 8 years. Some foreign companies have experienced what we call home team advantage. This is the tendency of decisions to favour Filipino business interests. But we have also seen examples where decisions have not always gone for a local party. International arbitration is an accepted norm and is an important option for investors.

The economic model of the Philippines is gaining credibility from the international community. That is reflected in the investment grade rating of Philippine debt.

If you look at social factors, one can draw a picture of improvement as well as scope for more positive change. The fact that 10 million Filipinos earn their living abroad means that the country has over 23 billion US dollars coming back as remittances. But that also means that the talent of 10 million people is lost to the nation. International businesses in oil and gas, shipping, tourism and leisure and health care, all are benefitting from an English speaking and qualified workforce from the Philippines.

At home, economic growth is yet to translate into growth in employment. For that to happen, there is a need to invest more in education, health care and affordable social housing. Each of these are in themselves commercial opportunities. There is a need to break away from the low wage and low productivity mindset. Consumer led growth would be far more sustainable if more people were able to earn a livelihood beyond basic sustenance. A population of over 100 million people with a young demographic profile has to turn into a market opportunity for business and not a drag on prosperity.

New industries are part of the answer and it is not surprising to see foreign investment in the BPO sector. This sector is growing by 20 per cent year on year. The Philippines has made the leap into new technology. The challenge now is to go faster. Manufacturing is growing by 10 per cent and could accelerate further if a step change infrastructure investment is made. Better roads, railways, ports and airports together with reliable power supplies are essential if the Philippines is to take a share of the business that is currently going to other parts of the region.

Some of that investment in infrastructure will no doubt come from within the Philippines. Not all of it can come from the Government. That is why we have supported capacity building in PPP in Manila. After some frustrating delays, we can see more coming through the PPP pipeline.

But a whole lot more could come from foreign investment if the restrictions on ownership are lifted. For big projects and investments, it is difficult for a foreign investor to accept a minority shareholding. Especially if they carry the bulk of the risk, provide the management expertise and the technology. I am not making a political point about changing the constitution. I am arguing for the economic case for change.

The government has created the Philippine Economic Zone Authority. This creates some incentives and attractions for investors but it creates some distortions too. In Britain, we have made the entire country a Special Economic Zone. All exporters can claim back Value Added Tax and we don’t hold on to the money for months on end. Corporation tax in Britain will be down to 20% next year. Incentives and tax reliefs are available to both domestic and foreign investors. An investor in the UK is also able to access 500 million people living in the European Union. With ASEAN integration on the horizon you too can design a single market in the region.

To do this, the fear of open competition and free trade has to give way to confidence in the abilities of Filipino business managers and the workforce. The cost of protectionism is not borne by the foreign company looking to sell in the Philippines. The cost falls to the consumer who pays a higher price for poorer products and services. As one member of the Philippine Cabinet told me recently, he saw no point in the Philippines having an armed guard protecting an empty safe.

Ladies and Gentlemen, in talking about investment in the Philippines I have covered political and economic factors. I have touched on the social issues. Technology and infrastructure are important conditions too. The legal framework is moving in the right direction. The fact that the issue of corruption is being openly discussed is, in my view, a positive sign.

The last but perhaps the most important success factor is a sustainable environment. Climate change, energy and water security and the impact on food supply are all shaping up to be the defining issues of the next decade. The argument is not really about who is to blame but what can each of us do. Britain’s experience of reducing carbon emissions, as we head for our target of an 80% cut by 2050, shows that we don’t have to give up growth to go green.

There is a big opportunity in the Philippines to move more significantly into renewable energy. Foreign investment offers the opportunity to bring in new technology and efficiency in the way scarce resources are used. We can help unlock the potential of mining without leaving a trail of destruction in the hillsides and rivers.

As the Philippines opens its arms and widens the welcome to investors both from within the country and from foreign sources, I can assure you that in Britain you will have a responsible and committed partner. We want to build from our position of Number 1 EU investor to being a partner bringing finance, technology and manufacturing to the Philippines. In the months ahead, you will hear about more of our top brands coming to the country.

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