EU Ambassador Franz Jessen speech at the Business Luncheon: Philippine economy: Is change coming?
Firstly, the Philippines economy is going strong, and so is the EU economy. This is reflected in our trade and investment.
EU-Philippine trade in goods was 13 billion euros in 2016. In terms of total trade, the EU is the 4th largest trading partner. The EU is the Philippines 3rd export partner, after Japan and the US, and before China. The EU is the 2nd largest service partner, and most importantly, it is the 1st investor in the Philippines.
The European Union provided 37% (or 90 billion PHP) of all new reported investments in the Philippines in 2015—an increase of 80% compared to 2014. 57% of all EU FDI was invested in manufacturing, and 10% in business process outsourcing. This represents an estimated 500,000 jobs.
These changes are a reflexion of the trends we are observing at the level of ASEAN. The EU is ASEAN's second largest trading partner and the largest source of FDI to ASEAN. However, when we compare EU-Philippine trade to bilateral levels between the EU and other ASEAN members, we observe that the Philippines still has a lot of potential to catch up with its neighbours. This leads me to my next point.
The PDP agreed last month gives a good insight into the ambitions and the plans that the government has for the Philippine economy: Growth rates of 7-8 are expected; more inclusive growth; a sharp reduction in the poverty incidence – a decrease from 21 to 14%.
The strategy is focussed around: 1) Malasakit (care/regaining trust), 2) Pagbabago (change/reduce inequality) and 3) Patuloy na pag unlad (continuing growth) including a strategic trade policy.
The EU is supporting these ambitions. Our GoJust programme is specifically targeting 'trust', we have other programmes that address 'good governance issues' including anti-corruption programmes. I would also include our environmental programmes under this heading, good and sustainable government policies are keys for trust. Citizens, not only in the Philippines, but around the world expect rightly that governments can secure clean air, clean water, safe food stuff and so on. All examples where the EU is in the forefront;
Pagbabago – reducing inequality/change – is another key concept in our programmes, including the Trust Fund for Mindanao. Our grant programmes in the Philippines, amounting to 325 million EUR over the 2014/2020 programming period all have the reduction of inequality as one objective. Inequality is the root not also for social injustice, but also for evils such as kidnapping for ransom, drug abuse and crime. Why are crime rates in Europe relatively low when compared to countries with similar level of development? One reason is a strong focus on lifting people out of poverty.
Finally – Patuloy na Pag unlad – where I will say a few words about the EU;'s trade policy towards the Philippines. We granted uni-laterally the Philippines GSP plus status in late 2014 and a year later we agreed to launch an FTA negotiation with the Philippines. Both developments were reflections of the close relationship that laid the foundations for those two important steps.
Relationships have to be nurtured, and it is important that we continue to work hand in hand to secure the best possible enabling environment for our economic operators. The Philippines economic development into a modern, sophisticated, economy both in manufacturing and in services requires sophisticated and varied partners. Partners, that taken together can provide markets for BPOs, call-centres, for agricultural products, for manufactured good, for seafares – the list is long, and I could go on. But the point is that in that equation, the Philippines needs the EU.
Secondly, we need an ambitious Free Trade Agreement to make EU-Philippine trade grow stronger and to work together on market access.
The EU concluded agreements with Vietnam and Singapore that will be game-changers as the most ambitious agreements ASEAN members ever concluded. Meanwhile, the second round of negotiations with the Philippines was recently completed. In addition, the EU already offers the Philippines privileged access under the GSP+ status granted in December 2014. Philippine exports under the scheme are currently worth 1.6 billion euros. I believe that an EU-Philippine FTA can be a powerful catalyst for change that will boost the competitiveness of the Philippine economy.
Thirdly, we need to make sure these changes happen within the context of stronger EU-ASEAN relations.
This point is especially relevant as the chair of ASEAN this year is the Philippines. The EU is committed to deepening economic relations both with individual ASEAN member states and with ASEAN as a whole. Stronger integration between ASEAN members and between ASEAN and the EU will ensure the benefits of increased trade and connectivity are spread even wider. The EU is also pursuing a region-to-region trade deal with ASEAN. In fact, we see the bilateral FTA between individual countries in ASEAN and the EU as building blocks for a future region to region FTA agreement.
ASEAN is a very competitive region, and for us working as EU diplomats in the Philippines, one objective is to ensure that the Philippines is in the forefront in terms of competiveness, so that two-way trade can continue to grow.
The upcoming ASEAN EU Business Summit in Manila, on the 10th of March, will provide a forum for industry to highlight and discuss with ASEAN governments important economic and market access issues. I hope to see you there.
Is change coming?
Most of the issues that need to be solved in the Philippines are very well-known. They have been analysed from A-Z. Plans to solve them have been developed and refined many times. What has been lacking in the past is a willingness to cut through vested interests, to finance the changes needed and to have the political consensus for the changes needed.
President Duterte and his administration came to power on a strong popular demand for change. The President has shown that he is prepared to seek untraditional ways to solve issue. He has a strong focus on fighting crime, corruption and drugs of course. He has also empowered a strong economic team to take the economy forward with a pro-poor agenda, moving developments away from a strong focus on Manila to other parts of the country.
One pre-condition for this to work is of course the establishment of peace and stability. Thus the focus and the progress in the on-going peace talks with the MILF, with the MNLF with the NPA, addressing the threats by the terrorists group, are preconditions for lasting positive change in the Philippines. The early signs have been encouraging, and I hope very much that the government will succeed in reaching a lasting peace agreement.
A second precondition is the reduction in poverty rates. As a mentioned earlier, poverty is the root of many evils that have to be fought with job creation, with education, with social welfare systems, with medical care and so on. We have seen large increase in the budgets for health and education, something that I welcome very much.
A third precondition is to ensure stable and high economic growth rates. Here again, early signs are encouraging, with the caveat that some large EU companies are showing some hesitation to commit new investments in the Philippines. President Duterte has said that he was surprised to see the scale of the drug issue in the Philippines, investors too, have been surprised to see that as well, and also to see the violence that the 'war against drugs' has sparked on the streets and in the Barangays.
I see the EU and the Philippine economies as being highly complementary; the EU with its ageing population and sophisticated technology and high level of demand and the Philippines with is young and dynamic population, low cost of labour provides the perfect setting for us to benefits from economic complementarities. But for the economic interaction to be taken to the next level, we need the FTA, we need the right enabling environment, we need to continue working together also on global issues, be it global warming, labour standards, human rights issues or the rule of law.