MAP Insights

In its March 7, 2023 article, McKinsey reported that while the Philippines has yet to reach pre-pandemic growth rates, big opportunities exist across sectors. As the world emerges from the pandemic, business leaders must shape innovation and growth by anticipating future disruptions.

It cited five crucial sectors that hold tremendous promise.

1. Real estate and construction

The expansion in real estate development is expected to recover to pre-pandemic levels by the end of 2023, except building construction, with residential construction predicted to grow by 12% in 2024.

Return-to-office policies and a resurgence in the need for industrial, retail and leisure spaces will increase demand for office space. Hybrid working will influence the reinvention of office spaces and the growth of co-working facilities.

The cultivation of green real estate opportunities and appetite for sustainable buildings will encourage sector-wide growth and innovations in construction techniques, and could help attain the country’s 2030 goal of reducing carbon emissions by 75%.

2. Travel and hospitality

In pre-pandemic 2019, gross direct tourism value-added, as a share of GDP, was estimated at 12.7%.

International tourism spending was estimated at PhP549 Billion, while domestic tourism spending was around PhP3.1 Trillion. A full recovery to pre-pandemic levels is expected by 2024.

Hotel occupancy rates are now between 70-80% and expected to still rise. China’s and Hong Kong’s lifting of mandatory quarantine on arrival are reasons for optimism. Other positive factors are:

• the growth of “revenge travel”;
• sustainable tourism and increased awareness of eco-friendly travel options;
• the increase in domestic travel;
• the popularity of the “digital-nomad” lifestyle that allows for extended periods.

3. Financial services

The state of the financial services sector in 2023 will depend on two key factors: interest rate hikes and rising inflation. Macro-volatility could cause a slowdown in new loans, while rising inflation will put pressure on cost-of-living due to operating cost and wage increases.

In response, the Bangko Sentral ng Pilipinas (BSP) will increase interest rate hikes to keep up with inflation while the financial sector is prioritizing the inter-operability and digitization in top banks. Moreover, the banking sector has taken additional steps to protect itself and its clients. These include:

• recovering non-performing loans,
• reducing loan-loss provisions with an outlook on improved credit status,
• digital neo-banks offering higher savings interest rates and faster customer acquisition.

Most significant I would think is the growing effort to make banking more accessible and inclusive. The growth of digital banking is significant: in 2021, 60% of Filipinos used digital banking (from only 17% in 2019), and growth is expected to accelerate in 2023.

4. Energy

The supply-demand balance is a major concern with clear downside risks. Threats to energy supply include rising oil and gas prices, supply-chain disruptions and currency depreciation.

A power supply shortage is expected later this year due to:

• a growing population,
• a resurging economy,
• the depletion of domestic gas supply,
• heavy reliance on imported fuel.

It will sustain upward pressure on prices and urgency to bring greenfield capacity online. On energy transition, major players are diversifying energy assets with direct investments in cleaner technologies – solar, hydro, wind and battery energy storage systems.

I’m personally batting for pocket nuclear plants in Luzon, Visayas and Mindanao to significantly reduce power costs and electrify in the whole country.

For its part, the government passed legislation to:

reduce fuel and power costs via subsidies for transport operators;

boost investments in indigenous energy resources, such as coal;

strengthen electric cooperatives for broader access to electrification.

5. Healthcare

Growth stalled in 2022 for healthcare services and pharmaceuticals, and is expected to persist this year as it addresses three major challenges.

First, rising inflation resulting in the rise of healthcare wages, especially that of hospital staff, i.e., nurses and technologists who are in short supply here and abroad.

Second, supply-chain disruptions that will drive up medicine price variations and production inefficiencies since the country remains a net importer of pharmaceuticals.

Third, turnover levels for health workers will remain high, straining the capacity of service providers and raising the poor quality of healthcare.

To address these challenges, the DOH aims to close the supply-demand gap by building facilities in areas outside Metro Manila and assuring the supply and affordability of medicines.

In the private sector, key players are investing in the healthcare value chain, and taking concerted steps to tap into growing online markets through electronic medical records, all-in-one telemedicine and consultation apps, and other ancillary services.

S&P Global foresees our GDP will continue to grow rapidly in the next 10 years. By 2034, the Philippines is foreseen to become a trillion-dollar economy benefiting from, among others, its membership in RCEP that will attract FDIs in manufacturing and infrastructure projects.

This strong growth is expected to boost per capita GDP from US$3,500 in 2021 to US$6,400 by 2031, spurring domestic consumption and catalyzing foreign and domestic investment flows.

Consequently, the outlook over the next decade is very bright. Rapidly rising standards of living will broadly improve human development and cut significantly the population living in extreme poverty over the next ten years.

That said, reality bites. The country undoubtedly faces formidable headwinds in 2023, such as:

• pandemic and Ukraine-related supply-chain disruptions;
• declining global growth;
• the VUCA (volatile, uncertain, complex, ambiguous) reality prevailing in the world.

We’re in the cusp of a potentially destructive war amongst the great powers in the Asia-Pacific region who also happen to be our major trade partners. If that comes true, there goes the neighborhood. To what extent would that ultimately impact on our national economy? Do we have a relevant prescription for national survival?

We need to review the strategies in place, if any, to mitigate key risks – geopolitical, governance, inflation, interest rates, foreign exchange, trade – and reduce the imbalance between social costs and benefits through policy reform.

The economic outlook for the Philippines appears bright but bringing it to fruition depends on how well we govern and manage risk to win the future for our common good.

(This article reflects the personal opinion of the author and does not reflect the official stand of the Management Association of the Philippines or MAP.  The author is former Governor of MAP. He is Vice Chair of Pepsi-Cola Products Philippines, Inc. He is a Member of Philippine Council for Foreign Relations, and sits on the boards of other companies as Independent Director. Feedback at <map@map.org.ph> and <rmalunan@gmail.com>.)