As Japan looks to strengthen its foothold in the ASEAN region, it sees the Philippines as its key partner in, and ideal gateway to, this growing market. As a result, the Philippines is poised to see more investment coming from Japan, which is already its largest source of foreign capital
In January, Japanese Prime Minister Shinzo Abe was the first head of state to visit the Philippines since President Rodrigo Duterte came to power in June, 2016. Mr. Duterte called his meeting with Mr. Abe a “welcome and much awaited reunion”. And the fact that the Japanese prime minister was the first world leader to hold official talks with his Filipino counterpart in Manila is a testament to Japan’s intentions to strengthen its commercial ties with the Philippines, as it looks to grow a stronger foothold in the growing ASEAN region.
“Prime Minister Abe’s presence in Manila today is positive proof that Japan and the Philippines are fully committed to bring this long-standing friendship and tried and tested partnership to even greater heights,” Mr. Duterte said.
The January meeting followed Mr. Duterte’s October state visit to Tokyo, which was his first outside of the ASEAN region. During his visit, the Filipino president held bilateral discussions with Mr. Abe on security, economic and defense cooperation, infrastructure development, maritime cooperation, and development projects in Mindanao. Mr. Duterte was scheduled to revisit Japan this month for the 23rd Nikkei International Conference on the Future of Asia, but had to cancel to due to the security situation in Marawi City. However, both sides have agreed that a visit of the Filipino leader to Japan “could be rescheduled in the future.”
The trade and investment ties between the two countries are already strong. Japan is the largest source of foreign direct investment into the Philippines, which has overtaken Thailand and Vietnam as the investment destination of choice in the region for Japanese companies. The Philippines is the only country in the ASEAN to have a free trade agreement with Japan, known as the Japan-Philippines Economic Partnership Agreement, which has helped to make Japan the largest export market for the Philippines.
Amongst the factors that have attracted Japanese companies to the Philippines are its young, educated and English-speaking workforce, steadfast GDP growth, which has averaged more than 6% over the last 5 years, and a growing middle class. While Japanese companies leverage on the growing Filipino market, the Philippines itself benefits from – aside from capital injection – knowledge and technology transfer offered by Japanese companies.
Increased investment from Japan looks likely as the Philippines and its neighbors look towards deeper ASEAN regional integration, which will facilitate cross-border trade for Japanese companies.
“The Philippines is taking advantage of it status within the ASEAN while Japan Inc. is currently looking for ways to penetrate this trade bloc, trying to find a bridge to tap into the market,” says Artur Tan, CEO of Integrated Micro-Electronics, Inc., a Filipino electronics company which is a subsidiary of Japan’s Ayala Corporation.
“Thailand could be very attractive for them as it has a significant amount of FDI from Japan, especially in the automotive and industrial market. Other options would be Malaysia or Indonesia. Nevertheless, again, there are historical and intrinsic values to be considered such as what the Philippines is able to offer in terms of demographics, literacy, communication, retention, etc.”
Mr. Abe’s visit and growing investment from Japan suggests that many Japanese business leaders see the Philippines as its key partner in, and ideal gateway to, the ASEAN region – a fast-growing trade bloc with robust economic growth and an expanding middle class.
“Technically, investing in the Philippines means having the second largest workforce in the ASEAN. We have a fairly educated workforce with high English literacy,” says Guillermo M. Luz, Private Sector Chairman of the Philippines’ National Competitive Council.
“Another factor is the long history of Japanese investments – many of which are still doing well. The Japanese companies can leverage on these long-existing relationships. If their companies can produce here, they can export to neighboring ASEAN countries.”
Peter Angelo V. Perfecto, Executive Director of the Makati Business Club, an organization that promotes the role of the business sector in national development, is another firm believer that the Philippines can become a hub for Japanese and other foreign investors looking to reach the ASEAN market, but he says it will require the private sector to take a stronger role in education and training.
“Multinational companies feel that the human resource pool of the Philippines is superior. In order to live up to this, the private sector really needs to make sure that the educational system, K-12 program, on-the-job training and internship opportunities are strengthened and expanded. This will secure the country’s competitive advantage, as far as the ASEAN is concerned.
“We can achieve a competitive advantage if the government can adopt an effective approach to its priorities, such as making the Philippines a doorway to the ASEAN for Japan. The country’s relationship with Japan is a low-hanging fruit that we must maximize on and an opportunity we must take advantage of. The fact that Prime Minister Abe’s visit turned out well and that they (Mr. Abe and Mr. Duterte) seem to have good chemistry is something to build on. We just have to keep our focus.”