Continuing on the path to growth via PPPs

By Fernando Zobel de Ayala, Ayala Corp.

AS WE ENTER a new phase in the country’s history, I am confident that with a clear vision and plan for the country; close collaboration between the private sector and government; and the perseverance to steadfastly continue along the path of economic reform, the country can certainly bounce back from the pandemic and create a solid platform for growth.

The headwinds arising from the pandemic’s persistent impact and the war in Ukraine will remain, but I believe that the critical elements needed for the country to withstand these and bounce back are readily available.

For instance, looking ahead, we join the business community in expressing strong confidence in the appointments President Marcos has made for his economic team. Sec. Ben Diokno, Sec. Arsi Balisacan, Sec. Fred Pascual, and Sec. Felipe Medalla are all highly respected as they have all served in exceptional ways both in the public and private sectors. Sec. Jaime Bautista is likewise highly respected in the transportation space, which will be crucial in our continuing effort to drastically improve our roads, trains, airports, and seaports. They join many others in the Cabinet, who are experienced public servants and experts in the private sector.

We are also delighted with the recent pronouncements by the economic team that the new administration will reaffirm its commitment to harness public-private partnerships (PPP) as a pathway to address several of the country’s pain points. The private sector is a strong believer in the power of collaboration in solving our country’s biggest local challenges. We saw an excellent example of that with the unprecedented level of cooperation between government and the private sector during the pandemic.

It was inspiring to see government and private institutions working hand-in-hand to expand testing and treatment capacity; procure and administer COVID-19 vaccines; and distribute essential assistance to our vulnerable countrymen. It is our hope that we can further add to these gains as we move forward.

The Ayala Group looks forward to tapping the strong power of partnerships to solve the many challenges we face. We likewise remain committed to continue investing in the country to help in our recovery and to build a solid platform for sustainable and inclusive growth. For 2022, the Ayala Group intends to deploy P285 billion in combined capital expenditure (capex) and investments, 25% higher than 2021. We hope that this will help catalyze our recovery and growth, especially in light of the encouraging signs that we see in the industries that we operate in.

In residential properties, the reopening of the economy is a positive signal of returning vitality in the economy. However, we are closely monitoring the impact of rising interest rates and inflation on demand and disposable income. There has been recent increased demand for horizontal projects, highlighting the benefits of living in open areas.

In the office sector, while there has been a slight increase in the industry’s vacancy levels, we continue to see stable BPO and HQ operations that anchor tenancy in office spaces. We have seen lease out rates as high as 87% in the office buildings that were completed in March. As more companies return to physical work, we expect tenancy and demand to further improve.

In the banking sector, we saw industry loan growth reached double-digit growth in back-to-back months in April and May at 10.1% and 10.7% due to overall economic recovery. We believe that banks’ engagements in the digital space will become much more critical as customers shift online for their financial services needs. BPI has seen this transformation, with digital transactions now comprising 91% of all transactions, and gross transaction value growing by 22% in Q1 2022.

In telecommunications, we see this sector playing a critical role in enabling the digital lifestyle that everyone has grown accustomed to today. The pandemic underscored the need for fast and reliable connectivity. Globe is spending P89 billion for its capex program this year to continue improving and expanding its data infrastructure, 5G, and fiber broadband.

Meanwhile, the energy sector requires significant investments as the push for a shift to renewable energy accelerates. Globally, the share of electricity from non-coal sources has risen to 38% with wind and solar accounting for much of the rise. In the Philippines, the current share of renewables is about 21% of total capacity. We see encouraging prospects for the industry as DoE’s Philippine Energy Plan for 2020-2024 aims to increase this to 35% by 2030 and 50% by 2040. ACEN is well prepared to support this push, given its pipeline of 6,500 MW of renewable energy in the Philippines.

We are also investing significant amounts in healthcare and logistics. We see that there is a sizable, underserved demand in these sectors.

AC Health remains on track to build an integrated healthcare ecosystem through clinics, pharma, hospital, and health technology assets to make healthcare accessible to more Filipinos. AC Logistics continues to make significant strides towards being an end-to-end logistics platform. We believe that our ongoing acquisition of Air21 will transform the company into a full-suite logistics provider, complementing our last mile presence in Entrego. We hope to finalize the acquisition in the coming months.

We believe that the strong economic team that was assembled and the encouraging prospects we have seen in the industries where Ayala has touchpoints will be crucial in the country’s ongoing economic reform agenda.

For one, we all understand the need to continue improving the country’s education system, while at the same time upskilling our broader population and workforce to be prepared for the jobs and industries of the future. We are delighted that there is renewed energy and commitment within the private sector and in the Marcos Administration to collaborate with peers, and with each other on this important sector. This will be crucial as the economy tries to recover the jobs that were lost — mostly in mobility-related industries, such as transportation, accommodations, and food services — while also building a solid platform for the new jobs and industries that will emerge in the near future.

At a fundamental level, there remains the ongoing task to diversify the country’s economic drivers. The Philippines remains highly dependent on consumer spending, services, OFW remittances, and the Greater Metro Manila region. Consumer spending accounts for around 70% of GDP, while the services sector cover almost 60% of total jobs. Almost half of the country’s total economic output is concentrated in Metro Manila. The business community and the Ayala Group stand ready to support more broad-based development in the country’s emerging growth areas outside of our traditional economic centers.

These are just some of the major economic headwinds that the Philippines will face in the coming years. Let us also keep in mind the rising costs of goods and services due to both supply chain and geopolitical issues. There also remain other serious issues regarding the quality of our healthcare and education systems, as well as our physical infrastructure, which continue to greatly lag behind our peers in Southeast Asia.

These are just parts of a much broader economic reform agenda that will take time, energy, and strong partnerships to fully realize. However, we enter this new period in our history with optimism that with a clear plan and close collaboration between the public and private sectors, we can bring back significant sustainable growth and increase the momentum of our progress as a nation.

Fernando Zóbel de Ayala is the president and chief executive officer of Ayala Corporation and is part of the seventh generation in the family overseeing the Company. He is also the board chairman of Ayala Land and AC Energy, vice chairman of Bank of the Philippine Islands, co-vice chairman of Globe Telecom, and a director of Manila Water and Pilipinas Shell Corporation.