Latest StrategicRISK roundtable examines challenges in the Philippines

While participants came from sectors as diverse as energy, finance, telecommunications, water, banking, transport and manufacturing, the top concern for all of them was undoubtedly natural catastrophe risk.

The Philippines is one of the most disaster-stricken countries in the world, with a yearly average of 20 typhoons. Geographical location is also a disadvantage, with high exposure to earthquakes and volcanic eruptions in the Pacific ‘Rim of Fire’. Indeed, mandatory earthquake insurance pooling was introduced last year with the aim of covering small-to-medium enterprises and the residential sector.

Roundtable participants explained that climate change and increasingly destructive weather events posed great challenges to supply chains. Manufacturing facilities and infrastructure projects were at risk from floods and high winds, with many facilities needing to be reinforced and elevated.

Despite having a population of almost 100 million people, the Philippines also suffers from a shortage of talent. Access to educational opportunities is seen as a huge problem, with talent retention challenges exacerbated by an insufficient volume of skilled labour in the pipeline.

A perceived decline in the number of students getting into highly technical professions is affecting the ability of companies in the Philippines to compete on the international stage. Furthermore, it was suggested that the best and brightest of the country’s talent often moved overseas in search of “greener pastures”.

Business process outsourcing is a growing part of the economy, with the Business Processing Association of the Philippines estimating that there are almost one million full-time employees in this industry. One roundtable participant suggested that the sheer number of call centre jobs had led to a “bubble of people without specialised skills” as they ignored further educational experiences in favour of “having their immediate needs addressed by the economic benefits provided by this sector”.

A lack of skilled labour is also hampering the capacity of contractors to undertake large infrastructure projects, it was pointed out. The Philippines has a massive and growing need for public infrastructure, and the importance of public-private sector partnership in disaster recovery was highlighted. Indeed, the government’s encouragement of private participation has contributed to the creation of projects worth more than $20 billion. However, discussions suggested that there was a need for a better understanding of risk allocation and availability of new credit risk solutions to de-risk projects.

Shifting regulatory sands

Regulatory risk was also on the agenda, especially for highly regulated industries like power and water. It was suggested that shifting regulatory demands in the short term are exacerbated by lack of certainty about the regulatory landscape a few years from now when a new administration will be in power. Furthermore, one attendee said, “the present administration is trying to prove they are different to the previous one; they want to show transparency but it is also killing the need for speed in business”. There was clear frustration at perceived populist politics winning out over “real long-term sustainability”.

Economically, while the Philippines saw its debt rating raised to investment grade last year after decades of corruption, political upheaval and lacklustre growth, issues such as ASEAN integration and the country’s heavily consumption-driven economy are still of concern. It was suggested that increased manufacturing sector growth would help the country avoid economic stagnation, although it was mentioned that it was a “limited economy with all its eggs in very few baskets”.

Interestingly, the sheer size and complexity of Manila is seen by many as a drain on and potential high-risk area for the rest of the economy. Industry and employment needed to be spread more evenly across the country, it was agreed. Such moves were not coming from the government, but the private sector did seem to be starting to go in this direction for “operational and risk mitigation reasons”. However, one participant said: “Banks that are awash with cash are still reluctant to finance companies other than bluechips and organisations outside of the metropolitan area”.

One move to ‘declog’ Manila by former President and now Manila Mayor Joseph ‘Erap’ Ejercito Estrada was decried by most at the roundtable. A truck ban enacted by Estrada in February was designed to ease traffic in Manila by removing large trucks from the city’s roads from 5-10am and 3-9pm, Mondays to Saturdays. Roundtable participants blamed the ban for shipping backlogs that have become so severe they are affecting the country’s growth. Such decisions, participants said, showed that businesses in the Philippines could never be sure what was going to happen next.

Another topic of discussion was how insurance could help firms in the Philippines to become more global. It was suggested that more products and services were required, such as third-party liability insurance for companies that are part of international supply chains.

This is just a scratching of the surface of the Philippines’ risk landscape, which we will explore in more detail in StrategicRISK’s upcoming Philippines Risk Report, sponsored by Zurich and supported by the Pan-Asia Risk & Insurance Management Association (PARIMA). All our country reports are available at www.strategic-risk-global.com/asia/asia-risk-report