How are today’s economic realities changing business direction and business opportunities for Evercore?
CUUNJIENG: In the past, cross-border M&A has been all incoming. You’re seeing a bigger balance between incoming and outgoing. You’re seeing Asian clients buying companies or deals outside of the region. For example, a couple of years ago, we advised a Thai client, Indorama Ventures, on their acquisition of Old World Chemicals in Texas, and you’re seeing this across the board in the Philippines.
URC, Universal Robina, bought a New Zealand biscuit company. So first, you’re seeing a little more balance between inflow and outflow. Then, you’re also seeing a lot more interregional acquisitions. In the past, you’ve seen some regional giants open original plants, expand in new countries organically. You’re now seeing they have tasted success outside of their home country, and now they’re willing to acquire things in the other countries they are in because they have an infrastructure there, they have management, and they now want to build scale.
So because of that, this trend is happening, and you’re adding the fact that the liquidity remains very strong, interest rates remain subdued. So it gives everybody an opportunity.
How competitive is the Philippines within the context of ASEAN?
CUUNJIENG: If you look at manufacturing, the king is China, but everybody wants a second or third source. Who would be attractive for manufacturing? In tech services, we would say India would be the largest and the Philippines would be the second source. Now, where else are you going to see things? So if you look at manufacturing, I think Thailand has done a spectacular job.
If you look at the robust supply chain, which everybody has said, that is why they have been quite competitive in attracting and keeping people, Malaysia is defiantly making a very strong and frankly concerted move to get a bigger share of that and it’s having some success. But, the one that for me is really moving up and the growth is much higher would be Vietnam.
Now, if you look at the services related, clearly the Philippines has been doing very well there. I wish there would be more manufacturing related here, but there are structural impediments which this government and the next government and the next government after that will need to address on a fundamental basis to start making the Philippines more competitive from a manufacturing point of view. For starters, the cost of power is higher here by a substantial margin than other Southeast Asian countries. The rail network is much poorer than in other countries. The road network is being improved now, but it remains congested for the time being; same thing with ports, same thing with airports.
Everybody says how much they like this place. I think if this government, the next government, governments after can, on a consensus basis, fundamentally address the structural disadvantages, to quote Lee Kuan Yew in his own book, the potential for the Philippines from the people is limitless.
The question was, are we giving the country a chance, and the only way to do that from a manufacturing point of view would be to build up our own version of a robust supply chain. To do that you have to build from your strengths, but part of it is providing the infrastructure overlay. I think all governments recognize that, but all governments have had varied success in addressing this issue in a comprehensive manner. This government is trying but I think it has to be a multi-generational effort.
If you look at the interstate highway system in the US, Eisenhower started that, it finished 30 years later. This is not something that is subject to a three, five, even ten year plan, this has to be a multi-generational consensus that you are going to address this and maintain it as basically a given policy.
The benign macroeconomic environment of low liquidity, low interest rates, robust equity markets, that is not a normal condition. It’s been this way for a while, but it’s not going to last, it never does.
What does improved credit ratings mean for the Philippines?
CUUNJIENG: It clearly helps. It doesn't affect strategic so much as it effects portfolio because a lot of funds have a cap at investment grade for being willing to invest whether long or short term debt paper or in equities. So while some people have said, “How much does it really help?” It is a necessary precondition. It is not sufficient, but it is necessary. So I give credit to the Secretary of Finance and his predecessors. This is one of the areas where the Philippines, to its credit, from 1986 onwards, every administration has been very responsible in dealing with their international commitments, rebuilding from, actually the mess that the dictatorship left us.
It has been a multi-generational effort; it really has been 30 years of effort. A painful effort, sacrifice, and it is to the credit of this administration and the hard work of others that we have achieved that. But the biggest credit goes to the people who sacrificed the most, the OFWs. It is not a happy life to leave your family, leave your country, leave your comfort zone, to improve the life of the family members you left behind. That is a huge human sacrifice and nearly 10% of our country has done that.
If you look at the level of remittances that come in year after year after year, that is why we have such a clear current account surplus. That has played a huge part in smoothing out matters, improving the credit, and when people have seen this has been sustained through recessions, through good times, this type of inflow of money with frankly no cost because it’s people. But, the cost has been the human sacrifice and I feel sorry that it has had to come this way, but I am grateful for the benefit that it has brought to everybody.
What is your macroeconomic outlook for the Philippines?
CUUNJIENG: The government has done a good job on the back of a nice tailwind. I’ve always been concerned, and this is not just this government, this is any government, present, past, future, this country, another country, when it’s headwinds rather than tailwinds.
The benign macroeconomic environment of low liquidity, low interest rates, robust equity markets, that is not a normal condition. It’s been this way for a while, but it’s not going to last, it never does. And my concern, and it’s not a concern that is limited to this country or this government, it’s a general concern, is are you using the period to invest and prepare, or are you using the period to say, “Oh, what a wonderful tailwind.”
Because if you build up the buffer, rainy day funds, investing in long term projects when long term financing is available cheap, then you will reap the benefits when times are not as good. And that is frankly my concern, and it’s not just a concern for the Philippines, it’s a concern for the region.