Edward Eun-Gap Chang, President, Korean Chamber of Commerce Philippines
Edward Eun-Gap Chang, president of the Korean Chamber of Commerce in the Philippines, sheds light on the increasing attractiveness of the Philippines as an investment destination, at a time when companies are diversifying their portfolios away from traditional channels. He details how and why Korean investors are successfully embracing the Filipino renewables market and analyses the ongoing challenges of cabotage law, local content requirements and infrastructural imbalances.
Is President Aquino’s SONA announcement to amend the Cabotage Law to lower the cost of transportation the missing link for increased international business?
The Cabotage Law of the Philippines prevents foreign vessels in entering the inland waters of the Philippines. If an international container cargo would bring goods to other regions aside from the international ports of Manila and Subic, it still needs to be transferred to local vessels of the country. This gives a lot of setbacks to foreign shippers because the longer they stay in the docks, the higher the price they will pay to the ports. This may give higher expenses to them and in return, a lot of foreign shippers would tend not to conduct their shipments to the Philippines. I believe that if the Cabotage Law is amended, more foreign businesses will be encouraged to come into the Philippines and conduct their businesses here. As mentioned by President Aquino in his last SONA, the Cabotage Law really needs to be amended in order to foster greater competition and to lower the cost of transportation for the agricultural sector and other industries.
Korean investors are diversifying into ASEAN markets to protect against a potential downturn in China or India. How is the Philippines capitalizing on the opportunities and increasing competitiveness?
According to the latest Global Competitiveness Index of the World Economic Forum in 2013, the Philippines has made a significant improvement, reaching the 59th place from 65th last 2012 out of 148 countries. Since the start of Pres. Aquino’s leadership, he made strong oppositions on the prevailing corruption in the country, which is the very concern of every business to be opened in the Philippines, and presented the daang matuwid platform, which, until now, is creating notable and vital reforms in the country. On the 12 pillars measuring the Global Competitiveness of different countries, the highest ranking of the Philippines belong to the Market size (33rd), Macroeconomic environment (40th) and Financial Market Development (48th). With the achievements that the country is creating in this present time, good governance has truly contributed to the growing population of business investors in the Philippines. Obtaining a transparent and stable economy had actually encouraged more foreign investments in the country. Also, improvement on infrastructures such as road networks and bridges, rehabilitation and maintenance of additional airports, decongestion of seaports and further construction of mass transport systems have significantly contributed to the country’s competitiveness. Greater Public-Private Partnership Projects were also prioritized by the government in order to be an avenue for improved manufacturing, agribusiness, tourism, infrastructure, and more in the country. Lastly, various logistical reforms like compressing the number of days foreign investors can apply and start operating their businesses, submit business permits, register properties, protect investors and more. Human capital is also another factor that contributes to the competitiveness of the current and future supply of labor force. With the 7.6 percent GDP rate the Philippines has achieved in the first half of 2013, it was still mentioned by the World Economic Forum (WEF) that complacency should not be an option in the growing economic stability of the country.
How serious is the challenge of infrastructure? What are your insights on building the Philippines of tomorrow?
As the Philippine economy continues to hit a sweet spot of strong economic growth and inflation remains under control, the government’s Infrastructure continues, even though slowly, to provide a concrete foundation for infrastructure activities. These infrastructure projects have become a perfect link for business supply chains and avenue to tourist destinations, which could generate employment in manufacturing, agriculture, tourism, IT-BPM and construction sectors. These could also promote productivity and facilitate the delivery of social services and participation in economic activities. However, according to the 2013 IMD World Competitiveness Report, Philippines had a drop of two places on its ranking in infrastructure from 55th in 2012 to 57th in 2013. Up until now, poor infrastructure has been considered as one of the major concerns of investors in the Philippines that may weaken its economic competitiveness in the future. That’s why increased infrastructures and improved competency in PPPs are expected to be seen as the government gives priority to improving the country’s growing economy.
How important is the power sector to the KCCP in the Philippines?
Energy in the Philippines is really an essential need for everyone, yet the power sector in the country is still lagging behind. Therefore, the demand for more Korean investors which is now focusing more on the renewable energy (RE) projects has become very vital not just for the Philippines, but also for the Korean Chamber. Renewable energy projects may help lower the cost of energy, thus creating a positive environment for more Korean and other foreign investors to come to the Philippines.
What position do Korean energy companies hold in the Filipino market?
This year, more and more Korean energy companies are moving to the Philippines to start on investing and building solar power plants in different parts of the country. In particular, the memorandum of understanding has already been signed by the EC Cobuy Philippines, Inc., a South Korean firm together with the local government officials of Badoc and Vintar, Ilocos Norte to put up the largest solar power plant in the country. Also, another Korean company is considering an investment of biomass power plant in Iloilo, which could be of great help due to the expected critical supply of power come 2016. These are just a few of the Korean energy investments in the Philippines and indeed these have really made a great impact to the growth of the Filipino market.
Can you give us some examples of Korean success stories here in the Philippines?
The goliath of Korean companies here, Kepco is a Korean government owned company and is the principal power producer originating in Korea operating in the Philippines as an Independent Power Producer (IPP). Kepco arrived in 1995, and has three projects currently—one completed 650MW coal fired power plant in Malaya, which Kepco obtained following the passing of the EPIRA law. The plant was purchased from the Filipino government, which was dispensing with government assets with the aim of widening access to the market to private players. Kepco obtained the 650MW plant as a 12-year Rehabilitation, Operation, Maintenance and Management (ROMM) contract for around $250 million USD. Following this success, Kepco developed the Iligan site, a 1200MW natural gas plant, now the biggest generating centre in the Philippines.
Besides Kepco, the other large Korean companies present in the Philippines include a great many EPC contractors ranging from Doosan Heavy industries to POSCO. The Korean EPC companies work effectively across a wide diversity of projects here in the Philippines.
How are Korean firms taking to renewable energy openings, if any, here in the Philippines?
There are some key obstacles to Korean companies fully realizing the potential that renewable energy resources offer here in the Philippines. The local resources are significant; with hydro representing one form of abundant renewable energy, and the fact that the Philippines are the second largest producer of geothermal energy worldwide demonstrating another. Other forms of energy are now being used too, such as solar photovoltaic for street lighting in Manila. The cost of solar, however, remains expensive and renewable energy still broadly requires a huge initial investment and represents a long-term investment—returns in this sector tend to be slow but steady.
The problem of cost impacting on renewable energy development is heightened by the fact that foreign equity in renewable energy projects in the Philippines is limited to 40 percent, which is not the case for fossil fuel plants. Solar and wind power companies looking to invest in the Philippines require a local partner, but access to only 40 percent of any investment means few companies will consider seriously this commercial avenue.
How friendly are relations between Filipino conglomerates and Korean energy companies?
Filipino conglomerates and Korean energy companies have a shared relationship in the investments and businesses that it conducts here in the Philippines. For example, KEPCO Philippines has played a great role in maintaining, rehabilitating, operating, and managing the thermal and natural gas power plants in different parts of the country. Since 1995, it provided electric power that became sufficient to the needs of various areas of the country. Filipino and Korean companies have showed constant communication and dialogue on what they need as well as the issues concerning them in order to give appropriate and desired solutions for the benefit of all.
What is KCCP’s role in fuelling the sustainable growth of the Philippines in the next five to ten years and how will it continue to attract investors?
Since KCCP is dedicated to promoting investments to the Philippines from the day it started, we are aiming for improved partnerships and investments to be done here in the country. More Korean investors are aiming to have greater and improved business in the Philippines not just in manufacturing and energy sector, but also through Information Technology, food services, and many more. Foreign investments do not just give large impact to the economy, but as well assist in the government’s responsibility to provide the needs of the Filipino people through improved infrastructures and PPP programs.
In the KCCP’s role serving as the voice of the Korean-Philippine business what have been its main priorities and milestone achievements?
Since the establishment of the Korean Chamber of Commerce Philippines in February 1994, we have ensured that its objectives are faithfully realized through the services and commitments we have with our members, other private sectors and the government. With this, KCCP has five major priorities—or what we call objectives to be observed: 1) Promote and develop trade, commerce and industries by and between the Republic of Korea with the Republic of the Philippines; 2) Coordinate the efforts of the said two countries’ leaders devoted to the legitimate economic development and industrialization of the Philippines; 3) Promote Korea investments to and in the Philippines and guide investors to easily adapt to and in the Philippines; 4) Promote the exchange of ideas and information related to business, commerce, industry, agriculture, and other resources in the Philippines; and 5) Foster closer relations and friendship between Koreans and the people of the Philippines. Then, regarding the milestones that KCCP had achieved, I believe that through the positive and excellent recognitions of the government, we have strengthened the economic and cultural ties of the Republic of the Philippines and South Korea through the progressive exchange of trade and tourism, investments in construction, manufacturing, environment and especially geothermal power. Likewise, the increasing establishments of Korean companies in the Philippines affirms that further trust on giving priority in investing in the Philippines have become a major interest and concern to Korean businesses.
How does the KCCP aim to strengthen economic and cultural ties? How are relations with other Chambers of Commerce in the Philippines?
Continued exchanges of proposals, recommendations, ideas, and networks have definitely strengthened our economic and cultural ties with other Chambers of Commerce here in the Philippines. We hold regular meetings in order to discuss various topics and issues that our members in the business have been experiencing. We also conduct Networking with the other Chambers and their members together with the government in order to have better understanding with it cultural differences, have renewed relationship on their own and joint concerns and especially create networking with the latest businesses and concerns that each and everyone needs to engage in.
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