After five years of moderate success, the Philippines in 2016 will enter into one of the highest risk scenarios for doing business that the country has experienced in years, according to a report by the Manila-based country risk firm Pacific Strategies and Assessments.
“A confluence of political, security, geopolitical and economic conditions in the coming year will have a major impact on whether the country moves forward as a peaceful, economically vibrant emerging market or descends back into the state of a struggling, politically unstable republic,” according to the report, available only by subscription.
Although recent election cycles have gone smoothly since at least 2010 with the elevation to the presidency of Benigno S. Aquino III, PSA says the most potentially disruptive event for the coming year will be the national elections scheduled for May in which a new president, vice president, senators and members of congress will be chosen, along with thousands of other officials, including governors, mayors and village council leaders.
Gunfire once an electoral phenomenon
Prior to 2010, elections were an occasion for such intense gunfire that the Red Cross regularly scheduled critical sites to stockpile medical supplies. That has not appeared to be the case in recent elections.
The potential disqualification of Sen. Grace Poe, one of the most popular candidates, and the entry of the controversial candidate Rodrigo Duterte, the mayor of Davao City, has added a higher level of uncertainty to the election.
“If voters are denied the chance to vote for a candidate such as Poe, who is seen as an honest newcomer, there could be unrest,” the report continues. “Some will see the election as illegitimate if Poe is denied the chance to run. If a political enemy of Poe is elected, she could be a powerful destabilizing force.”
Duterte has called for constitutional change, a sensitive issue that many people fear would remove term limits and allow a return to dictatorial government. His open advocacy of death squads and vigilante justice is a destabilizing message that could erode the reforms and trust of the military and police.
Commitment to reform could stall
“The more general risk is that the next president will not maintain the anti-corruption efforts and fiscal reforms that the Aquino administration has implemented,” the report says. “Even the election of the administration-backed candidate, Manuel A. Roxas, is not a guarantee of the continuation of Aquino policies. If elected, Roxas would bring his own style and policies to the major challenges facing the country.”
After nearly six years in which it has consistently outperformed much of the rest of the region, the Philippines does face potential economic headwinds. The slowing Chinese economy is expected to affect the region although inward remittances from workers and former Filipino citizens living in the United States and other countries, plus a vibrant outsourcing industry, should prop up the Philippines to some extent as they have in the past.
In addition to the political and economic challenges, the Philippines is facing major internal and external security risks, as the report points out. The fate of the Bangsamoro Basic Law, the legal underpinning of the landmark peace deal with Mindanao’s largest Muslim rebel group, is still up in the air, delayed from a botched military operation last summer that cost the lives of more than 40 military personnel. With Aquino due to leave office next July, he will likely attempt to push it through before he goes.
The deal brought the first glimmer of hope that a semblance of order could be brought to Mindanao to jumpstart the economy of the southern Philippines, PSA says. “This, it was hoped, would build momentum toward a lasting peace and prosperity that lessens the incentives for Muslims in the south to support rebellion. The pending law is now mired in politics and its passage in a form that satisfies the rebels appears unlikely.”
Bangsamoro collapse possible
A collapse of the Bangsamoro Basic Law could trigger increased unrest in Mindanao or at the very least help maintain the status quo of ongoing periodic conflict fed by poverty and a culture of violent clan rivalries. Many longtime investors, and newcomers alike, have written off Mindanao as an investment destination.