The Philippines Offers the Best Value Investing

Philippines Mining Boom

The Philippines will attract $18 billion in mining investments over the next five years as global commodity prices soar.

Mining output had already spiked 31 percent year on year in the six months to June to P63.92 billion ($1.48 billion), according to Environment and Natural Resources Secretary Ramon Paje.

A new mining law allowed foreign investments in 2005, and high metals prices were drawing even more investor interest.

“In terms of investments, the aggregate amount of $3.835 billion has been invested in the sector over the last six years. Total investments are projected to reach $18 billion by 2016,” he told a mining conference in September 2011.

The Philippines has an untouched mineral wealth estimated by Heffernan Capital Management at over $1 trillion, valuable metals like copper, gold and chromate deposits are among the biggest in the world.

Mining has had a checkered history in The Philippines, environmental issues, foreign investment restrictions, and accidents have slowed the industry for decades.

Ramon Paje said with just 30 major mines in operation, the Philippines was still not producing enough to take advantage of climbing gold, nickel, copper, iron and chromite prices.

Seven major projects should boost both mining investment and output over the next few years.

Xstrata PLC, LON:XTA $5.9 billion Tampakan project in the southern Philippines, one of the largest undeveloped copper-gold deposits in the Western Pacific, should start producing in 2016.

Tampakan project is estimated to yield an average of 375,000 tonnes per annum of copper and 360,000 ounces per annum of gold in concentrate over a 17 year life of mine.

Japan’s Sumitomo Metals, Australia’s Oceana Gold, and Britain’s FCF Minerals also plan to go ahead with separate nickel, copper-gold, and gold-molybdenum projects, according to Paje.

The three projects have a combined investment value of more than $1.8 billion.

Chamber of Mines of the Philippines president Philip Romualdez also told the conference President Benigno Aquino’s recent state visit to China drew $2 billion in mining commitments.

Economy starts bubbling

The Asian Development Bank (ADB) has slightly lowered its 2011 growth forecast for the Philippine economy amidst subdued government spending and exports, but increased public and private investment should see a pickup in economic activity next year.

In its latest Asian Development Outlook 2011 (ADO), ADB trimmed its gross domestic product (GDP) forecast for the year to 4.7%, from 5.0% seen in April.

Growth for 2012 is projected to pick up to 5.1%, with brighter prospects seen for investments, which since 2010 have been a major contributor to GDP growth.

“Job creation remains lackluster, with the youth unemployment rate more than double the overall jobless rate,” said ADB Chief Economist Changyong Rhee.

“Further increases in investment along with policy and governance reforms are needed to boost jobs.”

Government spending fell back in the first half of 2011 after high election and typhoon-linked outlays in 2010 with government agencies taking a more cautious stance amidst an anti-corruption drive.

However, private investment grew strongly, while private domestic consumption also increased, supported by a firmer labor market and remittances from overseas workers.

Merchandise export growth, in contrast, was weaker than expected. Electronics, which make up about half the economy’s exports, are still affected by insipid global demand and supply chain disruptions linked to the earthquake in Japan.

Inflation averaged 4.8% over the first eight months, driven by higher food and oil prices. In response, the central bank raised policy interest rates and banks’ reserve requirements twice. Net portfolio investments in the first seven months remained high, helping to push stock prices to record highs in August, but foreign direct investment remains subdued with delays in bids for planned infrastructure projects.

For 2012, increased investment supported by upgrades in sovereign credit ratings and resilient consumer spending will help GDP growth to pick up. Inflation forecasts are retained at 4.9% for 2011 and 4.3% in 2012, assuming that global oil and food prices moderate as expected.

“The Philippine Development Plan 2011-2016 focuses on improvements in the business environment to raise investment and employment with higher outlays on infrastructure supported by public-private partnerships,” said Neeraj Jain, Country Director for ADB’s Philippines Country Office.

‘Some of the public-private partnership infrastructure projects that have been planned must get under way to achieve the growth we forecast for 2012.”

Undervalued Real Estate in the Philippines

Foreign investors looking to invest in real estate-related businesses have ranked Manila as their last choice among various key cities in the Asia-Pacific.

According to the Emerging Trends in Real Estate Asia Pacific 2011 survey conducted by the Urban Land Institute (ULI), global real estate investors gave Manila a score of 4.56 points out of a possible 9, placing the city a few points below “fair” and somewhere within the realms of “abysmal.”

Topping the survey was Singapore with a score of 5.96 points, followed by Shanghai with 5.87, Mumbai with 5.79, and Hong Kong with 5.70.

In an interview with the Inquirer, ULI global trustee and South Asia chairman Simon Treacy said the Philippines, in general, was suffering from a negative image, prompting investors in publicly listed real estate firms to bypass the country when deciding on where to allocate their funds.

“Manila is at the bottom of the pack because the Philippines hasn’t gone to the next level. The country’s image hasn’t really improved. Even with the new administration, there’s still a negative perception of the country,” Treacy said.

“The Philippines rarely ranks when it comes to investment allocations. Since the Philippines doesn’t get a lot of airplay, its real estate prospects become undervalued. Marketing is very important, on a national level, because not a lot of real estate investors look to the Philippines when deciding where to put their capital,.”