Big Manufacturers quitting China for Philippines – PHL rating ups

Philippine officials say rising labor costs in China's southern coast are driving big foreign manufacturers to relocate to the country.

Trade Secretary Gregory Domingo said Tuesday there has also been "very strong" interest from Japanese investors who are looking for tracts of land in Philippine export processing zones. They include electronics, ship building and steel companies.

He said investors relocating to the country include foreign garments factories closing in China. A big company which left the Philippines has decided to return, while another one is seriously considering coming back, he said.

Domingo told a government economic briefing that so far this year the country is seeing "the most we've ever seen" of investor fact finding missions.

China, which after economic liberalization in the 1980s became the world's low-cost factory, is now grappling with rising wages and production costs that have made it less attractive to some foreign manufacturers.

The Philippine officials did not have estimates of the value of the incoming investment or the jobs that would be created. Domingo refused to name the companies that are relocating to the Philippines.

Foreign direct investment in the Philippines totaled ₱87.3 billion pesos ($2.04 billion) in the first nine months of last year, up slightly from ₱79.4 billion pesos ($1.85 billion) a year earlier.

The Philippine economy is forecast to grow 5 percent to 6 percent this year, driven by increased spending on infrastructure and more efficient budget spending, Socio-economic Planning Secretary Cayetano Paderanga said.

Domingo thinks economic growth could exceed 7 percent this year with the stock market achieving a new record high Monday, and strong growth in exports, the outsourcing industry, tourism and investments.

Officials also said the Philippines is estimated to hit its demographic "sweet spot" by 2015, when majority of Filipinos will be of working age, a situation which usually fuels growth.

Philippines seen getting credit-rating upgrade from S&P

Philippines stands a good chance of getting a credit rating upgrade in the short term from Standard & Poor's, which expects the country's debt profile to further improve as the economy grows and revenue collection rises.

In its latest outlook report for Asia-Pacific, S&P cited the Philippine government's focus on shoring up revenue collection and plans to help pump-prime the economy by enticing private firms to invest in infrastructure projects.

Currently, S&P assigns the Philippines a credit rating of BB and an outlook of "positive." This is two notches below investment grade, while the outlook indicates probability of a credit-rating upgrade within the short term if expectations of better indicators materialize.

"The positive outlook is based on our expectation that continued adherence to fiscal consolidation, combined with improved medium-term growth prospects, will further moderate the Philippines' public debt and interest burden," S&P said in the report titled "Asia-Pacific Sovereigns: Mixed Outlook in an Uncertain Year."

The ratio of the Philippines' public sector debt to the country's gross domestic product stands at about 55 percent. The ratio has declined from more than 70 percent in the early 2000s.

The country's economic managers are hoping to bring the ratio down closer to 50 percent or even lower to get a credit-rating upgrade. Such an objective requires making economic growth consistently exceed the rise in the country's debts.

The officials are hoping the Philippines will get investment-grade rating by 2013, claiming that macroeconomic indicators of the country are improving and are just about the same as those of other developing countries that are already enjoying investment grade.

Indonesia, which the Philippines would like to consider as its counterpart, recently obtained an investment grade rating.

"The rating [of the Philippines] could be raised on material progress in achieving a sustainable structural revenue improvement or further strengthening of the public balance sheet, thus reducing fiscal vulnerability," S&P said.

The credit-rating firm said its baseline projection was that the Philippines would be able to post better fiscal numbers over the short term.

However, it stressed that should actual developments on the fiscal front veer away from the baseline projection, the country may see its current rating being kept, if not downgraded.

S&P said the Philippines would likely grow by 4.2 percent this year on the back of government commitments to raise public spending and likelihood of rising investments by the private sector in public infrastructure under the Public-Private Partnership (PPP) program.

Under the PPP program, the government invites private enterprises to invest in public infrastructure projects. The objective of the program is to fulfill the country's needs for infrastructure without derailing the government's goal of reducing its budget deficit and debts.