How to raise foreign capital accessibility in PH

By: LETICIA SOUZA

The Philippines has been on the radar of the private equity investment community for a while. Private equity firms usually look for aggressive returns for the medium term, therefore a few aspects such as sustainable demographic and economic growth, high levels of domestic consumption and young population are usually attractive points for their investment thesis.

In this sense, the Philippines is perfectly positioned: counts with a demographic profile composed of a 100 plus million population (one of few countries in Asia where large working age demographic will be sustained over the next years), a GDP that has been consistently growing at 6-7 percent over the last years, a youthful workforce and generous consumer base, a burgeoning middle class that naturally increases demand for services, a government with an empowered and professional team that has been presenting a progressive agenda towards innovation and disruption. The fact that the country is English-speaking is the icing on the cake. The opportunity is even more attractive for financial services given that they are usually high ranking in government priorities by the fact that they are rapidly translated into measurable results.

The big question is: despite having all the traditional check boxes crossed, why do we still often hear that approval of Filipino investment cases remain a challenge?

So far, what most likely answers this question would be the lack of track record and the reluctance of making the first move. A few concepts of behavioral finance well known to affect trends in capital markets can also be evidenced in the venture capital and private equity industry. Investors have a greater tendency to feel more comfortable when they can see a track record for certain behaviors (such as investing in companies from a specific country) rather than being the anchors themselves.

To address this issue, two main points can contribute significantly (and have already been addressed by the responsible parties). On the one hand, the government and public agencies need to ensure that the public relations strategy of the country is being well executed and that the regulatory risk is mitigated. Basically, the Philippines need to be known for the right reasons: the top-notch execution team that composes the government and the ability to execute ambitious and revolutionary projects that capture the massive opportunity in the country.

On the other hand, the creation of platforms by local entrepreneurs that promote alternatives to the model “all in” (traditional equity investment) is also a possible way to mitigate concerns from investors. They have the possibility to understand the market dynamics and get comfortable with the country risk to tackle the massive opportunity that comes as an output of the risk return relation, which in the Philippines is notoriously unbalanced towards the possible returns when compared to the risk exposition.

We can see both points above being addressed in the country, which is continuously being known as one of the most difficult competitive advantages to replicate: ability to execute. The alignment between the government public institutions such as the Bango Sentral ng Pilipinas (BSP), Department of Trade and Industry (DTI), and financial technology startups and players in the country provide the perfect recipe to ensure a long term win-win relationship with the growing inclusion of the Philippines in the radar of venture capital and private equity firms, where the financial returns captured by the investors mean that more financial resources are being unlocked to a former unserved population.

Leticia Souza is an advocate of the social impact investment in emerging markets. She has a diversified background in investment banking in the most relevant firms in Latin America, such as Itau Unibanco, Credit Suisse and BR Partners (ex-Citi executives). She is now responsible for Capital Markets and Investor Relations for the fastest growing SME Lending Fin Tech player in Southeast Asia: First Circle. She is accessible on [email protected]