21st International Conference on the Future of Asia Speech of Finance Secretary Cesar V. Purisima
22 May 2015 | Tokyo, Japan
It is a pleasure to be back at the Nikkei Future of Asia Conference after 10 years. And the world has changed the past 10 years, but I think the future of Asia – the potential of Asia is still there and is starting to show. Many writers have written about the fact that the 21st century is going to be the Asian century. When you look at the numbers, it’s easy to understand why they look at the 21st century as the Asian century. When you look at population of the world by 2050, Asia will have over 50%, approximately 60% of the population, at about 5.2 billion of the over 9 billion. When you look at the economy of Asia, assuming the Asian countries continue to grow for the next 40 years at the pace they’ve been growing for the past 40 years, the GDP of Asia will move from $17 trillion to over $174 trillion, making it again account for the bulk of the world’s GDP. When you look at it from the number of middle class, as you know in the history of the Japan economy, the middle class always played a very important role in driving the economy forward – an engine of consumption, the brains of the society, the political force. Asia will have two thirds of the world’s middle class from about 23% in 2010. So the Asian century, by numbers, is a distinct possibility.
When you look at Asia, it is not one homogenous area; it is not one contiguous area. There are regions, among them is North Asia composed of some of the biggest and more advanced countries in the region: Japan, China, Korea. Then you have Southeast Asia—ASEAN—ten countries that are relatively small, very diverse – from the smallest and the richest, Singapore, to the biggest, Indonesia – 10 countries that can potentially play a big role in this so called Asian Century. And then of course we have South Asia, large countries such as India, Pakistan, Bangladesh. And then of course, Australia and New Zealand, not really part of Asia but very much part of the Asian century.
What is the role of ASEAN in that future Asian Century? The vision, and my view – I share that vision – is that ASEAN can potentially be the hub of Asian trade. It’s starting to happen. When you look at it from a geographic standpoint, ASEAN is where the Indian Ocean and the Pacific Ocean intersect. In fact they say the seas around ASEAN carry over 50% of the world trade currently. And ASEAN has started to work on this vision by entering into Free Trade Agreements with all the regions around it. We’ve completed it with China, Korea, Japan, India, Australia, and New Zealand because to be a hub, you have to be as open as possible to the region.
The next challenge of course is connectivity with building the infrastructure to make sure that you can be a true and efficient hub. That is a work in progress. The third of course is making sure that you really are acting as one. This year is a very important year for ASEAN because 2015 is the start of the so-called ASEAN Economic Community. If you look at ASEAN as one country, right now it is the seventh largest in GDP, but potentially it can be the third largest in GDP. In population, it is already the third largest. In foreign exchange reserves, it is already the third behind China and Japan.
When you look at it from a demographic standpoint, ASEAN complements North Asia very well because it is a young region. It is a young region with the third largest workforce in the world. But again, it is not a homogeneous region. There are parts of the region, as the former speaker said, that has a deficit in labor, Thailand, in particular. But there are big parts of the region that has surplus, such as the Philippines, Indonesia, and other countries.
When you look at ASEAN, the world is starting to see the potential of ASEAN. In fact, in 2014, the total FDIs that went to ASEAN exceeded that of China. That’s hard to contemplate many years ago. But I think people are starting to notice, Japanese companies included because Japan is the number two FDI investor in ASEAN. If you look at it from a sectoral standpoint, ASEAN has started to show its potential. It’s number 1 in electronics export, number 2 in garments, among the top 5 in shipbuilding. In automobile, it is still outside the top 10, but it is number 12 already. In terms of resources, this is the same case as well: when you look at ASEAN, it supplies practically 100% of the world’s abaca, a large component of tin, palm oil, coconut oil, it has large resources of minerals. So it has people resources, it has natural endowment, and it has the benefit of location.
So ASEAN, it plays its card right, if it continues to integrate, if it continues to open up and connect, can become the hub of an Asian Century.
Japan will play a very important role in helping ASEAN build that potential or realize that potential. Japan is ASEAN’s second largest trading partner. In fact, there are as many Japanese companies in ASEAN as there is in China: over 6200 in China, over 6100 Japanese companies in ASEAN. And potentially, there can be more because the investment of Japanese companies in ASEAN has been accelerating. Particularly since the review of the strategy that was associated with mostly Japanese companies, and foreign companies as well, of having a China+1 in terms of manufacturing. Now they’re looking at China+2 or even China+3. That +2 or +3 can be in ASEAN.
Geographically, ASEAN is well positioned also from a Japanese standpoint. Japan has been a big supporter from an ODA standpoint: concessional loans, grants, technical assistance. You have a region that has low GDP but high potential, young people as opposed to Japan’s high GDP, advanced techology but a population that’s a bit more aged than ASEAN. ASEAN’s tropical, Japan’s temperate. So there is complementarity. And when there’s complementarity, if you take advantage of it, you become stronger.
In an integrated ASEAN, the Philippines is the second largest population. One oku. We just reached one oku, so we’re substantial already, next to Indonesia. The Philippines probably is the most outward looking of the large countries in ASEAN. Over 10 million ofour people are in the global workforce, well-trained, competitive, and has shown the world that the Filipino worker can compete with anyone.
Since President Aquino took office in 2010, the Philippines has shown what it can do with better governance. With average growth, 6.3% since President Aquino took office the past 5 years, this has not happened in the Philippines since 1980. The last three years, our growth was over 6%, this has not happened since 1957. So I think these are very clear signals that things are changing in the Philipppines.
There are 8 reasons why I think the Philippines makes sense to Japanese companies.
I started to allude to the first, which is the demographic sweetspot. The Philippines is the youngest country in Asia, with a median age of 23 years old. And we will be in the demographic sweetspot, that means that majority of our population are between 15 and 65 working age for the next 40 or so years. And that just shows you the potential that we can have working together. So demography is the first reason.
Second reason is geographic compatibility. If you look at the map, the Philippines is the most immediate southern neighbor of Japan. So if we can work well together, continue to enhance our ties, we can be the Mexico of Japan as Mexico is to the US, which has improved US competitiveness particularly in the automotive industry, where the maquiladora industry has become a source of strength both for Mexico and the United States. And this can be realized because Japan is the only country where we have a free trade agreement – the only country, not even the United States. We have JPEPA or PJEPA.
We are also among the most blessed in terms of minerals. We are among the top 5 in mineralization. In fact, we have not fully utilized that potential in our past 5 years of economic growth. So just imagine, with the help of Japan’s technology how we can improve our economic potential.
We are going to be part of ASEAN, as I have mentioned. In an integrated ASEAN, the Philipines can be your gateway, can be your anchor, can be your headquarters. I don’t know how many of you here have been to the Philippines or have lived in the Philippines, but my Japanese friends who have been to the Philippines have a difficult time leaving. In fact a very good example is the wife of Governor Kuroda, Komiko. Since Governor Kuroda left ADB as its President to assume the Governorship of the Bank of Japan, I think Mrs. Kuroda has been back to the Philippines 15 or 16 times. We always see her there because she says it’s a lot of fun in the Philippines.
We are also fast growing as I’ve mentioned. We are the second fastest next to China, a large country. We have sound macroeconomic fundamentals, we are a current account surplus country for 13 or 14 consecutive years already. There’s price stability. The banking system is very stable, among the best capitalized in the region. In fact, we’ve opened up the banking system because Sumitomo Bank wanted to enter. After passing legislation to allow foreign ownership of banks, Sumitomo bank will be opening its branch, its soft opening in September or August, opening formally in January of next year. We agreed because banks are bridges. Bridges of money, and bridges of information. It’s the latter that we really want especially for medium-sized Japanese companies.
Finally, when you talk of the Philippines, there are many opportunities. In infrastructure: Philippines and Japan are like copies in terms of the challenges we face – we’re both archipelagos that are at the edge of the Pacific, we face typhoons, we face earthquakes. So the type of infrastructure we need are similar. We need a lot of infrastructure. Opportunities in terms of manufacturing: Philippine manufacturing has been growing over 10% but the potential is still there. Because among the large ASEAN countries, the presence of Japanese companies in the Philippines is the least so far. Before it used to be among the top, butit somehow stagnated. Now it’s started to recover. Japan is starting to rediscover the Philippines. There are also opportunities in outsourcing, process outsourcing, industrial process outsourcing. We’re among the leaders in business process outsourcing. There’s opportunities in tourism, particularly retirement tourism for Japan. I once visited some of your retirement communities here. I can imagine that if we connect your retirement communities and set up its counterparts in the Philippines, during winter, the retirees can go to the Philippines and they can enjoy playing golf, they can enjoy dancing, they can enjoy being part of a very young and vibrant community. They can even help us learn how to speak your language so that we can even be closer as partners for growth.
So there are many reasons – I’ve given you eight reasons. So the Asian Century is shaping out to be one. But it is not preordained. It is not going to happen automatically. There are challenges for this to really become a reality by the middle of this century.
As you know, from 1 AD to 1870, Asia was the world’s largest economy, for the first 1800 years since Christ. This is according to the book, Contours of the World Economy by Angus Maddison. Then there was a decline of Asia. Then we expect to regain that top position by 2050. But for us to regain that, we need to, as I see it, deal with 5 challenges.
One is the challenge of climate change. We’re starting to see it. In 2013, six of the ten costliest disasters happened in Asia Pacific. In 2013 also, 137 of the natural disasters of the world hit Asia-Pacific, as opposed to 93 in 2012. In 2010, Asia Pacific accounted for 70% of the world’s natural disasters. The Philippines was hit by Typhoon Haiyan, the strongest typhoon ever to hit land mass. In fact, in the case of the Philippines, the 3 strongest typhoons that we’ve ever faced, happened in the past four years. This year alone, the whole north side of America was very cold, and yet when they took the temperature of the world for the first quarter of the year, it was one of the warmest. So I think the debate on climate change should be stopped. Let’s accept it for real, especially in Asia Pacific because we are at the heart of the challenge. We need to deal with this. We need to deal with this by working together using technology, and for me, what I think is a very important challenge is change the way we measure financial performance so that cost to the environment is incorporated.
Secondly, we need to cooperate in infrastructure investments. We need to be connected, or else, we cannot achieve the potential of the Asian Century. ASEAN cannot be the hub – so that’s the second challenge.
The third challenge is, what the Prime Minister mentioned yesterday, which is energy, and may I add, food. How we will deal with the food challenge because Asia will have over 60% of the world’s population but only 30% of the land mass, so there is a mismatch.
Fourth is aging. Although Asia as an average is going to be young, the more advanced countries will be facing aging. We have most of the world’s over 65 years old. How do we balance that so that we can really put to bear the true strength of the young people in the rest of Asia.
And finally, how we can make the seas around Asia a sea of cooperation rather than a sea of conflict. And for me, the answers to this is this: in 1976, the Treaty of Amity and Cooperation was signed by ASEAN where we agreed to respect sovereignty, we agreed to have peaceful resolution of disputesand we agreed to cooperate to stabilize order in the region. Subsequently, China, Japan and the other members of Asia and even countries outside the region signed that treaty. We must put it to work, that treaty.
Secondly, in 2013, ASEAN and Japan agreed on a vision statement that covers four areas: partners for peace and stability, partners for prosperity, partners for quality of life, and finally, heart to heart partners. This vision statement between ASEAN and Japan should be expanded to cover the whole of Asia. And if we put to life this vision statement, then I believe the Asian Century will become a reality; then I believe we will be able to gain back what Asia used to be in the 1800s, for the first 1800 years; then I believe that we will be able to offer our people the opportunity to attain their true potential. That I beieve is the challenge of our generation and I hope that Japan and the Philippines can go hand in hand in this journey to achieve our potential.
Thank you and good morning.
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