The lush parks at the centre of the Ayala Triangle Gardens appear as an oasis of foliage in the concrete jungle of high-rise office towers in central Manila. Located at the heart of the Makati business centre, the Ayala Triangle is home to global corporations ranging from Bank of America and JPMorgan to beverage companies PepsiCo and Diageo.

The area also houses the city’s iconic Ninoy Aquino International Airport, which is one of the Philippines’ most visible signs of its past as south-east Asia’s most advanced trading hub. Opened in 1937, the airport was at the time the region’s largest and best equipped airport, serving as the US’s main aviation school, as well as a key route for trade and travel in the region.

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Speaking in one of the restaurants lining Ayala Triangle Gardens’ walkway, Eric Manuel, the founder of real estate and infrastructure advisory company Brycg Group, maintains that although the Philippines in previous decades lost its allure due to governmental mismanagement, the new government’s commitment to improving the business environment has put the country on the fast track to growth. “It has never been this good,” he says.

A former New Yorker who spent the early part of his career in the US, Mr Manuel was one of at least 8 million Filipinos living abroad, as estimated by the country's Centre for Educational Research and Innovation. Years of reform and a robust GDP performance in excess of 6.6% in 2012, according to the Asian Development Bank (ADB), led the Philippines to witness a ‘brain gain’ of educated professional Filipinos, such as Mr Manuel.

“Business optimism is at its highest in the Philippines. Borrowing rates for consumers, the government and companies have never been this low and on the residential side of things, demand is keeping up with supply,” says Mr Manuel.

Asian hub

Located across the Philippines Sea and the South China Sea in south-east Asia, the Philippines is an archipelago of more than 7000 islands lying at the crossroads between south and north-east Asia. Directly linked on several vital sea routes to the region’s two largest economies, China and Japan, as well as Vietnam, Malaysia and Indonesia, the Philippines is strategically well placed. This geography led the US to establish military bases in the country, which would play a significant role in the Allied victory against Germany and Japan in south-east Asia during the Second World War.

Following the end of the Second World War in 1945, the country rapidly developed as the region’s most advanced economy, second only to Japan. “In 1971, we were invited on a trip to Singapore and there was nothing to see there,” says Lilia de Lima, director-general of the Philippine Economic Zone Authority (PEZA). “We were far more advanced than them. In the 1950s and 1960s, we were second only to Japan in our state of development.”

Yet decades of economic mismanagement, notably under the 21-year tenure of Ferdinand Marcos, caused the Philippines' economy to fall behind that of its neighbours. “For most of the 1960s and 1970s, [under] martial law, we slumbered,” says Ms de Lima.

Regaining lost ground

Yet prudent fiscal measures undertaken by successive governments, initially following the election in 1986 of president Corazon Aquino and more recently under the current president Benigno Aquino, to rein in expenditure and attract more FDI into infrastructure projects through public and private partnerships have opened the country to foreign investment.

Established as part of the government’s trade and industry department, PEZA has actively attracted FDI into a range of industries across the country. In addition to assisting foreign investors when registering their companies and offering incentives such as a special 5% tax on company income, PEZA also grants investors with exemptions from corporate and income tax for up to four years. Tasked with promoting FDI in the agro-industry, ICT, tourism and logistics sectors, Ms de Lima says that part of the Philippines’ success in expanding its GDP has been down to PEZA’s work in attracting FDI.

“The economic zones are private sector driven,” explains Ms de Lima. “From the original 16 economic zones, which were established in 1995, we now have 282 economic zones. Sixty-five have been designated for manufacturing, 181 for ICT centres, and 16 for leisure and medical tourism.” One of the achievements that she is quick to point out is the Philippines had, by 2011, overtaken India as the world’s biggest business process outsourcing (BPO) centre for voice-related services, according to outsourcing services provider Outsource BPO. This was partly driven by the government’s support of ICT in its economic zones, says Ms de Lima.

Upward trajectory

The Philippines’ economy has been highly resilient, despite a difficult global economy. The ADB believes that the government’s efforts to reduce household debt, accelerate private consumption and make the country more amenable to foreign investors could help it maintain momentum.

Although inward FDI to the Philippines peaked in 2008 at 143 greenfield projects, before dropping to 74 projects by 2011, FDI to the country has been rebounding, according to data from greenfield crossborder investment monitor fDi Markets. FDI rose from 74 projects worth $2.9bn in 2011 to 90 projects worth $4.3bn in 2012.

For Ms de Lima, this is evidence that the government’s efforts in improving the Philippines’ international image is working. “Companies in PEZA trust us and, in the midst of a global financial crisis, we expanded,” she says. “PEZA was driven by the growth of both brownfield and greenfield investments in the first quarter of this year.”

A long road ahead

Although Mr Aquino has been vocal in his efforts to root out corruption, the Philippines dropped from a ranking of 136 to 138 in this year’s World Bank Doing Business report, and other challenges are still evident. The country's creaking infrastructure is unable to keep up with growth, and its dated drainage system is best exemplified in monsoon season, when torrential downpours flood roads and restrict transport at best, or bring waterborne diseases such as cholera and claim lives at worst.

On good days, the traffic during rush hour can add hours in travel time to what should be quick commutes. “Something as simple as getting from point A to B is extremely difficult,” admits Mr Manuel. “I am so close to many cities in the Philippines where I can do business. Yet my business is concentrated in Makati and Fort Bonifacio [in Manila] because of traffic.”

Although the Philippines’ rise to become one of the world’s leading BPO centres illustrates that educational attainment is relatively advanced, recruiting talent that is qualified to internationally competitive standards is a challenge. “There are a lot of high-scoring and intelligent individuals in this country, but unfortunately the real world is not based on grades,” says Mr Manuel. “Accessing a labour pool that has the education and the soft skills in business has been an acute challenge.”

Yet Mr Manuel maintains that these difficulties are not unique to the Philippines. As countries transition from ‘developing economy’ status to the ‘higher income’ stage, such distortions are common. What continues to draw the Filipino diaspora and international businesses to the country is the speed of its progress. While the Philippines had previously lost its shine as south-east Asia’s second most advanced economy, its fortunes are turning because policymakers are learning lessons from the past. This will continue to draw international players, such as Mr Manuel, back to the Philippines to partake in its growth.

“Momentum is picking up,” says Mr Manuel. “Some significant growth drivers will be real estate, infrastructure and manufacturing. The Philippines is a part of the Association of South-east Asian Nations and the 2015 economic integration is a key date to watch. When that happens, the power dynamics in the region will change.”