J. V. Emmanuel A. ‘Jocot’ De Dios is the CEO of Prime Metro BMD, a growing infrastructure-development and general-construction company in the Philippines. With nearly three decades of experience in the energy and infrastructure sectors, he has served as the CEO of General Electric Philippines, managed General Electric’s government-affairs team for Asia–Pacific, and served as undersecretary of the Philippine Department of Energy, where he led the planning and downstream oil bureaus and was appointed chairman of PNOC Exploration. De Dios recently spoke with McKinsey about the Philippines embracing the current digital disruption and the global energy transition. This conversation is part of the broader Philippines Growth Dialogues interview anthology, which explores the opportunities and challenges to future-proof the country's next horizon of growth and innovation. An edited version of the discussion follows. The digital shift and rising importance of social media
McKinsey: What do you think have been the most notable business and social developments in the Philippines recently?
Jocot De Dios: The all-pervasive digital revolution and social media, as they stand today, have an outsize impact on the economy. It affects our businesses in a way that no other development in the last decade has.
I think in terms of the Philippines’ growth outlook, we’re still a little behind that of our Southeast Asian counterparts—I use the presence of a start-up ecosystem as my benchmark. The Philippines is behind that of Indonesia, Vietnam, and even Thailand. We are 107 million Filipinos strong and have a lot of great talent and smart people. And as the world shifts to digital, we need to keep pace with global benchmarks to stay ahead.
Social media has enabled interconnectedness at a reach that we have not witnessed before. But the downside of social media is the issue of what is now termed as “fake news.” This has implications in business, politics, and social developments at an immeasurable scale.
Lead from the top
McKinsey: How can the Philippines remain globally competitive?
Jocot De Dios: Embrace the digital disruption; embrace digital transformation. A digital-transformation strategy needs to be driven from the top—the boardroom—so don’t shy away from aspects of this digital disruption that you have yet to comprehend. True leaders will rise to the occasion to humbly say, “I don't understand it.” We have to take this inevitable digital disruption by its horns and implement it across our businesses. At General Electric, we have a digital strategy for power, and we are looking into preventive maintenance. There needs to be a commitment from the leadership bench to do this, digital or otherwise.
Embrace the digital disruption ….A digital-transformation strategy needs to be driven from the top.
Renewables will dominate power markets
McKinsey: There is an undeniable, global energy transition. How is the Philippines faring in the shift to renewables?
Jocot De Dios: Renewables compose about 29 percent of our installed capacity in the Philippines. As a country, I believe that we have exceeded the renewable-energy goals set by the government, so it seems we are on track. But we have a ways to go. We will see an increasing interest in renewables from advocates, businesses, and governments as renewable portfolio standards replace feed-in-tariff allowances and feed-in tariffs.
This will hopefully encourage more developers of renewable sources of energy, and I believe there is an emerging trend for more developers to throw in their hats—though we will see challenges with biomass. Biomass’s value proposition is one that is a little tricky because if the idea is to minimize or lower emissions, feedstock gathering to generate power from biomass sources might actually cause more emissions than what biomass was intended to save.
McKinsey: What is the outlook for the energy industry in the next decade? How can we future-proof the energy industry for future generations?
Jocot De Dios: It’s a tricky situation. You want to have healthy reserves and prices that are affordable. There's a common misconception that the Electric Power Industry Reform Act pushes prices down. The Philippines has one of the highest electricity prices in the region due to the fact that a large proportion of it is unsubsidized. Take a power bill in the Philippines as an example: a large portion of the price is allocated for taxes. As a country, our energy needs to be more affordable and stable, with price fluctuations that businesses and manufacturers can deal with. What they cannot deal with is disruptions to their manufacturing processes—particularly for the semiconductor industry, which is a primary exporter for the Philippines.
Our geography makes the situation more complex, as we are an archipelago of 7,000 islands. Indonesia, with 17,000 islands, has a similar problem. Indonesia has a reserve margin of 27.5 percent, but in West Java, which boasts more than 50 percent of the country’s energy consumption, the reserve margin is 12 percent. This evidently illustrates that the focal point for the Philippine energy sector should not lie in generation alone but in a dual approach that includes a transmission strategy. We need a more robust and concerted transmission grid to tackle issues such as congestion, for a failure to connect to the grid will result in the inability to build viable power plants. You need to first consider building a transmission line or a substation. Energy, as it is, is not really sexy. But unfortunately, growth will require a safe reserve margin to safeguard against short-term shortages.
The focal point for the Philippine energy sector should not lie in generation alone but in a dual approach that includes a transmission strategy.
The need for a great reset
McKinsey: Where do you think the opportunities live for the Philippines? Which new areas of growth can the country tap into?
Jocot De Dios: Our long-standing strengths have been our workforce and overseas Filipino workers. With the advent of artificial intelligence, some may say traditional outsourcing models may become obsolete. I personally feel very strongly that in order to work through this disruption and survive, we need to invest in transforming the business-process-outsourcing industry into one that is primarily focused on knowledge-process outsourcing. We need to rethink and reimagine how we position ourselves vis-à-vis technology as machines get smarter.
I believe there are great opportunities in healthcare. Thailand has jumped on the medical-tourism bandwagon, while in the Philippines, we have hospital-ready destinations for groups that remain as untapped opportunities that I think the Philippines could really leverage on.
Manufacturing provides a solid foundation for any economy. I sit on the board of the Philippine chapter of the American Chamber of Commerce and am part of the energy committee. Something I am constantly hearing from my counterparts in the manufacturing committee is their relentless drive to boost the sector here in the Philippines.
Another area the Philippines should look into is advancing our agriculture sector, which is a large contributor to our economy. We need to rethink our entire approach to agriculture.
And last, but certainly not least, we need to set up a start-up ecosystem to boost innovation, as we are trailing far behind our regional neighbors.
Comments and opinions expressed by interviewees are their own and do not represent or reflect the opinions, policies, or positions of McKinsey & Company or have its endorsement.
Philippines Growth Dialogues
Philippine leaders discuss the opportunities and challenges to future-proof the country's growth agenda.