The Report: The Philippines 2012
The Philippines is primed for expansion in a number of sectors, including business process outsourcing where it is looking to tap into value-added knowledge processing outsourcing and insurance, which is expected to see consolidation as capital requirements are increased. The current government of Benigno Aquino III has received plaudits for its commitment to stamping out corruption and cutting red tape, and an increasing number of public-private partnerships should lead to rising opportunities for private investors.
Country Profile
The Philippines, an archipelago of 7107 islands in the western Pacific Ocean, has a complex history of human habitation and imperial conquest. Three centuries of Spanish occupation left their impression on the country’s food, language, and religion, with the population now over 90% Roman Catholic. US influence dominated in the 20th century, thanks to several decades of US control, and English and Tagalog are now co-equal national languages. The volcanic origins of the Philippines’ islands is responsible for the country’s vast deposits of nickel, cobalt, silver, gold, salt, and copper, exports of which are important contributors to economic growth.
Explore chapterPolitics
The Philippines, which was once a diverse mix of sultanates and rajahdoms, was politically unified by the Spanish conquest of the 16th century. Spain ruled until a Filipino rebellion in 1898 ousted them with the support of the US, which subsequently asserted control. The Philippines gained independence after WWII, but dictator Fernando Marcos soon took over, ruling until 1986. Electoral democracy returned after that, but it has been marked by corruption and instability. The new government of Benigno Aquino III – heir to one of the Philippines’ most storied political families – has promised to clean up politics and cut bureaucratic inefficiency. This section features interviews with President Benigno Aquino III; Florencio Abad, Secretary, Department of Budget and Management; and Surin Pitsuwan, Secretary-General, ASEAN. William Hague, UK Secretary of State for Foreign and Commonwealth Affairs, provides a viewpoint on UK-ASEAN relations in the 21st century.
Explore chapterEconomy
Economic growth in the Philippines slowed from 7.6% in 2010 to 3.7% in 2011, and public-private partnerships (PPPs) that would have boosted public spending were delayed. The Aquino administration says that the wait is due to strict anti-corruption measures, and promises that 2012 will see these projects move forward. In the meantime, in late 2011 Aquino unveiled a spending package worth $1.6bn to bolster sagging demand. Local manufacturing plays a smaller role in the Philippines than it does in several of its ASEAN rivals, while the service sector, and in particular business-process outsourcing, has a bigger role. The economy also has a unique dependence on remittances from Filipinos who work overseas. This chapter features interviews with Cesar Purisima, Secretary, Department of Finance; Ramon R del Rosario Jr, Chairman, Makati Business Club; Jaime Augusto Zobel de Ayala, Chairman and CEO, Ayala Corporation; Karel De Gucht, EU Trade Commissioner; Helen Dee, Chairperson, Rizal Commercial Banking Corporation; and Washington SyCip, Founder, SyCip, Gorres, Velayo & Co.
Explore chapterBanking
The Philippines’ well-capitalised banks enjoyed strong profit growth in 2011, and excess liquidity is the main worry at this point. Much-hyped PPP projects could be a fillip for the sector, providing an avenue for lending. A number of factors point to consolidation in the sector, include the labour intensiveness of Philippines banking, rising capital requirements, and merger incentives from the central bank. Foreign acquisitions are also possible, with the Malaysian lender CIMB a candidate to acquire one or more local banks. This section includes interviews with Amando M Tetangco Jr, Governor, Bangko Sentral ng Pilipinas (BSP); Aurelio Montinola, President, Bank of the Philippine Islands; and Florence Tarriela, Chairperson, Philippine National Bank (PNB).
Explore chapterCapital Markets
The Philippines Stock Exchange (PSE) was the best-performing index in Asia in 2011, although it could not match the incredible 37.6% growth it displayed in 2010. Still, the bourse managed to close out the year 4.1% higher, thanks largely to the strong performance of the mining and oil counter. Now managers of the PSE, which is the smallest of South-east Asia’s major stock markets, want to increase the volume and complexity of trading, upgrading technology, allowing shorting, and listing exchange-traded funds. This chapter contains interviews with Hans Sicat, President, PSE; Cecilia Tan, President, BPI Capital Corporation; and Roberto Juanchito T Dispo, President, First Metro Investment Corporation.
Explore chapterInsurance
The Philippines insurance industry is poised for strong growth from a low base, being ranked as the third-smallest insurance market in the East Asian region. Penetration levels of just 14% indicate that there is considerable room for expansion. Sectoral figures are lobbying, with some success, to rewrite existing regulations, which they feel impose burdensome tax costs on the industry. Other expected changes include a gradual ramp-up of capital requirements, which should precipitate a wave of consolidation among the Philippines’ many small insurance providers. This chapter features interviews with Emmanuel Dooc, Commissioner, Insurance Commission; and Riza Mantaring, CEO, Sun Life.
Explore chapterEnergy
For a country surrounded by so many major oil and gas producers, the Philippines’ output is surprisingly low, suggesting that there are reserves waiting to be exploited. This may happen in the near future, with more than two dozen production blocks being put up for tender. Moreover, there are vast reserves waiting to be exploited in what the government dubs the West Philippine Sea, although these territories are disputed by several other countries. In electricity production, coal dominates, although gas has taken a substantial share, and there are plans to triple the nation’s renewable energy capacity. This section has interviews with Jose Rene D Almendras, Secretary, Department of Energy; Erramon Aboitiz, President and CEO, Aboitiz Power Corporation; and Ramon S Ang, Chairman and CEO, Petron Corporation.
Explore chapterIndustry and Retail
The Philippines has lagged behind its neighbours in developing trade ties, with only 32% of its GDP coming from exports. Exports fell in 2011 as well, although investment in manufacturing over the past two years may reverse this trend in the medium term. Electronics are a major production category, accounting for 51% of exports, with automobiles another strong sector. The Philippines is also looking to grow as a manufacturer of solar panels and components. Major challenges to boosting industry include corruption and infrastructure issues, including high energy prices. This chapter includes interviews with Gregory L Domingo, Secretary, Department of Trade and Industry (DTI); and Lilia de Lima, Director-General, Philippine Economic Zone Authority (PEZA).
Explore chapterBusiness Process Outsourcing
BPO has been a major growth area for the Philippines. The country benefits greatly from a well-educated, English-speaking labour force and now the industry is looking to crack the higher-value knowledge processing outsourcing (KPO) market, taking on back-office tasks like health care information management and legal transcription. With growth of 10-15% anticipated for the medium term, the outlook for the sector is rosy. Moreover, the BPO boom is sparking development and driving the real estate market in secondary cities, which reduces the economic orientation toward Manila. This section includes an interview with Lito Tayag, Country Managing Director, Accenture.
Explore chapterTourism
The Philippines tourism industry is hoping to emerge from a challenging few years that saw the country blacklisted by Hong Kong and the civil aviation authority downgraded by the US and EU. Although the growth in visitors during those years was solid, arrivals figures are barely a quarter of those seen in powerhouses like Thailand. The country has shifted its international tourism promotion to Asia, especially markets like South Korea. Meanwhile, domestic tourism dominates the sector’s revenues, providing some 80% of tourism income. This chapter features interviews with Ramon Jimenez, Secretary, Department of Tourism (DoT), and Cristino L Naguiat Jr, Chairman and CEO, Philippine Amusement and Gaming Corporation (PAGCOR).
Explore chapterTransport
Connecting the Philippines’ thousands of islands is a daunting logistical task, made harder by recent setbacks like US and EU downgrades of the civil aviation authority’s safety rating. The government is looking to implement its 2010 National Transportation Policy Agenda in part through a $12.8bn PPP plan unveiled in October 2011. Eight airport projects will be put to tender in 2012, and airline liberalisation is helping smaller carriers overtake the nation’s flagship. The government is also making major investments in roads and expressways, “nautical highways” and mass transit for rural areas. This section includes interviews with Lance Gokongwei, President and CEO, Cebu Pacific Air, and Doris M Ho, President and CEO, Magsaysay Group of Companies.
Explore chapterConstruction & Real Estate
The construction sector looks set to benefit from a major PPP initiative that should see its first big projects go to tender in 2012. Meanwhile, Manila is seeing robust growth, and the BPO boom is driving office development in Cebu City and beyond. There is demand for housing at all incomes levels, and while developers have typically focused on the high-margin luxury housing, affordable housing could yet be an attractive business. Furthermore, the Philippines’ underdeveloped tourist market gives developers and construction firms an opportunity to construct resorts and other infrastructure for visitors. This section features interviews with David Consunji, Chairman, DMCI Holdings; Joseph M Yap, CEO, Filinvest Land; and Jacques Dupasquier, Chairman, The Net Group.
Explore chapterMining
Mining companies have flocked to these islands for years to take advantage of the country’s vast mineral resources. The Philippines ranks third in gold reserves, fourth in copper, and fifth in nickel worldwide. However, an upsurge in anti-mining and environmental awareness has contributed to a difficult regulatory environment, with some jurisdictions imposing local mining bans. Investment in the sector at present is a high-risk, high-reward venture, which has pushed some multinationals to countries with looser restrictions. This section features interviews with Ramon J P Paje, Secretary, Department of Environment and Natural Resources (DENR); and Artemio Disini, Chairman, Chamber of Mines of the Philippines.
Explore chapterTelecoms and IT
Though the Philippines lags behind in several measures of technology penetration, scoring 36 out of 100 in a World Economic Forum report on “network readiness”, internet cafes are plentiful and Filipinos have the highest Facebook usage rate in the world. This drives the market for online games, which are very popular with the Philippines’ substantial young population. Software in general is developing as a viable business model, with 28% export revenue growth in 2010 alone. In telecoms, the Philippines’ two mobile operators are still adding customers, reaching 92% penetration in 2011. Price wars have driven rates for voice far down, although operators still enjoy some of the biggest profit margins in the world. Once those margins come down, future revenue growth will shift to web-enabled phones and their 3G and 4G services, which are only now coming into fashion. This section features an interview with Enrique Gonzalez, CEO, Intellectual Property Ventures Group (IPVG).
Explore chapterAgriculture
Plans for agriculture in the Philippines include making the world’s largest rice consumer, which currently imports the staple, self-sufficient. Multi-million dollar irrigation projects are currently underway to help achieve this goal, while a National Irrigation Administration is seeking to teach farmers sustainable irrigation techniques. The government is also pushing farmers to adopt more commercial approaches to their businesses, forming cooperatives and specialising in high-value subsectors like organics. Finally, the sugarcane industry, facing the prospect of the sugar market being flooded with cheap imports when ASEAN liberalisation kicks in, is looking toward value-added products like bioethanol. This chapter includes interviews with Proceso J Alcala, Secretary, Department of Agriculture; and Rica Davila, Chairman and CEO, Lapanday Foods Corporation.
Explore chapterEducation
Education in the Philippines suffers from chronic funding shortfalls, but budgets have risen significantly in the past several years, suggesting increased government recognition of the problem, though there is a ways to go yet. The addition of two more years of school will bring the Philippines in line with the rest of the world, but without additional money it could be an exchange of quality for quantity. At the university level, meanwhile, the private sector dominates, but schools face a similar funding crunch. This section features an interview with Patricia Licuanan, Chairperson, Commission on Higher Education (CHED).
Explore chapterHealth
The health situation in the Philippines is similar to that of a number of emerging economies, with communicable diseases having fallen in past decades but “lifestyle” factors like obesity and smoking causing an upsurge in cardiovascular disease and cancer. Spending on health is lower than in some neighbouring countries, but the government’s Philhealth programme is seeking to expand coverage through basic universal health care provision. Private services are widely used, although this has not been accompanied by a rise in private health care. This chapter has an interview with Enrique T Ona, Secretary, Department of Health.
Explore chapterMedia and Advertising
Advertising spending is focused on television, which enjoys 98% market penetration. Free-to-air is the dominant model, with cable television actually receding in coverage in recent years. Readership of print publications is declining, in line with worldwide trends. Meanwhile, the tremendous growth of internet usage and Facebook access makes a migration of news – and advertising spend – to the web inevitable.
Explore chapterLegal Framework
In partnership with SyCip Salazar Hernandez & Gatmaitan, OBG takes a look at the Philippines’ legal system. Key points include the different ways of doing business for foreign entities, including their liability to suit and tax obligations. The section includes an interview with Rafael Morales, Managing Partner, SyCip Salazar Hernandez & Gatmaitan.
Explore chapterTax
In conjunction with Punongbayan & Araullo, OBG explores the taxation system. This chapter features an interview with Marivic C Españo, Managing Partner and CEO, Punongbayan & Araullo.
Explore chapterThe Guide
This section includes an article about Palawan, the Philippines’ pristine island province, which features untouched reefs and unmatched biodiversity. OBG also provides information on hotels, government and other listings, alongside useful tips for visitors on topics like currency, visas, language, communications, dress, business hours and transport.
Explore chapterTable of Contents
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