The Report: Philippines 2014
A diverse country with an intriguing history, the Philippines today is a multi-party, democratic republic, open to foreign investment, and integrated within the regional and international political and economic community. The presidency of Benigno Aquino III, begun in 2010, has seen continued economic growth and some important breakthroughs in long-standing conflicts.
Country Profile
With a complex history marked by successive waves of migration and periods of colonisation and occupation, the Philippines is home to a host of ethnicities and languages across its roughly 1000 inhabited islands. It is the 12th-most populous country in the world, with a population expected to reach 99.43m by 2014, according to the IMF. The Philippines has plentiful natural resources. An estimated 30% of its total land area is believed to contain metallic mineral deposits, including nickel, cobalt, silver, gold, salt, and copper, largely as a result of its volcanic history. Typhoon Haiyan, which struck the central Philippines in early November 2013, caused extensive damage and left 5000 people dead and 4.2m displaced. The challenges thus remain significant, although the country is now experiencing a renewed optimism and greater stability than it has seen for many years. This chapter contains interviews with President Benigno Aquino III; Le Luong Minh, Secretary-General, ASEAN; Hugo Swire MP, UK Minister of State for the Foreign Office; and Bui Quang Vinh, Vietnamese Minister of Planning and Investment.
Explore chapterEconomy
While other countries in the region may have been taking the spotlight as top performers, the Philippines has been recording steady and continuous growth. Indeed, the country has not had a serious annual drop in GDP since 1985. Going forward, expectations are positive. While the IMF has been reducing growth forecasts in the region, the organisation’s 2014 prediction for the Philippines is staying stable at 6%. The economy’s strong fundamentals have received the recognition of the IMF and international credit rankings agencies; however, greater investment will be key to unlocking the country’s full potential. This chapter contains interviews with Cesar V Purisima, Secretary, Department of Finance; Roberto F Ocampo, Former Secretary of Finance, and Co-Vice Chairman, Makati Business Club; Guillermo Luz, Co-Chairman, Private Sector, National Competitiveness Council (NCC); and Miguel Varela, President, the Philippine Chamber of Commerce and Industry (PCCI).
Explore chapterTrade & Investment
For a number of years the Philippines worked hard to lower tariff rates, with the average weighted tariff applied falling from 22.4% in 1989 to a low of 2.6% in 2003. However, rates have begun to creep up again. The Philippines is actively considering a number of liberalisations to better align itself with the more open of its regional peers and to better integrate itself with the global economy. Whether to totally open markets or to engage in a sort of low-level managed trade is a debate raging throughout the world, especially in East Asia, and this issue is very much a part of the conversation in the Philippines. This chapter contains interviews with Gregory Domingo, Secretary, Department of Trade and Industry; Arnel Paciano D Casanova, President and CEO, Bases Conversion and Development Authority (BCDA), and Chairman, Philippine Investments Promotions Plan (PIPP) Steering Committee; and Stephen P Groff, Vice President for East Asia, South-east Asia and the Pacific, Asian Development Bank.
Explore chapterBanking
The Philippines banking sector has strengthened significantly in recent years, tracking general economic trends and benefitting from prudent measures put into place over time to boost capital and improve supervision, corporate governance and transparency. The local institutions that emerged from the late 1990s are stable and more wary of excessive risk and asset-liability imbalances. The challenge now is to build off this foundation and to further develop the sector so it can deal with new risks while funding economic growth. This chapter contains interviews with Amando M Tetangco Jr., Governor, Bangko Sentral ng Pilipinas; and a Roundtable with Nestor Tan, President, Banco de Oro Unibank (BDO); Gilda Pico, President, Landbank of the Philippines; Fabian Dee, President, Metrobank; and Cezar Consing, President, Bank of the Philippine Islands.
Explore chapterCapital Markets
The Philippine Stock Exchange had the second-best performance among Asian equity markets in 2013. It hit 38 all-time records during the year, broke 6000 for the first time in January 2013, 6500 in Feruary, and 7000 in April. The challenge is now to build on this strong foundation, further developing the systems, institutions, and regulations that will guarantee the market’s continued success going forward. Efforts to expand the investor base and the instruments on offer should support continued expansion. This chapter contains interviews with Hans Sicat, President, Philippine Stock Exchange; and Eduardo Francisco, President, BDO Capital & Investment Corporation, and Co-Chair, Capital Market Development Council.
Explore chapterInsurance
At the end of 2012, the Philippines was home to 79 non-life insurance companies, 29 life insurers and a single reinsurance firm. With a strong history and few limitations and restrictions on foreign investment, the Philippine insurance industry is open, thriving, growing and competitive; however it is widely acknowledged that the sector should be more inclusive, as it currently serves only a small percentage of the population. This is set to change, however, as financial services inclusiveness is not only seen as important to the individual; it is also regarded as a way to improve economic efficiency and promote long-term sustainable growth. This chapter contains an interview with Yvonne S Yuchengco, President and CEO, Malayan Insurance.
Explore chapterEnergy
The emergence of new hydrocarbons fields has helped the Philippine energy sector make up for declining output starting in the mid-1990s. While primary energy demand continues to outstrip diminishing domestic production, output from relatively recently exploited reserves are offsetting maturing blocks as the sector looks to implement a strategy of efficiency, diversification and further exploration and development. This chapter contains interviews with Jericho L Petilla, Secretary, Department of Energy; and Oscar Reyes, President and CEO, Manila Electric Company.
Explore chapterIndustry & Retail
Despite growing at an average rate of 2.7% between 2002 and 2012, the manufacturing sector’s share of GDP has been eroded by the rapid growth of other sectors, such as construction and services. Hampered by high energy costs, expensive logistics and low infrastructure investment, the manufacturing’s share of GDP has been declining since 2002 in what the Asian Development Bank has warned could be a premature shift away from industrialisation. The government has, however, been increasing its efforts to attract investment and accelerate manufacturing growth, resulting in the country earning an investment grade rating from three major global credit agencies during 2013. Meanwhile, with overall strong growth and key drivers such as business process outsourcing sector expansion and demographics still in place, the Philippines retail sector appears set to continue its relatively rapid expansion. This chapter contains interviews with Leonardo B Dayao, President, Puregold Price Club; and Christopher T Po, President and CEO, Century Pacific Group.
Explore chapterTourism
As rich in natural beauty as regional tourism leaders Thailand and Malaysia, the Philippines’ history of under-investment, weak promotion and security troubles has made it one of the least-visited large countries in the area. But the Philippines is pushing hard to develop the potential of its tourism sector. Visitor numbers and revenues have been climbing steadily, though less quickly than those of neighbouring countries. Under the administration of Benigno Aquino III, the sector has received greater attention and growth has accelerated. The tourism sector is likely to roughly maintain its current growth rates over the next few years, with foreign tourist receipts growing at 10-15% annually and domestic tourist receipts rising by 20%. The acceleration of overall economic growth in 2013 suggests that domestic tourism growth could also rise further. This chapter contains interviews with Ramon R Jimenez Jr., Secretary, Department of Tourism; and a roundtable with Jorge Sarmiento, President & COO, Philippine Amusement & Gaming Corporation (PAGCOR); Thomas Arasi, President & COO, Solaire Resort & Casino; and Clarence Chung, Chairman, Melcro Crown Resorts.
Explore chapterTransport & Infrastructure
As the government pursues its infrastructure development programme, real growth in the sector is expected to reach 5.9% per annum between 2013 and 2017. Backed by a favourable macroeconomic environment, political stability and increased spending, the country’s transport sector is slowly being modernised. In 2013 more than $7.2bn has been budgeted for port, road and rail infrastructure upgrades. In 2014 the government has allocated around $9.6bn – an increase of 35% -- for public works projects. Despite various challenges, the overall outlook for the transport sector in the medium term looks positive and is supported by a healthy economy, decisive leadership, and a strong financial situation that has made the nation an outlier of growth in a region that is otherwise buffeted by economic troubles. This chapter contains interviews with Joseph Emilio Aguinaldo Abaya, Secretary, Department of Transportation and Commerce; and Ramon S Ang, President and COO, Philippine Airlines.
Explore chapterConstruction & Real Estate
From expansion of 18.4% in the last quarter of 2012 to 32% in the first quarter of 2013, the construction industry has shown consistent double-digit growth of late. According to the Philippine Development Plan 2011-16, the government intends to increase infrastructure spending to almost 5% of GDP by 2016. Rapid urbanisation and the pace of construction are likely to add to increasing demand for water, energy, roads, airports, and other transport developments. The outlook for the real estate sector looks positive as demand for quality housing, office and retail space is expected to remain high in step with economic growth. Amidst optimism in the sector, however, there are concerns that increasing property prices could create a bubble and drive up inflation. To some degree, demand-side pressure could be eased as new office and residence projects are completed and more space becomes available throughout the country. This chapter contains interviews with Don H Lee, President, Lafarge Holdings (Philippines); Michael Cosiquien, Chairman & CEO, Megawide Construction Corporation; and Ambassador Amable R Aguiluz V, Chairman, Picar Development.
Explore chapterBPO
Exhibiting nominal growth rates of approximately 20% every year, business process outsourcing (BPO) is the Philippines’ most successful major sector. It tripled in size between 2004 and 2007 as a result of the global financial boom, growing from 100,000 to 300,000 employees and achieving revenues of $4.8bn. While accounting for only about 2% of national employment in 2012, the sector still makes an oversized contribution to the country’s GDP and especially to growth – directly and indirectly – as it creates demand for office space, telecoms services and the consumerist lifestyles of its young employees. Growth in 2013-14 could be especially hurt by the collapse of the Indian rupee in mid-2013, which will make India’s BPO sector formidably competitive. The Philippines will need to aggressively position itself as a provider of premium quality service to retain and continue to draw cost-sensitive, fleet-footed BPO clients. This chapter contains an interview with Jose Mari Mercado, President & CEO, Information Technology and Business Processing Association of the Philippines (IBPAP).
Explore chapterTelecoms & IT
The telecommunications sector continues to evolve with the emergence of new technologies, fierce competition between existing operators and the entry of new service providers. Mobile services dominate the telecoms sector. The mobile penetration rate stood at 107% at the end of 2012, though because many people use multiple SIM cards, the actual rate may be closer to 80%. 3G uptake by Filipinos is expected to be moderate in the coming years, with subscriptions forecast to rise to rise by a CAGR of 12.7% between 2012 and 2016. As the IT sector continues to roll out new and updated infrastructure, the expanding services exports segment is likely to see growth. One challenge to this, however, may be securing enough skilled local workers to fill positions. If the government continues to extend incentives to new firms, this is a hurdle that could be overcome. This should leave the industry in a good position to see increasing internet uptake, growing exports and a rising number of jobs for locals. This chapter contains interviews with Manuel V Pangilinan, Chairman, Philippine Long Distance Telephone Company (PLDT); and Gamaliel Asis Cordoba, Commissioner, National Telecommunications Commission.
Explore chapterAgriculture
Belied by its relatively modest contribution to the overall economy, the Philippine agriculture sector remains a key component in the social and economic development of the country; more than 24.53m Filipinos work in the sector, making it economically and politically vital. Taken together, agriculture, forestry, hunting and fishing expanded by 2.92% in 2012, up slightly from 2.59% in 2011. At current prices, the value of agriculture production reached $33bn in 2012. Recent efforts by the government to increase efficiency and productivity within the industry should help boost profitability in the sector. Further, once in place, business-friendly policies and enhanced infrastructure should provide an attractive market for investors looking to harness the sector’s untapped potential. This chapter contains interviews with Virgilio de los Reyes, Secretary, Department of Agrarian Reform; and John Martin Miller, Chairman and CEO, Nestlé Philippines.
Explore chapterHealth
By including everyone under a health insurance coverage scheme and ensuring affordable drugs reach all socioeconomic groups, the Philippines is setting an example on how to tackle the problem of the high cost of medical care and social inclusion. The Philippine experiment of combining public spending on preventative health care and medical coverage with private delivery holds the promise of resolving the challenge of meeting public health goals with scarce resources. It may also serve as a model for public-private partnerships (PPPs), in which the health sector emerges as a driver of growth and employment opportunities. The government’s focus on promoting medical tourism and the health care BPO industry provides an enabling environment for future investments. This chapter contains an interview with Clinton Campos Hess, President & CEO, United Laboratories.
Explore chapterEducation
Reforms to the local school system and increased funding are expected to support improved outcomes in what is a large and logistically challenging sector. The administration of Benigno Aquino III has significantly raised the budget and introduced sweeping reforms that are aimed at addressing access, quality and human resource shortcomings. Reforms have opened up new business opportunities for service providers and private investors. Although the sector caps foreign equity participation at 40% for the most part, new opportunities in technical and vocational training could emerge by 2016. This chapter contains an interview with Alfredo Pascual, President, University of the Philippines.
Explore chapterMining
In spite of its vast reserves of minerals, the mining sector is currently only a modest contributor to the economy due to a range of factors that have impeded development. All told, approximately 14.5bn tonnes of metallic minerals (including gold, copper, iron, chromite, nickel, cobalt and platinum) and 67.66bn tonnes of non-metallic minerals, such as sand and gravel, limestone, marble, clay, and other quarry materials lie waiting for the turn of the shovel. Between 2011 and 2012 mineral exports recorded a fall due to a decline in market prices and lower production linked to temporary mine closures. Yet, even with the slow pace of progress being made, there remains hope that the government’s recognition of the sector’s importance will help drive it forward. This chapter contains an interview with Eulalio B Austin Jr., President & CEO, Philex Mining Corporation.
Explore chapterLegal Framework
In partnership with SyCip Salazar Hernandez & Gatmaitan, OBG explores the legal framework of the Philippines, with a focus on procedures for mergers and consolidations, stockholder appraisal rights, “bulk sale” rules and other subject areas relevant to business and foreign investment. This section includes an interview with Rafael A Morales, Managing Partner, SyCIP Salazar Hernandez & Gatmaitan.
Explore chapterTax
In partnership with Punongbayan & Araullo, OBG explores the Philippine tax system, with a focus on incentives, regulations, reporting framework, and other areas of interest to business and investment in the Philippines. This section also contains an interview with Marivic C Espana, Chairperson and CEO, Punongbayan & Araullo.
Explore chapterThe Guide
For those interested in doing business in the Philippines, The Guide offers helpful information, including suggested hotels, phone numbers for key contacts, and facts for visitors. This section also contains a sights and sounds feature on the island province of Coron, a premier destination for tourists.
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