The Report: The Philippines 2016
A series of reforms initiated by the administration of President Benigno Aquino III in the last few years have boosted spending on infrastructure and opened key industries to outside investors. The reforms prompted a series of upgrades to the Philippines’ credit ratings and echo initiatives taken in the region as it embarks on greater integration through the ASEAN Economic Community.
Country Profile
The Philippines’ abundant biodiversity, natural resources and youthful demographics are all assets that have garnered recognition from investors in recent years. Sustained economic growth and the Philippines’ newly attained investment grade status notwithstanding, the maintenance of peace in the Mindanao region and persistent poverty levels remain key areas to address as the country continues its successful integration into the ASEAN Economic Community. Tackling ongoing challenges are important priorities for the current administration of Benigno Aquino III, which aims to leave a legacy of good governance beyond its last year in 2016. This chapter contains a viewpoint from President Benigno Aquino III; and interviews with Le Luong Minh, Secretary-General, ASEAN; and Roselan Johar Mohamed, Chairman, the Brunei Darussalam-Indonesia-Malaysia-Philippines East ASEAN Growth Area Business Council.
Explore chapterEconomy
The Philippine economy continues to enjoy a period of rapid, broad-based growth as the business process outsourcing (BPO) sector and growing remittances from overseas workers drive growth in consumer-oriented industries and construction. Although real growth decelerated in 2014 to 6.1%, it remained higher than many of the country’s South-east Asian peers, and is expected to remain near 6% for the remainder of the decade. The economy is overly concentrated in the Metro Manila region, and major challenges lie ahead in overcoming long-standing infrastructure bottlenecks and developing stronger energy and manufacturing sectors. Yet the government is increasing its efforts to spread manufacturing and BPO growth across the country and clear obstacles to developing other sectors where outlying regions have strong potential. This chapter contains an interview with Cesar V Purisima, Secretary, Department of Finance; a roundtable with Manuel Pangilinan, Managing Director, First Pacific; Teresita Sy-Coson, Vice-Chairperson, SM Investments Corporation; and Jay Yuvallos, President, Interior Basics Export Corporation; and an interview with Atsi Sheth, Associate Managing Director, and Moody’s Investors Service.
Explore chapterRegions
The Philippines has been a pioneer in decentralisation for Asia, having commenced its local governance reforms in 1991 through the formulation and implementation of the Local Government Code (LGC), which served as the operating framework for the local government system. The LGC seeks to increase local government autonomy and accountability by assigning functions and revenue generating powers to local government units. In 2014, the National Capital Region (NCR) contributed more than one-third to the country’s GDP, at 36.3%, while both Calabarzon and Central Luzon followed in contribution, with shares of 17.2% and 9.3%, respectively. Central Visayas took fourth place, with a share of 6.5%. As the NCR’s congestion intensifies and both the labour pool and real estate market approach saturation, investors are increasingly looking to reverse the flow of migration into the metropolis and move into the provinces to capitalise on untapped labour pools and lower costs. This chapter contains interviews with Albert S Garcia, Governor, Province of Cebu; Hilario Davide III, Governor, Province of Bataan; and Jose Ma R Zubiri Jr, Governor, Province of Bukidnon.
Explore chapterTrade & Investment
After years of lagging behind its South-east Asian peers, the Philippines is seeing a long-awaited awakening of foreign direct investment (FDI). Although FDI volumes are still smaller than what countries in its peer group attract, the Philippines has been catching up at an impressive pace. Although many of the challenges that impeded investment in the past have yet to be fully overcome, the faster economic growth of recent years and stronger efforts to attract investment have improved perceptions of the country’s prospects. FDI rose from $1.1bn in 2010 to $4.9bn in the first nine months of 2014 as economic growth has accelerated and business policies have improved. This chapter contains an interview with Arthur R Tan, President and CEO, Integrates Micro-electronics; and a dialogue with Edwin CoSeteng, President, First Philippine Industrial Park and Guillermo Luchangco, Chairman and CEO, Science Park of the Philippines.
Explore chapterBanking
As banks expand credit to a traditionally under-banked economy, the sector is enjoying a period of rapid catchup growth. A positive feedback loop is at work in which banks are increasingly driving economic growth, supported by inflows from foreign investment and Filipinos working abroad, while growing trust in the banking system is drawing greater volumes of savings. Although bank lending has risen quickly, to $122bn in September 2014, it was equal to just over 40% of annual GDP. That is about half the level in Thailand and a third of the level in Malaysia, leaving considerable room for further expansion. Indeed, by the time regional integration comes to pass, Philippine banks may be more competitive across South-east Asia than many are expecting. This chapter contains an interview with Amando M Tetangco Jr, Governor, Bangko Sentral ng Pilipinas; and a roundtable with Reynaldo A Maclang, President, Philippine National Bank; Alfonso L Salcedo Jr, President and CEO, Security Bank; and Justo A Ortiz, Chairman and CEO, UnionBank of the Philippines.
Explore chapterCapital Markets
As domestic liquidity surged and foreign investors gradually returned after a general flight from emerging markets in 2013, Philippine capital markets were riding a wave of optimism in 2014 and early 2015. The Philippine Stock Exchange’s (PSE) blue-chip index, the PSEI, hit a fresh all-time high in January 2015 and was continuing to rise in February, finally working past the “taper tantrum” that knocked back all major emerging market indices in 2013. The Philippine market’s strong performance in a weak year for emerging markets bodes well for the capital markets sector and was an important show of confidence by investors in the country’s broader economic prospects. In addition, the development of a local corporate bond market is also a promising sign and will reduce the economy’s dependence on banks to finance investment. This chapter contains an interview with Rabboni Francis B Arjonillo, President, First Metro Investment Corporation.
Explore chapterInsurance
With development dating back nearly 200 years, the Philippine insurance sector is among the region’s most mature and competitive, expanding steadily in recent years despite serious challenges in 2014. The nation remains prone to natural disasters, as evidenced by Typhoon Haiyan, a category-five storm that caused billions in damage when it struck in November 2013. It cost the sector millions and dampened industry growth the following year. The industry stayed resilient, however, with continuing growth in investment and assets in 2014. Meanwhile, the sector remains open to foreign investment, despite a high tax burden and rising capital requirements. Indeed, recently enacted legislation, though painful for some smaller players, should improve industry stability and spur consolidation in 2015, keeping the industry on a steady long-term growth path. This chapter contains an interview with Lorenzo Chan Jr, President, Pioneer Life & Retail Organisation Head, Pioneer Group.
Explore chapterEnergy
Strong economic growth and a rise in energy demand have exerted pressure on the Philippines’ energy sector in recent years. With large, easily accessible oil and gas discoveries long since picked over, a continued decline in petroleum production has encouraged a heavy reliance on imports. As the country shifts its energy priorities away from crude oil and towards natural gas, the Department of Energy has set out a road map to establish a new network of gas pipelines to transport gas around Luzon from 2017 to 2022. Exploration in new, primarily frontier areas could mitigate the country’s increasing reliance on foreign energy sources to some degree, although any significant reserves are likely to remain tied up in territorial disputes for the foreseeable future. It is clear that several challenges remain with respect to the country’s electricity supply in the short term, particularly in Luzon. However, the implementation of new projects and incentives should help to alleviate the shortfall in the medium-to-long term, even as energy demand continues to climb at a rate in excess of 4% per annum. This chapter contains interviews with Francisco C Sebastian, Chairman, Global Business Power Corporation; and Tirso G Santillan Jr, CEO, Alsons Consolidated Resources.
Explore chapterIndustry & Retail
Growing an impressive 7.2%, the Philippines was one of Asia’s best-performing economies in 2013. As growth has given rise to increased business activity and boosted consumer spending power, the question that arises is whether this new-found domestic demand will be for goods and materials produced locally or imported from abroad. This is an issue that will become even more important in 2015 as ASEAN Economic Community integration further opens the market to imports from regional manufacturing powerhouses. At the same time, integration offers new-found market access to a wide and emerging consumer base, and the Philippines will need to ramp up its manufacturing competitiveness to ensure it becomes a net exporter, rather than a pure importer, of value-added products moving throughout the region. This chapter contains interviews with Edgar “Injap” Sia II, Chairman and CEO, DoubleDragon Properties; and Winstron Co, President, Emperador Distillers.
Explore chapterTourism
Despite boasting a range of attractions and a reputation for hospitality on par with its regional competitors, the Philippine’s tourism industry has a long way to catch up with nearby powerhouses such as Thailand and Malaysia. Under the administration of President Benigno Aquino III, the sector has been identified as a vehicle to be prioritised for the positive impact it can have on inclusive economic growth, and efforts appear to be bearing fruit. The World Economic Forum (WEF), in its “Travel & Tourism Competiveness Report 2015”, ranked the Philippines at 74th overall, 12 places higher than the country ranked in the previous report – the largest improvement of any country within the Asia-Pacific Region. With plentiful natural endowments and a cultural propensity for service and hospitality, the Philippines is fortunate to possess assets that serve as demand drivers. This chapter contains interviews with Jose Chaves Alvarez, Governor, Province of Palawan; and Joy Cañeba, CEO, Philippines AirAsia.
Explore chapterTransport & Infrastructure
Though still trailing its neighbors, the transport sector in the Philippines is in the process of modernizing as the current government continues to fast-track relevant infrastructure projects, while also taking modest steps to improve inter-agency cooperation and good governance. The sector is a key component of the national economy, which will be better able to achieve its potential through improved linkages between economic centers and cities on the archipelago. Road transport remains by far the most dominant mode of travel, and, according to the Asian Development Bank, road transport accounts for 98% of passenger traffic and 58% of cargo traffic. However, due to a lack of adequate financing, levels of servicing have fallen behind. The World Bank has predicted that the economy will grow 6.7% in 2015 – although this growth will depend on the government’s ability to improve spending and encourage public-private partnerships. Regulatory uncertainty and convoluted bidding procedures have hindered the progress of such projects so far and must be righted so that the advantages of private sector interest can be realized. This chapter contains interviews with Maximo Mejia Jr, Administrator, Maritime Industry Authority; and Rashid Alexander Delgado, President, Transnational Diversified Group; and a dialogue with Eric Francia, President and CEO, AC Infrastructure Holdings and Jose Ma K Lim, President and CEO, Metro Pacific Investments.
Explore chapterConstruction & Real Estate
The construction and real estate sectors make up around 20% of the Philippine economy, slightly ahead of manufacturing. Over the past few years, construction in the Philippines has been flourishing amid a climate of political stability and upbeat business sentiment, spurred by growth in overseas foreign worker remittances, inbound investments into business process outsourcing, rising numbers of tourist arrivals, and government spending on large- and small-scale infrastructure. Although growth rates for the sector are unlikely to maintain the exceptional levels of the past 24 months, the long-term prospects remain solid and balanced. Positive trading conditions for the residential, office, retail and hospitality segments point to robust demand for private-sector-led building. This chapter contains interviews with Chito Cruz, Chairman, Housing and Urban Development Coordinating Council; and J J Atencio, President and CEO, 8990 Holdings.
Explore chapterBPO
The global BPO industry is forecast to be worth $250bn by 2020 and the Philippines is seeking to cement its position as a preferred global service offshoring hub and expand on and diversify its share in this lucrative, yet highly competitive field. Having grown at a compound annual growth rate of around 10% over the past decade, the BPO sector has become the country’s largest source of private employment and the second-largest contributor of foreign exchange earnings after remittances. It has also fueled the growth of other sectors, as the salaries paid out have augmented household consumption and anchored the expansion of the property and retail sectors. Since 2004, the Philippines has tripled its global market share of BPO business, from 4% to 12.3% in 2014. It is estimated that this could rise to 19% by 2020. This chapter contain an interview with David Rizzo, Asia Pacific President, Teleperformance.
Explore chapterIT & Telecoms
Lagging behind the region’s faster evolving markets when it comes to the provision and adoption rate of mobile broadband, data usage and mobile services in the Philippines are expected to grow as smartphones become more pervasive and the two leading operators continue to raise capital expenditure to upgrade existing networks and deploy 4G sites. Overall, the Philippine’s young population and expanding economy makes it an attractive market for telecoms firms to play. Despite the two incumbent operators enjoying an entrenched market position that makes them difficult to challenge, the propensity for Filipinos to consume online content and engage in social media presents opportunities for a range of technology firms involved in delivering media content, gaming, e-commerce and digital advertising. Encouraging demographics and a well established BPO industry suggest there are also strong opportunities for growth and ways to expand upon current operations in the IT sector. If harnessed effectively, the Philippines possesses a number of ingredients that position it to emerge as a globally competitive tech hub. This chapter contains an interview with Ryan Guadalquiver, Managing Director, Hewlett Packard Enterprise.
Explore chapterAgriculture
Still the country’s largest single employer, the Philippines’ agriculture sector continues to play a pivotal role in the economy, even as the government looks to develop other modern industries to lead the way in the future. Directly employing more than one-quarter of all workers in non-services industries, more than 11m Filipinos relied on agriculture for their livelihood in 2013, according to the Philippines Statistics Authority (PSA). The palay, poultry and livestock industries were the key drivers of growth in 2013, and the segments continued to perform well in the first half of 2014. Determining the most effective means of countering the effects of weather will be a key concern going forward. Initiatives to boost yields of staples such as rice and corn should reduce the country’s food import bills in the future, even if the stated goal of full rice self-sufficiency is not achieved. The flourishing fisheries and fruits and vegetables segments are likely to continue to be profitable as well, as international demand still significantly outpaces the supply of Philippines-cultivated produce and seafood. This chapter contains interviews with Senator Cynthia A Villar, Chairperson, Senate Committee on Agriculture and Food; and Milagros Ong-How, Executive Vice-President, Universal Harvester Incorporated.
Explore chapterHealth
With the government committing unprecedented levels of funding to increasing the coverage of its national public health insurance programme, positive effects are being felt throughout the domestic health sector. The Philippine experiment of combining public health care spending with private sector delivery continues to evolve. As health care remains central to the public interest, there is a heavy onus on improving access and efficiency in accordance with the goal of providing universal health care coverage for all Filipinos by 2016. In addition to the realisation of hard infrastructure projects under public-private partnerships, options for the provision of health services under such a model are gradually coming to the fore. This chapter contains an interview with Mario M Silos, Chairman and President, Intellicare.
Explore chapterEducation
Having been the only country in South-east Asia providing just 10 years of basic education to its population, the Philippines is working to join its neighbors and implement a K-12 system in 2016. Though the administration of President Benigno Aquino III is providing the Department of Education with more funding to aid the realization of this task, the challenge of doing so over a short transition period is unquestionable. The growing role of the private sector in providing educational services is crucial, with greater opportunities on the horizon and the government taking slow but steady steps to define them. Continuing reform is set to further integrate and incentivise private sector participation, as is happening in sectors like infrastructure and health care. Elsewhere, the challenges of access and quality remain, which the government continues to address through a host of pragmatic initiatives. This chapter contains an interview with Irene Isaac, Director-General, Technical Education and Skills Development Authority.
Explore chapterLegal Framework
This chapter explores the legal framework of the Philippines, focusing on new legislation for foreign banks, legal procedures for mergers and acquisitions, and rules on data privacy and anti-money laundering, among other recent developments. It also contains an interview with Rafael A Morales, Managing Partner, SyCip Salazar Hernandez & Gatmaitan.
Explore chapterTax
This chapter gives a breakdown of the tax environment in the Philippines, examining new developments that include separate tax regimes offered in special economic zones, regulations governing transfer pricing and bookkeeping requirements. It also contains an interview with Marivic Españo, Chairperson and CEO, P&A Grant Thornton.
Explore chapterThe Guide
This chapter contains facts for visitors, a list of recommended hotels, and a numbers listing for chambers of commerce, government offices, foreign missions and other important contacts. It also highlights suggested destinations throughout the archipelago for travelers to consider when visiting the Philippines.
Explore chapterTable of Contents
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