The Report: The Philippines 2017

Economy

After five straight years of robust macroeconomic expansion, the Philippines ranks as one of the best-performing economies in South-east Asia. With rapidly rising domestic consumption, soaring foreign direct investment and a growing services sector, the country is set to record world-leading growth rates in 2017. Although weakening global and regional demand have weighed on exports, and the agriculture sector remains subdued following years of volatile and problematic weather, prudential fiscal management, falling public debt and legal reforms aimed at improving the investment climate have left the country positioned to tap global debt markets and attract new investment.

This chapter contains interviews with Carlos G Dominguez III, Secretary, Department of Finance; Shinichi Kitaoka, President, Japan International Cooperation Agency; Bernie H Liu, Chairman and CEO, Golden ABC; and Helen Y Dee, Chairperson, RCBC.

Regions

As a result of the election of President Rodrigo Duterte in mid-2016, decentralisation and rural development have been put in the spotlight for the national agenda. Prospective investors, government planners and citizens are increasingly encouraged to look at provincial sites as destinations for investment, development and migration. The three fastest-growing regions outside of Metro Manila in 2015 were Bicol, Western Visayas and Calabarzon. Decentralisation, however, remains a slow-moving process, as the dominance of Metro Manila as the country’s economic, political and cultural nucleus has only grown stronger over the years, having been the leading magnet for investors, factories and migrants, often at the expense of previously more buoyant regions further afield.

This chapter contains interviews with Hermilando Mandanas, Governor, Province of Batangas; Alfredo Marañon Jr, Governor, Province of Negros Occidental; and Antonio Rafael del Rosario, Governor, Province of Davao del Norte.

Trade & Investment

Strong macroeconomic expansion, rising consumer incomes and soaring import demand has kept trade volumes in the Philippines on a consistent upwards trajectory over the past decade. The country remains in trade deficit, with exports faltering in recent years as a result of external challenges such as low global commodity prices; softening demand in China, Japan and the US; and uncertainty over trade prospects with the EU in light of the Brexit vote. However, rising investment in manufacturing and industry could see the situation shift to a better balance in the coming years. The administration of President Rodrigo Duterte is explicitly targeting increased foreign direct investment, deploying a multi-pronged strategy to attract new inflows.

This chapter contains interviews with Ramon M Lopez, Secretary, Department of Trade and Industry; and Vivencio B Dizon, President and CEO, Bases Conversion and Development Authority.

Banking

The Philippine banking system has been performing relatively well in recent years. Given the country’s strong economic growth, the sound regulation of the sector by the central bank and the global push towards increasing capital, the local institutions have been safe, sound and profitable. Major metrics are moving generally in the right direction. While many people in the country remain unbanked, the lack of inclusiveness is seen as providing an opportunity for expansion. The sector is now open to 100% foreign ownership, and international institutions have been entering the market in significant numbers.

This chapter contains interviews with Amando Tetangco, Governor, Bangko Sentral ng Pilipinas; and Alex Buenaventura, President and CEO, Land Bank of the Philippines.

Capital Markets

In recent years the Philippine capital markets have performed well. The benchmark index has quadrupled since the global financial crisis in 2008 on a combination of good policy, strong economic growth, healthy inflows of foreign investment and low international interest rates. In 2016, however, market performance was mixed as the country held elections and the new administration settled in. The benchmark index fell, while the number of new initial public offerings was relatively small, with demand on the light side. However, the new administration is expected to be generally supportive of the markets and to push through a handful of major reforms that have been stalled due to bureaucratic disagreements.

Insurance

The Philippines’ insurance sector has been exhibiting strong growth in recent years. While it did experience a slowdown in 2014, and then again in early 2016 ahead of the election, the trend overall has been positive, and its strong performance is likely to continue. Although premium growth remained flat in 2016, insurers are forecast to collect a combined P500bn ($10.6bn) in premiums by 2019, double the amount in 2015. By then, around half the country’s population will be insured, more than triple the percentage in 2009. The push for inclusiveness is adding to new business coming from individuals seeking to build wealth and protect their assets.

This chapter contains an interview with Peter Grimes, President and CEO, FWD Philippines.

Energy

With the power segment poised to rebound while the oil and gas segment struggles to keep pace with surging demand, the Philippine energy sector is very much in flux. However, years of significant investment in power are now beginning to bear fruit, with thousands of megawatts of new capacity slated to come on-line over the next decade. The arrival of this new electricity supply, in the form of both conventional and renewable sources, should have a substantial effect as the Luzon grid moves from the brink of rolling blackouts during peak summer months to a well-supplied and balanced market. Still unconnected from the Visayas and Luzon grids, the long-neglected Mindanao power system is also experiencing an unprecedented expansion of capacity, which should provide an ample power supply for the foreseeable future.

This chapter contains interviews with Guido Alfredo Delgado, President and CEO, Emerging Power Incorporated; and Albert D Altura, President, AG&P.

Industry & Retail

The often-overlooked industrial sector continues to largely impress investors, as manufacturing is currently one the best-performing segments not only in the Philippines, but in South-east Asia as a whole. Apart from its favourable location in a rapidly growing region, the Philippines has a distinct advantage thanks to its large, relatively low-cost yet highly educated labour force. Although starting from a comparatively low base, the value of the industrial sector – which includes the subsectors of manufacturing, mining and quarrying, construction, and electricity, gas and water – has expanded rapidly in recent years from $26m in 2000 to $86.7m in 2015.

This chapter contains interviews with Patrick Henry Go, President and COO, JG Summit Petrochemicals Group; and Jonathan C Ng, President, Republic Biscuit Corporation.

Tourism

With abundant natural beauty and heritage sites spread across 7000 islands, the Philippines has steadily gained recognition over the years as a competitive tourism destination, despite being located in a region of strong contenders. With the campaign “It’s More Fun in the Philippines!” launched in 2012, the country has not only experienced a boost in visibility, driven by social media and aggressive international marketing efforts, but has also generated tourism growth substantial enough to push the sector into a more prominent position in the economy.

This report contains an interview with Steve Wolstenholme, President, Okada Manila.

Transport & Infrastructure

Benefitting from an advantageous geographic position flanking critical global trade routes between North America, ASEAN and Australia, the Philippines is well positioned to transform its transport sector into a major economic growth driver in the coming years, bolstered by rising maritime trade, air passenger volumes and commuter traffic. There is plenty of room for improvement, however. Robust population and economic growth, combined with rapid urbanisation and decades of underinvestment in critical infrastructure, has exacerbated congestion across all segments of the sector, particularly within the Metro Manila area and Luzon, the country’s largest and most populous island.

This chapter contains a roundtable with Andrew R Hoad, Executive Vice-President, Asian Terminals Inc; Christian R Gonzalez, Asia Region Head, International Container Terminal Services Inc; and Jay Daniel R Santiago, General Manager, Philippine Ports Authority.

Construction & Real Estate

Nowhere are the effects of the Philippines’ sustained economic growth more apparent than in the construction industry, which is benefitting from pent-up demand and a positive outlook for future growth. This momentum has driven the industry to one of the highest growth rates in the country, with the Philippine Statistics Authority reporting growth of 11% in 2014, 10.4% in 2015 and a jump to 14.6% in 2016. Years of investment and strong economic development have fostered a robust real estate sector that now extends beyond Metro Manila and into secondary markets. Economic development and a growing middle class continue to fuel demand for new, high-grade residential units, while commercial investment drives an ever-increasing amount of retail and office space.

This chapter contains interviews with Bernard Vincent Dy, President and CEO, Ayala Land; and Alberto C Agra, Chairman, Philippine Reclamation Authority.

BPO

The Philippines’ business process outsourcing (BPO) sector is an economic powerhouse and one of the largest white-collar employers in the country. It benefits from over a decade of pro-investment policies, a young and well-educated workforce, and rising foreign investment in both third-party contact centres and global in-house call centres. The industry will soon surpass foreign remittances as the single largest contributor to GDP, driven by growth in the emerging segments of health care, analytics and financial services outsourcing. Although rising levels of automation and advancements in robotics and artificial intelligence pose a threat to low-level BPO jobs, strengthening development ties between industry and academia should see growth in high-value-added positions over the medium term.

This chapter contains an interview with Maria Cristina Coronel, President, Pointwest Technologies.

Telecoms & IT

Surging activity and investment have benefitted the Philippines’ telecommunications industry in the decades following its deregulation, with mobile penetration increasing rapidly among a large population of digitally literate consumers. Although the market remains dominated by two operators, rising competition between them saw capital expenditure soar in 2016, driving improvements to service quality and consumer tariffs. Recent government moves to re-allocate new spectrum have further supported expansion of 3G, 4G and LTE services. The creation of a stand-alone department to oversee ICT development bodes well for expansion of a planned national broadband network, with the private sector set to play an important role in future service expansion.

This chapter contains an interview with Rodolfo A Salalima, Secretary, Department of Information and Communications Technology.

Agriculture & Fisheries

Contributing around 10% of GDP, the Philippine agriculture and fisheries sector’s importance to the economy remains far larger than its direct impact on the bottom line. The industry is a crucial employer, accounting for for 26.7% of the 43.4m-strong labour force, and is one of the few trades available for many Filipinos living in remote, less-affluent regions. With President Rodrigo Duterte announcing the aim to reduce poverty from 21.6% in 2015 to 14% by 2022 as part of the Philippine Development Plan 2017-22, a logical place to begin would be the agriculture sector, as the rural population collectively lives within a poverty range of 35-40%. The sector also plays directly to another of the president’s talking points about focusing on agriculture, tourism and manufacturing, with much of current industrial activity already devoted to downstream processing of agricultural products.

This chapter contains interviews with Emmanuel F Piñol, Secretary, Department of Agriculture; and Rachel Lomibao, CEO, Monsanto Philippines.

Health

Given the remarkable strides in improving health outcomes since the 1970s, Filipinos are generally living longer and healthier lives than their predecessors. But despite these advances, the country lags behind many of its neighbours on key health indicators, such as the maternal mortality rate and incidence of tuberculosis. Its health expenditure is also considerably less than other countries in South-east Asia. At the same time, lifestyle diseases are emerging as a new health challenge, requiring different responses. These are the issues that the Philippines faces as it moves forward with its commitment to achieve universal health coverage, ensuring that all Filipinos have access to quality, affordable health care.

This chapter contains interviews with Paulyn Jean B Rosell-Ubial, Secretary, Department of Health; and Dr Edgardo R Cortez, President and CEO, St Luke’s Medical Centre.

Education

The Philippines has embarked on education reforms that it considers crucial to its economic development, bringing its school system into line with international standards and seeking to open up its higher education sector to more people, while supporting research and development activities that will raise its academic profile and bring lasting benefits to the country. The government had to overcome substantial opposition to introduce a K-12 structure, a sign of its determination to bring lasting change, but sustained funding to support the increased demand on resources will be crucial if these bold reforms are to be a success.

This chapter contains an interview with Jikyeong Kang, President and Dean, Asian Institute of Management.

Tax

This chapter examines the Philippines’ tax regime, focusing on the territorial system for foreign companies and individuals, financial reporting framework, special economic zone tax benefits and other key areas.

It also features an interview with Marivic Españo, Chairperson and CEO, P&A Grant Thornton.

Legal Framework

This chapter examines the Philippines’ legal system, focusing on rules and regulations revised in 2016, new directives that affect investors, procurement and other key areas.

It also features an interview with Sylvette Tankiang, Senior Partner, V&A Law.

The Guide

This chapter contains hotel listings for business and leisure travellers, useful contact information for government ministries, phone numbers for business associations and other institutions, as well as helpful tips for new arrivals to the country.

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