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. However, 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 more broadly, 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 (FDI) inflows, deploying a multi-pronged strategy to attract new investment. Measures include a wide-reaching tax reform programme, easing restrictions on FDI across several sectors – most notably financial services – and reducing red tape and bureaucracy. A late-2016 pivot towards China could also see investment pour in over the coming years, helping the country offset losses from volatility elsewhere and soften potential negative effects the move will have on trade relations with the US.

Eye On Exports

The Philippines’ export strategy is enshrined in the Philippine Export Development Plan 2015-17, which targets merchandise export growth of between 5.4% and 8% in 2016 and between 6.7% and 10% in 2017. Service exports are forecast to rise between 9% and 10.3% in 2016 and between 9.9% and 12% in 2017. This would bring total export growth rates to between 6.6% and 8.8% in 2016 and between 7.6% and 10.6% in 2017.

The Department of Trade and Industry (DTI), the country’s chief investment promotion and trade supervisory body, also targeted export growth of between 6% and 9% in 2016. However, global volatility and weak demand from major export markets weighed on growth during the first half of the year. According to the most recent published information from the Philippine Statistics Authority (PSA), total export receipts recorded for semester one of 2016 were down 7.5% from the comparable period in 2015, making the growth target nearly impossible to reach.

In addition to the DTI, a broad portfolio of government agencies known as Invest Philippines is responsible for investment promotion in the country. It is comprised of the Board of Investments (BOI), the Philippine Economic Zone Authority (PEZA) and various freeport authorities.

Recent Growth

Import/export totals have been growing steadily in recent years, with the PSA reporting that foreign trade has risen every year since 2009, when it slumped from $105.82bn to $81.53bn. Volumes recovered in 2010 to hit $106.43bn, rising further to $108.8bn in 2011, $114.2bn in 2012 and $119bn in 2013.

The PSA reported that trade volumes in the country rose by 1.9% in 2015 to hit $129.9bn – a decrease on the 7.1% growth recorded in 2014 that brought total trade to $127.5bn. Foreign trade growth was driven by surging imports, which rose by 8.7% from $65.4bn in 2014 to $71bn. Export receipts fell by 5.3% from $62.1bn in 2014 to $58.8bn in 2015. The Philippines ended 2015 with a $12.2bn trade deficit, compared to a $3.3bn deficit in 2014.

Export Base

The Philippines’ export base is varied, but largely dominated by electronics production. The PSA reported that sales from its top-10 export products comprised 83.5% of total revenues in 2015, with the dollar figure remaining stable and ending the year at $49.1bn as opposed to $50.9bn in 2014.

Electronic products maintained their position as the top export category in 2015, accounting for 49.1% of total export revenues. The value of electronic products rose by 7.9% in 2015 to hit $28.9bn – from $26.7bn in 2014 – and reached $13.6bn in the first half of 2016. Electronics were followed by “other manufactured goods” in second place, with a 6.8% share of total revenues. Income from this category declined by $1bn (21.4%) in 2015 to $4bn.

Machinery and transportation equipment manufacturing was the third-largest source of export revenues in 2015, comprising 6.7% of the total, or $3.9bn. Revenues from this segment largely remained the same as the $4bn earned in 2014. Wood crafts and furniture manufacturing contributed 5.3% of total revenues, falling by 6.2% in 2015 to $3.3bn, while the fifth category – manufacturing of ignition and other wiring sets used in vehicles, aircraft and ships – rose by 4.1% to $2.1bn, comprising 3.6% of total export revenues.

The bottom five of the country’s top-10 exports were less stable and recorded more dramatic revenue declines in 2015, reflecting global market conditions and depressed commodity prices. Chemical exports fell by 31.6% to $1.8bn; apparel decreased by 21.3% to $1.5bn; mineral product revenues slumped by 47.2% to $1.4bn; and sales of metal components fell by 9.9% to $1.2bn. Coconut oil – the only agricultural product to make it into the top 10 – saw revenues fall by 6.2% in 2015 to $1.1bn.

Import Base

The country’s top-10 imports in 2015 accounted for 74% of the total import bill, and rose from $48.9bn in 2014 to $52.6bn in 2015. As with exports, the PSA reported that electronic products was the largest source of import expenditure in 2015, accounting for 28.9% of the total import bill, having risen from $15.3bn in 2014 to $20.6bn. Midyear 2016 figures were on track to match 2015, with the category’s imports standing at $10.7bn.

Furthermore, as a country that imports its fuel, the Philippines benefitted from lower global oil prices during 2015. Fuel import costs – which comprised 13% of total imports that year– fell by 30% from $13.2bn in 2014 to $9.3bn. However, transportation equipment costs – comprising 8.7% of the 2015 import bill – remained fairly stable, decreasing slightly from $6.24bn in 2014 to $6.16bn.

Industrial machinery and equipment comprised 5.8% of the total import bill, rising by 27.8% from $3.2bn in 2014 to $4.1bn in 2015. Food and live animals came in fifth place, with a 3.8% share of the total import bill. This group rose by 20.5% from the 2014 figure to hit $2.7bn.

Iron and steel product imports recorded the sharpest growth rate of all categories in 2015, rising by 47% to hit $2.7bn following increased investment in manufacturing and industry. Cereal and cereal preparations rose 24% to reach $2.1bn. Telecommunication equipment imports rose 17% to hit $1.6bn.

Top Trading Partners

The PSA reports that the Philippines’ top-10 trading partners comprised 78.5% of total foreign trade in 2015, equivalent to $101.9bn. Of this figure, export receipts comprised $48.3bn – 82.1% of all exports – and imports amounted to $53.6bn, 75.5% of all imports. By trade value, the country’s top-five partners are Japan, China, the US, Singapore and Hong Kong.

Japan retained its position as the Philippines’ top trading partner in 2015, accounting for $18.7bn, or 14.4%, of total trade volumes. Exports to Japan stood at $12.3bn in 2015 compared to $6.4bn of imports, for a healthy trade surplus of nearly $6bn. Electronic products were the largest source of exports to Japan, accounting for 30.2% of total revenues, followed by wood crafts and furniture at 23.2% of the total. Major imports from Japan also included electronic products at 34.4% of the total bill, and transportation equipment at 15.1%.


PSA data shows that China was the country’s second-largest trading partner in 2015, with trade volumes reaching $17.6bn, or 13.6% of total foreign trade. Unlike the scenario with Japan, the Philippines maintained a $5.3bn trade deficit with China: exports reached $6.2bn compared to $11.5bn of imports. Electronic products were once again the country’s largest export product, accounting for 54.9% of total revenues, followed by mineral products at 11.1%. Electronic products were also the largest category of imports, comprising 21.1% of the total, followed by iron and steel imports at 15.9%.

Strengthening Ties

Trading volumes with China could see a sharp increase in the coming years after President Duterte visited China with a large delegation of business leaders in October 2016. Secretary of Industry and Trade, Ramon Lopez, later announced that the country had secured a staggering $24bn worth of new investment and financing agreements with China, of which $15bn are for Chinese investment projects in the Philippines and the remaining $9bn are credit facilities.

According to Lopez, the investment projects are expected to generate at least 2m new jobs in the Philippines over the next five years, and are likely to span the popular activities of manufacturing, agri-business, trade, finance, hotels, telecommunications, tourism, transportation and infrastructure.

Although relations between the two countries have been strained due to territorial disputes over the South China Sea, with Chinese investment standing at just $32m of $130bn in outward investments in 2015, President Duterte’s visit signals a shift in the trade alliance which could see China become one of the Philippines’ most significant sources of investment in the near term.

US & China

Strengthening ties with China could be problematic for the country’s relationship with the US. During his visit to China, President Duterte made statements indicating the Philippines would turn its attention away from the US as it strengthened bilateral ties with both China and Russia.

The US was the Philippines third-largest trade partner in 2015, accounting for $16.5bn in foreign trade, or 12.7% of the total. The two have maintained strong trade and military ties since the end of WWII, and unlike with China, the Philippines maintains a trade surplus with the US. Export receipts stood at $9bn in 2015 compared to $7.5bn in imports. The US is a major market for Philippine electronics, which accounted for 39.4% of total exports in 2015, followed by apparel exports at 11.2% of the total.

The two countries signed a Trade and Investment Framework Agreement in 1989 and the US is one of the Philippines’ largest foreign investors, with total FDI standing at $4.6bn in 2012, according to the Office of the US Trade Representative.

Although President Duterte later clarified his comments, stating that relations with the US remain critical for the Philippines, statements like these have rattled some Western investors. The European Chamber of Commerce of the Philippines reported in October 2016 that some of its members had put expansion plans on hold as a result of concerns about rising anti-US sentiment.

Singapore, Hong Kong, EU

Singapore and Hong Kong round out the list of top-five trading partners. Total trade values with Singapore stood at $8.8bn, or 6.8% of total trade, with exports to Singapore standing at $3.8bn compared to $5bn of imports, for a trade deficit of $1.2bn. Electronics products maintained their position as top export, comprising 85.7% of the total. Major imports from Singapore in 2015 included electronic products and fuel, valued at $2.3bn and $806.7m, respectively.

Hong Kong followed in fifth place, with total trade values of $8.23bn in 2015. Export revenues stood at $6.4bn in the same year, compared to $1.8bn of imports, for a $4.6bn trade surplus. Electronics dominated the export base to Hong Kong, accounting for 78.8% of total revenues. Electronic imports from Hong Kong comprised 56.1% of the total.

While not a single trading partner, trade with the entire EU bloc stood at $13.9bn in 2015 – 10.7% of the total – with exports reaching $7.2bn compared to $6.7bn of imports. Germany was the Philippines’ top trading partner in the EU, with imports and exports both totalling approximately $2.6bn.

European trade volumes are forecast to rise over the medium term after the Philippines and the EU launched negotiations for a free trade agreement in May 2016. However, a June 2016 UK referendum on EU membership resulted in Brexit – a decision to leave the bloc – which could have significant ramifications for both the free trade deal and the world’s trade outlook in 2017.

Future Of Imports

Steady macroeconomic expansion, rising domestic demand and growth in construction material imports is expected to keep imports on a steady upwards trajectory in 2017, widening the country’s trade deficit. The National Economic and Development Authority (NEDA) reported that total imports rose by 12.2% year-on-year (y-o-y) to reach $6.9bn in August 2016, while exports fell by 4.4% to $4.9bn. This signalled a trade deficit of $2bn for the month – nearly double the $1.1bn deficit recorded in August 2015. Merchandise imports recorded double-digit growth in August 2016, with consumer goods imports jumping by 59% while capital goods imports rose by 30%.

Rosemarie Edillon, NEDA’s deputy director, told media that softening demand in the major markets of Japan and the US supports a move to explore new export markets including Russia, Kazakhstan, Kuwait, Mongolia and Malaysia. Boosting value-added agricultural production could also help grow the export base, in addition to offsetting losses in employment and output within the agricultural sector, which has struggled due to volatile weather conditions in recent years (see Agriculture chapter).

Export Challenges

Several factors will weigh on trade growth, particularly exports, in 2017. In 2016 the government originally targeted boosting exports by approximately 8.8%, but the target was later revised down to 6.6%, citing weakening global demand, soft commodity prices and volatility as a result of Brexit – all concerns other countries share.

The value of Philippine merchandise exports has been on a downwards trajectory in recent years, falling from $62.1bn in 2014 to $58.8bn in 2015. NEDA reported that manufacturing, agriculture-related items and petroleum exports contracted by 4.1%, 5.2% and 68.2%, respectively, in August 2016. Although mineral products and electronics were able to offset these declines, recording respective growth rates of 10% and 11.6%, boosting manufacturing and industrial output remains an important priority for the new administration.


In July 2016 the Philippine Exporters Confederation (PEC) told media that the sluggish growth problem is largely attributable to Brexit and uncertainties in the South China Sea. Still, Sergio Ortiz Luis, president of the PEC, noted that the Philippines’ domestic supply and policy framework remain strong enough to support future growth.

Asif Ahmad, UK ambassador to the Philippines, later told media that the Philippines can still pursue a free trade agreement with the UK, and the UK would also be open to extending the EU’s generalised scheme of preferences plus (GSP+) to the Philippines, which would eliminate tariffs on over 6000 products exported to Europe. However, high levels of uncertainty and a decent likelihood of difficult, drawn-out Brexit negotiations have lent a gloomy near-term outlook to European trade growth.

Asean Challenges

In the longer term, integration into the ASEAN Economic Community presents a number of new challenges to domestic producers. According to NEDA, imports from ASEAN countries rose sharply in August 2016, with Indonesian imports jumping by 86.6% and Thai imports by 28.5%. The PSA reports that trade with ASEAN member countries stood at $26.7bn in 2015, equivalent to 20.6% of total foreign trade volumes that year. However, the country’s trade deficit with ASEAN is one of the largest of all its partners. Exports to ASEAN countries were just $8.7bn while imports were valued at $18bn, coming in at a $9.3bn deficit.

The Philippines’ domestic market of 103m people, rising household incomes and strong consumer demand make it an ideal market for its ASEAN neighbours, which should in turn support new ASEAN FDI inflows in the coming years. Rising competition from new businesses poses a challenge to domestic producers, however, making the expansion of Philippine industries capable of capitalising on rising domestic demand an important priority.

Reforms & Incentives

The government has moved to begin several reforms and initiatives aimed at bolstering local production, by both attracting new investment in domestic industry, as well as enacting policies aimed at preventing market monopolies and protecting fair competition.

PEZA, for example, maintains a portfolio of four special economic zones and has accredited 138 others across the country (see Industry & Retail chapter). These zones offer export-oriented investors incentives including tax holidays ranging from four to eight years, after which a tax rate of 5% on gross income, split between the federal government (3%) and local government (2%), is applied.

Although these generous incentives are expected to be rationalised under an upcoming tax reform programme launched by the Duterte administration, initiatives will also bring corporate tax rates down from a region-leading 30% to between 15% and 25%, further improving the country’s investment attractiveness (see Economy chapter).

Fair Play

The previous administration had also moved to bolster investment and improve market competition. In July 2015 former President Benigno Aquino III signed major new fair trade legislation, the Philippine Competition Act, with the aim of reducing cartel influence, price fixing and anti-competitive practises. The law seeks to prevent large companies from holding a market monopoly, distorting prices and impeding free trade. Its provisions included the establishment of an independent competition committee that will rule on cases involving anti-competitive acts, allowing it the ability to impose fines of up to P250m ($5.3m), as well as jail terms ranging from two to seven years. The law explicitly targets supporting micro, small and medium-sized enterprises as the country ramps up for integration into the ASEAN Economic Community.

Investment Imperative

Attracting new investment will be the most important pillar of future trade growth, and the Philippines has made tremendous progress on this front in recent years.

The accounting and consulting firm, PwC, reports that the country offers a wide array of investment opportunities, and has risen to become a popular destination for investors in business process outsourcing, infrastructure, mining, agriculture, bio-fuels, renewable energy, industrial estates and tourism. “Demand for industrial estates in the Philippines far exceeds the supply; we do see an important source of demand from Japanese and Taiwanese companies and in sectors such as electronics, auto parts, logistics and food production,” Guillermo D Luchangco, chairman and CEO of ICCP Group, told OBG. The Philippines benefits from its strategic geographical position, acting as a gateway for investors into the Asian market, and holds abundant mineral and agricultural resources. The government’s reform agenda is improving the ease of doing business while a planned wave of major new infrastructure projects has benefitted from renewed political will to implement big-ticket items in partnership with the private sector. The country’s workforce is also large, skilled and well-educated, and English is widely spoken – even in remote rural areas.

Labour Advantage

Labour costs are also among the lowest in South-east Asia, according to Willis Towers Watson’s Global 50 Remuneration Planning Report 2015/16. Released in April 2016, the report found that the Philippines’ labour market is very competitive compared to its regional neighbours, making it more attractive to foreign investors. Although this has also led to an outflow of professionals such as nurses, engineers and software developers who are lured overseas by higher salaries, labour-intensive and export-oriented industries have benefitted from low labour costs.

Willis Towers Watson reports that baseline salaries for professionals in China are 1.9-2.2 times higher than rates in the Philippines and Vietnam. The firm also found that China’s base salaries across all job grades are between 5% and 44% higher than in Indonesia, ASEAN’s most expensive labour market, with entry-level white-collar professionals earning roughly $21,000 annually compared to $16,000 in Indonesia. China has become a far less competitive investment destination than in previous years, which leaves the Philippines – where 40% of the workforce is considered white-collar professionals – extremely well positioned to benefit from rising FDI inflows in the near term. Growth prospects are further supported by the administration’s tax reforms and planned amendments to its Foreign Investment Negative List, which outlines the sectors in which foreign investment is prohibited or restricted.

Historic Trend

Despite these competitive advantages, the Philippines has tended to lag behind ASEAN neighbours in terms of FDI. The World Bank reports that total inflows at current prices reached just $592m in 2004, compared to $5.9bn in Thailand, $4.4bn in Malaysia and $1.6bn in Vietnam.

Inflows rose by 180% in 2005 to hit $1.7bn and have maintained a steady upwards trajectory in the years since, reaching $2.9bn in 2007, moderating to $2.1bn in 2009 and regaining traction in 2012, when total inflows reached $3.2bn. FDI grew by 16.1% in 2013 to hit $3.7bn and soared by 53.4% in 2014 to end the year at $5.7bn – a historic high – before stabilising at $5.7bn in 2015. In that same year, Indonesia’s FDI inflows stood at $15.5bn, followed by Vietnam with $11.8bn and Thailand with $7.1bn.

Unctad Report

In June 2016 the UN Conference on Trade and Development (UNCTAD) reported that recent survey results revealed the Philippines as one of the world’s top-15 prospective FDI destinations for multinational enterprises over the next three years, with its 2016 World Investment Report simultaneously ranking the country the 11th most preferred investment location ahead of France, Australia, Myanmar and Vietnam. Although it was outranked by ASEAN neighbours Malaysia (10th) and Indonesia (9th), 2016 saw the Philippines and Myanmar make the cut for the first time, replacing Hong Kong and Singapore in the list of 15.

According to UNCTAD, this is due to the government undertaking a number of economic reforms in recent years, moving to liberalise its economy and open new sectors such as financial services to higher levels of FDI (see analysis).

Increased Interest

The new administration – with its focus on reducing investment restrictions and streamlining the business registration process – is driving what it hopes will be record-breaking growth in 2017. In October 2016 the BOI announced that the value of investment pledges in the Philippines rose by over 200% y-o-y in September to hit P51bn ($1.1bn), bringing total board-approved investment commitments to P286.4bn ($6.1bn) – a 49% increase over 2015. According to the BOI, investment inflow is being driven by strong economic fundamentals, including projected growth in GDP, leading both local and foreign investors to commit to new projects. Secretary Lopez stated that P366.7bn ($7.8bn) of investments were approved in 2015. The central bank of the Philippines, Bankgo Sentral ng Philipinas (BSP), meanwhile, reported in October 2016 that net FDI inflows rose by 79% to hit $4.7bn during the first seven months of the year. Inflows rose by $2bn over the same period in 2015.

Macro Support

The BSP reports that FDI inflows were bolstered by investors’ positive outlook for macroeconomic growth, after a series of sovereign rating upgrades cemented its status as investment grade in 2015 and 2016. The country’s macroeconomic outlook is also positive. It has recorded over 70 straight quarters of positive economic growth and the IMF forecasts GDP will expand by 6.7% in 2017. Economic managers under the Duterte administration forecasted growth of 6-7% in 2016 while the IMF estimated GDP growth of 6.4%. The Philippines ended the year with 6.8% growth.

The outlook had a positive effect on investor sentiment, with net equity capital inflows rising by 74.7% to $1.5bn between January and July of 2016 from $841m during the same period in 2015. Equity placements rose by 55.7% y-o-y to $1.7bn, with the bulk of new equity sourced from Japan, Singapore, Honk Kong, the US and Taiwan.

By sector, financial services, real estate, manufacturing and construction attracted the majority of FDI inflows, followed by retail and hospitality. The BSP further reports that net investments in debt instruments, or lending by international parent companies to their local affiliates, more than doubled to $2.8bn, indicating strong future expansion of existing foreign-backed businesses. Total FDI inflows reached $7.9bn in 2016.


The World Trade Organisation reported in September 2016 that worldwide trade expanded by 1.7% that year, down from earlier projections of 2.8%. Estimates for 2017 remain fairly low at between 1.7% and 3.1%. Despite gloomy global trade forecasts, the Philippines’ strong macroeconomic fundamentals, competitive geographical and labour force advantages, and rising domestic consumption bode well for future trade and investment. Some statements from President Duterte have caused some uncertainty among foreign investors, but far-reaching policy reforms will help offset these concerns, and expected increases in FDI inflows should help the country meet its 2017 targets.