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The Report: Philippines 2018

Rapid macroeconomic growth has worked to strengthen trade and investment in the Philip¬pines. Build, Build, Build – the government’s infrastructure development agenda – is supporting soaring imports, while the fast-growing manufacturing export base remains an economic mainstay.

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Sections

  • Country Profile
  • Economy
  • Regions
  • Trade & Investment
  • Banking
  • Capital Markets
  • Insurance
  • Energy
  • Industry & Retail
  • Tourism
  • Transport & Infrastructure
  • Construction & Real Estate
  • BPO
  • ICT
  • Agriculture
  • Health
  • Education and Research
  • Tax
  • Legal Framework
  • The Guide
  • Table of Contents

Country Profile

Elections in June 2016 saw President Rodrigo Duterte assume his six-year term as the 16th president of the Republic of the Philippines. President Duterte won the May 2016 elections by a wide margin to become the first president from Mindanao, the country’s southernmost and second-largest island, ushering in a period of widespread change through the executive and legislative branches of government for the 106.5m-strong country. The administration of former President Benigno Aquino III had implemented changes that saw the Philippines become the fastest-growing economy in Asia as of the end of 2016, eclipsing even China. Sovereign credit rating upgrades, a continuous campaign to promote transparency and robust economic performance elevated the Philippines to a diplomatic, political and economic stature it had not enjoyed for decades. This chapter contains interviews with President Rodrigo Roa Duterte; and Jin Liqun, President, Asian Infrastructure Investment Bank.

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Economy

With GDP growth averaging 6.4% between 2010 and 2017, the Philippines is home to one of the top-performing economies in South-east Asia. Buoyed by its robust services sector, the economy has remained strong due to rising investment in manufacturing projects, strong remittance inflows from overseas workers and an infrastructure-spending surge under the government’s Build, Build, Build development programme. Foreign direct investment (FDI) reached an all-time high in 2017 as investors flocked to capitalise on rising domestic demand and optimistic growth projections. FDI is expected to increase once again in 2018, supported by both a young and skilled workforce, and rising government spending, with the long-awaited Tax Reform for Acceleration and Inclusion initiative expected to augment public coffers. This chapter contains interviews with Carlos G Dominguez III, Secretary of Finance; and Jaime Augusto Zobel de Ayala, Chairman and CEO, Ayala Corporation.

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Regions

With some 7641 islands inhabited by 175 ethnolinguistic groups, the Philippines is one of the most diverse and geographically fragmented countries on earth. The modern Philippines has thus long been faced with the challenge of uniting these multiple groups within a single nation, while also allowing local and regional communities to prosper. The year ahead will likely see the latest chapter in this process begin with a major push towards the creation of a federal state. This, advocates hope, will help address issues of uneven development between the regions, ushering in a new era of investment and enterprise in some previously neglected areas. This chapter contains a roundtable with Mauricio Domogan, Mayor, Baguio City; Oscar S Moreno, Mayor, Cagayan de Oro; and Sara Duterte-Carpio, Mayor, Davao City.

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Trade & Investment

Foreign direct investment in the Philippines hit an all-time high in 2017, bolstered by robust GDP growth, favourable demographics and the manufacturing segment, with inflows from Japan, Europe and China rising steadily in recent years. An ongoing geopolitical shift could have a profound impact on trade and investment in the Philippines, with the government increasingly turning to China as a favoured bilateral partner, and relations with the US, an important historical trade and investment partner, cooling since President Rodrigo Duterte took office in June 2016. The Philippines benefits from a diversified export market, with rising regional trade ties and strong demand from the EU, its second-largest export market, expected to maintain stability even as US investment in the country may ease. This chapter contains a viewpoint from Steven Ciobo, Minister for Trade, Tourism and Investment of Australia; and an interview with Ramon M Lopez, Secretary, Department of Trade and Industry.

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Banking

The banking sector in the Philippines is expanding rapidly, hitting double-digit credit growth in four of the five years in the 2013-17 period. In addition, the sector simultaneously recorded notable improve-ments across major stability indicators. The country’s banking sector is highly liquid and well provisioned, and it benefits from robust macroeconomic growth, even as excess liquidity and credit concentration in certain sectors have become a concern. All signs point to continued expansion in 2018, with non-performing loans declining in recent times as credit growth has gained momentum. Furthermore, global rating agencies have projected stable, sustainable expansion, although the sector’s outsized corporate loan portfolio leaves commercial banks – particularly creditors of large conglomerates – exposed to concentration risks. This chapter contains an interview with Nestor A Espenilla Jr, Governor, Bangko Sentral ng Pilipinas; and a roundtable with Aftab Ahmed, Country Officer, Citibank Philippines; Cecilia C Borromeo, CEO, Development Bank of the Philippines; Simoun Ung, President and CEO, OmniPay; and Edwin Bautista, President and CEO, UnionBank of the Philippines.

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Capital Markets

Though smaller than some other capital markets in the region, the Philippine Stock Exchange (PSE) reached record highs in 2017 against a backdrop of robust macroeconomic expansion and the sweeping Tax Reform for Acceleration and Inclusion programme, which should support the government’s sizeable infrastructure agenda, Build, Build, Build (BBB). Benefitting from rising levels of trading and liquidity, and rapid growth in fixed income, the PSE is poised for a strong 2018. Efforts to finance the BBB agenda should see a near-term increase in the amount of foreign currency-denominated bonds, with a recent landmark Panda bond issuance – denominated in Chinese renminbi – attracting significant investor participation. This chapter contains an interview with Ramon S Monzon, President and CEO, Philippine Stock Exchange.

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Insurance

The prevailing narrative of the Philippines’ energy sector in recent years has centred around energy security concerns and the challenge of meeting growing demand. Efforts to realign the energy sector were ramped up during 2017 with the launch of reforms targeting investment and the promotion of efficiency. Modifications to the Electric Power Industry Reform Act of 2001 have come at a critical juncture for the Philippines, as robust economic growth has outpaced the sector’s capacity to meet surging demand. Due to the imminent exhaustion of the country’s gas fields, dependence on imports of hydrocarbons has grown, worsening the current account deficit. In addition to falling reserves, the cost of electricity is also a major concern. This chapter contains an interview with Alfonso Cusi, Secretary of Energy.

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Energy

The prevailing narrative of the Philippines’ energy sector in recent years has centred around energy security concerns and the challenge of meeting growing demand. Efforts to realign the energy sector were ramped up during 2017 with the launch of reforms targeting investment and the promotion of efficiency. Modifications to the Electric Power Industry Reform Act of 2001 have come at a critical juncture for the Philippines, as robust economic growth has outpaced the sector’s capacity to meet surging demand. Due to the imminent exhaustion of the country’s gas fields, dependence on imports of hydrocarbons has grown, worsening the current account deficit. In addition to falling reserves, the cost of electricity is also a major concern. This chapter contains an interview with Alfonso Cusi, Secretary of Energy.

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Industry & Retail

A pillar of one of Asia’s rising economies, the Philippine industrial sector posted another strong performance in 2017, growing by 7.6% despite recent geopolitical turbulence related to the 2016 election. Manufacturing output increased by 8.5%, bolstered by expansion in each of its core segments of electronics, food and beverages, chemicals and furniture. Riding the wave of consumer confidence that has remained relatively steady since the presidential election in 2016, the Philippine retail sector scores well in global rankings for development potential. With a population of over 105m and a growing consumer middle class, per capita GDP reached around $7700 at purchasing power parity in 2017, moving ahead of India. This chapter contains an interview with Inanc Balci, CEO and Co-founder, Lazada Philippines.

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Tourism

As efforts to develop tourist attractions ramp up inside the capital and beyond, the Philippines is well placed to capture a lucrative share of the 1.3bn-strong market of global business and leisure travellers. An archipelago of over 7000 islands with bountiful natural attractions and rich cultural traditions, the country drew 6.6m visitors to its shores in 2017, representing an 11% increase on the previous year. Tourist spending hit $27bn in the process, up from $25bn in 2016, contributing nearly 10% of GDP. This chapter contains interviews with Lawrence Ho, Chairman and CEO, Melco Resorts & Entertainment; and Andrea Domingo, Chairman and CEO, Philippine Amusement and Gaming Corporation.

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Transport & Infrastructure

While the geographic features of the Philippine archipelago have historically hindered the creation of an efficient transport network, given the obstacles to increased productivity and growth posed by the country’s many islands and congested road system, the administration of President Rodrigo Duterte has made infrastructure development a top priority. As a result, an array of major transport projects are being rolled out across the country under the Build, Build, Build programme, whereby the government has set about accelerating infrastructure investment, focusing on projects to integrate the archipelago’s islands and stimulate development, including major upgrades to road, railway and port systems. This chapter contains interviews with Dennis Uy, Founder and Chairman, Chelsea Logistics; and Steve Dicdican, CEO, Mactan-Cebu International Airport.

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Construction & Real Estate

Favourable government policies and a growing, increasingly urbanised population have created fertile ground for the expansion of the Philippines’ construction sector in recent years. Driven by major investments in transport networks, residential complexes and social housing, the construction industry grew at an average annual rate of 12% from 2012 to 2016. The annual growth rate more than halved in 2017, falling from 12.1% to 5.3%, but as of the first quarter of 2018 growth was registered at 9.3% year-on-year. A confluence of economic forces has also bolstered real estate demand in recent years, with an influx of outsourcing firms, rising incomes, cash-laden investors and the liberalisation of key sectors all playing a part. This chapter contains interviews with Edgar Injap Sia II, CEO and Chairman, DoubleDragon Properties; and Willie J Uy, President and CEO, 8990 Holdings.

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BPO

Ranking consistently among the top global providers of business process outsourcing, the Philippines is now undertaking a significant widening and deepen¬ing of its portfolio of third-party services. The sector has begun its transition to higher-skilled and more value-added operations, while also adapting to the challenge of new technologies such as artificial intel¬ligence and robotic process automation. Meanwhile, the industry continues to be a major employer and significant source of revenue for the country. It has also become a key facet of regional development, as companies move away from traditional centres like Manila to lower-cost provinces and second-tier cities. This chapter contains an interview with Travis Coates, Managing Director, Teleperformance Philippines.

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ICT

While the Philippines has a robust economy with sound macroeconomic fundamentals, its telecoms sector still lags behind global standards, in large part due to a lack of competition and limited investment. In spite of this, the domestic telecoms market is ripe for change and set to welcome a major new player, following the pres¬ident’s promise to accelerate network modernisation. Consequently, rising capital expenditure in communi¬cations infrastructure, as well as spectrum reallocation, is set to revolutionise the digital landscape. Under the national Build, Build, Build agenda, the incumbent administration wants to transform the Philippines into an upper-middle income nation by 2022. To achieve this target, limitations on foreign ownership within the telecoms industry will be lifted to attract investment. This chapter contains interviews with Ernesto R Alberto, Executive Vice-president and Chief Revenue Officer, PLDT; and President and CEO, ePLDT; and Hans Bayaborda, Managing Director, Microsoft Philippines.

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Agriculture

Despite the accelerated growth of other industries in recent decades, agriculture remains a pillar of the Philippine economy, providing employment for 27% of the labour force in 2016, according to the most recent data from the Philippine Statistics Authority. Although the sector’s contribution to GDP has declined in recent decades, falling from over 30% in the 1970s to 9.65% in 2016, there have been recent signs of revitalisation. The previously sluggish sector grew by 6.20% in the second quarter of 2017, with gross output increasing by 3.95% throughout the year, on the back of improved performances in palay, corn, sugarcane, poultry, agricultural services and forestry. This chapter contains an interview with Emmanuel Piñol, Secretary of Agriculture.

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Health

These are busy times for the Philippine health sector, with the country gearing up for a long-awaited move to universal health care (UHC) and investment in the private sector accelerating. Specialist and high-tech facilities are being developed, generating investor interest and business opportunities in pharmaceuticals and imported medical equipment. However, challenges remain, including the expan¬sion of coverage to economically disadvantaged areas, and the growing prevalence of non-communicable diseases. Budgets and financing are also being re-evaluated, with the aim of stamping out leakage and fraud in subsidies and reimbursements. Despite these obstacles, 2018 looks to be a year of positive growth in the private and public sectors, with the UHC rollout inching closer and a range of changes ahead for all Filipinos. This chapter contains an interview with Hector Thomas Navasero, President and CEO, Philab Industries.

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Education and Research

The Philippines has started to make headway in edu¬cation thanks to policies that aim to expand access and improve quality. The need for human capital development has been the main impetus behind such educational reforms, as detailed in the cur¬rent administration’s Philippine Development Plan 2017-22. Despite notable gains, work remains, especially in terms of academic performance, the number of educational facilities and participation rates. To address these issues, the government has significantly increased education expenditure over the years, initiated structural changes in basic and higher education, and intensified partnerships with the private sector and industry. This chapter contains an interview with Fortunato T de la Peña, Secretary, Department of Science and Technology.

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Tax

This chapter offers an overview of the Philippines’ tax regime, focusing on the territorial system for foreign companies and individuals, financial reporting framework, special economic zones and other key subjects. It also contains a viewpoint from Marivic Españo, CEO and Chairperson, P&A Grant Thornton.

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Legal Framework

This chapter examines the legal system of the Philippines, focusing on foreign investment limits governed by negative lists, tax reforms to support better collection of public revenue, data privacy, competition commission rules on recent mergers and other key areas. It also contains a viewpoint from Augusto A San Pedro Jr, Co-managing Partner, V&A Law.

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The Guide

This chapter contains selected listings of some of the country’s top hotels, contact details for embassies, ministries and organisations, helpful tips for business and leisure travelers, and other useful suggestions for travel to the Philippines.

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Table of Contents

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