Rapid macroeconomic growth has worked to strengthen trade and investment in the Philippines. Build, Build, Build (BBB) – the government’s infrastructure development agenda – is supporting soaring imports, while the fast-growing manufacturing export base remains an economic mainstay. However, export revenue has failed to keep pace with import growth, leading to a record trade deficit in 2017. Foreign direct investment (FDI) hit an alltime 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. Tax reforms may also have mixed effects on trade and investment, with economic zone investors set to lose prized incentives, potentially leading to a decline in FDI.

However, 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. Surging manufacturing investment should keep both sectors on an upward trajectory in 2018.

Sector Makeup

The Department of Trade and Industry (DTI) holds primary responsibility for trade supervision and investment promotion. Seven bureaux operate under the DTI, including the Competitiveness and Ease of Doing Business Group, the Consumer Protection Group, the Industry Development and Trade Policy Group, and the Trade and Investments Promotion Group. Seven additional investment promotion bodies are also active. These are the Board of Investments (BOI), Philippine Economic Zone Authority (PEZA), Clark Development Corporation, Authority of the Freeport Area of Bataan, Subic Bay Metropolitan Authority, BOI-Autonomous Region in Muslim Mindanao and the Cagayan Economic Zone Authority.

The National Economic Development Authority (NEDA), the primary socio-economic planning body, unveiled the Philippine Economic Development Plan 2017-22 in February 2017. The three-pillar plan comprises reforms to improve trade and investment. Its second pillar, Pagbabago, or reform, emphasises an economic transformation to reduce inequality, with Rosemarie G Edillon, undersecretary of NEDA, saying this will include an bigger presence in global markets and streamlined business procedures.

Reform Policies

Launched in June 2016, Project Repeal is another key policy to help streamline business transactions, reduce red tape and eliminate laws that place a heavy regulatory burden on businesses. The Customs Modernisation and Tariff Act, which aims to simplify and modernise Customs rules and procedures in line with international best practices, was also signed into law one month prior to Project Repeal. The Tax Reform for Acceleration and Inclusion (TRAIN) programme, the first package of which passed in December 2017, will also affect the business environment, with the second instalment prompting some concerns about results on trade. The draft being considered at the time of press reduced corporate tax rates from 30% to 25% but also eliminated certain investor incentives, which has led PEZA to criticise it (see analysis).

There is still room for improvement in the business environment: the Philippines ranked 113th out of 189 economies on the World Bank’s “Doing Business 2018” report. Although the country’s performance across most indicators has improved in recent years, it continues to perform poorly in categories such as starting a business (173rd), enforcing contracts (149th), protecting minority investors (146th) and paying taxes (105th). It performed best in the getting electricity category, in which it placed 31st. This was largely because a new asset management system and office of scheduling and planning were established to reduce the time it takes to get an electricity connection (see Energy chapter). The World Bank also attributed this to the implementation of an electronic system for payment and collection of housing development fund contributions.


The Philippines benefits from a diversified export market – no single country accounts for more than 20% of its export receipts – and rapid macroeconomic growth that has led the country to become a popular manufacturing investment and relocation destination. Although exports have fallen below targets in recent years, and the trade deficit has been increasing on the back of surging imports and the government’s advancement of its BBB infrastructure programme, the country remains well positioned to ramp up value-added manufacturing, with exports reversing a decline in 2016 to post positive growth in 2017.

Total trade volumes have risen sharply in the past decade, with the Observatory of Economic Complexity (OEC) reporting that export receipts grew from $57.4bn in 2009 to a peak of $80bn in 2014, before moderating to $77.9bn in 2015 and $54.3bn in 2016. Imports have largely followed the same pattern, but recorded even more robust expansion, with the value of incoming goods increasing from $50.8bn in 2009 to another high of $80.7bn in 2014, and subsequently moderating in 2015 and 2016 to hit $76.8bn and $80.5bn, respectively.

The trade balance fell into a deficit of $900m in 2012, with OEC data showing the deficit shrinking to $400m and $700m in 2013 and 2014, respectively, before rebounding into a $1.1bn surplus in 2015. However, declining export growth saw the deficit return at a higher level in 2016, to $26.2bn.

OEC data varies slightly from government figures: NEDA reports that the country has been in a trade deficit since 2005, with imports of $84.1bn and exports $57.4bn in 2016, for $141.5bn of combined external trade, an 8.9% increase from the previous year. This matches data from the Philippine Statistics Authority (PSA), which reports that the value of export receipts declined 2.4% in 2016 from $58.53bn in 2015. According to the PSA, the Philippines’ trade deficit that year was $12.24bn.

Meanwhile, the Asian Development Bank reports that merchandise exports in dollars rose by 12.8% in 2017, against a 14.2% increase in merchandise imports, leading to a $41.2bn trade deficit – equivalent to 13.1% of GDP – and up 11.7% from 2016.

Recent Growth

In 2017 merchandise trade increased by 9.9% over 2016 to reach $156bn, but the trade deficit also hit a record high. The PSA reports that imports rose by 10.2% to $92.7bn, while exports grew by 9.5% to $62.9bn, for a deficit of $29.8bn. Both imports and exports surpassed NEDA’s growth targets, of 9% and 8%, respectively.

December 2017 saw total trade volumes grow 8.6% year-on-year (y-o-y), while imports rose by 17.6% to hit $8.74bn and exports fell by 4.9% to $4.72bn. This led to a record monthly deficit of $4.02bn, up significantly from $2.47bn in the same month of 2016 and the first decline in export receipts since November 2016, according to the PSA.

Trade growth remained robust in January 2018, with the PSA reporting that total external trade in goods rose 7% y-o-y to $13.75bn. Imports continued to outpace exports, expanding by 11.4% to $8.54bn, while exports grew by a more modest 0.5% to reach $5.22bn. Although this reduced the monthly trade deficit to $3.32bn, this figure was still 34.4% higher than the $2.47bn seen in January 2017.

Manufacturing Movements

The Philippines is a rising regional electronics manufacturer. Important manufacturing segments in the country include semiconductors, electronic components, refined petroleum, computers and processed food, with value-added electronics manufacturing the most significant export earner for the country.

In a February 2018 World Trade Organisation-mandated trade policy review, the government reported that manufacturing – which has dominated the export base for more than 30 years – has gradually declined in relative export value since 2000. Indeed, its share of goods exports fell from 93% in 2000 to 83% in 2016, as mineral exports have risen and global demand for electronics eased. The government noted that during this decline, there have been significant improvements in chemicals, wood and processed food exports. Business process management services have simultaneously jumped to comprise 70% of service exports, worth $17.3bn in 2014, although these gains are overshadowed by declining manufacturing revenues.

The Philippines is nonetheless a major regional electronics manufacturer, exporting more consumer electronics to Hong Kong than mainland China in 2016 – a rarity for an ASEAN country, according to a June 2017 report published by the Hong Kong Trade and Development Council (HKTDC).

Still Strong

Accounting for 34.1% of GDP, manufacturing grew by more than 7.3% in 2017, and the sector was the top contributor to GDP growth in the same year, according to figures from the DTI. The Philippines ranks somewhere in the middle of similar countries in terms of manufacturing gross value added among ASEAN countries, falling behind Thailand but outpacing Vietnam and Myanmar, and recently moving ahead of Malaysia due to the ringgit’s depreciation over the last few years.

Manufacturing has also attracted FDI due to supportive, pro-business policies formulated by the DTI and other investment promotion agencies. Priority is generally given to export-oriented and low-pollution light industries that support job creation, most notably semiconductors and consumer electronics.

HKDTC reports that electronics have the highest potential for manufacturing relocation, with demand expected to rise on the back of sustained economic growth, strong domestic consumption and urban property development. Although employment in the Philippines is often more expensive than in other South-east Asian markets, the country benefits from a strong supply chain and solid base of parts manufacturers, with staff often better skilled and thus able to produce higher-value-added goods.

Currency depreciation is also supporting manufacturing exports. London-based consultancy Capital Economic reports that manufacturing output rose by 8.6% in 2017, supported by low interest rates, rising global demand and growth, and increased external price competitiveness, noting that the peso fell by 11% in trade-weighted terms between January 2017 and February 2018. This should boost export growth, even as it drives input costs higher.

Export Trends

According to PSA data, the country’s top-10 export commodities accounted for 81.1% of total receipts. With 52% of the total value of exports, electronic products remained the largest earner in 2017, rising by 11.2% over the previous year to hit $32.7bn. Other manufactured goods held a 6.5% share, valued at $4.09bn, while machinery and transport equipment comprised 6% of total export receipts, standing at $3.8bn. Rounding out the top-10 export commodities were ignition wiring and other vehicle wiring sets, growing 1.5% to $2.03bn, woodcrafts and furniture (-48%, $1.55bn), coconut oil (31%, $1.5bn), metal components (24%, $1.5bn), chemicals (-15%, $1.37bn), cathodes and sections thereof (914%, $1.27bn), and gold (126%, $1.21bn).

The primary export base shifted somewhat by January 2018. Electronics remained the top export, growing by 10.8% y-o-y to hit $2.62bn, with semiconductor exports, which comprise 36.4% of total electronic product exports, rising by 16.9% y-o-y to $1.9bn. Machinery and transport equipment was the second-largest export category, and receipts increased by 23.6% y-o-y to hit $419m in January 2018, while other manufactured goods fell by 21% to $375m. Gold exports soared by 359% y-o-y in January 2018 to reach $183m, followed by metal components, which rose by 18.9% to $176.94m, electronic equipment and parts at $143m, coconut oil at $134m, ignition wiring at $127m, chemicals at $87m and cathodes at $85m.

Ernesto Pernia, the secretary of socio-economic planning, projects that export volumes, particularly of agricultural products such as banana and coconut, will increase in 2018 as a result of the implementation of new tariff structures and free trade agreements. The DTI has reported plans to increase marketing activities for the halal industry, including sharia-compliant food, fashion and textiles, in a bid to promote the diversification of export goods.

At the same time, the TRAIN programme, which aims to support BBB, could see investor incentives at the country’s network of 376 economic zones reduced or eliminated, which could negatively affect export and FDI growth (see analysis).


The top-10 import categories accounted for 71.9% of receipts in 2017. The PSA reported that electronic products were also the top import, with their value rising by 4.6% to $23.3bn, followed by mineral fuels, lubricants and related materials which grew by 32.9% to $10.6bn. Transport equipment ranked third, with receipts increasing by 6% to $10bn, while industrial machinery and equipment imports eased by 2% to $5.9bn, a significant drop from the 45% growth in 2016. Iron and steel imports expanded sharply by 22.6% to $4.07bn.

This was followed by food and live animal imports, which declined by 3.6% to close the year at $3.07bn, miscellaneous manufactured articles, on an increase of 7.8% to $2.78bn, telecommunications equipment (up 11% to $2.56bn), plastics (-0.4%, $2.23bn), and metal ores and scraps (364%, $2.06bn).

Imports continued to rise in early 2018, with the PSA reporting that raw materials and intermediate goods, which comprise 40.9% of import receipts, grew 14.9% y-o-y in January 2018 to hit $3.49bn. Meanwhile, semi-processed raw materials, which account for 36.6% of imports, expanded by 20.4% to $3.12bn, the value of capital goods imports increased by 16.9% to $2.33bn, and consumer goods imports grew by 8.1% to $1.36bn.

Trade Partners

The country’s largest trading partner by value in 2017 was China, although the country maintains a large and growing trade deficit, with PSA figures showing $6.91bn of exports against $16.8bn of imports from China that year. Japan followed, with $10.2bn of exports against $10.6bn of imports, and the US was the third largest, with exports of $9.16bn and imports of $7.04bn. The Philippines continues to benefit from the generalised scheme of preferences (GSP) with the US, which eliminates import tariffs on thousands of Philippine products, as well as GSP+ status with the EU.

This has been a major competitive advantage for exporters, and the Philippines – along with Brazil, Indonesia, Thailand and Turkey – is one of the top beneficiaries of the US GSP system, with 5000 product lines granted duty-free treatment. The European Commission reports that since the Philippines received GSP+ status in December 2014, exports to the EU have risen by 27%, creating more than 200,000 new jobs in agriculture and manufacturing.

The positive impact has been mirrored by negative effects when GSP status is revoked, as was the case with ready-made garments. In 2015 the US excluded textiles, apparel and footwear from the Philippines’ GSP benefits, with the HKTDC reporting that the sector was heavily hit by the decision.

West vs. East

The status of the US as the Philippines’ third-largest trade market in 2016 is certainly facilitated by the GSP. Although the PSA does not report aggregate data for trade with the EU, the European Commission reports that it was the Philippines’ second-largest export market during the first half of 2017, with total trade rising by 17% y-o-y to $7.8bn and exports to the EU increasing by 36% y-o-y to hit $4.6bn, or 15% of total exports.

Despite the rising threat of a Sino-American trade war, the US remained a major trade partner in early 2018. Japan was the largest export market in January that year, with exports rising by 0.7% y-o-y to $895m. The US ranked second, although exports fell by 12.2% y-o-y in January 2018 to $745m, followed by Hong Kong, with exports rising by 37.1% to hit $726m. Outbound trade to mainland China simultaneously increased by 17.7% to $592m. China was the Philippines’ largest import market in January 2018, with imports growing 3.5% y-o-y to hit $1.61bn.


The Philippines actively seeks foreign investment to support economic development and job creation, with the BOI and PEZA leading the provision of incentives and special investment packages. In a February 2018 report on the investment climate, the US International Trade Administration (ITA) reported that the Philippines offers many competitive advantages, including a vast network of economic zones; a large, well-educated and English-speaking workforce; and policies that offer foreign companies – outside of sectors reserved for citizens under the constitution and Foreign Investment Act – the same benefits as domestic ones.

However, restrictions on foreign ownership, inadequate infrastructure and a lack of transparency continue to hinder flows of foreign investment, with the regulatory regime remaining ambiguous and large conglomerates dominating the economy, according to the ITA. Furthermore, foreigners are constitutionally prohibited from owning land, although the 1993 Investors’ Lease Act allows for non-citizens to lease land for up to 75 years.

Foreign Investment Restrictions

The 1991 Philippine Foreign Investment Act included a provision for the foreign investment negative list (FINL), which forbids foreign ownership of businesses in mass media, small-scale mining, private security, marine resources and fireworks manufacturing. Only Filipinos are permitted to practise in certain professions, including law, pharmacy, radiology and x-ray technology, criminology and forestry.

There is also a 40% foreign ownership limit for industries such as explosives, firearms and military arms manufacturing; public utilities operation and management; operation of commercial deepsea fishing vessels; operations of public utilities’ build-operate-transfer projects; government procurement contracts; rice and corn processing; educational institutions; natural resources exploration and extraction; and massage clinics. Industries with lower limits include private radio communications networks (20%); private recruitment firms, and public works construction and repair (25%); and advertising agencies (30%).

A new list of investment areas and activities had reportedly been submitted to President Duterte in November 2017, with NEDA reporting that retail, trade, professional industries, public utilities and contractors could be opened to further foreign investment. In addition, NEDA is considering lowering the minimum capital requirements for foreign retail investors from $2.5m to $200,000, according to local media reports, with the goal of boosting foreign – especially ASEAN – investment. In the same month President Duterte issued Memorandum Order 16, which directed NEDA to relax or remove restrictions on a number of professions and areas of business, including post-secondary teaching, construction and public works contracts.

Investment High

FDI has risen significantly in recent years, with the UN Conference on Trade and Development (UNCTAD) reporting that inflows hit $5.74bn in 2014 and $4.94bn in 2015, before surging to a peak of $7.91bn in 2016. Total FDI stock rose from $54.65bn in 2014 to $58.52bn in 2015 and $64.25bn in 2016. FDI stock as a percentage of GDP has also been increasing steadily, from 19.9% in 2014, 20% in 2015 and 21.1% in 2016.

Meanwhile, net FDI has grown nearly 10-fold in recent years, rising from $1.1bn in 2010 to $2bn in 2011, $3.2bn in 2012, $3.7bn in 2013, $5.7bn in 2014 and $5.6bn in 2015, before reaching an all-time high of $8bn in 2016, according to NEDA. FDI once again hit a new record in 2017, with the BSP announcing in March 2018 that inflows rose by 21.4% to $10.1bn. Monthly FDI peaked at nearly $2bn in October 2017, and it exceeded $1bn in both April and August, easily exceeding the country’s full-year target of $8bn.

Capital investments increased by 25.9% in 2017 to $3.3bn, concentrated in gas, steam and air-conditioning supply, manufacturing, real estate, construction, and wholesale and retail trade. Similarly, intercompany borrowing between investors and their Philippine subsidiaries also jumped in 2017, rising by 20.7% to $6bn, while reinvestment from earnings increased by 9.3% to $776m.

However, the value of approved investments, or new investment pledges, simultaneously fell by 51.8% to P106bn ($2.1bn) in 2017 – its lowest level in 12 years – owing to a decline in economic zone investment attributed to plans to remove or rationalise tax incentives as part of the second phase of the TRAIN programme (see analysis).

Major Investors

Europe, Japan and the US have long been significant investors in the Philippines, with the PSA reporting that the top investors in 2016 were the Netherlands, with 22.6% of the total, Australia (14.8%), the US (14.3%), Japan (12.4%) and Singapore (11%). Electricity, gas, steam and air conditioning supply accounted for 31.5% of FDI in 2016, followed by real estate (20.9%), manufacturing (19.9%), and transport and storage (15%).

The top FDI partners remained quite similar in 2017, with BSP statistics demonstrating that with $1.57bn of investment, the Netherlands accounted for the largest share of net FDI by far, followed by Singapore with $683m and the US with $470m.

Powers of Attraction

In a March 2018 report, Forbes wrote that the Philippines had never in its recent history attracted as much greenfield investment, noting that the Philippines was the best investment destination in 2018 in an analysis put together by US News & World Report with BAV Group and the University of Pennsylvania’s Wharton School. This was largely based on the assumption that the Philippines will become a major beneficiary of Chinese FDI, despite the relatively low net FDI of $28.8m from its neighbour in 2017. Although this was more than double the 2016 level, it pales in comparison to Japanese-sourced FDI, which eased significantly from a peak of $1.09bn in 2016 to $56.3m in 2017, but remained nearly double that from China. Meanwhile, FDI from the US rebounded from its 13-year low of $84m in 2016 – potentially a result of the cooling bilateral ties between the two countries upon the election of President Duterte – to $470m.


The investment outlook is somewhat unclear due to the ongoing expansive tax reform programme that will see the removal of some major incentives. In February 2018 the PSA reported that total foreign investment pledges approved by the country’s seven investment promotion agencies fell by 51.8% in 2017 to P105.6bn ($2.1bn) and dipping by 82.8% y-o-y during the fourth quarter of 2017 alone.

Despite the fact that domestic investment pledges pushed the sector to 2.8% growth in 2017, with total approved investment reaching P275bn ($5.4bn), investment promotion agencies have been increasingly vocal in criticising the TRAIN programme, and PEZA attributes a drop in pledged investments to related reforms. Nonetheless, the PSA reports that total approved investment rose by 187.9% y-o-y in the first two months of 2018 to P153bn ($3bn), with BOI-approved investment soaring by 402.32% to hit P132bn ($2.6bn), from just P26.2bn ($518m) during the same period in 2017, even as PEZA-approved investment shrank by 21.7% to P21bn ($415m).

Although robust domestic demand and an increasingly competitive manufacturing sector are likely to keep the momentum of trade and investment high in 2018, TRAIN reforms, surging imports and a potential trade war-induced slowdown in global growth pose risks to stable near-term expansion.