Country Profile:
Philippines
Philippines
An archipelago made up of 7107 islands, the Philippines is located in the Western Pacific along several vital sea routes linking the country directly to the two largest economies in the region: China and Japan. It is bordered on the west by the South China Sea. The country has a well-developed service sector that caters for fast-developing business process outsourcing (BPO), tourism and financial sectors. Overseas Filipino workers (OFWs) have played a critical role in supporting growing consumption in recent years, with record volumes of foreign currency sent to the country in 2009. This has in turn helped to expand construction, real estate and retail sectors. Government spending on infrastructure is likely to be key to stimulating the economy in 2010.
ISBN: 978-1-907065-11-8
ISSN (Print): 1754-0232
ISSN (Online): 1754-0240
TABLE OF CONTENTS
COUNTRY PROFILE
This section provides an overview of the country, its population, languages, natural resources, geography, climate, religion and history.
POLITICS
The year 2010 will likely be one of considerable change, with the presidential and Congressional elections taking place on May 10. Indeed, many of the local elections will also take place on that day, meaning it is likely to be a key date in the country’s modern history. That history has seen the Philippines travel far from the authoritarian regime of former President Marcos to a more democratic and open society, with a vibrant political culture. The Philippines operates a presidential, multi-party system with a bicameral legislature and independent judiciary. The arrangement of powers is set out in the 1987 Constitution, which gives the presidency strong executive authority – stronger even than the presidency of the US – allows the president considerable power over fiscal matters.
This chapter provides interviews with President Gloria Macapagal-Arroyo; Ambassador Michael Tay, Executive Director, Asian-Pacific Economic Cooperation (APEC) Secretariat; Pushpanathan Sundram, Deputy Secretary-General, Association of South-East Asian Nations (ASEAN) Economic Community; and viewpoint by the US President Barack Obama.
ECONOMY
While the global economic downturn has sent growth rates tumbling across the region, the Philippines seems to have weathered the storm better than most. This is partly attributed to the implementation of fiscal and financial sector reforms before the global crisis struck and to the country’s minimal exposure to world markets, in terms of the financial and real estate sectors. At the same time, many have also praised the government for its robust response to the downturn, including its launch of a major new stimulus package. So while the economy slowed in 2009, it has been able to sustain 35 consecutive quarters of growth since January 2001 and is expected to accelerate again. Much depends on that long-standing staple of the Philippine economy, overseas remittances. Contrary to expectations, remittances posted a strong performance in 2010 adding to domestic consumer confidence.
This chapter provides interviews with Margarito Teves, Secretary of Finance; Paul Krugman, Nobel Laureate and Professor of Economics, Princeton University; Jaime Augusto Zobel de Ayala, Chairman and CEO, Ayala Corporation; Manuel V Pangilinan, Chairman, Philippine Long Distance Telephone Company (PLDT); Ramon Ang, President and COO, San Miguel Corporation (SMC); and Edgardo Lacson, President, Philippine Chamber of Commerce and Industry (PCCI).
BANKING
The Philippine banking sector finds itself on a solid footing going into 2010, with ample liquidity as well as solid balance sheets that have largely escaped the devastating force of global financial deleveraging and liquidity traps. Lending growth is also set to continue, albeit in single rather double digits, while non-performing loans (NPLs) are expected to remain in low single digits. This appears to justify the strategies pursued by both the regulators and the banks that have been engaged in conservative lending and tight banking regulation to avoid repeating the mistakes of the 1997 Asian crisis. However, the challenge for the banks will be to ensure they continue to finance the dynamic parts of the local economy. New financing opportunities are expected in government infrastructure project financing and are likely to come on stream after the presidential elections in 2010. The rate of the banking sector expansion will be closely correlated to the overall GDP growth, with bankers closely monitoring the development in remittances and government fiscal performance in 2010.
This chapter provides interviews with Amando Tetangco Jr, Governor, Bangko Sentral ng Pilipinas (BSP); and a round table featuring Aurelio R Montinola III, President, Bank of the Philippine Islands; Sanjiv Vohra, Country Head, Citibank Philippines; Lorenzo Tan, President & CEO, Rizal Commercial Banking Corporation; and Arthur Ty, President, Metrobank.
CAPITAL MARKETS
It is widely anticipated that the equity markets in 2010 will build on the enormous gains achieved in 2009, as corporate earnings and global economic conditions continue to improve. Equity investors are likely to become more selective in picking stocks, with valuations reaching historical average levels at the end of 2009 and fewer bargains available on the market. Recent outperformers may well experience a temporary correction if their revenues do not meet analysts’ expectations. The main cloud on the macroeconomic horizon, as far as the Philippines is concerned, is the widening government deficit. A further increase in fiscal shortfall would almost certainly result in higher interest rates, which in turn will have a negative impact on the equity market. Given that 2010 is also an election year, the country’s political events will play an even bigger role in impacting investment sentiment, although the overall direction will likely continue to be set by global economic events in Asia and the US.
This chapter provides interviews with Francis Lim, President, Philippine Stock Exchange (PSE); and Edward K Lee, Chairman, CitisecOnline Stockbrokers.
INSURANCE
Recent years have brought a number of stiff challenges for the Philippine insurance sector, from raising public awareness of the benefits of taking out policies to coping with a string of major natural disasters. The economic downturn has impacted the market, while efforts to ease tax burdens have made slow progress. On the other hand, insiders point to the fundamental positives of a market that is based on a growing population and expanding GDP, which at the same time has a low insurance penetration rate. There is plenty of room for growth, with innovation in product design and delivery – along with an ability to take a longer-term view – likely to yield good future results.
ENERGY
Two forces currently shape the local energy sector: exploration and conservation. Even major market restructuring, such as that in the electricity sector, has an energy-efficiency motivation, and it is hoped that the liberalisation will also bring benefits in this field as a result of the improved and heightened competition. At the same time, the country is taking a positive outlook towards renewables, with maximisation of the Philippines’ natural resources in this area being encouraged. With a range of incentives also on offer to encourage international investors to increase exploration work in oil, gas and coal, the long-term energy plan of reducing imports and boosting local self-sufficiency looks both realisable and desirable as more investor interest grows. As a result, the Philippines is also in a good position to capitalise on the new expertise in RE that this will generate for the country in the years ahead.
This chapter provides interviews with Angelo Reyes, Secretary of Energy; Jose P de Jesus, President and Chief Operating Officer, Manila Electric Company (Meralco); Erramon “Montxu” Aboitiz, President and CEO, Aboitiz Power Corporation; and Federico R Lopez, President, First Gen, and Director, Energy Development Corporation.
INDUSTRY
With the global economy – and Asian economies in particular – seeing an uptick in demand in the second half of 2009, the prospects for Philippine industry are looking better for 2010 and beyond. The sector is not short on challenges, however. Natural calamities are one of these, with typhoon and flood damage in the fourth quarter of 2009 likely to inflict a major setback to many businesses. Boosting competitiveness by making business easier to conduct, while encouraging good practice, is also a necessary step in many markets. The export sector will likely need support for some time to come, as will SMEs, the backbone of Philippine industry. For all these challenges, however, the industrial sector has some huge opportunities. The major domestic market continues to expand in numbers and in purchasing power, with few products anywhere near saturation point. The country’s location makes it a natural centre for other regional markets, provided its infrastructure is developed quickly.
This chapter provides interviews with Elmer C Hernandez, Undersecretary, Department of Trade & Industry; Vice-Chairman and Managing Head, Board of Investments (BOI).
BUSINESS PROCESS OUTSOURCING
As one of the most dynamic and rapidly growing industries in the Philippines today, business-process outsourcing (BPO) has proven its resiliency in the face of the global economic downturn. While other industries have shrunk, growth in BPO has surged, with government and private sector leaders all seeing the value of further investment in the sector. The BPO segment is also trying to boost the range and depth of the services it offers, moving up the value chain into knowledge process outsourcing (KPO). This move is designed to capitalise on what many already see as the Philippines’competitive advantages: the skill level of the workforce and the ease of doing business. These factors need further development, however, if the country is to remain amongst the top spots on the world outsourcing map.
This chapter provides interviews with Oscar Sañez, CEO, Business Processing Association of the Philippines (BPAP).
MINING
While the Philippines has over 7000 islands, giving it a land area of over 300,000 sq km, only 1.4% of this territory is exploited for its mineral deposits. This is out of some 30% – or 9m ha – that has been mapped as having high mineral potential, with gold, copper and nickel major national assets. Given these numbers the Philippine mining industry has considerable potential, a fact that is gaining increasing worldwide recognition, with mining companies boosting their investments in the country. This potential has long been recognised by the government, which has taken legislative steps to secure the industry’s future. A new law, alongside a powerful presidential-level team, has been working well in recent years at establishing a secure platform for industry take-off. Many now see the country as ready for a major surge in output as the global economy inches out of the recent downturn.
This chapter provides interviews with Philip Romualdez, President, Chamber of Mines of the Philippines.
AGRICULTURE
While unpredictable weather conditions are an important factor in Philippine agriculture, especially in light of the two major typhoons that hit the country in autumn 2009, overall production, especially in fisheries, is expected to continue to grow over the coming years. The flooding caused by the typhoons cost the country’s agriculture sector over $250m, but the Philippine government has pledged to provide sufficient funds to help farmers with new seed stocks and replanting costs. This funding will come on top of the quite significant investment plans already announced by the government for the sector earlier in the year. Overall, the agricultural sector continues to be one of the most promising sectors in the country in terms of future expansion, potential and above-average growth rates.
This chapter provides an interview with Arthur Yap, Secretary of Agriculture.
CONSTRUCTION & REAL ESTATE
TThe year ahead looks to be a busy one for the local construction sector. Work provided by the government stimulus package, the economic uptick and, regrettably, the destruction caused by typhoons and flooding in the middle of 2009 will all result in boosted demand for the sector. At the same time, there is also a clear need for strengthening oversight and boosting transparency, issues that are often behind slow completion rates and cost overruns in major projects. Yet with such strong underlying demand in the Philippines for everything from new wells to new airports, the construction sector will continue to be central to the country’s overall development for many years to come. Much of its success, however, hangs on the sector’s ability to execute a range of new projects.
The real estate sector in is expected to pick up into 2010. In the residential segment, the downturn is likely to last a bit longer, given the large number of new units set to arrive on the market. This may also be the case in the office segment outside of Makati CBD. Retail, meanwhile, continues to hold its own, with the segment seeing good expansion and being well placed to pick up on growing consumer spending as the downturn eases. More liquidity will enter the sector if REITs take off, though the lengthy process taken to reach this stage has cooled some market enthusiasm. Nonetheless, many see 2010 as likely to be a much stronger year than 2009, with some lost ground recovered. Continued global economic uncertainty could benefit real estate investment as it may be seen as the safe bet for many investors.
This chapter provides an interview with Tony Aquino, President and CEO, Ayala Land.
TOURISM
Having survived one of the toughest periods for the global tourism industry, the Philippines is in a strong position to increase its market share regionally by adding new capacity, further upgrades in infrastructure and improved air connectivity. In 2009 the government has thrown its full weight behind the sector, declaring it the main engine of investment, employment and growth. A number of new fiscal incentives and untapped opportunities available on the market should result in higher tourism sector investment in 2010, with an uptick in project flow and eventually a higher number of foreign arrivals. TEZs are likely to become the preferred areas for foreign investment. Meanwhile, local tour operators are expected to pursue their current strategy of finding new source markets in Europe and the Middle East, while offsetting periods of low demand by offering attractive packages for domestic travellers. Overall, the growth in domestic and foreign arrivals should accelerate in the first half of 2010, leading to above-average expansion rates by the end of the year.
TELECOMS & IT
The rate of expansion in mobile subscriber numbers may well slow in the upcoming year, with saturation levels now in sight. Nonetheless, there is still room for growth, with subscribers finding fewer choices among networks as consolidation reaches a natural boundary. In the fixed-line segment, few see prospects for much growth, despite campaigns such as Globe’s Duo, which offers a landline and mobile number on a single SIM.
While many countries have also experienced such a shift away from fixed to mobile, the lack of fixed lines in the Philippines is hampering internet connectivity in particular, the expansion of which is a stated government objective. Tackling this issue may therefore be exercising minds in Manila in 2010 and beyond, as will bridging the digital divide between a well-connected urban population and a less well-served rural one. Finding a formula to encourage roll-out in less profitable areas, while keeping providers’ margins healthy, is an important goal for any future government.
This chapter provides interviews with Ernest Cu, CEO, Globe Telecom and Ray Anthony Roxas-Chua III, Secretary, Commission on Information and Communications Technology (CICT).
TRANSPORT
With the government’s Economic Revitalisation Programme (ERP) emphasising the development of transport infrastructure, the sector looks set to remain in the spotlight for years to come. While the initial projects of the ERP are likely to be shovel-ready, farm-to-market schemes, bigger projects are also in the pipeline, with greater prospects for investors. This will offset the downturn in the sector that has accompanied the global economic recession. With widespread recognition that economic growth is being held back by insufficient transport infrastructure, the pressure is on for new roads, railways, ports and airports – which can only be good news for transport sector outfits.
This chapter provides an interview with Ambassador Alfredo Yao, Chairman and CEO, Zest Airways.
HEALTH & EDUCATION
Filipino health professionals are known the world over for their care and expertise, factors increasingly recognised back home, where improving health and well-being have been recently earmarked as a priority by the government and its investment agencies. While the Philippines has a number of top-class facilities, many stateo-owned institutions are still facing difficulties in providing sufficient care. Population pressure and the constraints of a developing economy are taking their toll, with these presenting many challenges for the years ahead.
The Philippines inherited from the years of American rule an educational system that in many ways follows the US pattern. Elementary school – the primary level – is followed by high school – the secondary level – which can then be followed by vocational and tertiary education, with the latter consisting of colleges and universities. In early 2009 there were 1726 colleges and universities in the country.
This chapter provides an interview with Alfredo R A Bengzon, Former Secretary of Health, and President and CEO, The Medical City.
THE BUSINESS GUIDE
In conjunction with Punongbayan & Araullo, OBG explores the taxation system, examining the environment for investors. OBG also introduces the reader to the different aspects of the legal system in the Philippines, in partnership with Romulo Mabanta Buenaventura Sayoc & de los Angeles.
The accountancy section features an interview with Marivic C Españo, Managing Partner, Punongbayan & Araullo. The legal coverage provides a viewpoint with Ricardo J Romulo, Senior Partner, Romulo Mabanta Buenaventura Sayoc & de los Angeles.
THE GUIDE
This section includes hotel, government and other listings, alongside useful tips for visitors on topics like currency, visas, language, communications, dress, business hours and electricity.
