The Report: Philippines 2021

The Philippines is one of the world’s fastest-growing nations. Although economic activity slowed during the 2020 Covid-19 pandemic period, stimulus measures, imminent public sector policies and a larger budget are expected to create jobs, generate growth and help kick-start the country’s recovery during 2021.

Country Profile

The Republic of the Philippines reaches from Taiwan in the north to Indonesia in the south. It is the fourth-largest country in South-east Asia after Indonesia, Myanmar and Thailand. Bordered by the South China Sea – also known locally as the West Philippine Sea – in the west and the Sulu and Celebes seas in the south, the Philippines is home to some 175 ethnolinguistic groups across thousands of islands. In January 2020 the Philippines reported the first Covid-19 case outside of China. Authorities enforced one of the world’s longest, most stringent lockdowns in response, starting in mid-March – with a range of restrictions still effective at the end of the year. A wide-ranging stimulus package was passed in March, followed by a second in September, to help mitigate the economic impact of the crisis and aid the health response. This chapter contains an interview with President Rodrigo Roa Duterte.

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The Philippines is one of the fastest-growing economies of the past decade, averaging 6.4% growth per year over 2010-19. Indeed, an expanding and youthful population, combined with reforms and an ambitious infrastructure programme, have made it an enticing investment destination. Nevertheless, as is often the case in emerging markets, challenges regarding inequality – particularly the distribution of wealth and services – remain barriers to growth. The Covid-19 pandemic tested the country’s resilience in 2020, impacting major sectors. The Philippine government launched a four-pillar socio-economic strategy to mitigate the impact of the pandemic and aid the national recovery effort. The framework aims to provide emergency support for vulnerable groups and individuals; expand medical resources to fight Covid-19 and ensure the safety of health workers; implement fiscal and monetary initiatives to keep the economy afloat; and launch an economic recovery plan to create jobs and sustain growth. This chapter contains interviews with Carlos Dominguez, Secretary of Finance; and Shinichi Kitaoka, President, Japan International Cooperation Agency.

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Financial Services

The Philippines’ financial services sector entered the Covid-19 pandemic on a solid footing, thanks to decades of regulatory reform to address the vulnerabilities exposed by the 1997-98 Asian financial crisis. Strong capital buffers, high levels of provisioning and near-universal public health cover insulated the country from many of the impacts that other markets continue to wrestle with. While geographic spread and socio-economic disparities remain structural barriers, increasingly tech-focused growth strategies are improving both bottom lines and financial inclusion among the population in measurable ways. The country has experienced a boom in digital banking as a result of the Covid-19 pandemic, with several digital-only banks announcing plans to enter the market, legacy banks rapidly upgrading their online offerings and the central bank eyeing ambitious digital banking targets. This chapter contains interviews with Benjamin E Diokno, Governor, Bangko Sentral ng Pilipinas; Kelvin Ang, CEO, AIA Philam Life; and Sanjiv Vohra, President and CEO, Security Bank.

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The Covid-19 pandemic hit the Philippines’ consumption-driven economy hard, with forecasts from the IMF suggesting that real GDP could contract by as much as 9% in 2020. Strict lockdowns took a heavy toll on the energy sector in the form of a steep drop in demand for both electricity and fuel, yet local power providers took steps to ease the financial impact on customers by lowering rates and extending payment windows. In a positive sign for the sector’s longer-term development, interest was sustained in oil and gas exploration activities and midstream infrastructure investment during the pandemic. Beyond the health crisis, the renewable energy and natural gas segments present standout opportunities for the coming years as the Philippines looks to meet rising energy demand and alleviate pressure on the national grid.

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Industry & Agri-business

Industry has made a sustained contribution to the Philippines’ economy in recent years, accounting for roughly 30% of GDP between 2017 and 2019, with sector growth driven predominately by manufacturing. Expansion was constrained in 2020 as Covid-19 response measures impeded manufacturing activity and reduced the global demand for industrial products. Meanwhile, agriculture comprised 9-10% of GDP from 2017-19 and is a crucial source of employment. Increased emphasis has been placed on transforming traditional farming into a dynamic agri-business sector – which will be key to the country’s economic rebound. After a difficult 2020 it will be necessary to address ongoing challenges – including high production and electricity costs, inadequate infrastructure and limited basic industries – to enable long-term manufacturing growth. Supporting businesses in the adoption of the Fourth Industrial Revolution, or the application of new digital and automated technologies to enhance production processes and service delivery, will further boost resilience. This chapter contains interviews with Ramon M Lopez, Secretary of Trade and Industry; William Dar, Secretary of Agriculture; and Christopher Po, Executive Chairman, Century Pacific Food.

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Tourism played a central role in the Philippines’ economic development in the years leading to 2020, and an increasing emphasis on sustainability underscores the sector’s importance for the coming years. While the popular island of Boracay has long drawn tourists, local authorities continue work to diversify destinations through the creation of tourism enterprise zones. These endeavours, as well as those aimed at widening source markets, have laid the groundwork for an expanded yet more tailored offering. Although the 2020 Covid-19 pandemic heavily impacted tourism, Philippine policymakers and stakeholders are looking to adapt the sector’s offering and prioritise domestic tourism to support the national recovery. Enhanced health and safety measures have been implemented to align hotels, tourism sites and other services with the demands of the new normal. Meanwhile, a shift towards digitalisation and the use of technology to upskill the workforce are readying the sector for the future. This chapter contains an interview with Aileen Clemente, Chairman and President, Rajah Travel.

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Transport & Infrastructure

Transport operations and infrastructure development in the Philippines were acutely impacted by the Covid-19 pandemic as lockdowns stalled construction projects, movement restrictions prohibited travel even within communities, and a ban on international arrivals in March limited aviation services for the rest of 2020. As the country’s response to Covid-19 began to take shape in the first half of 2020, it soon became clear that transport and infrastructure spending would be protected as a key driver of economic continuity and recovery. In an April outline of the socio-economic response, Carlos Dominguez, the secretary of finance, stated that the government would press on with President Rodrigo Duterte’s flagship Build, Build, Build infrastructure programme to generate economic activity and create employment. As early as May 2020 the Department of Transportation announced that, despite ongoing lockdowns in Luzon, it would resume work on 13 big-ticket projects – albeit with certain limitations. This chapter contains interviews with Tony Fernandes, CEO, AirAsia Group; and Rubén Camba, South-east Asia Director, Acciona.

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Construction & Real Estate

While Covid-19 has thrown the Philippines’ economy into flux, early indications suggest that construction and real estate is one of the most resilient sectors and could provide a platform for national recovery. However, with construction projects delayed by lockdowns during the second quarter of 2020, and demand for office space and high-end residential developments weakened by mobility restrictions, the sector still faces headwinds. At the same time, the disruption of the pandemic is giving rise to new opportunities. For instance, with the pandemic inducing a significant shift towards working from home as companies adhere to social-distancing measures, co-working spaces are emerging as a solution for firms seeking to decentralise while ensuring a sound operating environment for employees. Agile real estate developers have the chance to establish a first-mover advantage and capitalise on emerging opportunities as tenants and buyers seek projects that meet the demands of the new normal. This chapter contains an interview with Jose E B Antonio, Executive Chairman, Century Properties Group.

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Digital Economy

Philippine authorities have worked to develop the digital economy in recent years, prioritising strengthened internet service provision and a more competitive telecoms market. The country saw an increased reliance on online services and digital technologies, such as e-commerce, during the its extended lockdown period in response to the Covid-19 pandemic. This increased the impetus for players across the value chain to strengthen ICT infrastructure, fast-track the digitalisation of business processes and prepare to upskill the workforce for the new normal. Meanwhile, the versatility of the business process outsourcing industry during the quarantine period, alongside an expanding start-up ecosystem and the entry of a third telco in 2021, signals potential for the digital economy to enhance the post-pandemic recovery. Measures to accelerate digital development look set to improve the ease of doing business, create a more attractive destination for investment, and ultimately facilitate more inclusive and sustainable economic growth. This chapter contains interviews with Marc Carrel-Billiard, Global Senior Managing Director and Technology Innovation Lead, Accenture Labs; and Simoun Ung, President and CEO, OmniPay.

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The Philippines’ universal health care (UHC) system is now operative, after President Rodrigo Duterte signed the bill into law in February 2019 and Francisco Duque III, the secretary of health, signed the implementing rules and regulations in October that year. This set the stage for 2020 to be the first year of UHC, strengthened by collaboration and the expertise of the private sector. Limited financing and a shortage of medical personnel remain legacy constraints on the system, with wide-ranging strategies to tackle both communicable diseases and non-communicable diseases among the growing population. Although the Covid-19 pandemic placed further pressure on health care infrastructure, the government forged ahead with its goal, deploying resources to priority areas as funds and capacity allowed. The private sector stepped up to fill some of the remaining gaps, and greater levels of cooperation between public and private actors are expected as UHC gains momentum. This chapters contains an interview with Eugenio Ramos, President and CEO, The Medical City.

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This chapter examines the tax system of the Philippines, focusing primarily on the tax implications of Bayanihan 1 and 2, introduced during 2020 in an effort to mitigate the impact of the Covid-19 pandemic, as well as transfer pricing, the arm’s length principle and audit guidelines. The chapter also includes an analysis of tax compliance efforts in light of the pandemic, and commentary on the imminent Corporate Recovery and Tax Incentives for Enterprises Act. This chapter contains an interview with Protacio T Tacandong, COO, Reyes Tacandong & Co.

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Legal Framework

This chapter examines the legal system of the Philippines, focusing largely on the stipulations of Bayanihan 1 and 2, which were passed into law in March and September 2020, respectively, to address the economic and health impacts of the Covid-19 pandemic. The chapter also outlines new guidelines on remote participation, corporate donations, corporate debt vehicles and draft guidelines for the licensing of digital banks, alongside various other changes to tax laws and regulations, labour-related laws and regulations, and regulations for the filing and submission of securities deposits that were implemented during the pandemic period. This chapter contains an interview with Raoul Angangco, Partner, Villaraza & Angangco Law.

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The Guide

This chapter contains selected listings of some of the top hotels in Metro Manila and Baguio, helpful tips for business and leisure travellers, and other useful suggestions for travel to the Philippines. This chapter contains an interview with Bárbara Apráiz de Encío, Executive Director, Spanish Chamber of Commerce.

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