CONTENTSAbbreviations Acknowledgements Transmittal Letter to President Benigno Simeon Aquino III EXECUTIVE SUMMARY Philippines: Country Data Introduction PART 1 GROWING TOO SLOW The Philippine Economic Landscape in 2010: Faster Growth is Essential Decades Lost to Slow Growth Philippine Growth Has Not Been Inclusive Living in the High Growth Neighborhood Inadequate Skills + Insufficient Jobs = High Unemployment/Underemployment Remittances Are Important But Distort the Economy Twice as Much Investment Needed for Higher Growth Low Foreign Direct Investment Flows Weak Export Volume Lacks Diversification Headline Recommendations PART 2 BECOMING MORE COMPETITIVE The Philippine International Competitiveness Landscape Regional Business Outlook Survey Best Countries for Business Failed States Index Index of Economic Freedom World Competitiveness Yearbook International Property Rights Index Corruption Perceptions Index Human Development Report E-governance Readiness Survey Doing Business Report Investing Across Borders 2010 Paying Taxes Report Worldwide Governance Indicators Global Competitiveness Report Global Enabling Trade Report Travel and Tourism Competitiveness Report Environmental Performance Index Headline Recommendations xvii xxiii xxv xxvii xliii 1 5 6 6 8 11 16 20 21 24 29 34 35 36 37 38 39 39 40 42 42 43 44 44 45 48 48 51 52 53 53 55

CONTENTS

PART 3 SEVEN BIG WINNER SECTORS Seven Big Winners Agribusiness Background Recommendations Business Process Outsourcing Background Recommendations Creative Industries Background Recommendations Infrastructure Background Reforming the Infrastructure Policy Environment Recommendations Airports Background Recommendations Power Background Recommendations Roads and Rail Background Recommendations Seaports Background Recommendations Telecommunications Background Recommendations Water Background Recommendations Manufacturing and Logistics Manufacturing Background Recommendations Logistics Background Recommendations Mining Background Recommendations

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Tourism, Medical Travel, and Retirement Background Tourism Medical Travel and Retirement Recommendations PART 4 GENERAL BUSINESS ENVIRONMENT Business Costs Environment and Natural Disasters Foreign Equity and Professionals Governance Judicial Labor Legislation Local Government Macroeconomic Policy Security Social Services: Poverty Education Health and Population BIBLIOGRAPHY ANNEXES 1 Significant Reforms That Have Increased Opportunities for Foreign Investment and Enhanced the Investment Climate 2 Paid Holidays in Selected Asian Economies 3 Legislation on Professions 4 Other Legislative Priorities

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241 243 266 277 286 297 307 315 325 334 353 368 373 382 397

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FIGURES, MAPS & TABLESLIST OF FIGURESFigure 1: Philippine historical real GNP and GDP growth rates, 1981-2009 Figure 2: Average real GDP growth rates, ASEAN-6, 1961-2009 Figure 3: Real GDP growth rates, ASEAN-6, 1990-2009 Figure 4: Poverty incidence, ASEAN-5, 1990-2006 Figure 5: Poverty trend in the Philippines, 1985-2006 Figure 6: Share in ASEAN-6+4 GDP, 1990-2009 Figure 7: Annual GDP per capita, US$ PPP, ASEAN-6, 1990-2015P Figure 8: Real GDP per capita growth, average by decade, ASEAN-6, 1981-2009 Figure 9: Average annual population growth, ASEAN-6, 1961-2009 Figure 10: Share in world GDP, 1990-2009 Figure 11: Real GDP growth rate forecast, annual percent change, ASEAN-6, 2010-2011 Figure 12: GDP growth, ASEAN-6, by quarter, 2007-2010 Figure 13: Labor market, key indicators, 1990-2009 Figure 14: Labor market, sector share in total employment, 1990-2009 Figure 15: Employment by class of worker, 2009 Figure 16: Composition of unemployed by educational attainment, 2009 Figure 17: OFW remittance, Bn US$, 1990-2011 Figure 18: Fixed capital formation distribution, Philippines, % of GDP, 1990-2009 Figure 19: Gross fixed capital formation, East Asia, % of GDP, 1990-2008 Figure 20: Gross fixed investment, % of GDP, ASEAN-6, 1990-2009 Figure 21: Gross domestic investments, as % of GDP, ASEAN-6, 1990-2009 Figure 22: Net FDI, Philippines, 1990-2009, Bn US$ Figure 23: Net FDI, ASEAN-6, 1990-2009, Bn US$ Figure 24: Net FDI, % of GDP, ASEAN-6, 1990-2009 Figure 25: Philippine goods and services exports, current prices, Bn US$, 1990-2009 Figure 26: Export of goods and services as % of GDP, ASEAN-6, 1990-2009 Figure 27: Philippine exports, product distribution, 2009 Figure 28: Philippine exports, by destination, 2009 Figure 29: Emerging Asias external financing, by source, 2010 Figure 30: Top areas of dissatisfaction, % of respondents, Philippines, 2003-2009 Figure 31: Forbes best countries for business, percentile rankings, 2008-2009 Figure 32: Foreign policy failed states index, percentile rankings, 2006-2009 Figure 33: Index of Economic Freedom, percentile rankings, 2001-2010 Figure 34: Editorial cartoon published on release day Economic Freedom Ranking 2010 Figure 35: IMD world competitiveness, percentile rankings, 2001-2010 Figure 36: IMD world competitiveness sub-rankings, selected ASEAN countries, 2010 Figure 37: International property rights index, percentile rankings, 2007-2010 Figure 38: Corruption perceptions index, percentile rankings, 2001-2010 Figure 39: Editorial cartoon published on release day of Corruption Perceptions Index 2004 Figure 40: Human development index, percentile rankings, 2001-2010 Figure 41: UN E-governance readiness, percentile rankings, 2003-2010 Figure 42: Ease of doing business, percentile rankings, 2006-2011 Figure 43: Ease of business establishment index, foreign companies (0-100) Figure 44: Ease in paying taxes, percentile rankings, 2008-2010 6 7 8 8 9 9 10 10 11 12 13 14 17 17 18 18 21 22 22 22 23 24 25 25 29 30 31 31 33 38 39 39 40 40 41 41 42 42 43 43 44 45 46 48

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FIGURES, MAPS & TABLESFigure 45: Voice and accountability, percentile rankings, 1996-2009 Figure 46: Political stability & absence of violence, percentile rankings, 1996-2009 Figure 47: Government effectiveness, percentile rankings, 1996-2009 Figure 48: Rule of law, percentile rankings, 1996-2009 Figure 49: Regulatory quality, percentile rankings, 1996-2009 Figure 50: Control of corruption, percentile rankings, 1996-2009 Figure 51: Global competitiveness, percentile rankings, 2001-2010 Figure 52: Global enabling trade report, percentile rankings, 2008-2010 Figure 53: Travel and tourism competitiveness, percentile rankings, 2007-2010 Figure 54: Environmental performance index, percentile rankings, 2006-2010 Figure 55: Editorial cartoon showing Philippines left out of FDI in Southeast Asia Figure 56: Cancelled take-off Figure 57: Estimated FDI, job creation if recommendations implemented, 2010-2020 Figure 58: Agricultural goods exports, ASEAN-6, % of total, 1990-2009 Figure 59: Agricultural goods exports, ASEAN-6, Bn US$, 1990-2009 Figure 60: RPs agricultural and forest goods exports, distribution, 2009 Figure 61: IT-BPO industry, employment, in thousands, 2004-2011F Figure 62: IT-BPO sector revenues, Bn US$, 2004-2011F Figure 63: BPO delivery location outside N. America, global market shares, 2008 Figure 64: Current and potential BPO market, Bn US$, 2007-2011 Figure 65: Quality of overall infrastructure rankings, ASEAN-6, 2008-2010 Figure 66: Infrastructure spending, ASEAN-5, % GDP, 1980-2009 (annual average) Figure 67: NG Infrastructure spending, Philippines, 1990-2009 Figure 68: Total domestic air transport passenger traffic, 1990-2009 Figure 69: Quality of air transport infrastructure rankings, ASEAN-6, 2008-2010 Figure 70: Residential retail electricity tariffs, selected Asian economies, USc/KWh, 2010 Figure 71: Industrial electricity tariffs, selected Asian economies, USc/KWh, 2010 Figure 72: Installed generating capacity, by type of power source, 2009 Figure 73: Power generation mix, by type of power source, 2009 Figure 74: Power generation by grid, 000 Gwh, 1991-2009 Figure 75: Power demand and supply outlook, Luzon, in MW Figure 76: Required reserve margin and peak demand estimates, Luzon, in MW Figure 77: Power demand and supply outlook, Visayas, in MW Figure 78: Required reserve margin and peak demand estimates, Visayas, in MW Figure 79: Power demand and supply outlook, Mindanao, in MW Figure 80: Required reserve margin and peak demand estimates, Mindanao, in MW Figure 81: Electricity spot market prices, PhP/KWh, 2006-2010 Figure 82: DPWH budget, Bn PhP, 2005-2010 Figure 83: Total road length (km) development, 1982-2007 Figure 84: Length of national/state roads, in 000 km Figure 85: Quality of roads rankings, 2008-2010 Figure 86: Quality of railroad infrastructure rankings, 2008-2010, ASEAN-6 Figure 87: Light rail ridership (LRT-1, MRT-2 & MRT-3), Mn, Philippines, 2000-2009 Figure 88: Container traffic per country, in Mn TEUs, 2004-2008 Figure 89: Truckers, motorists in private vehicles, and drivers of passenger jeepneys on their way to North Harbor Figure 90: Quality of Port Infrastructure score, 2008-2010, ASEAN-6 49 49 50 50 51 51 52 52 53 53 54 54 60 62 62 66 74 74 74 75 96 97 98 114 115 122 122 123 123 124 125 125 126 126 127 127 130 136 137 137 138 142 145 150 152 152

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FIGURES, MAPS & TABLESFigure 91: Proportion of households with computer, selected countries, 2002, 2009 Figure 92: Fixed telephone lines, in millions, ASEAN-6, 1990-2009 Figure 93: Estimated number of fixed telephone lines, in millions and per 100 inhabitants, Philippines, 1975-2009 Figure 94: Mobile phone subscriptions, in millions, ASEAN-6, 1998-2009 Figure 95: Mobile phone subscriptions, per 100 inhabitants, ASEAN-6, 1998-2009 Figure 96: Estimated number of mobile phone subscribers, Philippines, in millions, 1998-2009 Figure 97: Fixed telephone lines and mobile phone penetration, Philippines, 1991-2009 Figure 98: Estimated number of Internet users, per 100 inhabitants, ASEAN-6, 1998-2009 Figure 99: Estimated number of Internet users, in millions, ASEAN-6, 1998-2009 Figure 100: Estimated number of Internet users, Philippines, 1998-2009 Figure 101: Proportion of households with Internet, Philippines, 2002, 2009 Figure 102: UN E-governance readiness, percentile rankings Figure 103: Exports as % of GDP, ASEAN-6, 1990-2009 Figure 104: Employment in textile, garment, and leather industries, in thousands, Philippines, 1991-2008 Figure 105: Garments, textile and footwear exports, Philippines, US$ Bn, 1990-2009 Figure 106: Investments in electronics, US$ Bn, 1992-2009 Figure 107: Electronics exports, Bn US$, 1992-2009 Figure 108: Electronics exports growth and share of total exports, 1992-2009 Figure 109: Decline in locally manufactured vehicle share of car sales, 1991-2010 Figure 110: Clash between national government policy and Aparri RTC injunction Figure 111: Industry sales versus new registration, 2002-2009 Figure 112: Manufacturing GVA, distribution per segment, 2009 Figure 113: Manufacturing GVA, PhP Bn, 1981-2009 Figure 114: Industry sector distribution per segment, 2009 Figure 115: GDP distribution by sector, Philippines, 1990-2009 Figure 116: Employment distribution by sector, 1990-2009 Figure 117: Labor productivity in manufacturing, Philippines, 1981-2009 Figure 118: Labor productivity in manufacturing, GDP per person engaged, constant 1990 US$ 1980-2008 Figure 119: Manufacturing labor productivity index, ASEAN-6, 1980=100, 1980-2008 Figure 120: Gross fixed capital formation, % of GDP, 1990-2008 Figure 121: Fixed capital formation distribution, Philippines, % of GDP, 1990-2009 Figure 122: Philippine manufacturing goods exports, value US$ Bn, 1990-2009 Figure 123: ASEAN-6 total manufacturing exports, US$ Bn, 1990-2009 Figure 124: Philippine share in ASEAN-6 total manufactures exports, 1990-2009 Figure 125: Mining GVA, Bn PhP, 1981-2009 Figure 126: Philippines mineral products exports, Bn US, 1990-2009 Figure 127: Mining products exports distribution, 2009 Figure 128: ASEAN-6 total mineral products exports, Bn US$, 1995-2009 Figure 129: Share in ASEAN-6 total mineral products exports, 1995-2009 Figure 130: Foreign tourist arrivals in RP, by origin, Mn, 1990-2009 Figure 131: Domestic air travel, Philippines, millions, growth, 1990-2009 Figure 132: Distribution per country of international visitor arrivals in the ASEAN region, 2008 Figure 133: ASEAN-6 government travel and tourism expenditure, US$ Bn, 1990-2009 160 164 164 164 165 165 165 166 166 167 167 169 179 180 180 181 182 182 183 183 184 184 185 185 186 186 187 187 187 188 188 189 189 190 209 210 210 211 211 222 223 224 224

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FIGURES, MAPS & TABLESFigure 134: Foreign air visitor arrivals, by purpose of visit, in 000, 1990-2008 Figure 135: Growth of foreign air visitor arrivals, by purpose of visit, 1991-2008 Figure 136: Estimated economic and employment contribution of travel and tourism industry, 1990-2009 Figure 137: Incoming flights per week by foreign air carriers to ASEAN, 2003, 2009 Figure 138: Key problems need to be addressed to generate jobs Figure 139: Ease of doing business rankings, ASEAN-6, 2006-2011 Figure 140: Daily minimum wage range, selected Asian countries, 2010, US$ Figure 141: Productivity, real minimum wage, and CPI, 1990-2009 Figure 142: Paid holidays, Philippines, 1987-2010 Figure 143: National and special non-working paid holidays per year, selected Asian countries, 2010 Figure 144: Daily minimum wage and paid non-working holidays, selected Asian countries, 2010 Figure 145: Office rents and occupancy costs, US$ p.a. per sq ft Figure 146: Asian industrial electricity tariffs, USc/kwh, 2010 Figure 147: ICT Price basket, % of per capita GNI, 2009 Figure 148: Fixed telephone monthly cost, 2009 Figure 149: Mobile phone usage cost, 2009 Figure 150: Fixed broadband monthly cost, 2009 Figure 151: Average travel speed, km/hr, selected Asian Cities, 2001 Figure 152: Efficiency of bureaucracy scores, PERC 2010 report Figure 153: Burden of government regulation, rank, 2009-2010 Figure 154: Burden of customs procedures rank, 2009-2010 Figure 155: Ease of establishing business index, foreign companies, ASEAN-6, (0-100), 2010 Figure 156: Executive cost of living survey, Asia, 2010 Figure 157: Proportion of urban population, selected Asian countries, 1950-2010F Figure 158: Proportion of population with access to safe drinking water sources Figure 159: Proportion of population with access to sanitary toilet Figure 160: Philippine forest cover, 1934-2007, mil has, % total land area Figure 161: Deforestation rates, selected countries, 1990-2007 Figure 162: Total frequency of natural disasters, Philippines, per decade, 1970-2009 Figure 163: Number of people affected by natural disasters, Philippines, in Mn, per decade, 1970-2009 Figure 164: Estimated damage of natural disasters, Philippines, in US$ Bn, per decade, 1970-2009 Figure 165: Philippines CO2 emission from energy consumption, 1980-2008 Figure 166: Per capita emission from energy consumption, 2008, in MT, selected countries Figure 167: Business impact of rules on FDI, ASEAN-6 rank, 2009-2010 Figure 168: Net satisfaction ratings of Philippine presidents, 1986-2010 Figure 169: Political Stability and absence of violence, point estimates, 1996-2009 Figure 170: Roadblocks to the fight against corruption Figure 171: The most problematic factors for doing business in RP, 2009-2010 Figure 172: Control of corruption, point estimates 1996-2009 Figure 173: Governance indicators and investments, 1996-2009 Figure 174: Efficiency of legal framework in settling dispute, rank, 2009-2010 Figure 175: Caseload, in Mn, 1990-2008 Figure 176: Pending cases and new cases filed per year, 1990-2008 Figure 177: Caseload per judge, annual average, 2000-2008 225 225 226 229 242 244 246 248 251 251 253 254 254 255 255 256 256 257 259 259 260 262 263 266 270 270 271 271 272 272 273 274 274 278 287 287 289 290 290 291 297 298 299 299

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FIGURES, MAPS & TABLESFigure 178: Violation of RA 3019 charges filed at Sandiganbayan, total number of complaints per year, 1995-2009 Figure 179: Violation of RA 3019, charges filed at Sandiganbayan, conviction rate, 1995-2009 Figure 180: Labor market, key indicators, 1990-2009 Figure 181: New entrants to the labor force, in 000, 2001-2009 Figure 182: Unemployment rates, ASEAN-6, 1990-2009 Figure 183: Brain drain rank, ASEAN-6, 2009-2010 Figure 184: Employment by class of worker, 2009 Figure 185: Notices of strikes filed and actual strikes, 1990-2009 Figure 186: Workers involved in strikes and mandays lost, 1990-2009 Figure 187: Labor productivity index, 1980=100, 1980-2009 Figure 188: Pay and productivity rank, 2009-2010 Figure 189: Editorial cartoon showing Congressional failure to pass a long-standing reform bill Figure 190: Business and economic reforms laws, by Congress, 2001-2010 Figure 191: Number of LEDAC meetings per administration, 1992-2010 Figure 192: Editorial cartoon showing need for Congress to address the countrys woes Figure 193: Top five concerns for doing business, Philippines, 2009-2010 Figure 194: Levels of government where corruption happens, 2009 Figure 195: Percentage of enterprises receiving bribe solicitations for obtaining local permits and licenses, 2000-2009 Figure 196: Philippine Cities Competitiveness Ranking Project, 2009 Figure 197: Macroeconomic environment/rankings, ASEAN-6, 2007-2010 Figure 198: Sovereign ratings, Philippines, notches from investment grade, 1997-2010 Figure 199: Domestic inflation, 1990-2009 Figure 200: Exchange rate, PhP/US$, 1990-2009 Figure 201: National government, actual debt, PhP Bn, 1990-2009 Figure 202: Debt service, PhP Bn, 1990-2009 Figure 203: External debt as percent of GDP, 1986-2009 Figure 204: National government budget deficits, 1986-2009 Figure 205: Consolidated Public Sector Balance 1986-2009 Figure 206: Gross international reserves, US$ Bn, 1990-2009 Figure 207: Gross international reserves, ASEAN-6, 1990-2009 Figure 208: Tax effort as % of GDP, ASEAN-6 Figure 209: National government expenditure items, % of total spending, 1986-2009 Figure 210: Gross domestic saving, % of GDP, 1970-2009 Figure 211: Disaggregation of Philippine savings, 1999-2008 Figure 212: Portfolio investments, US$ Mn, 1990-2009 Figure 213: Extent and effect of taxation, rankings, ASEAN-6, 2009-2010 Figure 214: Corporate income tax rates, selected Asian countries, 2010 Figure 215: Individual tax rates, selected Asian countries, 2010 Figure 216: VAT or sales tax rates, selected Asian countries, 2010 Figure 217: Burden of government regulation, rankings, 2007-2010 Figure 218: Burden of customs procedures rank, ASEAN-6, 2009-2010 Figure 219: Prevalence of trade barriers rank, ASEAN-6, 2009-2010 Figure 220: Political stability/absence of violence and terrorism, percentile ranking, ASEAN-6, 1996-2009

302 302 307 308 308 308 310 312 312 312 313 316 318 322 322 325 326 326 327 335 335 336 336 337 337 338 338 339 340 340 340 341 341 342 342 343 344 345 345 347 349 349 354

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FIGURES, MAPS & TABLESFigure 221: Business costs of terrorism, rank, 2009-2010 Figure 222: Crimes committed, index+non-index, estimated, 1990-2008 Figure 223: Business costs of crime and violence, rank, ASEAN-6, 2009-2010 Figure 224: Homicide rate per 100,000 population, ASEAN-6+4 Figure 225: When authorities ramp down their guard, kidnapping becomes rampant Figure 226: Number of reported kidnapping incidents, 1995-2009 Figure 227: Reliability of police services, 2009-2010 Figure 228: Military spending, % of GDP, ASEAN-6, 1990-2008 Figure 229: Philippine government defense spending, % of GDP, 1990-2009 Figure 230: Number of policemen, 1990-2008 Figure 231: Poverty trend, official estimates, Philippines, 1985-2006 Figure 232: Poverty incidence,