Econony analysis - Philippines

EMERGING MARKETS-PHILIPPINES

PHILIPPINES COUNTRY PROFILE

The Philippines - a Spanish colony for more than three centuries and named after a 16th century Spanish king - was taken over by the US in the early 20th century after a protracted rebellion against rule from Madrid.

Spanish and US influences remain strong, especially in terms of language, religion and government.

The US is a close ally and has provided military aid to help combat Muslim and communist insurgencies.

PHILIPPINES COUNTRY PROFILE (CONTD.)

The US is a close ally and has provided military aid to help combat Muslim and communist insurgencies.

More than 7,000 islands make up the Philippines, but the bulk of its fast-growing population lives on just 11 of them.

CHARACTERSTICS OF PHILIPPINES

SUMMARY STATISTICSRegion 2015 South-Eastern

Asia Surface area (sq km) 2014 300000 Population (proj., 000) 2016 102250 Pop. density (per sq km) 2016 342.9 Capital city 2015 Manila

Capital city pop. (000) 2015 12946Refers to the National Capital Region.

Currency 2015 Philippine Peso (PHP)

UN membership date 2013 24 October 1945

ECONOMIC INDICATORSGDP: Gross domestic product (million current US$) 2014 284582

GDP: Gross domestic product (million current US$) 2010 199591

GDP: Gross domestic product (million current US$) 2005 103072

GDP growth rate (annual %, const. 2005 prices) 2014 6.1



GDP per capita (current US$) 2014 2870.5 GDP per capita (current US$) 2010 2145.2 GDP per capita (current US$) 2005 1196.5

ECONOMIC INDICATORS (CONTD.)

Economy: Agriculture (% of GVA) 2014 11.3Excludes irrigation canals and landscaping care.



Economy: Industry (% of GVA) 2014 31.2

Excludes publishing activities, includes irrigation canals.






Economy: Industry (% of GVA) 2014 31.2 Excludes publishing activities, includes irrigation canals.



Economy: Services and other activity (% of GVA) 2014 57.5

Excludes repair of personal and household goods. Includes publishing activities and landscaping care.





Employment: Agriculture (% of employed) 2014 30.4

Employment: Agriculture (% of employed) 2010 33.2Data classified according to ISIC Rev. 3. Break in the time series. Nonstandard population coverage.

Employment: Agriculture (% of employed) 2005 36.0Data classified according to ISIC Rev. 3. Excluding regular military living in barracks.

ECONOMIC INDICATORS (CONTD.)Employment: Industry (% of employed) 2014 15.9

Employment: Industry (% of employed) 2010 15.0Data classified according to ISIC Rev. 3. Break in the time series. Nonstandard population coverage.

Employment: Industry (% of employed) 2005 15.6Data classified according to ISIC Rev. 3. Excluding regular military living in barracks.

Employment: Services and other (% of employed) 2014 53.6


Data classified according to ISIC Rev. 3. Break in the time series. Nonstandard population coverage.


Data classified according to ISIC Rev. 3. Excluding regular military living in barracks.

Unemployment (% of labour force) 2014 6.6 Estimate. Unemployment (% of labour force) 2010 7.4 Estimate. Unemployment (% of labour force) 2005 7.7 Estimate.


Food production index (2004-2006=100) 2014 120 2013. Food production index (2004-2006=100) 2010 113 Food production index (2004-2006=100) 2005 100 Balance of payments, current account (million US$) 2014 10917 Balance of payments, current account (million US$) 2010 7179 Balance of payments, current account (million US$) 2005 1990 Break in the

time series. Exports (million US$) 2015 58648.1 Imports (million US$) 2015 70153.5 Balance (million US$) 2015 -11505.4

Major trading partners (% of exports) 2015Japan (21.1),

United States (15.0), China

(10.9)

Major trading partners (% of imports) 2015

China (16.4), United States (10.9), Japan

(9.6)

PHILIPPINES- AN EMERGING MARKET. The Philippines is currently one of the most dynamic economies in the East Asia region, with sound economic fundamentals and a globally recognized competitive workforce.

The Philippine economy grew at an annual rate of 6.9 percent in the first half of 2016, up from 5.5 percent during the same period in 2015, exceeding growth of China, Malaysia, Thailand and Vietnam.

Growth in real household income, partly due to effective social protection programs, is gradually improving the welfare of the poor

Recent estimates suggest that extreme poverty in the Philippines, measured by the international poverty line of 1.9 dollars a day (2011 purchasing power parity), decreased from 10.6 percent in 2012 to 8.4 percent in 2015.

PHILIPPINES- AN EMERGING MARKET (CONTD.) The poorer segment of the population reported faster growth in household income than the average figure, showing that income inequality is easing downward.

The new administration has reassured businesses and investors by continuing existing macroeconomic policies while reforming the tax collection system.

The new administration’s 10-point socio-economic agenda emphasizes equitable tax reform, enhanced public spending, greater transparency and accountability, improved ease of doing business, and continued investment in education, skills, health and social assistance to the poor.

TOP 9 INDUSTRIES IN THE PHILIPPINES Business Process Outsourcing: Over one million Filipinos are employed by BPOs generating roughly 11% of the country’s GDP and it is estimated that 1.5M new jobs will be created next year by the BPO sector.

Retail: Developers have adopted the retail-tainment concept.Malls are not only havens for shopping but as venues for entertainment. One good example is the Arena in The SM mall of Asia or Samsung Hall in SM Aura.

Gaming: Industry analysts are expecting double-digit revenues as licensed casino operators like Travellers International Hotel Group, Bloombery Resorts Corp., Melco Crown Philippines Resorts Corp., and Tiger Resorts come online.

Hospitality and Leisure: In 2013, tourists hit 4.7M. Total earnings from tourism in 2014 amounted to US$4.84B, higher by 10% from 2013 levels of US$4.40B. The government aims to attract 10.0 million tourists by 2016.

TOP 9 INDUSTRIES IN THE PHILIPPINES (CONTD.) Real Estate: Impacting the growth stemming from the BPO sector, all businesses servicing it are expected to have a boost. One lucky industry is the real estate.

Manufacturing: The manufacturing sector has grown 10 % since the last quarter of 2013 which accounts for 55% of GDP. What further gives this growth stability is that the expansion in manufacturing is broad-based coming from shipping, medical products, toys, auto parts, and agriculture.

Construction: Construction contributed about one-third of fixed investment growth of 11.7% in 2012. Construction is forecasted to remain buoyant with double digit growth. The infrastructure budget in 2014 was raised equivalent to 3.0% of GDP.

TOP 9 INDUSTRIES IN THE PHILIPPINES (CONTD.) Energy & Automotive: The energy sector recorded a total of 19 energy projects by the first half of the year, worth Php 159B, which is expected to generate 2,064 megawatt power to address the power cuts and shortages in the provinces.

Shipbuilding: shipbuilding and aerospace sectors are likely to be sunshine industries given investor interest to bridge the islands of the Philippines.

MARKET ENTRY SERVICES AND SOLUTIONS Overall market opportunity Connections to local distributors, manufacturers and partners Local Agent or Representative Business matching Incubation & office Business vehicle to incorporate Due diligence Expansion plans from Metro-Manila to provinces

WORKING ENVIRONMENT OF THE PHILIPPINES Minimum employable age: The minimum age for employment is 15 years old and below that age is not allowed. Persons of age 15 to 18 can be employed given that they work in non-hazardous environments.

Overseas employment: As for overseas employment of Filipinos, foreign employers are not allowed to directly hire Philippine nationals except through board and entities authorized by the Secretary of Labor.

Minimum wage rate: Minimum wage rates in the Philippines vary from region to region, with boards established for each region to monitor economic activity and adjust minimum wages based on growth rates, unemployment rates, and other factors

Regular work hours and rest periods: Normal hours of work. - The normal hours of work of any employee shall not exceed eight (8) hours a day.

Rest days: All employees have the right to have a 24 consecutive hours of rest day after every 6 days of work.

WORKING ENVIRONMENT OF THE PHILIPPINES (CONTD.) Nightshift differential and overtime: The night shift starts from 10 o’clock in the evening until 6 o’clock in the morning, and employees will receive 10% more of his/her regular wage rate.

Household helpers: The minimum wage of household helpers is P800 per month for some cities in Metro Manila, while a lower wage is paid to those outside of Metro Manila.

Termination by employer: The employer has the right to terminate an employee due to the following reasons: serious misconduct or disobedience to the employer, neglect of duties or commission of a crime by the employee, and such gives the employer a just case to terminate the services of the employee.

Retirement: employee may retire at the age of 60, given that he/she has served the employer for 5 years, and shall be given a retirement pay of at least half a month’s salary for every year of service ( 6 months of work given is considered as 1 whole year for the retirement pay).

PHILIPPINES - MARKET CHALLENGES

Graft and Corruption: Corruption, a constraint to business and outside investment, is a pervasive and long-standing challenge in the Philippines.

Ineffective Judicial System: The Philippines’ complex, slow, and complicated judicial system can inhibit the timely and fair resolution of commercial disputes. Most cases take many years to reach a final verdict.

Limited Ownership: The Philippines has restricted foreign ownership in selected industries, including utilities and the media. The Government also lists several professions where foreign participation is not allowed.

Regulatory System: Product registration, product standards, and environmental and labeling requirements place restrictions on certain products.

PHILIPPINES - MARKET CHALLENGES (CONTD.) Value-Added Tax (VAT): The VAT is a 12 percent tax levied on the sale of all goods and services, including the imports of goods into the Philippines. The VAT is an indirect tax which is generally passed on to the buyer/consumer.

Infrastructure: The Philippines lags behind many of its neighbors in infrastructure development. Major improvements are needed in transport infrastructure.

Highly Price-Sensitive Market: U.S. products are generally known as being high quality, but more costly. U.S. exporters should not expect to apply their U.S. pricing strategy in this market. Distributors and customers will request payment terms.

PHILIPPINES - MARKET OPPORTUNITIES Best prospects for U.S. companies in the Philippines are infrastructure, energy, (including renewable energy, renewable fuels and smart grid), information and communication technology (ICT), defense, medical, and water resources.

ICT companies in particular may find opportunities in providing equipment and services to the growing business process outsourcing (BPO) sector, which is growing at a rate of 15 percent a year.

Energy production, conservation and efficiency are top priorities as the country is presently operating on low reserve margins and at high rates.

PHILIPPINES - MARKET OPPORTUNITIES (CONTD.) Companies in water/wastewater management will also find opportunities in the Philippines.

The Government of the Philippines actively seeks foreign participation to promote economic development of these PPP projects.

PHILIPPINES - MARKET ENTRY STRATEGY Agents and distributors are commonly used in the Philippines and are essential for most U.S. companies.

It is recommended that U.S. companies visit their agents and distributors to strengthen these relationships and assess the local companies’ abilities.

If possible, they should also visit existing and potential clients with their agents and distributors to promote their product lines and/or better understand the clients’ requirements.

U.S. companies should be patient yet diligent in pursuing contracts, particularly projects with the Philippine Government.

MODE OF ENTERING PHILIPPINE MARKET Franchising: Franchising continues to be one of the fastest growing sectors of the Philippine economy and a powerful tool for economic development. Population growth, consumer preferences, and increased economic activity contribute to the growth of franchises in the Philippines.

Direct Marketing: The Direct Marketing Association of the Philippines (DMAP) has more than 100 active corporate members. In recent years, however, the local market has been exposed to a wider array of direct marketing media such as product sampling, business reply envelopes, fax-back forms, marketing via e-mail, the internet, telemarketing, leafleting, establishment of membership clubs, and [recently] Short Message Service or SMS.

MODE OF ENTERING PHILIPPINE MARKET (CONTD.) Joint Ventures/Licensing: Businessmen are allowed begin operations in the Philippines through joint ventures with local enterprises. The Philippine Government (GPH) does not require the submission of licensing/technology transfer arrangements for approval and registration by the Intellectual Property Office.

Selling to the Government: The Philippines has not acceded to the WTO Government Procurement Agreement. Instead, all procurement for the Philippine government (departments, bureaus, offices and agencies, state universities and colleges, government-owned and/or -controlled corporations, government financial institutions, and local government units) is governed

MODE OF ENTERING PHILIPPINE MARKET (CONTD.) Distribution and Sales Channels: Local agents are effective marketing tools. It is critical that U.S. suppliers support their Philippine representatives through frequent communication, regular training, and promotional assistance.

Selling Factors/Techniques: Understanding the local business culture will help U.S. suppliers gain and maintain market leadership. Commercial Service in the Philippines (CS Philippines) assists U.S. exporters in finding representatives overseas through its various services which include: International Partner Search (IPS), Gold Key Service (GKS), and International Company Profile (ICP) reports, among others.

Econony analysis - Philippines

Economy & Finance

Transcript of Econony analysis - Philippines