Opportunities in the Arangkada Growth Sectors

John D. ForbesPrincipal Author

Senior AdviserInvestment Climate Improvement Project

American Chamber of Commerce john@arangkadaphilippines.com

FINEX 43rd ANNUAL CONFERENCE PROGRAMPhilippine Investment Challenge:

Building the MomentumOctober 13-14, 2011Marriot Hotel, Manila

Arangkada Philippines 2010 is about the Seven BigWinner Sectors, with hundreds of tables, maps, andillustrations, 470 pages of text, and 471recommendations.

It is a collaborative effort by over 300 domestic andforeign investors who participated over 6 months in9 Focus Group Discussions.

Arangkada envisions a Philippines realizing the fullpotential of its people and resources and gaining itsproper place alongside Southeast Asia’s other largemiddle income economies.

Accelerating, moving faster, even twice as fast, is themain theme of Arangkada.

Part 1: Growing Too Slow

Part 2: Becoming More Competitive

Part 3: Seven Big Winner Sectors

Part 4: General Business Environment

Philippine GDP growth has caught up with the ASEAN region.

Philippine growth in the 90s was lowest of ASEAN-6. In last decade it improved, reaching 7.4% in 2010.

Arangkada advocates achieving 9-10% annual growth.

First half 2011 at 4.9% is only half this target. . Twice as fast (4.6% 2001-mid-2010)

-15%

-10%

-5%

0%

5%

10%

15%

20%

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Real GDP growth rates, ASEAN-6 Singapore Thailand

Philippines Malaysia

Vietnam Indonesia

Real GDP Growth, ASEAN-6

0%

10%

20%

30%

40%

50%

60%

70%

1990-1995 1996-2000 2001-2003 2004-2006

Philippines

Vietnam

Indonesia

Malaysia

Thailand

Sources: PovcalNet (World Bank); Balisacan, Arsenio "Pathways out of Poverty." 2008; UNICEF for the

urban-rural population distribution in Indonesia

Growth has not trickled down. Poverty remains high..

Philippines has made less progress than other ASEANs in reducing poverty. Future growth should be more inclusive..

FDI, Bn US$

ASEAN-6 Countries 2010

% of 2010

Total

Ave. FDI

2000-2010

% of Regional Ave. 2000-

2010

Indonesia 13.3 17.3% 3.8 9.5%

Malaysia 9.1 11.9% 4.7 11.6%

Philippines 1.7 2.2% 1.6 4.1%

Singapore 38.6 50.3% 19.6 48.8%

Thailand 5.8 7.6% 6.5 16.1%

Vietnam 8.2 10.7% 3.9 9.8%

Total 76.7 100.0% 40.1 100.0%

Source: UNCTAD

-6

-4

-2

0

2

4

6

8

10

12

14

16

FDI, Bn US$

Indonesia Vietnam

Malaysia Thailand

Philippines

Source: UNCTAD

See Interactive Map of ASEAN-6 FDI, Percentage of Regional FDI, 2000-2010

Creating Quality Jobs. Labor force of 38 millionhas increased 50% since 1990 and is projected togrow to 54 million in 2030.

Doubling investment. Philippines FDI inflows areweakest of ASEAN-6. Domestic investment ratiolowest among ASEAN-6.

Remittances are doubled-edge sword. Theysupport a GDP growth floor, but lead tocomplacency to avoid reforms needed to creategood jobs at home.

Increasing and diversifying exports, which areover-dependent on electronics.

Headline Recommendations

1. The new Philippine administration should consider adopting as a major high prioritypolicy goal doubling the GDP growth rate to 9 percent and adopt and implement a planto achieve this within 3 years. This has to be supported by a clear long-term industrypolicy.

2. Job creation by the private sector should receive extremely high priority, to reduceunemployment and underemployment by 50% and to give Filipinos more alternatives toworking abroad.

3. FDI should be targeted to reach over US$ 7 billion a year in 3-4 years. FDI should also bemeasured in terms of job creation and exports (products and services) generated.

4. An export target of US$ 100 billion in 5-6 years should be set, with more diversifiedexports and new markets.

5. Adequate funds should be made available for international promotion of Philippineexports, inwards investments and tourism, medical travel and retirement programs.

6. A significant share of remittances should be channeled into productive investments inthe domestic economy through bonds and other funds.

7. Double funds available for physical and social infrastructure, civil service qualityimprovement, investment, tourism and trade promotion, and other growth-promotingexpenditures through less waste in government spending, more effective tax collection,and selectively increasing the Expanded Value Added Tax (EVAT), before other taxes.

8. Public and private sectors should organize a Special Experts Group comprisingeconomic, business, labor, and government leaders to recommend key reforms to makethe economy grow at least 9%

Global competitiveness surveys, Philippine rankings

Survey Title Years

Previous RP

ranking Recent RP ranking

ASEAN-6

position Trend

ASEAN Regional Survey 2003-10 N/A N/A N/A N/A

Best Countries for Business 2008-10 84 of 127 91 of 128 5 of 6 Deteriorating

Failed States Index 2006-11 53 of 177 51 of 177 6 of 6 Improved

Index of Economic Freedom 2001-11 109 of 179 115 of 179 4 of 6 Deteriorating

*World Competitiveness

Yearbook 2001-11 39 of 58 41 of 59 5 of 5 Deteriorating

International Property Rights 2007-11 80 of 115 87 of 129 6 of 6 Stable

*Corruption Perception Index 2001-11 139 of 180 To be released Oct. 26, 2011 - -

Human Development Report 2001-11 105 of 182 To be released Nov. 9, 2011 - -

E-governance Readiness

Survey 2002-11 78 of 183 To be released in 2012 (biennial) - -

Doing Business 2007-11 144 of 183 To be released Nov. 4, 2011 - -

Investing Across Borders 2011 87 countries N/A N/A N/A

Paying Taxes 2008-11 135 of 183 124 of 183 4 of 6 Improved

Worldwide Governance

Indicators 2002-11 212 countries To be updated June 12, 2012 N/A N/A

*Global Competitiveness

Report 2001-11 85 of 139 75 of 142 6 of 6

Improved by

10

Global Enabling Trade Report 2008-11 82 of 125 To be released Nov. 1, 2011 - -

Travel & Tourism

Competitiveness 2007-11 86 of 133 94 of 139 6 of 6 Deteriorating

Environmental Performance

Index 2006-11 50 of 163 To be released in 2012 (biennial) - -

*Red Font = Surveys monitored by National Competitiveness Council

ASEAN-6 Countries Overall Rank/142 Road Railroad Seaports Airports Electricity Telephone Mobile

Indonesia 82 83 52 103 80 98 79 82

Malaysia 23 18 18 15 20 38 78 40

Philippines 113 100 101 123 115 104 103 92

Singapore 2 2 7 1 1 4 27 15

Thailand 47 37 63 47 32 50 94 70

Vietnam 123 123 71 111 95 109 70 5

Philippines' Ranking 5 of 6 5 of 6 6 of 6 6 of 6 6 of 6 5 of 6 6 of 6 6 of 6

Source: WEF, Global Competitiveness Report 2011-2012

NB: A total of 142 countries were ranked in the WEF GCR

Undertake aggressive efforts to improve rankings much faster.

Identify the competitiveness indicators most important to investors. Then focus on their improvement (e.g. corruption, business costs, infrastructure, regulations, HR quality, political and policy stability).

Create a national psychology to improve international competitiveness ratings overall and in specific critical areas.

Big Winner Sector Date # Participants # Recommendations

Agribusiness December 2009 15 18

Business Process Outsourcing February 2010 28 30

Creative Industries November 2010 16 16

Infrastructure Policy Environment November 2009 25

Infrastructure: Airports November 2009 38 15

Infrastructure: Power November 2009 48 21

Infrastructure: Roads and Rail November 2009 33 9

Infrastructure: Seaports November 2009 20

Infrastructure: Telecommunications None 11

Infrastructure: Water November 2009 9

Manufacturing and Logistics March 2010 35 17 + 25

Mining November 2009 41 33

Tourism, Medical Travel, and Retirement September 2009 36 34

Total 290 283

Agribusiness

AGRIBUSINESSHeadline Recommendations (of 18)

1. Multiple new FTAs present great opportunity for RP agricultural exports. Thefarming sector should be made aware of these opportunities, as well as threatsfrom imports, so the sector can adjust. Lowering cost of farm inputs – throughimproved infrastructure, lower ground and sea transport costs, less governmentred tape, cheaper fertilizer and insecticides – become even more essential. R&D,agricultural education, and training need ramping up.

2. Agribusiness must update old models and develop new ones. By linking smallcrop farmers to global and domestic markets, large corporate integrators (foreignand domestic) are proving the RP can compete. The Philippine AgribusinessCenter of DA should expand its export development projects.

3. CARP should end in five years and limits on landholding lifted. The Farm Land asCollateral law should be passed, and the mandated lending policy in the Agri-Agralaw should be made optional.

BUSINESS PROCESS OUTSOURCINGHeadline Recommendations (of 30)

1. Strengthen the industry with a robust legal framework. The 15th Congress should pass assoon as possible: (1) Department of Information and Communication Technology, (2)Cybercrime, (3) Data Privacy, (4) Holiday Rationalization, and (5) much needed Labor Codeamendments (all of which improve country competitiveness). Avoid new laws discouraginginvestment and that make it more difficult to operate businesses.

2. Develop a highly positive and supportive environment for the industry. Achieve widepublic understanding of the industry’s present and potential contribution to the economyand generate public support for the industry. Adopt the National Competency Test forhiring. Expand higher-speed broadband using new fiber-optic network in more cities.Maintain the fiscal incentive regime supportive of the sector and ensure LGUs aresupportive of IT-BPO firms following the intent of PEZA/BOI guidelines. Promote the IT-BPOindustry with an aggressive international marketing campaign.

3. Raise quality and quantity of labor supply available to the industry. Implementeducational reform to improve quality of graduates. Correct lack of exposure to spokenEnglish by promoting use of English language in broadcast media and advertising. UseInternet cafes for English training. Increase computers in public schools and use computersfor English training. Colleges should adopt curriculum that properly prepares students forIT-BPO careers, introduce integrated service, science, management courses and, industry-standard programs in English and technical courses. Expand more certification programs,scholarships, and management development programs.

Creative Industries

CREATIVE INDUSTRIESHeadline Recommendations (of 16)

1. Improve planning with a Philippine Creative Industries Master Plan, passlegislation to create the Creative Industries Development Council, and organizethe private sector into a Creative Industries Initiative.

2. Stimulate the overall creative industries environment with human resourcesdevelopment, rebrand the Philippine creative image, protect intellectual property,organize awards, exhibits and lectures, study foreign markets, reduce local costs,develop uniquely Filipino products, encourage tie-ups with large foreign firms, andencourage Filipino talent to stay home, as well as return home.

3. Encourage foreigners to practice creative industry professions in the Philippines,as a key to attracting creative investments and R&D activities, resulting intechnology transfer, investment, and job creation. Remove restrictions on foreignequity in advertising.

Infrastructure: Airports and Seaports

AIRPORTSHeadline Recommendations (of 15)

1. Prioritize investments in airport terminal, runway, and communication facilities. ATransportation Master Plan for Central Luzon until 2050 is needed. DMIA shouldbecome the primary international gateway and NAIA primarily a domestic airport. NAIA:renovate T-1 for wide-body international; connect T-1 and T-2; use T-3 for narrow-bodydomestic/international. DMIA will need a 2nd parallel runway, a new passengerterminal, and high-speed rail connection to NAIA/Makati. Settle the NAIA T-3 investorcase.

2. Each region should have one international airport only (convert existing airports).Prioritize Laguindingan. Expand Mactan. Reform the Civil Aviation Authority of thePhilippines (CAAP) in order to reverse Federal Aviation Administration (FAA) and EUdowngrades. Implement the Japanese government-funded Air Traffic ManagementProject of the Department of Transportation and Communications (DOTC).

3. Prioritize international tourism and increase international carrier service throughreduced costs and pocket open skies (starting with Palawan). Prepare for ASEAN openskies. Before more foreign airlines terminate Philippine service, replace Customs,Immigration, and Quarantine overtime, meal, and transportation fees with 24/7government service and end unwarranted taxes on carriers (gross Philippine billings andcommon carriers tax), which other countries do not charge.

SEAPORTSHeadline Recommendations (of 20)

1. A NCR/Central Luzon Transportation Master Plan up to mid-century is needed andshould include a strategy to utilize Batangas, Manila, and Subic seaports, with modernground transportation links to industrial and urban centers. Manila should bedecongested gradually, shifting international container traffic to Batangas and Subic.Develop cruise business at Manila and other major ports (see Map 4).

2. All major ports should have complete infrastructure (terminals, cranes, yards, scales,silos, and discharging equipment and areas) under a hub-and-spoke system feedinggoods by truck and RORO. Major RORO ports should have modern passengerterminals. Allow chassis RORO (cargo containers on chassis without truck). Reduce feeson all shipping. Increase consortium shipping arrangements.

3. PPA should focus on an independent regulatory role and promote competitiveparticipation in port operations. Activate the National Port Advisory Council. Pass thenew Maritime Law. The Maritime Industry Authority (MARINA) should impose higherstandards on shipping and follow international practice.

POWERHeadline Recommendations (of 21)

1. Challenge: There is no substitute for long-term power purchase agreements (PPAs) betweencreditworthy parties to support financing of new power generation projects. Lenders cannot andwill not accept merchant risk or PPAs involving parties that do not have financial wherewithal tofulfill their contractual obligations. Solution: The Department of Energy could formulate policiesand plans to address this challenge, such as credit enhancements, guarantees, incentives, andmore.

2. Challenge: Investments in new cost-effective power generation projects require initiation of openaccess and retail competition. Solution: Fulfill conditions precedent to declaration of RetailCompetition and Open Access within 2010. All but one condition precedent has been fulfilled,namely transferring management and control of 70% of IPP contracts with NPC to IPPAdministrators.

3. Challenge: Investments in new cost-effective power generation projects require a viable WESM.The Luzon WESM has functioned well since mid-2006, but initiation of the Visayas WESM has beendeferred for more than one year. Solution: Initiate Visayas WESM without further delay andintegrate it with Luzon WESM. Initiate Mindanao WESM no later than mid-2011.

4. Formulate an integrated energy policy plan including all energy sources, plant locations,investment/financing, energy efficiency. Enhance creditworthiness of distribution utilities andcooperatives. Prepare for nuclear power in a decade. Revisit take-or-pay for baseload plants.Remove restrictions on foreign equity in power projects. Develop a large coal plant on a smallisland with domestic/foreign coal. Introduce LNG for cleaner power and transportation. PrivatizeAgus and Pulangi dams by 2011.

WATERHeadline Recommendations (of 9)

1. Challenge: There is no substitute for long-term take-or-pay bulk water purchase agreementsbetween creditworthy parties to support financing of new water supply projects. Solution: TheGRP must enhance creditworthiness of water supply agencies such as the MWSS withperformance undertakings.Alternatives: The MWSS concessionaires voluntarily enter into take-or-pay contracts for bulkwater supply projects supported by their balance sheets or fund major new water supply projectsdirectly.

2. Challenge: Public policies, rules, and regulations for water are administered by numerousdepartments and agencies thereby undermining its development. Solutions: Rationalize watersupply administration and policy via a Water Reform Act; strengthen the National WaterResources Board (NWRB). Establish a Department of Water and an independent water regulator.Develop a National Water Master Plan that identifies major water resources and treatmentrequirements; establish supportive policies, rules, and regulations.

3. Challenge: New dams to provide additional water supplies for Metro Manila should be built.Solutions: Engage the private sector, preferably through transparent bidding. The policydisallowing "take-or-pay" and sovereign guarantees needs to be reviewed. Smaller and lessexpensive Sierra Madre or Wawa projects should be moved forward while the approach to theLaiban project is decided.

4. Challenge: Irrigation and flood control desperately need reform and budgetary support. Solutions:Encourage the private sector to invest in irrigation using the BOT law or joint ventures withNational Irrigation Administration (NIA). Reduce flooding by implementing measures to reducethe accumulation of silts and sediments and disposal of garbage in waterways. Prohibitdevelopment and construction of residences and commercial, industrial, or institutional structureswithin the flood plain.

Infrastructure: Roads and Rail

INFRASTRUCTURE POLICY ENVIRONMENTHeadline Recommendations (of 25)

1. Double spending on infrastructure to 5% of GDP with a pipeline of PPP projects,professionally prepared and transparently bid and implemented. Draw on internationaltechnical assistance to move forward nearly PhP 200 billion in viable road and railprojects. Draw on nearly PhP 1 trillion in available local funds.

2. Legal and procedural reforms will be needed to revitalize PPP programs. Amend theBOT law and its IRRs. Amend or rescind the JVA EO. Assure that the NEDA-ICC reviewsall major projects. Strongly discourage unsolicited project proposals. Remove foreignequity restrictions. Speed up project approval process using timetables/deadlines.Release DBM funds in timely fashion. Use congressional CDF only for neededinfrastructure. Create and follow a 10-year infrastructure master plan. Implement theNational Transport Plan.

3. Increase transparency and reduce corruption and controversy over infrastructureprojects. Protect investors from political risks (TROs, LGU interference, right of wayproblems). Pass the Freedom of Access to Information Act. Develop a government on-line registry of projects and a private sector website to monitor the top 200-300projects against guidelines. Disclose all JVA projects prior to MOA signing.

ROAD AND RAILHeadline Recommendations (of 9)

1. Build expressways and national roads twice as fast, using PPPs as well as DPWHfunds (see list below). Cost: US$ 3+ billion (not including national roads).

2. Build intercity rail and urban light rail, especially on Luzon, twice as fast. Acceleraterail construction on Luzon, using PPPs as well as DOTC funds (see list below). Cost:US$ 11+ billion.

3. National government budget should focus on the core road network. Major roadand rail projects which government decides to be funded as PPPs should be bid outcompetitively and evaluated and awarded transparently. Unsolicited proposalsshould be minimized.

4. Apply HDM-4 for roads. Create single light rail agency for Metro Manila.

MANUFACTURINGHeadline Recommendations (of 17)

1. Increase priority given to manufacturing. Working with the private industry, thegovernment should: (1) develop an industrial master plan, identifying the bestopportunity sectors for the export of goods and services to global markets created byFTAs; (2) support the plan with consistent policies, fiscal incentives, legal,administrative, and other reforms; and (3) put a strong economic team in the cabinetthat works in tandem with designated private sector leaders of the targeted globalindustries.

2. Improve the business climate and level the playing field: (1) reduce the costs of doingbusiness including electricity, transport infrastructure, domestic logistics, corruption,and red tape; (2) increase E2M coverage for customs; (3) professionalize thebureaucracy; (4) allow industry to operate free of government interference, such asprice controls; (5) link minimum wage policies to productivity enhancements; (6)rationalize holidays; and (6) eliminate smuggling by sending smugglers to jail.

3. Ramp up promotion of Philippine exports and investment: establish an exportdevelopment fund to promote exports and investment; aggressively promote thePhilippines at international trade fairs. Allow duty and tax-free importation of capitalequipment.

LOGISTICSHeadline Recommendations (of 25)

1. Promote Batangas Port for CALABARZON-destined shipments and Subic for Luzon-destined shipments by inviting feeder vessel operators to call, linking them throughSingapore, Kaohsiung, and Hong Kong to worldwide shipping.

2. Develop Subic as a true freeport for logistics to the Asian region for goods from theUS and Europe.

3. Allow direct deconsolidation of cargoes to PEZA bonded warehouses instead of usingnon-PEZA CY/CFS operators.

4. Develop a transshipment industry similar to Dubai and Singapore. Allowtransshipment of cargo in various modes, air-air, sea-air, and air-sea by asking the BOCto implement relevant transshipment rules.

5. Open the door to foreign investment along the entire multi-modal transportationchain.

MININGHeadline Recommendations (of 33)

1. Increase the growth of the mining sector by removing redundant approvals and non-performing claims. Exploration and similar permits should be granted transparently at theregional level within 6 weeks and renewed in one day at one-stop shops. Reduceenvironmental compliance certificate (ECC) processing time. Allow pre-permitting access topotential project lands. MGB should cancel permits after two years of non-performance.MGB should adopt Philippine Mineral Ore Resources Reserve Reporting Code. Developmodel best-practice regions.

2. Work closely with indigenous peoples; develop mining HR skills; monitor legaldevelopments. Since most mines are in ancestral domains, involve IPs as partners fromproject commencement. Achieve a 50% increase in direct mining and milling costs allocatedfor community development. Implement release to LGUs of their share of mining taxes paidto the GRP. Improve salaries and practical skills of MGB staff. Develop mining engineeringprograms at universities. Implement the current Mining Act and avoid arbitrary applicationof the Writ of Kalikasan. Continue the Minerals Development Council.

3. Carry out a public information campaign and increase dialogue with concerned groups.Inform the public about responsible mining that minimizes the environmental impact. Findcommon-ground solutions with LGUs, NGOs, religious leaders, and local communities toissues raised against specific projects. LGUs should not have mining bans against nationalpolicy. Encourage downstream processing/manufacturing. Source supplies from localcommunities. Endorse Extractive Industries Transparency Initiative.

TOURISMHeadline Recommendations (of 34)

1. Improve international connectivity – eliminate the Common Carriers Tax and GrossPhilippine Billings tax on foreign airlines (not practiced elsewhere); implement 24/7operations in international airports and seaports; reform the CAAP.

2. Develop and implement national and destination masterplans and protect propertyrights of investors and communities in line with the Tourism Act of 2009. Promotionalresources should be directed to key tourist regions with infrastructure and directinternational flights, including Cebu/Bohol, Clark/Subic, Davao, Laoag, and Cagayan deOro.

3. Reduce costs of doing business and enhance mobility for travel and tourismenterprises and tourists across the value chain (e.g. implement sustainable tourismtaxation (national and local), streamline procedures, travel tax, customs andimmigration, licensing, amend Sanitation Code).

MEDICAL TRAVELHeadline Recommendations

1. Pursue negotiations of public insurance portability for international medical travel andretirement; promote transparency of medical travel packages; develop and implementa national policy on wellness and medical travel.

2. Facilitate seamless travel of medical travelers and health professionals (as part ofexchange programs with overseas hospitals) by issuing longer medical tourism visas forpatients and their companions and streamlining procedures.

RETIREMENTHeadline Recommendations

1. Restrictions on foreigners should be liberalized in designated tourism and retirementzones to allow foreign ownership of land and retail facilities and the practice ofprofessions. Until the constitutional limit on foreign ownership of land can bereformed, joint ventures with reputable Philippine corporations as well as GRP agenciesand LGUs should be encouraged; rules and regulations for JVs with the governmentshould be reviewed accordingly.

2. Encourage co-investment by the Philippine Retirement Authority in infrastructuredevelopment to support long-stay tourism and retirement programs.

Issue Number

Business Costs 16

Environment and Natural Disasters 14

Foreign Equity and Professionals 12

Governance 16

Judicial 12

Labor 9

Legislation 13

Local Government 16

Macroeconomic Policy (Fiscal, Markets, Trade) 29

Security 15

Social Services: Poverty 4

Education 12

Health and Population 9

TOTAL 177

Uncompetitive business costs (labor, holidays, marine transport, power).

High unemployment and brain drain; low labor productivity.

Restrictions on foreign equity and professionals.

Weak governance (corruption, red tape, smuggling).

Slow judicial processes, weak rule of law.

High taxes yet poor public revenue; large public sector deficit.

Slow pace of legislative reform.

Unclear authority of local vis-à-vis national government.

Security (crime, insurgency, terrorism, warlordism, weak military/police).

Insufficient social services (education, health, reproductive health).

Business CostsKey Recommendations (of 16)

1. Senior levels of public and private sectors should create a national culture ofcompetitiveness. Strengthen national efforts to improve competitiveness byreducing business costs, including the NCC, and prepare an annual presidentialreport on competitiveness.

2. Adjust minimum wages to be more in line with similar regional middle incomeeconomies, allow relief from minimum wages or piece work for distressedindustries or other measures that maintain jobs instead of losing them to othercountries, including developing new industrial zones with infrastructure thatoffer much lower wage rates. Reduce the burden of high holiday payrollexpenses by reducing the number of non-working holidays.

3. Reduce power costs for firms needing to maintain global competitiveness tosurvive. Introduce open access and power discounts. Modernize ground andmarine transport to achieve competitive efficiencies.

4. Accelerate efforts to greatly reduce the red tape burden on citizens and firms.

Environment and Natural DisastersHeadline Recommendations (of 14)

1. Implement policies prescribed by the Solid Waste Management Act,Clean Air Act, and Clean Water Act. Deal effectively with the solid wastechallenge. Reduce air and water pollution. Clean rivers. Improve access towater and sanitation. Establish clear rules and standards that would allowmodern incineration technologies. Amend the Clean Air Act to allow non-polluting clean incineration.

2. Benefit tourism, agriculture, and fisheries by ending deforestation,beginning reforestation, and rebuilding damaged coral reefs.

3. Emphasize disaster prevention as well as disaster relief. Reduce floodingby improving drainage, zoning, and infrastructure. Make cities safer againstearthquakes. Plan effectively for the impact of climate change/globalwarming.

Foreign Equity and ProfessionalsHeadline Recommendations (of 12)

1. A high-level commission should review current restrictions in the FINLand elsewhere and propose remedial measures, considering which willmost increase investment and create jobs.

2. Pending constitutional revision, creative but legal solutions, including thecontrol test, should be applied to 60-40 ownership provisions, in order toincrease investment and create jobs.

3. Because foreign professionals can enhance national competitiveness andcreate jobs, the PRC should liberalize its procedures to accredit foreignprofessionals. The FINL should not include professionals. Philippinediplomacy should pursue global openness for Filipino professionals.Distinguish ownership of companies that provide professional servicesand execution of medical services.

GovernanceHeadline Recommendations (of 16)

1. Demonstrate firm, consistent political will to enforce laws against corruption forcefully inthe public and private sectors, in revenue collection, and public expenditures. Governmentshould join the Integrity Initiative and submit government departments to the samecontrol mechanisms as the private sector. An impartial Ombudsman should bestrengthened with trained staff. Private sector must do more to police its ranks and initiatecompliance and integrity programs.

2. Smuggling must be vigorously countered. The BOC with DOJ support should successfullyprosecute smugglers. Further reform public sector procurement. Expand e-procurement,reform project selection process and bidding procedures, and intensify other efforts toreduce waste in public expenditures. Increase public sector transparency.

3. Reduce the fiscal burden of GOCCs by fiscalizing, rationalizing, privatizing, and closing.Focus Congressional CDF more on priority social infrastructure needs. Undertake civilservice reforms to professionalize government. Reduce red tape. Strengthen CorporateGovernance; reduce abuse of intellectual property rights; Legalize jueteng.

JudicialHeadline Recommendations (of 12)

1. Continue judicial reforms to speed up justice in all courts by hiring more judgesand increasing salaries. Continue to reduce the caseload of all courts by moreencouragement of arbitrated settlements in civil cases. Improve BIR, BOC, andOmbudsman legal staff to prepare better cases with better prospects ofsuccessful prosecution and conviction.

2. The Supreme Court should request amicus curiae expert advice in ruling on issuesthat may adversely impact on the investment climate. The Supreme Court couldreduce its caseload by being more selective in accepting case. Rules of the Courtshould be changed to recognize foreign arbitration decisions without reopeningcases.

3. Create a special court for Strategic Investment Issues. Oversee the environmentalcourts so that application of Philippine environmental laws strongly supportsresponsible mining practices.

LaborHeadline Recommendations (of 9)

1. Modernize the Labor Code. Rationalize holidays. Allow overseas service firmworkers compensatory days off. Maintain the flexible working arrangementsintroduced in recent years.

2. Focus on improving labor productivity. Create several million new direct jobs andmany more indirect jobs. Attract manufacturers relocating from China. Reducethe unemployment and underemployment rates.

3. Continue to resolve differences without disruptive labor action. Allow self-regulation of companies with support of chambers of commerce and industryassociations. Reform the NLRC. Further narrow the skill-jobs mismatch byrevising curricula and training. Re-introduce dual training system and supportgreater interaction between TESDA and private sector.

LegislationHeadline Recommendations (of 13)

1. The president should hold regular LEDAC meetings of executive andcongressional leaders. LEDAC should prioritize the administration’slegislative agenda and monitor its progress throughout the legislativeprocess.

2. Prioritize bills that improve competitiveness, increase investment andrevenue, and create jobs, in order to accelerate economic growth. Useexecutive orders and revision of IRRs to start reforms, following up withlegislation as needed. Deter market-inimical bills.

3. Pass legislation much more rapidly, especially for business and economicreforms. Prioritize key legislation that was close to final passage in the 14th

Congress or that reached 2nd/3rd reading in either the House or the Senate.

Local GovernmentHeadline Recommendations (of 16)

1. Intensify programs to improve LGU governance to make them more efficient andcompetitive, prioritizing LGUs in the fastest-growing regions. Expand e-governanceservices on LGU websites to enable routine transactions and to provide informationon budgets and procurement. Increase efforts to correct issues identified in IFCDoing Business ratings and reduce solicitation of bribes. It is essential that theNational Government pays LGUs their tax share fairly and promptly. Intensifyprograms for LGU capacity building.

2. LGUs should observe incentives, such as exemption from local taxes, awarded by thenational government to investors under national laws. The LGU Code, whenamended, should include language to make the foregoing application of nationallaws clear. Declare certain investments as strategic to take them out of the influenceof LGUs.

3. LGUs should strongly support the Seven Big Winner sectors: Agribusiness, BPO,Infrastructure, Manufacturing and Logistics, Mining, and Tourism, Medical Travel, andRetirement.

Macroeconomic Policy (Fiscal, Regulatory, Trade)

Headline Recommendations (of 29)1. Constantly improve financial sector management. Reduce the record high

public sector deficit, maintain low inflation, stable exchange rates, reduce debtservice burden, increase capital spending, privatize more state assets, conveyan austerity message, reduce congressional pork barrel.

2. Maximize tax collection, jail smugglers and big tax evaders, using RATE andRATS. Use transparency/e-governance, National Single Window, E2M. Simplifytaxes and fees. Undertake comprehensive tax reform to reduce CIT andindividual income tax, while raising VAT, ACT, and fuel excise taxes. Reduce oreliminate small taxes and fees that increase business costs.

3. Increase the low savings rate and strengthen capital markets. Increaseindependence of regulatory agencies and reduce the burden of governmentregulation on the private sector. Maintain policy predictability and stability.Take advantage of new trading opportunities.

SecurityHeadline Recommendations (of 15)

1. Improve political stability and reduce violence, terrorism, and humanright abuses throughout the Philippines. Use different strategies to dealwith the MILF, NPA, and ASG. Negotiate with the MILF and the NPA and useforce to isolate/ eliminate the ASG.

2. Reduce violence in Mindanao and increase economic development in theisland’s poorest provinces. Develop and implement the Mindanao 2020Peace and Development Plan, emphasizing better infrastructure and lowershipping costs. Reduce/eliminate warlordism. Expand CCT, Kalahli-CIDSSand other programs that reduce government neglect of population livingin remote areas.

3. Modernize the armed forces and police and increase their numbers. Endextra-constitutional actions by any military units through reforms anddiscipline. Reduce crime, especially murders and kidnappings.

Social Services: Poverty

Headline Recommendations

1. Steadily reduce number of poor and poor as percentage ofpopulation.

2. Reduce the incidence of hunger.

3. Expand insurance coverage to include more poor.

4. Successfully implement the expanded CCT program to include all6.9 million poor Filipino families.

EducationHeadline Recommendations (of 12)

1. Increase public education budget over several years to at least PhP 400 billion (3.5-4% ofGDP) for better classrooms, more and better teachers quality, and reduced teacher/studentratio. Double average spending per student to ASEAN-6 average. Adopt K+12 model toextend basic education by two years and add a pre-elementary year.

2. Constantly improve teacher quality and curriculum to produce graduates with skillsrequired for higher quality jobs. Apply competency-based standards, more in-servicetraining, maintain teacher welfare and morale. Increase study of math and science,technical/vocational skills training. Encourage college/post-graduate study in fields neededfor specialized positions, including foreign languages. Intensify investment in technology forhigh school education to connect all 6,786 schools to Internet. Equip high school teacherswith notebook computers and students with e-readers. Establish computerized Englishlanguage centers in high schools.

3. Strengthen higher education by providing more resources for world class centers ofexcellence. Expand scholarships/loans for higher education. Encourage more accreditedforeign schools and foreign teachers. Undertake a vigorous public campaign to emphasizeEnglish language competency. Strengthen the Dual Education/Dual Technical System.Expand the internship period to prepare students better for employment.

Health and PopulationHeadline Recommendations (of 9)

1. Double national spending on healthcare to 2.5-3% of GDP. Direct spending to poorestFilipinos. Government hospitals should be modernized, rationalized, expanded, and manythousands of additional village health centers built. Provide better equipment and staff.

2. Expand PhilHealth eventually to become UHC. Include poorest Filipinos at no cost,financed by premiums on higher-income groups.

3. Cease misguided healthcare legislation that does not achieve policy goals. Use PPP toencourage private capital to invest in healthcare-related services.

4. Government should target an achievable population growth rate, set parallel targets toincrease contraception prevalence rate and to lower fertility rate, and design andimplement a reproductive health program to achieve targets.

5. Congress should pass a consensus version of reproductive health legislation. Privatesector should support reproductive health policy legislation and assist employees to havesmaller families.

6. Government should reward poor families who have fewer children, PhilHealth shouldintroduce a family planning requirement for hospital accreditation.

Enacted into Law:

Financial Rehabilitation and Insolvency Act

(RA 10142) – lapsed into law July 18, 2010

*GOCC Governance Act (Republic Act 10149) – signed June 6, 2011

*Repeal of Nightwork Prohibition for Women

(RA 10151) – signed June 21, 2011

* LEDAC Priority Measures

Direct Remittance to LGUs of their 40% share from National Wealth Taxes

Senate: Under Local Government TWG deliberation

Customs Modernization and TariffsAct

Senate: Under Ways and Means Committee deliberation

*Data Privacy Act

Senate: Committee Report being routed for signature

*Rationalization of Fiscal Incentives

Senate: Under Ways and Means Committee deliberation

WIPO Copyright Treaty (Intellectual Property Act Amendments)

Senate: Pending Second Reading

Lemon Law

Senate: Under Trade and Commerce Committee deliberation

Plastic Bag Regulation Act

Senate: Under Trade and Commerce Committee deliberation

Regulating Profession -Environmental Planning

Senate: Draft Committee Report for approval of Civil Service Committee

Approved on Third Reading in the House:

* LEDAC Priority Measures

Pending Second Reading:

* LEDAC Priority Measures

House Senate*AMLA Amendment Creation of the DICT

Creation of the DICT Cybercrime Prevention Act

*Fair Competition Law/ Anti-trust *Mandatory Healthcare Coverage

LPG Industry Regulation and Safety Act *Reproductive Health Bill

*Reproductive Health Bill *Whistle Blowers Protection Act

Terrorism Financing Prevention and Suppression Act

Approved at Committee Level:

*Institutionalizing National Land Use Policy

*Land Administration and Reform Act

Rural Bank Act Amendments

* LEDAC Priority Measures

Under Technical Working Group Deliberation:

* LEDAC Priority Measures

House Senate*AFP Modernization CIQ Amendment

Anti-smuggling Sustainable Forest Management

*BOT Law Amendments Regulating Profession - Pharmacy

Farm Land as Collateral

*NFA Reorganization

*Government Procurement Act Amendments

Under Committee Deliberation:

House SenateConstitutional Amendments on

Economic Provisions Creative Industries

*Enhancing the Curriculum of Basic Education (12 years)

Freedom of Access to Information

Freedom of Access to Information Fiscal Responsibility

* LEDAC Priority Measures

Bills Requiring Substantial Reconsideration

Other Priority Legislation

Corporate Social Responsibility Foreign Investments Act Amendments

Security of Tenure Retail Trade Act Amendments

Value Added Simplified Tax Clean Air Act Amendment

Chinese Holiday Senior Citizens Act Amendment

Declaring National Women’s day as a non-working holiday

Rice and Corn Trade Amendment

Milk Code Financial Sector Tax Neutrality Act

Holiday Rationalization

1,500 copies distributed to key stakeholders (media, leaders in all branches of GPH including LGUs, private sector, embassies)

Strengthening coalitions with the public and private sectors to improve competitiveness and accelerate investment and job creation.

JFC conducted dialogues about Arangkadarecommendations with 58 government leaders in the Cabinet, Congress, Supreme Court, international donors, as well as business leaders.

Advanced Arangkada reforms by building partnerships with allies who also prioritize fast growth of 7 Big Winner Sectors for investment and jobs.

March 30 Arangkada Workshop – over 120 investors and public sector partners assessed Arangkadarecommendations for the 7 Big Winners. 13 were completed; 72 are ongoing - of total of 283

We are organizing moderators/experts to continually update the Arangkada website to provide a balanced picture of investment opportunities.

www.arangkadaphilippines.com

www.investphilippines.info

Opening Page - with emphasis on the Arangkada text as is, theresources and most importantly the Newsroom regarding updates.