While it doesn’t prominently figure on investors’ radar, the Philippines holds huge potential as a market. It has the second-largest population in Southeast Asia – at 105 million – and the fastest-growing economy, based on latest data. The nation is young and fluent in English. Labor is cheaper than many markets, and smartphone adoption is rising. Let’s not forget, Filipinos are dubbed the most active on social media in the world.
Having said that, the country’s tech scene is still in nascent stages. There are many barriers.
If you have a startup idea and want to introduce it first to Filipino consumers, here’s what you should expect setting up in Manila.
The telcos are leading the digital shift – and rightly so, because they need new revenue streams to complement declines in their legacy businesses.
The Philippines’ duopoly, PLDT and Globe Telecom, are investing heavily in innovation and have their own investment arms.
PLDT’s accelerator, Ideaspace, holds a yearly competition where it chooses the top 10 startup ideas it will fund. Just this year, it made the bold move of taking a zero equity approach. Globe’s Kickstart Ventures, on the other hand, has transformed from an incubator to a full blown investment firm that invests beyond early-stage startups. PLDT, too, has a VC arm called PLDT Capital, but it’s mostly looking at companies from Silicon Valley and the rest of the globe.
There are also startup hubs that can train founders on entrepreneurship, help connect them with mentors and prospective funders, and provide them resources like office space to turn their idea into a business. These hubs include Launchgarage, Brainsparks, and Impact Hub Manila.
As the startup ecosystem is still small, capital flowing into the Philippines lags behind other markets. Apart from the telcos, there’s only a handful of angel investors and VCs injecting funds into Filipino startups.
That said, there’s increasing interest in the Philippines among foreign VCs like 500 Startups. The Silicon Valley-based investor is mulling launching a microfund for the Philippines that’ll be in the same style as its funds for Thailand and Vietnam.
Tax breaks and visas
Other challenges exist like the lack of government support in terms of tax breaks, difficulty in incorporating and dissolving a company – that’s why we have so-called zombie companies, and a largely raw talent pool.
It’s not like Singapore where startups enjoy tax exemptions for the first few years of operations and corporate income tax stands at only 17 percent. In contrast, the Philippines charges a corporate income tax rate of 30 percent.
The Philippines has a good number of engineers and developers but it needs to import more know-how by attracting foreign talent. Founders in the Philippines are mostly locals.
That’s due in part to restrictions on foreign residency and foreign company ownership.
Again, the Philippines can take a cue from Singapore in this area. Both foreigners and citizens can incorporate easily in Singapore. There are no residency visas required. If an entrepreneur wants to live there, they may avail of an Entrepreneur Pass to make that possible.
From a logistics perspective, it’s also hard to serve a country with 7,107 islands. The government needs to upgrade its infrastructure, which remains a bottleneck to economic growth. The country’s major airports lack runway capacity, and seaports are also congested. Roads are in poor condition and the traffic is horrendous. A study by navigation app Waze found Manila traffic to be the “worst on earth.” All those make the shipping and transport of goods costly in the country.
Internet infrastructure is another issue. The Philippines has been known for having one of the slowest internet speeds in the region, although the telco operators have rolled out several initiatives (such as an IP peering deal and the rollout of high-speed mobile internet infra) to try to improve their services.
The Philippine government is encumbered by electoral politics – presidential elections happen every six years – which means it can’t be far-sighted. Moreover, government funds have been prone to mismanagement and corruption. Many entrepreneurs think the best way for the government to help the startup scene is by creating a conducive business climate, then getting out of the way.
In terms of policies, the government has worked with other stakeholders in crafting a startup roadmap – a framework for developing the ecosystem until 2020. A formal organization for startups called StartupPH.org is also underway.
A bill authored by Senator Paolo “Bam” Aquino that aims to give startups a leg up is also pending in Congress. Among others, the bill covers tax incentives for startups and investors, foreign employee visas, and other provisions such as funding and co-working spaces.