The Philippines Market Overview
Located in Southeast Asia, around 800 kilometers from the Asia mainland, the Philippines is one of the largest archipelagos in the world, with over 7,100 islands and a total land area of approximately 300,000 square kilometers. Ranked the 39th largest economy in the world by World Bank’s 2013 statistic, the Philippines continues to be one of Asia’s fastest growing country, impressively rivaling the dizzying growth rates of fellow countries of the same region.
Source: Philippine Statistic Authority and National Economic and Development Authority
The global business community is also taking notice of the Philippines’ robust growth outlook. According to the World Economic Forum (WEF), the country is ranked 59th out of 148 economies in the 2013-2014 global competitiveness index, jumping six places from the previous year’s ranking.
Robust growth supported by sound economic fundamentals, rising business confidence, improved competitiveness outlook, and a multitude of business incentives have made the Philippines both an ideal and leading investment destination. The country offers unique and sustainable opportunities for growth in a global environment struggling with volatility and diminished economic prospects. For the first time in its history, the Philippines managed to garner an “investment grade” status from the world’s leading credit rating agencies in 2013. And most recently, the Standard & Poor’s Ratings Services upgraded the country’s credit rating to a notch above investment grade. In theory, this should allow the Philippines to attract greater foreign investment and gain affordable access to international capital for domestic development projects. The Philippines has significantly improved its rankings in all major economic competitiveness and opening indices.
There are numerous business opportunities for those who want to invest in the Philippines. These are highlighted in the Investment Priorities Plan (IPP) which identifies priority investment areas which the government is actively promoting. The 2012 IPP lists infrastructure and public-private partner (PPP) projects, knowledge-based services such as BPO and IT and IT-enabled services, energy, green projects, iron and steel, and hospital/medical services, among others, as preferred activities. In addition, the current administration under President Benigno C. Aquino III has identified the following five (5) priority areas for job generation and economic development: outsourcing, infrastructure, tourism, agriculture and fisheries, and semi-conductor and electronics. The national budget is aligned to provide massive support to these priority areas so that these sectors can expand significantly.
As of March 2014, foreign direct investments in the Philippines was USD476 million. The bulk of foreign equity investments came from the U.S., Japan, Singapore, Hong Kong and Taiwan, and were channeled mainly to financial services, manufacturing, real estate, mining as well as wholesale and retail companies.
On the downside, however, like any other developing countries in South East Asia, a number of external and domestic factors are holding the Philippines’ growth back. External risks could come from disorderly policy normalization in high-income countries, a disorderly adjustment in China’s property market, political tensions in the Middle East and Eastern Europe, and territorial disputes in the region. On the domestic side, the main sources of risk are slow reconstruction spending and domestic reform lags, in particular reforms to raise tax revenues needed to raise infrastructure and social services spending.
The Philippines is also facing some unemployment problems apart from the aftermath of Typhoon Haiyan. Its close trading links with the US will stimulate trade to an extent, but unemployment will drag on its demand as well as keeping investor sentiment lukewarm in the short term.
Jim Yong Kim, the president of the World Bank, said the Philippines could be “the next economic miracle in Asia”. It would help if growth were felt by the poorest residents; at the moment, poverty rates remain stubbornly high. Much employment still happens in the informal sector. Some wonder where the rapidly-expanding labour force—a result of having a median age of just 22.3 years, five years lower than its South-East Asian neighbours—will find jobs. A youth bulge can be a great asset for an economy. Without jobs, however, it can turn into a liability very quickly.
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