What information do you need to know in order to do business in the Philippines? The Philippine Islands are vast and the economy from region to region can greatly differ. Business in the Philippines has been busy as usual, but is it going to stay that way? Let’s explore.
An archipelago comprising 7,107 islands, the Philippines is categorized broadly into three main geographical divisions: Luzon, Visayas, and Mindanao. Its capital city is Manila. With a population of nearly 101,833,938, according to a government census, the Philippines is one of the biggest countries in the world and certainly one of the biggest markets in the world. The national economy of the Philippines is the 45th largest in the world, with an estimated 2011 nominal gross domestic product of $216 billion, while its GDP per capita was $3,500. While the Filipino market is large, it is also quite poor. However, this trend is changing according to some economic numbers that show a high level of economic growth in the Philippines.
Consumer Demand, Imports, Exports and Trade in the Philippines
According to an analysis by the CIA, the Filipino GDP grew 7.3% in 2010, spurred by consumer demand, a rebound in exports and investments, and election-related spending. The economy weathered the 2008-09 global recession better than its regional peers due to minimal exposure to troubled international securities, lower dependence on exports, relatively resilient domestic consumption, large remittances from four- to five-million overseas Filipino workers, and a growing business process outsourcing industry. Economic growth in the Philippines averaged 4.5% during the Arroyo administration. Despite this growth, poverty worsened, because of a high population growth rate and inequitable distribution of income. The Aquino administration is working to reduce the government deficit from 3.9% of GDP, when it took office, to 2% of GDP by 2013. The government has had little difficulty issuing debt both locally and internationally to finance the deficits. Aquino’s first budget emphasizes education, health, conditional cash transfers for the poor, and other social spending programs, relying on the private sector to finance important infrastructure projects. Weak tax collection, exacerbated by new tax breaks and incentives, has limited the government’s ability to address major challenges. The Aquino administration has vowed to focus on improving tax collection efficiency – rather than imposing new taxes – as a part of its good governance platform.
A newly industrialized country, the Philippine economy has been transitioning from one based on agriculture to one based more on services and manufacturing. Of the country’s total labor force of around 38.1 million, the agricultural sector employs close to 32% but contributes to only about 13.8% of GDP. The industrial sector employs around 13.7% of the workforce and accounts for 30% of GDP. Meanwhile the 46.5% of workers involved in the services sector are responsible for 56.2% of GDP, according to statistics produced by the Filipino Government. Primary exports include semiconductors and electronic products, transport equipment, garments, copper products, petroleum products, coconut oil, and fruits; and major trading partners include the United States, Japan, China, Singapore, South Korea, the Netherlands, Hong Kong, Germany, Taiwan, and Thailand, according to the CIA World Factbook. Other incongruities and challenges exist. The economy is heavily reliant on remittances which surpass foreign direct investment as a source of foreign currency. Regional development is uneven with Luzon—Metro Manila in particular—gaining most of the new economic growth at the expense of the other regions, according to the Manila Standard newspaper. Despite constraints, service industries such as tourism and business process outsourcing have been identified as areas with some of the best opportunities for growth for the country, as reported by The Asia Times.
Overall, the Filipino market is truly one of the emerging markets for the future that any prosperous business should consider. In Fact, Goldman Sachs includes the country in its list of the “Next Eleven” economies. But there are significant challenges to doing business in the country, ranging from corruption to poor investor protection. So clearly this market is not for the weak-hearted. However, with the population growing rapidly and the economy growing at a rapid pace as well, it is only a matter of time before the Philippines unlocks its potential. But there are some major challenges standing in the way of that potential.