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The Philippines - A Profile Strategic location, skilled and highly trainable human resources, a stable democratic government and vibrant free enterprise economy make the Philippines an attractive investment destination
Source: General Market Structure The Philippines adheres to the principle of free enterprise and recognizes the indispensable role of the private sector in the economic development of the country. Among the structural reforms initiated are liberalization of imports, deregulation of vital industries, relaxation of investment rules, privatization of government owned or controlled corporations, etc. The resurgence of democratic sentiments and the realization that the economy needs to be more competitive and outward looking in order to survive the onslaught of market globalization, have triggered the opening up of the economy. The Philippines' membership in the World Trade Organization (WTO) and participation in the Asian Free Trade Agreement (AFTA) and the General Agreement on Tariff and Trade (GATT) are further manifestations of the government's commitment to open trade. Recently, President Macapagal-Arroyo has intensified efforts to revive EAGA (the Eastern Asean Growth Area).This project was supposed to bring together Brunei, Indonesia, Malaysia, and the Philippines (BIMP) in joint and common efforts to promote economic trade and cultural ties, with Mindanao serving as the focal point for the Philippines' participation in BIMP -EAGA. It has been observed that after the Asian financial crisis of 1997, the Philippines started to recover ahead of other countries in the region because of continued political stability; prudent monetary and fiscal measures; bolder moves toward deregulation, liberalization and privatization; and improved infrastructure development through the expanded build-operate-transfer (BOT) programs. As shown by the preliminary National Income Accounts estimates of the National Statistical Coordination Board (NSCB), Gross Domestic Product (GDP) grew by 4.0% in 2000, improving from the previous year's 3.4% growth. Gross National Product (GNP) likewise improved from 3.7% in 1999 to 4.5% in 2000. The worldwide economic slowdown as well as the political turmoil in the first semester, which resulted in the sudden change in the administration, weighed down the growth of the Philippine economy. GDP during the first semester of 2001 slowed down to 3.3% as against the 3.8% growth it posted during the same period last year. The growth in the net factor income from abroad drove GNP to a 3.4% expansion in the first semester of 2001 relative to its previous year's 4.0% gain. Based on first semester figures, industry and services sectors grew only by 2.7% and 3.8% this year as against the previous year's 3.9% and 4.4% gains, respectively. On the brighter side, the combined agriculture, fishery and forestry sector registered a faster growth rate at 3.0% compared to its 2.3% expansion last year. (See Appendix 1 for details) Agriculture The main agricultural products of the country are rice, corn, coconut and sugar. The Philippines is one of the largest exporters of coconut oil and sugar but this comparative advantage has declined over the years due to the development of substitutes and the increase in number of other exporter-countries. Mining The Philippines is rich in mineral resources. For this reason, among the early industries developed by the colonizers were gold and copper mining. The Mining Act of 1995 liberalized the industry, paving the way for the entry of foreign mining firms with a package of incentives, among which are net operating loss carry-over and accelerated depreciation. Energy demand and resources Based on the Philippine Energy Plan for 2000 to 2009, the primary energy demand is projected to increase at an annual average rate of 6.3% from 256 million barrels of fuel oil equivalent in 2000 to 445 in 2009. Energy self-sufficiency level will increase from 42% in 2000 to 49% in 2004 due principally to the start of commercial production from the Malampaya offshore field. The government is promoting accelerated use and development of the more environment-friendly new and renewable energy sources. Utilities Within the Plan period, electricity demand is expected to grow at an annual rate of 8.9% and will be supplied mainly by cheaper non-oil alternatives. The share of oil to total power generation is expected to decrease from 10% in 2000 to 5% by 2009.
NSCB's figures show that in terms of positive contribution to overall growth rate of production value, the dominant sectors for 2000 were: electrical machinery (43%); food manufactures (12.3%); and footwear wearing apparel (12.2%). Construction Unlike in the past where the growth of the industry was usually government-led, the private sector is now seen as a major mover. Private investors continue to show interest in infrastructure projects under the expanded BOT programs. At the same time, the government is also pursuing completion of several key infrastructure projects in line with its economic growth program. Transportation, communications and storage The aggregate transport, communications and storage sector grew by an average of 4.6% from 1999 to 2000. Communications activities rose by 18.8% due to the growing popularity of cellular phones. The enormous rise in the number of subscribers and increasing accessibility of Internet and cable services contributed much to the remarkable performance of communication services. Banking and finance The banking system consists of 45 head office of commercial banks (of which 13 are full branches and 6 are subsidiaries of foreign banks), 112 thrift banks and 1,912 rural and cooperative banks. The finance sector grew by 0.9% in 2000. However, the banking services which comprise 71% of financial services, contracted by 0.3%. On the other hand, the insurance subsector continued to post positive gain of 4.5% during the same period. Interest rates remain stable after suffering from the 1997 Asian financial crisis. Services, in general The export of consultancy services is one area where the Philippines is considered to have a competitive advantage. Specific areas are (a) information technology (IT); (b) computer software services (customized software consultancy, contract programming, training and documentation services, systems integration and data entry/data processing services); (c) consultancy engineering (infrastructure and industrial development projects in the following sectors: power, transportation, telecommunications, water supply, oil, gas, and petrochemicals, industrial estates and processing plants); and (d) contracting services. Significant opportunities were created for contractors by the government's policy on privatization and the enactment of the BOT law. Wage Rate The minimum wage of Filipino labor is equivalent to PhP250.00 per 8-hour workday in the National Capital Region (NCR). The wage rate outside NCR is slightly lower and is considered one of the most competitive in the region. Inflation and Foreign Exchange Rates The average inflation rate for 2000 was 4.3% and reached 6.3% in August 2001. Interest rates on treasury bills have been averaging 10.93% for all maturity periods in 2000. Reeling from the effect of the Asian currency crisis which began during the last quarter of 1997 and from the impact of global economic slowdown, the value of the peso for year 2000 was pushed down to a cumulative average of PhP44.2 to a US$. Foreign Trade The Philippines' major exports are manufactured goods like semi-conductor devices and garments, electrical machinery, minerals and metals, and agricultural products like coconut products and bananas. Its major imports are capital goods and intermediate goods like petroleum products and textile yarns. While the Philippines is a net importing country, exports remain a major stimulus of its economic growth. In addition to physical goods, the export of non-factor services has largely contributed to the expansion of exports over the years. Trade has been liberalized through, among others, the removal of quantitative restrictions, the simplification of the tariff table, and the removal of other trade barriers. The ASEAN Free Trade Area (AFTA), which has been implemented since January 1, 1993, will further reduce tariffs on intra-ASEAN trade to not more than 5% by year 2002. Moreover, Most Favored Nations (MFN) rates on most imported articles will fall under 0%, 3%, 5%, 7%, or 10% by year 2003. The present thrust of the government, though, is to reduce the duty rates on imported articles to a range of 0-5% by the year 2004. As a protective measure, however, sensitive agricultural products will remain to have high tariff rates within a certain period of time if imported outside of the quota or minimum access volume (MAV) scheme. Foreign investments Major foreign investors recognize the Philippines as an attractive investment site in the region. The government continues to dismantle investment restrictions to allow participation of foreign investors in a number of projects and industries. Domestic markets enterprises (DMEs) are required to have a paid-up capital of US$200,000. However, DMEs engaged in activities involving advanced technology or directly employing at least 50 employees can be allowed a minimum paid-up capital of US$100,000. Retailing has also been opened to foreign retail companies subject to certain conditions. Growth Centers The urban centers of Metro Manila, Metro Cebu and Davao City; and the government-owned and private special economic zones are magnets of economic activities. The Philippine Assistance Program is helping in the acceleration of regional development by sponsoring projects in Calabarzon (Cavite, Laguna, Batangas, Rizal and Quezon Provinces), Iloilo, Samar, the Iligan-Cagayan de Oro corridor and General Santos. The Calabarzon Project has resulted in the proliferation of privately owned industrial estates to address the needs of foreign investors. The withdrawal of the American Armed Forces from Philippine territory in 1992 made the Subic Naval Base in Olongapo City, the Clark Air Base in Angeles City, and other former US military bases with excellent infrastructure, available for economic, commercial and industrial development. For this purpose, the Bases Conversion Development Authority (BCDA) was created (under Republic Act No. 7227) and mandated to take over these installations and to develop and implement masterplans for these areas. Investors' interest in these areas has been tremendous and is perceived to be sustainable over the next 5 to 10 years. The main factors for increased investors' interest in these areas include fiscal incentives, full administration support for the development of these areas, strategic location and excellent infrastructure, particularly the presence of an excellent harbor (Subic) and international airports that meet international standards in both Subic and Clark. Recently, the government has taken significant strides in promoting the country as an attractive information technology (IT) destination. At present, there are at least three IT Parks and one IT Building which have been proclaimed as IT Ecozones by the President of the Philippines and are now registered with the Philippine Economic Zone Authority (PEZA), namely: Eastwood City Cyberpark, E-Square IT Zone, Northgate Cyber Zone, and RCBC Plaza IT Park. (Please refer to page 15 for the type of tax incentives accorded to PEZA registered enterprises). Hints for the business visitor Visitor's visa A valid passport and visa are required of visitors entering the Philippines. However, visitors with a return ticket who intend to stay for less than 21 days are generally allowed to enter under the 9(a) temporary business visa. This privilege is extended to nationals of countries with which the Philippines has diplomatic relations. Those who wish to stay longer than 21 days may apply for an extension, subject to payment of appropriate fees. It is recommended that details be obtained from the nearest Philippine embassy or consulate. Currency, exchange and banks The Philippine peso (PhP) is the unit of currency. It is divided into centavos. Currency denominations are: PhP1,000, PhP500, PhP100, PhP50, PhP20 and PhP10 for notes and PhP10, PhP5, PhP1 and PhP0.25 for coins. With the deregulation of foreign exchange transactions, moneychangers and authorized agent banks (AABs) are allowed to sell and purchase foreign exchange without prior approval of the BSP, save for a few exceptions. There is no restriction on the amount of foreign exchange that can be imported. Moreover, foreign currency may be freely bought and sold outside the banking system. However, the import/export of Philippine currency is limited to PhP10,000. Any amount exceeding this will require the authorization of the BSP. International time The Philippine time is eight hours ahead of Greenwich Mean Time (GMT) and thirteen hours ahead of U.S. Eastern Standard Time (EST). Business hours Government and private offices are generally open
from 8 a.m. to 5 p.m., Mondays to Fridays, with lunch break from
noon to 1 p.m. However, government agencies engaged in the delivery
of critical frontline services and public transactions are encouraged
to operate a six-day work week Statutory holidays Statutory holidays are January 1 (New Year's Day), April 9 (Araw ng Kagitingan), May 1 (Labor Day), June 12 (Independence Day), last Sunday of August (National Heroes' Day), November 1 (All Saints' Day), November 30 (Andres Bonifacio Day), December 25 (Christmas Day), December 30 (Rizal Day) and December 31 (last day of the year). Maundy Thursday and Good Friday are also regular holidays. Weights and measures The Philippines in on the metric system and uses the International System unit as the sole standard of weights and measures. Clothing For official meetings, business attire usually consists of a blouse and skirt or dress with a blazer for women, and a business suit and tie or "barong" (Filipino shirt) for men. Otherwise, it is acceptable to be in casual attire owing to the hot and humid weather. Hotel and travel As of July 2001, the total number of rooms in Department of Tourism accredited establishments available for tourist occupancy are about 18,700 in hotels, 3,200 in resorts, and 1,200 in inns all over the country. A number of these tourist facilities which are mostly located in the Makati and Manila areas are of international standards. Several mid-range hotels have been established in other business areas in Metro Manila. The addition of new hotel rooms is expected to meet the growing number of overseas visitors to the country. Communications Communication links within Metro Manila and key business areas are adequate. Apart from the hotel business centers which service the needs of foreign businessmen, private companies also offer similar services in all urban centers. Cellular phones and paging systems have substantially augmented existing landlines. The number of cellular mobile telephone service subscribers had increased by more than 400% since 1996 with around 6.5 million subscribers accounted for as of the end of 2000. |
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