Doing Business in the Philippines: 2013 Country Commercial Guide for U.S. Companies INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2010. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES. • Chapter 1: Doing Business in the Philippines • Chapter 2: Political and Economic Environment • Chapter 3: Selling U.S. Products and Services • Chapter 4: Leading Sectors for U.S. Export and Investment • Chapter 5: Trade Regulations, Customs and Standards • Chapter 6: Investment Climate • Chapter 7: Trade and Project Financing • Chapter 8: Business Travel • Chapter 9: Contacts, Market Research and Trade Events • Chapter 10: Guide to Our Services Return to table of contents Chapter 1: Doing Business In the Philippines • Market Overview • Market Challenges • Market Opportunities • Market Entry Strategy • Market Fact Sheet link Market Overview Return to top Key Economic Indicators and Trade Statistics • The Philippines was one of the strongest economic performers in the region last year, enjoying a 6.6 percent growth rate in 2012, second only to China. That growth continued into the first quarter of 2013, with a 7.8 percent year-on-year increase. The growth rate is projected to stay at about six percent or higher in 2013. • Government and consumer spending fueled the growth. On the production side, the service sector drove the acceleration, with the industrial sector (primarily construction and electricity/gas/water supply) also contributing to growth. Remittances by Overseas Foreign Workers (OFW) continue to be a major economic force in the country’s economy. GDP-per-capita has risen to about $2,600. • The national government’s fiscal deficit ended 2012 at 2.3 percent of GDP, below the programmed 2.6 percent-to-GDP ratio but up from two percent in 2011. After a slow start, the government accelerated spending during the last four to five months of 2012 and, although still short, moved closer to targeted full-year levels to make up for the significant under-spending in 2011 (attributed to deliberate efforts to review projects and put in stronger transparency and accountability measures). The lower-than-programmed disbursements mainly reflected shortfalls in infrastructure outlays. The tax-to-GDP ratio increased by 0.6 percent year-on-year to 12.9 percent but fell short of the government’s goal and continues to lag the ratio in most regional neighbors. • Average year-on-year consumer price inflation slowed from 4.8 percent in 2011 to 3.2 percent in 2012, at the lower end of the 3 -5 percent range targeted by the Philippine Central Bank. • The good economic news has been diminished by the fact that the unemployment rate has stayed above the seven-percent mark. • Nonetheless, the improvement in the overall indicators in the Philippines has been recognized by Fitch and S&P when both ratings agencies upgraded Philippines to “investment grade.” • U.S. exports have grown by about 40 percent since 2009. U.S. exports totaled just over $8 billion in 2012. The Philippines ranks as the 30th largest export destination for U.S. products. The annual U.S. trade deficit with the Philippines stands at about $1.5 billion. • For 2012, the United States, China, and Japan were the top exporters to the Philippines, accounting for 11.5, 10.8 and 10.4 percent of total Philippine merchandise imports, respectively. Other major import sources include Taiwan, the Republic of Korea, and Singapore. • The foreign exchange rate appreciated further and averaged 42.23 Philippine pesos (PhP) to the U.S. dollar during 2012, up 2.5 percent from the previous year. The peso closed 2012 at 41.05 to the U.S. dollar, up 6.4 percent from the end of 2011 (PhP43.84 per U.S. dollar). As of the time of this writing (June 2012), the peso had weakened to about 43 pesos per dollar, reflecting foreign portfolio capital withdrawals (see below). • Helped by low domestic interest rates and optimism over Philippine economic prospects, the Philippine Stock Exchange index (PSEi) hit 38 record-breaking levels during 2012 to close 33 percent higher year-on-year (Asia’s second-best performer). After rising further to historic highs until mid-May 2013, the PSEi has since lost most of its year-to-date gains as investors repositioned funds in U.S. assets on signs of improving macroeconomic prospects and expectations that U.S. monetary authorities would begin to pare monetary stimuli. Political Situation and Other Issues that Affect Trade • The political situation in the Philippines is considered to be stable. Philippine voters elected President Benigno S. Aquino III on May 10, 2010, by a wide margin, to a single six-year term, in the country's first nationwide automated elections. Mid-term elections were held under generally peaceful conditions, with Aquino’s slate of candidates winning nine of the 12 available seats in the Senate. Aquino is limited to one term, due to expire in 2016. • On October 7, 2012, the Philippine Government and the Moro Islamic Liberation Front announced a peace framework agreement. Talks are ongoing to reach a final agreement. • The Philippines is considering but has not yet signed on for the negotiations of the Trans-Pacific Partnership agreement. Market Challenges Return to top • Surveys by the World Bank and others have noted progress in improved economic governance and overall improvement in business conditions. The Philippines rose 10 spots in the latest World Economic Forum’s Global Competitiveness Index (65/145 in 2012). Nonetheless, the country’s rating remained largely the same in other indices such as the International Finance Corporation (IFC) Ease of Doing Business (138/185 in 2012 versus 136/183 in 2011). • Graft and Corruption: President Aquino’s ascent to power was due largely to his campaign promise to fight corruption and promote and be an example of transparency and good governance. The Government has made strides in fighting graft and corruption. Nonetheless, they remain major business constraints. Transparency International still ranks the Philippines in the lower half of its latest survey (105/179). • Ineffective Judicial System: A severe shortage of judges and prosecutors, corruption, and a weak record of prosecution plague the judicial process. Most cases have taken many years to reach a final conclusion. • Limited Ownership: The Philippines has restricted foreign ownership in several industry sectors, including communications, advertising, and education. With certain exceptions, bids for Government contracts must have 60 percent local participation. The Government also maintains a Negative List for the practice of certain professions. See Chapters 5 and 6 for more detailed information. • Regulatory System: Product registration, product standards, and environmental and labeling requirements place restrictions on certain products. See Chapter 5 for additional information. • Infrastructure: The high economic growth rate and the growing population have put a strain on the Philippines’ infrastructure, ranging from energy to roads, ports and airports. The country’s reserve margins in the energy sector will be low for the next few years. Capacity at Ninoy Aquino International Airport (NAIA), the primary international gateway, is beyond rated levels and is a significant impediment to development and tourism. There is a need for a transportation master plan to determine what modes of transportation will best address vehicle congestion in key parts of the country. The Aquino administration has launched its Public-Private Partnership (PPP) program to address the country’s most pressing infrastructure needs. Market Opportunities Return to top • Best prospects for U.S. companies in the Philippines are information and communication technology (ICT), medical, electric power (including renewables), and water resources, respectively. • ICT companies, in particular, may find opportunities in the growing Business Process Outsourcing (BPO) sector, which is growing at a rate of 15 percent a year. U.S. medical technology is widely used in private hospitals here. Energy production, conversation and efficiency are top priorities as the country is presently operating on a low reserve margins and at high rates, with many remote areas suffering blackouts. Companies in the water/wastewater management will also find opportunities in the Philippines. • Other promising sectors include franchising, defense and aviation, security, and infrastructure projects. • Many of these sectors are further intertwined in the current Philippine government’s Public-Private Partnership (PPP) program targeting those projects of priority to the government. The Government of the Philippines actively seeks foreign investment to promote economic development of these PPP projects (see Chapter 4). • The Philippines ranks in the top 10 markets in the world for U.S. food and beverages and continues to be a promising market for U.S. companies in this sector. Asian Development Bank • The Asian Development Bank, Asia’s premier multilateral development institution, is headquartered in Manila. U.S. firms are advised to explore the lucrative business opportunities that are derived from the $22 billion that the ADB awards it 45 developing member countries annually. The ADB has a goal of 50% private-sector participation in ADB-financed projects by 2020.” • Major sectors financed by ADB include energy, transport, water supply, education, agriculture and other development-related initiatives. ADB also lends directly to the private sector through its Private Sector Department. U.S. firms are competitive in bidding for ADB projects and have won nearly $9 billion in ADB contracts since 1966. Market Entry Strategy Return to top • Agents and distributors are commonly used in the Philippines and are essential for most U.S. companies (See Chapter 3.) • U.S. companies should be patient yet diligent in pursuing contracts, particularly with projects with the Philippines Government. • U.S. firms seeking agents or distributors in the Philippines are encouraged to use the services of the U.S. Commercial Service Philippines. For more information, visit http://export.gov/philippines/ and click "Services for U.S.