BUSINESSBUBUSINESSSINESS 53

Retail sector growth to remain steady The Philippine retail sector will remain robust over the next few years as growth intensifi es in the convenience store and online segments.

he retail sector remains an important part of the local economy, accounting for 13.3% of GDP in 2013 and 11.8% Tin 1Q2014. Retail sector growth was at 6.2% in 2013 and 5.7% in 1Q2014. Retail trade also accounted to 78% of the total trade in 2013. The growth in retail will continue to be supported by strong household consumption, which is one of the largest in the world (69% of GDP compared to the 63.5% global average in 2013). The rise in consumer spending in turn is attributed to remittances from Filipinos abroad, reaching a record high of $25.1 billion in 2013. This is also supported by the ’ stable economic condition, heightened spending of the younger population and rising incomes in the middle and upper classes. The current retail market is characterized by a shift from traditional units such as sari-sari stores to more organized forms like supermarkets and convenience stores. According to the Oxford Business Group report on Philippine retail trade, there are 700,000 sari-sari stores nationwide comprising 60% of the retail market Supermarket and hypermarket chains are also expanding and catering mostly to the low-income class. Sari-sari stores rapidly especially to less-served rural areas. SM Group, through are expected to remain buoyant as they provide for their niche its SM Food and Retail Group, will be putting up at least 20 market – small, local communities, but they will be facing stiffer Savemore and Hypermarket stores outside to add competition from convenience stores as these expand to more and to its portfolio of 193 food stores and 48 department stores. SM more towns. Research-fi rm Kantar said that convenience stores Retail is also planning to venture in the convenience store sector are growing 4 to 5 times faster than traditional ones. Moreover, through a foreign brand. Meanwhile, SM’s main competitor expansion plans of players indicate that about 4,000 to 5,000 Puregold will be constructing 25 new stores in 2014 to add convenience stores will be opening in the next 5 years (see table). to its 218 stores. Robinsons Retail, the third largest retailer, is

targeting Visayas and Mindanao for 300 new stores this year.

The growth in retail will continue to be supported by strong household consumption.

Philippine ANALYST July 2014 54 BUSINESS

Supermarket and hypermarket chains are expanding rapidly especially to less- served rural areas.

EXPANSION PLANS IN THE CONVENIENCE STORE SEGMENT

Lawson Inc. - Puregold 2,000 in the long-term

FamilyMart Co. Ltd. 700 in 5 years

7-Eleven 950 in 3-4 years

Robinsons Retail Holdings Inc. (Ministop) 330 in 2014 Source: Various press releases.

INVESTMENT CLAUSES IN THE 2000 RETAIL TRADE LIBERALIZATION ACT

Foreign companies (excluding retailers of luxury items) are allowed to invest in the Philippine retail business under the following terms:  A minimum net worth of $200 million;  Operate through a Philippine subsidiary with at least $2.5 million of paid-up capital;  Have been in business for at least 5 years;  Operate at least 5 stores globally, or at least 1 store with capital of at least $25 million;  Invest at least $830,000 in each store in the Philippines, and; If foreign ownership exceeds 80%, divest at least 30% of the Philippine subsidiary’s equity within 8 years of starting operations through a public offer on a local stock exchange.

Source: The Oxford Business Group Philippine Report 2014 and R.A. 8762, also known as “An Act Liberalizing the Retail Trade Business”. According to the Oxford Business Group, leading retail chains take away a large share of the market from small independent U.S. power fi rm to invest $2 Bn for expansion, retailers through actively acquiring smaller retail chains and storage facilities luring away sari-sari stores from other distributors. However, the reduction in smaller vendors (sari-sari stores) may mean AES Philippines Power Partners, an American power fi rm, the loss of a strong customer base for giant retailers as these will invest up to $2 billion in the Philippines to support the stores purchase their goods from supermarkets. Some areas country’s development and help stabilize power supply in where retailers could fi nd alternative growth include planned the central provinces. This is allotted for the expansion of communities where consumer-oriented youth and business its power plant in northwestern Philippines and to create process outsourcing (BPO) companies thrive as well as online power storage facilities in central Visayas. retailing. Online retailing has a niche market for gadgets such as smartphones, tablets and laptop computers. But this will inevitably AES president and chief executive offi cer Andres Gluski said expand as the worldwide trend to online buying expands. the company will spend $1.2 billion to double the current capacity The local retail sector is also expected to be more of its 600-megawatt coal-fi red power plant in Masinloc, Zambales. competitive as more foreign brands enter the market as a result The expansion of the Masinloc has already been granted its of the incoming ASEAN integration. Local players could take environmental permits, and is now undergoing consultation with advantage of franchising or partnering with foreign brands local and international banks to fi nance the project. The power using their familiarity with the market and the consumers to plant is targeted for commissioning in the 3rd quarter of 2017. their advantage. Heightened competition should also develop Aside from the expansion of its Masinloc plant, AES also plans the productivity, creativity and innovation of retail players, to install a Battery Energy Storage facility in central Visayas, where thus posting developments in brands, concepts and retail trends. there is a shortage in energy supply. This requires an investment of However, foreign investments in the retail sector remain $300 million to $500 million and is expected to support renewable limited, even with the passing of the 2000 Retail Trade energy projects in the Philippines. Data from the Department of Liberalization Act. According to the Oxford Business Group, Energy (DOE) show that this 40-megawatt (MW) battery storage the law allows big foreign retailers to operate in the country project in Negros is one of the indicative power projects for the but sets minimum limits that restrict those that can invest Visayas grid and is expected to come online by March 2015. (see list). Since the passing of the law, only around 15 foreign The energy storage facilities will be installed via lithium ion fi rms had invested in the country’s retail sector. Investments batteries, which, according to Mr. Gluski, “…work particularly are also limited by a slew of constitutional restrictions, well on islands, so we think they are very well adapted to the including the ban on ownership of land by foreigners Philippines.” The project can be completed within 12 to 18 months. and companies with greater than 40% foreign ownership.

Foreign investments in the retail sector remain limited.

Philippine ANALYST July 2014 BUSINESS 55

A power capacity of at least 2,500 MW is needed by 2017 to sustain the annual economic growth forecast of over 6%.

Immediate action is needed to address the growing needs PROJECTED POWER RESERVE IN THE PHILIPPINES, 2014-2020 of the Philippine power industry. AES’ investment is especially 30 welcome, particularly at a time when President Aquino is seeking 25 investments in the country to help resolve the current problems 20 in power supply. More investments like this are necessary 15 to sustain the growth in the country’s GDP, and to allow this 10 growth to translate into more opportunities for the Philippines. 5

0 2014 2015 2016 2017 2018 2019 2020 Local cigarette fi rm under BIR probe -5 -10 The Bureau of Internal Revenue (BIR) is auditing the tax -15 payments of local cigarette company Mighty Corp. This was LUZON VISAYAS MINDANAO among a series of government investigations Mighty Corp. Source: Department of Energy has been facing.

PROJECTED POWER RESERVE IN THE PHILIPPINES, WITHOUT The probe came amid allegations that the locally-owned COMMITTED PROJECTS, 2014-2020 tobacco company has been declaring lower production volume 20 and has been involved in illicit trade, which could have resulted 10 in foregone revenues for the government’s excise taxation efforts. 0 An earlier study from the International Tax and Investment Center -10 (ITIC) and Oxford Economics (OE) released by the Wallace -20 Business Forum, estimated that illicit consumption of cigarettes -30 in the country increased from 5.9% of total consumption in -40 2012 to 18.1% in 2013. A bulk of this was in the lower-priced -50 LUZON VISAYAS MINDANAO cigarette segment where Mighty Corp. has gained a controlling -60 consumer share since the implementation of the new tax regime. -70 2014 2015 2016 2017 2018 2019 2020 BIR Commissioner Kim Henares said that a bureau personnel has been already assigned to monitor Mighty’s manufacturing

Source: Department of Energy facilities. Results of the BIR investigation are kept confi dential, as mandated by the Tax Code which said any unlawful disclosure is subject to criminal liability. Comm. Henares also refused to tell when the investigation will be concluded. In the Philippine Energy Development Plan, the country This was not the fi rst government investigation Mighty needs to add power capacity of at least 2,500 MW by 2017 Corp. has been subjected to, as it was also under a Bureau of to sustain the annual economic growth forecast of over 6%. Customs’ reassessment of duties and taxes of entries earlier Electricity consumption in the Philippines increased by 50% this year. The BOC demanded Mighty pay P852.9 million for from 2002 to 2012, which is more than the 16% growth rate the importation of raw materials used for cigarette production of the country’s generating capacity over the same period. where taxes hadn’t been properly paid. Mighty settled in U.S. Secretary of Commerce Penny Pritzker, who was in February 2014. According to the BOC report, Mighty’s the Philippines as part of her 3-country tour to deepen the reported imported raw materials did not match the volume of U.S.’ economic ties and trade in Southeast Asia, said that the fi nished goods exported. The Department of Finance said P4.4 Philippines’ power needs have to match the growth that is billion in excise taxes could have been foregone due to this occurring. Last year, the country recorded a gross domestic operation. The BOC also ordered the shutdown of Mighty’s product (GDP) of 7.2%, which creates “need and opportunity.” customs bonded warehouse which stops the tobacco fi rm from Data from DOE show that the Philippine power outlook channeling duty-free export cigarettes into the domestic market. is critical, with a projected reserve for 2015 of only 11% Mighty Corp. had already been accused of tax evasion and for the Luzon grid, 21% for the Visayas grid, and 21% smuggling that could have allowed them to sell cheaper tobacco for the Mindanao grid assuming that committed power products in the local market. The fi rm has been selling Mighty projects would push through on time (see chart). Without brands at P14.70 per pack, a far cry from the breakeven price the committed projects, reserve for 2015 will be -0.03% in including the cost of materials, VAT and excise tax levied for Luzon, 9% in Visayas, and -5% in Mindanao (see chart). cigarettes. The latter 2 amounted to P13.58, leaving only P1.12 for production, sale and profi t. The issue was fi rst raised in a column

Philippine ANALYST July 2014 56 BUSINESS

Selling at a loss is unsustainable in the long term.

A shift to underpriced products will eventually impair the health and revenue goals of the sin tax law.

by Mr. Peter Wallace where he pointed out the impossibility of administration. Data from the Social Weather Stations’ (SWS) manufacturing for only P1.12 and the huge discrepancy between “National Survey on Usage, Attitudes, and Behavior of Filipinos Mighty’s buying price of new materials versus that of other Towards Tobacco” show that smoking prevalence among those manufacturers. Comm. Henares said that there’s no law prohibiting aged 18 to 24 years old dropped by 17 percentage points to 18% companies to sell at a loss but noted that the move is unsustainable in the 1st quarter of 2014, while smoking prevalence among those in the long-term, so questionable. Since January 2013, the time in class E dropped 13 percentage points to 25%. Dr. Antonio of the passage of the sin tax law, Mighty’s share in the cigarette Dans, president of the Philippine Society of General Internal market has increased remarkably to 20% from the previous 3%. Medicine (PSGIM), added that the Sin Tax Law resulted in 2.3 Advocacy fi rm Action for Economic Reforms (AER) million less smokers and averted approximately 32,000 deaths. said that the practice of artifi cially-depressing the price of The implementation of the Sin Tax Law also led to higher cigarettes could also force other tobacco manufacturers to excise tax collections, which had been relatively fl at over the follow suit as a means to protect their consumer base. This past 16 years. Data from the Bureau of Internal Revenue and the has led to a consumption shift from higher-priced to lower- Department of Finance show that collections increased by 82% priced cigarettes. The AER said that the increasing demand on from P56.8 billion in 2012 to P103.4 billion in 2013, well above fi rms to shift to underpriced products will eventually impair the P85.8 billion target for that year. As a result, the Department of the health and revenue goals of the sin tax law if continued. Health received a 57% increase in the 2014 national budget from Mighty recently launched its premium brands King and Chelsea, P53.2 billion in 2013 to P83.7 billion this year, most of which which will be categorized in the highest tax bracket for cigarettes. went to the PhilHealth insurance coverage of the poorest families. Mighty said that the expansion of their product lines aims to fi rm However, downshifting and illicit trade challenge the up its position as the country’s 2nd-biggest tobacco manufacturer current system. Price differences effectively caused people after Philip Morris – Fortune Tobacco Corp. Inc. (PMFTC). to shift to lower-priced cigarettes, which are currently taxed less because of the existing multi-tiered system. A unitary Sin Tax Law shows positive effects but limited tax rate won’t be applied until 2017, thus still limiting the effect of the Sin Tax Law. The prevalence of illicit cigarette by illicit trade and downshifting consumption – which rose by 198% from 6.4 billion in 2012 to 19.1 billion in 2013 – also restrains the government’s efforts A year-and-a-half since its implementation, the Sin Tax Law to fully implement tax reforms. The government reportedly has been successful in reducing smoking prevalence and lost P15.6 billion in 2013 because of this. Aside from this, increasing the funds for health care. However, downshifting companies such as Mighty Corporation and British American and illicit trade have reduced the potential gain for the BIR. Tobacco (maker of Lucy Strike and Pall Mall) sell underpriced cigarettes as a way to increase their market share. This causes a Republic Act 10351 or the Sin Tax Law was signed decline in the market share of bigger companies such as Philip into law by President Aquino on December 20, 2012. The Morris Fortune Tobacco Corp., Inc. (PMFTC), who reported bill had been pending in Congress for nearly 2 decades. a notable decrease from 97% in 2012 to below 80% in 2013. The law’s ratifi cation had 4 objectives: (1) reduce tobacco To address these problems in the system, BIR Commissioner and alcohol consumption, (2) generate additional revenue Kim Henares suggested adopting a minimum fl oor price on to fund the universal healthcare program and alternative cigarette products to prohibit tobacco manufacturers from livelihood programs for tobacco farmers, (3) improve fi scal selling at a loss. Ms. Henares called on Congress to help health and macroeconomic stability, and (4) simplify the make this happen, saying: “The BIR has no power to stop administration of excise taxes on tobacco and alcohol products. any business enterprise to sell at a loss if this is part of their The effects of the law were discussed by members of the public marketing strategies. There should be a law that will be and private sector at the “Katas ng Sin Tax: Realizing the Law’s prohibiting companies like cigarette fi rms to sell at a loss.” Gains for the Filipino People” forum on June 23. A year and a half after its implementation, the Sin Tax Law had signifi cant effects in terms of revenues, tobacco and alcohol consumption, and tax

The Sin Tax Law resulted in 2.3 million less smokers and averted approximately 32,000 deaths.

Philippine ANALYST July 2014 BUSINESS 57

Tax collections increased by 82% in 2013, while the DOH received a 54% increase in its budget.

While the Sin Tax Law displayed positive results in terms of For the 1st 4 months of the year, the total subsidy disbursed its health and revenue targets, there are still issues that need to be reached P1.48 billion, higher than P1.37 billion in the same period last addressed by the government so that effi ciency of the system would year. The government is aiming at reducing its subsidies to GOCCs increase. The lost revenues last year could have been utilized for this year by 35% to P42.86 billion from P66.33 billion last year. more health programs, thus allowing the law’s gains to benefi t Meanwhile, GOCCs have remitted a total of P95.38 more people. Also, as the sin tax is an example of earmarking taxes billion in dividends to the national government for the last raised from cigarettes, wines, alcohol, and spirits, there is a need 3 ½ years of President Benigno Aquino’s administration. for civil society to closely monitor the use of these funds to ensure During Gloria Arroyo’s administration, P81.54 billion was that they are used only for purposes that the law intended, which remitted to the government or an average annual GOCC is for healthcare (85%) and support to tobacco farmers (15%). turnover of P9.06 billion compared to P27.25 billion average annual turnover under the Aquino administration. The increase in GOCCs’ remittances was attributed to Subsidies to state fi rms drop 76% in April the reforms implemented by the current administration, particularly the enactment of GOCC Governance Act of 2011. The national government has released a total of P253 million in subsidies to government-owned and-controlled GOVERNMENT SUBSIDIES TO STATE-LED FIRMS corporations (GOCCs) and fi nancial institutions in April. SUBSIDY AGENCY The amount is 76% lower than the P1.06 billion released APRIL 2014 (IN MN PESOS) in the same month last year. The drop was due to GOCCs’ Philippine Rice Research Institute 137 stable cash position during the month. Cultural Center of the Philippines 68 Data from the Bureau of Treasury showed that the Philippine Development Academy of the Philippines 18 Rice Research Institute was the largest recipient in April with Philippine National Railway 18 P137 million. Other recipients that received large subsidies Philippine Institute of Traditional Health Care 12 for the period were the Cultural Center of the Philippines (P68 Source: Bureau of Treasury. million), Development Academy of the Philippines (P18 million), Philippine National Railway (P18 million), and Philippine Institute of Traditional Health Care (12 million). (see table)

NATIONAL GOVERNMENT SUBSIDY TOTAL SUBSIDY TOTAL SUBSIDY TOTAL SUBSIDY TOTAL SUBSIDY TOTAL SUBSIDY 2013 (IN BN PESOS) 2012 (IN BN PESOS) 2011 (IN BN PESOS) 2010 (IN BN PESOS) 2009 (IN BN PESOS) GOCCs 66.33 42.64 53.71 21.01 17.44

Source: Bureau of Treasury.

NATIONAL GOVERNMENT SUBSIDY 70 66.33

60 53.71 50 42.64 40

30 21.01 20 17.44

10

0 2009 2010 2011 2012 2013

The increase in GOCCs remittance was attributed to the reforms approved under Aquino’s administration.

Philippine ANALYST July 2014 58 BUSINESS

PEZA APPROVED PROJECTS 1Q 2014

EQUITY INDUSTRY ACTIVITY ZONE LOCAL/FOREIGN APPAREL AND TEXTILE MANUFACTURES Manufacture of diving suit, wind surfi ng suit, sports apparels, 99.95% - Hong F & Q NEOPRENE PRODUCTS CO., INC. casual bags, bullet proof vests, and other products made of Mactan Economic Zone Kong neoprene JIO MHW GLOBAL CHANNEL MANUFACTURING Manufacture of wearing apparel, such as bunny suit, cotton tops People's Technology 100% - Korean CORP. and blouses Complex - SEZ Manufacture/Production of apparel or clothing, fashion 99.99% - MARUKAME FASHION CEBU INC. accessories, footwear, bags, tents, seat covers and other related Mactan Economic Zone Japanese products Cebu Light Industrial VERTEX ONE APPAREL PHILS., INC. Manufacture of garments and wearing apparel 99.98% - Samoan Park - SEZ AUTOMOTIVE TRADE Laguna International DAIWA SEIKO PHILIPPINES, CORPORATION Manufacture motor vehicle transmission parts Industrial Park - SEZ Laguna Technopark METALCREST TECHNOLOGIES, INC. Manufacture of Automotive Parts - SEZ MITSUBISHI MOTORS PHILIPPINES Manufacture/assembly and distribution of motor vehicles and spare Greenfi eld Automotive 100% - Japanese CORPORATION parts Park - SEZ

Manufacture and assembly of electric vehicles, rechargeable 99.99% - Golden Mile Business PANGEA PHILIPPINES, INC. batteries and their components American Park - SEZ

Additional sewing line for production of new model (J36A) of Greenfi eld Automotive TOYO SEAT PHILIPPINES CORPORATION automotive seats Park - SEZ

ELECTRICITY, WATER, AND GAS

MAJESTICS ENERGY CORPORATION 40 -MW Solar Energy Facility projects 100% - Filipino Cavite Economic Zone

ELECTRONICS

Surface Mount Technology (SMT) for the Production of Printed Laguna Technopark ALLIANCE MANSOLS INC. Circuit Board (PCB) - SEZ

COOPER INDUSTRIES PHILIPPINES, LLC, Manufacture of Power Quality Equipment including Uninterruptible First Philippine PHILIPPINE BRANCH Power Supplies, Inverters, and Power Distribution Units Industrial Park - SEZ

FORTIFY TECHNOLOGIES ASIA, INC. Manufacture of health and fi tness tracking devices, appliances, 99.98% - Mactan Economic Zone (Formerly: Streamlines Asia, Inc.) gadgets and kits and all related operations American Light Industry & Science HYSONIC PHILIPPINES, INC. Manufacture of actuator (Smart-Toy) Park III - SEZ 99.99% - Lima Technology Center KINPO ELECTRONICS (PHILIPPINES), INC. Manufacture of Graphing Calculators Taiwanese - SEZ LAGUNA AUTO-PARTS MANUFACTURING Laguna Technopark Frame Stator Assy (F/S Assy) CORPORATION - SEZ

LAGUNA AUTO-PARTS MANUFACTURING Laguna Technopark Connector Assy CORPORATION - SEZ Laguna Technopark METALCREST TECHNOLOGIES, INC. Manufacture of round meter socket - SEZ Assembly of electronic parts such as those for car remote engine Light Industry & Science MIKUNI ELECTRONICS CORP. starter, car black box recorder, and car security system Park III - SEZ

MOLEX INTEGRATED PRODUCTS PHILIPPINES, Manufacture of Temp-Flex and industrial products TECO Industrial Park INC. Laguna Technopark NIKKOSHI ELECTRONICS PHILIPPINES, INC. Manufacture of Remote Reset Switch Assembly (RRSA) - SEZ Golden Mile Business ON SEMICONDUCTOR PHILIPPINES, INC. Plant 2 Probe Expansion - Custom Automotive Die Sales Park - SEZ PANASONIC PRECISION DEVICES PHILIPPINES Laguna Technopark Manufacture of 3D Sensor Unit CORPORATION - SEZ

SMART ELECTRONICS MANUFACTURING Calamba Premiere Production of HME Deck for Health and Medical Equipment (HME) SERVICE PHILIPPINES, INC. International Park - SEZ

SMART ELECTRONICS MANUFACTURING Assembly of semi-fi nished products, particularly, PCB main, Assy Calamba Premiere SERVICE PHILIPPINES, INC. PCB, and AssyDeck for export International Park - SEZ

Light Industry & Science SMT PHILIPPINES, INC. Manufacture of USB Flash Drive Park II - SEZ

Philippine ANALYST July 2014 BUSINESS 59

Laguna Technopark TDK PHILIPPINES CORPORATION Manufacture of MR Heads with Dynamic Flying Height (DFH) - SEZ Authority to lease a 1,634 sq.m. area and a 1,142.77 sq.m. open Lima Technology Center TSUKIDEN ELECTRONICS PHILIPPINES, INC. space from EZP Development, Inc. - SEZ

ZAMA PRECISION INDUSTRY MANUFACTURING First Philippine Manufacture of Diaphragm Carburetors 100% - German PHILIPPINES, INC. Industrial Park II - SEZ

SUMI PHILIPPINES WIRING SYSTEMS Hermosa Ecozone Production of wire or wire cable CORPORATION Industrial Park

Manufacture of various sizes and types of Low Voltage Differential Light Industry & Science YOUNG SHIN STARLINK PHILS., INC. Signal (LVDS) Cable Wire Park III - SEZ

HOTEL, RESTAURANT, AND LEISURE SERVICES Establishment of an Amanpulo Villa consisting of four (4) hotel Pamalican Island SOUTH BY SOUTHWEST CORPORATION rooms - villas or casitas, living room pavilion, service building, and 100% - Filipino Tourism Ecozone swimming pool IT AND IT-ENABLED SERVICES

FURUKAWA AUTOMOTIVE SYSTEMS LIMA Engage in the business of design and development of criteria for 99.99% - Lima Technology Center PHILIPPINES INC.. wire harness and parts using computer aided design (CAD) Japanese - SEZ

GEOS ONLINE ENGLISH PHILIPPINES INC. Provide online English tutorial 99.6% - Japanese CBP-IT Park

Engage in the business of providing and particulars into such TECHNICAL PRECAST DETAILING SERVICES, outlines, sketches, plans, designs, and drawings for the production 66% - Filipino BTTC Center INC. and erection of precast pre-stressed concrete building components 34% - American and structures for manufacturing and erection of structure abroad

ERBAS ASIA, INC. (Branch Offi ce in the information technology enabled technical design services 100% - Australian UnionBank Plaza Philippines of Erbas & Associates Pty. Ltd.)

MACHINERY AND EQUIPMENT

Manufacture of plastic injection moulds, customized tooling, jigs Sta. Maria Industrial RAMCAR TECHNOLOGY, INC. 100% - Filipino and fi xtures, and fabrication of industrial equipments Park

METAL INDUSTRIES

Industrial powder coating services for metal and other related 75% - Filipino Calamba Premiere FCXTRA CORPORATION parts 25% - Japanese International Park - SEZ

Screen stencil and laser plate making, cleaning and ink matching JAPAN SP SOLUTION, INC. Cavite Economic Zone and mixing, silicon and silk screen pad printing Manufacture of metal pressed parts and resin mold parts, 99.99% - First Philippine KASAI ADVANCED MFG. PHILIPPINES INC. processing parts coating, harness processing, assembly and Japanese Industrial Park - SEZ manufacturing of metal mold 99.99% - First Philippine KATAYAMA MACHINERY PHILIPPINES INC. Manufacture of precision parts and machinery products Japanese Industrial Park - SEZ KONGNGAI METAL TOOLING & STAMPING Lima Technology Center Manufacture of stamping die, metal part and prototype product 100% - Chinese PHILIPPINES CORP. - SEZ

O.M. MANUFACTURING PHILIPPINES, INC. Electrolyzed refi ning of metal Cavite Economic Zone

Production of precision injection mold, injection molding, painting, Laguna Technopark RONG BO YU (MANILA) CO. LTD. 100% - Chinese printing and other assembly works - SEZ Light Industry & Science S & G PRECISION, INC. Fabrication of jigs and fi xtures, hot runner parts and accessories Park III - SEZ Fabrication, installation and maintenance of industrial and offi ce Golden Mile Business URE-SHII TECHNOLOGIES INC.. 100% - Filipino equipment including its parts and components Park - SEZ

VALOR MANUFACTURING CORPORATION Manufacture of fabricated metal 100% - Filipino Victoria Wave - SEZ

MISCELLANEOUS MANUFACTURES AGC INDUSTRIAL FLAT GLASS PHILIPPINES, 99.99% - Manufacture of industrial solar glass Asahi - SEZ INC. Japanese BRIDGESTONE PRECISION MOLDINGS LFD (Lexmark Foam Development) for Laser Printer Cavite Economic Zone PHILIPPINES, INC. First Philippine BROTHER INDUSTRIES (PHILIPPINES), INC. Manufacture of BH11 Inkjet Cartridge Industrial Park - SEZ First Cavite Industrial JL IMEX PHIL. CORP. Manufacture of ladies’ bags, wallets and leather handbags 100% - Korean Estate - SEZ PANASONIC PRECISION DEVICES PHILIPPINES Laguna Technopark Manufacture of Dichroic Prism Unit CORPORATION - SEZ

Philippine ANALYST July 2014 60 BUSINESS

Manufacture of Zirconium Blocks, Crowns, Bridges, Partials, 87% - American Light Industry & Science ZIR-CON LABS INC. Orthodontics and other Appliances for Restorative Dentistry; Dental 13% - Filipino Park I - SEZ Alloys, Materials and Supplies; Dental Technology Research Training

OFFSHORING AND OUTSOURCING

ACCENTURE, INC. Software development Gateway Tower

Information Technology outsourcing and business process ACS OF THE PHILIPPINES, INC. Aseana One outsourcing (BPO) services

Information Technology outsourcing and business process ACS OF THE PHILIPPINES, INC. Cebu I.T. Park outsourcing (BPO) services (data encoding and indexing)

ADVANCED WORLD SOLUTIONS, INC. Verifi cation of functionality for automobile software

Software development and application, including programming and 90% - American AELOGICA (PHILIPPINES) INC. Ecotower adaptation of system software and middleware 10% - Filipino

ANDERSON BUSINESS PARTNERS - PHILIPPINE Call center operations and business process outsourcing (BPO) 100% - English Ecotower BRANCH activities and services 99.5% - CASH FLOW OUTSOURCING SERVICES INC. Business Process Outsourcing offering Voice and Non-Voice services I.T. Bldg. American CONVERGYS PHILIPPINES SERVICES Call Center Operations Two Sanparq CORPORATION

Business Processing Outsourcing (BPO) using E-commerce E-WAY BUSINESS INC. 100% - Filipino DPC Place Building technology and telemarketing services

EXLSERVICE PHILIPPINES, INC. Business process outsourcing (BPO) services Northgate Cyberzone

EXLSERVICE PHILIPPINES, INC. Business process outsourcing (BPO) services Cebu I.T. Park SM Lanang Premier IT IBEX GLOBAL SOLUTIONS (PHILIPPINES) INC. Call center and business process outsourcing services Center Eastwood City IBM BUSINESS SERVICES, INC. Business Transformation Outsourcing services Cyberpark IBM BUSINESS SERVICES, INC. Business Transformation Outsourcing services Lakeside Evozone

IBM DAKSH BUSINESS PROCESS SERVICES UP Science and Business Process Outsourcing and call center operations PHILIPPINES INCORPORATED Technology Park (North)

IBM DAKSH BUSINESS PROCESS SERVICES Naga City Technology Business Process Outsourcing and call center operations PHILIPPINES INCORPORATED Park

Reconciliation Processing (Custody Fee Reconciliation, Brokerage Fee Reconciliation, Payment Reconciliation, Cash Receivables ING GLOBAL SERVICES AND OPERATIONS, INC. Reconciliation, Finance Reconciliation, Market Risk Reconciliation, W Fifth Avenue Credit Risk Reconciliation); and inclusion of Market data services processing

KIZUNA FEELS KNOT INC. Business process outsourcing for web graphic design 100% - Japanese KRC IT Zone Eastwood City MICROSOURCING PHILIPPINES INC. General Business Process Outsourcing (BPO) Services Cyberpark MULTIRATIONAL CORPORATION Contract IT development services, business process outsourcing and PBCom Tower outsourced call center services

ORCHID CYBERTECH SERVICES, INCORPORATED Call center operations Cyberscape Beta

QBE GROUP SHARED SERVICES LIMITED - IT-enabled Business Process Outsourcing (BPO) operations CBP-IT Park PHILIPPINES BRANCH 48% - New Preparation of drawings, detailing components of engineering Zealander One REVISION ZERO CONSULTING CO. structures thru computer aided design software 48% - Australian Condominium 5% - Filipino

SALVO TRAININGS & CONFERENCES 100% - (Branch offi ce in the Philippines of Salvo Telemarketing by calling existing and potential clients E-Square I.T. Park Singaporean Global Pte. Ltd.)

99.99% - Pacifi c Information SPi HEALTHCARE, INC. Business Process Outsourcing services American Technology Center TELETECH CUSTOMER CARE MANAGEMENT - Business Process Outsourcing/Call Center Operations Cebu I.T. Park PHILIPPINE BRANCH

TELETECH CUSTOMER CARE MANAGEMENT - Business Process Outsourcing/Call Center Operations Cebu I.T. Park PHILIPPINE BRANCH

TERADATA GCC (PHILIPPINES), INC. Software development and consulting center Ecotower

Philippine ANALYST July 2014 BUSINESS 61

TRANSCOSMOS ASIA PHILIPPINES, INC. BPO and IT-enabled services 99.8% - Japanese One Corporate Centre

Business of providing electronic payment processing solutions and V MONEY INC. 100% - Filipino Ecotower electronic commerce

VALTES ADVANCED TECHNOLOGY INC. Software development and care support 99.8% - Japanese Trafalgar Plaza The Annex-SM City VXI GLOBAL HOLDINGS B.V. (PHILIPPINES) Business Process Outsourcing/Call Center Services Davao IT Center VXI GLOBAL HOLDINGS B.V. (PHILIPPINES) Call Center Operations Waltermart-North EDSA Burgundy Corporate WAKUTO PHILIPPINES INC. Software development 99.8% - Japanese Tower OTHER BUSINESS SERVICES

Assembly and test of component parts for semiconductor test Carmelray Industrial DELTA DESIGN PHILIPPINES LLC handling equipment Park II - SEZ

HIBU (PHILIPPINES) PRIVATE LIMITED, INC. Provision for production advertisement services Ecotower

PUBLISHING AND PRINTING Calamba Premiere TMA GROUP PHILIPPINES INC. Printing activity International Park - SEZ REAL ESTATE AND PROPERTY DEVELOPMENT

AYALA LIFE-FGU CENTER - CEBU CONDOMINIUM Operate, maintain and manage a 14-storey offi ce building to be 100% - Filipino CBP-IT Park CORPORATION known as Ayala Life-FGU Center Cebu 70% - Filipino Operate and manage its existing 7-storey building (with 2-level 22% - GLOBE TELECOM, INC. Cebu I.T. Park basement) IT enterprises to be known as Globe Telecom I.T. Plaza Singaporean 8% - Mixed KYOCERA CIRCUIT SOLUTIONS PHILIPPINES, Authority to lease out a 4,630 sq.m. of its existing 13,000 sq.m. Light Industry & Science INC. factory to NEC Tokin Electronics (Philippines) Inc. Park II - SEZ

Authority to lease out a 755.86-sq.m. fl oor area of its existing Laguna Technopark NIKKOSHI ELECTRONICS PHILIPPINES, INC. building to Nikkoshi Philippines Corporation - SEZ

PROPHILE SOUND INDUSTRIES, INC. Authority to lease out a 551.50-sq.m. building space to Nakayama Cavite Economic Zone Seimitsu Mfg. Inc.

Authority to lease out 455-sq.m. portion of its building to Showa TOA KIKO CEBU CORPORATION Mactan Economic Zone Create Cebu Inc.

STORAGE AND WAREHOUSING

Warehousing and supply chain/logistics facilities and services for Baguio City Economic ALIGN AEROSPACE LLC - PHILIPPINE BRANCH 100% - American the storage, deposit, & safekeeping of goods Zone

CBT REALTY & DEVELOPMENT CORPORATION Registration of its additional warehouse facilities Allegis I.T. Park

CQM MANAGEMENT, INC. Existing fi ve (5) units warehouse/factory buildings 100% - Filipino Cavite Economic Zone

HANKYU HANSHIN LOGISTICS PHILIPPINES INC. Additional warehouse site Mactan Economic Zone First Philippine HONDA LOGISTICS PHILIPPINES INC.. Manage and store PVC rolls and accessories 100% - Japanese Industrial Park - SEZ 99.99% - First Philippine HTH SUNBO LOGISTICS (PHILIPPINES), INC. Warehousing and logistics services Singaporean Industrial Park - SEZ Laguna Technopark ITHACA INC. Construction of 3-units warehouse facilities - SEZ Light Industry & Science ITHACA INC. Construction of 3-units warehouse facilities Park III - SEZ Laguna Technopark ITHACA INC. Additional two (2) warehouse-type buildings - SEZ Hermosa Ecozone IWS REALTY CORPORATION Additional 2-unit warehouse facilities Industrial Park JIO MHW GLOBAL CHANNEL MANUFACTURING Engage in resale of goods, packing, repacking, cutting or altering People's Technology 100% - Korean CORP. according to customer’s specifi cations, and assembling Complex - SEZ Light Industry & Science ROBELCHU CORPORATION Construct a warehouse building 100% - Filipino Park II - SEZ

Warehousing/logistics support services particularly the importation/procurement, storage, deposit, inventory management 99.97% - SAKAMOTO PHILIPPINES CORPORATION Mactan Economic Zone of various machine tools, hand tools, manufacturing consumables, Japanese and industrial equipment

Additional area of operations to be undertaken in the 1,225 sq.m. SLTI LOGISTICS SERVICE, INC. area of storage/warehouse facility located in Toyota Autoparts Toyota Sta. Rosa - SEZ Philippines, Inc. (TAPI)

Philippine ANALYST July 2014 62 BUSINESS

LIST OF BOI REGISTERED PROJECTS JUNE 2014

PROJECT COST EQUITY INDUSTRY ACTIVITY (IN PHP MILLION) LOCAL/FOREIGN AGRICULTURE, FISHERY, AND FORESTRY

97% Filipino Sin Likas Import-Export Packaging, Inc. Producer of Vegetable & Fruit Juices 13 3% American

Treelife Coco Sugar Producer of Coco Sugar 18 100% Filipino Ada Manufacturing Corporation Operator/Provider of Rice Harvesting Services 1,840 100% Filipino Sea Cage Industries, Inc. Producer of Milkfi sh (Aquaculture) 34 100% Filipino ELECTRICITY, WATER, AND GAS

60% Filipino NV Vogt Philippines Solar Energy One, Inc. Renewable Energy Developer of Solar Energy Resources 555 40% Foreign

Pagbilao Energy Corporation Operator of a 400 MW Coal-Fired Power Plant 39,903 100%Filipino HOTEL, RESTAURANT, AND LEISURE SERVICE

Operator of Hotel and Serviced Apartments (Shangri-La at the Fort, 60% Filipino Fort Bonifacio Shangri-La Hotel, Inc. 13,648 Manila) 40% Foreign

Ecosouth Hotel Ventures, Inc. Operator of Tourist Accommodation Facility (Seda Nuvali) 728 100% Filipino MISCELLANEOUS MANUFACTURE Primex Isle De Coco, Inc. Producer of Virgin Coconut Oil and Coco Flour 64 100% Filipino REAL ESTATE AND PROPERTY DEVELOPMENT

Developer of Low-Cost Mass Housing Project (North Cambridge Goshen Land Capital Inc. 159 100% Filipino Condominium Building 3 (Wharton)

Communities Zamboanga, Inc. Developer of Low-Cost Mass Housing Project (Camella Pagadian) 356 100% Filipino

Developer of Low Cost Mass Housing Project (Lessandra Heights – Cagayan Communities Cagayan, Inc. 392 100%Filipino De Oro)

Communities Cagayan, Inc. Developer of Low Cost Mass Housing (La Mirande Crest) 279 100%Filipino TOTAL 57,988

Philippine ANALYST July 2014 BUSINESS 63

BUSINESS CLIMATE INDEX

FOREIGN DIRECT INVESTMENT FDI:BOP CONCEPT Balance of Payments Concept*; JANUARY- APRIL 2014 US$ Million 000 LEVEL (US$ million) 500 YEAR-ON-YEAR SOURCE CURRENT YEAR AGO % CHANGE 000 TOTAL FDI 1,377 1,829 -24.74 500 Equity Capital 357.26 791.33 -54.85 000 Reivested Earnings 131.42 146.33 -10.19 500 Debt Instruments 887.99 891.64 -0.41 0

* The BSP adopted the Balance of Payment, 6th edition (BPM6) compilation framework effective 22 500 March 2013 with the release of the full-year 2012 and revised 2011 BOP statistics. In BPM6, net 000 FDI fl ows refer to non-residents’ equity capital (i.e., placements less withdrawals) + reinvestment of earnings + debt instruments, net (i.e.,net intercompany borrowings).

YEAR-ON- YEAR-TO- INDUSTRIAL PERFORMANCE DATA YEAR DATE (2000=100) MAY 2014 INDEX MOTOR VEHICLE SALES GROWTH GROWTH JUNE 2014 Volume of Production Index (VoPI) 125.4 13.8 -1.6 YEAR-AGO GROWTH RATE (2000=100) DATA LEVEL (%) a. Food 144.5 9.1 2.7 MOTOR VEHICLE SALES 69,737 57,128 22 b. Beverage 138.5 31.5 22.2 PASSENGER CAR SALES 24,824 18,702 327 c. Tobacco 7.3 30.4 -1.6 COMMERCIAL VEHICLE SALES 44,913 38,426 16.8 d. Textile 38.1 16.5 12.4 e. Footwear and Wearing Apparel 28.8 -17.7 -13.9

f. Wood and Wood Products 70.9 20.8 1.5 UNIVERSAL AND COMMERCIAL BANK’S g. Furniture & Fixtures 727.4 -7.2 11.7 LOANS OUTSTANDING TO THE REAL ESTATE SECTOR (P Bn) MARCH 2014w h. Basic Metals 146.6 12.8 -9.0 % TO TOTAL % TO TOTAL MAR-14 DEC-2012 i. Iron and Steel 101.4 2.8 10.4 RE: LOAN RE: LOAN j. Non-ferrous Metals 254.4 23.3 -34.3 RESIDENTIAL 192.28 28.5 173.46 30.5 k. Fabricated Metal Products 323.1 58.3 42.6 COMMERCIAL 492.28 71.5 394.95 69.9 l. Machinery Excluding Electrical 42.8 13.2 31.9 m. Electrical Machinery 93.1 13.1 0.3 n. Transport Equipment 126.6 12.7 3.8 o. Other Mfg Industries 105.5 4.7 -1.7 p. Paper & Paper Products 67.1 -2.9 -5.1 q. Publishing & Printing 147.2 227.8 103.4 r. Leather Products 3.9 0.0 5.1 s. Rubber Products 268.5 23.0 9.9 t. Chemical Products 215.8 -5.2 -35.3 u. Petroleum Products 58.2 19.0 0.3 v. Non-Metallic Mineral Products 127.3 -17.4 -10.1 w. Glass & Glass Products 152.2 6.5 7.8 x. Cement 165.0 2.6 -0.4 y. Misc. Non-Metalic Mineral Products 40.7 -71.7 -55.7 VALUE OF PRODUCTION INDEX (VAPI) 189.1 12.6 -1.8 (2000=100) AVERAGE CAPACITY UTILIZATION 83.5 -16.8 83.2

Philippine ANALYST July 2014 64 BUSINESS

BUSINESS CLIMATE INDEX 1 STRIKE IN JUNE LABOR STRIKES A strike was recorded in June 2013 which involved 400 workers equivalent to STRIKES DECLARED WORKERS INVOLVED MAN-DAYS LOST (000) 1,200 man-days lost. Meanwhile, there is a total of 83 notices of strike/lockouts 2014 2013 2014 2013 2014 2013 since January 2014. In 2012, 3 strikes were recorded involving 209 workers, which is equivalent to 797 man-days lost. Meanwhile, 184 notices of strike were JAN 0 0 - - - - fi led that year. FEB ------MAR ------APR ------STRIKES DECLARED MAY ------12 JUN - 1.00 - 400 -1,200 10 JUL ------AUG ------8 SEP ------6 OCT ------NOV ------4 DEC ------

2 TOTAL 0 1 0 400 0 1,200

0 VISITOR ARRIVALS SLIGHTLY UP IN MAY Total visitor arrivals registered in May is 364,804 up by only 0.76% from 362,062 in the same month in 2013. Of this, 4.89% or 17,794 visitors were Filipinos residing abroad. Korea remained the top source market followed by the U.S. and China. From January to May, visitors coming from Korea amounted to 453,227 (21.99% share of the 2.06 million total visitors for 2014). The U.S. market tallied 327,702 MAN-DAYS LOST visitors (15.9%) while the Chinese market recorded 198,951 visitors (9.91%). 4000 67.2% HOTEL OCCUPANCY RATE IN 2013 3500 The comparative average occupancy rates of hotels in Metro Manila hit 67.2% in 3000 2013. The occupancy rate for accredited hotels hit 67.4% while non-accredited 2500 hotels posted a 54.85% occupancy rate. Deluxe hotels were the most popular with 70.82% occupancy. The guest’s length of stay averaged at 2.49 nights in 2000 2013. On the average, guests preferred to stay longer on non-accredited hotels at 4.31 nights. 1500

1000 TOURISM ARRIVALS 500 500

0 400

300

200

VISITOR ARRIVALS 100 JANUARY-MAY 2014 0 COUNTRY 2014 2013 % CHANGE RANK KOREA 453,277 489,389 -7.38 KOREA

USA 327,702 306,056 7.07 USA SURVEY ON THE MONTHLY OCCUPANCY RATES & LENGTH OF STAY CHINA 198,951 163,879 21.40 CHINA 2012 2011 2012/2011 JAPAN 188,941 179,984 4.98 JAPAN JAN TO DEC JAN TO DEC GROWTH RATE AUSTRALIA 96,655 88,190 9.60 AUSTRALIA De Luxe Hotels SINGAPORE 74,710 70,470 6.02 SINGAPORE Occupancy Rates 70.82 71.49 -0.94 CANADA 67,929 61,086 11.20 CANADA Length of Stay 2.87 2.92 -1.71 UNITED UNITED KINGDOM 60,305 52,379 15.13 KINGDOM First Class Hotels TAIWAN 55,543 79,297 -29.96 TAIWAN Occupancy Rates 60.14 58.05 3.59 MALAYSIA 54,420 45,447 19.74 MALAYSIA Length of Stay 2.20 2.30 -4.17 HONGKONG 49,381 55,811 -11.52 HONGKONG Standard Hotels GERMANY 35,040 33,205 5.53 GERMANY Occupancy Rates 65.34 64.82 0.80 OVERSEAS Length of Stay 2.46 2.38 3.47 OVERSEAS FILIPINO 90,626 92,494 -2.02 FILIPINO Economy Hotels OTHERS 307,655 293,833 4.70 OTHERS Occupancy Rates 52.15 53.44 -2.41 TOTAL 2,063,149 2,013,533 2.46 TOTAL Length of Stay 1.87 2.13 -12.44 Overall Average 67.20 67.25 -0.07 Philippine ANALYST July 2014