Construction & Building Technologies Market Study

AUGUST 2019

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EU Business Avenues in South East Asia

Central Management Unit

Philippines Market Study

August 2019

Submitted to the European Commission on 26 August 2019

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Table of Contents

LIST OF FIGURES ...... 6

LIST OF TABLES ...... 6

LIST OF ABBREVIATIONS ...... 8

1. EXECUTIVE SUMMARY ...... 10

OPPORTUNITIES………………...... 12

2. WHAT ARE THE CHARACTERISTICS OF THE PHILIPPINES? ...... 14

2.1. POLITICAL OVERVIEW ...... 15 2.2. ECONOMIC OVERVIEW ...... 15 2.3. TRADE OVERVIEW………...... 16 2.4. MARKET ACCESS………...... 18 2.5. BUSINESS AND COMPETITIVE ENVIRONMENT ...... 19

3. MARKET OVERVIEW & EU ENTRY OPPORTUNITIES IN THE PHILIPPINES ...... 21

3.1 THE PHILIPPINE CONSTRUCTION AND BUILDING TECHNOLOGY SECTOR ...... 21 3.1.1 The Philippine Construction Industry ...... 21 3.1.2 The Philippine Mining Industry...... 38 3.1.3 Key Associations ...... 42 3.1.4 Entry Strategies ...... 43 3.1.5 Challenges & Entry Barriers ...... 45 3.2 CONSTRUCTION MACHINERY ...... 47 3.2.1 Market Overview ...... 47 3.2.2 EU Entry Opportunities ...... 59 3.3 BUILDING MATERIAL AND BUILDING INSTALLATION ...... 63 3.3.1 Market Overview ...... 63 3.3.2 EU Entry Opportunities ...... 73 3.4 SMART AND GREEN BUILDING ...... 76 3.4.1 Market Overview ...... 76 3.4.2 EU Entry Opportunities ...... 88 3.5 SMART GRIDS……… ...... 93 3.5.1 Market Overview ...... 93 3.5.2 EU Entry Opportunities ...... 98

4. REGULATIONS ...... 101

4.1 GENERAL IMPORT PROCEDURES ...... 101

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4.2 MARKING AND LABELLING REQUIREMENTS ...... 103 4.3 RULES AND REGULATIONS FOR CONSTRUCTION ACTIVITIES AND MACHINERY ...... 104 4.4 PHILIPPINE GREEN BUILDING (GB) CODE ...... 105 4.5 GOVERNMENT TENDERS ...... 108

5. ANNEX ...... 109

5.1 LIST OF USEFUL CONTACTS ...... 109 5.2 STARTING A BUSINESS IN THE PHILIPPINES ...... 111 5.3 USEFUL STATISTICS …………………………………………………………………………………………...115 5.4 BIBLIOGRAPHY…………… ...... 121

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List of Figures

Figure 1: Map of the Philippines ...... 14 Figure 2: Asian Cities in the Global Index Cost of Construction ...... 23 Figure 3:"Build, Build, Build" ...... 24 Figure 4: Construction Site in ...... 26 Figure 5: Philippine Housing Project ...... 29 Figure 6: Prospective plans for the ...... 36 Figure 7: Digital rendition of Panaguil Bay Bridge ...... 37 Figure 8: Open pit mine in the Philippines...... 39 Figure 9: Operating Metallic Mines in the Philippines, 2018...... 41 Figure 10: Excavators Account for 50% of Total Sales of Building Equipment ...... 54 Figure 11: Mobile Laboratory of Holcim Philippines ...... 65 Figure 12: Smart Building Technologies ...... 77 Figure 13:Twin Oaks Place ...... 77 Figure 14: One Filinvest ...... 79 Figure 15: Clark Green City ...... 81 Figure 16: Figure 16:Evo City ...... 82 Figure 18: PhilGBC Promotes Green Building Practices...... 86 Figure 19: Minimum Building/ Occupancy TGFA ...... 106

List of Tables

Table 1: Ease of Doing Business in the Philippines ...... 19 Table 2: Data (number, floor area, value) on Construction Projects, 2014-2018 ...... 22 Table 3: Data (number, floor area, value) on Non-residential Construction Projects, 2014-2018 ...... 28 Table 4: Data (number, floor area, value) on Residential Construction Projects, 2014-2018 ..... 30 Table 5: List of Projects under the Build Build Build” Program ...... 34 Table 6: Value of HS 8429 Imports (Self-Propelled Bulldozers, Angledozers, Graders, Levellers, Scrapers, Mechanical Shovels, Excavators, Shovel Loaders, Tamping Machines and Roadrollers) ...... 49 Table 7:Value of HS 8430 Imports (Moving, Grading, Levelling, Scraping, Excavating, Tamping, Compacting, Extracting or Boring Machinery, for Earth, Minerals or Ores) ...... 50 Table 8:Value of HS 8474 Imports (Machinery for Sorting, Screening, Separating, Washing, Crushing, Grinding, Mixing or Kneading Earth, Stone, Ores or Other Mineral Substances) ...... 51 Table 9: Example of Contractors / Developers Buyers of Construction Machinery in the Philippines ...... 53 Table 10: Example of Mining Companies Buyers of Construction Machinery in the Philippines 54 Table 11: Imports of Air or Vacuum Pumps (HS code: 8414) ...... 56

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Table 12: Imports of Air conditioning machines comprising a motor-driven fan and elements for changing the temperature and humidity (HS code: 8415) ...... 56 Table 13: Imports of Furnace burners for liquid fuel, for pulverised solid fuel or for gas (HS code 8416) ...... 57 Table 14: Examples of Buyers of Construction Materials in the Philippines ...... 71 Table 15: Imports of Earths and Stone; Plastering Materials, Lime and Cement into the Philippines ...... 115 Table 16: Exports of Earths and Stone; Plastering Materials, Lime and Cement from the Philippines ...... 115 Table 17: Imports of Wood and Articles of Wood; Wood Charcoal into the Philippines ...... 116 Table 18: Exports of Wood and Articles of Wood; Wood Charcoal from the Philippines ...... 116 Table 19: Imports of Articles of Stone, Plaster, Cement, Asbestos, Mica or Similar Materials into the Philippines ...... 117 Table 20: Exports of Articles of Stone, Plaster, Cement, Asbestos, Mica or Similar Materials from the Philippines ...... 117 Table 21: Imports of Ceramic Products into the Philippines ...... 118 Table 22: Exports of Ceramic Products from the Philippines ...... 118 Table 23: Imports of Glass and Glassware into the Philippines ...... 119 Table 24: Exports of Glass and Glassware from the Philippines ...... 119 Table 25 Imports of Iron and Steel into the Philippines ...... 120 Table 26: Exports of Iron and Steel from the Philippines ...... 120

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List of abbreviations

ASEAN Association of Southeast Asian Nations BOI Board of Investments BOT Build-Operate-Transfer BPO Business process outsourcing BPS Bureau of Philippine Standards CAGR Compound annual growth rate CBT Construction & Building Technology CIAP Construction Industry Authority of the Philippines CIF Cost, Insurance and Freight DENR Department of Environment and Natural Resources DPWH Department of Public Works and Highways DTI Department of Trade and Industry FTA Free-trade agreement GB Code Green Building Code GDP Gross Domestic Product GNI Gross National Income GSF Gross square feet HVAC Heating, ventilation and air conditioning ICT Information and communications technology IFC International Finance Corporation LED Light-emitting diode LEED Leadership in Energy and Environmental Design Manila Electric Company MGB Mines and Geosciences Bureau MSME Micro-Small and Medium Enterprises NCR National Capital Region NICCEP National Industry Cluster Capacity Enhancement Project OTOP One-Town-One-Product PCA Philippine Constructors Association PEZA Philippine Economic Zone Authority

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PNS Philippine National Standards PSA Philippine Statistics Authority SEC Securities and Exchange Commission, SHGC Solar heat gain coefficient SRI Solar reflectance index TESDA Technical Education and Skills Development Authority TGFA Total Gross Floor Area TPP Trans Pacific Partnership UNDP United Nations Development Programme USGBC U.S. Green Building Council UV Ultra Violet VAT Value Added Tax VLT Visible light transmittance VOC Volatile organic compounds WEF World Economic Forum

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1. Executive Summary

The Philippines is currently one of the most dynamic economies in the South East Asian region, with sound economic fundamentals and a globally recognised competitive workforce. The country is experiencing increasing urbanisation as well as a growing middle class. It also has one of the youngest populations in the world, with more than two-thirds under the age of 35. In 2018, the country’s economic growth moderated to 6.2% from 6.7% in 2017 according to the World Bank, dragged down by lower growth in global trade and domestic high inflation. In 2019, however, growth is projected to reach 6.4% as inflation winds down.

Over the past few years, construction in the Philippines has been flourishing amid a climate of political stability and upbeat business confidence, spurred by growth in overseas foreign worker remittances, inbound investments into business process outsourcing, rising numbers of tourist arrivals, and government spending on large- and small-scale infrastructure. The country has also become more open to technologies that can increase construction efficiency and the Philippine government has also been active in advocating the usage of green technologies to its booming construction and infrastructure sector. This trend creates interesting opportunities for European companies operating in the Construction & Building Technologies (CBT) sector.

Construction Machinery

The construction equipment industry of the Philippines is highly dependent on imports from countries such as China, Japan, South Korea, the US and European countries. In 2018, the Philippines imported US$ 928 million (EUR 820 million) worth of construction machinery1. Among the EU countries, Belgium and Germany are the top suppliers. Exporters of construction machinery are being attracted by the government’s “Build Build Build” programme and are introducing new lines of products featuring new technologies, with a focus on improved efficiency.

1 HS codes 8429, 8430 and 8474

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Building Materials and Building Installation

The Philippines is heavily dependent on imported building and construction materials, with high demand across the sector. Basic materials such as cement, aggregates, steel bars, galvanised iron sheeting and lumber are imported in large quantities, primarily because of shortfalls in local production and its comparatively high cost.2 Prices of construction materials, particularly cement, are expected to rise due to strong demand from the public and private sectors and for the imposition of tariff on imports. Thanks to the “Build, Build, Build” infrastructure programme of the government, the cement industry is now at the forefront of the country’s economic boom. The industry has been experiencing significant progress and is expected to grow even more due to the increased investment in infrastructure that fuels demand for cement and other construction materials.

Smart and Green Building

Demand for sustainable construction products and energy saving materials is taking off. Local building companies are showing more interest in smart buildings, future-proof homes and energy-saving innovations, as well as supporting products such as pre-cast concrete and polyurethane foam insulation panels. Developers in the Philippines – established or new – are now racing to offer these kinds of projects to Filipino homebuyers who are becoming more discerning regarding smart technologies in their homes. Smart cities are also increasing in the country as large developers have these kinds of projects in their pipelines. Furthermore, the green building industry has seen promising growth over the past few years, especially in the number of certified sustainable buildings. There are 245 Leadership in Energy and Environmental Design (LEED) projects in the market currently, and 61 have already received the certification.3

2 Building and construction to the Philippines, Austrade 3 Green buildings set to rise at Global Gateway Clark, 2017, Manila Bulletin

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Smart Grids

According to a new report release by Northeast Group, the South East Asia region is expected to invest US$ 24.6 billion (EUR 21.7 billion) in smart grid infrastructure between 2016 and 2026. Even though smart grid technology is still at an initial stage in the Philippines, the market is currently growing steadily. By 2024, the Philippines alone is set to invest US$ 2.1 billion (EUR 1.9 billion) in smart meters, distribution automation, home energy management, information technology and other smart grid market segments.

Opportunities

Growth Construction Activities

The Philippines’ Construction and Building Technology sector is deeply connected to the mining and construction industries, from which the demand for machinery, construction materials, and green building originates. The construction industry in the Philippines expanded by almost 12% in 2018, reaching a value of US$ 42.6 billion (EUR 37.7 billion). The construction industry is expected to record a CAGR of 18.3% to reach US$ 54.5 billion (EUR 48.2 billion) by 2022.

Machines and Materials Resistant to Natural Disasters

The Philippines has a long history of natural calamities such as earthquakes, typhoons and flooding. Consequently, developers prefer “disaster-quality” materials, which differ from cheaper mass-produced materials coming out of factories in China or India. European producers offering high-quality technology and material can find interesting opportunities in the Philippines.

Energy Saving Technologies

The country has some of the highest energy costs in the world. This creates demand for companies focusing on energy saving products, ranging from low-consumption LED lights, to appliances that monitor and regulate energy usage. The government of the Philippines is also encouraging the trend by introducing new regulations.

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High-Quality Products

Sectors such as construction materials are markedly price sensitive in the Philippines, and European companies might experience difficulties competing with producers from China and other Asian countries. However, European products are generally perceived to be safer and of higher quality. European companies are advised to bank on these factors in order to justify higher prices.

Environmental Regulation

The GB Code was launched June 2015, in order to improve the efficiency of buildings through a framework of standards addressing the entire building’s life cycle, including efficient use of materials, site selection, planning, design, construction, use, occupancy, operation and maintenance. This code, along with other initiatives and regulations, is creating demand for greener products in the Philippines.

Online Channel

E-commerce is growing in the Philippines. The Department of Trade and Industry (DTI) has recently reaffirmed its commitment to facilitating the growth in the e-Commerce market. The e-commerce market is set to contribute up to 25% of the country’s gross domestic product by 2020, from 10% in 2015, when this projection was made.

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2. What are the characteristics of the Philippines?

The Republic of the Philippines is a sovereign island country in South East Asia situated in the western Pacific Ocean. It has 7,107 islands spanning more than 300,000 km2 of territory. It is divided into three island groups: , Visayas, and Mindanao. The climate of the Philippines is tropical and maritime, characterised by relatively high temperature, high humidity and abundant rainfall.

The country has an estimated population of over 100 million and a recorded GDP of US$ 330 billion in 2018. The major industries in the Philippines include manufacturing, business process outsourcing, construction and infrastructure.

The Philippines is among the fastest-growing economies in South East Asia, with upgrades to sovereign investment ratings confirming improvements in the country’s macroeconomic fundamentals. The country has a mixed economic system which includes a variety of private freedom combined with centralised economic planning and government regulation.

The country is composed of a unique blend of Malay, Chinese, Spanish, American and Arab Figure 1: Map of the Philippines ethnic groups. More than 100 cultural minority Source: CIA

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groups are scattered throughout the country. The Philippines lists Filipino and English as its official languages while Spanish, Chinese, Malay, Japanese, Tamil and Arabic languages are also used in the country.

2.1. Political Overview

The Philippines is a republic with a presidential form of government wherein power is equally divided among its three branches: executive, legislative, and judicial. The executive branch is headed by the President, who serves as the Chief of State and Head of Government. The legislative branch is the bicameral congress composed of members of the Senate and the House of Representatives while the judicial branch is headed by the Chief Justice.

The Constitution of the Philippines is the highest law of the land. The Constitution currently in effect was proclaimed on 2nd February, 1987 and popularly known as the 1987 Constitution.

There are a number of political parties in the country’s political system with different ideologies. With this multi-party system, no one party often has a chance of gaining power alone. Thus, elected officers work with each other to form coalition of governments. Currently there are two types of parties in the Philippines, the Major Parties, traditional political parties, and Minor Parties or Party-list Organisations, who bank on the party-list system to win Congressional Seats.

In May 2016, a national election for the executive and legislative positions took place in the country where a total of 18,083 positions were at stake. It was from the Partido Demokratiko Pilipino-Lakas ng Bayan (PDP-Laban) Party who won the Presidency and became the 16th President of the Philippines, succeeding Benigno S. Aquino III from the Liberal Party.

2.2. Economic Overview

The Philippines’ emergence as a growth leader has been building gradually since the 1990s, following a long period of low growth and political upheaval. The country’s GDP posted a growth of 5.6% in the first quarter of 2019. The Philippines is classified as a low middle-income nation with a GNI per capita of US$ 3,594.

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The country’s service sector represents 57.8% of its GDP in 2018 and employs more than half of its workforce. The major segments of this sector include trade and repair (motor vehicles), real estate, transportation and communication. Its industrial sector contributes to 34.1% of its GDP and employs about 15% of the country’s workforce. Industrial food processing is among the Philippines’ main manufacturing activities along with the production of cement, glass, chemical products and fertilisers, iron, steel and refined oil products. The agricultural sector in the country employs about 32% of the labour force but only contributes 8.1% to its GDP. The Philippines is a mineral-rich country with an estimated unexploited mineral wealth of US$ 1.4 trillion.

The Philippine government has pursued legislative reforms in order to enhance the entrepreneurial environment and develop a more vibrant private sector capable of generating a broader-based job growth. Poor infrastructure remains a serious impediment to the country’s development but its economic growth reflects its efforts in addressing this challenge and today there are more than 4,000 infrastructure projects in the pipeline.

2.3. Trade Overview

The Philippines has been rather cautious in its Free-trade agreement (FTA) policies compared to some of its ASEAN neighbours, having only 7 signed and in-effect FTAs. The Philippines is a member of the ASEAN Free Trade Area (AFTA), which plays a key role in the nation’s intra- Asian trade. ASEAN has FTAs with China, India, Japan, South Korea, Australia and New Zealand.

Negotiations for an EU-Philippines Free Trade Agreement were launched on 22 December 2015. The FTA is intended to develop a key aspect of Europe’s overall relationship with the Philippines that is based on the Partnership and Cooperation Agreement signed in 2012. The first round of negotiations took place in May 2016. The second round of negotiations was held in February 2017. No date has been set yet for the next negotiation round.

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The EU remains a strong economic partner for the Philippines. The Philippines is the EU's 6th largest trading partner in the ASEAN, while the EU ranks as the Philippines' 4th largest trading partner.

The country’s external trade in goods with the EU Member States totalled US$ 16.25 billion (EUR 14.4 billion) or 9.9% of the total trade in 2017. Exports to the EU amounted to US$ 9.61 billion (EUR 8.5 billion) or 14% of the total export receipts. On the other hand, imports were valued at US$ 6.64 billion (EUR 5.9 billion) or a 6.9% share to the total import. These result to a surplus of US$ 2.96 billion (EUR 2.6 billion) in balance of trade in goods for the Philippines. Among EU Member States, Germany was the Philippines’ top trading partner with a total trade of US$ 4.65 billion (EUR 4.1 billion), comprising 28.6% of the EU’s total trade. Revenue from exports to Germany amounted to US$ 2.68 billion (EUR 2.4 billion) while payment for imports stood at US$ 1.97 billion (EUR 1.7 billion), resulting in a trade surplus of US$ 703.84 million (EUR 621.9 million).

After Germany, the most important EU trading partners for the Philippines are, in this order, the Netherlands, France, UK, Italy, Belgium, Spain, Ireland, Austria and Poland. Together these countries account for almost 90% of EU-Philippines trade. Meanwhile, other EU Member States are expanding trade with the country and shows dynamic increases.

The top five exported goods to the EU in 2017 were: electronic products, US$ 4.71 billion (EUR 4.2 billion); machinery and transport equipment, US$ 1.86 billion (EUR 1.6 billion); coconut oil (crude and refined), US$ 828.46 million (EUR 732.1 million); other manufactured goods, US$ 342.7 million (EUR 302.8 million); and tuna, US$ 331.35 million (EUR 331.35).

On the other hand, major imported goods from EU Member States were: electronic products, US$ 1.01 billion (EUR 893 million); industrial machinery and equipment, US$ 804.03 million (EUR 710.7 million); transport equipment, US$ 765.57 million (EUR 676.5 million); medicinal and pharmaceutical products, US$ 686.96 million (EUR 607 million); and other food and live animals, US$ 501.71 million (EUR 443.3 million).

With 16% of new investments in the Philippines coming from the EU, the block maintains its position as one of the largest sources of investment in the Philippines.

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2.4. Market Access

The Philippines has emerged as an attractive market for foreign companies due to its strong economic and demographic fundamentals. The country offers advantages in the form of manageable inflation, improving public finances, and a strong demographic dividend in a region of high growth.

An agent or distributor arrangement is the most common method in entering the Philippine market. Partnering with a local business is also recommended, as entering the Philippine market presents some challenges to foreign companies. This is due in part to a limited number of family-owned conglomerates that dominate key sectors and, in some cases, create high barriers to entry.

An open economy like the Philippines allows 100% foreign equity in all areas of investment except those reserved for Filipinos under the Philippine Constitution and existing laws, such as private lands, mass media, and small-scale mining. The country also supports Build-Operate- Transfer (BOT) investment schemes that other Asian countries emulate.

The Philippines is located right in the heart of Asia – today the region with the fastest economic growth. It is located within four hours’ flying time from major capitals of the region such as Singapore, Beijing, and Bangkok. Situated at the crossroads of eastern and western business, it is a critical entry point to over 500 million people in the Association of Southeast Asian Nations (ASEAN) market and a gateway of international shipping and air lanes suited for European businesses.

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2.5. Business and Competitive Environment

The Philippines ranked 124th in the 2019 Doing Business Rank report from the World Bank. According to the World Bank, the country remains a good place as far as doing business is concerned but it needs to further accelerate its reforms to address tougher competition.

According to the 2019 edition of the Report, the Philippines made starting a business easier by simplifying tax registration and business licensing processes. At the same time, the Philippines increased tax registration costs. The Philippines also improved risk management practices in the construction sector, with latent defect liability insurance now commonly obtained by industry players. Furthermore, the country strengthened minority investor protections by increasing shareholders’ rights and role in major corporate decisions and clarifying ownership and control structures.

The Philippine government has created a task force composed of various government agencies to streamline processes that will improve the country’s rank in terms of ease of doing business. This includes processes for starting a business, paying taxes as well as social payments.

Ease of Doing Business in the Philippines 2019 Rank 2018 Rank Change in Rank

Starting a business 166 173 +7

Dealing with construction permits 94 101 +7

Getting electricity 29 31 + 2

Registering property 116 114 - 2

Getting credit 184 142 - 42

Protecting minority investors 132 146 +14

Paying taxes 94 105 + 11

Trading across borders 104 99 -5

Enforcing contracts 151 149 -2

Resolving insolvency 63 59 - 4

Table 1: Ease of Doing Business in the Philippines Source: The World Bank

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In terms of global competitiveness, the Philippines ranked as the 56th most competitive country in the world (out of around 140 economies), according to the 2018 Global Competitiveness Report of the World Economic Forum (WEF), from 68th in 2017.

The country has also established its Board of Investments (BOI), which is an attached agency of Department of Trade and Industry, assisting investors to venture into desirable areas of economic activities in the country.

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3. Market Overview & EU Entry Opportunities in the Philippines

3.1 The Philippine Construction & Building Technologies Sector

Similar to other markets, in the Philippines the Construction & Building Technologies (CBT) sector is deeply connected to the construction and infrastructure industries, from which the demand for machinery, construction materials, and green building originates. Therefore, before analysing the CBT sector in its main segmentations, it will be useful to consider the drivers of demand.

3.1.1 The Philippine Construction Industry

According to a report by Philippine construction company EEI Corp, the construction industry in the Philippines expanded by almost 12% in 2018, reaching a value of US$ 42.6 billion (EUR 37.6 billion). The construction industry is expected to record a CAGR of 18.3% to reach US$ 54.5 billion (EUR 48 billion) by 2022.

Data from the Philippine Statistics Authority (PSA) indicate that construction spending in 2018 totalled PHP 625.23 billion (EUR 10.6 billion), up by 15.9% from 2017. The PSA also reported that the total number of construction projects generated from approved building permits in 2018 reached 118,482 valued at PHP 329 billion (EUR 5.6 billion). Construction projects related to additions to existing structures were valued at PHP 4.1 billion (EUR 69.6 million) while alterations and repairs of existing structures were valued at PHP 22.9 billion (EUR 388.9 million).

2014 2015 2016 2017 2018 TOTAL Number 120,775 132,006 147,998 152,012 118,482 Floor Area (sqm) 24,637,275 29,267,249 32,526,542 31,884,027 28,742,016 Value (PHP million) 293,136 331,592 378,896 333,215 328,982 Value (EUR million) 4,978 6,631 6,434 5,658 5,587 Additions to existing structures

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2014 2015 2016 2017 2018 Number 5,184 5,012 4,504 5,086 3,966 Floor Area (sqm) 686,627 750,185 513,424 547,092 462,276 Value (PHP million) 6,071 6,301 4,760 4,301 4,105 Value (EUR million) 103 107 80 73 70 Alterations and Repairs to existing structures Number 132,202 13,694 12,552 14,635 11,610 Value (PHP million) 21,526 22,005 24,019 21,445 22,918 Value (EUR million) 365 373 408 364 389 Table 2: Data (number, floor area, value) on Construction Projects, 2014-2018 Source: Philippine Statistics Authority

The top five regions in terms of number of constructions collectively comprised of 57.3% of the total construction projects. accounted for the biggest share with 26,303 projects. Central Visayas ranked second with 16,060 projects while Central Luzon was third with 10,491 projects. Other regions in the top five were:

◼ National Capital Region with 6,080 projects

◼ Ilocos Region with 2,966 projects

◼ Western Region with 2,913 projects

The cost of construction in Manila remains relatively inexpensive, according to a global index of construction costs by consultancy firm Arcadis; the Arcadis International Construction Costs Comparison 2019 report ranked Manila 82nd out of 100 cities in terms of building costs in 2019, meaning that the city was the 19th cheapest location among those considered.

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Figure 2: Asian Cities in the Global Index Cost of Construction Source: BusinessWorld

In Asia, the Philippines ranked 6th for construction costs among metropolises, after Hong Kong, Macau, Tokyo, Singapore and Seoul. Arcadis also stated that they expect the country’s construction market to remain strong in 2019 and 2020 due to ongoing government and private investments in major projects.

In 2019, a delegation from Germany’s construction sector visited the Philippines to explore opportunities in construction and infrastructure. The delegation included representatives from AuCom MCS GmbH & Co. KG, Hauff Technik GmbH & Co. KG, Herrenknecht AG, MULAG Fahrzeugwerk Heinz Woessner GmbH & Co. KG, and ThyssenKrupp AG. All companies have yet to establish a presence in the Philippines and are open to partnering with local companies in view of the robust construction push in the private sector.

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The Philippine government also reported that Swedish companies are now looking to take advantage of the country’s infrastructure programme. According to Business Sweden, Swedish companies are seeing opportunities in infrastructure equipment and technology, urban transportation, road development and construction as among the field for possible investment and partnerships.

With the government’s aggressive pursuit of infrastructure development through the “Build, Build, Build” programme, there are plenty of opportunities for both local and international suppliers to grow their businesses in the Philippines as stated by the country’s Department of Trade and Industry

Key Growth Drivers

◼ “Build, Build Build” Program: The country is one of the fastest-growing economies in South East Asia. Moreover, the government of the Philippines has launched its flagship infrastructure investment programme “Build Build Build” valued at PHP 8.1 trillion (EUR 137.6 billion), which will be directed towards a large number of initiatives including railways, roads and bridges, airports as well as new city developments that aim to solve the country’s underdeveloped infrastructure.

Figure 3:"Build, Build, Build" Source: Philippine News Agency

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The “Build, Build, Build” programme is a medium-term goal by the government that aims to increase infrastructure spending from 5.4% of the country’s GDP in 2017 to 7.3% by the end of President Duterte’s term in 2022. It is worth noting that this is higher than the 2.4% average recorded by the past six administrations in the last five decades, and the highest budget allocation for infrastructure in Philippine history.

◼ Growth in the business process outsourcing (BPO) industry: According to Leechiu Property Consultants (LPC), the BPO industry is expected to become a major driving force in the office take-up for 2019. Furthermore, LPC has stated that the Philippines may run out of office space for lease as early as 2021 due to the demand from the BPO sector and has urged developers to start developing office spaces. Demand in Metro Manila alone grew from 910,000 sqms in 2017 to 1.16 million sqms by December 2018, posting a growth of 27% and accounting for 73% of total demand in 2018. Outside of Metro Manila, Clark Global City registered the highest office demand at 156,000 sqms. Cebu and followed with 133,000 sqms and 46,000 sqms respectively. Davao City took fourth place generating 28,000 sqms.

◼ Demand from Chinese buyers: Because of the country’s improving diplomatic ties with China, residential sales are no longer dominated by OFW (Overseas Filipino Workers) buyers but by buyers from mainland China. Residential projects notably in the Bay Area, Makati, Manila, Ortigas, and City, and in other areas near POGO (Philippine Offshore Gaming Operators) locations are experiencing brisk take-ups of 12 condominium units a month according to LPC. Many of the country's major real estate developers are benefitting from this demand. For Ayala Land, a major developer in the country, Chinese investors were responsible for 34% of its sales in 2017, more than tripling from the year prior. SM Development Corp, another key developer, also revealed that 30% of its residential sales for the first quarter of 2018 were from Chinese investors, a surge from 10% in 2017. This surge in mainland Chinese buyers in the residential condominium sector is expected to continue for the long term.

◼ Tourism: There is an upward trend of tourists coming in the country. However, the Philippines is currently not properly equipped to handle the surge of tourists, particularly in

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terms of accommodations. It is estimated that more than 10,000 new hotel rooms will be needed in the short-term in which 90% of these are planned for Manila.

◼ Population growth: The country’s population currently stands at 105,893,381. This is 13.6 million higher than the population in 2010. The increasing population is driving the demand for new residential buildings. It is estimated that more than 3 million homes are currently needed across the mass-housing, middle-income and high-end markets. This demand is likely to rise to more than 6 million units by 2030.

Government Initiatives

In 2019, the Department of Trade and Industry through the Construction Industry Authority of the Philippines and the Philippine Contractors Association (PCA) launched the Construction Industry Roadmap 2020 to 2030 which aims to boost the construction industry’s contribution to the economy to PHP 130 trillion (EUR 2.2 trillion) by 2030 from just PHP 2.3 trillion (EUR 39.1 billion) in 2018.

Figure 4: Construction Site in Metro Manila Source: Panay News

Another important content of the roadmap includes the legislation of a long-term infrastructure development programme that will ensure continuity of the programmes beyond changing

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administration, so the country can catch up on infrastructure deficiencies. The proposed law will feature a 30-year Infrastructure Master Plan with emphasis on maintaining a budget of at least 5% of the GDP and complementing the government’s massive infrastructure programme, “Build, Build, Build”. Furthermore, the roadmap is also set to:

◼ Increase job opportunities for construction to 7 million by 2030 from 4 million in 2018. The roadmap is targeting an estimated 30,000 to 45,000 unlicensed contractors to draw into government regulation for security and capacity building.

◼ Identify roadblocks in the construction industry and enhance the education and training of construction professionals and manpower.

◼ Be a key driver towards the design and building of structures with globally competitive quality for nation-building.

◼ Develop the country as an artificial intelligence (AI) centre for excellence, where industries like construction will be able to produce higher value software and hardware products as well as outputs with the use of technology.

◼ Analyse the construction value chain that will help the PCA to add more value to the construction industry and enhance competitiveness.

Additionally, the government is investing in the development of roads and ports under the National Tourism Development Plan (NTDP) 2016-2022. Under the NTDP, the government plans to build 2,620 km of roads across the country, with an investment of PHP 94.3 billion (EUR 1.6 billion) by 2022. Moreover, under its updated Public Investment Programme 2017- 2022, the government is also expected to pursue around 4,000 infrastructure projects between 2017 and 2022.

The government has also launched a medium-term programme called Three-Year Rolling Infrastructure Plan (TRIP), which highlights details on projects the current administration intends to complete by 2020. While projects under this programme will be completed on a national, inter-regional, and regional level, 1,313 projects worth PHP 157.4 billion (EUR 2.7 billion) are expected to roll out in ARMM, Caraga, Eastern Visayas, Soccsksargen, and Northern Mindanao – 5 regions with the highest poverty rates in the country.

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The TRIP also promotes the optimal use of public resources for infrastructure development by assuring fund allocation for well-developed and readily implementable projects for three years. The multi-year rolling programme for infrastructure will ensure that once an infrastructure programme has been planned, and it is rolled out, it continues to receive funding from the government. This is one of the government’s efforts to synchronise and tighten the link between the programming and budgeting functions of the government for infrastructure projects.

Non-residential Building Constructions

The Philippine government is developing Special Economic Zones and Tourism Enterprise Zones (TEZs) to attract both manufacturing and service companies. The non-residential segment is expected to grow by 8.4% on average in real terms between 2018 and 2026.

Additionally, under the 2017 Investment Priorities Plan (IPP), the government plans to provide financial incentives to new Information Technology and Business Processing Outsourcing companies to set up their facilities in the country. These developments are likely to increase demand for non-residential building construction in the near-term.

In 2018, the PSA reported that the number of non-residential constructions were at 17,061 and valued at PHP 131.5 billion (EUR 2.2 billion).

2014 2015 2016 2017 2018 Number 14,622 16,126 17,845 21,349 17,061 Floor Area (sqm) 10,278,621 12,793,261 14,421,105 15,035,707 12,532,807 Value (PHP million) 135,163 143,221 162,517 143,315 131,529 Value (EUR million) 2,295 2,432 2,760 2,434 2,234 Table 3: Data (number, floor area, value) on Non-residential Construction Projects, 2014-2018 Source: PSA

Some highlights include:

◼ Commercial-type buildings dominated all other types of non-residential construction in the country with 13,700 projects in 2018 valued at PHP 92.1 billion (EUR 1.7 billion).

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◼ Institutional-type building followed next with 4,899 projects valued at PHP 44 billion (EUR 747.2 million) in 2018.

◼ Industrial-type building came third with 2,448 projects valued at PHP 28.1 billion (EUR 477.2 million) in 2018.

◼ Agricultural-type buildings recorded a total of 1,077 constructions valued at PHP 4.1 billion (EUR 69.6 million) in 2018.

Residential Building Constructions

The residential market is projected to be the largest contributor to the construction industry in the next few years due to the expanding middle-class, the development of underprivileged areas (such as slums in cities), and the establishment of housing projects for low and middle- income groups. Large scale residential establishments are being built in the National Capital Region to support the growing labour force in the city.

Figure 5: Philippine Housing Project Source: Asia Green Buildings

It is worth noting that there remains a significant shortage of homes in the country. To alleviate the shortage, the government’s Housing Roadmap calls for 10 million additional homes to be

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built between 2012 and 2030. The government’s Pag-IBIG Affordable Housing Programme, under which it plans to provide financial assistance to low- and middle-income households, is expected to support the growth of the market over the period of 2017-2022. The growth in the residential construction sector is also driven by remittances from overseas Filipino workers, which are being used to purchase property.

The number of residential building construction in 2018 stood at 85,845 that was valued at PHP 170.4 billion (EUR 2.9 billion).

2014 2015 2016 2017 2018 Number 87,767 97,174 113,097 110,942 85,845 Floor Area (sqm) 13,672,027 15,723,803 17,592,013 16,310,228 15,746,933 Value (PHP million) 133,784 160,066 187,600 164,153 170,430 Value (EUR million) 2,272 2,718 3,186 2,788 2,894 Table 4: Data (number, floor area, value) on Residential Construction Projects, 2014-2018 Source: PSA

Some key snapshots include:

◼ Among residential constructions, single-type houses recorded the most number with 97,390. Total value of construction for this type was estimated at PHP 93.2 billion (EUR 1.6 billion) in 2018.

◼ Apartment-type units ranked a far second with 15,222, valued at PHP 33.5 billion (EUR 568.9 million) in 2018.

◼ Duplex/quadruplex-type dwellings had 1,893 projects that had an estimated value of PHP 3 billion (EUR 50.9 million) in 2018.

◼ Residential condominiums, which recorded only 190 projects, had construction value of PHP 97.2 billion (EUR 1.6 billion) in 2018.

The number of residential condominiums in Metro Manila grew by 2% year-on-year from 53,000 units to 54,000 units, according to Colliers International 2018 Fourth Quarter Residential Report. Demand was primarily driven by local and foreign high net worth individuals, Overseas Filipino Workers, mainland China investors and offshore gaming employees. Industry players expect

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continued growth in 2019 with the emergence of Metro Manila as one of the best locations for real estate investments in South East Asia. Strong rental yields and property value appreciation are also seen as boosting foreign buying.

Infrastructure

The infrastructure segment is set to be the fastest growing segment in the construction industry, with projected value reaching US$ 14.7 billion (EUR 12.9 billion) in 2020 at a CAGR of 14.14%, according to Timetric’s Construction Intelligence Centre.

To effectively usher into the “Golden Age of Infrastructure”, the government announced that there will be 75 flagship projects under the “Build, Build, Build” programme which will consist of six airports, nine railways, three rapid transits, 32 roads and bridges, and four seaports that are intended to help bring down the costs of production, improve rural incomes, encourage countryside investments, make the movement of goods and people more efficient, and create more jobs.

According to the National Economic Development Authority, 28 out of the 75 big-ticket projects are set to be completed by 2022. These 28 projects are valued at about PHP 319 billion (EUR 5.4 billion). On the other hand, 46 of the 75 projects are now under various stages of implementation; 16 are in the process of budgeting, appropriation process; 19 are under detailed engineering and procurement; and 11 are in construction.

The government has planned to spend PHP 910 billion (EUR 15.5 billion) in infrastructure for 2019 and double this amount by 2022. As per the Department of Budget and Management, the country’s infrastructure programme for 2019 would be equivalent to 4.7 percent of gross domestic product. Infrastructure development will also continue to remain among the top priorities of the government; thus, investments will be intensified to improve connectivity, address infrastructure backlogs, and enhance the country’s productivity and growth potential.

The table below lists key projects under the “Build Build Build” programme:

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Project Type Budget Region Status (US$ millions) East-West Lateral Road Roads and Bridges 94.1 Mindanao Project Implementation Bahile - Oyster Access Road Roads and Bridges 9.6 Visayas Project Implementation Laguna Lake Highway Roads and Bridges 8.1 Luzon Project Implementation Pinguiaman Bridge Roads and Bridges 7.7 Mindanao Project Implementation By-Pass Road Roads and Bridges 43.1 Mindanao Project Implementation - Sta. Magdalena - Bulusan Roads and Bridges 13.5 Luzon Project Road Implementation Pigalo Bridge Roads and Bridges 8.4 Luzon Project Implementation Urdaneta City Bypass Road Roads and Bridges 31.7 Luzon Project Implementation Apayao - Ilocos Norte Road Roads and Bridges 70.9 Luzon Project Implementation Leyte Tide Embankment Project Flood Control 152.6 Luzon Project Implementation Davao City By-pass Roads and Bridges 382.7 Mindanao Project Implementation Central Luzon Link Expressway Roads and Bridges 288.6 Luzon Project Implementation Mindanao Logistics Infrastructure Roads and Bridges 1,500.00 Mindanao Project Network Implementation Metro Cebu Expressway Roads and Bridges 348 Visayas Project Implementation Bacolod Economic Highway Roads and Bridges 111.9 Visayas Project Implementation Panguil Bay Bridge Roads and Bridges 93.9 Mindanao Project Implementation Cavite-Laguna Expressway Roads and Bridges 689.3 Luzon Project Implementation Tarlac-Pangasinan-La Union Roads and Bridges 471.7 Luzon Project Expressway Project Implementation NLEX Harbor Link, Segment 10 Roads and Bridges 173.9 Luzon Project Implementation NLEX - SLEX Connector Road Roads and Bridges 450.1 Luzon Project Implementation to Ortigas Roads and Bridges 77.5 Luzon Project Road Link Project, Sta. Monica- Implementation Lawton Bridge and Viaduct (Phase I & II-A) NAIA Expressway Phase II Roads and Bridges 395.1 Luzon Project Implementation Mandaluyong Main Drainage Roads and Bridges 6.9 Luzon Project Project (MMDP), Phase II Implementation Pasig-Marikina River Channel Flood Control 145.7 Luzon Project

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Project Type Budget Region Status (US$ millions) Improvement Project, Phase III Implementation (JICA PH-P252) LRT 1 South (Cavite) Extension Railways 1,253.00 Luzon Project Project Development Mactan-Cebu International Airport Airports 338.5 Visayas Project Project Implementation Bicol International Airport Airports 92.7 Luzon Project Development Project Implementation Night Rating of Tuguegarao Airport Airports 4.5 Luzon Project Development Night Rating of Airport Airports 4.7 Mindanao Project Development Night Rating of Ozamis Airport Airports 5.8 Mindanao Project Development Night Rating of Naga Airport Airports 3.3 Luzon Project Development Night Rating of Dumaguete Airport Airports 3.5 Visayas Project Development Night Rating of Airport Airports 4.8 Mindanao Project Development Night Rating of Cotabato Airport Airports 3.6 Mindanao Project Development Night Rating of Cauayan Airport Airports 4 Luzon Project Development LRT Line 2 East (Masinag) Railways 183.7 Luzon Project Extension Project Implementation MRT Line 7 Railways 1,449.00 Luzon Project Development Cavite Barge Gateway Terminal Seaports 0.58 Luzon Project Development Bacolod Airport - Operations, Airports 391.4 Visayas Project Maintenance and Development Procurement Project Davao Airport - Operations, Airports 783.7 Mindanao Project Maintenance and Development Procurement Project Iloilo Airport - Operations, Airports 587.3 Visayas Project Maintenance and Development Procurement Project Laguindingan Airport - Operations, Airports 282.3 Mindanao Project Maintenance and Development Procurement Project Metro Manila Subway Railways 6,877.00 Luzon Project Implementation Metro Manila Bus Rapid Transit - Mass Transit 92.5 Luzon Project Line 1 (Quezon Avenue BRT) Development Metro Manila Bus Rapid Transit - Mass Transit 729.4 Luzon Project Line 2 (Central Corridor) Procurement : -Davao Railways 609.4 Mindanao Project

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Project Type Budget Region Status (US$ millions) City- (TDD) Segment Development Bohol-Panglao International Airport Airports 88.3 Visayas Project Development, Operations and Development Maintenance Project New Communications Navigation Airports 210 Luzon Project Surveillance/Air Traffic Management Implementation (CNS/ATM) Systems Development Project PNR Clark Phase 1 (Tutuban, Railways 2,880.00 Luzon Project Manila - Malolos, Bulacan) Development PNR North 2 Railways 2,898.00 Luzon Project Development PNR Calamba Railways 2,589.00 Luzon Project Development PNR South Long Haul Railways 2,917.00 Luzon Project Development CIty Integrated Terminal Mass Transit 77.3 Luzon Project Exchange Development Parañaque Integrated Terminal Mass Transit 60.9 Luzon Project Exchange Implementation Unified Common Station Railways 54.1 Luzon Project Development Clark International Airport Airports 242.4 Luzon Project Expansion Phase 1 - Engineering, Implementation Procurement, and Construction New Clark City - Mixed Use New Cities TBA Luzon Project Industrial Real Estate Implementation Developments New Clark City-National New Cities 254.2 Luzon Project Government Administrative Centre Implementation New Clark City- Food Processing New Cities 604.7 Luzon Project Terminal and International Food Procurement Market Broadband Backhaul Modular IT Communication and 18.8 Luzon Project Facilities Information Implementation Subic-Clark Railway Project Railways 966.5 Luzon Project Procurement Table 5: List of Projects under the ”Build Build Build” Programme Source: www.build.gov.ph

The budget needed to fund the government’s infrastructure projects will largely come from tax revenues, according to the Department of Budget and Management. The agency has mentioned that the bulk of the budget will be tax-financed, while others will be debt-financed. In 2018, the government enacted the first package of its landmark Tax Reform for Acceleration

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and Inclusion Act in a bid to raise around PHP 786 billion (EUR 13.3 billion) in additional revenues over five years, 70% of which will be allocated to infrastructure development.

The Philippine government has also said that it will rely more on public funding and foreign loans and grants via Overseas Development Assistance (ODA) to avoid delays and higher project costs, versus the old model of tapping public-private partnership deals to put up big- ticket infrastructure. In terms of foreign-funding, Japan is the largest source of ODA followed by multilateral lender The World Bank and regional lender Asian Development Bank.

Other major sources of ODA are the U.S. and South Korea. Also extending loans and grants to the Philippines are Australia, United Nations System, the China-led Asian Infrastructure Investment Bank, France, the European Union, China, Germany, OPEC Fund for International Development, Italy, Canada, Spain and New Zealand.

Recent developments on key infrastructure projects in the country include:

◼ In 2019, the Asian Development Bank (ADB) approved financing for up to US$ 2.75 billion for the construction of a passenger railway linking Malolos in Bulacan to Clark economic zone and international airport in Central Luzon. This is the bank’s single largest infrastructure project financing to date. The project is co-financed with up to US$ 2 billion (EUR 1.8 billion) by the Japan International Cooperation Agency (JICA). The 53.1-kilometre Malolos-Clark railway is part of the Philippine government’s North-South Commuter Railway (NSCR) project, which spans 163 kilometres from New Clark City in Tarlac province in the north down to Calamba in Laguna province. The project is expected to be completed by 2025. As of May 2019, six contracts are out for bidding to cover parts of the project, of which five are for the Malolos-Clark section, and one for the Solis-Blumentritt section. The contracts are for the railway system, electrical, mechanical, signalling, power supply, among others.

◼ A consortium of Japanese and Filipino firms has won the contract to design and build the first phase of the Metro Manila subway project. The Department of Transportation (DOTr) said it has signed the design and build contract for the Metro Manila Subway’s first three stations, or its partial operability section, with the joint venture of Shimizu Corp., Fujita Corp.,

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Takenaka Civil Engineering Co. Ltd. and EEI Corp. The joint venture will be in charge of designing and constructing the subway’s partial operability section, which consists of its first three underground stations (Quirino Highway, Tandang Sora and North Avenue), tunnel structures, the Valenzuela depot, and the building and facilities for the Philippine Railway Institute. Partial operability of the subway with its first three stations is targeted for 2022, while full operations are eyed by 2025. This PHP 357 billion (EUR 6.1 billion) Metro Manila subway will not only be the Philippines’ first underground railway, but will also be one of its most expansive, spanning 36 kilometres with 15 stations, crossing seven local governments, and passing three of Metro Manila’s business districts. This project is partially financed by a US$ 985 million (EUR 870.1 million) loan disbursed by JICA.

Figure 6: Prospective plans for the Metro Manila Subway Source: CNN Philippines

◼ San Miguel Corp (SMC), one of the largest conglomerates in the country, is aiming to start construction activities of its massive Bulacan airport project, being positioned as an alternative and eventual replacement to Manila’s Ninoy Aquino International Airport. The PHP 735.6 billion (EUR 13.5 billion) Bulacan International Airport is currently undergoing a

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Swiss Challenge4 as of May 2019, but no bidders have emerged so far. SMC’s Bulacan Airport will rise on a 2,500-hectare property in Bulacan and will be built in phases. The first phase will consist of two parallel runways and a capacity of 35 million passengers a year. The airport could be built within three to four years, according to SMC. Eventually, it is expected to have multiple parallel runways and a capacity of more than 100 million passengers annually.

◼ In 2018, the Panguil Bay Bridge Project, to be financed through official development assistance from South Korea, broke ground. The project, with an original budget of PHP 4.9 billion (EUR 83.2 million), is a 3.48-kilometre, two lane bridge that will connect the city of Tangub in Misamis Occidental to the town of Tubod, the capital of Lanao del Norte. It is intended to cut travel time between Tangub City and Tubod to seven minutes from the current 2.5 hours. The US$ 100.13 (EUR 88.4 million) loan for the project was obtained from the Export-Import Bank of Korea (Korea Eximbank) in 2016. This project will be the longest bridge in the country once completed.

Figure 7: Digital Rendition of Panaguil Bay Bridge Source: BusinessWorld

4 A Swiss Challenge is a method of bidding, often used in public projects, in which an interested party initiates a proposal for a contract or the bid for a project. The government then puts the details of the project out in the public and invites proposals from others interested in executing it. On the receipt of these bids, the original contractor gets an opportunity to match the best bid.

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3.1.2 The Philippine Mining Industry

The Philippines is ranked 5th in the world of most mineral-rich countries. The country has the largest copper-gold deposit globally and has an estimated untapped mineral resource of more than US$ 1 trillion. Other mineral resources found in the country include limestone, marble, clays, feldspar, rock aggregates, dolomite, guano and sand and gravel resources. The Philippines has about 30 million hectares of land area that has mineral potential while 9 million hectares was already identified as having high mineral potential. As of now, Philippines has remained one of the world’s biggest nickel exporters, with the bulk of its production being shipped to China.

An administrative order prohibiting the open pit method of mining for copper, gold, silver and complex ores was issued in 2017, which resulted in the closure and suspension of mines for violation of safety standards. The Department of Environment and Natural Resources (DENR) at that period also ordered the cancellation of 75 mineral production sharing agreements. Open- pit mining under the present government is no longer banned but suspended indefinitely until the affected miners take measures to redress environmental compliance failures. Furthermore, there is a current moratorium on new mining permits until a new mining tax regime is legislated in the country.

The Philippines is reportedly losing PHP 300 billion (EUR 5.1 billion) in potential revenues with the government’s inaction to lift its ban on open pit mining. It is worth mentioning that three open pit mining projects stand to earn PHP 303 billion (EUR 5.1 billion) in national revenue and around PHP 40.4 billion (EUR 686.1 million) in local government revenue. These gold and copper projects include the Tampakan mine in South Cotabato, King-King in Compostela Valley and Silangan mine in Surigao del Norte. If these projects will move forward, the Philippines will become a major producer of copper according to Chamber of Mines of the Philippines.

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Figure 8: Open pit mine in the Philippines Source: Philippine Daily Inquirer

The Philippine government commits that a proposed mining operation will only be allowed if technically feasible, environmentally compliant, socially acceptable & financially viable. To address this, the Chamber of Mines of the Philippines (COMP), the country’s association of large-scale miners, is looking into the adoption of the Towards Sustainable Mining (TSM) initiative of the Mining Association of Canada (MAC), one of the global benchmarks in the extractive minerals industry. As of February 2019, the Mines and Geoscience Bureau (MGB) reported that around PHP 19.5 billion (EUR 331.1 million) was committed by mining companies for the development of their host and neighbouring communities through their approved Social Development and Management Programme. In addition, PHP 20.4 billion (EUR 346.4 million) was the amount committed by mining companies for the implementation of programmes and projects under their Environmental Protection and Enhancement Programmes.

The following are some highlights on mining activity in the Philippines according to the MGB:

◼ The country’s exports of metallic, non-metallic minerals and mineral products in 2018 were valued at US$ 4.26 billion (EUR 3.8 billion). Copper, gold and nickel are the country’s top mineral exports, with Japan, Australia, Canada and China being the major destinations.

◼ Workers employed in the minerals industry were estimated to be 212,000 in 2018.

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◼ In 2018, the total estimated production value for metallic minerals was PHP 121.9 billion (EUR 2.1 billion), up by 10.42% from 2017.

◼ The estimated gross value added in mining at current price in 2018 was PHP 107.9 billion (EUR 1.8 billion).

◼ The primary mineral commodities in the country are gold, nickel & nickel products, and copper that had an estimated production value of PHP 44.8 billion (EUR 760.8 million), PHP 55.2 billion (EUR 937.4 million) and PHP 20.7 billion (EUR 351.1 million) in 2018, respectively.

◼ Sand and gravel quarrying dominate the country’s mining and quarrying sector in terms of number of establishments engaged in mining and quarrying activities. This is followed by gold ore mining, nickel ore mining, stone quarrying, clay and sand pits.

The following are the operating mines and quarries in 2018:

◼ 48 metallic mines (8 gold mines, 3 copper mines, 30 nickel mines, 3 chromite mines and 4 iron mines)

◼ 61 non-metallic mines (35 limestone/shale quarries, 5 silica quarries, 15 aggregate quarries, 1 dolomite quarry and 3 clay quarries, 2 sand & gravel)

◼ 5 processing plants (2 gold processing plants, 2 nickel processing plants and 1 copper smelter plant)

◼ 3,389 small quarries and sand & gravel operations covered by permits issued by LGUs.

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Figure 9: Operating Metallic Mines in the Philippines, 2018 Source: Mines and Geosciences Bureau

By region, Calabarzon, Central Visayas and Caraga have the highest number of mining and quarrying establishments. This is followed by Central Luzon and Mimaropa. No mining and quarrying establishment are found in the Autonomous Region in Muslim Mindanao.

Nickel mines in the Philippines are located in Zambales, Palawan, Agusan del Sur, Surigao del Norte and Surigao del Sur, while gold with silver mines are in Benguet, Masbate, , Davao del Norte and Agusan del Sur.

Copper with gold and silver mines are located in Benguet, Cebu and Zamboanga del Norte. Copper mines with gold, silver and zinc can be found in , while metallurgical chromite mines are in Surigao del Norte and Eastern Samar. Iron mines can be found in Leyte.

In view of the need to address the requirements for cement, aggregates and related materials of the booming Philippine construction industry, quarry resources such as limestone, aggregates

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and other related materials used in this industry are exempted from the moratorium as recommended by the country’s Economic Development Cluster.

Around 90% of quarrying operations continue in the Ilocos Region, Central Luzon, Calabarzon, Bicol, Central Visayas, Northern Mindanao, Davao Region, and Caraga. This is a testament that the quarrying industry remains a vital component of the economy amid the administration’s ambitious infrastructure programme, but according to the DENR, regulations must be strictly enforced.

3.1.3 Key Associations

Philippine Constructors Association (PCA)

The Philippine Constructors Association (PCA) acts as a catalyst for the continuous improvement of standards and practices for the local building industry. Its aim is to achieve a sustainable and globally competitive construction industry to benefit primarily the Philippines and its people. The PCA has 1,500 members nationwide, undertaking 80% of government infrastructure projects. Members of the association are engineering, building, trade and specialty contractors duly accredited by the Philippine Contractors Accreditation Board (PCAB), including construction materials and equipment suppliers and distinguished personalities of the construction industry and other allied organisations. Associate membership is open to firms engaged in the business of manufacturing or supplying construction materials, supplies or equipment or of providing credit and guarantee facilities, underwriting insurance for the construction industry, or actually engaged as technicians performing allied or auxiliary services to the construction industry.

Construction Industry Authority of the Philippines (CIAP)

The Construction Industry Authority of the Philippines (CIAP) is established with the primary task to promote, accelerate and regulate the growth and development of the construction industry in

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conformity with national goals. It exercises jurisdiction and supervision over the following implementing boards:

◼ The Philippine Contractors Accreditation Board (PCAB), which issues, suspends, and revokes licenses of contractors; the Philippine Domestic Construction Board (PDCB), assigned to formulate, recommend, and implement policies, guidelines, plans, and programmes for the efficient implementation of public and private construction in the country.

◼ The Philippine Overseas Construction Board (POCB), which is assigned to formulate strategies and programmes for developing the country's overseas construction industry.

◼ The Construction Industry Arbitration Commission (CIAC), which takes charge of disputes arising from, or connected with, government and private contracts.

3.1.4 Entry Strategies

The Philippines offers interesting opportunities for European companies operating in the Construction Equipment, Building Materials, and Smart Building segments. Prior to establishing a direct presence in the country, European Construction & Building Technologies companies may test the Filipino market through:

◼ Partnerships and joint ventures

◼ Online commerce

◼ Tendering opportunities

◼ Tradeshow participation

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Partnerships and Joint Ventures

The Filipino market is complex. It is therefore advisable that European Construction & Building Technologies companies enter collaborations with local companies with a deep knowledge of the market. European companies may find it advantageous to enter joint ventures as this can expand distribution capacity, and local service providers can assist with providing after-sales repair and maintenance services. This may also be a popular option for European companies seeking to gauge their product’s potential in the wider South East Asian market.

Online commerce

An increasing number of consumers in the Philippines are buying products through online platforms. The Department of Trade and Industry (DTI) has recently stressed its commitment to facilitating this growth in the online market.5 It is forecasted that by 2020 the on-line market is will contribute to 25% of the country’s gross domestic. Moreover, the e-commerce market is forecasted to reach US$ 234 million by 2022.6

Tendering opportunities

Government procurement requires a local partner, including tender for construction activities. Government tenders vary and range from simple purchases such as equipment and building machinery, to consulting services for complex projects. Public tenders can be found on philgeps.gov.ph

In 2017, the government eased restrictions on eight investment areas with limited foreign participation to improve the country’s competitiveness. Included in these areas are contracts for the construction and repair of locally funded public works. Moreover, the Philippine government announced that international contractors will be allowed to participate in so-called projects of national significance, which include flagship projects under the “Build, Build”, Build” programme.

5 E-commerce seen as major growth driver by 2020, 2016, 6 Insights and trends of e-commerce in the Philippines, 2018, ASEAN UP

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Tradeshows

The largest construction show in the Philippines, Philconstruct, has been playing a major role in the industry for almost three decades. This trade show has become a solid platform that serves as a meeting place for the industry’s movers, gathering thousands of leading brands and buyers around the globe.

The Philippine Building & Construction Exposition (Philbex) is a 4-day event showcasing products like building materials, equipment and services; construction materials, equipment and services; interior designs, renovation products; mechanical engineering systems; electrical engineering systems; construction promotions; information technology; telecommunications; real estate and housing etc. in the Building Construction industry.

3.1.5 Challenges & Entry Barriers

Although it is in a developing stage, the Philippines represents an interesting market with many opportunities for the European Construction & Building Technologies sector. However, some challenges remain. Corruption, a constraint to business and outside investment, is a pervasive and long-standing challenge in the Philippines. Also, the Philippines’ complex, slow, and complicated judicial system can inhibit the timely and fair resolution of commercial disputes. Most cases take many years to reach a final verdict.

The Philippines also lags behind many of its neighbours in infrastructure development. Major improvements are needed in transport infrastructure. The VAT tax is high: a 12% tax levied on the sale of all goods and services, including imports of goods into the Philippines.

Lastly, a tight labour market could also threaten to derail the growth momentum for construction and infrastructure sectors. The Philippines has been losing its best construction workers to higher-paying jobs abroad. The Philippine Overseas Employment Administration (POEA) reports that skills required for construction such as welders and flame cutters, plumbers and pipe fitters, and wiremen were consistently among the top 10 skills in demand from 2008 to

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2014. The Trade Union Congress of the Philippines confirmed that there have been delays in the government’s infrastructure programme as a result of the shortage in construction workers. For this reason, in March 2019 it was reported that the Department of Labour and Employment may cut down the deployment of construction workers abroad by as much as 90 percent in order to mitigate the shortage of construction workers in the country.7

7 DOLE eyes 90% cut in laborer deployment, 2019, The Philippine Star

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3.2 Construction Machinery

3.2.1 Market Overview

Private and public-led infrastructure projects have been driving the demand for construction machinery in the country wherein around 60% of the demand comes from government projects and 40% from private projects according to a 2017 interview with a local construction equipment distributor.8 The Philippine Statistics Authority (PSA) reported that investments in capital formation for durable equipment grew by 5.7% in the first quarter of 2019 backed by the increase in investments on pumps and compressors which grew by 32.8% as well as mining and construction machineries which increased by 11.4%.

The market for construction machinery has become more competitive with the spurt of numerous brands that want to capitalise on the growth opportunities in the country. According to Topspot Heavy Equipment, which holds 20% of the market for heavy equipment, the annual sales of the country’s heavy equipment sector grows at around 10% to 12% per year.

Foreign construction machinery suppliers in the country are being attracted by the government’s “Build Build Build” programme, introducing a new line of products that features new technologies that improve efficiency for the Philippine market. Examples of these companies are:

◼ In 2018, U.S. construction machinery and equipment company Caterpillar Inc., through its authorised dealer Caterpillar and Monark Equipment Corp, launched the next generation CAT 320 Excavator in the Philippine market. According to the company, the CAT 320 would help to fast-track construction activities in the country as it can improve operator efficiency by 40%, while reducing its fuel consumption by 20% and cutting maintenance cost by 15%. Caterpillar expects its sales in the country to grow by 10% to 15% until 2022. The company also expects to sell an additional 80 to 100 units of industry machines annually, with excavator products sharing 60% to 70% of the total sales.

8 Equipment supplier banks on construction sector boom, 2017, The Freeman

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◼ Volvo Construction Equipment, through its Philippine distributors Civic Merchandising, Inc. and Topspot Heavy Equipment, launched its new heavy construction equipment Volvo EC200D which is the fastest 20-tonne class excavator on its product line. The Volvo EC200D offers high swing torque and unique lifting capability that makes it a suitable choice for general construction applications such as road construction, building, landscaping and utility work. Leasing services are also provided for small construction companies.

◼ In 2017, German construction equipment manufacturer Wacker Neuson partnered with MHE-Demag to launch its latest compact construction equipment that includes tracked excavators, mobile (wheeled excavators), tele handlers, wheel loaders and wheel dumpers. This range of equipment is mobile, easy to manoeuvre and compact, fitting narrow alleys perfectly and avoiding road blockage because of its size. The company mentioned that these compact excavators and dumpers are catered to smaller-scale contractors, including civil engineering and general contractors, property developers, contractors for housing, roadworks, gardening and landscape, farmers, plantation owners, miners, rental parks, recycling yards, logistics, and communal works, among many others. Furthermore, MHE- Demag offers flexible financing options for these new products lines, with an option to rent equipment for as low as US$ 50 per day.

◼ Toyotsu Columbian Equipment and Solutions Inc. (TCES), the product of partnership between two of Japan’s leading construction machinery brand distributors Columbian Motors Corporation and Toyota Tsusho Group, brought Kobelco to the Philippines in 2017 through the introduction of the Kobelco Generation-10 excavator. Designed to bring higher productivity through increased power and enhanced fuel economy, the Kobelco New Generation-10 SK200 and SK210LC machines has a hydraulic system that minimises fuel consumption while maximising power. The machines were also made and tested to operate in tough working environments with its infiltration system that reduces risk of mechanical trouble. Another safety feature of the machines is its operator seat that has high level airtightness, quiet cabin interior, tough protection from vibration, rear view mirrors, and a large air conditioner. The Kobelco machines also come with a remote monitoring system which uses satellite communication and internet to relay data. It can provide information on

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the machine’s operation including operating hours, location, fuel consumption, and maintenance status remotely.

Among all applications of construction machineries, the majority of the revenues come from the construction sector followed by the mining sector. Developments in these two sectors have a direct impact on the sales and rental of construction equipment, particularly excavators, which comprise half of the demand for construction machinery in the country.

The Philippine construction equipment industry is highly dependent on imports from countries such as China, Japan, South Korea, the US and European countries. In 2018, the Philippines imported US$ 928 million (EUR 822.2 million) worth of construction machinery9 based on data from the ITC Trade Map. It can be seen that imports of these products are generally on upward trend from 2014 to 2018.

Imported Imported Imported Imported Imported Exporters value in 2014 value in 2015 value in 2016 value in 2017 value in 2018

Total 231,547 345,052 393,148 515,489 734,228 China 70,410 100,299 122,140 129,734 234,999 Japan 75,651 105,760 141,447 133,083 166,733 Korea, 34,149 53,253 58,641 95,855 128,368 Republic of Thailand 15,720 33,965 28,815 51,641 95,333 Indonesia 2,046 5,514 11,660 39,806 37,256 India 4,120 9,048 4,277 5,579 16,661 Belgium 370 - 130 6,752 13,436 Singapore 2,144 3,994 3,879 3,587 6,981

Hong Kong, 1,836 677 1,281 4,727 4,542

Germany 1,384 2,376 2,266 6,775 4,027 Table 6: Value of HS 8429 Imports (Self-Propelled Bulldozers, Angledozers, Graders, Levellers, Scrapers, Mechanical Shovels, Excavators, Shovel Loaders, Tamping Machines and Roadrollers) Units: Thousands US$ Source: ITC Trade Map

9 HS codes 8429, 8430 and 8474

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China is the largest supplier of construction machines under HS code 8429 followed by Japan and South Korea. Among EU countries, Belgium and Germany are included in the top suppliers to the Philippines having a rank of 7th and 10th for 2018, respectively. It is worth noting that almost all of the major exporters to the Philippines have increasing export value from 2014 to 2018.

Imported Imported Imported Imported Imported Exporters value in 2014 value in 2015 value in 2016 value in 2017 value in 2018

World 27,515 49,426 32,597 50,634 62,997 China 12,146 8,421 7,104 16,805 20,443 Japan 2,550 5,762 4,084 9,053 11,595 Korea, 1,327 2,665 1,524 2,191 4,250 Republic of Sweden 2,717 5,063 1,214 513 4,146 Singapore 1,316 4,342 2,748 5,150 3,658 Germany 1,851 3,717 3,667 893 3,528 Italy 94 1,206 3,113 2,887 2,552 Canada 59 333 326 831 2,068 Finland - 2,844 1,285 5,039 1,898 United States 138 1,694 2,732 966 1,527 of America Table 7:Value of HS 8430 Imports (Moving, Grading, Levelling, Scraping, Excavating, Tamping, Compacting, Extracting or Boring Machinery, for Earth, Minerals or Ores) Units: Thousands US$ Source: ITC Trade Map

For products under HS code 8430, it is still China, Japan and South Korea which had the most exports to the country in terms of value. However, four EU countries - namely Sweden, Germany, Italy and Finland - belong to the top ten suppliers to the Philippines. China, Germany and Japan, on the other hand, were the top suppliers of products under HS code 8474. France is also included in the top 10 suppliers for 2018.

Imported Imported Imported Imported Imported Exporters value in 2014 value in 2015 value in 2016 value in 2017 value in 2018 World 85,246 106,018 97,718 149,977 130,811

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Imported Imported Imported Imported Imported Exporters value in 2014 value in 2015 value in 2016 value in 2017 value in 2018 China 30,577 34,350 27,599 46,363 47,986 Germany 6,828 22,440 5,288 19,299 14,580 Japan 2,670 3,680 6,951 22,061 8,941 India 4,512 9,966 8,940 9,084 7,349 Australia 5,291 2,059 4,144 3,030 6,348 Singapore 3,072 4,726 2,639 6,861 5,543 Korea, 1,678 2,210 3,676 4,068 5,464 Republic of Taipei, 1,129 2,773 4,085 2,252 4,197 Chinese Thailand 696 803 1,057 2,808 3,651 France 7,591 3,234 2,453 2,280 3,128 Table 8:Value of HS 8474 Imports (Machinery for Sorting, Screening, Separating, Washing, Crushing, Grinding, Mixing or Kneading Earth, Stone, Ores or Other Mineral Substances) Units: Thousands US$ Source: ITC Trade Map

The construction machinery industry in the Philippines is becoming increasingly sophisticated and there is intense competition among well-established players such as Hitachi Philippines, Caterpillar Inc., Volvo, and Komatsu.

In the country, important buyers of construction machinery are:

◼ Department of Public Works and Highways (DPWH)

◼ Contractors/ Developers

◼ Mining Companies

Contractors/ Developers

Company Profile Link

Ayala Land This real estate firm is publicly listed in the www.ayalaland.com.ph Philippine Stock Exchange, and it focuses on strategic land bank management, residential development, shopping centres, corporate businesses, and hotels.

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Contractors/ Developers

Company Profile Link

San Miguel Corp. This is a Filipino multinational publicly listed www.sanmiguel.com.ph conglomerate holding company. It is the Philippines' largest corporation in terms of revenue.

EEI Corporation This publicly-listed company engages in general www.eei.com.ph construction. It was originally established as machinery supply house for the mining industry and eventually expanded into provisioning construction services and a broader range of industrial machinery and systems.

Megaworld Corporation This real-estate company develops large-scale, www.megaworldcorp.com mixed-use, planned communities incorporating residential, commercial, educational, and leisure components.

Philippine National PNCC is a majority government-owned and/or www.pncc.ph Construction Corp. (PNCC) controlled corporation in the Philippines. It is the largest construction company in the Philippines and in South East Asia.

SM Development Corp. SM Development Corporation invests and www.smdc.com (SMDC) develops real estate properties. The Company offers stores, malls, banks, hotels, and leisure facilities.

Robinsons Land This company is involved in the development and www.robinsonsland.com Corporation operation of shopping malls and hotels, mixed-use properties, office buildings, residential condominiums, as well as land and residential housing projects

Century Properties This is a real estate company in the Philippines www.century-properties.com focusing on high-rise and mid-rise residential condominiums and mixed-use developments.

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Contractors/ Developers

Company Profile Link

Filinvest Development The company is a conglomerate that operates www.filinvestgroup.com Corporation subsidiaries involved in real estate development and leasing, the sales of housing units, and hotel and resort management.

Megawide Construction This is a leading construction company that has megawide.com.ph Corporation completed numerous low-rise and high-rise condominiums and industrial buildings, including the Antel Spa Residences, Citysquare Residences, Bellevue Hotel, Hotel Kimberly Tagaytay, Millenia Tower and Parcvue Hotel.

Table 9: Example of Contractors / Developers Buyers of Construction Machinery in the Philippines

Mining Companies

Company Profile Link

Benguet Corp. This company is engaged in gold, nickel and other benguetcorp.com metallic and non-metallic mineral production, exploration, research and development and natural resource projects.

Lepanto Consolidated Lepanto is engaged in gold bullion production. The www.lepantomining.com Mining Company Company produces gold from its Victoria Project, which is located in Mankayan, Benguet.

Philex Mining Corp. This is the largest gold and copper producer in the www.philexmining.com.ph Philippines, having continuously operated the Sto. Tomas II deposit at Padcal, Tuba, Benguet, Philippines since 1958.

Oceana Gold (Philippines), This is a Canadian-Australian firm producing gold www.oceanagold.com Inc. and copper. It has operations in New Zealand and the Philippines, where it engages in the exploration, development, operation, and production of gold and other minerals.

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Mining Companies

Company Profile Link

Atlas Consolidated Mining & Atlas is engaged in metallic mineral mining and www.atlasmining.com.ph Development Corp. exploration, and produces copper concentrate (with gold and silver), magnetite iron ore concentrate and laterite nickel.

Apex Mining Co., Inc. Apex is engaged in the business of mining, milling, www.apexmines.com concentrating, converting, smelting, treating, minerals such as gold, silver, copper, and lead.

Philippine Associated PASAR owns and operates copper smelter and www.pasar.com.ph Smelting & Refining Corp. refinery in the Philippines. Its products are used in (PASAR) various applications ranging from building constructions to industrial equipment.

Table 10: Example of Mining Companies Buyers of Construction Machinery in the Philippines

Excavator use in the country is still at low levels compared to many developing economies, although the local market is still growing.10. According to recent analyses: 11

◼ Imported excavators dominate the Philippine market, mainly from leading global brands such as Hyundai, Volvo, Caterpillar

and Komatsu. Figure 10: Excavators Account for 50% of Total Sales of Building Equipment ◼ Most of the exclusive dealers of major brands in excavator sales market in the Philippines are also in the rental market business. These companies generally have a fleet size of more

10 Philippines Excavator Market Forecast to 2020, 2016, PRNewswire 11 Hyundai, Volvo, Komatsu and Caterpillar are the leading Companies in Philippines Excavator Market, 2016, The Hans India and Philippines Excavator Market Forecast to 2020, 2016, PRNewswire

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than 70 excavators and offer a wide variety of excavators as compared to independent rental companies. The majority of small rental companies offer compact and low powered medium excavators.

◼ The Philippines’ excavator market is segmented based on engine power. Excavators with engine power in the range of 75-300hp (medium range) hold the highest market share.

◼ The share of compact excavators is expected to rise. Sales of wheel type excavators are also expected to increase as urbanisation increases.

◼ The limited number of high buildings in the Philippines is the major factor which constrains the sale of long reach/long arm excavators.

HVAC systems

Being located in a tropical region, the climatic conditions in the Philippines create demand for cooling in both residential and commercial buildings. In contrast with neighbouring countries, window air conditioners remain the most popular type of room air conditioner in the country, while mini splits (units have a split design but without an elaborate system of ducts) are becoming more requested.

Imports of HVAC systems have grown steadily from 2014 to 2018, reaching a value of US$ 704.4 million12 (EUR 624.1 million). Asian countries, led by China and Japan, are the largest suppliers of HVAC systems in the Philippines. Major suppliers from the EU include Germany, Belgium, Finland and the U.K.

Imported Imported Imported Imported Imported Exporters value in 2014 value in 2015 value in 2016 value in 2017 value in 2018 Total 143,622 185,296 265,089 267,329 298,852 China 31,266 36,835 52,846 59,205 90,580 Japan 25,026 40,417 55,864 58,539 45,551 United States 7,825 7,670 17,198 18,914 24,652 of America Malaysia 14,861 13,565 29,280 27,309 22,714

12 HS codes 8414, 8415, 8416

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Imported Imported Imported Imported Imported Exporters value in 2014 value in 2015 value in 2016 value in 2017 value in 2018 Singapore 13,844 16,186 16,966 21,896 17,789 Germany 5,198 4,124 5,453 8,119 15,108 Thailand 7,315 12,999 15,756 13,101 14,439 Taipei, 9,431 11,619 14,166 9,068 10,765 Chinese Belgium 6,674 7,886 12,412 12,377 9,963 Korea, 3,612 3,581 8,990 7,109 9,644 Republic of Table 11: Imports of Air or Vacuum Pumps (HS code: 8414) Units: Thousands US$ Source: ITC Trade Map

Imported Imported Imported Imported Imported Exporters value in 2014 value in 2015 value in 2016 value in 2017 value in 2018 Total 152,359 205,080 328,726 371,098 398,521 Thailand 40,538 46,596 81,412 112,630 128,030 China 44,404 56,151 98,106 97,018 120,365 Malaysia 15,132 18,224 44,101 52,225 57,013 Korea, 2,371 10,745 25,770 24,102 22,037 Republic of Japan 13,954 23,832 15,257 22,892 21,223 Viet Nam 11,789 13,296 14,908 15,866 11,764 Hong Kong, 8,070 8,609 21,093 19,294 10,951 China Singapore 6,322 6,421 11,733 11,091 9,540 United States 1,814 3,481 3,203 1,757 4,582 of America Taipei, 3,368 7,776 5,804 3,758 3,264 Chinese Table 12: Imports of Air conditioning machines comprising a motor-driven fan and elements for changing the temperature and humidity (HS code: 8415) Units: Thousands US$ Source: ITC Trade Map

Imported Imported Imported Imported Imported Exporters value in 2014 value in 2015 value in 2016 value in 2017 value in 2018 Total 11,784 13,680 11,493 10,761 6,990 China 2,741 2,280 2,588 1,300 3,129 United States 3,648 706 583 1,502 1,153 of America

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Imported Imported Imported Imported Imported Exporters value in 2014 value in 2015 value in 2016 value in 2017 value in 2018 Japan 508 2,348 477 4,281 679 Germany 1,327 1,789 1,285 1,370 629 Korea, 76 66 1,752 103 402 Republic of Finland 1,947 896 109 151 192 Taipei, 1,067 3,549 314 146 148 Chinese United 10 404 61 798 132 Kingdom India 9 777 2,814 40 116 Singapore 8 83 128 87 104 Table 13: Imports of Furnace burners for liquid fuel, for pulverised solid fuel or for gas (HS code 8416) Units: Thousands US$ Source: ITC Trade Map

According to Chinese air-conditioning systems company TOSOT, there is a growing demand for innovative and premium solutions for air-conditioners in the Philippines based on consumer sentiment for quality brands. The company mentioned that there have been an increasing number of consumers that have started to upgrade their air-conditioning systems going beyond cooling their rooms. More customers are gearing towards efficient and quiet air-condition systems that cheaper products do not have. Premium brands also have growing potential in the Philippines’ market where there is a growing middle class that is keen to upgrade their appliances. Moreover, suppliers in the market such as Mitsubishi Electric is optimistic in the country’s HVAC market due to the upwards trend in economic and business activities of companies, locators and manufacturers the country.

In 2017, Mitsubishi Electric, through its local affiliate International Elevator & Equipment Inc. (IEE), brought into the local market one of Europe’s top commercial and industrial air- conditioning brands, Italy-based Climaveneta which was marketed not only in Manila but to other regional cities in the country such as Cebu.

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Local Players

In the Philippines, most local construction machinery companies are distributors of American, Japanese, and European brands.

Kilton Motor Corporation was established in 1986 and serves the Philippines’ needs for commercial trucks, Japanese generators with small to 2-megawatt capacity, warehouse and material handling equipment, and motorsports organisation and distribution. With more than 25 years of experience, and expertise on rental of equipment and parts supply, the parent company Brighton Machinery Corporation (BMC) is the exclusive dealer of Hitachi construction & mining equipment, Bell equipment, and John Deere Construction equipment in the Philippines. Presently, Brighton has an existing Cebu branch office, and planned branches in Davao and .

Monark Equipment is one of the leading players in the Philippines. The company is the sole dealer of Caterpillar equipment in the country. Monark Equipment was founded in the Philippines in 1987, specialising in earth-moving machinery. Major projects undertaken by the company in the country include the Philippine Nuclear Power Plant, Pantabangan Dam, Magat Dam, Makban Geothermal, San Roque Dam Roadworks. In 2015, the company Monark passed the ISO 9001: 2008 certification. PowerAsia Equipment Resources Inc. is a member of the Monark Group of Companies, and has been a distributor of FG Wilson generators since 1999.

Castle Power Solutions Philippines is a Filipino construction machinery company specialising in earthmoving equipment. The company is the sole appointed distributor of Perkins products and services and has also been awarded the exclusive distributorship of Shandong Sem Machinery Co., Ltd., a wholly owned Caterpillar heavy equipment manufacturer in Shandong, China.

Guzent is a company headquartered in the Philippines specialising in the sale of construction equipment. The company has been in business for over 50 years. Guzent has a 24,000 square meter facility right in the heart of Metro Manila. In the Philippines, the company is involved in the sales and rental of aerial platforms, air compressors, backhoes, loaders, boom trucks, cranes, excavators, forklifts, generators, graders, hydraulic breakers, jack hammers, light towers, wheel

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loaders, road rollers, vibratory compactors, scissor lifts, skid steer loaders, tele-handlers, telescopic clamshells, trucks, and welding machines.

3.2.2 EU Entry Opportunities

Within the context of entry opportunities for European companies, it is important to highlight the following points:

◼ The first element that Filipino customers consider is whether to buy or rent construction machineries. This is determined by the period of usage, the availability of machine with desired operating characteristic / features and rental amount, terms and conditions. If the usage is to be long enough and if the buyer has sound financials, Filipinos usually prefer to buy than rent. Mining companies generally prefer buying their machines and secure a customised maintenance programme to reduce downtime. Clients rent only for specific use or when the machine is needed for only a short period of time.

◼ Having good technical support, training and services is a crucial factor that Filipino distributors and end-users take into consideration when choosing and promoting a product or service, especially if it is new in the market. The country is prone to natural disasters. That is why risk management abilities are an important factor that developers take into account in choosing a contractor.

◼ The capital-city of Manila offers the most interesting opportunities. The construction boom in the city creates demand for construction equipment. Moreover, most sales of building machineries take place in Manila because the head offices of construction companies are based there. However, it is worth noting that construction in other major cities such as Cebu and Davao are picking-up and is expected to grow in the coming years. As a result, construction companies are opening up in these cities to cater to the growing demand.

◼ Public tenders. Competition from Asian countries offering low-priced products creates the need for sellers of premium equipment to start connecting with the clients pre-bidding in order to explain why the products offered are more expensive.

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◼ If the buyer is from the private sector, the crucial factors are referrals and reputation. Products and services from European countries are associated with better quality and durability than cheaper ones from China.

◼ Online channel. According to a study released by market research firm Nielsen, an estimated 80% of internet-savvy Filipino consumers would buy new products from familiar brands rather than switch to a new brand. To help the public familiarise with the brand, it is advisable to advertise with endorsements from local celebrities and using channels such as TV, major national newspapers, and social media, which has been proven to be an effective strategy in the Philippines’ market.13

European Players

J.C. Bamford Excavators Ltd. (JCB)

JCB is one of the largest construction equipment manufacturers in the world and is headquartered in the United Kingdom. Their current exclusive distributor in the Philippines is Icon Equipment Solutions Philippines, Inc.

To expand in the market, JCB and Icon set out the following strategy:

◼ JCB products would be positioned competitively below the prices of popular American and Japanese models.

◼ They mainly target to compete with Korean-brand heavy equipment, particularly backhoe loaders.

◼ Focus on durability and cost-efficiency of the products, allowing customers to save on fuel expenses.

◼ Icon is planning to increase its dealers in Luzon from two to five, expanding to the Visayas and Mindanao islands.

13 Celebrity endorsement still seen effective among millennials, 2017, BusinessMirror and Who’s winning the Philippines’ e-commerce arena: local or international players?, 2017, Marketing-Interactive.com

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◼ It is also worth noting that since Icon is a relatively new player, they have embarked on aggressive marketing activities such as engaging the press through press conference and press releases

Aside from JCB, Icon also carries Industrial Vehicle Corp. (Iveco), an Italian truck, bus and light- commercial vehicle manufacturer; and Fiori Group, an Italian concrete equipment manufacturer.

Volvo Construction Equipment

Volvo Construction Equipment is a major international company that manufactures equipment for construction and related industries. The company was founded and headquartered in Sweden.

In the Philippines, Volvo CE has a strong brand name and is the second largest player in the excavator market, just next to Hyundai. Aside from excavators, it also provides compactors, wheel loaders, articulated haulers and asphalt pavers for the Philippine market. Their main clients in the country are the Department of Public Works and Highways (DPWH) and private contractors. Volvo granted exclusive distributorship to Civic Merchandising, Inc. in 1986.

In 2019, four EC210D units from Volvo provided protection to Filipino villagers living near the volcano. The heavy-duty machines are building spillways to direct lava, debris and rain away from populated areas, while simultaneously preserving valuable aggregate resources. The Mayon volcano near the city of Legazpi is one of the most active volcanoes in The Philippines. While volcano soil is extremely fertile for farming, lava flows are always a hazard.

CNH Industrial N.V.

CNH Industrial N.V. is one of the world's largest capital goods companies with a corporate office in London. Through its subsidiaries, they design, manufacture, market and finance agricultural and construction equipment, trucks, commercial vehicles, , and specialty vehicles, engines, transmissions, and axles worldwide. For the construction division, they own Case Construction Equipment that provides a full line of construction equipment such as compact track loaders, crawler dozers, crawler excavators, backhoe loaders, motor graders, skid steer loaders and wheel loaders.

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In the Philippines, Case Construction Equipment is distributed by BJ Marthel International, Inc. and Filholland Corporation. Their equipment is mainly sold to the DPWH and private contractors.

Case Construction Equipment, together with its distributor, Filholland, took part in Philconstruct 2018, the biggest exhibition in the Philippines for the building and construction industry. During the event, Case showed its CASE SR130 skid steer loader and a CASE 845B motor grader. The CASE skid steer loader is ideal for a variety of applications, such as light construction work in building or infrastructural projects, as well landscaping and agricultural applications. Meanwhile, the B-Series motor graders are for quarrying applications.

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3.3 Building Material and Building Installation

3.3.1 Market Overview

The Philippines is heavily dependent on imported building and construction materials, with high demand across the sector. Basic materials such as cement, aggregates, reinforcing steel bars, galvanised iron sheeting and lumber are imported in large quantities, primarily because of shortfalls in local production and its comparatively high cost.14

According to real estate services firm KMC Savills, prices of construction materials, particularly cement are expected to rise due to strong demand from the public and private sectors and the imposition of tariffs on imports.

The DTI said it will be imposing a provisional safeguard duty of PHP 210 (EUR 4) per metric tonne of imported cement in the form of a cash bond for a period of 200 days, as cement imports have surged and harmed the competitiveness of domestic players. While the provisional tariff is in place, the Tariff Commission is conducting a formal investigation on whether there is a need to impose definitive safeguard duty on imported cement to protect the local industry.

With the “Build, Build, Build” infrastructure programme of the government, the cement industry is now at the forefront of the country’s economic boom. The industry has been experiencing significant progress and is expected to grow even more due to the increased investment in infrastructure that fuels demand for cement and other construction materials.

The growth of the Philippines’ cement industry has been a key element of the country’s economic advancement, as it has allowed for the development of its infrastructure. Today the industry comprises several domestic and multinational players who have manufacturing facilities scattered throughout the archipelago. It is expected that future cement demand shall be primarily driven by the growth in the construction sector.

The Philippine cement market regions can be divided into the three main island groups: Luzon, Visayas and Mindanao. Historically, the Luzon region has been the primary market for the

14 Building and construction to the Philippines, Austrade

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Philippine cement industry accounting for more than 65% of the total cement demand in the country as of 2015.15 With the National Capital Region, which serves as the centre of construction and infrastructure activity in the country located within the region, the Luzon market has the highest per capita cement consumption among the three regions.

Cement is sold through either of the two mediums: in cement bags or in bulk. The Philippine cement market is mainly a bagged market wherein cement bags constitute about 80% of the total industry sales. Cement bags (i.e. cement packaged in 40-kilogram bags) are usually sold to dealers and distributors for usage of retail customers. The remaining 20% is sold in bulks which are usually transported in trucks or 1-tonner bags. Cement sold in bulk is directed to ready-mix concrete (RMC) facilities and other concrete products producers. Most of the RMC and concrete products end users are major infrastructure projects.16

The distribution channels in the Philippines are slightly different between those for cement bags and for bulk cement. Cement bags are almost exclusively sold through over a hundred independent wholesalers such as dealers and distributors. These wholesalers are usually associated with various cement producers although there are also a few which exclusively carry brands of a single manufacturer. Wholesalers either pick-up cement from the plant or have it delivered to their depots by the cement companies. Wholesalers mainly sell cement bags although a small amount of bulk cement (around 5% of total volume) is also being sold. These dealers and distributors sell cement to retailers which usually have outlets selling a variety of building material to the public. As for bulk cement, this is mainly sold directly by the manufacturers to RMCs, concrete product producers, projects contractors and developers.17

As a result of the robust growth in cement consumption, the Philippine cement market has seen significant growth in imports of both clinker and cement. These imports are brought into the country either by existing industry players or independent importers.

The Board of Investments (BoI) is seeking for more cement investments as it expects demand to double by 2020. Based on the projection provided in the 2017 Cement Market Report, the

15 Philippines: a clean bill of health, 2018, LEK Consulting 16 Eagle Cement Soars, 2017, BizNewsAsia 17 Eagle Cement’s Annual Report, 2017, Eagle Cement

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industry would need an addition of about 11.55 million tonnes of cement capacity to address the cement consumption requirements until 2025.To address this demand gap, existing players may either build capacity expansions or import clinker and/or cement from abroad. The latter is especially true for multinational cement countries which have operations in nearby countries.

In 2017, building solutions provider Holcim Philippines introduced roller compacted concrete to the Department of Public Works and Highways (DPWH). The roller compacted concrete is expected to help speed up the road construction process especially for secondary thoroughfares in the country. Holcim Philippines also successfully deployed a concrete that enables roads to open in 12 to 24 hours after maintenance and/or repair. Dubbed SuperFast- Crete, this was used for the repairs of C5 and EDSA, two of the busiest highways in Metro Manila, in the past two years. The company is also proposing and testing soil stabilisation technology, which improves the existing soil condition in areas where the available ground is unsuitable for road construction projects.

Figure 11: Mobile Laboratory of Holcim Philippines Source: BusinessWorld

Knowing that road expansion plans are concentrated at the countryside, where access to testing and other technical support is difficult, Holcim Philippines also developed mobile laboratories starting 2017. These well-equipped labs are deployed to project sites to conduct material testing of concrete, aggregate, soil and other as-built requirements leveraging optimisation and cost savings for the contractors. These also serve as a classroom-on-wheels

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for project workers who need to be trained on how the best practices or even latest techniques in building.

Meanwhile, steel consumption in the Philippines is also likely to rise by 5% - 6% in 2019 to a record 11.1 million tonnes, as the country’s economy continues to grow, the head of the Philippine Iron and Steel Institute told Reuters. After rising just 2% in 2017 due to high prices, the nation’s steel consumption jumped about 9% in 2018 to a record 10.5 million tonnes, driven by public and private construction projects according to the Philippine Iron and Steel Institute.

Domestic steel demand will be supported in the next few years by the “Build, Build, Build” infrastructure programme, under which the country is set to build more roads, bridges, railways and airports and upgrade existing ones.

The Philippines imports about 70% of its steel, with half of imports coming from the world’s top producer and exporter, China.18 In 2018, China’s second-largest steelmaker, the state-owned HBIS Group, has signed an agreement to develop the Philippines’ first integrated steel complex as Chinese steelmakers look to export production overseas. The HBIS Group is to develop the US$ 4.4 billion (EUR 3.9 billion) plant in Mindanao, the main island in the country’s south. This will be China’s largest single investment in the country to date. The integrated steel complex will be capable of processing iron ore into various steel products and producing up to 8 million metric tonnes of steel annually once completed according to the DTI. However, the project is still undergoing feasibility studies, with no definite timeline yet for its completion.

In 2017, China banned induction furnaces in a crackdown on polluting producers of low-quality machines and these machines have made their way to some parts of South East Asia, including the Philippines, which is a major steel importer. As a result of this, the Philippine rebar market is under attack by producers of induction furnace producers who sell the products 20% cheaper than those of from electric arc furnaces.19 In 2018, the total capacity of induction furnaces in the Philippines surged to 400,000-500,000 tonnes from 150,000-200,000 tonnes in 2016 according to Philippine steelmaker Steel Asia Manufacturing Corp.

18 Philippine steel use seen at record high, 2019, BusinessWorld 19 China's outcast steel machines find unwelcome home in Southeast Asia, 2018, Reuters

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With the proliferation of the substandard steels in the market in order to meet the demand of the booming construction industry, the Philippine Iron and Steel Institute urged the DTI to closely monitor the sales of reinforcing steel bars in the country as many have found to be below the standard prescribed. The group had found out that several hardware stores in Southern Luzon are selling below quality rebars after a market monitoring operation within the region discovered it. The identified areas are Cavite, Laguna, Batangas and Occidental Mindoro.

Furthermore, consumer welfare advocacy groups sought tougher actions from concerned government agencies against the proliferation of imported sub-standard construction materials currently flooding the local market. The National Coalition of Filipino Consumers (NCFC) has warned that unabated importation of low-quality construction materials, specifically cement and steel, could prejudice the government’s infrastructure projects and endanger the lives of the people when earthquake and other calamities strike.

In addition, the United Filipino Consumers and Commuters (UFCC) urged the Bureau of Customs to issue immediately an alert order against a suspected PHP 360 million (EUR 6.1 million) worth of steel shipment from China at the Subic Bay Metropolitan Authority because it is an alleged tariff scam and the cargo is sub-standard.

For its part, the DTI has implemented policies meant to ensure that architects and contractors use only high-quality building materials and came out moreover with proposals that tighten requirements for steel imports. It has released a draft circular amending the implementing guidelines for the mandatory certification of steel products covered by the Philippine National Standards, mandating a higher sample size for steel imports testing.

Aside from accrediting contractors, the DTI will also begin to accredit hardware stores that sell quality goods. Failure to comply with mandatory certifications may also result in the DTI cancelling the establishment's business name certificate, recommending the cancellation of its business registration, permit, license, and other clearances to the respective local government unit.20 The DTI’s intensified monitoring and enforcement efforts shall include going after

20 DTI tightens monitoring of construction materials, 2019, Rappler

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unscrupulous importers, traders, and retailers that intentionally disregard the mandatory product certification scheme of the Bureau of Philippine Standards.

In 2018, the Department of Agriculture (DA) announced that it is seeking to develop the building materials market for coconut farmers by touting coconut by-product material as ecologically friendly and low-cost. The DA mentioned that it is in talks with the US Department of Agriculture (USDA) to develop technologies that will efficiently incorporate coconut by-product like shells and husks into bricks and roofing material. Engineers from the US will design a facility in the Philippines to process the materials into bricks and roofing for the benefit of farmers.21 The DA mentioned that the project’s output will be suitable for low-cost housing.

Meanwhile, French mortar manufacturing companies Sika and Parex have joined forces to capture a bigger share of the growing Philippine market for finished building materials. Sika Philippines Inc. and Parex in the Philippines have converged following Sika’s successful global acquisition of the Parex Group in May 2019. Both companies have local manufacturing operations, Parex in Taguig and Sika in , where 90% - 95% percent of products for local distribution are produced. Parex will gain access to Sika’s well-established presence in projects, and Parex’s expertise in building finishing i.e., façade, skim coat, tile setting mortar solutions, etc. will allow Sika to expand in these growing and attractive markets in the Philippines.

Construction materials are generally imported from neighbouring countries like China and Vietnam. The market is price-sensitive, and proximity allows saving on time and cost. China is the leading supplier of construction materials, making the market in the Philippines often volatile. Regarding the main materials used in the local construction industry, the following points can be highlighted:22

◼ Earths and stone; plastering materials, lime and cement. Philippine imports greatly outnumber exports; in 2018 the country imported goods valued at more than US$ 680 million

21 DA flags development of building materials market for coco waste, 2018, BusinessWorld 22 For detailed trade data please refer to the chapter 5.3

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(EUR 602 million), whereas sales abroad amounted to just US$ 28 million (EUR 24.8). Vietnam and China are the main suppliers to the country.

◼ Wood and articles of wood. The Philippines’ imports of wood have grown from US$ 396 million (EUR 350.9 million) in 2014 to US$ 774.6 million (EUR 686.3 million) in 2018. China and Canada were the top suppliers in 2018. On the other hand, Philippine exports of woods amounted to US$ 675 million (EUR 598) in 2018 from US$ 1.4 billion (EUR 1.2 billion) in 2017. Japan was by far the biggest market for Philippine wood exports.

◼ Articles of stone, plaster, cement, asbestos, mica or similar. Similar, to other construction materials, China is the main supplier, followed by other Asian countries such as Thailand and Japan. Germany was ranked 8th largest supplier in 2018, registering an export value of US$ 5.9 million (EUR 5.2 million)

◼ Ceramic products including tiles. The Philippines imported US$ 730 million (EUR 646.8 million) worth of ceramic products in 2018 with China as the top supplier with an export value of US$ 593.2 million (EUR 525.6 million). Meanwhile, the Philippines’ exports of this category was only US$ 37.1 million (EUR 32.9 million) in 2018.

◼ Glass and glassware. China is the leading supplier in 2018, having a 49% share of the total imports of the Philippines. Exports from the Philippines in the same year were valued at just US$ 46 million (EUR 40.8 million), with Japan, Australia, and the US as the main markets.

◼ Iron and steel. The Philippines represent a vast market for iron and steel, and import flows have been growing steadily in the last five years. In 2018, the country imported iron and steel valued at more than US$ 5.2 billion (EUR 4.6 billion), up from US$ 1.7 billion (EUR 1.5 billion) in 2014. China was the top supplier of this product followed by Russia and Japan.

In the country, important buyers of construction materials and building installation are:

◼ Department of Public Works and Highways (DPWH)

◼ Contractors/ Developers

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Contractors/ Developers

Company Profile Link

Ayala Land This real estate firm is publicly listed in the Philippine www.ayalaland.com.ph Stock Exchange, and it focuses on strategic landbank management, residential development, shopping centres, corporate businesses, and hotels.

San Miguel Corp. This is a Filipino multinational publicly listed www.sanmiguel.com.ph conglomerate holding company. It is the Philippines' largest corporation in terms of revenue.

EEI Corporation This publicly-listed company engages in general www.eei.com.ph construction. It was originally established as machinery supply house for the mining industry and eventually expanded into provisioning construction services and a broader range of industrial machinery and systems.

Megaworld This real-estate company develops large-scale, mixed- www.megaworldcorp.com Corporation use, planned communities incorporating residential, commercial, educational, and leisure components.

Philippine National PNCC is a majority government-owned and/or www.pncc.ph Construction Corp. controlled corporation in the Philippines. It is the largest (PNCC) construction company in the Philippines and in South East Asia.

SM Development SM Development Corporation invests and develops www.smdc.com Corp. (SMDC) real estate properties. The Company offers stores, malls, banks, hotels, and leisure facilities.

Robinsons Land This company is involved in the development and www.robinsonsland.com Corporation operation of shopping malls and hotels, mixed-use properties, office buildings, residential condominiums, as well as land and residential housing projects

Century Properties This is a real estate company in the Philippines www.century-properties.com focusing on high-rise and mid-rise residential condominiums and mixed-use developments.

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Contractors/ Developers

Company Profile Link

Filinvest The company is a conglomerate that operates www.filinvestgroup.com Development subsidiaries involved in real estate development and Corporation leasing, the sales of housing units, and hotel and resort management.

Megawide This is a leading construction company that has megawide.com.ph Construction completed numerous low-rise and high-rise Corporation condominiums and industrial buildings, including the Antel Spa Residences, Citysquare Residences, Bellevue Hotel, Hotel Kimberly Tagaytay, Millenia Tower and Parcvue Hotel.

Table 14: Examples of Buyers of Construction Materials in the Philippines

Local Players

GT Stoneworks is one of the premier producers of stone wall claddings based in Manila. Currently housing an inventory of 60 distinct profiles with several colour combinations designed to suit the needs for indoor and outdoor stone wall finishing. The finished products are used in residential and commercial applications and have been featured as one of the most innovative product lines in South East Asia.

To complement its existing product lines further, GT Stoneworks has introduced artificial grass line manufactured using imported yarns from Belgium, the Netherlands and the United Kingdom. GT’s products provide a viable alternative in finishing requirements for both indoor and outdoor settings. Using UV protected polypropylene and polyethylene resins, its artificial grass comes in different colours, pile heights and density to address decorative and functional needs.

Cemex is one of the leading cement producers in the Philippines, according to the Cement Manufacturers Association of the Philippines. The company produces and markets cement and cement products in the Philippines through direct sales using its extensive marine and land distribution network. The company’s cement manufacturing subsidiaries have been operating in

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the Philippines for over 17 years, and have well established brands, such as APO, Island and Rizal, each with a multi-decade history in the Philippines.

In 2019, Cemex Philippines has broken ground on the new US$ 235 million (EUR 208.2 million) production line at its Solid Cement plant at Antipolo in Rizal. The new production line will increase the plant’s production capacity to 3.4Mt/yr from 1.9Mt/yr, according to BusinessWorld. The upgrade is intended to support the government’s “Build, Build, Build” infrastructure programme.

Kenneth and Mock Designs is a Filipino company that only distributes materials and technology from Europe for the construction industry in the window and door segment. Established in 1997, the company pioneered the industry providing the alternatives to windows in steel and aluminium. In particular:

◼ It is the first company to bring the German profile leader, Kömmerling, to the Philippine market.

◼ It also innovated the local window accessories market by introducing the hidden screen system (roll-up and side-roll) and the Plissé screen from Italy using fibre-mesh materials.

Established in 1976, Teresa Marble Corporation started its very first operation with just one air compressor and one contractor carrying small marble blocks. Within a few years, the company expanded its quarry in Cebu. Today, Teresa Marble Corporation is the preeminent leader in the Philippine marble industry. Its Rizal quarry site alone, with its 7-hectare marble processing plant, has an export capacity of 20,000 sq.m. slabs per month and 10,000 sq.m. tiles per month. As one of the leading marble quarry owners and operators in the Philippines, the company uses environmentally-friendly methods to produce world-class marble products.

Filtra Timber is the wood division of Philippine & Scandinavian Design, Filtra Inc., a Forest Stewardship Council certified trading company. Filtra Timber is the Philippines’ largest importer and distributor of premium wood species. The company supplies wood to various consuming industries in the Philippines such as furniture and door manufacturers. The company has more than 40 years of experience in the Philippine and international timber markets, and has well established partners in all major timber producing countries in South East Asia.

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AGC Flat Glass Philippines (AGPH) was incorporated in 1988 as a joint venture between Republic Glass Holdings Corporation of the Philippines and Asahi Glass Company, Ltd of Japan. Its mother company, Asahi Glass Company of Japan was established in 1907 and was Japan’s first commercial manufacturer of flat glass. Today, AGC is the world’s leader in glass, providing innovative products and customised glazing solutions.

AGC has become a multinational company with operations centring on glass and has a global network of over 200 subsidiaries. The Philippine Float Plant, considered one of the most advanced in the world, started commercial operations in 1991. The float process is a technique that floats molten glass on top of a molten tin bath to produce distortion-free glass of superior quality.

3.3.2 EU Entry Opportunities

Entry opportunities for European construction material companies include the following:

◼ Iron and steel are in demand in the country, and these products were among the top ten imports for 2018 in the Philippines, amounting to US$ 2.6 billion (EUR 2.3 billion). Steel is a popular choice for construction projects in areas prone to earthquakes as it provides structural resilience and ductility for light and economical structures that also meet safety and sustainability criteria.23

◼ Green building materials to the Philippines. The green building industry in the country is now growing. Currently, there is growing demand for eco-friendly and energy-saving building materials.

◼ Typically, products from Western countries such as the US and Europe are locally perceived to be of good quality and with enticing and innovative designs.

◼ The Philippines is home to the headquarters of the Asian Development Bank (ADB), a multilateral development bank that promotes social and economic development in Asia. ADB regularly have procurement opportunities for their projects in the Philippines and for their

23 Foreign Trade Statistics of the Philippines: 2015, Philippine Statistics Authority

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sites and projects in other countries. Usually every March, the ADB holds the ADB Business Opportunities Fair (ADB BOF) in their headquarters. ADB BOF is a one-stop forum for consultants, contractors, manufacturers, and suppliers looking to provide goods and services for ADB projects.

◼ As the country is one of the most disaster-prone countries in terms of natural calamities, partnership with the government, multilateral development agencies and non-government organisations in relief operations and risk mitigation as a means of corporate social responsibility is one way of fostering local relationships and eventually referrals.

◼ Since the Philippines is prone to natural disasters such as earthquakes, typhoons and flooding, developers usually opt for “disaster-quality” materials, which differ from cheaper mass-produced materials produced in China or India.

European Players

Bisazza SpA

Bisazza SpA is a company from Italy that designs and produces glass mosaics. Their products are exclusively distributed in the Philippines by iMaverick International Corporation.

Bisazza first entered the Philippine market in 1998 as a branch of Bisazza (Hong Kong) Limited that primarily operates as a semi-processing plant and distribution point in the Far East region. In 2001, the branch was officially registered as a Philippine domestic corporation, enabling the company to focus on the local market. Capitalising on its global luxury brand name and experience in the industry, Bisazza was able to popularise glass mosaic applications in the high end segment of the tile market in the Philippines.

Arctic Forest Products, Inc.

Established in 2008 in the Philippines, Arctic-Forest Products Inc. is the exclusive Philippine distributor of woods from Finland. These woods are certified tree-farmed, treated evergreen Scots Pine, the most common native tree in Finland. Their timber can be used in construction works, as structural, decorative or finishing timber like framing, panelling and flooring.

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Before starting its operations, Arctic-Forest tested Finnish pinewood's quality and durability in the country's tropical conditions, building both indoor and outdoor. Through the years, Arctic Forest Products has provided many solutions in the Philippines to meet commercial, residential, and furniture industry needs.

The company partners with the most trusted names in the local industry like UPM-Kymmene Corporation, one of the world's largest timber company, and Kontiotuate Oy, manufacturer of log houses with the biggest log house factory in the world. For local distribution, Arctic Forest Products is also available in Wilcon Home Depots around Metro Manila

Tejas Borja

Tejas Borja is a maker of roof tiles and components which was founded in Spain in 1899. To date they are still headquartered in Spain. In the Philippines, their clay roofing is distributed by Tejas, Inc./ Riviera Filipina, Inc. This distributor has been in the market for over 20 years now and has already established satellite offices outside of Manila and numerous dealers nationwide. With the robust construction industry and consumer spending in the Philippines, the company is set to further expand their operations in the country.

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3.4 Smart and Green Building

3.4.1 Market Overview

Market opportunities in green infrastructure are growing in South East Asia. In the Philippines alone, green investment opportunity in infrastructure is estimated to be around US$ 28 billion (EUR 24.7 billion).24 Moreover, the market for green building in the Philippines is estimated to reach between 20% and 25% of the total building market by 2025.25 Examples of products with good potential in the market include air quality technologies, technologies for water conservation, and energy efficient electronic products such as building management systems, lighting, appliances, moving ramps, and energy recovery ventilation systems.26

In key cities like Makati and Manila, the newest development in terms of high-rise condominiums and business infrastructure is reported to be the inclination in favour of going for “smart” technologies. This refers to using high tech materials and apps to control the functions of the building such as air conditioning and lighting. Smart buildings make tenants in the country more comfortable and productive by giving them controlled lighting, temperature, air quality, security, sanitation at affordable costs.

24 Investing in climate change, 2018, SunStar 25 Green Buildings Market Intelligence Philippines Profile, 2017, International Finance Corporation 26 More information on these technologies can be found under chapter 3.4.2

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Figure 12: Smart Building Technologies Source: Manila Bulletin

Today, Philippines developers – established or new – are now racing to offer these kinds of projects to the Filipino homebuyers who are becoming more discerning regarding smart technologies in their homes.

Figure 13: Twin Oaks Place Source: Philippine Daily Inquirer

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For example, one of the pioneers of smart building in the Philippines is Greenfield Development. Its Twin Oaks Place in Greenfield District in Mandaluyong City is touted as the “first future-ready” home in the country. Its internet connection has a Fiber-to-the-Home (FTTH) framework, which serves each unit. In addition, home automation, remote viewing and security controls, lightning-fast data downloads and real-time live streaming of in-demand TV specials are available to residents of this condo development and a lot of other developers are now setting their sights in offering something similar.

Furthermore, the units are equipped with an internet protocol (IP) phone that is standard in each unit. These devices allow residents to view and confirm the identity of visitors in the lobby via the IP phone screen. The main entrance door of each unit is also fitted with electronic locks, which is programmed and operated with push-button numerical combinations—spelling convenience, and enhanced security for residents.

With the use of smartphone applications and home automation equipment, a unit owner can operate appliances, gadgets and mechanisms inside the unit without even being physically present. Lighting fixtures can be programmed to conserve energy; air-conditioning can be turned on prior to entering the unit; and the entrance door can even be remotely unlocked to allow entry of authorised guests. Internet cameras can also be installed for real-time monitoring of the unit.

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Figure 14: One Filinvest Source: Filinvest

In 2019, Gotianun-led Filinvest Land Inc (FLI) is breaking into the office property market with a 34-storey “intelligent” building project that is targeted for completion by 2020. FLI has broken ground for the premier office tower called One Filinvest, which will bring to the Ortigas central business district about 40,353 square metres of additional office space.

One Filinvest will be equipped with fibre-optic cable and telecommunications backbone for high speed connectivity. It will also accommodate both traditional and business process outsourcing (BPO) firms. The tower will feature 12 high-speed elevators that will service the building’s high and low zones, intended to provide efficiency and convenience to its occupants. The building is designed by world-renowned architect and interior designer Handel Architects LLP and internationally acclaimed structural and civil engineering firm, Magnusson Klemencic Associates.

Smart Cities

Smart cities are also increasing in the country leading developers have these kinds of projects in their pipelines. A lot of the developers are looking up north, specifically in Bulacan and

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Pampanga where huge tracts of land are now being developed to become cities of the future. Key smart city projects in the country include:

◼ Clark Green City: One of the most anticipated projects is the Clark Green City spearheaded by the Bases Conversion and Development Authority (BCDA) together with other developers such as Filinvest Land. Clark Green City will feature an underground utility corridor, housing major utility lines for better installation, management, upgrading, and protection from disasters such as flooding and earthquake. It will also have an integrated operations centre that will coordinate all utility operations and facilitate remote management of various city operations. Clark Green City will have buildings ready for Business Process Outsourcing (BPO) companies, schools, sports facilities, parks, among others.

In 2018, the consortium of Prime Water Infrastructure Corporation, Prime Assets Ventures, Inc., (PAVI), MGS Construction, Inc., and Israel's TAHAL Group, a global provider of sustainable infrastructure, signed a joint venture agreement with the BCDA to deliver next generation smart water and wastewater facilities for New Clark City. The Asian Development Bank (ADB) acted as transaction advisor to BCDA on the project. The winning bid for New Clark City is viewed as highly competitive when compared against rates for cities in the Philippines and other parts of South East Asia as well as globally and is expected to attract leading businesses and investors to the city.

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Figure 15: Clark Green City Source: BusinessTips.ph

◼ EVO City: Property giant Ayala Land Inc. in 2017 unveiled a 200-hectare new estate development called “Evo City” in Kawit, Cavite, groomed to be the next central business district south of the metropolis that will benefit from robust economic growth and infrastructure-building. Evo City is envisioned as a mixed-use master planned sustainable estate development. It will feature a lifestyle mall by the Ayala Malls Group, a hotel by Ayala Hotels and Resorts Corp., office developments by Ayala Land Offices, and more residential offerings by Alveo. Evo City will also introduce Parkettes, pocket parks located along contiguous roads that allow for breathing spaces within a five-minute walk, and serving as transit stops and bike parking spaces, among others.

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Figure 16: Figure 17:Evo City Source: Philippine Daily Inquirer

A five-hectare main park anchors the entire Central Business District, while also functioning as a main storm water management facility. This facility will also be complemented by improved waterways and the use of porous materials for hardscapes. Solar-powered streetlamps, use of endemic plants, and waste reduction programmes will be the norm. Evo City will also urge locators to use solar powered facilities, energy and water-efficient fixtures, and build LEED-certified office buildings. As a smart, efficient, and highly networked estate, an Integrated Operations Centre will handle the multiple and interconnected services such as traffic management, public transport, emergency services, and security systems.

◼ New Manila Bay – City of Pearl: A consortium of Filipino-Chinese developers, UAA Kinming, will start a 407-hectare reclamation project which will be called New Manila Bay- City of Pearl. It is designed to be Manila’s most progressive integrated central business district, which is connected directly to the Roxas Boulevard and situated only 20 minutes from the airport. Envisioned to be a city within a city, the New Manila Bay – City of Pearl will have commercial, residential, convention, healthcare, education, tourism, and sports hubs. Its inner ring features a central park and a golf course, with its outer ring lined with a 10-

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kilometre promenade which looks out into a panoramic ocean view. It has a planned transportation system that promotes walkability. There are also water taxis that connect the north and south islands to other areas in the Philippine capital. Moreover, renewable energy (solar and tidal power) will be utilised to ensure renewable energy production and consumption.

The number of smart city projects in the Philippines has not gone unnoticed by foreign suppliers. In 2017, a delegation from the UK visited the country to showcase their expertise and services regarding smart cities such as the efficient of use of digital, electricity and sewage systems. It has also been reported that UK companies want to play a bigger role in the country’s infrastructure.27

Green Buildings

The green building sector has seen promising growth over the past few years, especially in the number of certified sustainable buildings. There are a total of 245 Leadership in Energy and Environmental Design (LEED) projects in the market currently, and 61 have already received the certification.28 According to the Building Owners and Managers Association of the Philippines, the country has the highest per kilowatt-hour rate in all of Asia so going green is a necessity. The group also mentioned sustainable practices, especially those that follow rating systems, such as the LEED, are now being put into motion by local real estate developers.

Green buildings in the country’s top business districts are also becoming increasingly attractive to environmentally conscious global companies, according to real estate services company Jones Lang LaSalle Philippines Inc (JLL). As more companies start to look for long-term value and sustainability in office spaces, landlords and developers are likely to develop high-quality buildings with green features and maximise the opportunity to get accredited by applying the standards of USGBC and PHILGBC in constructing, managing, and developing commercial buildings. More tenants are willing to pay a premium on the rental rate for green office spaces

27 Britain seeks to help Philippines build ‘smart cities’, 2017, Public-Private Partnership Centre of the Philippines 28 Global Gateway Clark sets the bar higher for green building industry, 2017, SunStar

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as they are saving up to 20% on their monthly operational expenses for electricity, water and air-conditioning.

For example, the landmark Net Park building at 5th Avenue of Bonifacio Global City in Taguig, which is a 38-storey prime office building and has a total of 65,000 square metres of gross leasable area. Net Park, completed in 2015, is the first project in the Philippines to pursue a 5- star certification for Building for Ecologically Responsive Design Excellence (BERDE). JLL got global brands Procter & Gamble, Infor, Deloitte, and Lazada to occupy prime office spaces at Net Park, along with other major corporate names and business process outsourcing firms.

While location and price will remain to be the main factors affecting tenant retention and absorption, the idea of sustainability is becoming mainstream and it may well become the third most important deal maker in commercial property leasing decisions in the future.

IFC, a member of the World Bank Group, called on the building and property sector in 2017 to unlock more investments for green buildings to mitigate climate impact in the Philippines. While IFC sees a US$ 3.4 trillion (EUR 3 trillion) green buildings investment opportunity in key emerging markets by 2025, in the Philippines, investment opportunities for low-carbon buildings are likely to be around US$ 2 billion (EUR 1.8 billion) by 2020. As per IFC, green buildings can achieve as high as 20% to 25% of the Philippines market by 2025, with a combination of policy support, tax benefits, educational and awareness programmes, and realised savings from energy efficiency.

IFC, through its Green Building Market Transformation Programme, has collaborated with the government, businesses and professional organisations to create a market for green buildings by improving the policy environment and setting up voluntary standards. Working with Mandaluyong City, IFC piloted the development of mandatory green building codes that led to the city’s adoption of a green building ordinance. IFC also provided technical advice to the Department of Public Works and Highways in crafting the Philippine Green Building Code. The code is fully implemented across the country and prescribes measures for energy and water efficiency, material sustainability, solid waste management, site sustainability and indoor environmental quality.

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Subsequently, in 2016, IFC launched its Excellence in Design for Greater Efficiencies (EDGE) voluntary certification system in the Philippines, with PGBI as its certification provider. EDGE helps to determine the most cost-effective options for designing green within a local climate context.

Green Financing

The Philippine government is keen on strengthening its policies to improve the access of both the public and private sectors to green financing, according to the Department of Finance. Green financing is a form of investment specifically dedicated to sustainable projects that could help mitigate the effects of climate change. The government and the financial sector, in partnership with multilateral institutions have been carrying out initiatives such as:

◼ Launching of the People’s Survival Fund in 2016, which has an annual rolling budget allocation of PHP 1 billion (EUR 17 million) to finance climate change projects proposed by local government units.

◼ Launching of the Green Green Green programme by the Department of Budget and Management's to assist 145 cities in making life more liveable for residents through the development of public open spaces.

◼ Issuance of the ADB of its landmark US$ 225 million (EUR 199 million) climate bond through the Bank of the Philippines Islands.

◼ Issuance of green bonds of Banco de Oro, the Philippine’s largest bank, in 2017. The bond issuance raised US$ 150 million (EUR 132.5 million) that will be an alternative source of long-term financing for climate-smart projects in the areas of renewable energy, green buildings, and energy-efficient equipment in the Philippines.

◼ Issuance of the China Banking Corp of its first green bond in 2018. The proceeds will be used to fund climate-related projects in renewable energy, green buildings, energy efficiency and water conservation.

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◼ Launching by the Development Bank of the Philippines of its Green Financing Programme to assist strategic sectors, industries and local governments in adapting environment-friendly processes and technologies through financing and technical assistance.

◼ Establishment by the Rizal Commercial Banking Corp (RCBC) of a finance framework for the issuance of green bond and loans. Funding will focus on renewable energy, green buildings, clean transport, energy efficiency, and pollution prevention and control. RCBC tapped ING Bank as its structuring adviser for the initiative.

The Philippine Government is keen on strengthening its policies on climate financing. Specifically, the government is looking at expanding the coverage of the ASEAN Framework for Green Bonds to cover such sectors as transportation, infrastructure, and commercial banking. The government also aims to mainstream access to green financing through the banks and microfinance institutions.

Bankers in South East Asia are also looking into green financing to combat the adverse effects of climate change in the region. The Bankers Association of the Philippines (BAP), ASEAN Bankers Association (ABA) and the Association of Banks in Singapore (ABS), together with the World Wildlife Fund (WWF) have convened to discuss the role of financial institutions in pushing for green financing.

The Philippines also has locally-developed third-party green building certifications. The Building for Ecologically Responsive Design Excellence (BERDE) has 26 registered establishments since its introduction in 2010 by the Philippine Green Building Council (PhilGBC). BERDE is influenced by the standards set by LEED, Australia’s Green Star and the British Building Research Establishment Environmental Assessment Method (BREEAM). The British Embassy in Manila through the

UK Trade and Investment Department partnered with PhilGBC in Figure 18: PhilGBC Promotes Green Building Practices developing BERDE. Aside from partnering with PhilGBC, the British Embassy in Manila is also the only BREEAM-certified building in the Philippines which

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was awarded in 2010 and is the first British embassy in the world to receive an Excellent BREEAM rating.29

The World Bank’s International Finance Corporation (IFC) also launched its own green building rating system for emerging countries such as the Philippines. It is called EDGE (Excellence in Design for Greater Efficiencies). They currently have 3 certifications awarded in the country which are all new residential constructions outside of the National Capital Region (NCR). The first two were awarded in 2015 to two developments with nearly 300 homes certified. IFC’s work in the Philippines is done through partnership with Switzerland’s State Secretariat for Economic Affairs (SECO) and the Philippine Green Building Initiative (PGBI).

The Philippines also has one building registered for a WELL certification by the International Well Building Institute (USA), which pioneers measuring, certifying, and monitoring features of buildings that impact the health and well-being of their dwellers.

Prefabricated homes have also found their way into the Philippine market as their costs are significantly less than conventional building construction, are low wastage and environmentally friendly. Local companies such as Revolution Pre-crafted Properties, Vazbuilt, Smarthouse Philippines, Indigo Prefab House, Waffle Box are leading the market. Designers are finding ways to develop premium modular homes that maintain their sustainability and affordability. With reduced building time (it is possible to have a finished home in less than 60 days), the demand for prefabricated homes is growing in the Philippines.

Local Players

TREES, or Total Renewable and Energy Efficiency Solutions, is one of the leading energy services companies in the Philippines. The company provides solutions for clients who want to improve their financial and environmental standing, as well as offering a wide range of services including energy audits and management and green building upgrades. TREES helps companies to become energy efficient and to employ renewable energy sources to achieve the greatest sustainable savings and realise greener wealth. The company offers technologies such

29 UK embassy-Manila declared most environment-sensitive of all British embassies worldwide, 2013, bayanihan.org

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as smart metering, devices for energy monitoring, water recycling, air conditioning ventilation, and solar systems and batteries. TREES is affiliated with Australian company Total Energy Solutions (TES), which has been delivering advanced energy and water solutions to businesses for over 15 years.

Philippine Geogreen, Inc. was established to meet the construction industry's demand for sustainable and environmentally responsible building products. The company was created after its owners, having practiced in construction-related industries in New York City for over 10 years, found that the most used green and energy saving products readily available in the US and Europe were hard to find in the Philippines. Today the company acts as distributor for three of the best energy saving fixtures from the US. The company has served the local market with projects in the industrial, commercial, residential, and educational industries.

Cygnet Energy And Power Asia, Inc. (Cygnet Energy) was incorporated in February, 2011 in the Philippines. The company’s vision is to provide alternatives in energy efficiency within the Philippines by forging collaborations with globally reputable energy-efficiency technology and service providers. The company brings to the market proven energy-reduction solutions paving the way to popularise the technology to large enterprises. Cygnet Energy’s portfolio includes advanced revenue technologies and innovative solutions for electricity, gas and water.

3.4.2 EU Entry Opportunities

◼ Rising Environmental Consciousness

▪ The Philippines is catching up on environmental measures. The most recent Nielsen Global Survey on Corporate Social Responsibility with a focus on the Philippines conducted in 2014 with more than 30,000 consumers in 60 countries, showed Filipinos' propensity to buy socially and environmentally responsible brands.30 76% of the Filipinos surveyed said they bought one product or service in the past six months because it was manufactured by a company committed to social and environmental causes. This finding was further reinforced by a 2017 survey, again conducted by Nielsen, showing that 94% of

30 Global Consumers Are Willing To Put Their Money Where Their Heart Is, 2014, Nielsen

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respondents in the Philippines said that it was very important that companies implement programmes to improve the environment.31

▪ As more people recognise the environmental, economic and productivity value of green buildings, demand in the country is propelled by private customers and government mandates on the implementation of the GB Code.

▪ Aside from local demand, 30% of multinational companies prefer green buildings over traditional technologies.32 Apart from achieving resource efficiency and better health for their employees, these companies value corporate social responsibility, thus supporting environment-friendly initiatives. Wells Fargo, Texas Instruments, and SC Johnson & Johnson are some MNC's in the country that are already LEED certified following their worldwide mandate for LEED certification.

◼ Air quality technologies. Green building technologies aiming to minimise and control the entry of pollutants into buildings are becoming more demanded in the Philippines, where air pollution is high in urban areas.

◼ Technologies for water conservation. While current water supply is sufficient, the European Chamber of Commerce of the Philippines has recently expressed concerns that urban areas in the Philippines could be in danger of experiencing water scarcity in 2025 unless immediate measures in improving water security are implemented. This trend creates opportunities for companies operating in areas related to water efficiency.

◼ Other technologies in demand in the Philippines include energy efficient electronic products such as building management systems, lighting, appliances, moving ramps, and energy recovery ventilation systems. The Philippines is a tropical country where consumers and businesses tend to make an intensive use of air conditioning. Technologies that allow making AC systems more efficient are increasingly common in the country.

◼ Government funds and other initiatives to make buildings smarter and greener. The Philippines is incentivising the use of green technologies through various efforts such as

31 Sustainable Shoppers, 2018, Nielsen 32 30% of MNCs prefer green buildings, 2013, Business Inquirer

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the Renewable Energy Act, which provides for fiscal incentives to renewable energy, including a 7 years income tax holiday for businesses that produce technologies in the country, a reduced corporate tax rate, and duty-free importation of machinery, equipment and materials.33 In addition, the Clean Water Act that supports duty exemption on imported capital equipment for effective water quality management and pollution abatement.34 Similarly, the Solid Waste Management Act includes 10-year tax and duty exemption on imported technologies used for improving the collection of solid waste.35

European Players

Langdon & Seah

Langdon & Seah was founded in 1934 in Singapore by two UK quantity surveyors. In the following years different partners joined the company, until in 2012, Langdon & Seah merged with Arcadis, an international consultancy, design, engineering and management services multinational company from the Netherlands.

In the Philippines, Langdon & Seah was established in 1982 and has since evolved into a multi- disciplinary construction and property practice company, offering a wide set of services including LEED consultancy.

Some of their prominent green building projects in the country include:

◼ British Embassy in Manila. Langdon & Seah provided Full Quantity Surveying Services for the new British Embassy in Manila, a three-storey embassy building with associated secondary buildings set inside an approximately 1.2-hectare lot. In 2010, the embassy. achieved a BREEAM Excellent rating, an award for green buildings.

◼ , an office skyscraper located in the Makati Central Business District. This is a landmark project as it is the first in the country that has achieved the most-coveted LEED Platinum certification.

33 Philippines Taxes and incentives for renewable energy, 2015, KPMG 34 The Clean Water Act Law of the Philippines: The Use of Incentives to Promote Investments, 2010, AECEN 35 Ecological Solid Waste Management Act: Environmental Protection Through Proper Solid Waste Practice, 2013, ap.fftc.agnet.org

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◼ Arya Residences is a luxurious real estate property development in Taguig City. Like the Zuellig Building, Langdon & Seah is also the LEED Consultant & Quantity Surveyor for Arya Residences. They achieved BERDE certification in 2013 and is already LEED Registered aiming for Gold certification.

◼ is the first world-class science museum in the Philippines that received a LEED Gold certification. Like the British Embassy in Manila, Langdon & Seah also provided Full Quantity Surveying Services for this project.

Koninklijke Philips

Philips is one of the leading European electronics companies. Philips was founded in 1891 in the Netherlands, where the company has its headquarters today. Philips began operations in the Philippines in 1918 and currently has workforce of approximately 120 employees.36 The following are some of their recent projects in LED lighting in the Philippines:

◼ Seaoil is a Filipino-owned fuel company that offers fuel products ranging from automobile gasoline to industry-specific lubricants and services such as storage and shipping. Because its offices and service stations have high consumption of electricity, which in the Philippines is expensive, in 2013, they partnered with Philips in installing LED lights, which has helped the company reduce its electrical bill significantly. Additionally, these LED lights that were installed have a service life of 14 years, meaning they will not have to be replaced for more than 10 years.

◼ Neltex Development Corporation is the first company in the Philippines to manufacture heavy-metal free pipes. Neltex partnered with Philips to upgrade the lighting systems of its state-of-the-art plant in Dasmariñas. The partnership came as the building supplier moved from Las Piñas to Cavite. Neltex’s 26,000-sqm facility has been installed with high-quality Philips LED lighting. From high-bay luminaires down to office space lighting, Neltex now uses energy-efficient and environment-friendly lighting technologies.

36 https://www.philips.com.ph/a-w/about-philips/company-profile.html

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Engie

Engie is a French multinational electric utility company, headquartered in La Défense, Courbevoie, which operates in the fields of electricity generation and distribution, natural gas and renewable energy.

In 2018, Engie Services Philippine has secured a five-year contract to manage the Mactan- Cebu International Airport (MCIA) and improve its energy efficiency through digitisation. The contract was awarded by GMR Megawide Cebu Airport Corp. =. Under the partnership, ENGIE will implement its digital solutions through a computerised maintenance management system, allowing critical information to be exchanged in a timely and secure manner between asset and staff.

ENGIE Services also entered into a joint venture with FDC Utilities Inc., a subsidiary of Filinvest Development Corp. (FDC), to establish Filinvest-ENGIE Renewable Energy Enterprise Inc. (FREE), which will develop solar energy rooftop systems for Philippine customers.

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3.5 Smart Grids

3.5.1 Market Overview

According to a report released by Northeast Group, the South East Asia region is expected to invest US$ 24.6 billion (EUR 21.8 billion) in smart grid infrastructure between 2016 and 2026. Even though smart grid technology is still at an initial stage in the Philippines, the market is currently growing steadily. By 2024, the Philippines alone is set to invest US$ 2.1 billion (EUR 1.9 billion) in smart meters, distribution automation, home energy management, information technology and other smart grid market segments.37

Studies revealed that in the country, electricity prices are expensive because electricity production relies heavily on fossil fuels such as coal, oil and natural gas, whose prices are based on international standards. In this context, smart grid technology is seen as a fitting solution for a more efficient consumption of energy

In 2018, the Department of Energy announced that it is coming up with a roadmap that will support the adoption of smart grid technologies in the power sector. The Department of Energy has underscored the need to introduce smart grid technologies all over the country because of its proven efficiency in significantly reducing systems losses and other operational inefficiencies. The government aims at a 100% household electrification by 2020, wherein 400,000 households in the country will be through grid electrification.

In line with this, the government is moving towards smart grid development that will support security of energy supply. As part of its implementation, the agency has undertaken steps such as the identification of the plans, projects and programmes for the generation, transmission, distribution and load sector necessary for the establishment of the national smart grid framework; the creation of a smart grid technical working group; the conduct of forums and workshops; and collaborating with other government agencies, stakeholders, private companies, and academies through information sharing and education campaigns.

37 SE Asia seen leading smart grid infra market, 2014, Business Inquirer

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The Philippine Chamber of Commerce and Industry, the country’s largest business group, also supports and encourages smart grid programmes in the country and supports initiatives which will help power distributors improve their system reliability and resilience to natural disasters.

Below are the recent smart grid developments in the country:

◼ Shanghai-based Energo Labs and Philippine energy supplier First Gen showcased in 2018 a cutting-edge clean energy project at De La Salle University – Dasmarinas (DLSU-D). Structured around a campus microgrid, this project demonstrates the disruptive power of blockchain technology in enabling the peer-to-peer exchange of electricity between prosumers (buildings that both consume and supply power at the same time), creating a more efficient supply of renewable energy. This innovative energy accounting system utilises emerging distributed ledger technology to moderate and record these transactions. Considering the success of the DLSU-D microgrid project, Energo continues to promote local blockchain education and entrepreneurship, with plans to develop an extended series of workshops and related student research opportunities in collaboration with DLSU-D.

◼ In 2018, JICA has partnered with the National Electrification Administration for a two-year piloting of the smart grid technology in Batangas II Electric Cooperative Inc. The project will be implemented under a Japan International Cooperation Agency (JICA) collaboration programme with the private sector for disseminating Japanese technologies for electricity distribution and management. Data from the National Electrification Administration (NEA) shows that, on average, the Electric Cooperatives in the Philippines experienced around 16 system power interruptions in 2014. Likewise, the Philippines ranked 92 among 137 countries surveyed in the energy infrastructure indicator in the Global Competitiveness Index 2017, lower than its counterparts in the ASEAN region. Thus, the project envisions a reliable energy supply system in the Philippines which would also encourage private investments in the future.

◼ UK-based CyanConnode has entered into a distribution agreement with Philippine company Adtel to distribute smart metering radio frequency network technology in the Philippines. Under the terms of the agreement, entered into in August 2018, which includes sales

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performance milestones, Adtel and its subsidiary Quantum Renewable Inc will distribute CyanConnode's Optimal technology, an end-to-end smart metering RF network solution that includes software and RF network management tools, including head end software. Adtel distributes communication network equipment across the Philippines and its parent company Lopez Inc also supplies the electric power distribution sector in the region. Both are able to offer its customers CyanConnode's smart metering RF network technology. Rising demand for electricity and growing penetration of renewable energy technologies have been posing major challenges to utilities in South East Asia. CyanConnode estimates that the addressable market for smart meters in the Philippines alone is close to 21 million units, providing a sizeable market opportunity.

◼ Meralco has taken bigger steps in developing a more sustainable energy future for Filipinos. Rapid technological developments in Solar Photovoltaic (PV) and Battery Energy Storage Systems (BESS) have given the company an off-grid alternative to provide sustainable access to electricity to households in remote areas. This alternative is the microgrid, or small-scale power grids, that can be operated independently from the country’s interconnected network of power transmission and distribution facilities.

Meralco also completed the construction of a microgrid pilot project in Cagbalete Island. It is a hybrid generating plant composed of 60 kWp solar PV, 150 kWh battery energy storage, and two units of 30 kW diesel generators. The microgrid will initially serve around 200 households, once all the requisite permits have been released, and eventually to the resorts and other businesses, as well as other communities in Cagbalete,

Finally, Meralco has already rolled out 80,000 smart meters and 145,000 more smart meters approved by the Energy Regulatory Commission (ERC) will come up soon. The programme is part of Meralco's Advanced Metering Infrastructure or AMI, which allows for near real-time information on customers' power consumption.

◼ Japan's Hitachi Ltd has signed a deal with Meralco in 2017 to provide the latter with a lithium-ion battery for an energy storage system to help build a smart grid in the country. Hitachi will supply the 2,000-kilowatt battery through March 2020 for a trial project designed

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to ensure stable power supply via its distribution network. The project is intended to allow Meralco to gain expertise in stable electricity supply and build a smart grid in the country in the future. Hitachi's lithium-ion battery will be installed at a Meralco facility in San Rafael, Bulacan Province, north of Manila, to interconnect with a solar power generation system, checking its capability to cope with variations in power output and stability in the distribution network. The Japanese company's power storage system with lithium-ion batteries has been used for smart cities in Japan and power distribution networks in the United States, but this is the first use in the Philippines. Meralco aims to be the first utility company in the Philippines to deploy a smart grid so that it will meet peak power demand without a hitch and establish reliable services.

◼ In 2017, the National Corporation of the Philippines (NGCP) partnered with French energy management specialist Schneider Electric to expand its use of enterprise data management software to optimise its grid operations. Schneider Electric announced the NGCP has expanded its use of the company’s Wonderware eDNA software, to optimise grid operations. Schneider Electric enables NGCP to bridge the gap between operational and information technologies (IT/OT) to enhance real-time visibility into operations for improved efficiency. NGCP is responsible for delivering safe and reliable power to customers in the Philippines over more than 21,000 circuit kilometres of transmission lines. Cost, resource and energy optimisation pressure drove NGCP to invest further in Schneider Electric’s solution – turning disparate data into actionable intelligence. Wonderware eDNA consolidates data from control, monitoring and business systems in a fully redundant server architecture, protecting the company’s data in the event of an unexpected shutdown. Control centre operators can access high-fidelity, real-time data to improve decision support while aligning with a strategic initiative to upgrade, expand and strengthen transmission operations.

In 2016, The Philippines and the EU signed a joint undertaking through the Access to Sustainable Energy Programme (ASEP) wherein the EU has allocated a grant of over PHP 3 billion (EUR 51.2 million) to assist the Philippine government to meet its rural electrification targets by means of renewable energy, and to promote energy efficiency.

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As a priority sector of the EU development cooperation with the Philippines, the EU has earmarked a total of EUR 190 million out of an overall cooperation budget of EUR 325 million to the energy sector for the period 2014-2020.

The renewable energy sector plays a particularly important role in the country, considering that the Philippines is composed of more than 7,000 islands and has high vulnerability to natural hazards. Decentralised clean energy solutions can be provided through renewable sources like solar energy; while hybrid mini-grid can provide people with reliable access to power that increases economic activity. The support from ASEP enables the government to provide subsidies for 40,000 solar home systems through the electric cooperatives. Recipient- households will pay a fee determined by the Energy Regulatory Commission (ERC) to ensure that future maintenance costs are covered. In addition, in remote islands that have no electricity or only have access through diesel generators, ASEP will support mini-grids through the PHP 1 billion (EUR 17.1 million) allocation for mini-grids or hybridised diesel mini-grids, thus expecting a total of 20,000 households to be electrified through such energy solutions.

Local Players

Manila Electric Company (Meralco). Meralco is the largest private sector electric distribution utility company in the Philippines covering 36 cities and 75 municipalities. Its franchise area of over 9,685 km2 includes the country’s industrial, commercial, and population centres. At year- end 2018 it recorded a market capitalisation of PHP 428.3 billion (EUR 7.3 billion). Meralco also keeps on advancing its distribution management systems to provide better service to customers. The utility firm integrates “smart intelligence” such as smart meters into its distribution network to better manage the electricity consumption of its clients. In the legacy distribution business, Meralco is now offering smart meters, smart grid, and smart cities in collaboration with developers.

ASIA Smart Grid Solutions (ASGS) was created in 2014, led by local engineers and American personnel. ASGS Corp., in partnership with Forecasting and Planning Technologies, Inc. (FPTI) provides data management systems empowering power distributors and end users to manage energy resources more efficiently through the ability to identify energy consumption and

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diversion, optimise transformer use, detect inefficient load control and theft and predict potential failure, among other things, with the purpose of improving the power quality and decreasing energy losses and costs.

WattSmart Philippines is an energy analytics and energy management company which helps consumers save energy by providing real-time energy data, analysing of energy behaviour, and giving recommendations for energy conservation based on the user’s historical energy consumption. Through comprehensive energy audits, real-time energy monitoring, and energy consultancy, WattSmart is able to translate efficient energy management into savings for both private companies and households.

3.5.2 EU Entry Opportunities

As a result of the existing conditions in the Philippines, EU companies are presented with the following entry opportunities:

◼ Energy-efficient equipment is being increasingly demanded. The cost of electricity on the Philippines is among this highest in Asia and the world.38 Recent studies show that a growing number of Filipino companies are now investing in energy management solutions. A survey conducted by Schneider Electric Philippines showed that 73% of the respondents said that “cost savings” would be the biggest driver in pursuing such initiatives.39 The survey also showed that 35% of the respondents said they will increase investment in energy management the following year. European companies should focus on this aspect of their products when advertising.

◼ The government is currently exploring how to expand the use of renewable energy coupled with electricity storage to diversify the country’s energy generation. Furthermore, the government has already committed to making the Philippine electricity grid fully interconnected by 2020. In 2018, the National Grid Corp. of the Philippines (NGCP)

38 The Philippine electricity market: Monopoly and competition, 2015, Business World Online 39 PH firms investing in energy management solutions, 2015, Business Inquirer

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launched the P52-billion Mindanao-Visayas Interconnection Project (MVIP) which will unify the country’s transmission network.40

◼ The growing environmental sensibility and stricter regulations act as engines for the local industry. Important drivers of the industry’s development in the country are the increased drafting and implementation of regulations supporting adoption of smart grids, such as the Green Building code. Moreover, a new environmental sensibility is emerging in the country, creating space for demand in the Philippines.

◼ Technologies for energy conservation. Demand for energy is growing, brought about by the Philippines’ economic boom and an increasingly large population. According to the Philippines’ Energy Plan 2012-2030, energy consumption in the country will have a projected average annual growth rate of 2.8%. It will start at 1.4% from 2011-2016 going up to 3.5% by 2025 until 2030. According to the Economic Intelligence Unit, power demand in the Philippines is projected to outpace supply. To fill this gap, renewal energy sources and the application of smart grid technologies are seen as possible solutions.

European Players

Orga Systems

Orga Systems is a software vendor for convergent charging and billing solutions with an international customer base in telecommunications, utilities and automotive markets. The medium-sized company is headquartered in Paderborn, Germany, and operates in 10 additional locations ranging from Istanbul to Kuala Lumpur. Orga Systems’ products provide real time charging and billing, integrated policy control and charging, as well as order management.

In 2012 Meralco and Orga Systems teamed up on a smart-grid pilot in the Philippines, the country’s first experience of the technology. Using Orga’s technology for smart metering infrastructure enables Meralco to communicate with its customers in real time to notify and

40 Vismin Power Grid Seen Interconnected By 2020, 2018, The Philippine Star

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advise them of consumption, thresholds, and payment issues. It also offers tiered tariffs, including multilevel thresholds, and has the ability to remotely connect or disconnect customers. “Orga Systems plays a crucial role in our smart grid initiative”, said Alfredo S. Panlilio, Meralco’s senior vice president. “We chose Orga to offer real-time pricing and customer tailored prepaid energy tariffs, underlining our continued commitment to achieve improved customer service and satisfaction.”41

41 Meralco partners with Orga Systems on Philippines smart grid, 2012, Telecom Engine

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4. Regulations

4.1 General Import Procedures

As a general rule, imports into the Philippines are subject to customs duties, taxes and import processing fees unless there is a specific legal basis for exemption. Import taxes vary from 0% to 65% according to the product. Goods imported into the Philippines are subject to Value Added Tax (VAT) at a rate of 12% calculated over the Cost, Insurance and Freight (CIF) value plus any applicable duty.

Excise Taxes, which comprise of Specific Tax and Ad Valorem Tax (VAT), are applicable on goods manufactured in the country as well as goods imported. Excise taxes, both specific and VAT, are levied on:

◼ wines and spirits, beer

◼ cigarettes and tobacco products

◼ lubricating oils and grease

◼ processed gas

◼ waxes

◼ denatured alcohol

◼ cinematographic films

◼ coal

◼ cars, non-essential goods

◼ mineral products

◼ naphtha and other similar products of distillation

◼ asphalt and petroleum and other fuel products

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VAT Exemptions

Companies that register with the Board of Investment (BOI) may qualify for a number of incentives. For example, BOI registered enterprises with bonded manufacturing warehouses enjoy exemption from customs duties and national internal revenue taxes on importation of required supplies / spare parts. In addition, they will be given a 10-year period to avail exemption from wharfage dues and any export tax, impost and fees on non-traditional export products. BOI registered enterprises may also import machinery, equipment, spare parts and accessories subject to zero percent duty. Furthermore, the Philippines also allows tax exemption on breeding stocks and genetic materials within 10 years (tax credit of 100%) as well as tax credit on raw materials and supplies.

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4.2 Marking and Labelling Requirements

Marking and labelling requirements are specified in the Consumer Act of the Philippines (Republic Act No. 7394) and Philippine National Standards (PNS). The Department of Trade and Industry (DTI)’s Bureau of Philippine Standards (BPS) is the national standards body that develops and implements the PNS.42

All consumer products domestically sold, whether manufactured locally or imported shall indicate in its packaging the following minimum labelling requirements:

◼ Correct and registered trade name or brand name

◼ Registered trademark

◼ Registered business name and address of the manufacturer, importer, or re-packer of the consumer product in the Philippines

◼ General make or active ingredients

◼ Net quality of contents, in terms of weight

◼ Country of manufacture, if imported

The BPS implements a product certification mark scheme to verify conformity of products to PNS and other international standards. This includes critical products such as construction and building materials. Products manufactured locally must bear a Philippine Standard (PS) mark, while imported products must bear Import Commodity Clearance (ICC) certification marks.

42 Philippines - Labelling/Marking Requirements, 2016, International Trade Administration

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4.3 Rules and Regulations for Construction Activities and Machinery

The National Building Code of the Philippines provides a framework for minimum standards for all buildings and constructions by setting requirements to control and regulate their location, site, design, quality of materials, construction, use occupancy, and maintenance. Buildings and structures constructed before the approval of the code are not affected except when alterations, conversions, additions, or repairs are to be made, in which case the code applies only to the portions to be altered, added, converted, or repaired. Traditional indigenous buildings are exempted. The full National Building Code of the Philippines can be accessed by following this link: www.gov.ph/downloads/1977/02feb/19770219-PD-1096-FM.pdf

In the Philippines, all heavy equipment operators assigned at the project site must be tested and certified in accordance with a standard test prescribed by the Technical Education and Skills Development Authority (TESDA) in coordination with accredited organisations. Moreover, all heavy equipment must be tested and certified in accordance with the standards prepared by the Department of Labour and Employment or its recognised organisation/s prior to commissioning of said equipment.

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4.4 Philippine Green Building (GB) Code

The GB Code, a Referral Code of the National Building Code (Presidential Decree No. 1096) was launched in June 2015 by the Department of Public Works and Highways (DPWH), with the assistance of the World Bank-IFC, and the technical support of the Philippine Green Building Initiative (PGBI). The latter is composed of accredited professional organisations in the building industry.

The Code seeks to improve the efficiency of building performance through a framework of standards that promotes sound environmental and resource management to counter harmful gases, throughout the building’s life cycle, including efficient use of materials, site selection, planning, design, construction, use, occupancy, operation and maintenance, without significant increase in cost.

The general provisions of the Code provide for the protection of the people from the harmful effects of climate change. The Code seeks to improve the efficiency of building performance through a framework of standards that will enhance sound environmental and resource management to counter harmful gases throughout the building’s life cycle, including efficient use of materials, site selection, planning, design, construction, use, occupancy, operation and maintenance, without significant increase in cost.

The GB Code adopts a staggered or incremental approach and is subject to periodic review of the DPWH secretary through the National Building Code Development Office to modify or include new aspects and emerging efficient technologies and to expand the coverage to other building use/occupancy, or to replace outmoded measures.

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For a start, the GB Code will apply to all new construction and/or with alteration of buildings with a minimum total gross floor area (TGFA) as follows:

Use/ Occupancy Classification of Any Jurisdiction TGFA Residential Dwelling: Condominium 20,000 sqm Hotel / Resort 10,000 sqm Educational: School 10,000 sqm Institutional: Hospital 10,000 sqm Business: Office 10,000 sqm Mercantile: Mall 15,000 sqm Mixed Occupancy 10,000 sqm

Figure 19: Minimum Building/ Occupancy TGFA Source: Philippine Green Building Code by the Department of Public Works and Highways (DPWH)

Buildings and structures constructed before the approval of the code are not affected except when alterations, conversions, additions, or repairs are to be made, in which case the code applies only to the portions to be altered, added, converted, or repaired.

When alterations, additions, conversions and renovations of existing buildings are made, the whole building shall be subject to the applicable provisions of the GB Code.

The following are some of the provisions of the Code:

◼ The required wall-to-window ratio needs to be balanced with the amount of daylight coming through the glazed area.

◼ Solar heat gain coefficient or SHGC will be determined by dividing the amount of solar heat passing through the glass by the total solar radiation incident on the glass.

◼ Visible light transmittance (VLT) will be used to determine the amount of light transmitted through the glass.

◼ Natural ventilation to ensure free cooling and fresh air will be provided by the computation of size of operable window openings to floor area of at least 10 %.

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◼ Roof insulation will be a priority, and in amounts corresponding to the roof colour. White roofs have a solar reflectance index (SRI) of 92, while dark colours have an SRI of 0-33.

◼ Mechanical systems, especially the cooling systems or chillers of large buildings, will have to meet minimum efficiency requirements.

◼ Efficient water fixtures will be used to comply with maximum water flow rates of different fixtures. Rainwater harvesting from roofs and hardscape is a must for non-potable use.

◼ Nontoxic building materials are those without hazardous effects on building occupants. They will be checked for volatile organic compounds or VOCs, which should be within tolerable levels.

◼ A materials recovery facility will be required for the collection and segregation of solid waste. Hospitals will be required to have isolated bins for hazardous wastes.

◼ Indoor environmental quality standards will require strict adoption of efficient design and operation practices to protect building occupants’ health, productivity and safety.

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4.5 Government Tenders

As the Philippines commits to transparency for its public tenders, all procurement, regardless of cost, shall be conducted through competitive bidding. To this aim, the PhilGEPS was created. PhilGEPS is the single, centralised electronic portal that serves as the primary and definitive source of information on government procurement.

Government agencies, as well as suppliers, contractors, manufacturers, distributors and consultants, are mandated to register and use the system in the conduct of procurement of goods, civil works and consulting services. All government agencies are required to post the following in the PhilGEPS Electronic Bulletin Board:

◼ Invitation to Bid and all notices of other procurement opportunities

◼ Supplemental / Bid bulletins

◼ Contract awards, the corresponding notices of award, including the reasons for award of contract

◼ Results of bidding and related information

◼ Other notices, announcements, information for interested parties

◼ Bid matching of procurement opportunities with appropriate PhilGEPS registered suppliers is being done automatically by the system once a government buyer posts an opportunity.

PhilGEPS includes a list of common-use goods, supplies, materials and equipment called Electronic Catalogue. Through the use of PhilGEPS, transparency in government procurement is enhanced since opportunities to trade with the government and the ensuing transactions are provided online. PhilGEPS can be accessed here: www.philgeps.gov.ph

As a general rule, eligible bidders should be at least 60% Filipino Equity. The exception however is that foreign bidders are eligible to participate when provided for under treaty or international agreement; when the goods sought to be procured are not available from local suppliers; or when there is a need to prevent situations that defeat competition or restrain trade.

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5. Annex

5.1 List of Useful Contacts

Construction Industry Authority of the Philippines (CIAP) 5F Executive Building Centre 369 Sen. Gil J. Puyat Ave, Makati 1209 Metro Manila Tel: (+632) 895.4424 Fax: (+632) 897.9336 Email: [email protected] Website: ciap.dti.gov.ph

The Philippine Constructors Association (PCA) 3/F Padilla Bldg., Francisco Ortigas Jr. Avenue Ortigas Centre Pasig City, 1605 Tel: (632) 631-2778 Fax: (632) 631-2788 Email: [email protected] Website: www.philconstruct.com

Philippine Green Building Council Unit G-4B, The NET One Centre, 26th Street corner 3rd Avenue Bonifacio Global City Taguig City 1634 Tel: +63 2 815 9301 Fax: +63 2 858 8082 Email: [email protected] Website: philgbc.org

Department of Public Works and Highways (DPWH) Bonifacio Drive, Port Area, Manila Tel: 304-3300 Fax: 304-3020 Email: [email protected] Website: www.dpwh.gov.ph/dpwh

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Department of Energy (DOE) Energy Centre, Rizal Drive Bonifacio Global City Taguig City, 1632 Tel: 840-2134 Fax: 812-6194 Email: [email protected] Website: www.doe.gov.ph

Board of Investments (BOI) Ground Floor Industry and Investments Bldg 385 Sen. Gil Puyat Ave Makati City Tel: 895.36.40 Fax: 895.83.22 Email: [email protected] Website: investphilippines.gov.ph

European Chamber of Commerce of the Philippines (ECCP) 19/F Philippine AXA Life Centre Sen. Gil Puyat Avenue corner Tindalo Street, San Antonio, Makati City, Metro Manila, 1200 Tel: (+632) 845.1324 Fax: (+632) 845.1395 Email: [email protected] Website:www.eccp.com

Philippine Economic Zone Authority (PEZA) Building 5, DOE-PNOC Complex Energy Centre, Rizal Drive Bonifacio Global City Taguig City, Metro Manila, 1634 Tel: 551-3438 Fax: 551-3436 Email: [email protected] Website: www.peza.gov.ph

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5.2 Starting a Business in the Philippines

Why the Philippines?

The Philippines has emerged as an attractive market for foreign companies due to its strong economic, democratic and demographic fundamentals. Moreover, the country, with its strategic location, is a gateway to the dynamic Asian market.

Registering your business

The SEC, the Securities and Exchange Commission, is the government agency responsible for the registration, licensing, regulation, and supervision of all corporations and partnerships organised in the Philippines, including foreign corporations licensed to engage in business or to establish branch offices in the Philippines. Registration with the SEC grants the entity with the corporate franchise or juridical personality to operate and transact business in the Philippines.

The processing and approval of the papers generally take around 15 working days from official acceptance of the application.

A majority of the directors must be residents of the Philippines. The number of directors must be at least five but not more than 15. Hence, if there are five directors, at least three must be residents.

At least 25% of the authorised capital stock of a domestic corporation must be subscribed and at least 25% of the subscription must be paid. However, subscriptions by alien individuals or foreign entities must generally be fully paid, except in cases where the law provides for the specific amount of paid-up capital.

Government Agencies

The government of the Philippines provides support and assistance to help businesses grow in the country. European companies looking to set up, operate and establish a business in the Philippines will find it easier with assistance from the following government agencies:

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◼ The Philippine Board of Investments (BOI), an attached agency of Department of Trade and Industry (DTI), is the lead government agency responsible for the promotion of investments in the Philippines. Taking the lead in the promotion of investments, BOI assists Filipino and foreign investors to venture and prosper in desirable areas of economic activities. The BOI assists businesses with the following services:

▪ Advisory, Actualisation and Aftercare

▪ Industry Updates and Information

▪ Marketing & Promotions

▪ Incentives

▪ Policy Advocacy

◼ The Philippine Economic Zone Authority (PEZA) is attached to the Department of Trade and Industry and is tasked to promote investments, extend assistance, register, grant incentives to and facilitate the business operations of investors in export-oriented manufacturing and service facilities inside selected areas throughout the country. It oversees and administers incentives to developers/operators of and locators in world-class, ready-to-occupy, environmentally-friendly, secured and competitively priced Special Economic Zones.

Business Locations

The urban centres of Metro Manila, Metro Cebu, and Davao City, as well as the government- owned and private special economic zones, are magnets of economic activities. The Philippine Assistance Programme is helping in the acceleration of regional development by sponsoring projects in Calabarzon (Cavite, Laguna, Batangas, Rizal, and Quezon Provinces), Iloilo, Samar, the -Cagayan de Oro corridor, and . The Calabarzon Project has resulted in the proliferation of privately-owned industrial estates to address the needs of foreign investors.

The Subic Naval Base in Olongapo City, the Clark Air Base in Angeles City, and other former US military bases with excellent infrastructure were converted into special economic zones. The

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Bases Conversion Development Authority succeeded in taking over these installations and implementing its master plans for these areas.

Investors’ interest in these areas has been tremendous and is perceived to be sustainable over the next five to ten 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 harbour and international airports that meet global standards in both Subic and Clark.

Recently, the government has taken significant strides in promoting the country as an attractive information technology destination. As of January 2015, there are 209 IT Parks and Centres which have been proclaimed as IT Ecozones by the President of the Philippines and are registered with PEZA.

In 2007, the government embarked on the actual implementation of its project on “industry clustering”. Clustering is the geographic concentrations of interconnected business entities and support institutions, and encompasses an array of linked industries and other entities important to competition. These may include suppliers of inputs, support facilities and service providers, and providers of specialised infrastructures.

The model industry clusters are: Vegetable Industry Cluster of Northern Mindanao - Model Regional Cluster and One-Town-One-Product (OTOP) Award; Bottled Sardines of Dipolog, Zamboanga del Norte - Model Provincial Cluster and OTOP Award; Furniture of Cebu - Model Provincial Cluster; Food Processing of CARAGA - Model Regional Cluster; and the eight industry clusters of the Davao - Emerging cluster.

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Finding a Distributor in the Philippines

An agent or distributor arrangement is the most common method in entering the Philippine market. Partnering with a local business is also recommended, as entering the Philippine market presents some challenges to foreign companies. This is due in part to a limited number of family-owned conglomerates that dominate key sectors and, in some cases, create high barriers to entry.

Philippines-based trade associations, chambers of commerce, and foreign commercial offices within EU Member State embassies are all good places to start the search for a distributor in the country. International business consultants with experience in helping foreign companies can also prove invaluable by facilitating introductions to qualified distributors. It is always best to meet a prospective distributor in person, and to check references.

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5.3 Useful Statistics

Exporters Imported Imported Imported Imported Imported value in 2014 value in 2015 value in 2016 value in 2017 value in 2018 World 204,990 272,642 452,584 582,982 682,919 Viet Nam 55,773 90,092 167,926 236,882 308,142 China 23,036 29,107 73,456 83,174 72,286 Thailand 22,398 38,291 33,347 63,502 65,399 Korea, Republic of 38,274 35,059 30,564 38,621 62,817 Taipei, Chinese 4,858 11,715 57,024 46,998 39,204 Australia 19,098 21,647 30,313 31,696 34,548 Japan 12,028 13,855 30,420 30,981 34,035 Indonesia 1,596 10,883 4,954 22,089 30,880 Malaysia 15,309 4,480 7,342 9,088 7,301 Table 15: Imports of Earths and Stone; Plastering Materials, Lime and Cement into the Philippines Source: ITC Trade Map Unit: US Dollar Thousand

Importers Exported Exported Exported Exported Exported value in 2014 value in 2015 value in 2016 value in 2017 value in 2018 World 26,574 21,675 15,375 18,489 27,816 China 2,726 7,655 4,366 5,087 6,881 Indonesia 2,469 1,869 192 1,890 4,345 Taipei, Chinese 6,572 3,564 2,939 2,056 4,050 New Caledonia 1,842 1,044 123 437 2,301 Japan 3,524 1,596 2,225 1,073 1,955 Micronesia 1,471 1,574 1,928 1,819 1,866 Singapore 1,891 182 169 2,412 1,195 Viet Nam 276 1,754 200 988 986 Hong Kong, China 103 355 314 262 906 Table 16: Exports of Earths and Stone; Plastering Materials, Lime and Cement from the Philippines Source: ITC Trade Map Unit: US Dollar Thousand

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Exporters Imported Imported Imported Imported Imported value in value in value in value in value in 2014 2015 2016 2017 2018 World 396,738 403,433 561,014 686,979 774,608 China 137,620 154,101 188,944 196,334 248,454 Canada 73,675 71,790 121,737 158,556 186,854 Japan 11,666 21,997 59,241 95,304 92,672 Malaysia 84,453 69,498 89,902 86,440 84,511 Indonesia 3,992 3,587 3,849 14,405 23,435 USA 22,861 14,984 16,193 20,607 21,040 New Zealand 9,014 10,891 16,241 21,211 20,748 Thailand 10,077 12,788 10,372 13,998 12,610 Viet Nam 4,510 6,831 6,697 8,070 11,485 Table 17: Imports of Wood and Articles of Wood; Wood Charcoal into the Philippines Source: ITC Trade Map Unit: US Dollar Thousand

Importers Exported Exported Exported Exported Exported value in value in value in value in value in 2014 2015 2016 2017 2018 World 3,095,973 2,907,309 2,875,027 1,411,068 675,037 Japan 2,975,258 2,810,965 2,781,965 1,348,507 590,383 China 56,122 30,941 26,753 31,245 37,668 USA 14,738 23,716 17,251 10,318 12,647 India 5,940 5,537 272 9 6,208 Korea, Republic of 4,160 1,539 2,228 2,903 4,836 Sri Lanka 4,131 4,493 1 269 4,833 Taipei, Chinese 4,127 1,395 1,244 1,656 1,719 Thailand 169 150 236 1,295 1,677 Viet Nam 1,935 4,403 1,044 902 1,676 Table 18: Exports of Wood and Articles of Wood; Wood Charcoal from the Philippines Source: ITC Trade Map Unit: US Dollar Thousand

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Exporters Imported Imported Imported Imported Imported value in value in value in value in value in 2014 2015 2016 2017 2018 World 160,582 174,812 244,756 263,016 291,174 China 56,421 65,676 86,124 95,382 94,454 Thailand 46,432 49,663 56,789 71,130 86,091 Japan 7,206 7,005 26,664 34,907 32,105 Korea, Republic of 4,166 5,434 9,893 10,779 10,788 Malaysia 5,871 10,910 24,293 6,622 8,956 USA 5,088 4,430 6,019 4,419 7,389 Indonesia 3,678 2,853 8,104 6,501 7,383 Germany 3,932 5,007 2,791 3,244 5,964 Singapore 1,838 1,935 3,283 3,153 5,939 Table 19: Imports of Articles of Stone, Plaster, Cement, Asbestos, Mica or Similar Materials into the Philippines Source: ITC Trade Map Unit: US Dollar Thousand

Importers Exported Exported Exported Exported Exported value in value in value in value in value in 2014 2015 2016 2017 2018 World 65,506 51,923 65,269 68,547 75,678 Japan 7,110 6,118 9,193 21,140 39,328 USA 19,506 10,709 7,960 12,887 8,774 India 8,239 8,728 24,554 8,802 7,747 Viet Nam 1,258 1,405 2,110 3,131 3,110 Korea, Republic of 3,019 1,875 2,705 3,132 2,998 Malaysia 2,976 3,184 1,788 2,173 2,565 Peru 1,431 1,673 1,554 1,527 1,380 China 3,212 1,730 1,273 2,835 1,246 Taipei, Chinese 3,996 3,008 2,494 1,555 952 Table 20: Exports of Articles of Stone, Plaster, Cement, Asbestos, Mica or Similar Materials from the Philippines Source: ITC Trade Map Unit: US Dollar Thousand

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Exporters Imported Imported Imported Imported Imported value in value in value in value in value in 2014 2015 2016 2017 2018 World 330,425 411,889 423,000 529,546 730,484 China 242,462 317,121 333,517 420,571 593,200 Indonesia 11,696 13,561 15,494 20,801 26,601 Viet Nam 17,783 19,770 12,984 17,842 25,601 Thailand 14,410 12,853 10,162 10,997 20,649 Japan 4,501 3,229 7,089 12,874 17,678 Spain 9,510 9,527 8,216 12,464 14,343 Italy 6,392 6,665 5,844 7,375 6,226 India 1,785 1,172 4,932 2,303 4,572 Malaysia 4,007 3,741 3,440 3,872 3,129 Table 21: Imports of Ceramic Products into the Philippines Source: ITC Trade Map Unit: US Dollar Thousand

Importers Exported Exported Exported Exported Exported value in value in value in value in value in 2014 2015 2016 2017 2018 World 29,510 26,041 27,434 34,994 37,056 Japan 14,199 9,030 11,186 19,343 23,338 USA 5,399 6,509 8,697 9,179 6,766 Korea, Republic of 912 945 1,198 1,880 2,815 Taipei, Chinese 2,137 2,204 2,214 472 1,160 Indonesia 553 520 639 481 359 Ireland - - 101 241 345 United Kingdom 697 737 701 856 290 Australia 565 774 372 517 280 Thailand 91 17 56 44 199 Table 22: Exports of Ceramic Products from the Philippines Source: ITC Trade Map Unit: US Dollar Thousand

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Exporters Imported Imported Imported Imported Imported value in value in value in value in value in 2014 2015 2016 2017 2018 World 205,762 240,357 282,100 289,072 373,568 China 119,135 139,240 161,487 159,581 183,554 Japan 8,677 14,317 22,663 22,423 29,944 Indonesia 24,663 22,475 15,388 13,397 22,269 Malaysia 3,721 984 1,204 8,231 20,334 Viet Nam 7,065 4,586 12,856 7,607 19,675 United Arab Emirates 3,862 4,211 7,497 4,571 15,724 Hong Kong 1,922 2,084 5,527 7,583 12,370 Thailand 12,488 9,981 9,334 11,368 11,708 USA 2,452 5,183 6,189 8,719 11,384 Table 23: Imports of Glass and Glassware into the Philippines Source: ITC Trade Map Unit: US Dollar Thousand

Importers Exported Exported Exported Exported Exported value in value in value in value in value in 2014 2015 2016 2017 2018 World 50,407 93,148 124,713 79,379 46,138 Japan 14,340 16,058 19,620 11,704 12,783 Australia 8,431 9,621 10,614 17,640 6,274 USA 3,200 11,864 15,849 11,976 3,958 Hong Kong 460 14,197 30,649 7,905 3,604 Korea, Republic of 6,951 3,837 2,234 1,899 3,405 Indonesia 1,475 2,062 2,454 2,775 2,979 Singapore 1,475 13,772 15,411 3,314 2,221 Viet Nam 3,095 948 1,655 1,700 2,040 Thailand 1,461 1,520 3,701 4,902 1,770 Table 24: Exports of Glass and Glassware from the Philippines Source: ITC Trade Map Unit: US Dollar Thousand

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Exporters Imported Imported Imported Imported Imported value in value in value in value in value in 2014 2015 2016 2017 2018 World 1,672,304 1,719,439 3,037,090 3,927,841 5,219,532 China 845,375 1,014,169 2,155,368 2,013,248 2,287,968 Russian Federation 13,938 35,994 53,705 360,894 912,296 Japan 383,804 305,842 397,962 496,134 556,420 Taipei, Chinese 161,816 146,482 200,610 207,436 272,179 Korea, Republic of 114,129 100,513 125,529 151,824 236,571 Viet Nam 56,345 8,684 11,208 247,578 220,544 India 13,529 11,481 16,598 158,170 142,340 Thailand 21,521 23,875 17,412 83,612 129,269 Saudi Arabia - - - - 116,178 Table 25 Imports of Iron and Steel into the Philippines Source: ITC Trade Map Unit: US Dollar Thousand

Importers Exported Exported Exported Exported Exported value in value in value in value in value in 2014 2015 2016 2018 2018 World 137,088 74,163 78,114 111,536 143,296 India 620 2,841 5,635 7,472 19,161 Indonesia 21,098 4,262 3,443 6,241 16,567 Taipei, Chinese 24,271 9,713 11,102 13,807 14,166 Japan 8,052 4,875 15,336 5,469 13,926 Viet Nam 15,403 11,542 10,827 15,813 13,885 Korea, Republic of 28,323 12,788 10,578 13,026 11,211 Thailand 8,086 7,640 3,865 12,173 10,731 China 8,943 3,962 6,236 8,959 9,562 Bangladesh 1,440 3,592 2,390 2,084 8,480 Table 26: Exports of Iron and Steel from the Philippines Source: ITC Trade Map Unit: US Dollar Thousand

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5.4 Bibliography

‘Build Build Build’ draws Swedish investor to PH, 2019, The Manila Times

‘Recovering’ Philippine nickel mining output to help boost global production-report, 2019, The Philippine Star

“Build, Build, Build” to roll out 75 projects worth $35.5B, 2018, Department of Finance

28 Build, Build, Build, projects set to complete by 2022-Neda, 2019, The Philippine Daily Inquirer

Aboitiz Construction creates shared value by generating thousands of jobs for Filipinos, 2019, Aboitiz

ADB OK’s its biggest infrastructure financing yet, 2019, BusinessWorld

Architects Urges to Lead on Sustainable Filipino Design, 2019, Lamudi

Bankers Open Doors To Green Financing, 2018, Bankers Association of the Philippines

Beyond the Money: ‘Build, Build, Build’-ing Better Policy, 2018, BusinessWorld

Britain seeks to help Philippines build ‘smart cities’, 2017, ABS CBN News

Builders face manpower shortage, high cost of materials amid boom, 2019, ABS CBN News

Building Sector expected to grow 9.8% a year, 2017, BusinessWorld

Building the country’s future, 2018, BusinessWorld

Celebrity endorsement still seen effective among millennial, 2017, BusinessMirror

China’s outcast steel machines find unwelcome home in Southeast Asia, 2018, Interaksyon

Construction cost in Manila remains inexpensive – global index, 2019, BusinessWorld

Construction costs seen to rise on strong demand, 2019, the Philippines Star

Construction sector picks up as government builds infra projects, 2018,

DA flags development of building materials for coco waste, 2018, BusinessWorld

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Developers moving towards creating smart homes and building smart cities, 2018, Manila Bulletin

DOLE eyes 90% cut in laborer deployment, 2019, The Philippine Star

DOE Plots Roadmap for Smart Grid, 2018, Department of Energy

DOE sets issuance of draft circular for smart grid technologies in Q3, 2019, BusinessMirror

DTI tightens monitoring of construction materials, 2019, Rappler

Eagle Cement Corporation, Annual Report, 2017, Eagle Cement Corporation

Eagle Cement Soars, 2017, BizNewsAsia

ENGIE bags 5-year contract for Cebu airport digitization

Gov’t spending P910B on infrastructure this year, 2019, The Philippine Daily Inquirer

Government pushes greater access to green financing, 2019, The Philippine Star

Govt to lift restrictions on foreign contractors, 2017, The Manila Times

Green Buildings Market Intelligence Philippines Profile, 2017, International Finance Corporation

Green Buildings set to rise at Global Gateway Clark, 2017, Pressreader

How property companies can develop more ‘green’ building in the Philippines, 2018, BusinessWorld

Insights and trends of e-commerce in the Philippines, 2018, ASEAN UP

Japan-backed smart grid to pilot test in Batangas,2018, The Philippine Star

Japan-Filipino consortium bags Metro Manila subway project, 2019, The Philippine Star

Meralco looking to develop smart gird, 2017, The Manila Times

Meralco transforming network into smart grid, 2017, The Philippine Star

MHE-Demag Launches Compact Construction Equipment in the Philippines, 2017, Jebsen & Jebsen

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Philippines: a clean bill of health, 2018, LEK Consulting

PH seen among fastest growing construction markets, 2017, The Manila Times

PH seen running out of office space, 2018, The Philippine Daily Inquirer

Philippine steel use seen at record high, 2019, BusinessWorld

Philippines steel consumption seen at record high in 2019 – industry group, 2019, DZRH News

Quarrying is a vital component of economy, 2018, The Philippine Star

Roadmap targets P130-T PH construction industry, 2019, Manila Bulletin

SE Asia seen leading smart grid infra market, 2014, Business Inquirer

State-Owned Steelmarket to Develop $4.4 Billion Complex in the Philippines, 2018, Caixin

Sub-standard cement, steel jeopardizing infra plan, 2017, The Manila Times

Sustainable Shoppers, 2018, Nielsen

Taxes largely to fund golden age of infra, says Diokno, 2017, GMA News

The Philippine is aiming to build a city of the future, 2018, CNBC

Volvo Heavy Equipment Distributor Eyes to Maintain Posit in PH Market, 2018, Carmudi Insider

What is ‘Build, Build, Build’?, 2018, Manila Bulletin

Who’s winning the Philippines’ e-commerce arena: local or international players?, 2017, Marketing Interactive

YEARENDER: Mining industry still fighting survival, 2019, The Philippine Star

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