2006 Edition Ye a r s Doing Business in the Philippines !SGV & Co A MEMBER PRACTICE OF ERNST & YOUNG GLOBAL Quality In Everything We Do ©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV Doing Business in the Philippines ©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV MALACAÑAN PALACE MANILA Despite enormous challenges in 2004, the Philippine economy had posted a year-on-year growth of 6.2% exceeding our target of 5.8%. We began 2005 with greater promise, with our sovereign currency and stock market soaring to record highs. The drop in nonperforming loans in the private sector from 19% to 13% as a result of the Special Purpose Vehicle Act of 2002 has helped in mitigating the fiscal deficit. Meanwhile, we continue to improve our fiscal situation and enhance our revenue performance with the encouraging support and vital participa- tion of Congress. The rebirth of the Philippine mining industry continues to attract foreign investors. As we anticipate more activities in this sector, proper steps are being taken to ensure sustainable development as we explore the mining prospects in such locations as Benguet, Albay, Palawan, Surigao, Zomboanga del Norte, and Davao. Apart from these developments, the Philippine accounting industry targets its full transition to International Financial Reporting Standards (IFRS) in 2005. This will bring about greater transparency and compa- rability in financial reporting and push forward the adoption of uniform financial reporting standards not only across the region, but throughout the world. All these developments and more are featured in this latest edition of Doing Business in the Philippines, published by SGV & Co. This pub- lication is a credible and up-to-date source of information on our fiscal reform agenda and accelerated growth. With the turnaround of our econ- omy, coupled with our fiscal reforms and revitalized revenue program, we believe we have set up the environment for more jobs and better lives for our people. We invite the international community to move forward with us as we strengthen our presence in the Asian and global market. MABUHAY! GLORIA MACAPAGAL-ARROYO MANILA ©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV Recent developments present vibrant To enhance the investment climate, we prospects for the Philippine economy in are working closely with Congress to 2005. For one, mining has become an rationalize the fiscal incentives. We aim to attractive prospect after the Philippine make the country’s perks for industries at Supreme Court ruled that foreign inves- par with those of our Asian neighbors to tors can now fully own a mining business. capture a considerable amount of invest- More call centers are emerging all over ments that developed countries have allot- the country as demand for information ted for their expansion projects. technology services continue to grow. Critical infrastructure projects are being The export targets, on the other hand, fast-tracked, enabling businesses to oper- can be realized through stronger market ate more efficiently. These developments, penetration and promotion strategies, di- coupled with the country’s impressive versification and expansion of the exports investments and exports performance, beyond traditional products, promotion make the Philippines an even more attrac- of dollar-earning services, and inflow of tive investment location in the heart of the export-oriented investments. We will seek ASEAN region. to develop a compendium of industries, particularly SMEs which can widen the Combined investments registered with the export base or serve as suppliers of inputs Board of Investments and the Philippine required by big companies. We will also Economic Zone Authority grew 286% in focus on special culture-based markets 2004, reaching PhP183.88 billion. This such as those for halal and kosher foods— amount is more than a three-fold increase which when tapped will offer billions of from PhP64 billion in 2003. Notably, the dollars in potential income. PhP151.05 billion foreign component (accounting for 82% of the total) reflects We invite you to come to the Philippines strong foreign investor confidence in the and see what we have to offer in terms economy. of investment and trade opportunities that can expand your business interests. Merchandise export earnings for the Together, let us embark on a host of whole of 2004 grew by 9.3%, reaching mutually beneficial collaborative endeav- US$39.6 billion from only US$36.2 bil- ors towards sustained economic growth, lion in 2003. This performance is higher progress, and prosperity. than the Asian Development Bank’s projection of 8.5%, and a significant im- Mabuhay! provement over the actual growth of 2.9% recorded in 2003. Philippine merchandise and services exports this year are expected to reach US$43.84 billion. PETER B. FAVILA Secretary Department of Trade and Industry ©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV !SGV & Co In 2005, the Philippines continues to courses on English as a second language, strengthen its emerging industries and are relatively lower in the Philippines, enhance the quality of its business and many of its Asian neighbors come environment. Rich in skilled human to the country for these courses. Medical resources, the Philippines is a preferred tourism has also taken off in the country. site for foreign direct investments in busi- With technology transference and a pool ness process outsourcing (BPO) services of experienced and efficient health pro- such as contact centers, medical tran- fessionals, hospitals such as St. Luke’s scription, research and development, and Medical Center, Asian Hospital, and information technology services. This Medical City are able to offer cost-effec- is affirmed in the IMD Competitiveness tive medical treatment for patients need- Yearbook 2005, which cites the ing surgical and other forms of specialized Philippines as one of the top 10 countries treatment. with competent senior managers and skilled workers. Further, the Philippines Aside from increasing opportunities in David L. Balangue is the third largest English-speaking coun- BPO services, perhaps the most excit- Chairman and Managing Partner try in the world. Philippine government ing growth area for the Philippines is the SGV & Co. has shown its strong support for offshore mining industry. The country has esti- services by enhancing the incentives for mated mineral resources valued at US$1 investors. trillion. It is the fifth largest mineralized country in the world. The Philippines is As a result, the Philippines has experi- in a strong position to offer viable busi- enced the continuous growth of informa- ness opportunities in response to renewed As the premier professional services tion and communication technology (ICT) investment interest in this industry caused firm in the country, we at SGV & Co. are companies that are locating in several by the Supreme Court ruling on the committed to assist investors in setting parts of the country. There are currently Philippine Mining Act of 1995. up, operating, and cultivating their busi- over 70 contact centers in the Philippines; ness. Our partners and principals have the most are subsidiaries of US-based com- To complement its rich pool of quali- expertise and experience to provide infor- panies. This number is expected to double fied workers and the sunrise industries, mation to address investors’ needs and in the next year. Competitive operating the Philippines’ strategic location offers concerns. You can learn more about SGV costs, the Filipinos’ excellent grasp of the investors a window for trading with the by visiting our website: www.sgv.com.ph English language, and satisfactory work 560 million-strong ASEAN market and relationships with expatriates are distinct just as importantly, a gateway to dynamic Welcome to the Philippines. We are most advantages in setting up ICT-related ser- China. eager to help your business thrive and vices in the Philippines. succeed in today’s knowledge economy. With this issue of Doing Business in the This rise in BPO-related businesses has Philippines, we invite you to explore the Mabuhay! opened doors to emerging industries such infinite investment possibilities as our as educational and medical tourism, and country ushers in a new era of growth and mining. Cost of education, especially for development. ©2006 SGV & Co. All rights reserved. & Co. ©2006 SGV Table of Contents Why You Should Invest in the Philippines Matching Strengths and Opportunities 8 The Country’s Bests 9 At the Right Time and Place 10 Competencies and Skills 10 Executive Caliber 11 Creative Forces 11 Hospitable Lifestyle 12 Unlimited Business Opportunities 15 Partial List of Approved/Proclaimed Ecozones 24 What the Philippines Can Offer Your Business 25 SPECIAL SECTION Enabling Laws for Investments Maritime Industry 26 Mining Industry 27 Agriculture and Fisheries Industry 28 Electric Power Industry 29 How to Operate in the Philippines Investment Policy and Laws 30 General Policy on Investments 30 Omnibus Investments Code of 1987 30 Foreign Investments Act of 1991 32 Special Economic Zone Act of 1995 33 Bases Conversion and Development Act of 1992 35 An Act Providing for the Terms, Conditions, and Licensing Requirements of RHQs, ROHQs, and RWs 36 Investors’ Lease Act 37 Export Development Act of 1994 37 Amended Build-Operate-Transfer Law 37 Registration Procedures with Government Offices 38 Securities and Exchange Commission 40 Department of Trade and Industry 41 Board of Investments 42 Philippine