Successfully investing in the Philippines

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published on May 16, 2018

 

An update of the article will follow shortly.

 

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How do you assess the current economic situation in the Philippines?

The Philippines continued on its growth path also with the new government elected in 2016 at the wheel. In the last 5-10 years, the Philippines has reported –also in times of (the global) crisis– an average growth rate of 6.5%, which is by far the best result among all countries of the Asia/ASEAN growth region. By comparison: In 2017, the Philippine GDP growth rate was 6.7%. In the same year, the ASEAN's average growth rate was 5.2%, the EU28's average was 2.5%, and the world average was 3.5%.

 

Already in 2014, the President of the World Bank praised the Philippines as "the next Asian Miracle"; a claim bolstered by the above-described economic performance indicators for the past years. In the UN World Investment Report 2016, the Philippines was indicated as one of the most attractive investment locations for the 2016-2018 period.  It will be exciting to await the new edition of the investment report next year. Furthermore, in a survey by a U.S. media company, US News & World Report, 6,000 respondents for the first time indicated the Philippines as "the best country to invest in", followed by Poland, Malaysia, Singapore, Australia, Spain, Thailand and India.

 

How would you describe the investment climate in the Philippines? Which sectors offer the largest potential?

The solid macroeconomic indicators of the Philippines –coupled with EUR 145 billion worth of the infrastructure measures implemented by the state– allow expecting that the growth will further increase in 2018 and in the coming years. The target corridor set by the government for 2018 is currently 7-8%. International institutions such as the World Bank, IMF, or the Asian Development Bank, have also issued positive forecasts, yet the projected values are a bit more conservative. Overall, experts agree that the Philippines will be one of the best-performing Asian economies also in 2018, possibly even outperforming China. Especially among companies operating in the Philippines for a longer time now, the investment climate is good – despite certain political uncertainties.

 

The sectors of industry which particularly benefit from this wave of growth are sectors which take part in the "golden age of infrastructure" in the Philippines. Furthermore, ample opportunities arise in the energy sector (e.g. clean energy & energy efficiency), the newly revived industrial sector (especially in the area of electronics supply), the BPO sector (where the Philippines is one of the top 3 economies in the world), and the consumer sector (with a domestic market with 103 million consumers and a constantly growing middle class and buying power). Additionally, the "Made in Germany" products and services are highly respected in the Philippines, which opens the door for the German expertise and products.

 

What challenges do German companies face during their business ventures into the Philippines?

Despite all the positive economic indicators and forecasts, bear in mind that the Philippines is still an emerging economy that underwent transformation from a less developed country only a few years ago. As in many other South-East Asian countries, the Philippines' growth potential is therefore curbed by bureaucracy, certain investment constraints, infrastructural challenges, corruption and political risks. It is therefore all the more important to select the right business partner to be by your side during your venture into the Philippines and rely on experienced advisers to minimise the existing risks.

 

In 2018, particular attention should be paid to how the central bank will respond to the development of the pesos and the higher level of inflation to prevent the overheating of the economy. In addition, a comprehensive corporate tax reform, which has started to take shape, is expected to be introduced in 2018.
  

Digitisation is currently the trend of the future in the world economy. How has the Philippines positioned itself in this regard?

Although, given the country's current economic development and the infrastructural challenges, the Philippines still lags behind countries such as Germany, Japan, the USA or Singapore in terms of digitisation, it should be emphasised that the Philippines is regarded as one of the winners of globalisation so far and has only started to develop in the area of digitisation.

 
While one of the effects of globalisation in the area of industry is that many jobs are offshored to countries such as China, one of the benefits for the Philippines in the area of outsourcing is the fact that companies from all over the world have moved their back office functions to the Philippines (e.g. voice and e-customer service, accounting, procurement, HR, and compliance processes).

 

The BPO sector also plays a key role in the Philippine economic growth. Furthermore, revival has been increasingly observed in the industrial sector. Also in the Philippines, digitisation thus remains one of the most important topics of the future and it should be assumed that the country, which keeps pace with technological innovations, is well-positioned to participate or even advance the development in this area. For example, quite significant quantities of autonomous car sensors are already manufactured in the Philippines.
 

In your opinion, how will the Philippines develop?

The political situation in the Philippines raises some questions about the future of the country, which are not yet possible to answer after only 1.5 years of office of the current government. Especially the implications of the increased focus of the Philippines on China (and Japan) must continue to be carefully observed and analysed both in political and in economic terms.

 

The German economy plays a certain special role in this process. As described above, the German engineering skill and expertise is highly esteemed in the Philippines and Germany continues to be one of the most important trading partners and, first of all, investors for the Philippines. In recent years, also under the current Philippine government, Germany's position as the Philippines' leading partner (in Europe) has even further expanded.

 

In the end, however, the strength and the very positive development of the Philippines in recent years are based on the following factors:

 

  •  Abundance of resources (both natural resources and human capital);
  • Relatively high and dynamic consumption and domestic market which is rapidly developing due to the constantly growing middle class;
  • Stable private and state finance and investment;
  • A West-oriented, well-educated, English-speaking young working population and low payroll costs; and
  • Increasing liberalisation of the investment environment and reform measures – so the extremely positive development observed in recent years is not expected to come to a halt in the short- to medium term.

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Dr. Marian Norbert Majer

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+ 63 2 8 4791 555

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