Year 2018: Why Projections for the Philippine Economy are Bullish
The Philippines tagged as among the more attractive investment destinations by UNCTAD
The Philippines has become a more attractive destination of prospective foreign direct investments, placing seventh in a list of economies tagged as “most promising host countries,” the United Nations Conference on Trade and Development (Unctad) 2017 business survey showed. (From Business Inquirer.net). Here are some of the reasons for being so:
Improved Peace and Order Situation
Maintaining peace and order is essential for any business to grow and prosper. Thus, programs to enforce law and order are among the top priorities of the current government to help improve the business climate, enabling entrepreneurs to thrive better.
In terms of actual statistics, the Philippines' crime rate dropped by 13 percent for the period ending 2016, according to records from the national police, showing a continuing downtrend and especially as a result of President Rodrigo Duterte's war on drugs which was launched June of the same year.
The Duterte government has been patiently reaching out to some rebel groups like the MNLF and MILF in Muslim Mindanao as well as with with the CPP-NPA where lasting peace is always the end goal of the continuing talks and negotiations.
The givens: The Philippines is inherently richly endowed in so many ways
The country by itself is beautiful and abounds with natural physical resources, with only two seasons (dry and rainy) and has a tropical climate, yet, the main asset of the Philippines is its own people - the Filipinos, who are generally friendly, cheerful, educated and industrious making them an ideal workforce by any standard. Other people-related attributes that may appeal to investors include the following:
1. The Philippines is a huge market by itself with about 105 million population based on the latest United Nations estimates. This is equivalent to 1.39% of the total world population and ranks number 13 in the list of countries by size of population.
2.The population is composed mainly of young people, thus, there exists a youthful, highly trainable, friendly and dynamic workforce.
3. Labor cost is relatively cheap compared to other markets.
3. Filipino and English are the two major spoken language both for instructions and communications. English is widely understood and spoken,thus, it is used not only in schools but especially in business and commerce.
4. Having been used to confront and to survive many natural calamities, the people have become generally hardworking, patient and resilient.
Prospects are bright for the Philippines
Amidst political noise due to the issue on drug war and the declaration of martial law in the whole island of Mindanao, the economic pundits have a bright outlook for the Philippines this year. This positive outlook is supported by the following favorable scenario:
- The macroeconomic fundamentals are strong- There is an accelerated actual economic expansion from 6.4 percent in the first quarter to 6.5 percent in the second quarter and prospects of greater growth towards the succeeding quarters of the year in the face of the tightening of the monetary-policy structures by both the United States and China over the medium term. This is significant given that both countries are the Philippines' largest trade partners.
- Forecasts per World Economic Outlook placed a 6.6% growth for Philippine gross domestic product (GDP) for 2017, which will allow the country to remain a growth leader in Southeast Asia. This makes the government’s target of 6.5-7.5% growth possible.
- There is a low level of public debt. - The Bangko Sentral ng Pilipinas (BSP) announced that the country's total debt owed to foreign creditors dropped in the 2nd quarter of 2017, that is, outstanding Philippine external debt stood at $72.5 billion as of end-June 2017, down by $1.3 billion or 1.8% from the $73.8 billion at the end of March 2017.
- There is a high level of foreign reserves- which stood at US$ 80,962.2 million by end of September 2017 per BSP data. According to the BSP governor in-charge said level is comfortable enough to cover for a little over five times the country's short term-debt.
- In terms of perks to investing companies, substantial tax and non-tax incentives are granted to approved investment projects registered either with the Board of Investment (BOI) or Philippine Economic Zone Authority (PEZA).
BusinessWorld reports that BSP officials have said that the country’s sound fiscal and monetary policies make it an attractive investment destination for foreign investors, who are looking for opportunities amid slow recovery in global growth.
Further, BSP Deputy Governor Diwa C. Guinigundo has affirmed the country’s healthy external position and hefty dollar reserves provide “comfort” for international investors, as these factors provide resilience to external risks which could otherwise weigh on the local economy.
Duterte's strong leadership spurs business optimism and confidence
The strong leadership of President Rodrigo Roa Duterte (with 80% approval rating by Filipinos) inspires business confidence for a more stable business climate in the country. It signals that the government has the capacity and sincerity to deliver on its commitments including the passage of needed economic policy reforms.
The message is clear: In the Philippines, the rule of law is paramount and being observed; contracts are honored and respected.
Added to its attractiveness is the open policy, easing restrictions and regulations, and partnership
As is, enough policy buffers are already put in place as the government steps up efforts to modernize infrastructure thru its "Build, Build, Build Program" and reform business policies to sustain the growth momentum, create more jobs, attack poverty and achieve a more inclusive economy. The Tax Reform Package is also in the pipeline to make these goals possible.
The businessmen welcomed the liberation of Marawi from the hands of terrorists. The end of the five-month Marawi siege by ISIS inspired terrorists signaled the start of Marawi's massive reconstruction. This serves also as a clear testament to the decisive leadership of the President and his commitment and determination to make things happen and make them even better for the people and for the country in general.
More reasons to celebrate at the stock market
Global optimism and high expectations over the end of the Marawi war in Mindanao, boosted the Philippine shares, breaching the 8,500 level for the first time on 17 October 2017, before settling with another record with another record a little bit lower at the closing of the trading week. No doubt, investors have been bullish on Philippine shares. And that is definitely some good news for the business sector and for the economy as a whole.
Philippines' Investment Priorities under BOI
Prospective investors may wonder what type of business ventures the country can offer them. In this respect, the Philippine Board of Investments (BOI) identified the following industries as worthwhile and preferred ventures which means they are bankable in terms of opportunities and possible income generating capacity. As such, approved BOI registrations under any of these undertakings in the Investments Priorities Plan (IPP) maybe granted fiscal and non-fiscal incentives. These industries include:
- Agri-business – processed fruits and vegetables, seaweeds. Tropical fruits purees and juices, fresh tropical fruits, mango seed oil, sugar plantation, fisheries and dairy
- Electronics / Mining and Mineral Processing / Pharmaceuticals / Shipbuilding / Footwear
- IT & BPO – BPO Finance & Accounting, Call Center, Clinical Research Outsourcing, Cloud Computing, Electronic Medical Records, Engineering Design, Game Developing, Legal Process Outsourcing, Software Development Outsourcing [Note: BPO in the Philippines is becoming a key developing industry, primarily due to the relatively low cost of living, and a workforce which composed mainly of young and educated Filipinos with good spoken English language skills. The majority of international research and data companies have placed the Philippines as the no 1 trending country as the top outsourcing destination. In 2015, the Philippines replaced Mumbai as the 2nd ranking BPO destination and will in all likelihood continue to maintain a high position in the Top 10 worldwide outsourcing destinations (dominated mostly by Indian cities) in 2017.- Source: Op/Ed by Bob Shead, posted on ASEAN briefing]
- Renewable Energy – Biomass, Bio Ethanol, Bio Fuels, Bio Methyl Ester, Geothermal, Jatropha, Wind Energy, Hydro Energy, Solar Energy
The latest BOI projects approval
The BOI has recently approved and granted tax incentive to four (4) renewable energy projects with combined investments of P35.4 billion. The BOI also announced that these are investment pledges which are in line with the Duterte administration’s efforts to address the country's power requirements and form part of its ongoing infrastructure Build Build Build program until 2022.
These approved renewable energy generation investment pledges were identified as:
- Calatagan wind project in Batangas with 151.2 MW (P15.3 billion);
- Talim wind power project also with 151.2 MW (P14.6 billion) in Rizal
- Currimao Solar Energy Corp. (P4.74 billion) Talisay wind power project in Camarines Norte;and
- VS Gripal Power Corp. (P777 million) biomass power plant in Nueva Ecija.
Special Economic Zones
Special Economic Zones or ecozones are the best investment locations in the country, especially, in terms of logistics and incentives. Incentives to investment locators come in the form of tax (e.g. income tax holiday and local tax exemptions) and special non-tax incentives (e.g. one-stop shop registration, etc.).
The Philippine Economic Zone Authority (PEZA) is the government agency in-charge of these ecozones which are strategically located throughout the country. Data from PEZA show that as of 31 October 2016, around 356 economic zones have already been established and have been actually operating in the Philippines, broken down as follows:
73 Manufacturing Economic Zone
243 Information Technology Parks/Centers
21 Agro-Industrial Economic Zone
19 Tourism Economic Zones
2 Medical Tourism Parks/Centers
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