BUSINESS DYNAMICS:

PHILIPPINES
Euromonitor International
May 2017
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LIST OF CONTENTS AND TABLES

Chart 1 SWOT Analysis: Philippines ......................................................................... 1
Regulatory Environment ............................................................................................................... 1
Enhanced Economic Freedom ................................................................................................. 1
Chart 2 Overview of the Business Environment in the Philippines ............................ 2
Operating Risks ............................................................................................................................ 2
Improving Operating Environment But Ranks Below Its Regional Peers .................................. 2
Chart 3 Operational Risks in the Philippines ............................................................. 3
Access To Finance ....................................................................................................................... 3
Bad Loans Are in Decline ......................................................................................................... 3
Chart 4 Finance in the Philippines ............................................................................ 4
Transport and Infrastructure ......................................................................................................... 4
Government Working Towards An Infrastructure Push............................................................. 4
Chart 5 Case Study on Transport and Infrastructure: Philippines ............................. 5
Chart 6 Infrastructural Environment in the Philippines .............................................. 5
Communications and Innovation .................................................................................................. 6
the Philippines Is in the Top Ten in Asia Pacific for Internet Use in Businesses ....................... 6
Chart 7 Case Study on Communication and Innovation: Philippines ........................ 7
Chart 8 ICT Environment and Innovation in the Philippines ...................................... 7
Education and Skills ..................................................................................................................... 8
the Philippines Has the 5th Lowest Higher Education Rate in the Asia Pacific Region ............ 8
Chart 9 Education and Skills in the Philippines ......................................................... 9
Employment and Labour Costs .................................................................................................. 10
Competitive Wage Rates, Government Regularising the Market: ........................................... 10
Chart 10 An Overview of the Labour Market in the Philippines ................................. 10
Regional Comparison ................................................................................................................. 11
Chart 11 Overview of Regional Comparison ............................................................. 11

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BUSINESS DYNAMICS: PHILIPPINES

The Philippines pursuance of regulatory reforms, relatively low wage rates, improved credit
worthiness and focus on improving infrastructure makes its business climate more conducive.
Though, heightened corruption concerns, alongside rising skills mismatch resulting in
inadequacy of employable talent and brain drain, could push investors to reconsider their
business plans.

Chart 1 SWOT Analysis: Philippines

Source: Euromonitor International

REGULATORY ENVIRONMENT

Enhanced Economic Freedom

Country pursuing regulatory reforms agenda:
The countrys Economic Freedom ranking between 2011-2017 improved as a result of less
time and cost involved in fulfilling licensing requirements. However, concerns seem to exist
with respect to government spending and tax burden;
The country seeks foreign investments, but foreign ownership limitations in certain sectors
such natural resource exploration, development and utilization, educational institutions and
construction of locally funded public works exist. Foreign ownership ceilings for sectors range
from 20% to 60%;
The Philippines has made considerable progress in Ease of Doing Business Rankings
between 2011-2017, thanks to increased transparency in building regulations and by allowing
online corporate income tax and VAT returns to be completed offline. Yet, progress made in
terms of time and cost involved in starting a business lags that of other economies;
The country has a relatively high total tax rate as compared to its peers. Taking cognisance of
the increasing tax burden the Bureau of Internal Revenue (BIR), Philippines has announced
key priority programs to improve investor trust.

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Chart 2 Overview of the Business Environment in the Philippines

Source: Euromonitor International from the World Bank/Heritage Foundation

Note: The Index of Economic Freedom Rankings 2017 are out of 180 nations

OPERATING RISKS

Improving Operating Environment But Ranks Below Its Regional Peers

Terrorism threat prevails despite improving regulatory environment:
In spite of improvements in the Corruption Perceptions Ranking between 2011-16, the
Philippines has fared poorly compared to its peers on account of a weak administration and
high incidence of red-tapism;
As per the World Banks Regulatory Quality Ranking 2015 (latest data available), the
Philippines ranking has improved over the years, owing to initiatives to expedite the process
of issuing an employer registration number and making paying taxes easier by introducing an
online system for filing and paying health contributions;

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The Philippines faces terrorist threats as rises in kidnapping of foreign nationals and attacks
targeting foreigners and tourists have been recorded since late 2015.

Chart 3 Operational Risks in the Philippines

Source: Euromonitor International from Transparency International/Institute for Economics and

Peace/UNDOC/World Bank
Note: Global Terrorism Index 2016 scores were calculated for 162 countries. A higher score (out of 10.0) in the
Global Terrorism Index implies a worsening country environment related to terrorism. A higher ranking in
the Rule of Law Index implies better governance

ACCESS TO FINANCE

Bad Loans Are in Decline

Philippines annual lending rates amongst bottom ten regionally:
As of 23rd March 2017, the central bank has left the benchmark overnight borrowing rate
steady at 3% as risks surrounding inflation remain to the upside due to possible changes to
transport fares, electricity rates and a proposed reform of taxes;
Despite a substantial improvement in the Getting Credit category ranking during the 2011-
2017 period, the Philippines is placed in the bottom ten regionally only ranking above
Bangladesh, Nepal and Maldives in 2017 due to a lack of borrowing history in the credit
market;

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Annual lending rates have come down since 2011, now in the bottom ten in the region, which
makes it cheaper to get loans. A drop has been recorded in nonperforming loans indicating
adherence to high credit standards by commercial banks;
Philippines stock market index declined in 2016 as compared to 2015, as a slowdown in
remittances from overseas workers became a cause of concern.

Chart 4 Finance in the Philippines

Source: Euromonitor International from IMF/IFS/World Bank/World Federation of Exchanges/national

sources/Eurostat/OECD/UN

TRANSPORT AND INFRASTRUCTURE

Government Working Towards An Infrastructure Push

Road and port infrastructure in need of investment:
The Philippines Logistics Performance Index between 2011-2016 saw a decline and lagged
behind regional peers due to a decline in the efficiency of the clearance process and the
falling quality of trade and transport-related infrastructure including ports, railroads and roads;

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The government aims to accelerate infrastructure development through reforms to the

implementation and procurement of projects, improved project monitoring and a speeding up
of project completion;
The government has launched Three-Year Rolling Infrastructure Program (TRIP) which puts
more emphasis on projects to be undertaken in three year periods under which a total of
1,313 region-specific infrastructure projects amounting to PHP157 billion (US$3.2 billion) will
be rolled out between 2018-2020 in the five regions that have the highest poverty rates.

Chart 5 Case Study on Transport and Infrastructure: Philippines

Source: Euromonitor International

Chart 6 Infrastructural Environment in the Philippines

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Source: Euromonitor International from ICAO/World Bank/national statistics/IRF/International Union of Railways

(UIC)/Eurostat
Note: A higher score in the Logistics Performance Index (and its sub-categories) implies a better logistical
environment

COMMUNICATIONS AND INNOVATION

the Philippines Is in the Top Ten in Asia Pacific for Internet Use in
Businesses
The Philippines is one of the countries with the lowest level of expenditure on R&D as % of
GDP in Asia Pacific:

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The Philippines witnessed a rise in the percentage of population using the internet between
2011-2016 on account of rapid growth in smartphones;
Internet usage among businesses in the Philippines is high, but placing and receiving orders
over the internet remains very low as connectivity is concentrated mainly in urban areas, while
rural areas remain largely underserved;
The Philippines improved its Networked Readiness Index ranking between 2011-2016, but a
lower position globally highlights less sophisticated infrastructure and a less affordable
service;
Lower expenditure on R&D as % of GDP due to a lack of strong business sectors is another
concern. In May 2017, the Philippine Innovation Act has been passed to help establish an
innovation policy, under which a new government body - the National Innovation Council
(NIC) will be responsible for boosting innovation through a National Innovation Agenda and
Strategy Document.

Chart 7 Case Study on Communication and Innovation: Philippines

Source: Euromonitor International

Chart 8 ICT Environment and Innovation in the Philippines

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Source: Euromonitor International from UNCTAD/Eurostat/ITU/WEF

Note: Networked Readiness Ranking (NRR) 2011 is out of 138 nations and NRR 2016 is out of 139 nations

EDUCATION AND SKILLS

the Philippines Has the 5th Lowest Higher Education Rate in the Asia
Pacific Region
Skilled shortages a key concern:
The adult literacy rate for the Philippines is better than the Asia Pacific average largely owing
to the high rate of female literacy. Meanwhile, the Philippine higher education rate is
marginally better than Asia Pacific, yet, lags most of its regional peers;

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Education rate is expected to get a boost from the government initiative to abolish tuition fees
with universities and colleges receiving state funding starting from 2017;
Job skills mismatch prevails in the Philippine manufacturing sector resulting in skills sets of
graduates not matching employers expectations;
The Philippines government encouragement to export high-skilled workers in order to
increase its foreign remittances could result in domestic labour shortages, particularly in
skilled occupations such as nursing, engineering, and aviation.

Chart 9 Education and Skills in the Philippines

Source: Euromonitor International from national statistics/UN/Eurostat/OECD/UNESCO

Note: PISA stands for Programme for International Student Assessment

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EMPLOYMENT AND LABOUR COSTS

Competitive Wage Rates, Government Regularising the Market:

High level of youth employment and brain drain key concerns:
Philippines overall unemployment rate was at its lowest level in 2016 in the last six years as
expansion growth in business activities created more jobs but remains higher than the
regional average. Female population, however, enjoy good opportunities with female
unemployment lower than male unemployment;
One of the Philippines key challenges is the high level of youth unemployment rate
accounting for more than half of the total unemployed population on account of skills
mismatch and organisations failing to absorb new entrants. The Department of Labor and
Employment (DOLE) have initiated the JobStart Philippines Program which will benefit youth;
The low wage per hour makes the Philippines more competitive compared to its peers though
it also increases the risk of its professionals looking for jobs overseas.

Chart 10 An Overview of the Labour Market in the Philippines

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Source: Euromonitor International from ILO/Eurostat/national statistics/World Bank

Note: (1) Wholesale and Retail Trade includes Repair of Motor Vehicles, Personal and Household Goods;
(2) Financial Intermediation includes Real Estate, Renting and Business Activities;
(3) Undefined sectors refers to activities not adequately defined elsewhere in the other categories

REGIONAL COMPARISON
Chart 11 Overview of Regional Comparison

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Source: Euromonitor International from International from International Monetary Fund (IMF)/International
Financial Statistics/ International Labour Organisation (ILO)/Eurostat/national statistics/World Economic
Forum/World Bank

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