To our partners and fellow participants, a good day to all and welcome to our Country business briefing, as part of the Philippines National Day Celebration!
We are fortunate to be joined, as well, by our key partners in promoting the Philippines as an investment destination across Southeast Asian region.
Esteemed Members of the Philippine delegation and the UAE and Middle Eastern business community
Please allow me to present the Philippines if you are searching for upsides in your business portfolio and expanded source of growth in the Southeast Asian region.
I will provide the latest updates on the investment climate and trade opportunities within the Philippines. Let me start with a brief background on our economic recovery efforts as we faced the pandemic and the various industries to consider for investment.
Prior to the COVID-19 pandemic, the Philippines boasted of
a very strong economic growth, with an average
of 6.6 percent over the period
of 2016 to 2019, so much
so that we were hailed as the 2nd fastest growing economy in Asia. In 2019, our per capita GDP was at $3,500. We were projected to breach the $4,000-mark and become an upper middle-income country by 2020, if COVID-19 did not happened.
[Slide 2]As the Philippine government learned to manage the COVID-19 virus—reflected by cases subsequently decreasing—and with the strengthened vaccination rollout, we were able to reopen the economy gradually and safely.
The recent cases of COVID-19 have also become milder and asymptomatic because our government has elevated the vaccination rate in the country which helped increase the immunity of the population. We have allowed greater mobility, shortened, and even removed quarantine requirements for cross-border travel. We will only require self-monitoring. Fully vaccinated individuals from 157 visa-free countries including the UAE can now enjoy quarantine free travel to the Philippines for 30 days. You will only need to present a negative RT-PCR test taken within 48 hours prior to the date and time of departure and have a return ticket and insurance cover of USD 35,000. Our management of the pandemic has protected many Filipino lives relative to other more advanced countries which are still experiencing a high level of surge as of now.
[Slide 3]The reopening of our economy has immediately translated to recovery as shown by recent economic data. The Philippine GDP posted a growth of 7.7% in the fourth quarter of 2021, with full year GDP growth rate of 5.6%, surpassing the government target of 5 to 5.5% growth. This is also among the highest GDP growth rates in ASEAN and the East Asian region.
On the production side, the industry sector expanded by 8.2%, while the services sector grew by 5.3 percent. On the expenditure side, growth was primarily driven by household consumption, which grew by 7.5% and accounted for 5.2 percentage points of overall GDP growth. This strong rebound is attributed to improving consumer confidence.
For 2022, our target GDP growth is 6-7%, which means that we can easily get back to our 2019 pre-pandemic GDP level of Php19.3 trillion this year since we just need a minimum of 4.8% growth to restore 2019 pre-pandemic levels.
[Slide 4]On another note, in the latest report of the IHS Markit,
the Philippine manufacturing sector concluded
2021 with a nine-month high Purchasing Managers’ Index (PMI) of about 51.8 in December,
following month-on-month output
growth which were unseen
in the previous months.
Also, in December, we ranked third in ASEAN, coming after Indonesia (1st, 53.5) and Malaysia (2nd, 52.8).
The PMI managed to hold on to 50.0 in January despite the surge of Omicron variant, but we have overcome that surge as cases dropped to around 4,500 from over 30,000 last January.
[Slide 5]Meanwhile, our merchandise exports concluded 2021 with a 14.5% growth with a value reaching USD 74.6 billion, based on preliminary data from the Philippine Statistics Authority (PSA). This is 14.5% higher than our 2020 data, and 7.17% higher than the pre-pandemic average from 2017 to 2019. Specifically, it is 5.2% higher than 2019 levels, which was at USD 70.93 billion. Notably, 27 exported commodity groups, covering 87.8% of total exports, have already breached pre-pandemic export levels.
[Slide 6]On the investment side, foreign investors continued to stand with the Philippines and invest in mid to long-term strategic projects, even in the midst of a health crisis, so much so that our Central Bank reported a 98.9% year-on-year increase in Foreign Direct Investment (FDI) net inflows into the country in October 2021 (USD855 million from the USD430 million net inflows in the same month in 2020), recording USD8.14 billion total net FDIs from January to October, higher by 48.1% than the USD5.5 billion net inflows in the same period in 2020.
Just this morning in Manila, the new FDI report came out, even stronger growth for January to November was reflected at 52%. USD 9.2 billion from USD 6.1 billion in 2020.
Equity capital placements were sourced mainly from Singapore, Japan, United States and The Netherlands. These were channeled mainly to the following: (1) manufacturing, (2) electricity, gas, steam, and air-conditioning, (3) financial and insurance, and (4) real estate industries.
[Slide 7]Game Changer: Easing of Foreign Equity Restrictions
Additionally, I would also like to share with you a very
big news, a game-changer for those who are planning to invest in the
Philippines. Recently, the Congress and the Senate approved the amendment on
the Public Service Act. Once
President Rodrigo Duterte signs this
bill into law, foreign equity restrictions in key sectors will be eased from a maximum of 40% to 100% foreign equity. This game-changing policy shall attract more global players that
will modernize several sectors such
as in telecommunications, shipping,
air carriers, railways,
and subways. Similarly, there will be increased
competition in terms of services and products which will generate competitive pricing to the benefit
of the consumers.
Similarly, the amended Retail Trade Liberalization Act (RTLA) and the Foreign Investment Act (FIA) are expected to establish reforms to remove barriers for foreign entry. Soon, there would be lower capital requirement for foreign investors in retail trade—from a previous investment requirement of USD 2.5 million, now it is down to just USD500,000.
Senator Pimentel and Congresswoman Stella Quimbo are strong advocates and partners in all these liberalization initiatives.
Congresswoman Sharon Garin and Senators Pimentel and Poe are chairs of the respective committees in the Congress and the Senate.
[Slide 9]In view of this, the Philippines can also be a second home for UAE-based startup firms involved in advanced technology, with a capital requirement of only USD 100,000 and only 15 employees from the local workforce.
[Slide 10]Additionally, the Philippines has preferential access in major markets through our Free Trade Agreements (FTAs).
We continue to benefit from the European Union’s (EU) Generalised Scheme of Preferences Plus (or GSP+), the only nation in the ASEAN to do so. Likewise, we are currently working to push for more products to be included in the talks for the US Generalized System of Preferences (or GSP), which is under discussion for renewal. These add to the value of making the Philippines a manufacturing location for your products, as products manufactured within the country may enter the US GSP market.
The Philippines is also part of the Regional Comprehensive Economic Partnership (RCEP) Agreement which is intended
to create a more business-friendly environment in the ASEAN region. RCEP will likewise encourage closer
integration of economies and provide
a more stable and predictable rules-based system of trade. And amidst the pandemic, the Philippines has also been proactive in enhancing strategic bilateral and regional relations with other trade
partners, like the continuation of the Philippine-EU FTA monitoring missions
and the recent conclusion of the negotiation for the Philippine-South Korea FTA.
Incidentally, we have been working on finalizing the Investment Promotion and Protection Agreement (IPPA) between the Philippines and the UAE. We shall also launch the comprehensive economic partnership agreement (CEPA) discussions between the two countries. We hope that together with the Ministry of Economy of the UAE, we can further strengthen the economic relationship between the UAE and the Philippines.
[Slide 11]In order to make the investment climate in the Philippines significantly more attractive, we also adopted the CREATE Act which rationalizes, modernizes, and offers more relevant incentives to investors. This will reduce the Corporate Income Tax (CIT) rate from 30% to 25% for large corporations and down to 20% for Micro, Small, and Medium Enterprises (MSMEs).
We aim to attract a higher level of technology in the industry sectors, such as in electronics, aerospace, and automotive. That is the reason why we are giving more favorable terms and incentives to those industries with high technology and entice more FDIs in that particular field.
[Slide 12]Guided by our inclusive innovative industrialization framework, the Strategic Investment Priorities Plan (SIPP) under CREATE identifies industries for the grant of incentives to attract high-value, modern and sustainable, high-technology projects that will strengthen our participation in the global value chain, create more jobs, and further sharpen the Philippines’ competitiveness in the global market.
The length of incentives that would be offered to corporations or investors will depend on their tier classification based on their levels of technology and location, especially those located far from urban centers.
[Slide 13]Here are sample investment activities and their respective tier classifications.
[Slide 14]Now allow me to briefly discuss our updated priority industries for domestic and export markets:
The Philippines is well-known for its IT-BPM sector. With a 13% share of the global market in 2019 and 15% in 2020, the
Philippine IT-BPM sector is the second largest
in the world. During the pandemic, it was one of the sectors that had no
lay-offs but instead, continued to hire personnel. The industry is also expected
to grow at 8% and
export revenue is expected to hit USD 28.8 billion this year. We have the edge when it comes to voice-related services, as well as non-voice high-shared service support.
[Slide 15]Meanwhile, the Philippine electronics industry hosts about 500 global semiconductors and electronics companies. The industry is characteristically export-oriented, accounting for 62% of total Philippine exports. It has posted fast growth, hitting double digit growth at times.
The Philippines is already an indispensable part of the electronics global value chain and is a center of excellence for electronic manufacturing services. We are particularly strong in test, packaging, and assembly of semi-conductors. What’s more, we are ready to become the home of competitive integrated circuit (IC) design companies serving customers worldwide, thanks to our growing pool of IC design engineers.
[Slide 16]Our country’s digital landscape makes it an ideal setting to support the growth hyperscalers. Last year, we launched a campaign highlighting the Philippines as the next strategic hyperscaler hub in the Asia Pacific region. With the continuous improvement on the country’s economy, coupled by our relevant legislations, promising economic profile, and strong government support, hyperscalers are envisioned to help propel our economic growth even further.
[Slide 17]Darren Hawkins, CEO of SpaceDC was quoted in an article saying, “The Philippines ranks second in terms of data center growth in Southeast Asia. With only 47MW of available capacity in the country, it is a dramatically underserved market.
We are excited to be a first mover in a new market where we see our customers are investing heavily in.” MNL1 is SpaceDC’s third hyperscale campus and largest to date, on the heels of JAK1 in Indonesia and the NCR1 in India.
[Slide 18]Likewise, the Philippine automotive industry is already integrated with major global value chains. We have an extensive auto supply chain comprising of over 380 parts manufacturers—coupled with the strength of our die and mold, electronics, and IT-BPM sectors, we can respond quickly to the changes in this fast-moving market.
In relation to this, we have a developing Electric Vehicle
Industry. The Philippine EV ecosystem is composed of 54 manufacturers and importers. The industry has generated
71,840 direct and indirect employment.
We are positioning the Philippines as a regional manufacturing hub for EV and EV parts in ASEAN. We recognize that the future of transportation will be autonomous, connected, electric, and shared. Again, this is one sector we want to develop and give our full support in terms of incentives.
[Slide 20]With regard to the country’s Copper Industry, the Philippines is home to an estimated 1.1B metric tons (MT) of copper reserves, reputed to be among the highest in the world and fuels the global copper industry. The industry also employs 14,000 Filipinos and has an estimated value of more than USD 2 billion of annual copper product exports.
But more than just raw material exporting, we want to establish a downstream copper industry in the Philippines. We envision a fully integrated Philippine copper industry.
On a side note, we would like to point out the increasing demand being boosted by copper’s role in rapidly growing industrial sectors like electric vehicle batteries and semiconductor wiring as well as in broadening our economic recovery efforts.
[Slide 21]Moreover, the Philippines is also one of the major sources of nickel worldwide. It ranked 6th in nickel reserves and 2nd in nickel production. The country has nickel reserves amounting to 2 billion metric tons and the country’s nickel industry employs 9,905 Filipinos in mines and processing plants.
[Slide 22]The country’s Aerospace Industry is likewise something to be considered. The Philippines continues to be recognized in the global aerospace industry as a developing player in the industry value chain. Employing around 6,000 Filipinos, the industry has capabilities in aerospace parts manufacturing such as flight control actuation systems and oxygen systems—aircraft maintenance, repair, and overhaul (MRO), and aviation/aerospace engineering trainings.
[Slide 23]With these reforms, we strongly express
our desire to cultivate and strengthen partnerships with our neighboring countries. We are proud
to say that Filipinos represent
the youngest workforce among the five (5) founding Members of ASEAN, with a median age of 25.7 years.
As our country navigates this fast-changing world amidst the pandemic, we are confident that the Philippines remains a prime investment destination among our neighboring countries. This is proven by our sizeable market of 110 million Filipinos; resilient and capable human resource pool of 49 million; our strategic trade management regime; ideal location to link Asian and Southeast Asian value chains and key markets; wide network of free trade agreements (FTAs); and lastly, our proven track record in terms of trajectory and direction of economic reforms across administrations.
As we look forward to discussing your business, we encourage you to get in touch with our commercial office based in Dubai and our Board of Investments based in Manila to answer all your inquiries. We invite you all to look at the Philippines more closely as a valuable contributor to your global business growth, and as a partner in rebuilding, knowing that the Philippines can definitely complement UAE’s strengths.
In closing, while the pandemic remains to be very challenging, we are already seeing signs of recovery, with some indicators even already exceeding pre-pandemic 2019 levels.
The administration of President Rodrigo Roa-Duterte is determined to pursue the necessary major reforms that will further strengthen the country’s economic foundation in line with market-based principles, ease in doing business and performance-based support. We shall continue to liberalize and open our economies, easing foreign equity restrictions moving forward. As we do so, we will create more jobs and employment for the Filipino people, which will give them a better and more comfortable quality of life.
Shukran! Thank you and mabuhay po tayong lahat! ♦
Date of Release: 11 February 2022