Business Consulting BlogUncategorized2014: The Philippines at a glance

April 7, 2015
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GDP, Foreign Direct Investment and Tourism sector remained strong in the last year, but there is still a long way to reach an ideal scenario for investors.

GDP:

Last week, the International Monetary Fund (IMF) raised the Philippines GDP forecast for 2015 from 6.6% to 6.7% after the organization visited the country to meet government officials, the private sector and the financial community.

The country has been experiencing GDP growth of not less than 6% for the last few years (6.8% – 2012, 6.1% in 2013 and 2014). According to IMF, low commodity prices, high public spending, strong private construction and export growth were the main reasons to increase the forecast.

A balanced economy that is composed by exports, minerals and tourism, and especially services and remittances from workers abroad enables the Philippines to enjoy a very optimistic moment of its economy. Services account for more than 50% of the Philippine GDP, while remittances reach 10%.

The Philippine peso maintained stability in 2014 despite of the global turmoil, keeping on an average of 44 pesos per US dollar. This optimistic scenario reflects on the generation of new jobs in local and foreign companies, which see in the country an opportunity to use high skilled and English fluent workforce. From a fluctuation of 10% to 14% of unemployment in the early 2000s, the country has seen a range of 7% to 8% since 2006.

Foreign Direct Investment

One of the major concerns of the business sector as the Philippines remains a difficult country for International companies to penetrate; the Foreign Direct Investment (FDI) remains vibrant. In 2014, the country attracted more than $5 billion of foreign capital, more than double of previous years, but still very far from its competitors Malaysia and Thailand, for instance.

The biggest difficulties to attract investments are easily seen:  poor infrastructure, which includes roads, power system, bridges, canals, airports and sea ports. The government has targeted to increase the investments in infrastructure from 3% of the GDP in 2012 to 5% until 2016. Philippines is the 95th country in the world to do business out of almost 200 countries according to the World Bank.

The Foreign Investment Negative List (FINL), a list of professions and fields of business that allow limited foreign ownership, is been very criticized by international investors. The government just recently became more flexible on some restrictions related to retail and gambling – the latter one permitted within the Special Economic Zones. Also, in 2014, President Benigno Aquino signed a law allowing banks to be 100% foreign owned in order to attract more international investors.

Tourism

Despite of the beautiful landscapes and warm hospitality of Filipinos, the country is not yet one of the top regional touristic spots in Southeast Asia, especially comparing to its neighbors Malaysia, Thailand, Indonesia and Vietnam. Some of these countries experienced a boom in their tourism in the 1980s, but Philippines didn’t enjoy much of that.

Recently, with the successful campaign “It’s more fun in the Philippines” and further investments and promotion from the government, Philippines started to see a steady climb in the number of visitors arriving through its main airports. Last year, 4.8 million foreign tourists entered the country according to the Department of Tourism – around half million more than in 2012.

The nationality number one is by far the Korean community, accounting for 25% of all tourists. Business tourists, however, are only 1 in 6 foreign tourists, coming mainly from Singapore, Malaysia, Japan and Hong Kong.

The improvements in the sector can be greatly seen due to the private sector investments through the construction of hotels, casinos, resorts and budget airlines. The country, again, still suffers with the lack of airport capacity. Luxury hotels and services are in demand, resulting in prices much higher than its neighbor countries where tourism is more intensively explored.

Furthermore, some security issues tend to reduce interest of foreign tourists to explore remote areas where conflicts with separatists are not uncommon. Some kidnap of foreign tourists, although rare in the country, spread the idea through the media of an unsafe place to travel. The fact of being hit by storms and typhoons several times in a yearly basis is another point to count against the tourism development. Obstacles that the Philippines economy has yet to face and overcome.

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