TRADE AND INVESTMENTS
Considered to be the rising tiger of Asia after posting robust economic growth for the past five years backed by strong macroeconomic fundamentals, the Philippines aims to attract foreign investors on various sectors and industries. Investment opportunities are further boosted with government incentives on priority areas as identified in the IPP 2014-2016.
In 2014, the Philippines Gross National Income (GNI) registered at 5.8% from the previous 7.5% and a Gross Domestic Product (GDP) of 6.1% from the previous 7.5%. On the supply side, the service sector accounted for 56.55% followed by the industry at 33.43%, and agriculture, hunting, forestry and fishing at 10.01%.
Gross Value Added In Services & Industry in USD Million (2014)
| Industry/ Industry Group | At Current Prices | Growth Rate | At Constant Prices | Growth Rate |
|---|---|---|---|---|
| Service Sector | 7, 245, 708 | 9.0% | 4, 051, 499 | 5.9% |
| a. Transportation, Storage, & Communication | 783, 492 | 7.6% | 536, 562 | 6.2% |
| b. Trade & Repair of Motor Vehicles, Motorcycles, Personal & Household Goods | 2, 243, 270 | 8.4% | 1, 184, 994 | 5.7% |
| c. Financial Intermediation | 988, 894 | 11.7% | 515, 484 | 7.2% |
| d. Real Estate, Renting, & Business Activity | 1, 553, 387 | 13.0% | 803, 241 | 8.7% |
| e. Public Administration & Defense; Compulsory Social Security | 503, 110 | 3.5% | 292, 441 | 3.6% |
| f. Other services | 1, 173, 555 | 6.1% | 718, 777 | 3.3% |
| Industry Sector | 3, 968, 897 | 10.4% | 2, 394, 694 | 7.9% |
| a. Mining & Quarrying | 125, 390 | 8.6% | 76, 474 | 4.9% |
| b. Manufacturing | 2, 603, 644 | 10.5% | 1, 666, 514 | 8.3% |
| c. Construction | 828, 161 | 13.9% | 422, 150 | 9.9% |
| d. Electricity, Gas, & Water Supply | 411, 702 | 3.6% | 229, 555 | 2.8% |
Source: Philippine Statistics Authority
On the demand side, economic activity was driven by household consumption that increased at a rate of 5.4% followed by a strong fixed capital formation and government spending. Total external trade reached USD 127.500 billion for which exports registered at USD 62.102 billion while imports at USD 65.398 billion resulting to a USD 3.296 deficit in the balance of trade.
| Top Philippine Import Groups (2014) | Top Philippine Export Groups (2014) |
|---|---|
| 1. Electronic Products (23.4%) | 1. Electronic Products (43.1%) |
| 2. Mineral Fuels, Lubricants, & Related Materials (20.2%) | 2. Other Manufactures (8.2%) |
| 3. Transport Equipment (9.5%) | 3. Machinery & Transport Equipment (6.4%) |
| 4. Industrial Machinery & Equipment (5.0%) | 4. Woodcrafts & Furniture (5.4%) |
| 5. Other Food & Live Animals (3.4%) | 5. Other Mineral Products (4.3%) |
Opportunities and trade between EU and the Philippines
As for the goods imported from the EU to the Philippines, medical equipment and pharmaceutical products top the list. The combined value amounted to EUR 700 million in 2015 which EUR 412 million constitutes for the pharmaceuticals, while EUR 287 million for the equipment. The Philippine pharma market is seen to expand and achieve a market value of USD 8 billion by 2020. In 2014, the pharmaceutical industry amounted to Php 145.05 billion. In a study by the Pharmaceutical & Healthcare association of the Philippines (PHAP), the Philippines is third in being the most innovative country in Southeast Asia in the field of pharmaceuticals while Singapore and Thailand lead the list. Currently, there are 461 clinical studies being conducted. In 2014, the Philippine market for medical devices reached USD 288.9 mn and is anticipated to increase to USD 430.3 mn by 2019 which is a CAGR of 8.3%. In terms of products, the CAGR for orthopaedics and prosthetics is 17.1% while 2.4% for other devices.
Due to the underdeveloped industry of local medical devices, the Philippines mostly rely on foreign imports. 94% constitutes of wound dressing products from Belgium and China, 82% of protective equipment are from Malaysia, and approximately 98% comprise of auxiliary devices such as pacemaker are from Hong Kong and Switzerland. In 2011, 35% of medical equipment and devices is composed of diagnostic imaging product, 21.9% for medical consumable products while 21.5% for other devices. Auxiliary devices, dental products, and orthopedic implants amount to 9.1%, 8.6%, and 3.2%, respectively. Source: Espicom (2012); ITRI IEK compiled (2012/08) Several EU medical companies have successfully penetrated the Philippine market: Local companies such as Ayala, Vitacare, and Metro Pacific Hospital Holdings have expressed in furthering their presence in the health industry. Plans of acquiring buildings and facilities in the next 5-10 years are underway. Ayala plans to build 10 new hospitals while Metro Pacific aims to construct 25-30 hospitals in the next 10 years.
The Philippines seeks to be as competitive as other SEA countries in terms of medical treatments through improving the quality of supplies and other services. Since stem-cell therapy is the current trend, the government hopes that the country becomes the leading stem-cell research and therapy center through innovative measures and procedures. Moreover, spa & wellness industry has grown to php 5 billion in 2011 which is an 80% growth from 2006. On the other hand, the retirement industry is established but operates on a small-scale only. Retirement center choices are only limited and specific aspects need improvements.
Major Philippine Exports to EU In % (2014)
Major Philippine Imports to EU In % (2014)
Trade with the Nordic Countries
Total external trade relations of the Philippines with the Nordic region composed of Denmark, Finland, Iceland, Norway, and Sweden reached € 502.692 million in 2014. The Nordic countries exports to the Philippines totaled € 314.395 million led by Finland with € 104.67 million and followed by Sweden with € 83.003 million. Imports on the other hand was € 188.297 million primarily driven by Sweden and Finland.
Most exports and imports materials are electrical and electronic equipment; machinery, nuclear reactors, and boilers; pharmaceutical products; optical, photo, technical, and medical apparatuses; lac gums, resins, vegetable saps and extracts; and articles of apparel, accessories, knit or crochet.
| Country | 2014 Exports (In Euro) | 2014 Imports (In Euro) |
|---|---|---|
 Denmark Total: € 120.487Mn Exports: € 91.691Mn Imports: € 28.787Mn |
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 Finland Total: € 141.232Mn Exports: € 104.670Mn Imports: € 36.562Mn |
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 Iceland Total: € 0.996Mn Exports: € 0.616 Mn Imports: € 0.38 Mn |
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 Norway Total: € 43.583 Mn Exports: € 34.415 Mn Imports: € 9.168 Mn |
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 Sweden Total: € 196.403 Mn Exports: € 83.003 Mn Imports: € 113.400Mn |
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Baltic Trade with the Philippines
The Baltic countries of Estonia, Latvia, and Lithuania total trade with the Philippines reached € 12.348 million in 2014. Total exports amounted to € 4.242 million with Lithuania’s sugar commodity contributing 85.27% or € 3.617 million. Total imports was € 8.106 million primarily driven by Lithuania.
Commodities traded were mostly sugar and sugar confectionery; machinery, nuclear reactors, boilers; organic chemicals; electrical and electronic equipment; and lac gums, resins, vegetable saps and extracts.
| Country | 2014 Exports (In Euro) | 2014 Imports (In Euro) |
|---|---|---|
 Estonia Total: € 2.524 Mn Exports: € 0.445 Mn Imports: € 2.079 Mn |
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 Latvia Total: € 1.138Mn Exports: € 0.180 Mn Imports: € 0.958 Mn |
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 Lithuania Total:€ 8.686 Mn Exports: € 3.617 Mn Imports: € 5.069 Mn |
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Source: ITC Trade Map
Challenges
Over the past few years, the Philippines have been improving in various competitiveness rankings most notably in the annual World Economic Forum- Global Competitiveness Report. As shown below, the country has gaining significant improvements compared to the rest of ASEAN.
Out of 144 indicators, the Philippines now has 67 indicators ranked at the upper half of world rankings as shown in the National Competitiveness Council’s report in 2014. It has also registered positive upward trends in the Ease of Doing Business as published by the World Bank.
Economic Restrictions
The 1987 Constitution of the Philippines limits foreign participation in several industries of which majority shares must be owned by Filipinos. Take for instance Art. II, sec. 19 that mandates a “self-reliant and independent national economy effectively controlled by Filipinos,” which paves the way for several government regulations, laws, and orders that restrict foreign investors. For example, it allows only 40% foreign equity share in mining, agriculture, forestry, and transportation related undertaking while 0% foreign equity share in media. In response to this reality, the leadership of the 16th Congress has introduced Resolution of Both Houses 01, which would amend the constitution and gives congress the power to liberalize sectors, when the national interest so requires, if this resolution is carried and approved by the people through a plebiscite.
Infrastructure
Over the last ten years, the Philippines had underinvested in physical infrastructure that resulted to limiting its growth potentials with an average allocation of 2%-3% of its GDP. In the latest WEF survey, the country ranked below Singapore, Malaysia, Thailand, and Indonesia within ASEAN-6 in terms of infrastructure quality. Thus, challenges in airports, power, roads, seaports, and telecommunications are evident that affected the overall performance of the Philippines. However, the present administration has targeted to allocate at least 5% of its GDP for infrastructure pending through PPP scheme.
Bureaucracy
Due to repetitive, complex, and often conflicting orders and procedures of government agencies on business permits, licensing, entry approval, and an array of regulations, investments are delayed and foreign investors are discouraged. However, through the National Competitive Council (NCC) that tracks government performance and the newly establish Investment Ombudsman (IO), most government agencies are now mindful of redundant procedures and should act within a certain number of days. PEZA is an exception to this because it has often been cited by various private sector organizations as a government agency that stays true to its commitment of “No red tape, only Red Carpet.”
Corruption
Although corruption allegations are still pervasive, the Office of the Ombudsman and the Department of Justice have been very active in investigating and prosecuting public sector officials for corruption charges. In fact, the government’s swift actions have been recognized by independent international agencies such as Transparency International (TI) when it jumped from 129th spot in 2011 to 94th spot in 2013 making it the least corrupt country in Southeast Asia ahead of Indonesia, Thailand, and Vietnam.
Low Foreign Direct Investments
For the past decades, the Philippines has been lagging behind with its ASEAN-6 peers in terms of attracting foreign direct investments. This is largely due to regulatory restrictions in certain industries, ease of doing business, and many other factors including the aforementioned challenges. However, both public and private sectors are actively introducing policy reforms aimed at liberalizing the economy; the latest would be the enactment of the Philippine Competition Act under Republic Act 10667 approved on July 2015.
