Ladies and gentlemen, good morning!
It is my honor and pleasure to be joining the Pacific Alliance group’s forum today to present the “Make it Happen in the Philippines!”— our global campaign to demonstrate why the Philippines is still one of the best countries to do business and invest in. We are grateful to the Pacific Alliance for this opportunity to explore greater possibilities together as trade partners, as you consider our country’s potential contribution to our global business’ growth.
The Philippine government in coordination with the private sector has been implementing an economic recovery plan to reopen and revitalize our economy from the impact of the pandemic. Thus far, as a result, most of our economic indicators are showing signs of recovery even above and beyond our pre-pandemic performance.
Prior to the COVID-19 pandemic, the Philippines had the second fastest GDP growth in Southeast Asia. The pandemic, however, pushed the economy to decline by 9.6% in 2020, as the country prioritized the saving of lives over the economy, and therefore had to institute strict lockdowns and mobility especially during the second quarter of 2020.
As we learned to manage the virus, and improved treatments, and eventually started to rollout the vaccination program mainly through the year, we began easing the restrictions, adjusted our protocols and gradually reopened more sectors of the economy. Among the main contributors to our GDP’s growth for the past 10 years before the pandemic were the manufacturing and services sector. As we see economic rebound from the first three quarters of this year, these sectors—manufacturing, and services—again manifested strong rebound.
Because of this, our country’s GDP garnered an economic rebound YTD of 4.9% for the first to third quarter, albeit still below the 2019 pre-pandemic level by 5.7%.
But given the GDP growth of 4.9% for YTD 3rd quarter, there is strong probability of hitting 5.5% or even more, and if that is reached, the 2022 GDP growth figure just needs a minimum of 4.8% to restore our 2019 pre-pandemic levels. Our target for 2022 is 6-7%.
Meanwhile, exports accelerated to the highest level of 72.1% for April and for September 2021 year-to-date (YTD), we have seen real growth at 18%. This is equivalent to USD 55.7-B, 18% higher compared to the same period in 2020 at USD 47.1-B and even 4.64% higher than pre-pandemic levels of USD 53.2 billion during the same period in 2019. This indicates that there was a clear rebound and growth which was not only due to the low base of last year.
On the other hand, foreign investors continue to stand by the Philippines and invest in mid- to long-term strategic projects even in the middle of a health crisis.
Foreign Direct Investments (FDI) net inflows in August 2021 reached USD811.6-M, reflecting a huge increase of 40% from last year’s USD676.8-M net FDI. Meanwhile, cumulative FDI as of August posed at USD 6.4-B, which is 40% higher than the USD 4.6-B recorded from January to August of last year, and once again, higher by 36% over pre-pandemic FDI levels.
With the COVID-19 pandemic and its economic impact, the way forward for us is to build back better and stay the course to have a better future for our country. Our goal is for Filipinos to live in a modern, dynamic, and responsible Philippines.
Our vision toward economic recovery is anchored on a strategy called REBUILD— or “Revitalizing Businesses, Investments, Livelihoods, and Domestic Demand”—revitalizing consumption to boost demand, and empowering production capacities such as those in agriculture, industry, and services to meet the recovery in demand.
On the demand side, it starts with government support via economic stimulus to keep jobs. This is important to attract more production activities and create a better business environment for investments. On the supply side, we seek to enhance production capacities in the agriculture, industry, and services sector to help build our export competitiveness and manage imports.
This creates a virtuous cycle of sustained and growing economic activity with strong domestic linkages.
The Philippine economy’s resilience may be attributed to one of the country’s key advantages—its people. Out of the 108 Million population which serves as a growing market base as per capita income increase, there is a 49-M highly skilled, educated, dedicated, and cost-efficient workforce with very low attrition rate. The country sits on a demographic sweet spot with an average of 25.7 years old. Our people are well known across the world as highly capable, hardworking, highly trainable, fluent in English, and with cost-competitive talent. We would also like to point out that the Philippines has had a lower number of strikes and lockouts as compared to other countries around us.
Additionally, the Philippines has preferential access in major markets through our Free Trade Agreements (FTAs). We also 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 GSP, which is under discussion for renewal. These add to the value of making the Philippines as a manufacturing location for your products.
The Philippines is also part of the Regional Comprehensive Economic Partnership (or RCEP) Agreement, which is intended to create in the region a more business-friendly environment. RCEP will likewise encourage closer integration of economies and provide a more stable and predictable rules-based system of trade. Currently, the RCEP is in Senate for concurrence as we expect it to be passed by the end of the year. And amidst the pandemic, the Philippines has also been proactive in enhancing strategic bilateral and regional relations with other trade partners, like the US, continuation of the Philippine-EU FTA negotiations and recently we concluded the negotiations for an FTA with South Korea.
Despite the pandemic-induced obstacles, constricted resources, and market uncertainties, our country ranked 51st among 134 economies in the 2021 Global Innovation Index. We continued to perform above expectations in terms of innovation and produced more and higher-quality outputs given our level of development. Our country’s strengths were identified by the GII Report to be in the areas of high-tech imports and exports, firms offering formal training, utility models, ICT exports, creative goods exports, and science and engineering graduates, among others.
Pacific Alliance countries can explore trade possibilities in manufacturing, creative industries and BPO, agricultural technology, food processing and packaging, and infrastructure such as telecommunications.
There are still a lot of opportunities for our countries in enhancing our trade and investment relationships and we indeed look forward to this.
Furthermore, we have updated our priority industries for domestic and export markets to include automotive, electronics, chemicals, shipbuilding, aerospace, creatives, chemicals, agribusiness, furniture and garments, IT-BPM, e-commerce and digital economy, climate change and mobility solutions, construction, transport and logistics, and tourism.
With regard to the Philippine automotive industry, we are already integrated with major global value chains. Companies like Toyota and Mitsubishi already know we helped make it happen in the Philippines.
In 2019, we exported USD 4.1-B in auto parts. Because we have a fairly extensive auto supply chain comprising of over 380 parts manufacturers—coupled with the strength of our die and mould, electronics, and IT-BPM sectors—we can respond quickly to changes in this fast-moving market.
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. There was also a 41% growth rate in the 2nd quarter this year, up from the same period last year.
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.
Investment opportunities are available in electronics manufacturing, chip design, and original product design and development works for cutting-edge products and technologies in healthcare, automotive including e-vehicles, and aerospace. This also includes autonomous vehicle batteries and SMART wearables.
Meanwhile, the aerospace industry in the Philippines is ready for take-off and is one of the most thriving in the Asia-Pacific region. We exported USD 470 million-worth of value of aerospace parts and components in 2020 despite it being a pandemic year.
We are perfectly positioned to become the hub for manufacturing and aftermarket services in the Asia-Pacific aerospace industry. But our best-kept secret is that the Philippines is already home to Tier-1 suppliers of the world’s biggest aerospace manufacturers, like Boeing and Airbus.
The PH aerospace manufacturing capabilities include Flight control actuation systems, Interiors, lavatories, galleys, oxygen systems, panel assembly; and Product design engineering.
In other words, the Philippines is ready to become a state-of-the-art hub for aerospace.
On the other hand, copper is one of the largest mineral resources in the Philippines. With reserves of around 4 billion metric tons, our country is one of the world’s largest producers of copper.
Our technical expertise in extraction means that we can produce a wide variety of copper goods to service many other industries. With multiple methods of extraction, the Philippines is well placed to manufacture and export a range of copper-based goods. These include copper ore, copper wires and cables, harnesses.
We are also home to a world-class smelting facility with the ability to create numerous copper-based products. The industry has the potential to extract other energy sources such as geothermal gasses.
Of course, 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 layoffs but instead continued to hire personnel. The industry is also expected to grow 8% and export revenue is expected to hit $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.
Sitel, Telus, and MVP Asia Pacific are among the companies that trust us with their business. With nearly 20% of the global IT-BPM sector outsourced, we’ve been a cost-competitive destination for major multinationals in the last two decades.
Meanwhile, our IT-BPM Roadmap 2022 is all about acceleration, from strengthening existing capability, leveraging advances in technology, to ensuring a future-ready workforce. Our contact center services are already well-established. However, we have the ambition and the talent pool to move higher up the global services value chain.
English-language skills and a ‘can-do’ culture are the foundation of our IT-BPM industry. Our pool of talented professionals is ready to adapt and take on responsibility in higher-value services like finance, healthcare, and IT support. But what sets us apart is quality, agility, and creativity. Our finance and accounting, IT, software development, and healthcare services sectors are among the fastest growing in the country. More importantly, our workforce of digital natives is ready to take on more.
E-commerce adoption in the Philippines has also grown from 70% in 2019 to 76% in 2020 and 80.2% in 2021. The pandemic has forced us to maximize the use of the digital platform which also boosted the growth of the country’s data center market. We now rank second overall in terms of data center market among the Southeast Asian countries, with Manila having a compound annual growth rate of 14.2%, only next to Hanoi Viet Nam’s 14.5%. This poses a huge potential for the country and, according to the Frost and Sullivan research firm, the projected supply growth of data centers in 3 to 5 years for the Philippines is at 24%.
This has led us to launch a campaign highlighting the Philippines as the next strategic hyperscaler hub in the Asia Pacific region. Our digital landscape makes it an ideal setting for hyperscalers, and the digital readiness of our enterprises are helping propel our economic growth even further.
As our economy recovers, we are confident of achieving our pre-pandemic growth. To this end, we are facilitating greater trade and investment in the country by continuously pursuing reforms to foster a better business environment. That’s why we have realized the game-changing Corporate Recovery and Tax Incentives for Enterprises (or CREATE) Act.
Making the investment climate in the Philippines significantly more attractive, the CREATE Act will rationalize, modernize, and offer more relevant incentives to investors. This will reduce the Corporate Income Tax (or CIT) rate from 30% to 25% for large corporations and to 20% for Micro, Small, and Medium Enterprises (MSMEs). This reduction will be crucial for businesses that wrestle with the disruption in supply chains and reduce the negative economic impact of the pandemic.
Qualified activities or projects can also enjoy an incentives package for a maximum of 17 years. These include four to seven years of Income Tax Holiday (or ITH), a 5% Special CIT (or SCIT) rate of 5 years for domestic market enterprises and 10 years for export-oriented enterprises. More important is the removal of export and nationality bias, which opens these incentives even to foreign investors that will target the domestic market, as long as the business activity is in our Strategic Investment Priorities Plan (or SIPP).
Along with this, we are pursuing other economic reforms to ease foreign equity participation in key sectors like retail, and services like education and public utilities.
Our country continues to be an investment destination of choice, if businesses aim to go global.
The administration of President Rodrigo Roa Duterte is determined to pursue the needed major reforms that will strengthen further the country’s economic foundation in line with market-based principles, ease in doing business and performance-based support. 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.
That’s why we call on you to take a closer look at how you can partner with the Philippines. You will see how we can ably support your business expansion plans, and provide you with a deeper insight on how to “Make it Happen in the Philippines.”
Thank you and mabuhay! ♦
Date of Release: 23 November 2021