Economics, trade, politics and infrastructure of the Philippines

This section provides you with recent information on Philippines’ economic performance, economic prospects, trade and investments, politics and international relations and infrastructure.

Economic performance

After decades of weak economic growth, the Philippines gained fame in recent years as one of Asia’s tiger economies. During the last decades the country achieved significantly high annual rates of growth according to the World Bank. Key assets of the Philippines include its large young English speaking population, its geographically strategic location and its vast marine resources. The country is conveniently located for foreign investors as it is neighbouring Taiwan and Hong Kong in the north, Vietnam in the west and Malaysia and Indonesia in the south.

Despite the annual occurrence of severe typhoons, including the largest storm the world had ever seen in 2013 (typhoon Haiyan/Yolanda), the country managed to maintain economic growth. In 2017 the GDP based on purchasing power parity was estimated at US$ 8,200. Although GDP growth has remained steady during the last years at between 5 to 7% with key growth sectors being the business process outsourcing (BPO) industry, real estate, manufacturing and oil and gas, the EIU projects a moderate annual GDP growth for the period 2017-2050, due to the country’s inability to promote rapid institutional change.

Economic outlook

In 2016 presidential elections were held, replacing the liberal reform-oriented Ninoy Aquino with the hard-line and rather unconventional populist, Rodrigo Duterte. As President Duterte is still in the process of developing new policies and economic strategies for the country, it has to be seen what impact this will have on the economic outlook of the country and whether the previous path of reforms will be continued. At the moment his main strategy is a ‘war on drugs’ which has left over 5,000 suspected drug dealers and addicts dead.

Yet it is clear that some serious issues will need to be tackled by his administration. Firstly, raising social spending remains a major challenge, with a limited tax income due to tax evasion. Additionally the country’s infrastructure is very limited and outdated; hence the government will need to find ways to increase infrastructure investment. The Duterte administration is eyeing a closer relationship with China to enable to solve these issues. Lastly, the country needs to create more jobs for its quickly increasing population. In the past three decades the country has seen a major outflow of skilled labourers to overseas nations. Approximately 10% of the country’s population is working overseas to support their family that stays behind, remitting an annual US$26.9 billion.

Nevertheless, in the first five months of 2018, the GDP expanded by an impressive 6.8%, mainly due to the increase of public spending by the Duterte administration, fueling concerns over a potential overheating of the economy or increased levels of inflation.

Key indicators
Population

103.3 Million (2016)

Capital

Manila

Currency

Philippine Peso (PHP)

Time zone

UMT +8:00

GDP at market prices

$304 Billion (2016)

Real GDP growth rate

6.9 % (2016)

GNI per capita

$3,580 (2016)

Doing Business In Index*

113 out of 190 (2017)

Corruption Index**

111 out of 180 (2017)

Source: WorldBank (2018)
* doingbusiness.org
** transparency.org

Trade & Investments

The Philippines is considered a newly industrialized country, transitioning from an agriculture based economy to a services and manufacturing based economy. Main export products comprise of a diverse range of products including electronics (US$ 28.359 billion in 2017 or 44.85%), machinery equipment (US$ 9.382 billion in 2017 or 14.84%), optical, photographic and other equipment  (US$ 2.563 billion in 2017 or 4,05%), copper and articles (US$ 2.051 billion in 2017 or 3.24%), ships, boats and floating structures (US$ 1.680 billion in 2017 or 2.66%) and animal or vegetable fats and oils (US$ 1.622 billion in 2015 or 2.56%), according to the International Trade Center (ITC, 2018). Total agricultural exports are about US$5.621 billion and represent 8.9% of total export value Electronics and machinery exports also continue to increase significantly (11.9% and a 90.5% increase respectively) as more overseas multinationals invest in manufacturing operations in the Philippines. Main imported products are electronic equipment (US$ 21.54 billion in 2017), machinery equipment (US$ 13.43 billion in 2017), mineral fuels (US$ 11.231 billion in 2014) and vehicles (US$ 8.68 billion in 2014) mainly imported from the nations listed below. Major trading partners are Japan, the United States, Hong Kong, China, Singapore, Thailand, Germany and South Korea. Japan alone accounted for 16.1% of all exports in 2017, which translates to approximately US$ 19.15 billion, followed by China with 14.3% and the USA with 11.2%. The Philippines reported a widened trade deficit of US$ 37 billion in 2017, which continues, due to a robust increase in imports. The Philippines retreated from the 99th in 2016 to the 113th place among the 190 countries surveyed in the World Bank’s Doing Business in 2017, being outperformed from most regional neighbors apart from Cambodia (135th), Myanmar (171th) and Laos (141th). Challenges remain to further improve the easiness in starting a business, protecting minority investors and enforcing contracts.

Politics and international relations

The Philippines has a presidential system of government, with the president being limited to a single term of six years. Additionally the country has a Congress based on the US system with a Senate and a House of Representatives. In June 2016 there were presidential elections and the new president, President Duterte, is known as a hard-line populist. He has overseen a tough crackdown on the drug trade and drug addicts since his inauguration in late June, and declared a nationwide state of lawlessness on September 3rd in response to a bombing in Davao City. The anti-drug campaign has led to international disapproval, and President Duterte’s abrasive style of leadership has already put him at odds with foreign governments (EIU, 2016). In his first months as president, Duterte has made some big changes in the country’s foreign policy as the Philippines (WTO member since 1995) has severed ties with its former ally the United States, while seeking a closer bond with neighbouring nations like China and ASEAN partners like ThailandVietnam and Japan. As such, a decrease in investments from American companies is expected, while Chinese and Japanese investments and assistance programs are expected to increase. The closer ties with China came rather unexpected as the country is in the middle of a fierce stand-off in several islands located in the South China Sea of which the ownership is contested. Nevertheless as seeking closer ties, the Duterte administration has gained better access to China’s domestic market for its export products and access to credit for badly needed infrastructural projects. Duterte is facing some challenges as explained above, but with a strong voter base and increasingly strong ties with China, time will tell how this new strategy will play out.

Infrastructure

The World Economic Forum Global Competitiveness Report ranks the Philippines 94th out of 137 countries in 2017, which constitutes a significant drop from the 57th place in 2016, being outperformed by neighbouring Vietnam (55th), Malaysia (27th) and Indonesia (36th). The report pinpoints the inefficient government bureaucracy, the inadequate supply of infrastructure and corruption as the factors for the deterioration of the country’s position in the ranking. With 7,109 islands being part of the Philippine archipelago, 36,289 km of shoreline and approximately 20 typhoons passing the country per year, it is a big challenge to build a strong infrastructure. Main components of the country’s infrastructure include four major international airports located in Manila, Angeles, Cebu and Davao. The main ports of the country are located in Manila, Subic Bay, Batangas, Cebu and Davao. Infrastructure components like highways and railroads play a smaller role due to the archipelagic nature of the country. The Philippines has seven main fish port complexes spread across the country as shown on the map on the Philippine country page. These ports contain landing sites, storage facilities, grading facilities and auction halls that meet EU requirements for proper hygiene and sanitation. BFAR inspectors are present in these ports to verify the legality and origin of landings and to approve the accompanying paperwork. The management of these ports falls under the responsibility of the Philippine Fisheries Development Authority. Around the main urban centers of the Philippines, electricity is readily available with few power failures. However the lack of a stable electricity network in most provinces and rural areas can be a concern for supply chain actors in the seafood industry as the use and maintenance of large generators is costly.

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