A recent Business Insider article revealed that the Philippines is the best country to invest in this 2018.
According to the article, U.S News (who conducted the survey) focused on 8 factors in considering if a country is primed for investing: Economic stability, entrepreneurship, skilled labor, technological expertise, dynamism, favorable tax environment, innovation, and corruption.
The survey then based its rankings from responses from 6,000 business people/entrepreneurs across who used these 8 factors as a metric.
According to the World Bank, investors look at 4 characteristics in considering if a country is worth investing in. These include its people, environment, relationships, and framework.
Ready to rise again
This article from Forbes predicts the Philippines is on track to regaining momentum towards sustained growth over the next decade.
There’s one caveat though: Corruption, inflation, and revolution need to be shoved aside if we want any serious chance of this projected growth to happen.
The author goes on to explain that the current government’s pro-growth policies make it poised for sustainable growth over the next few years. It still depends, however, if the country can steer itself in the right direction when it comes to the influences he mentioned earlier.
To quote: “Provided, of course, that corruption, inflation, and revolution — which are still present in Filipino society — don’t cut the country’s rise short again.”
Growth in Foreign Direct Investments in the Philippines
What is Foreign Direct Investments (FDI) and why are they important?
FDI is capital from foreign investors who want to invest in businesses in the country. An investment is identified as FDI if the investor owns at least 10% or more of a foreign business.
This capital is essential in funding the creation or development of a company. This leads to the creation of more jobs. More jobs, more spending power to the masses. And this increased purchasing power also drives consumer spending which is crucial in fostering economic growth.
There are 4 main types of Foreign Direct Investments:
- Market-driven FDI – Investors want to have access to new markets and customers outside of their home country
- Natural resource-driven FDI – Investors want to have access to the natural resources available in the foreign country (because it’s not locally available to them). For example, products that are only available in tropical countries like the Philippines.
- Efficiency-driven FDI – Investors who want to have access to more competitively priced labor (e.g BPO) and/or new technologies for improving their business’s output.
- Asset-driven FDI – Investors who want to have access to specific brands, technologies and distribution channels of a foreign country.
The Bangko Sentral ng Pilipinas credits the country’s “Strong macroeconomic fundamentals and growth prospects” as reasons for the influx of Foreign Direct Investments (FDI) this year.
Source: Asia Nikkei
Funding from FDI went to the following sectors: real estate; electricity, gas, steam, manufacturing, financial, and insurance; arts, entertainment, and recreation; and air conditioning supply activities.
Top Reasons to Invest in the Philippines
If I’m an investor, how would I be convinced to put my money in the Philippines? The following are the main factors I’ve identified explaining why now is a good time to invest in our country.
1. Improved Foreign Direct Investments intake
As mentioned above, FDI is crucial to developing countries as it provides a much-needed boost in capital for the creation of businesses and jobs.
From January to May of 2018, the Philippines received FDI amounting to $4.8 billion which represents a 49% increase when compared to 2017’s $3.3 billion.
As more jobs are created, the potential for increasing the standards of living rise along with it. And it’s not only money that a recipient country receives when FDI is involved.
It could also include access to the investor’s technology, accounting and management systems, financing tools, and best practices. This allows our fellow Pinoys to learn new tools and skills that will make them more competitive and increase their potential for earning more.
On a high-level view, this should stimulate economic growth through increased buying power of the country’s population.
2. High Gross Domestic Product (GDP)
The Philippines still ranks as one of the fastest growing economies in Asia. If not for the high inflation rate we’ve been experiencing lately, we would’ve been able to hit the 7-8 percent projection for 2018.
Currently, the GDP stands at 6.1 percent. While it’s lower compared to Q3 of 2017’s 7 percent GDP, it’s still higher compared to other countries in the region.
What is GDP, exactly? It’s defined as a measure of a country’s total output both by companies and its people.
The percentage we’ve mentioned above represents the rate of growth of GDP with respect to a particular time frame (quarterly, annually).
Personal consumption (purchase of goods), investments, government spending, and export of goods and services are the drivers behind a country’s GDP.
3. Build, Build, Build Program
The “Build, Build, Build” program of the current administration aims to promote a better transportation framework which can lead to better efficiency for the country’s businesses and its workers.
Aside from productivity and efficiency benefits, the program also leads to increased government spending on infrastructures that will create jobs not only during construction but also when the said infrastructures are built (since it will require manpower to operate them).
The government plans to spend Php8-9 trillion from 2017 to 2022 for this endeavor.
To give you better insight on how important this project’s success is, a study conducted by the Japan International Cooperation Agency reveals that poor infrastructure, which leads to horrible traffic conditions, resulted to a $2.4 billion loss in 2012.
With better infrastructure, we can start making better use of resources both from the employer and employee’s side.
Money and time, especially, can be put to more efficient use if better infrastructures get established in the next few years.
Some key projects of the Build, Build, Build program:
- Subic-Clark Railway
- Mega Manila Subway
- North-South Commuter Railway
- Los Banos, Laguna to Tutuban Manila railway
- Manila to Clark Freeport
- 1500-hectare industrial park located in Clark, Pampanga
- Expansion of Clark International Airport
- 4 new energy facilities
- Flood control infrastructures
- Water and irrigation systems and facilities
Source: Asia Nikkei
Source: Asia Nikkei
4. High literacy rate (and English as a second language)
The Philippines prides itself for being among the list of countries that have a population that can read, write and speaks English well.
Starting from the year 2000, the overall literacy rate (ability to read and write at a specified age) in the country has seen a steady increase.
This proves highly valuable for investors seeking to tap into the manpower of Filipinos. Being easy to communicate with will serve foreign investors well and eliminates language barriers that may obstruct clarity and efficiency in running the company.
5. High employment rate and skilled workforce
The Philippines is recognized as one of the countries in Asia which features a high employment rate. Currently at 94.6%, investors can get access to a steady pool of talent that can compete with the best of them.
Filipinos are known to be hardworking and easy to adapt, traits that companies will find great use for.
6. Rich in natural resources
As a country blessed with some of the most unique and useful raw materials available on the planet, we are in prime position to utilize these resources for economic growth.
Our rich natural resources attract resource-seeking foreign investors and continue to provide steady business for local companies and establishments.
Top Industries in the Philippines
1. Tourism (Hospitality & Leisure)
The tourism sector took a big piece of the GDP pie in 2017 when it accounted for 21 percent of the whole economy.
How much exactly in pesos? A hefty P3.35 trillion in total (per the report from World Travel and Tourism Council).
Those figures alone should tell you how big of an impact the tourism industry provides in terms of economic growth. Aside from the revenue generated, it also generated 2.3 million jobs.
And this figure is expected to grow in the next few years. There’s also the added benefit for jobs not directly related to tourism but are positively affected by the business it brings.
Per current estimates, this industry generated 7.8 million jobs for both direct and non-direct tourism business, which is about 19.2 percent of our country’s total workforce.
Tourists spent a total of Php 379.7 billion in 2017. And it was projected that it foreign arrivals will grow this year, with numbers of visitors from Korea, Japan, and China steadily increasing.
The manufacturing industry received the biggest FDI in 2018 at $169 million (64.1% of the total FDI received by the country).
An indicator that foreign investors see continuous potential in this industry as shown by their willingness to pour millions of dollars into it.
Manufacturing covers the creation of products that include food and beverage, petroleum, transport and industrial equipment, textile, and others.
3. Real Estate
I’ve previously explained in this article why Real Estate is still considered to be a flourishing industry even when it has already achieved so much in the last few years.
Once the government’s Build, Build, Build (BBB) program takes off, expect even more commercial and residential units to get built. With improved transportation infrastructure and creation of more jobs, Pinoys are projected to have more spending power.
Businesses can also expand outside of Metro Manila when better infrastructures for transportation get built.
The previously “hard to reach” locations will start to look more feasible to investors and start another chain of supply and demand cycle within the real estate sector.
The real estate industry also receives a big share of annual foreign direct investments, a sign that investors abroad still see plenty of growth potential in this industry.
The Philippine Statistic Authority reports growth by as much as 16.1% in the 3rd quarter of 2018.
This is dramatically better than the 4% growth posted in Q3 of 2017. PSA credits increased projects for both public and private construction as primary drivers for this terrific growth.
A big part of this growth can be credited again to the government’s BBB program. Through heavy spending on the development of the country’s infrastructure, more jobs and opportunities are created in the construction industry.
5. IT, BPO, and Business Services
This industry has served as one of the top contributors to our economy in the last decade.
After establishing itself as the premier destination hub for international businesses who need to outsource their manpower (call centers, business services, digital services), the Philippines continue to hold its strong position in attracting investments from foreign companies.
The government’s lofty infrastructure goals should positively affect our labor force and see increased efficiency and effectivity from our workers.
The introduction of a third telco is expected to bring much-needed improvement to our internet connectivity (competition is good) for the masses and make us more competitive in the global digital job market.
6. Banking & Finance
According to the BSP, the Philippines experienced sustained growth in 2017 amidst volatilities in market conditions and increased sophistication of financial services worldwide.
To quote, “Lenders’ strong balance sheets, with positive double-digit growth in assets, loans, investments, deposits, and capital, supported the banking system”,
Annual assets from banks increased by 11.6% thanks to increased income from lending activities. A steady uptick in deposits led to an 11.6% increase which helped this industry’s net profit post a 9% improvement.
The industry also started to take advantage of the digital technology available in order to make their services reach more people and provide more efficient services.
At the start of 2018, the Philippines is said to have 587 banks and 11,206 branches.
There are currently more than 20,000 ATM machines in operation and at least 70 banks right now feature electronic banking services.
Other financial institutions (non-banks like pawnshops, brokerage firms, remittance businesses, investment houses, etc) also experienced sustained growth.
Related: Top Banks in the Philippines
Integrated resorts, properties which feature casinos within its facilities Resorts World, Solaire, City of Dreams, Okada are all examples.
The last 3 make up “Entertainment City”, which brought more than 109 billion pesos in gross revenue last year. The mass-oriented approach of this industry makes the country unique when compared to Singapore and Macau which mainly cater to “premium” customers.
Wherein you need to pay for entrance in a casino on those countries, it’s not required here. This lead to more domestic participation.
More integrated resorts are expected to rise outside of Manila, in Cebu and Clark to be exact, per the information revealed in the Asian Markets conference.
The country also allows the junket system, which lets junket operators offer travel and hotel accommodations for free to VIP gamblers from abroad.
The goal is to attract them to play here by offering these perks as well as lend money and collect debt to these players.
Amidst the current pesky inflation rate, overall spending and consumption among consumers are still high, thanks to the country’s high employment rate.
This is important because retail depends on continuous public spending to drive its growth. And we’ve been on a steady rise, according to Philippine Retail Association president Rose Ong.
Online shopping has been a driver of this rise. More Filipinos utilize mobile technology to fulfill their shopping needs. According to Ong, it’s easier now to become a retailer through the convenience of the internet.
With an online shop, you can reach thousands of customers that would otherwise be out of reach.
Brick and mortar stores also saw an increased presence in key locations. The small store format, specifically, saw a significant increase in numbers.
Convenience, choice, price, and location are what customers generally look for nowadays when it comes to their preference in physical stores. This is perhaps why convenience stores saw the most increase in numbers in the last few years.
Source: Marketing Interactive
The PSA lists a 5% growth for electricity, gas, and water supply for q3 of 2018.
Electricity takes up a huge portion of this growth (almost 90%), with an increase of 4.5% year on year.
From the energy sector, focus and growth seem to be on the solar energy market.
In fact, the Philippines was recognized as the number 1 country in developing countries in Asia in terms of solar energy adoption and usage (2017)
Solar energy is steadily rising to become a cheap energy resource alternative. And with the Philippines being able to secure significant solar projects last year, with more in the pipeline, it proves its potential in expansion and taking in more business.
The healthcare industry seems to be picking up steam was the country’s total health expenditures grew by 8% last year which was worth Php 712 billion, a 4.5% overall contribution to the country’s GDP.
According to the PSA, an average of Php 6,791 was spent on health by each Pinoy in 2017.
Recent acquisitions of multiple hospitals by Metro Pacific Investments and increasing options in the HMO industry can be pegged as indicators on the country’s advance towards better healthcare systems.
11. Automotive and Shipbuilding
The industry covering “Trade and repair of motor vehicles” (automotive/shipbuilding) posted a 5.6% growth in Q3 of 2018.
With the increasing number of vehicle purchases over the last few years, expect further growth in this category since aftermarket services (maintenance and repair) will be needed for these vehicles.
Agriculture is the country’s Achilles’ Heel in comparison to other industries in this list in terms of growth.
It dropped 0.4% for Q3 of 2018 which is worse than the 3.9% increase from last year.
There seems to be no focus on this industry in terms of finding and implementing ways to improve the situation. Granted, extreme weather conditions (typhoons), infestations, and low utilization of high-yield crop varieties are major issues that put us in a non-ideal situation.
However, development on areas like providing farmers with access to credit, technology, education, as well as direct linking between production and market is still very much unaddressed and will need all the help it needs if we are to maximize the country’s strong agricultural DNA.
Investment in the areas mentioned above could provide the industry with a much-needed boost and lead to an improved agricultural sector. However, support from the government is absolutely necessary if we want this to happen.