A. LOCATION

Consisting of approximately 7,100 islands, the Philippines is located in the Southeast Asian region and is considered the “Gateway of Asia to the Pacific” due to its strategic location. It is surrounded by Taiwan on the north, South China Sea on the west, the archipelago of Indonesia on the south, and the vast Pacific Ocean on the east. It has a total land area of 300,000 square kilometers, the largest islands being Luzon, Mindanao, Palawan, Negros Island, Cebu, Samar Island, Panay Island, Mindoro Island, and Leyte. The country is also among the primary destinations of major international airlines and shipping companies.

B. ECONOMIC ENVIRONMENT

The basic economic structure of the Philippines is free enterprise or laissez-faire, with minimal intervention from the government. The State recognizes the important role of the private sector, and thus, as a policy, it harnesses the immense technical and capital resources offered by the business sector. This is shown by the increase in public-private sector partnerships in various infrastructure and development activities.

Concomitant with the phenomenon of market globalization, the Philippines participated in the General Agreement on Tariffs and Trade of the World Trade Organization and the Asian Free Trade Agreement. It has placed several structural reforms that opened up investments in various key sectors, liberalized importation of products and services, deregulated important economic industries, and privatized key government corporations.

The Philippine economy remained resilient during the global financial crisis in 2008, and in the past two years, the Philippines has emerged as one of the fastest growing economies in Asia. Last year, the average inflation rate was at 4.1%, which is well within the three to five percent target range of the Bangko Sentral ng Pilipinas (BSP). BSP’s assessment also indicates that “evolving price conditions point to a manageable inflation environment.” In 2012, the average Filipino household expenditure was placed at approximately US $4,390.00.
The official legal tender in the Philippines is the Philippine peso (PhP).

The official legal tender in the Philippines is the Philippine peso (PhP). However, under Republic Act 8139, parties to any transaction are allowed to stipulate that a foreign currency be the currency of payment or performance of an obligation. Presently, the average foreign exchange rate between the PhP and the U.S. dollar (US$) is approximately PhP 46.74 to US$1.00.

The services sector continues to provide the highest contribution to the economy, followed by manufacturing and agriculture. With its vast trained human resource proficient in the English language, the services sector of the Philippines is highly competitive, particularly in the areas of IT and computer software services.

Major exports of the Philippines include manufactured goods such as semi-conductors and electrical equipment and machinery, garments, minerals and metals, and agricultural products such as coconut products and bananas.

C. GOVERNMENT STRUCTURE

The Philippines prides itself in having a dynamic democracy and representative form of government. Pursuant to the constitutionally declared principle of a democratic republican state, the voice of the general public plays a significant role in the Philippine political environment, as shown by two historic peaceful “People Power” revolutions, both of which toppled what were considered as corrupt and autocratic regimes. The current administration under Pres. Benigno Aquino III has pledged its commitment to a more responsive, morally upright, and transparent governance.

The Philippines has a presidential form of government, with the President as the head of state. He appoints the various heads of executive departments (called Secretaries) to supervise and administer the daily tasks of running the different sectors of government. Its lawmaking body, known as the Congress, is composed of two chambers – the Senate, which is composed of twenty-four (24) senators elected at large, and the House of Representatives, which is composed of not more than two hundred fifty (250) congressmen elected by their constituencies in their respective legislative districts and representatives from various marginalized sectors. The task of interpreting the laws and resolving legal disputes is vested in the Supreme Court, the country’s highest judicial tribunal, with a Court of Appeals and numerous trial courts (i.e., Regional and Municipal/Metropolitan/Municipal Circuit Trial Courts) performing as the courts of preliminary resort or first instance. The country is divided into political subdivisions known as local government units (LGUs, for brevity) (i.e., provinces, municipalities, cities, barangays), with each unit headed by a local chief executive. It should be noted that LGUs are vested with considerable power and authority by the central government, in line with its program of spreading development activities in the countryside.

The Philippines is predominantly composed of Christians, with Roman Catholics composing almost 85% of the population. This is a result of almost four centuries of Spanish presence in the country, which earned the Philippines the tome “Asia’s Cradle of Christianity.” Muslims, which constitute 5% of the population, are primarily concentrated in Mindanao.

D. PHILIPPINE MACROENVIRONMENT

Population

In 2014, the Philippine population was estimated to be around 100 million, with a disproportionately larger number of young people than senior citizens.

Consumption

The average household currently spends 18% of its total expenditure on food, clothing, and housing, with growing discretionary expenses due to projected increases in disposable income for households. It is expected that expenditure of all households on “transport and communications” and “recreation and education” may grow to over 8% per annum in the next 5 years.

Social

Filipinos remain optimistic that their personal economic situations will improve in the next 12 months. In terms of peace and order, the signing of the Comprehensive Agreement on Bangsamoro in 2014 is expected to put an end to the long-running Moro insurgency in the south.

In addition to the insurgency problem, Filipinos want the government to firm up its advocacy against illegal drugs, kidnapping, rape, robbery, child abuse and terrorism. They also expect the government to address issues of unemployment, inadequate salaries and wages, corruption in government, as well as the lack of efficient transportation systems and cheaper
energy sources.

Physical Infrastructure

Government infrastructure projects are generally on track. Road developments and mass transit projects are continually being implemented to solve the traffic problem and, hopefully, improve business productivity.

Technological

The increased use of wireless devices (bluetooth, satellite services, et al.) and wireless networks (3G and 4G wireless networks, et al.) in telecommunications has improved overall communications and logistics in terms of real-time communication of needs and services. Increased spending by large enterprises on information and communications technologies has forced firms to comply with systems integration requirements in order to actively participate in supply chains.

Economic

Several government actions have been implemented to address administrative bottlenecks that hamper government spending. The manufacturing sector posted consistent growth in the past year, capped by a remarkable double-digit growth in the second quarter of 2014. The rollout of public infrastructure projects also sustained the growth of the construction industry.
Meanwhile, services are expected to grow in response to the higher demand by households, domestic industries, inbound tourists, and the strong external demand for business process management.

The IT-BPO industry remains as one of the most promising industries in the Philippines, maintaining a double-digit growth in revenues since 2004. In 2013, the IT-BPO sector posted a 17% growth in revenue, with its workforce growing at around 16% to 900,000. The sector is expected to grow to a population of 1.3 million by 2016.

The agriculture sector was expected to grow by 3% in 2014, sustained by the good performance
of the country’s livestock, poultry, and fisheries sectors.

Inflation is currently at a controllable rate of 4.9%.

Having grown by 9.9% since the fourth quarter of 2013, the financial sector is expected to continue its growth. The enactment of the Foreign Bank Liberalization Act (RA No. 7721) as part of the plan for ASEAN financial integration is expected to open up vast opportunities for the Philippine financial market.

Sustained confidence in the country’s strong macroeconomic fundamentals has caused a surge of nearly 80% growth for foreign direct investments in 2014 compared with the same period in 2013. The Philippines continues to expect rising inflows on foreign direct investments despite lagging behind its regional neighbors. In the manufacturing sector, positive trends for direct investments have emerged due to the success of the Philippine Economic Zone Authority in simplifying taxation and eliminating red tape.

Labor and Employment

Trends indicate that the labor market will continue to be an employers’ market and that the country is likely to exhibit an increasingly negative net migration rate over the next ten years.

Trends also predict that women will increase their participation in the labor force and account for half of the Filipino workforce by the end of 2015. Major growth is seen for women in the managerial and professional sectors, as well as in services and administrative support.