Doing Business in the Philippines – Pro’s and Con’s

As readers would know, I have a great deal of affection for the Philippines. I thought it would be worthwhile mentioning a few of the (objective) reasons why I think the Philippines is a terrific place to do business, along with a few of the challenges that realistically go along with this. By the way, I never comment about politics! This article largely draws on my recent book, with some updates to the information sources where appropriate.

The Philippines has done extremely well for itself since the Global Financial Crisis of 2008–2010. Despite an overall sluggish world economy, it has been a rising star even amongst the generally high-performing ASEAN nations. The country has had the biggest six-year jump on record on the World Economic Forum’s Global Competitive Index, rising from 85th place in 2010 to 47th in 2016[1].

A number of structural reforms have seen the Philippines economy grow by an average of 6.2% in the six years to 2016 (compared with 3.8% for the preceding 15 years)[2] with the most recent forecast by the Organization for Economic Co-operation and Development (OECD) predicting that the Philippines will grow by 6.1% annually until at least 2021[3]. The World Bank Group’s Ease of Doing Business Index shows a continuingly improving business environment with the Philippines jumping in Index ranking from 148th  (2011) to  99th in the most recent survey (2016) (for comparison, Vietnam and China rank at 82nd and 78th, respectively)[4].

These positive developments in the Philippine economy came about largely as a result of internal factors such as the country’s consumer-driven market and significant government incentives for foreign investors. However, these numbers are meaningless unless you are familiar with everything that the Philippines has to offer.

Here are a few things to consider:

  • Labor force: The Philippines’ biggest resource has always been its people. Filipino’s have one of the highest literacy rates in Asia (95%) and are virtually all fluent in English (at least in the major cities). Filipinos also consider education to be extremely valuable, so a great many families encourage their children to complete their college or post-secondary education. The Philippines adds around 350,000 fresh and qualified college graduates to its workforce every year.
  • Natural resources: Aside from its people, the Philippines is rich in natural resources. The nation has numerous mineral deposits and it is one of the biggest producers of gold and copper in the world. Its waters are teeming with marine life and are home to some of the world’s most diverse marine ecosystems. It is a major exporter of tuna, seaweed, and other seafood along with agricultural produce like coconuts and mangoes. The country’s natural beauty and rich cultural heritage typically attract more than five million tourists annually.
  • Location: The Philippines lays within the Pacific Ocean and South China Sea; a location that makes it a natural gateway to Southeast Asia. Furthermore, the country is no more than four and a half hours flight time from most of Asia’s major cities.
  • Business-friendly atmosphere: The Philippines is integrated with the ASEAN Free Trade Agreement (AFTA) which allows the country access to greater global markets. Moreover, the country follows an open-economy structure, where foreign business ownership is encouraged and major industries are deregulated. The government also grants a number of tax exemptions to qualified businesses while the overall cost of doing business (wages, capital, infrastructure, access to financial services and typical operating expenses) is low by international standards.
  • High standard of living at lower prices: A Western expat can live extremely well in the Philippines. Although costs have increased somewhat over recent years, rental of a high-end, three-bedroom condo or townhouse at many locations in Metro Manila such as the Bonifacio Global Center, Ayala Center, Rockwell or Ortigas Center may still be had for less than USD$500 a month. There is easy access to world-class dining and shopping and opportunities for recreation – beaches, conservation areas, heritage sites – are often only a few hours’ drive away from the city. Rent for equivalent accommodation is even cheaper outside Metro Manila.

Of course, while there are many advantages to starting and operating a business in the Philippines like everywhere there are also a number of inherent challenges such as:

  • Getting started: The paperwork required to actually gain approval for and establish a business venture can be overwhelming at times. For instance, gaining basic administrative approval can require up to 16 separate procedures including registration with the Securities and Exchange Commission, the Bureau of Internal Revenue and other government agencies as well as obtaining clearances to operate and issue receipts and purchasing the required account books and receipt booklets. These basic procedures are in addition to the permits required to construct and renovate your office or business place, applying for basic amenities like electricity and water and for hiring and keeping staff.
  • Slow internet: The Philippines has an unfortunate reputation of having some of the worst quality internet connections in Southeast Asia despite the fact that internet penetration overall is comparatively high (52% of Filipinos go online on a regular basis). Getting a DSL service installed in your home can cost around USD$40 per month and may only provide connection speeds of 10–100Mbps. Fiber optic connections are available but are currently only in certain areas such as the main business centers of Manila and Cebu.
  • Traffic: As with similar transitioning economies throughout Asia, Metro Manila’s traffic can be somewhat “challenging”. In fact, Manila has had the unenviable distinction of being voted the Worst City in the World to Drive in 2017 by Waze users [5]. The peak-hour commute along the EDSA (the main thoroughfare that passes through major cities in Metro Manila) which may have taken no more than an hour five years ago could now stretch up to three hours or more. A joint report in 2014 by the Japanese International Cooperation Agency (JICA) and the Philippines National Economic Development Authority (NEDA) concluded that traffic currently costs the Philippines around PHP2.4 billion (nearly USD$50 million) a day with this expected to rise to PHP6 billion (over USD$120 million) a day by 2030 without intervention[6].
  • Dealing with hierarchy: Filipino society is notoriously hierarchical. If you want to get things done or have a complaint that needs to be addressed, you’ll have to find a way to talk to “those in charge”. Subordinates, while invariably outwardly sympathetic, will simply not be able to do much at all until they have consulted their boss. You either have to wait patiently for an answer or find a way to connect with the one sitting at the top of the hierarchy.
  • Quirks in the culture: Adapting to hierarchy is not the only quirk in Filipino culture that you have to deal with. Doing business with Filipinos takes time, patience and observation. The better you learn to navigate through these quirks the more likely your business will succeed.
  • Corruption: Institutional corruption has long been a challenge to establishing and undertaking business activity in the Philippines. While overt bribery and graft are rare, nepotism and patronage is considered ‘business as usual’. That said, the Philippines has been steadily improving in this regard over recent years. Transparency International’s Corruption Perception Index (CPI) in 2016 ranked the Philippines at 101st (out of 178 countries) compared with the country’s 2010 ranking of 134th. The same 2016 Index ranks Vietnam and China at 113th and 79th, respectively[7].

[1] http://reports.weforum.org/global-competitiveness-report-2015-2016/economies/#economy=PHL

[2] http://www.dof.gov.ph/index.php/statement-of-finance-secretary-cesar-v-purisima-on-q1-2016-gdp-growth/

[3] OECD Development Center MPF-2017

[4] http://www.doingbusiness.org/rankings

[5] https://www.waze.com/driverindex

[6] Roadmap for Transport Infrastructure Development for Metro Manila and its Surrounding Areas (Region III and Region IV-A) (JICA & NEDA) 2014

[7] http://www.transparency.org/news/feature/corruption_perceptions_index_2016

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