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Investors Should Consider Asia’s New Economic Tiger: The Philippines

downloadAnalysts have long touted China as the place for investment as the fastest growing economy in the world. Overlooked by many is a country in the same neighborhood that has been growing by leaps and bounds in recent years. It is the Philippines, an archipelago of more than 7,000 islands in Southeast Asia.

From a year ago, this island economy has grown 5.2%. This is a decline from 6.6%, reported in the last business quarter of 2014. Although the country still has the status of an emerging nation, the steady rapid growth has made the country a new tiger cub in this part of the world along with Indonesia and Thailand.

As a newly industrialized country, the Philippines remains an economy with a large agricultural sector but services have come to dominate most recently. The industrial side of the nation is mostly based on the assembly and processing operations in the manufacturing of electronics and other high technology components. Much of this activity is usually conducted by foreign multinational corporations.250px-Location_Philippines_ASEAN.svg

Flag_of_the_Philippines.svgEarlier this year a survey of economists done by Bloomberg had these experts predict, that the Philippines would have the second fastest growing economy in the world after China. Although this may prove not to be true, there is no doubt that the country will continue to benefit from a number of factors that have contributed to the present prosperity.

The IMF (International Monetary Fund) lists the Philippines as the 39th largest economy globally. It has been estimated by some that by 2050, the country will have become the 14th largest economy in the world. A major bank HSBC, claims it will be the 16th largest by 2050. It is projected to be the 5th largest in Asia and the largest in Southeast region of the continent. In 2012 and 2013, the Philippines reached growth rates of 6.8% and 7.2% respectively. For the first two quarters in 2013, the country was growing faster than either China or Indonesia.

The Philippines has benefited enormously from lower oil prices. The country is especially endowed with an abundance of natural resources including significant reserves of chromite, coal, copper, nickel and even oil.

Philipinnes_-_Location_Map_(2013)_-_PHL_-_UNOCHA.svgThe country is estimated to have a population of 101,603,200 in 2015, making it the 12th largest in the world with a total area of 120,000 square miles or 300,000 km2. This makes the island nation the 73rd largest in land area. Since the country is comprised of so many islands, three of the main challenges as one could guess is communications, transportation and energy infrastructure.

The nominal GDP (Gross Domestic Product) for 2015 is estimated to be $330.259 billion USD (United States Dollar). That would be equal to $3,256 USD per capita. In PPP (Purchasing Power Parity) comes to $751,770 billion USD with a per capita income of $7,412 USD. The GDP by sector is 10.03% in agriculture, 33.25% in industry, and 56.72% in services.

The main industries of the Philippines include business process outsourcing, electronics, chemicals, fishing, food processing, footwear, garments, petroleum refining, pharmaceuticals, shipbuilding and wood products.

Sacks Of Raw Sugar In The Philippines

Sacks Of Raw Sugar In The Philippines

Agriculture is still tremendously important to the economy. Almost one third of the population is still engaged in the occupation, which provides over 10% of GDP. The Philippines is the largest producer of coconuts in the world. Production exceeds 19.5 million tons. The country also is the largest grower of pineapples as well. In addition, the country is a major sugar producer and the 8th ranked producer of rice in the world. The crop is a major stable in the diet of the population.

The main export partners are Japan at 19% of the total trade, followed by the United States with 14.2%. China comes in 3rd with 11.8% and Hong Kong follows at 9.2%. South Korea and Thailand are next with 5.5% and 4.7% respectively. Total exports were listed in excess of $54 billion USD, in 2014. The majority of income is derived from the following goods: copper products, coconut oil, fruits, garments, electronics, semiconductors, petroleum products, and transport equipment.

Pineapples On A Fruit Stand In Cagayan de Oro.

Pineapples On A Fruit Stand In Cagayan de Oro.

The major imports for the the Philippines include chemicals, electronic products, grains, iron and steel, textile fabrics, plastic, machinery and transport equipment and mineral fuels. The major trading partners for imports are the United States at 11.5% of the total, followed by China at 10.8%. Japan comes in 3rd at 10.4%, followed by South Korea at 7.3%. Singapore is next at 7.1% of the total, with Thailand coming in at 5.6%. Saudi Arabia, Indonesia, and Malaysia follow at 5.6%, 4.4% and 4% respectively.

Much of the recent growth of the country was fueled by direct foreign investment and abundant remittances of Filipinos working abroad. This source of income alone, is equivalent to more than 10% of GDP. The Philippines has become the largest center globally for business process outsourcing.

A Business Process Outsourcing Office In Bacolod

A Business Process Outsourcing Office In Bacolod

Inflation is registering a low rate of 2.9%, with unemployment estimated to be 7.3% in 2015. Foreign Direct Investment is projected to be 3.9 billion USD for this year. The Heritage Foundation ranks the Philippines 76 in the Index for Economic Freedom, with a score of 62.2% in 2015. The country is among ten nations, that have shown the most improvement within the last year.

The Philippines continues to move up among the moderately free category. This is the result of making gains in financial freedom, and improvements in corruption and labor movement. The nation ranks 13th out of 42 countries in the Asia-Pacific region. This puts the island country ahead of regional and world competitors.

The top income tax rate for individuals is 32%, with the top corporate rate at 30%. There is also a value added tax as well as environmental levies. The overall burden of taxes comes in at 12.9% of domestic income. A major challenge for the country is debt. Public expenditures are estimated at 18.9% of the economy with public debt at 38% of GDP.

Makati, The Financial Capital Of The Philippines

Makati, The Financial Capital Of The Philippines

The average tariff rate is 4.8%. The government continues to favor domestic companies in procurements. Rice producers continue to be subsidized and somewhat protected from outside competition. Although foreign investment is welcomed, it is restricted in several sectors of the economy. A new law was passed last year, that removed all restrictions on foreign participation in the banking sector. Modernization of the financial system is ongoing.

Subsidies for state owned or controlled corporations continue to be reduced in the areas of agriculture, food, healthcare, and power. The labor market remains structurally rigid, but there is some flexibility depending on the region of the country.

Incorporating a business takes a total of 16 procedures and 34 days. Licensing requirements remains time consuming taking about 3 months to complete.

Cebu IT Park In Cebu

Cebu IT Park In Cebu

The Philippine economy remains resilient in the headwinds of a slowing global economy. The global economy had grown 3.3% in 2013 and 2014. An earlier projection of 3.2% for 2015, has subsequently been reduced to 2.8%. Projection for the world economy in 2016, has also been reduced to 3.3%.

The improving external debt ratio of 40% of GDP for the Philippines in 2007 to 20% in 2014, is evidence of a strengthening economic situation. Government debt to GDP was above 40% in the same period, but has recently dipped below that figure as aforementioned. The improving inflation picture is also a good sign of economic stability.

Filipino Exports

Filipino Exports

The Philippines has a number of advantages. The nation is well integrated in the world economy being a member of the East Asia Summit, Association of Southeast Asian Nations (ASEAN) and the WTO (World Trade Organization). The country presently hosts the headquarters of the Asian Development Bank. The country also has a high proficiency in business English and a longstanding relationship with the United States.

A relatively young population will permit the economy years of growth, well into this century. There is a large labor pool that is relatively inexpensive, with a large segment that is well educated. As a result of these factors, it is expected that business process outsourcing will remain a major growth industry for the country.

The Bay Skyline Of Manila, Capital Of The Philippines As Seen From Harbor Square.

The Bay Skyline Of Manila, Capital Of The Philippines As Seen From Harbor Square.

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