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Philippines: Country Analysis Report In-depth PESTLE Insights Published 08/2010
Datamonitor. This brief is a licensed product and is not to be photocopied Page 1
OVERVIEW
Catalyst
This profile analyzes the political, economic, social, technological, legal and environmental structure in the Philippines.
Each of the PESTLE factors is explored on four parameters: current strengths, current challenges, future prospects and
future risks.
Summary
Key findings
Positive response to Aquinos win in the presidential elections; threat from communist rebels remains high
The outcome of the presidential elections in May 2010 has raised hopes for reform. Benigno Aquino III of the Liberal Party
won with a large majority and assumed office as the countrys 15th president on June 30, 2010. Aquinos core electoral
platform was based on improving governance and reducing corruption and poverty. Given Aquino's reputation for honesty,
investors are particularly positive about his victory in the elections.
The Philippines continue to face serious threats from the communist rebels as they have refused to disarm and resume
peace talks. In August 2010, the communist rebels on Panay Island (who are part of the National Democratic Front) stated
that they were not willing to end hostilities with the government unless an agreement on major reforms was reached. The
National Democratic Front (NDF) in Panay demands the government to sign a precise agreement under which major
political, economic and social reforms will be implemented. In addition, the NDF seeks the investigation and the prosecution
of government officials allegedly accused of corruption and human rights violations. The NDF has threatened that it would
strengthen its forces and continue to attack the government troops if these conditions are not met.
Remarkable growth in the first quarter of 2010, but a high deficit level is an immediate challenge
The Philippines economy posted impressive growth in early 2010. The countrys GDP expanded 7.3% year-on-year in the
first quarter of 2010. Robust growth was supported largely by strong election-related spending. Other factors such as a
rebound in global trade, growth in manufacturing and investment activity, and private consumption also supported growth in
Q12010. After a strong first-quarter performance, the Philippine economy is set to grow faster than estimated. While strong
COUNTRY ANALYSIS REPORT
Philippines
In-depth PESTLE Insights
Publication Date: August 2010
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Overview
Philippines: Country Analysis Report In-depth PESTLE Insights Published 08/2010
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economic growth in the coming months will help to manage deficit levels, the government will still need to lay out a prudent
fiscal strategy to order to bring its deficit and debt levels under control.
The Philippines ran a fiscal deficit of 3.9% of GDP in 2009. In the first half year of 2010, the budget deficit reached 60.5% of
the full-year target of $7 billion. Despite this, the new government has maintained its earlier target of achieving a budget
deficit of PHP325 billion ($6.9 billion), corresponding to 3.9% of GDP for 2010. For 2011, the government targets to reach a
budget deficit level of PHP290 billion ($6.48 billion), or 3.2% of GDP. The countrys debt in 2009 reached around 58.7% of
GDP, compared to 56.9% in 2008. At a debt level of almost 59%, the countrys debt level is comparable to the levels of
some of the more vulnerable European economies.
The country's population is young, but plagued with poverty
Recent official estimates indicate that more than 60% of the population belongs to the 1564 age group, 34.9% of the
population to the 014 age group and 4.2% of the population to the 65-and-over group. As per 2010 estimates, the
Philippine population has a median age of 22.7 years, which means that half of the population is below that age. While
many developed nations are faced with the problem of ageing population and rising social expenditure, the Philippines
demographic structure works in its favor by providing a regular boost to its labor force.
Stark poverty in the Philippines against the backdrop of robust economic growth is a serious concern. According to an
Asian Development Bank study (2009), the Philippines' poverty reduction rate of 0.47% per year is slower than those of
neighboring Cambodia, Indonesia, the Lao People's Democratic Republic, Thailand, and Vietnam. Among Southeast Asian
nations, the Philippines is the only country which has recorded an increase in the absolute number of poor people since
1990. It is estimated that poverty rates have increased even further due to the global economic crisis and natural disasters
in 2008 and 2009. Lack of employment opportunities especially in the agriculture sector is identified as the main reason for
the slow decline in poverty rates. Although the government has implemented several poverty reduction measures, low
investment and structural weaknesses have constrained development.
A strong BPO sector, but low R&D spending is a key challenge
The Philippines has a strong Business Process Outsourcing (BPO) sector due to an abundance of human resources with
excellent English language skills; the similarity of the Philippines legal, accounting, medical, and other social systems with
those of the US; and greater cost-competitiveness. The outsourcing industry of Philippines offers several services ranging
from voice and IT services to several value-added services such as finance, animation, engineering, medical transcription
and architectural services. According to Business Processing Association Philippines (BPAP), the country could increase
its share of the global outsourcing and offshoring market to 10%. In the BPO sector, the country generated revenues of
$7.3 billion in 2009 and is expected to generate revenues of about $13 billion with direct employment of approximately 1
million by the end of 2010. The countrys strong BPO sector is further evidenced by a recent award by the National
Outsourcing Association, the UK. The Philippines received the Best Offshoring Destination of the Year award for 2009 for
its BPO sector. The growing strength of the BPO market is expected to attract more and more foreign companies to shift
their operations to Philippines.
The spending on R&D in the Philippines has been very low. According to a report by the Department of Science and
Technology (published in April 2010), the countrys R&D expenditure was just 0.14% of the GDP, is well below the 2% of
GDP recommended by the United Nations Educational, Scientific and Cultural Organization (UNESCO). Low R&D funding
has negatively impacted innovation in the Philippines, which is reflected in the low number of patents received by local
firms; the number granted by the USPTO came down from 35 in 2006 to 25 in 2009. In comparison, Singapore and South
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Overview
Philippines: Country Analysis Report In-depth PESTLE Insights Published 08/2010
Datamonitor. This brief is a licensed product and is not to be photocopied Page 3
Korea were granted 493 and 9,566 patents in 2009, respectively. The low number of patents indicates the low level of R&D
expenditure and strengthens the perception that that country does not foster innovation. This is a big risk in the current
scenario, which is characterized by the dominance of the knowledge economy.
The Philippines ranks poorly as a business-friendly country, but there has been significant progress in
privatization
The Philippines ranks poorly as a business-friendly country in the World Banks Doing Business report (2010). In terms of
the ease of doing business, the country was ranked 144th out of 183 economies. The Philippines also ranked in the 162
nd
place in terms of starting a business, falling behind all countries in East Asia except Cambodia. Starting a business takes
an average of 52 days, compared to the world average of 35 days. Closing a business can also be a difficult and lengthy
process. The Philippines is one of the most difficult countries to close a business (ranking 153rd in the world and the lowest
in the East-Asia region). The government needs to work towards simplifying processes and removing impediments to
investment.
The government is looking to privatize government-owned entities and make government corporations profitable. In 2007,
the governments Power Sector Assets & Liabilities Management Corporation (PSALM) made significant progress in
privatization. PSALM sold a major power station and succeeded in giving a 25-year old concession to operate the national
power grid; it also sold around 39% of the state-owned National Power Corporations (NPC) power generation assets. The
brisk pace set by PSALM is expected to continue in the near term. The Aquino government is expected to privatize
television firms Radio Philippines Network (RPN-9) and Intercontinental Broadcasting Corporation (IBC-13) in the near
future. The government is also likely to privatize the operation and maintenance of the Ninoy Aquino International Airport
Terminal 3. Privatization initiatives in various sectors are expected to open up business opportunities and increase
competition.
Steps towards climate change adaption are in place, but air pollution levels are high
The Post-Disaster Needs Assessment (PDNA) estimated that the damage and losses from the two major typhoons in 2009
amounted to about $4.4 billion. To counter this situation, the Philippine government has invested in climate change
adaptation. Philippines is the only country in Southeast Asia with a dedicated agency on climate change. The department of
agriculture introduced a rainwater harvesting technology to irrigate water during the dry season and control floods in the
rainy season. In addition, the non-governmental institutions are also educating the farmers to use organic methods of
farming, which can be productive without depending too much on water and fertilizers. These initiatives taken by the
government will help deal with natural calamities.
The country faces increasing levels of air pollution. The poor air quality in urban areas and indoor air pollution is affecting
health of the people. For instance, an estimated 5% of all reported disease cases and 4% of all reported deaths in the
country are attributed to increasing pollution levels. There has been a surge in the number of respiratory diseases such as
acute and chronic bronchitis, pneumonia, and cardiovascular diseases. The government needs to curb the levels of air
pollution which translates into an increase in costs in terms of productivity and increase in health care expenditure.
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Overview
Philippines: Country Analysis Report In-depth PESTLE Insights Published 08/2010
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PESTLE highlights
Political landscape
There might be resistance to President Aquino's efforts to improve the political administration and in particular, to
investigate former president Macapagal Arroyo's administration for alleged corruption.
In April 2010, the then President Gloria Macapagal-Arroyo expressed the view that stake holders could work
towards a win-win solution to the territorial dispute in the Spratlys. However, a permanent resolution of the issue
remains a far cry.
Economic landscape
In the aftermath of the global economic crisis, the growth in remittance from overseas foreign workers slowed
down to 5.4% in April 2010, compared to more than 10% annual growth in recent years.
Despite robust growth in Q12010, unemployment in the Philippines economy is on the rise. Unemployment
increased to 8% in April 2010 (or 3.1 million people) from 7.5% (or 2.8 million people) during the same period in
2009.
Social landscape
The Philippines faces a dearth of health care professionals. According to 2010 estimates, the country has a
doctor-to-population ratio which is as low as 1:15,000. Moreover, a large majority of the doctors reside in the
urban areas.
President Aquino aims to strengthen social services through increased spending. The education sector will be
allocated the highest appropriations in the national budget for 2011.
Technological landscape
In 2010, the government took key initiatives to encourage start-up companies through the technology business
incubation (TBI) program.
Legal landscape
Corruption has long been an issue of concern in the Philippines. The country lags behind most of its neighbors in
the Asian region in terms of combating corruption. In the Transparency Internationals Corruptions Perception
Index for 2009, the Philippines was ranked 139th out of the 180 countries.
The Philippines has a convoluted tax structure that not only requires too many transactions but also takes a lot of
time to fulfill. A company has to make 47 tax payment transactions in the Philippines, which is higher than the
East Asia average of 25. Moreover, in the Philippines, it takes 195 hours to prepare, file, and pay taxes.
Environmental landscape
According to 2010 Environmental Performance Index (EPI), the Philippines was ranked 50th among 163 countries
with a score of 65.7.
CO2 emissions came down during 200608 but rose again in 2009 to reach 75.1 million metric tons during the
year. Datamonitor forecasts suggest that CO2 emissions will increase to reach 80 million metric tons by 2011.
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Overview
Philippines: Country Analysis Report In-depth PESTLE Insights Published 08/2010
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Key fundamentals
Table 1: The Philippines key fundamentals
2008 2009 2010 2011 2012 2013 2014
GDP, constant 2000 prices ($ billion)
110.8 111.9
116.3
121.3
126.4
131.6
136.9
GDP growth rate (%) 4.2 1.0 3.9 4.3 4.2 4.1 4.0
GDP, constant 2000 prices, per capita ($) 1,153.1 1,141.9 1,164.1 1,191.2 1,218.1 1,244.7 1,271.1
Inflation (%) 9.3 3.2 3.9 4.6 4.4 4.4 4.4
Exports, total as % of GDP 34.8 33.4 31.8 30.8 29.9 29.1 28.2
Imports, total as % of GDP 40.4 38.7 38.2 36.3 35.6 34.4 33.5
Mid-year population, total (million) 96.1 98.0 99.9 101.8 103.8 105.7 107.7
Unemployment rate (%) 7.4 7.5 7.3 7.3 7.3 7.2 7.2
Mobile penetration per 100 people 71.5 81.5 88.9 94.2 97.9 100.5 102.2
Source: Datamonitor D A T A M O N I T O R
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Table of Contents
Philippines: Country Analysis Report In-depth PESTLE Insights Published 08/2010
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TABLE OF CONTENTS
Overview 1
Catalyst 1
Summary 1
Key facts and geographic location 10
Key facts 10
Geographical location 11
PESTLE analysis 12
Summary 12
Political analysis 13
Economic analysis 16
Social analysis 18
Technological analysis 20
Legal analysis 23
Environmental analysis 26
Political landscape 28
Summary 28
Structure and policies 30
Performance 32
Outlook 33
Economic landscape 35
Summary 35
Evolution 35
Structure and policies 37
Performance 39
Outlook 49
Social landscape 51
Summary 51
Evolution 51
Structure and policies 51
Performance 54
Outlook 56
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Table of Contents
Philippines: Country Analysis Report In-depth PESTLE Insights Published 08/2010
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Technological landscape 57
Summary 57
Evolution 57
Structure and policies 57
Performance 58
Outlook 61
Legal landscape 62
Summary 62
Evolution 62
Structure and policies 62
Performance 65
Outlook 65
Environmental landscape 66
Summary 66
Evolution 66
Structure and policies 66
Performance 67
Outlook 68
Appendix 69
Ask the analyst 69
Datamonitor consulting 69
Disclaimer 69
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Table of Contents
Philippines: Country Analysis Report In-depth PESTLE Insights Published 08/2010
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TABLE OF FIGURES
Figure 1: Map of the Philippines 11
Figure 2: The Philippines: political events timeline 29
Figure 3: The Philippines key political figures 30
Figure 4: Composition of the Philippines House of Representatives, 2010 31
Figure 5: The Philippines historical GDP growth (19912009) 36
Figure 6: Market capitalization of the Philippines stock Exchange, 200208 38
Figure 7: GDP and growth rate in the Philippines, 200213 (real GDP at constant 2000 prices) 39
Figure 8: GDP composition by sectors in the Philippines, 2009 40
Figure 9: Agricultural output of the Philippines, 200209 41
Figure 10: Industrial output of the Philippines, 200209 42
Figure 11: Services output of the Philippines, 200209 43
Figure 12: Current account balance of the Philippines, 200208 44
Figure 13: External trade of the Philippines, 200209 45
Figure 14: Balance of trade in the Philippines, 200108 46
Figure 15: Total foreign investment in the Philippines, 200308 47
Figure 16: Consumer price index and CPI based inflation in the Philippines, 200213 48
Figure 17: Unemployment in the Philippines, 200213 49
Figure 18: The Philippines composition of religion 53
Figure 19: Healthcare expenditure in the Philippines, 200213 55
Figure 20: Government expenditure on education in the Philippines, 200213 56
Figure 21: Growth rate of mobile and fixed line subscribers in the Philippines, 200213 59
Figure 22: Internet users and growth rate in the Philippines, 200213 60
Figure 23: Carbon dioxide emissions in the Philippines, 200213 68
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Table of Contents
Philippines: Country Analysis Report In-depth PESTLE Insights Published 08/2010
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TABLES
Table 1: The Philippines key fundamentals 5
Table 2: The Philippines key facts 10
Table 3: Analysis of the Philippines political landscape 13
Table 4: Analysis of the Philippines economy 16
Table 5: Analysis of the Philippines social system 18
Table 6: Analysis of the Philippines technology landscape 20
Table 7: Analysis of the Philippines legal landscape 23
Table 8: Analysis of the Philippines environmental landscape 26
Table 9: Mid-year population by age (millions), 2009 52
Table 10: Patents granted by USPTO, 200209 58
Table 11: The Philippines : individual income tax rates, 2009 63
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Key facts and geographic location
Philippines: Country Analysis Report In-depth PESTLE Insights Published 08/2010
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KEY FACTS AND GEOGRAPHIC LOCATION
Key facts
Table 2: The Philippines key facts
Country and capital
Full name Republic of the Philippines
Capital city Manila
Government
Government type Republic
Chief of state and head of government President Gloria Macapagal-Arroyo
Vice president Manuel Noli de Castro
Population 97,976,603
Currency Philippine peso
GDP per capita (PPP) $3,300
Internet domain .ph
Demographic details
Life expectancy 71.4 years (total population)
68.5 years (men)
74.5 years (women)
Ethnic composition Tagalog 28.1%, Cebuano 13.1%, Ilocano 9%, Bisaya/Binisaya 7.6%, Hiligaynon Ilonggo 7.5%, Bikol 6%, Waray 3.4%, other 25.3%
Major religions (2006 census)
Roman Catholic 80.9%, Muslim 5%, Evangelical 2.8%, Iglesia ni Kristo 2.3%, Aglipayan 2%, other Christian 4.5%, other 1.8%, unspecified 0.6%, none 0.1%
Country area 300,000 sq km (total)
Languages Filipino (based on Tagalog) and English are the two official languages
Exports Semiconductors and electronic products, transport equipment, garments, copper products, petroleum products, coconut oil, fruits
Imports Electronic products, fuels, machinery and transport equipment, iron and steel, textile fabrics, grains, chemicals, plastic
Source: CIA, The World Factbook D A T A M O N I T O R
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Key facts and geographic location
Philippines: Country Analysis Report In-depth PESTLE Insights Published 08/2010
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Geographical location
The Philippines is located in Southeastern Asia, on the archipelago between the Philippine Sea and the South China Sea,
east of Vietnam.
Figure 1: Map of the Philippines
Source: CIA The World Factbook D A T A M O N I T O R
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PESTLE analysis
Philippines: Country Analysis Report In-depth PESTLE Insights Published 08/2010
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PESTLE ANALYSIS
Summary
In the 1980s and 1990s, the Philippines was part of the East Asian growth miracle, emerging as a leading destination for
inwards investment. However, growth never quite matched the economic dynamism of Singapore, Taiwan or Korea. The
economy was hit by the 199798 regional financial crisis, but returned to a reasonable level of growth, recording a CAGR
of 6% over 200107.
Gloria Macapagal Arroyo assumed presidency of the Philippines in 2001 after the impeachment of her predecessor. She
was re-elected in 2004, although she herself had to face a number of impeachment attempts. Release of tapes showed
former President Arroyo having a conversation with an election official, which dented her governments credibility. Another
troubling feature of her reign was political killings. Although this was not unique to Arroyos tenure as president, the number
of incidents were reported at over 800 and ongoing killings of politicians and journalists are a major problem in the country.
On June 30, 2010, Benigno Aquino III of the Liberal Party won with a large majority and assumed office as the countrys
15th president. The Philippine military forces have been engaged in conflict with the Moro National Liberation Front (MNLF)
and Abu Sayyaf, and the country continues to face high risk in terms of terrorism.
As a result of the global economic crisis, the countrys GDP growth came down to 4.2% in 2008 and to 1% in 2009. The
Philippines will continue to be in a strong position in terms of social security, as its population is very young. Most people in
the country are of working age, which precludes the increased social security expenditures advanced countries have to
bear. More than 10% of the countrys population lives on less than $1 per day, which is a far higher percentage than in
other countries in the region, such as Vietnam and Indonesia. A large amount of people live below the poverty line, and it is
unlikely that the country will achieve the Millennium Development Goal of halving poverty by 2015, given its current rate of
progress. With regard to technology, the country has a strong BPO sector. However, the countrys expenditure on R&D is
meager and it has been granted very few patents. Furthermore, the Philippines has a very poor record in terms of
innovation.
The Philippine constitution bans foreign investment in certain sectors and restricts it in others, which acts as a dampener to
FDI. The country has a complicated tax payment structure that consumes too much of companies' time. The administration
is susceptible to local interests and is very inefficient in implementing new regulations. With regards to the environment,
rapid deforestation has been a problem in the Philippines, especially as it has a high percentage of endemic species.
However, high levels of air pollution and increasing deforestation are particular concerns.
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PESTLE analysis
Philippines: Country Analysis Report In-depth PESTLE Insights Published 08/2010
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Political analysis
Overview
The Philippines continues to enjoy close relations with the US, and the countrys foreign policy lays emphasis on bolstering
its relationship with China. Benigno Aquino III of the Liberal Party won with a large majority and assumed office as the
countrys 15th president on June 30, 2010. The new government is expected to improve governance and corruption. The
New Peoples Army (NPA), Abu Sayyaf and the Moro Islamic Liberation Front (MILF) represent armed opposition to the
governments authority.
Table 3: Analysis of the Philippines political landscape
Current strengths Current challenges
Strong relations with the US Territorial dispute in the Spratlys
Unabated political violence
Future prospects Future risks
Hope for reforms to tackle corruption
Resistance from opposition
Threat from communist rebels
Threat from Muslim separatists
Source: Datamonitor D A T A M O N I T O R
Current strengths
Strong relations with the US
The countrys foreign policy places emphasis on strengthening its relationship with the ASEAN and the US, having
maintained strong and close relations with the latter since becoming independent in 1946. The US once had two important
bases in the Philippinesa naval facility at Subic Bay and the nearby air base at Clark Fieldbut the Philippines did not
renew the lease on these bases in 1991. This indicated that the country was realigning its foreign policy, looking to emerge
as an Asian nation that was not overly dependent on the US. However, the US continues to be an important associate, as
both countries face problems with terrorism. The Philippines has been accorded the status of a major non-NATO ally and,
since 2002, US troops, hardware and intelligence have supported the campaign against Muslim separatists. Moreover, the
Philippines has an important commercial relationship with the US with the latter being the Philippines largest export
partner. Therefore, strong relations with the US is a positive sign in the countrys political landscape.
Current challenges
Territorial dispute in the Spratlys
There has been no progress in the resolution of the territorial dispute in the Spratlys. The Spratlys is being claimed by
countries including China, Malaysia, the Philippines, Taiwan, Vietnam and Brunei, which claim all or part of about 100
Spratly islets and reefs that are believed to be have vast deposits of oil and natural gas reserves. A Philippine law passed
in 2008 that outlined Manila's claims to parts of the Spratly islands has strained the countrys relations with China. In April
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PESTLE analysis
Philippines: Country Analysis Report In-depth PESTLE Insights Published 08/2010
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2010, the then President Gloria Macapagal-Arroyo expressed that the countries could work towards a win-win solution to
the dispute in the Spratlys. However, a permanent resolution of the issue remains a far cry.
Unabated political violence
The continuation of political violence is a major problem in the Philippines. For instance, a candidate for provincial governor
and two supporters of a mayoral candidate were killed in separate attacks in April 2007. Furthermore, a top aide to the
Philippines congressman Manuel Zamora, Robert Delano, was shot dead by unidentified gunmen in October 2008. This
killing carries significance as Zamora is a key ally of President Arroyo in the House of Representatives. This murder was
allegedly due to some political rivalry, and is a common way of settling scores. As another example, a town mayor and a
former mayor were shot dead in separate attacks in July 2009. Abdul Ayon, mayor of Malangas town, was ambushed by
gunmen on motorcycles in Pagadian city. On the same day, David Ermalino, former mayor of Candelaria, was killed in the
town near the capital, Manila. Before these incidents Godofredo Linao, a radio broadcaster also working as a political aide,
was shot dead in Mindanao, ambushed by gunmen on motorcycles in the Barobo town area.
In December 2009, a candidate for councilor was killed, and two incumbent officials were wounded in an ambush in
Dingras, Ilocos Norte. Furthermore, it was officially reported that 14 persons were killed in a shooting incident prior to the
2010 elections. Since June 2010, after Aquino was proclaimed the president, three journalists and a key witness to the
Maguindanao massacre have been killed. Widespread political violence materializing in the form of murder of politicians
and journalists is not a new phenomenon in the country. According to analysts, the country is ranked as the second highest
in the world in terms of political killings, with more than 800 reported incidents since 2001.
Future prospects
Hope for reforms to tackle corruption
The outcome of the presidential elections in May 2010 has raised hopes for reform. Benigno Aquino III of the Liberal Party
won with a large majority and assumed office as the countrys 15th president on June 30, 2010. Aquinos core electoral
platform was based on improving governance and reducing corruption and poverty. Given Aquino's reputation for honesty,
investors are particularly positive about his victory in the elections.
Future risks
Resistance from opposition
Beginning on June 30, 2010, President Benigno Aquino began a six-year term. Benigno Aquino heads a majority coalition
in the House of Representatives but his Liberal Party has only four seats (out of 24) in the Senate. Therefore, the president
might have to seek support from the opposition to pass legislation. In addition, there might be resistance to President
Aquino's efforts to improve the political administration and in particular, to investigate former president Macapagal Arroyo's
administration for alleged corruption. Macapagal Arroyo, being the leader of the largest party in the lower house, Lakas-
Kampi-CMD, might oppose the presidents efforts.
Threat from communist rebels
The country faces major threats from the NPA and the MNLF. The NPA is the military wing of the National Democratic
Front (NDF), which in effect represents the Maoist Communist Party. The NPAs membership went up to around 25,000 by
the mid-1980s, with estimates suggesting that it controlled one fifth of villages and was active in around 60 of the 75
provinces, as well as the Manila region. The Corazon Aquino and Fidel Ramos governments stemmed the militia's growth
by encouraging its cadre to come back to the mainstream. They offered amnesty and jobs to the cadre and legalized the
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PESTLE analysis
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Communist Party, while waging a military campaign against the NPA. Attempts to negotiate a truce broke down when the
Philippine government refused to accept their condition of requesting the US and EU to take the NPA off their list of terrorist
organizations.
The Philippines continue to face serious threats from the communist rebels as they have refused to disarm and resume
peace talks. In August 2010, the communist rebels in Panay (part of NDF) stated that they were not willing to end hostilities
with the government unless an agreement on major reforms was reached. The National Democratic Front (NDF) in Panay
demands the government to sign a precise agreement under which major political, economic and social reforms will be
implemented. In addition, the NDF seeks the investigation and the prosecution of government officials allegedly accused of
corruption and human rights violations. The NDF has threatened that it would strengthen its forces and continue to attack
the government troops if these conditions are not met,
Threat from Muslim separatists
Peace talks between the government and the MILF, the country's largest rebel group, collapsed in August 2008. The MILF
spearheads the cause of Muslim separatists in Mindanao. This movement goes back several centuries and is a complex
problem with no easy solutions. Migration from Luzon and Visayas in the 1950s and the 1960s has created a situation
whereby the amount of Christians matches or exceeds the number of Muslims in several provinces. Consequently, it
becomes very difficult to accede to the demands of secessionism. A peace settlement was reached in 1996 with the
creation of the Autonomous Region of Muslim Mindanao (ARMM), but talks stalled in 2006 and the situation is now fragile,
with the possibility of renewed hostilities. Peace talks with the MILF collapsed again in 2008.
The Philippines also face a serious threat from Abu Sayyaf, which is suspected of having connections with the al-Qaida
network. The group has been allegedly involved with a number of terrorist incidents, which include the bombing of a ferry in
Manila Bay in 2004. Furthermore, members of the regional Islamist terrorist group, Jemaah Islamiah (JI), are known to be
present in the southern Philippines. The extremists of JI are said to have received support from members of the Abu Sayyaf
and MILF. These extremists are trained in Afghanistan and have ties to al-Qaeda. Military campaigns by the Armed Forces
of the Philippines (AFP) have had some success in eliminating the leaders of Abu Sayyaf; however, senior JI militants
remain at large. Two JI extremists, Dulmatin and Umar Patek, are wanted by the US Justice Department in connection with
the October 2002 Bali bombings. The Philippines continue to face serious threats from active, violent extremist groups.
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PESTLE analysis
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Economic analysis
Overview
The Philippines has shown resilience to the global economic crisis but the country saw its GDP growth come down to 1% in
2009 from 7.1% in 2007. However, the economy posted impressive growth in early 2010, supported by gains in the
manufacturing sector. The government is struggling to contain its fiscal deficit through reform measures. Rising
unemployment also poses a challenge for the government in the near future.
Table 4: Analysis of the Philippines economy
Current strengths Current challenges
Robust growth in the first quarter of 2010
Gains in the manufacturing sector
High deficit and debt levels
Slowdown of remittances from overseas Filipinos
Future prospects Future risks
Benefits from the ASEAN-ANZ free trade agreement
Unemployment
Source: Datamonitor D A T A M O N I T O R
Current strengths
Robust growth in the first quarter of 2010
Following a GDP growth of 1% in 2009, the Philippines economy posted impressive growth in early 2010. The countrys
GDP expanded 7.3% year-on-year in the first quarter of 2010. Robust growth was supported largely by strong election-
related spending. Other factors such as a rebound in global trade, growth in manufacturing and investment activity, and
private consumption also supported growth in Q12010. After a strong first-quarter performance, the Philippine economy is
set to grow faster than estimated.
Gains in the manufacturing sector
The sharp growth in the manufacturing sector contributed 4.3 percentage points to overall growth in early 2010.
Manufacturing production grew by 20.7% in Q12010 compared to the same quarter in 2009. Manufacturing of petroleum
products, food, and electrical machinery were the main growth drivers. The strong performance in the manufacturing sector
made up for the 2.5% contraction in agriculture in Q12010. A continued growth in the manufacturing sector will help the
country in making a strong economic recovery.
Current challenges
High deficit and debt levels
The government is struggling to contain its fiscal deficit through reform measures. The Philippines ran a fiscal deficit of
3.9% of GDP in 2009. In the first half year of 2010, the budget deficit reached 60.5% of the full-year target of $7 billion.
Despite this, the new government has maintained its earlier target of achieving a budget deficit of PHP325 billion ($6.9
billion), corresponding to 3.9% of GDP for 2010. For 2011, the government targets to reach a budget deficit level of
PHP290 billion ($6.48 billion), or 3.2% of GDP.
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The countrys debt in 2009 reached around 58.7% of GDP, compared to 56.9% in 2008. At a debt level of almost 59%, the
countrys debt level is comparable to the levels of some of the more vulnerable European economies. While strong
economic growth in the coming months will help to manage deficit levels, the government will still need to lay out a prudent
fiscal strategy to order to bring its deficit and debt levels under control.
Slowdown of remittances from overseas Filipinos
Earnings from Filipinos working overseas have long been a strong contributor to the Philippines' current account surplus,
which also provided a substantial boost to private consumption. The country registered growth rates of more than 10% in
remittances for several years. However, in the aftermath of the global economic crisis, the remittance growth slowed down
to 5.4% in April 2010. The most affected overseas foreign workers were male production workers (especially construction
workers) and newly recruited employees. A decline in remittance inflows is likely to negatively affect consumer spending in
the Philippines in the coming months.
Future prospects
Benefits from the ASEAN-ANZ free trade agreement
Philippine exporters will now be able to benefit from the opportunities presented by the Free Trade Agreement (FTA)
between the ASEAN and Australia and New Zealand (ASEAN-ANZ). The FTA took effect on February 10, 2010. The FTA
will provide improved market access to the Australian and New Zealand economy. Beginning in January 2010, most of the
countrys exports to Australia will enjoy zero tariffs. And by 2020, nearly all sectors would benefit when Australia and New
Zealand eliminate tariffs on all products. Through the FTA, most of the companies will be able to take advantage of
preferential tariff rates with Australia and New Zealand.
Future risks
Unemployment
Despite robust growth in Q12010, unemployment in the Philippines economy is on the rise. Unemployment increased to
8% in April 2010 (or 3.1 million people) from 7.5% (or 2.8 million people) during the same period in 2009. The sharp
decrease in employment during this period may be attributed to the phasing out of the Comprehensive Livelihood and
Emergency Employment Program (CLEEP) job creation program. In addition, the El Nino drought has had a major negative
impact on agricultural employment, with more than 800,000 jobs lost. Unemployment is largely accounted for by the major
slump in jobs in the agriculture sector (which accounts for more than 35% of the total labor force). Datamonitor estimates
suggest that the unemployment rate is not likely to improve and will stay around 7.2% through 2013.
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Social analysis
Overview
The demographic profile of the country indicates that the Philippines is a young society, with more than 60% of its
population in the working age. In the United Nations Development Programs Human Development report (2009), the
Philippines scored low on the Gender Development Index (GDI) and Human Development Index (HDI). This indicates that
the country has to spend more on social advancement and create more measures for female empowerment. The country
has been facing a major shortage of doctors in the rural areas, as most of them are retraining as nurses and leaving for the
US and other countries. Rising inequality and high levels of poverty continue to be a problem in the country.
Table 5: Analysis of the Philippines social system
Current strengths Current challenges
A young society
Low performance on social development indicators
Shortage of healthcare resources
Future prospects Future risks
Increased spending on social services in 2011
Progress in the achievement of Millennium Development Goals
Poverty
Source: Datamonitor D A T A M O N I T O R
Current strengths
A young society
Recent estimates indicate that more than 60% of the population belongs to the 1564 age group, 34.9% of the population
to the 014 age group and 4.2% of the population to the 65-and-over group. As per 2010 estimates, the Philippine
population has a median age of 22.7 years, which means that half of the population was below that age. While many
developed nations are faced with the problem of an ageing population and rising social expenditure, the Philippines
demographic structure works in its favor by providing a regular boost to its labor force.
Current challenges
Low performance on social development indicators
According to the UNDPs Human Development report (2009), the Philippines had an HDI score of 0.751, placing the
country in the 105th rank among 182 countries. The nations performance in terms of the GDI was not exceptional either.
The GDI captures inequalities in achievement between women and men. The Philippines, with a GDI score of 0.748 or
99.6% of its HDI value, was ranked behind 39 other countries which had a better GDI to HDI ratio. Furthermore, the country
ranked in the 59th position out of 109 countries in the gender empowerment measure (GEM), with a low value of 0.560. The
GEM indicates the extent of womens active participation in economic and political life, measuring the percentage of seats
in parliament held by women along with the share of female legislators, senior officials, managers, and professional and
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technical workers. It also measures the economic independence of women. The above index indicates the Philippines'
inability to create a positive social climate for women.
Shortage of healthcare resources
The Philippines is suffering from a shortage of rural doctors, as about 11,000 in the past eight years have been retrained as
nurses to work abroad, mostly in the US. The country is facing a brain drain, which has led to an acute shortage of doctors
in rural hospitals across the country. The availability of healthcare services has been declining and the proportion of
Filipinos dying without medical attention has risen to 70%. In the last few decades, the country has lost more than 164,000
nurses. According to 2010 estimates, the country has a doctor-to-population ratio which is as low as 1:15,000. To make
matters worse, a large majority of the doctors reside in the urban areas. Scarcity of doctors in the country has crippled the
healthcare system, which has, in the last few years, witnessed a steady decline in quality.
Future prospects
Increased spending on social services in 2011
President Aquino aims to strengthen social services through increased spending. The education sector will be allocated the
highest appropriations in the national budget for 2011. Other areas which are prioritized in the budget include poverty
reduction, school infrastructure and healthcare. The government budget is expected to achieve improvement in the above
mentioned areas.
Progress in the achievement of Millennium Development Goals
The Philippines is a signatory to the 2000 Millennium Declaration (which is supported by the United Nations) which led to
the development of the Millennium Development Goals (MDGs) as a global agenda for development by 2015. As part of
this declaration, the country has made significant progress in reducing child mortality, combating HIV and AIDS, malaria,
and other diseases, improving access to safe drinking water, sanitary toilet facility and improving nutrition. However, there
still remain wide regional disparities concerning access to education, maternal mortality and access to reproductive health
services.
Future risks
Poverty
Stark poverty in the Philippines against the backdrop of robust economic growth is a serious concern. According to an
Asian Development Bank study (2009), the Philippines' poverty reduction rate of 0.47% per year is slower than those of
neighboring Cambodia, Indonesia, the Lao People's Democratic Republic, Thailand, and Vietnam. Among Southeast Asian
nations, the Philippines is the only country which has recorded an increase in the absolute number of poor people since
1990. The result, according to the latest official available statistics, is an increase in poverty incidence from 30% in 2003 to
32.9% in 2006, with one in five households living in chronic poverty. It is estimated that poverty rates have increased even
further due to the global economic crisis and natural disasters in 2008 and 2009. Lack of employment opportunities
especially in the agriculture sector is identified as the main reason for the slow decline in poverty rates. Although the
government has implemented several poverty reduction measures, low investment and structural weaknesses have
constrained development.
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Technological analysis
Overview
The country has a strong BPO sector due to its abundant human resources with good English language skills. The
regulatory framework to protect intellectual property rights (IPR) is fairly comprehensive, but patchy implementation
continues to be a challenge. The country spends less than 0.14% of its GDP on R&D and the number of patents granted by
the USPTO came down to about 25 in 2009. This indicates that the country does not encourage innovation at the same
level as some of its Asian neighbors.
Table 6: Analysis of the Philippines technology landscape
Current strengths Current challenges
Strong BPO sector
Food security through biotechnology
Weak implementation of IPR laws
Future prospects Future risks
Government initiatives to promote software companies
Support for start-ups
Low R&D expenditure as percentage of GDP
Source: Datamonitor D A T A M O N I T O R
Current strengths
Strong BPO sector
The Philippines has a strong BPO sector and the following three factors have contributed to its rapid growth:
an abundance of human resources with excellent English language skills;
the similarity of the Philippines legal, accounting, medical, and other social systems with those of the US;
greater cost-competitiveness in the Philippines BPO/IT services industry, following increases in labor costs and
real estate prices in India.
The outsourcing industry of Philippines offers several services ranging from voice and IT services to several value-added
services such as finance, animation, engineering, medical transcription and architectural services. According to Business
Processing Association Philippines (BPAP), the country could increase its share of the global outsourcing and offshoring
market to 10%. In the BPO sector, the country generated revenues of $7.3 billion in 2009 and is expected to generate
revenues of about $13 billion with direct employment of approximately 1 million by the end of 2010. The government is
committed to invest in the BPO sector. As of April 2010, the government invested P35.5 billion in technical education and
training skills, of which P1.7 billion went towards BPO scholarships.
The countrys strong BPO sector is further evidenced by a recent award by the National Outsourcing Association, the UK.
The Philippines received the Best Offshoring Destination of the Year award for 2009 for its BPO sector. The growing
strength of the BPO market is likely to make foreign companies to shift their operations to Philippines.
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Food security through biotechnology
The Philippines has made great strides in the development of biotechnology. The countrys biotechnology program, which
was adopted by the University of the Philippines in Los Banos (UPLB), Laguna in the late 1990s, has used genetic
modification to create disease-resistant corn and eggplants and a variety of delayed-ripening papaya. Experts say that the
country is near the end phase of the first generation and is entering second generation biotechnology, which involves the
development of crops rich in amino acids, with high nutritional values and which provide premium quality and low
allergenicity.
The government aims to attain food security through sophisticated techniques used in biotechnology. The UPLB is carrying
out field tests of golden rice, which is a vitamin A-fortified rice variety. If the results are positive, golden rice will be available
in the market by 2012, and may serve as an alternative to commercial rice. In the future, the country stands to gain from
advances in biotechnology, especially with the development of golden rice.
Current challenges
Weak implementation of IPR laws
Although the Philippines has elaborate patent laws, implementation of these has been tardy. The International Intellectual
Property Association (IIPA) has the country on its watch list for IPR violations, causing huge losses to companies.
According to IIPA estimates, business software piracy losses increased for the fifth straight year. Losses due to business
software piracy increased from $121 million in 2008 to $126.4 million in 2009. Unless adequate measures are taken toward
intellectual property rights (IPR) protection, the country will not succeed in achieving its target of increasing foreign
investment in R&D-intensive industries.
Future prospects
Government initiatives to promote software companies
The Philippiness Commission on Information and Communications Technology (CICT) has taken several initiatives as part
of its strategic objective to improve the countrys technology landscape. For instance, 10 companies of the Philippine
Software Industry Association (PSIA), with support from the CICT, participated in the 2010 Software Development Expo
(SODEC), Japan's largest trade show involving more than 1,400 companies worldwide featuring several products for
development and maintenance of software. The participation of the software companies in SODEC is expected to attract
business investment in Philippines.
Support for start-ups
The government is taking key initiatives to encourage and develop start-up companies by adopting the technology business
incubation (TBI) program. In 2010, the government announced that it would make an initial investment of about PHP100
million ($2.1 million) in 12 technology entrepreneurial centers for food processing, industrial manufacturing, and software
development. The setting up of the TBI is assisted by the Philippine Council for Advanced Science and Technology
Research and Development (PCASTRD). Financiers from the Development Bank of the Philippines (DBP) and the Build-
Operate-Transfer-Department of Trade and Industry (DTI) are also keen on building partnerships with the TBIs. Such
initiatives by the government will stimulate the innovation environment in the country.
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Future risks
Low R&D expenditure as percentage of GDP
The spending on R&D in the Philippines has been very low. According to a report by the Department of Science and
Technology (published in April 2010), the countrys R&D expenditure was just 0.14% of the GDP, which is well below the
2% of GDP recommended by the United Nations Educational, Scientific and Cultural Organization (UNESCO). Low R&D
funding has negatively impacted innovation in the Philippines, which is reflected in the low number of patents received by
local firms; the number of granted by the USPTO came down from 35 in 2006 to 25 in 2009. In comparison, Singapore and
South Korea were granted 493 and 9,566 patents in 2009, respectively. The low number of patents indicates the low level
of R&D expenditure and strengthens the perception that that country does not foster innovation. This is a big risk in the
current scenario, which is characterized by the dominance of the knowledge economy.
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Legal analysis
Overview
The government has launched some innovative programs, such as the 'no audit' program to increase its tax revenues. The
Philippine constitution bans foreign investment in certain sectors and restricts it in others, which acts as a dampener to FDI.
According the World Banks Doing Business report (2010), the country has a complicated tax payment structure that
consumes too much of companies' time. The Philippine government has created the Civil Aviation Authority (CAA), the new
aviation regulator, due to international concerns over the safety of airports and carriers. The CAA is expected to improve
the standards of safety and supervision in the airline industry in the country. The Philippine governments Power Sector
Assets and Liabilities Management Corporation (PSALM) has made significant progress in privatization in 2007 and is
expected to continue the process. Finally, administration continues to be patchy in respect to the implementation of new
regulations, and is also susceptible to local interests.
Table 7: Analysis of the Philippines legal landscape
Current strengths Current challenges
Privatization initiatives
Rampant corruption
Unfavorable environment for business
Future prospects Future risks
New civil aviation regulator
Complicated tax payment structure
Administration susceptible to local influence
Source: Datamonitor D A T A M O N I T O R
Current strengths
Privatization initiatives
The government is looking to privatize government-owned entities and to discipline the operations of government
corporations that are operating at a loss. In 2007, the governments Power Sector Assets & Liabilities Management
Corporation (PSALM) made significant progress in privatization. PSALM sold a major power station and succeeded in
giving a 25-year old concession to operate the national power grid; it also sold around 39% of the state-owned National
Power Corporations (NPC) power generation assets. The brisk pace set by PSALM is expected to continue in the near
term. The Aquino government is expected to privatize television firms Radio Philippines Network (RPN-9) and
Intercontinental Broadcasting Corporation (IBC-13) in the near future. The government is also likely to privatize the
operation and maintenance of the Ninoy Aquino International Airport Terminal 3. Privatization initiatives in various sectors
are expected to open up business opportunities and increase competition.
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Current challenges
Rampant corruption
Corruption has long been an issue of concern in the Philippines. The Philippines lags behind most of its neighbors in the
Asian region in terms of combating corruption. In the Transparency Internationals Corruptions Perception Index for 2009,
the Philippines was ranked 139th out of the 180 countries. In comparison, Singapore was ranked 2nd; South Korea, 39th;
Malaysia, 56th; Thailand, 84th and Indonesia, 111th. A culture of corruption in the country is long-standing, and enforcement
of anti-corruption laws is inconsistent. The Philippines needs to get out of its image of being corruption-ridden in order to
enhance overall development.
Unfavorable environment for business
The Philippines ranks poorly as a business-friendly country in the World Banks Doing Business report (2010). In terms of
the ease of doing business, the country was ranked 144th out of 183 economies. The Philippines also ranked in the 162
nd
place in terms of starting a business, falling behind all countries in East Asia except Cambodia. Starting a business takes
an average of 52 days, compared to the world average of 35 days. Closing a business can also be a difficult and lengthy
process. The Philippines is one of the most difficult countries to close a business (ranking 153rd in the world and the lowest
in the East-Asia region). The government needs to work towards simplifying processes and removing impediments to
business investment.
Future prospects
New civil aviation regulator
The countrys aviation sector faces serious problems. The Federal Aviation Administration has downgraded the Philippines
from Category 1 to Category 2, which means that the country does not meet the International Civil Aviation Organizations
standards for safety and supervision. The Philippine government has created the Civil Aviation Authority (CAA), a new
aviation regulator, due to international concerns over the safety of airports and carriers. Former President Arroyo signed the
act in March 2008. The CAA has replaced the Air Transportation Office and is attached to the Department of Transportation
and Communications. The agency will have financial independence as it will collect $74 million in taxes and fees, which are
allocated toward improving facilities and training personnel. In July 2010, the CAA ordered a close audit of all aviation
schools in the country after they discovered fake licenses issued to trainee pilots. The CAA is expected to bring in changes
and improve the standards of safety and oversight in the airline industry.
Future risks
Complicated tax payment structure
The Philippines ranks in the 135th position in terms of simplicity of paying taxes, according to the World Banks Doing
Business report (2010). A company has to make 47 tax payment transactions in the Philippines, which is higher than the
East Asia average of 25. Moreover, it takes 195 hours to prepare, file, and pay taxes. In comparison, other Asian countries
fared better in the survey; Malaysia ranked in 24th place with 12 payments that take just 145 hours a year. It is evident that
the Philippines has a convoluted tax structure that not only requires too many transactions but also takes a lot of time to
fulfill.
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Administration susceptible to local influence
The administration in the country is pliable and susceptible to local firms who want to protect their interests. The Philippine
government has, therefore, established one-stop shops for fair and transparent enforcement of laws. The system is known
to be quite inefficient in implementing new regulations. Business registrations, meanwhile, are fairly cumbersome in the
country. It is expected that the local administration will continue to be susceptible to vested local interests and quite slow, in
terms of the application of new laws.
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Environmental analysis
Overview
The Philippines is bestowed with a high percentage of endemic species and has been designated as a global biodiversity
hotspot. However, the country is hit by about 20 typhoons and storms a year. Natural calamities can damage the countrys
infrastructure and make it less attractive to investors. The country also faces a massive challenge in terms of deforestation,
the rate of which is one of the highest in the world.
Table 8: Analysis of the Philippines environmental landscape
Current strengths Current challenges
Biodiversity
Increasing pollution
Diminishing forest cover
Future prospects Future risks
Efforts towards climate change adaptation
Effects of global warming
Source: Datamonitor D A T A M O N I T O R
Current strengths
Biodiversity
The Philippines is one of the most biodiverse countries in Southeast Asia. The Philippines has among the highest rates of
discovery in the world with 16 new species of mammals discovered in the last 10 years. As a result of this, the rate of
endemism for the Philippines has risen and is likely to rise. Over 65% of the species found there are found nowhere else on
Earth, and more new organisms are discovered every year than in any other nation worldwide. Luzon, the largest island,
has at least 31 endemic species of mammals and the tiny Camiguin has at least two. Of the 1,196 known species of
amphibians, birds, mammals and reptiles in the country, nearly 46% are endemic. Among plants, the number is around
40%.Biodiversity is a valuable asset, as the poor depend on it for food, fuel, shelter, medicines and livelihoods.
Current challenges
Increasing pollution
The country faces increasing levels of air pollution. The poor air quality in urban areas and indoor air pollution is affecting
health of the people. For instance, an estimated 5% of all reported disease cases and 4% of all reported deaths in the
country are attributed to increasing pollution levels. There has been a surge in the number of respiratory diseases such as
acute and chronic bronchitis, pneumonia, and cardiovascular diseases. The government needs to alleviate the levels of air
pollution which translates into an increase in costs in terms of productivity and increase in health care expenditure.
Diminishing forest cover
The Philippines has been rapidly losing its forest cover; the rate of deforestation is among the highest in the world.
According to the United Nations Food and Agriculture Organization, 57% of the country or 42 million acres were covered
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with forest in 1934, 26 million acres of which was primary or virgin forests. It is estimated that the forest cover is down to
about 20% or less of total land area. It is further predicted that at the current rate of deforestation, no forest cover will
remain within the next decade. More than 10 million hectares of virgin forest present at the time of independence also will
have been completely lost. Even the remaining forests are seriously endangered, due to extensive logging. Illicit wood cut
from secondary and primary forests is routinely smuggled to other Asian countries, and threats such as legal and illegal
mining operations, agricultural fires, the collection of lumber for fuel, and rural population expansion are also contributing to
the degradation of the woods. Although the rate has come down in recent times, continued deforestation is a major
challenge.
Future prospects
Efforts towards climate change adaptation
Climate change has emerged as a significant concern. Recent incidents such as the intense dry spell that struck in 2010
and typhoons Ketsana and Parma in northern Philippines are some cases in point. The Post-Disaster Needs Assessment
(PDNA) estimated that the damage and losses from the two major typhoons in 2009 amounted to about $4.4 billion. To
counter this situation, the Philippine government has invested in climate change adaptation. Philippines is the only country
in Southeast Asia with a dedicated agency on climate change. The department of agriculture introduced a rainwater
harvesting technology to irrigate water during the dry season and control floods in the rainy season. In addition, the non-
governmental institutions are also educating the farmers to use organic methods of farming which can be productive
without depending too much on water and fertilizers. These initiatives taken by the government will help deal with natural
calamities.
Future risks
Effects of global warming
Due to global warming and subsequent climate change, the Arctic ice caps are melting; this could lead to an increase in
sea levels by seven meters (23 feet), according to NASA scientists. The melting of the solar ice caps leads to the Sun's
rays going into the Arctic waters and warming them up instead of being reflected. Currents from the Arctic Ocean travel
around the world to all the other oceans, including the waters surrounding the Philippines. This could foster the growth of
algae in the world's oceans, which would gravely affect the world's food chain. It is also believed that this increase in
temperature could lead to the death of various creatures. Marginal changes in temperature could lead to the bleaching of
coral reefs, which will have a direct impact on the fishes that feed there. Experts believe that global warming could lead to
extensive destruction of the country's flora and fauna, and the capital Manila could be flooded. The continuing climate
change could bring a grave disaster to the country in the future.
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POLITICAL LANDSCAPE
Summary
The Philippines is one of the key members of the ASEAN and generally has good relations with its neighbors. The country
has a low percentile rank in political stability, due to a series of attempted coups and has been given low percentile ranks
by World Bank governance indicators in voice and accountability, political stability and absence of violence, rule of law and
control of corruption; corruption is perceived to be widespread, as the enforcement of anti-corruption laws is inconsistent
and slow.
Filipino politics are characterized by a lack of ideologically defined political movements. Instead, political parties are largely
based around loyalty to the major players on the political scene, and vast networks of patronage stretching from national to
local level. Widespread corruption has become an established feature of political life, while party loyalty is minimal. Benigno
Aquino was elected president in the May 2010 elections; this development is likely to reduce corruption levels to some
extent.
Evolution
The significant political events in the Philippines are shown below:
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Figure 2: The Philippines: political events timeline
In 1898, Spain ceded
the Philippines to the US under the treaty of
Paris and the US proclaimed military rule.
The US forces were faced with insurgency
against military rule in
1899.
In 1902, the US civil
government replaced military rule.
A plebiscite approved the establishment of the
Commonwealth of the Philippines in 1935.
Manuel Quezon
became the f irst president. The country
was promised full independence within 10
years.
Japan attacked the
Philippines in 1941.
In 1944, the US forces retook the islands.
The islands were granted full
independence and renamed the Republic
of the Philippines in
1946.
Peace treaty was signed with Japan in
1951 and Philippines
received war reparations of $800
million.
Ferdinand Marcos
became president in 1965.
Marcos declared
martial law in 1972 and
the parliament was suspended.
In 1973, a new
constitution was adopted that gave
Marcos absolute powers.
In 1977, opposition leader Benigno Aquino
was sentenced to death, however,
Marcos delayed the
execution.
Aquino was allowed to travel to the US for
medical treatment in
1980.
Martial law was lif ted and he went on to win
presidential elections
in 1981.
Aquino was shot dead in 1983 as he left his
plane.
Marcos declared
himself winner in the 1986 presidential
elections, which was opposed by her
opponent Corazon
Aquino.
Mass protests forced the ouster of Marcos in
the same year.
Military off icials were
convicted of the murder of Benigno
Aquino in 1990.
Aquino's defense
minister, Fidel Ramos, won the presidency in
1992.
Joseph Estrada was
elected the president in 1998.
Estrada resigned in
2001 after the military withdrew its support
and his vice-president, Gloria Arroyo, was
sworn in as the
president.
President Arroyo
survived an opposition attempt to impeach her
in 2005 over allegations of vote
rigging.
Ex-president Estrada
was jailed for life as he
was found guilty for corruption in 2007. He
won a presidential pardon immediately.
Benigno Aquino III of the Liberal Party won
with a large majority
and assumed off ice as the countrys 15th
president on June 30, 2010.
189840 194172 197383 1984 1998 1999 onwards
Source: Datamonitor D A T A M O N I T O R
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Structure and policies
Key political figures
Key political figures in the Philippines include:
President Benigno Simeon Cojuangco Aquino III
Vice President Jejomar Cabauatan Binay
Figure 3: The Philippines key political figures
Benigno Simeon Cojuangco Aquino III, also known as Noynoy Aquino, is the 15th and current
president of the Philippines. Aquino is a fourth-generation politician. On June 9, 2010, the
Congress of the Philippines proclaimedAquino the winner of the 2010 presidential election.
Jejomar "Jojo" Cabauatan Binay is the 15th and incumbent vice president of the Philippines
and former mayor of Makati City, Philippines. He is also the president of the United Opposition,
president of Partido Demokratiko Pilipino-Lakas ng Bayan (PDP-Laban), chairman of Asia-
Pacific Region Scout Committee and the president of the Boy Scouts of the Philippines.
Source: Datamonitor D A T A M O N I T O R
Structure of government
The political system in the country is modeled on that of the US. There is an executive presidency and a bicameral
legislature, comprising the Senate and the House of Representatives. The presidential term of office is six years, and
presidents are limited to one elected term. Discussions are continuing to change the government from the current
presidential form to a parliamentary system.
Key political parties/figures
Partido Liberal ng Pilipinas
The Liberal Party of the Philippines (Filipino) is a liberal party in the Philippines, founded on November 24, 1945 by a
breakaway from the Nacionalista Party. It is the current ruling party after the election victory of Benigno Aquino III as the
President of the Philippines. It is the second-oldest political party in the Philippines in terms of establishment, and the oldest
active political party in the Philippines. The party has been led by people like Manuel Roxas, Elpidio Quirino, Diosdado
Macapagal and Benigno Aquino, Jr.
Lakas Kampi CMD
Lakas Kampi CMD (Lakas-Kabalikat ng Malayang Pilipino-Christian Muslim Democrats) is a centrist political party in the
Philippines and the current minority party in the country. Its ideology is influenced by Christian and Islamic democracy and
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by populism. The party's influence on Philippine society is very evident, especially after the People Power Revolution,
which led the country to elect two presidents from the party, namely Fidel V. Ramos, a United Methodist, and Gloria
Macapagal-Arroyo, a Roman Catholic.
Composition of government
The Lakas-KAMPI CMD held 105 seats after the last elections of May 2010. The opposition won the majority of Senate
seats, while the president's support in the lower house was strengthened. The other parties in the House of
Representatives are: LP (25), NPC (31), NP (25), Independents (7), and others (20).
Figure 4: Composition of the Philippines House of Representatives, 2010
Lakas-Kampi CMD 46%
LP18%
NPC13%
NP11%
Independents3%
Others9%
Source: Datamonitor D A T A M O N I T O R
Key policies
Economic policies
The Philippine government introduced a newly expanded value-added tax (VAT) law in November 2005. This move was
initiated to control the country's increasing foreign debt and to improve government services such as healthcare, education,
social security, and transport. This improved confidence in the governments fiscal capacity and helped to strengthen the
peso, which continues to appreciate against the US dollar. The VAT reform boosted tax revenues by 22% in 2006.
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The national budget for 2011 was pegged at PHP1.75 trillion ($36.9 billion), an increase of PHP210 billion ($4.2 billion)
from that of 2010. The education sector will be allocated the highest appropriations in the budget. Among other areas,
poverty reduction and healthcare are prioritized in the budget. The government also aims to strengthen transparency,
accountability and good governance; improve infrastructure; and create a safe environment in the country. Spending will be
made cautiously so as to contain the fiscal deficit.
Social
The Philippine constitution stipulates full respect for social, economic and cultural rights, and gives special attention to the
rights of women and workers, which it sees as a primary economic force whose welfare is in need of advancement. The
employers and employees bear the cost of social security in the country by proportional contribution. The public social
insurance system is centrally managed and comprises two programs: social security and industrial injury-related services.
The Social Security System (SSS) administers the program for private sector employees and the Government Service
Insurance System (GSIS) handles it for government workers. The SSS is found to benefit the better-off because they live in
urban areas where most services are accessible, and know how to use the system.
The Philippine Health Insurance Corporation (PhilHealth) runs the national health insurance program that gives Filipinos
access to inpatient and outpatient services in accredited medical facilities nationwide. The PhilHealth program covers the
employed sector, the poor, individually paying entrepreneurs, self-earning professionals and farmers, paying elderly
members, and overseas workers. The program for the poor is well-funded, as it is allocated 2.5% of the government
revenues from taxes on alcohol and tobacco for 200712 and 10% of the local government share in expanded VAT
proceeds.
In the national budget for 2011, the government plans to spend the most in the education sector. Other areas which are
prioritized in the budget include the poverty reduction program, school infrastructure and healthcare.
Foreign
The Philippines was a founder member of the ASEAN in 1967 and has enjoyed generally good relations with its neighbors.
The country has close military relations with the US, which have improved further under the leadership of President Arroyo.
Annual military training exercises are conducted between the two armed forces and the Filipino president has lent full
support to the campaign against terrorism, and was supportive of the US-led military action in Iraq. Around 100 army, police
and medical personnel were sent to Iraq as part of a humanitarian assistance team from the Philippines, but were
withdrawn following the kidnap of a Filipino national. Malaysia has been helpful to the Philippines in hosting and facilitating
negotiations with the MILF. The country has also been designated as a major non-NATO ally by the US.
The territorial dispute in the Spratlys continues to cause tension between the Philippines and China. The Spratlys is being
claimed by countries including China, Malaysia, the Philippines, Taiwan, Vietnam and Brunei, which claim all or part of
about 100 Spratly islets that are believed to be replete with oil and natural gas reserves. A Philippine law passed in 2008
that outlined Manila's claims to parts of the Spratly Islands strained the countrys ties with China. A solution to this dispute
appears far from imminent.
Performance
Governance indicators
The World Bank report on governance uses voice and accountability, political stability and absence of violence,
government effectiveness, regulatory quality, rule of law, and control of corruption as indicators for 212 countries and
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territories over the period 19962008. The study was carried out by Daniel Kaufmann and Massimo Mastruzzi of the World
Bank Institute, and Aart Kraay of the World Bank Development Economics Research Group. For any country, a percentile
rank of 0 corresponds to the lowest rank, and 100 to the highest.
As of 2008, the Philippines had a percentile rank of 41.3 on voice and accountability. This parameter measures the extent
to which a country's citizens are able to participate in selecting their government, as well as freedom of expression,
freedom of association, and free media. In comparative terms, it is higher than Malaysia, which had a percentile rank of
31.7.
The Philippines had a low rating on the political stability and absence of violence indicator with a percentile rank of 10.5 in
2008, which declined from its 2003 ranking of 14.4. The countrys score is very low compared to Malaysia, which registered
a rank of 50.2 in 2008. The former president faced repeated attempts to impeach her, which were defeated in the House of
Representatives. However, the countrys political administration continues to be dependent on the armed forces for its
survival. The Philippines has faced coups or attempted coups, the most recent one being in 2007. Therefore, the
Philippines has a low rank in this indicator.
In terms of government effectiveness, the Philippines had a percentile rank of 55.0 in 2008. Government effectiveness
measures the quality of public and civil services, and the degree of governmental independence from political pressures,
the quality of policy formulation and implementation, and the credibility of the government's commitment to such policies.
Malaysia is way ahead in terms of government effectiveness, registering a percentile rank of 83.9 in 2008.
The Philippines percentile ranking in terms of regulatory quality was 51.7 in 2008. Regulatory quality measures the ability
of the government to formulate and implement sound policies and regulations that permit and promote private sector
development. The performance on this parameter is lower than that of Malaysia, which has a percentile ranking of 60.4.
Philippine bureaucracy continues to be slow and susceptible to influence from local vested interests. The implementation of
rules also remains patchy.
The Philippines had a percentile rank of 39.7 in the rule of law index in 2008. Rule of law measures the extent to which
agents have confidence in, and abide by, the rules of society, in particular the quality of contract enforcement, the police
and the courts, as well as the likelihood of crime and violence. Malaysia is, again, way ahead in terms of rule of law, with a
percentile rank of 65.2 in 2008. Political killings are a common occurrence in the country and there are allegations of
human rights abuses, especially with government forces waging war against armed movements such as Abu Sayyaf and
the MNLF. Consequently, the country has a low percentile rank.
The Philippines percentile ranking in terms of control of corruption was 26.1 in 2008, which declined from 36.9 in 2003. The
Philippines ranked 139th out of 180 countries in Transparency International's Corruption Perceptions Index for 2009. The
country has been troubled with widespread corruption, and the enforcement of anti-corruption laws has been ineffective
and inconsistent. No national institution, including the judiciary, executive and legislature, is perceived to be plagued with
corruption.
Outlook
The general public and global investors responded positively to the victory of Benigno Aquino III in the elections in May
2010. Aquinos anti-corruption stance is expected to bode well for the country. Aquino has resolved to improve governance
and reduce corruption. He also plans to investigate former president Macapagal Arroyo's administration for alleged
corruption. However, Macapagal Arroyo, being the leader of the largest party in the lower house, Lakas-Kampi-CMD, might
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oppose the presidents efforts. Though Benigno Aquino heads a majority coalition in the House of Representatives, his
Liberal Party has only four seats (out of 24) in the Senate. Therefore, the incumbent president might have to seek support
from the opposition to pass legislation.
There remain serious threats to security in the Philippines. The communist rebels in Panay Island are unwilling to put down
arms unless a definite agreement on the implementation of economic and social reforms is reached. The threat from
Muslim separatists also remains high. Besides these threats, widespread political violence and killings continue to plague
the countrys politics.
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ECONOMIC LANDSCAPE
Summary
The Philippines is a developing country with a diversified economy, reflecting its varied resource endowment, both physical
and human. The important sectors of the economy include services (accounting for 53.9% of GDP in 2009), and industry
(31.9% of GDP), particularly food processing, textiles and garments, and electronics and automobile parts. Services have
been the best-performing sector in recent years. This is especially true of the financial sphere, which was supported by
stro
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