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Nordic Business Council of the PhilippinesSupporting Nordic Business in the Philippines

PHILIPPINESCountry Report

2014

Table of Contents

Country facts 3Regulatory bodies 4 Investmentincentives 5 InvestmentPrioritiesPlan2013 6 Board of Investments (BOI) incentives 8 Activities Eligible for PEZA Registration and incentives 9 PEZAincentives 11 ForeignInvestmentNegativeList 12TradeandInvestments 13 EuropeanUniontradewiththePhilippines 13 NordictradewiththePhilippines 15 BalticTradewiththePhilippines 17Opportunities 18 IT-BPMindustry 18 EnergyandRenewablesindustry 19 ConstructionandInfrastructureindustry 20 Manufacturingindustry 21

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Country facts

Name: Republic of the Philippines

Capital: Manila

Currency: Peso

Geography:Archipelagoof7107islands–Threemajorgroups:Luzon,Visayasand Mindanao

Climate: Tropical Marine

Population:100million(2014),12thmostpopulousintheworld

Population growth:1.8%

Average age of the population:23.5years

Ethnicity:ChristianMalay91,5%;MuslimMalay4%;Chinese1,5%;Others3%

Religions:RomanCatholic83%;Protestant9%;Muslim5%

Government:Democratic,presidentialformwithabicameralcongress

Administration:17regions,80provinces,138cities,1496municipalities,and42025Barangays

Education:National(publicandprivate)–around500000graduatesannually

Economy:GDP$272billionin2013,GDPpercapita(nominal)$2765,(PPP)$6533




2010 2011 2012 2013GDP growth 7.6 3.6 6.8 7.2

Privateconsumptiongrowth 3.4 5.7 6.6 5.6Exports growth 21.0 -2.8 8.9 0.8Imports growth 22.5 -1.0 5.3 4.3

Averageinflation 3.8 4.6 3.2 3.0Unemployment rate 7.4 7.0 7.0 7.1

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Regulatory bodies




DEPARTMENT OF TRADE AND INDUSTRY

The DTI is the government body primarily respon-sibleforexpandingPhilippinetrade,industriesandinvestments to be able to generate employees and raise income for the Filipinos.

FOOD AND DRUG AUTHORITY

The regulatory body responsible for ensuring that the food,drugandcosmeticproductsavailable tothepublicaresafeforconsumptionistheFDA.

BOARDOFINVESTMENTS

TheBOIisasubsidiaryoftheDTI.Itsmainfunctionbeingthegenerationofinvestmentsinthecountry.Businesses registeredunder theBOI enjoy addedfiscalandnon-fiscalbenefits.

BUREAUOFINTERNALREVENUE

The BIR is the government body responsible for col-lectionoftaxesandupholdingthetaxationlawsofthe country.

PHILIPPINE ECONOMIC ZONE AUTHORITY

The PEZA was established because of “The Special EconomicZoneActof1995.”BusinessesregisteredunderPEZAenjoyaddedfis-calandnon-fiscalbenefits.

BUREAU OF IMMIGRATION

TheBureauofImmigrationistheimmigrationregu-latory and control body of the Philippines. They en-sure that all foreigners entering the country comply withitsexistinglaws.

SECURITIESANDEXCHANGECOMMISSION

The SEC is taskedwith the registration, licensing,regulation and supervision of all corporations inthe Philippines, both Filipino and Foreign-owned,includingforeigncorporationsintendingtodobusi-ness in the country.

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TheGovernmentofthePhilippinesoffersseriesofdifferentincentivesiftheinvestmentmatcheswiththepreferred investmentareas.Therearetwomajorgovernmentalbodieswhoarecoordinatingthe investe-ments.BoardofInvestmentsisthenumberoneinvestmentpromotionagencyinthecountry.Theagencyisdesigned to promote inward investments and assist local and foreign investors in their venture of the desir-ableareasofbusiness,definedintheannuallypreparedInvestmentPrioritiesPlan(IPP).

TheIPP,formulatedannuallybytheBOI,throughaninter-agencycommittee,andapprovedbythePresident,liststhepriorityactivitiesforinvestments.Itcontainsalistingofspecificactivitiesthatcanqualifyforincen-tivesunderBook1ofthisCode.

PEZA,attachedtotheDepartmentofTradeandIndustry,isthePhilippinegovernmentagencytaskedtopro-moteinvestments,extendassistance,register,grantincentivestoandfacilitatethebusinessoperationsofin-vestorsinexport-orientedmanufacturingandservicefacilitiesinsideselectedareasthroughoutthecountryproclaimed by the President of the Philippines as PEZA Special Economic Zones.

PhilippineEconomicZoneAuthorityPEZAregisteredcompaniesmustexportatleast70percentoftheactualproductiondoneinthePhilippines.ThemajorshareoftheNordicinvestmentstothePhilippinesfallsunderPEZAincentives.

Inaddition to these twomajor investmentpromotion incentiveprograms, thereareelevenotherzones/agencies/caseswherespecialincentivesapply.

• RegionalBoardofInvestments–AutonomousRegionInMuslimMindanao(RBOI-ARMM)• Subic Bay Metropolitan Authority• ClarkFreeportZone• Cagayan Economic Zone Authority (CEZA)• The Authority of the Freeport Area of Bataan (AFAB)• Zamboanga City Special Economic Zone Authority (ZCSEZA)• Phividec Industrial Authority (PIA)• Aurora Special Economic Zone Authority (ASEZA)• Subsidiaries of Bases Conversion and Development Authority (BCDA)• Tourism Infrastructure & Enterprise Zone Authority (TIEZA)• RegionalHeadquartersorRegionalOperatingheadquarters

Investment incentives

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Investment Priorities Plan 2013

Investment Priorities Plan (IPP) lists the preferred investment areas,which are eligible to BOI incentivesspecifiedinBOIgeneralpolicies.IPPisupdatedeveryyear,butmajorupdatesareusuallycarriedouteverythree years.

I Preferred activities

1. Agriculture/Agribusiness and Fishery

Commercial production and processing of agricul-tural,herbalandfisheryproducts(includingtheirby-productsandwaste).Agriculture-andfishery-relatedactivities such as irrigation, post-harvest, cold stor-age,blast freezing,andtheproductionof fertilizersandpesticides.

2. Creative Industries/Knowledge-based Services

BPOactivities,ITandIT-enabledservicesthatinvolveoriginal content.

3. Shipbuilding

Constructionand repair of ships, shipbreaking/shiprecycling

4. Mass Housing

Development of low-cost mass housing, manufac-ture of modular housing components preferably us-ing indigenous materials

5. Iron and Steel

Basic iron and steel products, long steel products(billetsandreinforcingsteelbars),andflathot-/cold-rolled products.

6. Energy

Exploration, development, and/or utilization of in-digenousenergysourcesadoptingenvironmentally-friendly technologies.

7. Infrastructure

Transport, water, logistics, waste management fa-cilities,physicalinfrastructure(tollways,railwaysandtelecommunicationfacilities)andPPPprojects.

8. Research and Development

Researchanddevelopmentactivitiesandtheestab-lishment of testing laboratories, centers of excel-lence,andtechnicalvocationaleducationandtrain-inginstitutions.

9. Green Projects

Manufacture/assemblyof goodsandestablishmentofenergy-efficiencyrelatedfacilities(suchasdistrictcooling systems) where either utilization of whichwould significantly lead to either the efficient useofenergy,naturalresourcesorrawmaterials;mini-mize/prevent pollution; or reduce greenhouse gasemissions.

10. Motor Vehicles

Manufacture/assemblyofmotor vehicles, includingalternativefuelvehicles(AFVs)andelectricvehicles(EVs),butexcluding2-strokesmotorcycles,andman-ufacture of motor vehicles parts and components.

11. Strategic projects

Thiscoversprojectsthatexhibitveryhighsocialeco-nomicreturnsthatwillsignificantlycontributetothecountry’s economic development.

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12. Hospital / Medical Services

Thiscoverstheestablishmentandoperationofmedi-calfacilitiesincludinggeneralandspecialtyhospitals,andotherhealthfacilitiespursuanttoDepartmentofHealth (DOH) AdministrativeOrder No. (AO) 2012-0012.

13. Disaster Prevention, Mitigation and Recovery Projects

Projectsthatwillpreventormitigateadverseimpactsofcalamitiesanddisasters(e.g. installationoffloodcontrol systems, installations for earlywarning sys-tems for tyohoons, earthquakeoccurrences, tsuna-mi,volcanicdisprutionsetc.).

Projectsthatrehabilitatesareasaffectedbycalami-tiesanddisasters(e.g.rebuildingroadsandbridgesafter earthquakes/flooding, volcanic eruptions, oilspill cleanups etc.)

Trainingfordisasterpreparedness,mitigationorre-covery/rehabilitation/reconstruction.

1. Industrial Tree Plantation

Extensiveplantationofforestlandoftreecrops(ex-cept fruit trees) for commercial and industrial pur-poses

2. Exploration, Mining, Quarrying and Processing of Minerals

Explorationanddevelopmentofmineral resources,mining/quarrying and processing of metallic andnon-metallic minerals.

3. Publication or Printing of Books / Textbooks

Printing, reprinting, publication and content devel-opmentofbooksandtextbooks

4. Refining, Storage, Marketing and Distribution of Petroleum Products

5. Ecological Solid Waste Management

Establishmentofwastemanagementfacilities

6. Clean Water Projects

Establishment of waste water treatment facilities,andsewagecollectionintegratedwithtreatmentfa-cilities and the adoptionofwater pollution controltechnology,cleanerproductionandwasteminimiza-tion.

7. Renewable Energy

Coversdevelopersofrenewableenergyfacilities,in-cludinghybridsystemsaswellasmanufacturers,fab-ricators and suppliers of locally produced renewable energy(RE)equipmentandcomponents.

8. Rehabilitation, Self-Development and Self-Reli-ance of Persons with Disability

Manufacture of technical aids and appliances for the useand/or rehabilitationofpersonswithdisability,and the establishment od special schools, homes,residentialcommunitiesorretirementvillagessolelytosuittheneedsandrequirementsofpersonswithdisability.

II Mandatory list (mandated by law)

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13. Disaster Prevention, Mitigation and Recovery Projects

Projectsthatwillpreventormitigateadverseimpactsofcalamitiesanddisasters(e.g. installationoffloodcontrol systems, installations for earlywarning sys-tems for tyohoons, earthquakeoccurrences, tsuna-mi,volcanicdisprutionsetc.).

Projectsthatrehabilitatesareasaffectedbycalami-tiesanddisasters(e.g.rebuildingroadsandbridgesafter earthquakes/flooding, volcanic eruptions, oilspill cleanups etc.)

Trainingfordisasterpreparedness,mitigationorre-covery/rehabilitation/reconstruction.

14. Tourism

Tourism enterprises that are outside of Tourism En-terprise Zones (TEZs) and are engaged in following:

1. Touristtransportservices(land,sea,air)2. Establishmentandoperationof:• Accommodationestablishmentssuchasbutnot

limitedtohotels,resorts,apartmenthotelsetc.• Conventionandexhibitionfacilitiesor“meetings,

incentives,conventionsandexhibition(MICE)fa-cilities.

• Amusementparks• Adventureorecotourismfacilities• Sportsfacilitiesandrecreationalcenters• Themeparks• Healthandwellnessfacilities• Agri-tourismfarmsandfacilities• Tourismtrainingcentersandinstitutes3.Developmentofretirementvillages4.Restoration/Preservationandoperationofhistoricalshrines,landmark,structures

IIIExportactivities

Manufacture of export products, services exportsandactivitiesinsupportofexporters

IVARMMList

This covers priority investment areas that have been determined by the Regional Board of Investments of the Autonomous Region of Muslim Mindanao (RBOI-ARMM).

Board of Investments (BOI) incentives

Companies registered under BOI andmeeting thepreferredinvestmentarearequirement,willbeeligi-bletoincentivessuchas:

FiscalIncentives• Income Tax Holiday• Exemptionfromtaxesanddutiesonimported

spare parts• Exemption from wharfage dues and export

tax,duty,impostandfees• Reduction of the Rates of Duty on Capital

Equipment,SparepartsandAccessories• Taxexemptiononbreedingstocksandgenetic

materials• Tax Credits• AdditionaldeductionsfromTaxableIncome

Non-FiscalIncentives• EmploymentofForeignNationals• Simplificationofcustomsprocedures• Importationofconsignedequipment• Privilegetooperateabondedmanufacturing/

trading warehouse

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Activities Eligible for PEZA Registration and incentives

1. Export Manufacturing Manufacturing,assemblyorprocessingactivityresultingintheexportationofatleast70%ofproduction.(“Manufacturing /Processing” shallmean theprocessbywhich rawmaterialsor semi-finishedmaterialsareconvertedintoanewproductthroughachangeintheirphysical,mechanicalorelectro-magneticchar-acteristicsand/orchemicalproperties.“Assembly”shallmeantheprocessbywhichsemi-finishedpartsormaterialsareputtogetherorcombinedtoformadistinctproductwithoutsubstantiallychangingitsphysicalormechanicalcharacteristicsorelectro-magneticand/orchemicalproperties.)Eligiblefirmsshallqualifyforregistrationas“EconomicZoneExportManufacturingEnterprise.”

2. IT (Information Technology) Service Export ITserviceactivities,ofwhich70%oftotalrevenuesisderivedfromclientsabroad.(“ITServiceActivities”areactivities,whichinvolvetheuseofanyITsoftwareand/orsystemforvalueaddition).AmongtheITServiceactivitieseligibleforincentivesare:IT-enabledservicessuchasbusinessprocessoutsourcing,callcenters,dataencoding,transcribingandprocessing,etc.;softwaredevelopmentandapplication,includingprogram-mingandadaptationofsystemsoftwaresandmiddlewares;forbusiness,media,e-commerce,education,entertainment,etc.;contentdevelopmentformulti-mediaorinternetpurposes;andothers.Eligiblefirmsshallqualifyforregistrationas“ITEnterprise.”

3. Tourism EstablishmentandoperationwithinPEZATourismSpecialEconomicZonesofsportsandrecreationcenters,accommodation,convention,andculturalfacilitiesandtheirspecialinterestattractionactivities/establish-ments,withforeigntouristsasprimaryclientele.Eligiblefirmsshallqualifyforregistrationas“TourismEco-nomicZoneLocatorEnterprise.”

4. Medical Tourism Medicalhealthservices,endorsedbytheDepartmentofHealth,withforeignpatientsasprimaryclientele.Eligiblefirmsshallqualifyforregistrationas“MedicalTourismEnterprise”inaMedicalTourismSpecialEco-nomicZoneParkorCenter.

5. Agro-industrial Export Manufacturing Processingandormanufacturingofagriculturalproductsresultingintheexportationofitsproduction.(“Pro-cessing”shallmeantheconversionofanyagriculturalandmarineproductsfromitsrawstateintointermedi-ateorfinalproduct,whichundergophysicaland/orchemicalchangethroughmechanicaland/orchemicalprocess.)Eligiblefirmsshallqualifyforregistrationas“Agro-IndustrialEconomicZoneExportEnterprise.”

6. Agro-industrial Bio-Fuel Manufacturing Specializedmanufacturingofagriculturalcropsandeventualcommercialprocessing,whichshallresultintheproductionofcleanenergysuchasbio-fuelsandthelike.Eligiblefirmsshallqualifyforregistrationas“Agro-IndustrialEconomicZoneEnterprise.”




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7. Logistics and Warehousing Services(a)operationofawarehousefacilityforthestorage,deposit,safekeepingofgoodsforPEZA-registeredEco-nomicZoneExportManufacturingEnterprises,andor(b)importationorlocalsourcingofrawmaterials,semi-finishedgoodsforresaleto-orforpacking/cover-ing(includingmarking/labeling)cuttingoralteringtocustomers’specification,mountingand/orpackagingintokitsormarketablelotsforsubsequentsaleto-PEZA-registeredExportManufacturingEnterprisesforuseintheirexportmanufacturingactivities,orfordirectexport,orforconsignmenttoPEZA-registeredExportManufacturing Enterprises and eventual export.

8. Economic Zone Development and Operation8.a.ManufacturingEconomicZoneDevelopment/OperationDevelopment,operationandmaintenanceofaneconomiczoneforexportmanufacturingenterprises,inclusiveoftherequiredinfrastructure,facilitiesandutilitiessuchaslightandpowersystem,watersupplyanddistributionsystem,sewerageanddrainagesystem,pollutioncontroldevices,communica-tionfacilities,pavedroadnetwork,administrationbuilding.

8.b.ITParkDevelopment/OperationDevelopment,operationandmaintenanceofanareaasacomplexcapableofprovidinginfrastructuresandothersupportfacilitiesrequiredbyITEnterprises,aswellasamenitiesrequiredbyprofessionalsandworkersinvolvedinITEnterprise,oreasyaccesstosuchamenities.

8.c.TourismEconomicZoneDevelopment/OperationDevelopment,operationandmaintenanceofanintegratedresortcomplex,withprescribedcarryingcapacitiesoftouristfacilitiesandactivities,suchasbutnotlimitedto,sportsandrecreationcenters,accommodations,conventionandculturalfacilities,foodandbeverageoutlets,commercialestablish-mentsandotherspecialinterestandattractionactivities/establishments,andprovidedwithroads,watersupplyfacilities,powerdistributionfacilities,drainageandsewagesystemsandothernecessaryinfrastructureandpublicutilities.

8.d.MedicalTourismEconomicZoneDevelopment/OperationDevelopment,operationandmaintenanceofaMedicalTourismParkorMedicalTourismCenterwhichare planned and designed in accordance with the standards of the Department of Health and the DepartmentofTourismtohavesupportfacilitiesandservicesrequiredforhealthandwellness,andprovidedwithrequiredinfrastructurefacilitiesandutilities.

8.e.Agro-IndustrialEconomicZoneDevelopment/OperationDevelopmentoperationandmaintenanceofanagro-industrialeconomiczoneplannedanddesignedtohavesupportfacilitiesandservicesrequiredforprocessingandagro-basedmanufacturingfacilities,andprovidedwiththerequiredinfrastructurefacilitiesandutilities.

8.f.RetirementEconomicZoneDevelopment/OperationDevelopment,operationandmaintenanceofaRetirementEconomicZoneParkorCenter,plannedanddesignedinaccordancewiththeaccreditationstandardsofthePhilippineRetirementAuthority,andprovidedwiththerequiredinfrastructurefacilitiesandutilities.




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9. Facilities Providers9.a.FacilitiesforManufacturingEnterprisesConstructionasowner/operatoroffactorybuildingsinsideaPEZASpecialEconomicZoneforleasetoPEZA-registered Export Manufacturing Enterprises.

9.b.FacilitiesforITEnterprisesConstructionasowner/operatorofbuildingsandotherfacilitiesinsideIT-parks,whichareleasedtoPEZA-registered IT Enterprises.

9.c.RetirementFacilitiesEstablishment,operationandmanagementofretirementfacilitiesandotherrelatedactivities,withforeignretireesasprimaryclientele,dulyendorsedbythePhilippineRetirementAuthority,and lo-catedinaRetirementEconomicZone.

10. UtilitiesEstablishment,operationandmaintenanceoflightandpowersystems,watersupplyanddistributionsys-tems inside Special Economic Zones.

PEZA incentives

Dependingonthetypeofenterpriseandbusinessactivity,anenterpriseoperatingwithinanEcozoneisenti-tledtoincentivesgrantedtoPEZA-registeredenterprisesundertheOICorPresidentialDecree

Theseincentivesincludethefollowing:

• Incometaxholidayoffouryearsforanon-pioneerprojectandsixyearsforapioneerproject,orthreeyearsforanexpansionproject

• 5%specialtaxongrossincomeandexemptionfromallnationalandlocaltaxesuponexpiryoftheincometax holiday

• Taxanddutyfreeimportationofrawmaterials,capitalequipment,machineryandspareparts• Taxcreditonimportsubstitution• Exemptionfromwharfageduesandexporttax,impostorfees• Value-addedtax(VAT)zero-ratingoflocalpurchasesofgoodsandservices• Tax credits for exporters using local materials as inputs as provided by the Export Development Act of

1994• Additionaldeductionforincrementallaborandtrainingexpenses• Simplifiedimport-exportprocedures• Employmentofnon-residentforeignnationalsinsupervisory,technicaloradvisorypositions




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Foreign Investment Negative List

Ingeneral,foreignerscaninvestupto100%equityincorporations,partnershipsandotherentitiesinthePhilippines,exceptinareasincludedintheForeignInvestmentsNegativeList(FINL).TheFINLlistsinvestmentareasandactivitiesreservedtoFilipinonationalswhereforeigninvestmentsareprohibitedorlimitedtoacertain percentage.

ListA.ForeignownershipislimitedbymandateoftheConstitutionandspecificlaws List B. Foreign ownership is limitedforreasonsofsecurity,defense,risktohealthandmorals,andprotectionofSMEs

Noforeignequity1.MassMediaexceptrecord-ing2.Practiceofallprofessions• Engineering• Medicine and allied

profession• Accountancy• Architecture• Criminology• Chemistry• Customsbrokerage• Environmental planning• Forestry• Geology• Interior design• Landscape architecture• Law• Librarianship• Marinedeckofficers• Marineengineofficers• Master plumbing• Sugar technology• Socialwork• Teaching• Agriculture• Fisheries• Guidance counseling• Real Estate Services• Respiratory therapy• Psychology

3. Retail trade enterprises with paid-up capital of less thanUSD2,500.0004.Cooperatives5.Privatesecurityagencies6.Small-scalemining7. Utilization of marine re-sourcesinarchipelagicwaters,territorial sea, and exclusiveeconomiczoneaswellas

mallsmall-scaleutilizationofnaturalresourcesinrivers,lakes,bays,andlagoons.8.Ownership,operationandmanagementofcockpits9.Manufacture,repair,stock-pilingand/ordistributionofnuclear weapons10.Manufacture,repair,stockpilingand/ordistribu-tionofbiological,chemicaland radiological weapons and anti-personnelmines11.Manufactureoffirecrack-ers and other pyrotechnic devices

Upto20%foreignequity1.Privateradiocommunica-tionsnetwork

Upto25%foreignequity1.Privaterecruitment,whether for local or overseas employment2.Contractsfortheconstruc-tionandrepairoflocally-fundedpublicworksexcept:• Infrastructure/develop-

mentprojects,and• projectswhichare

foreign funded or as-sistedandrequiredtoundergointernationalcompetitivebidding

3. Contracts for the con-structionofdefense-relatedstructures

Upto30%foreignequity1.Advertising

Upto40%foreignequity1.Exploration,developmentandutilizationofnaturalresources 2.Ownershipofprivatelands3.Operationandmanage-mentofpublicutilities4.Ownership/establishmentandadministrationofeduca-tionalinstitutions5.Culture,production,milling,processing,tradingexceptretailing,ofriceandcorn and the by-products6.Contractsforthesupplyofmaterial,goodsandcommod-itiestogovernment-ownedorcontrolledcorporation,company,agencyormunicipalcorporation7.Projectproponentandfacility operator of a BOT pro-jectrequiringapublicutilitiesfranchise8.Operationofdeepseacom-mercialfishingvessels9.Adjustmentcompanies10.Ownershipofcondomini-um units where the common areasinthecondoprojectareco-owned by the owners of the separate units or owned byacorporation

Upto49%foreignequity1.Lendingcompanies

Upto60%foreignequity1.Financingcompaniesregu-lated by SEC2.Investmenthousesregu-lated by SEC

Upto40%foreignequity1.Manufacture,repair,stor-age,and/ordistributionofproductsand/oringredientsrequiringPhililippineNationalPolice clearance2.Manufacture,repair,stor-ageand/ordistributionofproductsrequiringDepart-mentofNationalDefenseclearance3. Manufacture and distribu-tionofdangerousdrugs4. Sauna and steam bath-houses,massageclinicsandotherlikeactivitiesregulatedbylawbecauseofriskposedto public health and morals5.Allformsofgambling,except those covered by investment agreements with the Philippine Amusement andGamingCorporation.6.Domesticmarketenterpris-eswithpaid-inequitycapitaloflessthantheequivalentofUSD200,0007.Domesticmarketenter-prises which involve advanced technology or employ at least 50directemployeeswithpaid-inequityoflessthantheequivalentofUSD100,000

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Trade and Investments

GrossDomesticProduct(GDP)ofthePhilippinesisheavilydependentontheservicesector.In2012,servicesectoraccountedfor57.1percentoftheGDPwhileindustryaccountedfor37.1percentandagriculturefor11.8percent.ThetotalamountofexportsfromthePhilippinesin2013wasUSD56.7billion,whereastheimportstothePhilippinesequaledtoUSD62.4billion.ThetradebalanceforthePhilippineswasnegativebyUSD5.7billion.

ThePhilippinesisheavilyaconsumption-driveneconomy,with69.4%ofGDPbeingformedbyprivatecon-sumption.ThisisfuelledbyremittancesfromoverseasFilipinoscurrentlyamountingtoover20billionUSDperyear.AnotherkeydriveroftheeconomyistheBusinessProcessOutsourcingindustrywhichcontributes16billionUSDtotheeconomy.Othergrowthsectorscontributingtotheeconomyweremanufacturingandconstruction(9.5%growthin2013),aswellasrealestateservicesandfinancialintermediation,leadingtoa7.1%growthrateintheoverallservicessectorin2013.

TopPhilippineImportGroups2013 TopPhilippineExportGroups20131.ElectronicProducts 1.ElectronicProducts2.MineralFuels,LubricantsandRelatedMaterials 2.OtherManufactures3.TransportEquipment 3.WoodcraftsandFurniture4.IndustrialMachineryandEquipment 4.Machinery&TransportEquipment5.OtherFood&LiveAnimals 5.Chemicals

European Union trade with the Philippines

In2013theEU–Philippinestradeincreasedby9percentto€10.8billionmaking itsvaluethehighest ina decade. The growth was supported by the economic recovery in the EU countries as well as the strong growthofthePhilippineeconomy(7.2%in2013).EUremainstobethefourthlargesttradingpartnerforthePhilippines,accountingfor11percentofthetotaltradeamount.AheadofEUintradeamountsareJapan(14%),China(13%)andUSA(12%).

When lookingat theamountsof ForeignDirect Investments (FDI), EU remainsas the largest investmentpartnerofthePhilippineswith30percentshareofalltheincominginvestments.EUregionisfollowedbyJapan(17%),USA(17%)andASEAN(13%).WhileEUdirectinvestmentflowstoASEANregiondecreasedby68percentin2012,thoseintothePhilippinesgrewby65percent.

TheEUexportstothePhilippineshavebeengrowingfastinthepastyears.EUexportsingoodsgrewby20.6percentin2012andby18.9%in2013,equalingto5.7billioneuros.

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Figure1:TradeingoodsbetweenEUandthePhilippines

Source: Eurostat

EUexportstothePhilippinesareheavilyfocusedonmanufacturing,whichrep-resent84percentofalltheexports.Whilethewholemanufacturingsectorwasgrowingby19percent,thegrowthwasespeciallyseeninexportsofaircraft(+69%),industrialequipment(+7%),garmentsandtextiles(+10%)aswellaselectronics(+16%).Toaddtothegrowthofmanufacturingexports,alsotheagriculturalproductsrecordedsameyear-on-yeargrowthrateof19percent.

Figure2.MajorEUexportstothePhilippines

Source: Eurostat

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DenmarkTopExports2013(Total€83Mn)1. Medicinal&Pharma(€12.8Mn)2. GeneralIndustrialProducts(€8.7Mn)3. Chemicals(€6.6Mn)4. Dairy(€6.3Mn)5. Meat(€6.2Mn)

DenmarkTopImports2013(Total€38Mn)1. Photoequipmentandopticalgoods(€9.5Mn)2. Animal&vegetablematerials(€9.0Mn)3. Electronics(€4.6Mn)4. Textiles(€1.3Mn)5. Vegetables&Fruits(€1.3Mn)

FinlandTopExports2013(Total€139Mn)1. Paperrelatedproducts(€47.6Mn)2. MiscManufacturing(€41.6Mn)3. Powergeneratingequipment(€18.6Mn)4. Telecomequipment(€4.3Mn)5. SpecializedMachinery(€3.9Mn)

FinlandTopImports2013(Total34Mn)1. Rubberproducts(€24.2Mn)2. Electronics(€2.9Mn)3. FishandFishPreparations(€1.9Mn)4. Vegetables&Fruits(€1.6Mn)5. ProfessionalandScientificEquip.(€0.8Mn)

Nordic Trade of Goods

WhilethePhilippineserviceexportstoEUaremainlyfocusedontransport,businessprocessmanagementandtravelservices,theexportsfromEUtothePhilippinesaremorediverse.‘Otherbusiness’,transporta-tionandtravelservicesaccountfornearlytwo-thirdsoftheexportsbutalsoIT-services,licensing/royalties,communications, insurance,constructionandfinancialservicesareimportantsectors.ThebiggestgrowthsectorsinEUserviceexportswereconstruction(+150%),licensing/royalties(+36%),communications(+44%)andIT-services(+15%).

Nordic trade with the Philippines

ThetradebetweentheNordiccountries(Denmark,Finland,Iceland,Norway,Sweden)andthePhilippineshasbeensignificant.WhentheNordiccountriesarebundledtogether,theyformthesixthlargesttradepart-nerforthePhilippinesamongtheEUcountrieswithatotaltradeof526millioneuros.In2013,Finlandwasthelargestexporter(€139Mn)tothePhilippines,whenSwedenwasthelargestimporter(€52Mn).Thesmall-esttradeamountwasrecordedforIcelandwithexportsworthof€1.9Mnandimportsworthof€0.33Mn.

TheexportcategoriesoftheNordiccountriestothePhilippinesvary,butmachineryandelectronicsarethetwodominantproductgroups.Ontheimportside,sameproductgroupstopthelistamongtextiles,mineralsand food related products.

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NorwayTopExports2013(Total€35Mn)1. Chemicals(€11.3Mn)2. Fish(€10.8Mn)3. Misc.Manufacturing(€2.5Mn)4. Professional&ScientificEquipment(€1.9Mn)5. Plastics(€1.6Mn)

NorwayTopImports2013(Total€32Mn)1. Misc.ManufacturingItems(€9Mn)2. Electronics(€4.9Mn)3. Textiles(€3.1Mn)4. Office&DataEquipment(€3.1Mn)5. TelecomEquipment(€1.6Mn)

SwedenTopExports2013(Total€110Mn)1. Machinery&Mechanicalappl.(€25Mn)2. Paperrelatedproducts(€24Mn)3. Electornics(€19Mn)4. PrintingIndustryProducts(€9Mn)5. Pharmaceuticals(€7Mn)

SwedenTopImports2013(Total€52Mn)1. Minerals(€22Mn)2. Machinery(€8Mn)3. Electronics(€7Mn)4. Vegetables&Fruits(€1Mn)5. Tobacco&TobaccoSubstitutes(€1Mn)

IcelandTopExports2013(tradeingeneral)1. Industrial supplies2. Food and beverages3. Capital goods (except for transport)4. Fuels and lubricants5. Consumer goods

IcelandTopImports2013(tradeingeneral)1. Industrial supplies2. Capital goods (except for transport)3. Fuels and lubricants4. Consumer goods5. Food and beverages

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Baltic Trade with the Philippines

EstoniaTopExports2013(Total€0.4Mn)1. Organicchemicals(€0.2Mn)2. Photoequipmentandopticalgoods(€0.1Mn)3. Misc.chemicals(<€0.1Mn)4. Misc.ediblepreparations(<€0.1Mn)5. Articlesofironorsteel(<€0.1Mn)

EstoniaTopImports2013(Total€1.6Mn)1. Electronics(€0.9Mn)2. Footwear(€0.4Mn)3. Photoequip.andopticalgoods(<€0.1Mn)4. Suppliesforforeignvessels(<€0.1Mn)5. Preparationsofvegetables&fruits(<€0.1Mn)

LatviaTopExports2013(Total€0.2Mn)1. Packing(<€0.1Mn)2. Otherarticlesofironandsteel(<€0.1Mn)3. Alcoholproducts(<€0.1Mn)4. Woodandwoodarticles(<€0.1Mn)5. Containers(<€0.1Mn)

LatviaTopImports2013(Total€1.4Mn)1. Plastics&Rubber(€1.0Mn)2. Machinery(€0.2Mn)3. Armsandammunition(<€0.1Mn)4. Preparedfood(<€0.1Mn)5. Misc.manufacturing(<€0.1Mn)

LithuaniaTopExports2013(Total€2.8Mn)1. Sugarandsugarconfectionery(€1.9Mn)2. Woodandwoodarticles(€0.4Mn)3. Photoequipmentandopticalgoods(€0.2Mn)4. Dairyproducts(€0.1Mn)5. Machineryandmechanicalappliances(€0.1Mn)

LithuaniaTopImports2013(Total€1.7Mn)1. Rubberproducts(€0.4Mn)2. PreparationsofVegetables&Fruits(€0.2Mn)3. Electronics(€0.2Mn)4. Lac,gums,resinsandvegetablesaps/extracts(€0.2Mn) 5. Ediblefruitandnuts(€0.2Mn)

ThetradebetweenBalticcountries(Estonia,Latvia,Lithuania)andPhilippineshasbeengrowinginthepastyears.ThebiggesttradepartnerforthePhilippinesisLithuania,followedbyEstoniaandLatvia.Lith-uaniansugarexportsrepresentover50percentofthetotalexportsofBalticcountriestothePhilippines,while rubber one imported product from the Philippines.




Opportunities

AsresultoftherapidgrowthofthePhilippineeconomy,manysectorsofferopportunitiesforforeigncompa-nieswhoareeitherwillingtoinvestinthePhilippines,outsourceproductsorservices,orutilizePhilippinesasanexporttargetmarket.TheopportunitiesanddemandforwesterntechnologyhavebeenbuildingupespeciallyonEnergyandRenewables,Infrastructure,IT-BusinessProcessManagement,RealEstateandRe-tail sectors.

IT-BPM industry

InformationTechnologyandBusinessProcessManagementindustryhasbeenoneofthedriversofthePhil-ippineeconomy.Theyear-on-yeargrowthin2013was16percentwhencompoundaveragegrowthratefrom2011to2016isexpectedtobe19percent.Theindustryiscurrentlygeneratingrevenuesworthof16billionUSDandexpectedtogrowto25billionby2016.Theamountofdirectemployeesin2013was900000,upfrom770000in2012andexpectedtogrowto1.3millionin2016.Theindirectemployeecountin2016willbearound3.2million.Thegrowthoftheservicesectoriswellsupportedbythe500000newgraduatesPhil-ippines is producing every year.

TheIT-BPMindustryisdividedtovoiceandnon-voiceoperations.InvoiceoperationsPhilippinesistheglobalnumberone,mainlyduetowide,accent-neutralEnglish-speakingtalentpool(3rdlargestEnglish-speakingcountryintheworld)andcheaplaborvis-a-vistothecompetingcountries.Onthenon-voicesector,Philip-pinesistheglobalnumbertwoinrevenuerightafterIndia.Thenon-voicesectorinthePhilippinesisgrowingeven faster than the voice sector and is expected to generate higher revenue

Innon-voicesector,knowledgeprocessmanagementoperationshavebeenrecordinghighergrowthratesthanbasicback-officeoperationslikeaccountingandprocurement.E.g.SoftwareDevelopment,R&D,Cre-ative and Health InformationManagement operations have been reporting especially high year-on-yeargrowthrates.Thehigherskilllevelsoftheemployeesareneededwhenmovingfrombasicback-officetaskstomoredemandingdevelopmentandcreativetasks.StrongpublicandprivateeffortsindevelopingtheskillsoftheworkerstobetteranswerthedemandmakesthePhilippinesaninterestingcountryforthecompanieslookingforoptionstorelocatepartofthecoreoperationstomorecostefficientlocation.

Ifoffshoringisnotanoption,PhilippineshasawiderangeofexistingservicesuppliersonIT-BPMindustryofferingsolutionsforcompaniestooutsourcepartoftheiroperations.TakingadvantageofthecostarbitragemakestheSMEsmorecompetitiveandinadditionmayalsoenhancetheirservicelevel.

The Government has named IT-BPM industry as one of the priority investment areas. This guarantees spe-cialincentivesforthecompaniesinvestingintothissector.PhilippineEconomicZoneAuthority(PEZA)isof-feringbothfiscalincentivese.g.taxholidayandnon-fiscalincentivese.g.preferablevisatreatmentforthecompanieslocatedinthepreferentialzones.TwodifferentkindsofpreferialzonesexistinthePhilippines.CompaniesregisteredasPEZAcompaniescanbelocatedinspecialIT-parkorinasinglebuildingsqualified

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Energy and Renewables industry

The Energy demand in the Philippines has been growing hand-in-hand with the economic growth. Due to the expandingmanufacturingandservicesectoraswellasgrowingmiddleclass,thesupplyofenergyhassome-timesbeeninsufficient.Tomeetthedemand,thegovernmenthasimplementednewlaws.ElectricPowerIn-dustryReformAct(EPIRA)addressedtheissueofcompetitivenessinthepowergenerationmarkettoattractmore private investment. Renewable Energy act aims to develop and broaden the renewable energy sources usedinthecountry.Fiscalandnon-fiscalincentivesareofferedtothecompaniesinvestingwithintheact.

ThetotalpowerproductioncapacityinthePhilippinesreaches15700MWof,which34percentisproducedbyrenewablepowerplants.21percent(3200MW)isgeneratedbyhydropowerfacilitiesand13percent(2000MW)bygeothermalfacilities.TheNationalRenewableEnergyProgram(NREP)aimstotripletherenew-ablepowerproductioncapacityto15300MWby2030.Duetothelackoffundingfromthepublicsector,theexpansion is heavily relying on private investments.

Thebiggestgrowthisexpectedinhydropower.AccordingtotheNREP,theproductionofhydropowershouldbeincreasedby5400MWby2030.Geothermalandsolarwillseeanincreaseof1500MWofwhichin-creasedgeothermalcapacityisexpectedtobeinusealreadyby2020.ThewindpowerpotentialinthePhilip-pinesisestimatedtobe7412MW,ofwhich2345MWshouldbeinuseby2030accordingtotheNREProad-map.Inadditiontothesemethodsbiomass,oceanandcleancoalarealsomentionedasadditionalsourcesin the future energy mix of the Philippines.

Thegovernmenthassetfeed-in-tariffsforrenewables: • Wind:8.53PHP/kWh • Biomass:6.63PHP/kWh • Solar:9.68PHP/kWh • Hydro:5.90PHP/kWh

SincePhilippinesisanachipelagoof7107islands,thegridcoveragecanbeaproblemiftheplantsarelo-catedinremoteareas.Totransfertheproducedpowertothenationalgridsubmarinecablesorsuchmaybeneeded.

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Construction and Infrastructure industry

TheconstructionindustryofthePhilippinesisstillexpectedtobethesecondfastestgrowinginAsiaoverthemedium-term(afterMyanmar).Theestimatesindicateyear-on-yeargrowthof46percentfor2014.In2013,thesizeoftheindustrywas643billionpesos,(€10.9bln)expectedtogrowto938billionpesos(€16.1bln)in2014.

ManilawasrecentlylistedfourthonthelistofpreferedinvestmentdestinationforrealestateinvestorsinAsiaPacificin2014.ThepopularityofManilaisderivedfromcompressedcapratesinthedevelopedmarketsaswellas itsabilitytoprovidebetteryieldratesthanelsewhere.GrowingBusinessProcessManagementsectorkeepsthedemandforofficespacehigh.ItisexpectedthatBPMindustryasitself,willneedayearly400,000sqmincreaseintheofficespace.Ontheresidentialside,urbanizationstaysstrong,whichdrivesthedemandfornewresidentialbuildings.Alongtheresidentialandofficespace,thedemandforretailspacehasbeenstrongduetohighprivateconsumptionthatcontributesalmost70percentoftheGDP.OnthehotelsectortheconstructionstaysstrongandonlyinMetroManila,thecurrentcapacityissupposetogrowfrom17,000roomsinmid2014to25,000roomsbytheendof2015.

AccordingtotheDepartmentofBudgetandManagement(DBM),infrastructureandothercapitaloutlaysal-locationwentupby17.7percentfromP261.7billionin2012toP308.1billionin2013.Theallocationis14.8percentofthetotalP2077billionnationalbudgetin2013.Thebudgetitem“InfrastructureandOtherCapitalOutlaysAllocation”coversphysicalinfrastructuresandotheritemssuchasbuildings,vehicle,equipmentandothers.Separatingactualpublicinfrastructurespendingfrom“InfrastructureandOtherCapitalOutlaysAl-location”showsthatinthelastfiveyears(2008-2012),publicinfrastructurespendingaspartofGDPrangedbetweenalowof1.4percenttoahighof2.09percent,whichisstillfarfromthegovernment’stargetof5percentofGDPby2016.However,withgovernancereformsinplace,thegovernmentexpectstoimproveinfrastructure spending in the coming years.

Public-PrivatePartnershipprogramoffersachannel forprivate investorstotakepart inbig infrastructureprojects.Currentlysevenprojectshavebeenawardedand47projectsare in thepipeline.At thetimeofthewriting,therearetwoprojectsunderbiddingprocess-Cavite-LagunaExpresswayandLRTLine1Caviteextension.AlreadyawardedprojectsareDaangHari–SLEXLinkRoad,PPPforSchoolInfrastructureProject(Phase I),NAIAExpresswayProject,PPPforSchool InfrastructureProject (Phase II),ModernizationofthePhilippineOrthopedicCenter(MPOC),AutomaticFareCollectionSystem(AFCS)andMactan-CebuInterna-tionalAirportPassengerTerminalBuilding.




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Manufacturing industry

PhilippinemanufacturingsectorgrewfairlyslowlyinthelasttwodecadesafterChinaassumedtheroleoffactoryof theworld.During the recent years, risingwages inChinahave resulted tomanufacturing sec-tormovingabroad,whichthenagainhaslettorevivalofthesectorinthePhilippines.TheaverageannualgrowthofthemanufacturingsectorinthePhilippineswasonly3percentbetween2004and2009.However,inthepastthreeyearstheindustryhasgrownby7.5percentonaverageandby10.5percentin2013.

ManufacturingsectorisoneofthekeysectorsthePhilippinegovernmentispromoting.Theten-yearroad-mapseekstoincreasetheGDPshareofmanufacturingfrom21percentin2012to30percent.Toboostthemanufacturingsector,incentivesareofferedforcompanieslocatedatPEZAzonesandexportingatleast70percentoftheirentireproductioninthePhilippines.ThismakesPhilippinesaninterestingoptionformanu-facturingonSoutheastAsianlevelaheadofASEANintegrationexpectedtohappenintheendof2015.

ThePhilippines’DepartmentofTradeandIndustryhasbeenactivelycoordinatingwithindustryassociationsfortheformulationofindustryroadmapssince2012.Thishasledtoanewindustrialpolicyaimedatrevivingthemanufacturingindustry.Thegovern-mentrecentlyallocatedUS$1.5milliontoanewprogramdubbedtheManufacturingResurgenceProgram,whichaimstosupporttheimplementationofthePhilippineManu-facturing IndustryRoadmap.Thegovernmenthasalsoallotted2.3billionpesos (USD50.8million) in the2014nationalbudgettofundaprogramaimedatrevivingthemanufacturingsector.

Theleadingmanufacturingsubsectorsarechemicalandchemicalproducts;basicmetalindustries,furnitureandfixtures;radio,televisionandcommunicationequipment;non-metallicproducts;footwearandleatherproducts.

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