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Philippines Business

Business

The Philippines has had good conditions for developing business, with fertile agricultural land, fish-rich water and mineral and energy resources of various kinds. A first industrialization came early, and already in the 1960s, the industry accounted for about a quarter of GDP. The country was then one of the richest in Southeast Asia.

Business of Philippines

However, the development did not get as fast as in most other countries in the region. From the colonial era, the independent Philippines inherited a very unequal land ownership with large landowners who were little interested in increasing production and investing in new businesses. They operated their goods under feudal forms, and farmworkers and renters lived in great poverty and insecurity. Several land reforms have been implemented, but the economic and social structure still has features of old times. Agriculture is fairly underdeveloped and production is no longer enough to feed the rapidly growing population. Tropical storms often occur and they damage the infrastructure and destroy much of the harvest.

According to COUNTRYAAH, the industry was initially focused on manufacturing consumer goods for the domestic market. In addition, already in the 1970s came an increasingly significant production of textile products and electronic components for export. For decades, exports have mainly consisted of such goods. Foreign direct investment has come primarily from the US and Japan, but for several reasons they are more limited in the Philippines than in other developing countries in the region. In recent decades, domestic policy contradictions have led to uncertainty for entrepreneurs, as well as the fluctuating supply of electricity and other constraints on infrastructure. The Philippines therefore has difficulty competing with other countries in East and Southeast Asia.

Parts of the business sector have been liberalized since the early 1990s. Foreign trade has been facilitated and state-owned companies have been privatized, primarily in the transport and energy sectors. The Philippine state has been weak in many respects for many years. Tax collection has not worked, which has contributed to serious budget deficits and limited the opportunities to invest in, for example, better transport and education. An efficiency improvement was implemented in the 00s. The sharp increase in population has put increasing pressure on natural resources. Laws and regulations to protect the environment and the natural forest stock and to better conserve water and agricultural land have been decided, but the state has not had the opportunity to check that they are respected. There is also widespread corruption.

The fastest growing sector in the country's business sector is outsourcing, which means that companies in high-wage countries buy services in electronic-based commerce, administration and other services, such as booking and computer support. The important competitive advantage is that a large part of the country's population has good knowledge of English.

In 2013, agriculture, forestry and fishing accounted for 34 percent of employment, mining industry and construction for 15 percent and service for 51 percent. But such data is uncertain as many work in an informal sector. In addition, there is an unemployment rate of 7-8 percent and a much larger underemployment. Industrial growth has been above 10 per cent for some years, but it has not been accompanied by any significant increase in jobs. For many years, the lack of work has resulted in millions of Filipinos applying to other countries as guest workers.

It is necessary to develop the countryside, partly to increase agricultural productivity, and partly to improve the living opportunities in the countryside and slow down the large-scale migration into the big cities. The distribution of income is very uneven, and during the whole of the 1990s, a third of all lived below the poverty line. Human Development Index (HDI) calculations in 2017 showed that the Philippines was ranked 113 out of 189 countries.

Agriculture

Farming conditions are relatively good, especially in Luzon and Mindanao, but compared to almost all other countries in East and Southeast Asia, the Philippines' agriculture is underdeveloped. Cereals and vegetables are grown for the domestic market, while agricultural exports are mainly tropical fruits. It now accounts for less than 5 percent of all export earnings.

About 40 percent of the land area is used for agriculture. Arable land accounts for almost half of that, 5 percent is pasture and the remainder is planted with perennial plants such as bananas, coconut and oil palm trees and other fruit trees. Rice is a staple food and is grown on one third of the arable land, usually with irrigation. Most rice growers are small farmers, many with leased land, and they also grow corn and vegetables. In larger farms sugar cane and fruit are mainly grown for sale. Multinational companies operate very large plantations, mainly in Mindanao, and from there bananas, copra, pineapple and palm oil are exported. The Philippines is the world's largest exporter of copra and other coconut palm products. The cultivation of sugar cane has declined sharply since the 1980s, mainly as a result of falling world market prices. In contrast, the cultivation of rubber and fruit, for example, mango, increased significantly. The usual domestic animals are poultry and pigs. Cows for meat production are raised on pastures.

By the mid-1970s, investment in irrigation and the so-called green revolution with high yielding rice varieties had made the country self-sufficient with rice, despite rapid population growth. Gradually, the state's investments in agriculture declined and in addition came a series of dry years. The arable land was extremely unevenly distributed and the large landowners were not interested in increased production. Comprehensive land ownership reforms in 1972 and 1988 could only be realized partially and very slowly, as the political elite consisted largely of large landlords. There is still land to redistribute. Land ownership and lease conditions are in many cases unclear and conflicts about the land are difficult to resolve. Most years during the 1990s, agricultural production increased by just over 3 percent, but despite this, the need to import food increased.

The government is striving to increase rice production and to expand agriculture with several types of crops, both for domestic consumption and for export. The agricultural land is expanded on especially Mindanao, which has the poorest rural population. However, most grain-growing farmers have small farms and thus little opportunity to invest to modernize their agriculture. The irrigation facilities are poorly maintained and road networks and other infrastructure are not currently sufficient to improve contacts between distant cultivation areas and markets in cities and abroad.

Forestry

At the beginning of the 1950s, half of the country's surface was wooded, most of it with original tropical rainforest. In the 1960s, logging and export of timber and timber began on a larger scale, and then the Philippines became one of the countries in the world where the tropical rainforest disappeared at its fastest pace. The deforestation was fairly careless and no replanting was provided. This in many places caused severe erosion problems and a low quality regrowth. A large population increase also led to forest areas being cultivated, and more and more wood was needed for fuel and production of charcoal and building materials.

Already in the 1980s a ban was introduced on unlicensed logging and against timber exports, but the illegal logging was extensive and in 1990 the forest accounted for only 36 per cent of the land area. New periodic prohibitions followed but were not complied with. Between 1990 and 2005, another 1/3 of the forest was felled. During the 00s, however, the rate of decay slowed; 2 percent of the remaining forest disappeared each year. Forest replanting became more common and in addition new tree plantations were established, especially coconut trees and fruit trees. In 2005, the forest accounted for 24 percent of the land area. Less than one-ninth of it was originally rainforest.

Nearly 90 percent of the forest land is owned by the state or municipalities while the rest is privately owned. By the end of the 1990s, almost 25 percent of the forest area was protected, half of it as a nature reserve and half with a ban on felling as it grows on steep slopes. The remaining 75 percent of the forest is designated as productive forest land that can be harvested according to permit. Illegal logging still occurs, partly within the local population on a small scale and partly by powerful forest companies. Corruption is not uncommon, but the state does not have the resources required to monitor that all companies comply with harvesting and replanting regulations. In 2008, up to 45 percent of all felling was estimated to be illegal.

It has become increasingly clear that harvesting has resulted in serious environmental problems, especially in heavily hilly areas, such as increased erosion, race and flooding with many dead. The harvesting of the original forest also involves major interventions in biodiversity.

For a long time, there has been a ban on timber exports to promote the domestic timber industry. At the end of the 1990s, the export of wood furniture increased sharply, and timber imports accounted for half of the timber industry's raw material needs.

Fishing

Around the Philippine Islands, there are very rich fishing waters, and fish is the main source of animal protein in the diet. During the latter part of the 1980s, fishing accounted for 5 percent of GDP, and exports of tuna and seafood, primarily Japan and the United States, were a major source of foreign currency. Since then, fishing has increased further and catches of fish and shellfish in 2007 totaled 4.7 million tonnes. Exports continue, but at the same time imports of sardines and other small fish increase to meet domestic demand. Almost a tenth of the catch comes from fish and shellfish farming and from freshwater fishing.

Already in the 1980s there were signs of overfishing and this is now a serious problem in more than 70 percent of the coastal fishing waters. Several previously common fish species are now rare, which can also be explained by the fact that they cannot live in coastal waters that are increasingly polluted by discharges from mining and by fertilizers.

Nowadays, the largest quantities are caught for sale west of Palawan and south and west of Mindanao. By far the most important is tuna, while the catches of sardines and anchovies have decreased. The fishing is relatively little developed also in terms of catch management in the ports as well as quality and marketing. The inefficiency is reflected in the fact that the industry employed about 1 million people in the mid-1990s, but accounted for just over 2 per cent of GDP.

Mineral

In various parts of the Philippine island world there are many mineral deposits. In the mid-1900s, a copper mine and a nickel mine were among the largest of its kind in the world and until the early 1980s mining became increasingly extensive. Then came a stagnation and then a sharp decline, as the Philippines could not compete with mining on a large scale elsewhere in the world. Mining and transport costs were high in the mountainous islands, there was scarcity of capital and there were legal barriers to foreign investment. Metal prices on the world market were too low to allow profitable mining of many deposits. Mining then accounted for only 1 percent of the country's GDP.

During the 00s, demand for minerals and metals in China and other Asian countries increased and prices rose sharply. Investments from Japan, South Korea and Canada have led to both the rehabilitation of old closed mines and the initiation of new projects. However, the mining industry is still sensitive to global economic conditions and the extraction of different minerals can vary considerably between years. Large, well-known occurrences have not yet been utilized and for a quarter of the country there is still no inventory of what occurrences may be. Most important in the late 00s was the extraction of copper ore and gold on the island of Cebu in the central island world and on the island of Rapa Rapa off the southeastern Luzon, where together with zinc and silver. Nickel has been periodically mined on Palawan as well as chrome on western Luzon and iron ore in several places.

The mining takes place both in open quarries and in underground mines and involves significant interventions in the landscape and in the sensitive ecological systems on the islands. In densely populated areas, agricultural land disappears, and pollution from the mines destroys soil and water and causes health problems for the population and fish death. The expanded business is therefore in many cases controversial and activates local opinion which appears with a demand for mines to be closed. For the locals, mining does not mean sustainable development but exploitation. The mining companies are owned by multinational companies and the population cannot see that any profit will benefit them.

Energy

The country has various raw materials of energy, but so far they have been used to a limited extent. Offshore, there is likely to be significantly more of fossil fuels and exploration is ongoing. The need to import energy raw materials has decreased since the 1970s, but in 2000-04, 42 percent of the energy demand was still covered by imports. The high world market price of oil means that the Philippines is striving in various ways to reduce oil dependency and oil imports. Domestic natural gas and even coal have replaced most of the crude oil in electricity generation. In 2008, the government also presented a comprehensive program for increased use of renewable energy raw materials.

Periodically and in small quantities, oil was recovered at sea during the 1980s and 1990s. At the beginning of the 1990s, production increased, but it was repeatedly stopped due to tropical storms. Extraction in the Galoc offshore field northwest of Palawan began in 2008 but still accounts for only a small part of the oil demand and is mainly used as fuel.

Extraction of natural gas at sea from a depth of 3,000 meters began in 2002 in the Malampaya field northwest of Palawan and already in 2005, natural gas accounted for 1/3 of the electricity generation. Production has since been at about the same level. The gas is piped into three gas-fired power plants at Luzon.

Coal is mined on islands in the central part of the country, mainly in several quarries on Semirare south of Mindoro. Mining has increased, as have imports of coal, and coal now accounts for close to one-fifth of all energy consumption in the Philippines.

In the 00s, the use of renewable energy raw materials also increased. At the end of the 1990s, they accounted for almost a quarter of the country's energy supply. The greatest importance among them is geothermal energy (geothermal heat), which is also the cheapest source of energy. The islands are located in a seismically active area and the Philippines uses, second only to the United States, the most geothermal energy in the world. Hydropower, on the other hand, is expensive to expand and water supply fluctuates, making such energy production uncertain. There are only a few larger hydropower plants, but many are small, and several are being built. For a long time, residues from agriculture have also been used as an energy source, for example from sugar cane, coconut trees and rice plants, and additional biofuel plants are being built. There is also considerable potential in terms of wind, solar and tidal-generated energy, which can be used when foreign capital is willing to invest. Nuclear power does not exist in the Philippines.

Industry

The earliest industry processed raw materials from agriculture to foods such as sugar and coconut oil. The industry that emerged in the 1950s and 1960s was protected by high tariffs and import quotas, and manufactured simpler goods for domestic consumption. Already in the 1960s, the industry accounted for 22-25 percent of GDP, and the share has not changed much since then. However, the industry has changed its direction.

In the 1970s, four zones were established with favorable tax and customs regulations for export companies. There, foreign wholly-owned businesses were allowed and the companies did not have to pay minimum wages. Thus, the rapid growth of an export-oriented, labor-intensive manufacturing of textile products and electrical and electronic components began. Many companies worked as subcontractors on contracts with multinational groups. This direction has been further strengthened. In the early 1980s, the government sought to develop heavy industry, but only four projects were realized: a copper smelter, an artificial fertilizer plant, a chemical plant and the manufacture of parts for diesel engines. Later, two smaller oil refineries were also built and also factories producing rubber tires.

Although many foreign trade restrictions have been removed since the end of the 1980s, the industry is still geared towards both contract manufacturing for exports and production of consumer goods for the ever-growing domestic market. Additional export zones have been opened and close to a hundred private business parks. Initially it was mainly companies from the US and Japan that were established there, but now there are also owners in Other Countries in Asia and also many Filipino companies. In 2008, the industry in the tax-free export zones accounted for 4/5 of the country's export earnings.

The industry is concentrated in the metropolitan area of Manila and neighboring parts of western and southern Luzon. However, the food industry that processes agricultural products is found on all major islands, and several locations on Mindanao have large timber production. Two former US military bases in the Manila region have changed ownership and character. The Subic Bay fleet base has become an economic zone with a free harbor, repair yards, logistics-oriented operations, electronics manufacturing and also hotels and recreation facilities for tourists. The former Clark base is also an economic zone.

Foreign trade

In the early 1970s, more than half of the exports consisted of coconut palm products and sugar, timber and copper. In the mid-1990s, these goods accounted for only 2-3 percent of exports, while 90 percent consisted of industrial goods. Exports of textile products and electronic components began to gain importance in the 1970s, and electronics, mainly computer chips and microprocessors, now account for 2/3 of all export revenue.

The composition of imports has also changed. Semi-finished products accounted for almost 60 percent of the import value in the mid-00s. These are mainly basic components needed in the electronics industry's assembly plants and also yarns and fabrics for the textile industry. The Philippines has reduced its oil imports, but oil has become much more expensive on the world market and oil and oil products account for a large part of the import costs. The country is no longer self-sufficient with rice and in some years, higher rice prices can entail large import costs.

Traditionally, the US and Japan have dominated the Philippine foreign trade. Trade with China increased significantly during the 1990s, and so did trade with other ASEAN countries, albeit at a slower rate. In 2017, 17 percent of exports went to China, 16 percent to Japan and 14 percent to the United States. Among the exporting countries were also marked the Netherlands and among the importing countries Singapore and South Korea.

In general, foreign trade fluctuates widely between different years, but the trade in goods has consistently shown a deficit. The money that Filipino guest workers abroad send home regularly corresponds to about a quarter of export revenue, which means that the current account balance still shows a surplus. Other income in foreign currency comes from tourism and in recent years not least from so-called call centers and similar forms of international service production. Low wages and good English proficiency in the Filipino population mean that companies in industrialized countries turn here to buy such services. Already in 2006-07, this generated greater revenue than tourism did.

Tourism and gastronomy

By the end of the 1990s, the Philippines was visited annually by approximately 6 million foreign tourists. It gave the country a significant inflow of foreign currency, even though it accounted for less than half of the currency sent by Filipino guest workers abroad. In the past, tourists came primarily from the United States, but in the latter part of the 1990s, South Korea was the most common homeland. Visitors from China also became more and more. Foreign investment in tourist facilities is less common in the Philippines than in several neighboring countries. This is mainly due to the instability in the country, primarily in Mindanao, and the low capacity of transport systems outside the metropolitan area.

The country offers great variety and many contrasts in both nature and culture. What usually attracts tourists are the many beaches and coral reefs as well as beautiful mountain areas with rice terraces.

Filipino cuisine is a blend of East and West with its Chinese, Malay, Spanish and American influences. Rice is the staple item that is served to most dishes. The most common diet for most of the population consists of rice and fish, often grilled. Filipino cuisine is not as spicy as many other Asian cuisines. A distinctive national feature is the preference for an acid-salt flavoring, obtained either by bagoong, a fish paste, or patis, fish sauce; Both varieties are made from yeast fish.

Examples of some standard dishes are adobo (chicken, pork, octopus and vegetables fried in vinegar and garlic), as well as mami (noodle soup made from fish, chicken or meat). Milk products are almost completely lacking in cooking.

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