bmi philippines business forecast report q4 2013
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BMI Philippines forecast report 2013 q4TRANSCRIPT
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Published by BUSINESS MONITOR INTERNATIONAL LTD
BUSINESS FORECAST REPORT
Q4 2013www.businessmonitor.com
PHILIPPINESINCLUDES 10-YEAR FORECAST TO 2022
Growth Boom On Solid Footing
ISSN 1745-0659Published by Business Monitor International Ltd.
Copy Deadline: 5 July 2013
2 Business Monitor International Ltdwww.businessmonitor.com
PHILIPPINES Q3 2013 P
HIL
IPP
INE
S –
MA
CR
OE
CO
NO
MIC
IND
ICA
TOR
S 2012
e20
13f
2014
f20
15f
2016
f20
17fd
2018
f20
19f
2020
f20
21f
2022
f
Nom
inal
GD
P, U
S$b
n [4
]25
0.4
279.
630
2.4
335.
437
4.3
411.
845
1.2
493.
153
8.9
588.
964
3.6
Nom
inal
GD
P, P
HP
bn [4
]10
,564
.911
,548
.512
,640
.813
,854
.015
,065
.316
,367
.217
,797
.819
,353
.421
,044
.822
,884
.024
,884
.0
Nom
inal
GD
P, E
UR
bn [4
]19
7.1
210.
223
8.1
272.
731
1.9
343.
237
6.0
410.
944
9.1
490.
853
6.3
GD
P p
er c
apita
, US
$ [4
]2,
595
2,85
03,
031
3,30
73,
631
3,93
24,
240
4,56
34,
911
5,28
65,
691
GD
P p
er c
apita
, EU
R [4
]2,
043
2,14
32,
387
2,68
93,
026
3,27
73,
534
3,80
24,
092
4,40
54,
743
Rea
l GD
P g
row
th, %
cha
nge
y-o-
y [4
]6.
85.
95.
55.
44.
64.
54.
64.
64.
64.
64.
6
Priv
ate
final
con
sum
ptio
n, %
of G
DP
[4]
74.2
73.9
73.8
73.6
73.6
73.6
73.6
73.5
73.5
73.4
73.4
Priv
ate
final
con
sum
ptio
n, re
al g
row
th %
y-o
-y [4
]6.
65.
55.
35.
24.
54.
54.
54.
54.
54.
54.
5
Gov
ernm
ent fi
nal c
onsu
mpt
ion,
% T
otal
GD
P [4
]10
.510
.610
.510
.410
.310
.310
.210
.210
.110
.110
.0
Gov
ernm
ent fi
nal c
onsu
mpt
ion,
real
gro
wth
% y
-o-y
[4]
12.2
6.5
4.3
4.5
4.0
4.0
4.0
4.0
4.0
4.0
4.0
Fixe
d ca
pita
l for
mat
ion,
% o
f GD
P [1
,4]
19.4
20.0
20.6
21.0
21.4
21.7
22.0
22.4
22.7
23.1
23.5
Fixe
d ca
pita
l for
mat
ion,
real
gro
wth
% y
-o-y
[2,4
]10
.49.
58.
57.
56.
26.
26.
26.
26.
26.
26.
2
Pop
ulat
ion,
mn
[5]
96.5
98.1
99.8
101.
410
3.1
104.
710
6.4
108.
110
9.7
111.
411
3.1
Une
mpl
oym
ent,
% o
f lab
our f
orce
, eop
[6]
7.0
6.8
6.5
6.3
6.3
6.2
6.2
6.1
6.0
6.0
0.0
Con
sum
er p
rice
inde
x, %
y-o
-y, a
ve [7
]3.
13.
23.
84.
04.
04.
04.
04.
04.
04.
04.
0
Lend
ing
rate
, %, a
ve [8
]7.
27.
27.
77.
77.
77.
77.
77.
77.
77.
70.
0
Cen
tral B
ank
polic
y ra
te, %
eop
[3,7
]3.
503.
504.
004.
004.
004.
004.
004.
004.
004.
000.
00
Exc
hang
e ra
te P
HP
/US
$, a
ve [9
]42
.20
41.3
141
.80
41.3
040
.25
39.7
439
.45
39.2
539
.05
38.8
638
.66
Exc
hang
e ra
te P
HP
/EU
R, a
ve [9
]53
.59
54.9
453
.09
50.8
048
.30
47.6
947
.33
47.1
046
.86
46.6
346
.40
Bud
get b
alan
ce, U
S$b
n [1
0]-5
.7-6
.2-6
.1-6
.3-6
.4-5
.6-5
.1-5
.1-5
.7-7
.2-8
.8
Bud
get b
alan
ce, %
of G
DP
[10]
-2.3
-2.2
-2.0
-1.9
-1.7
-1.3
-1.1
-1.0
-1.1
-1.2
-1.4
Goo
ds a
nd s
ervi
ces
expo
rts, U
S$b
n [7
]64
.968
.675
.984
.093
.310
3.4
114.
411
4.4
140.
515
5.7
172.
8
Goo
ds a
nd s
ervi
ces
impo
rts, U
S$b
n [7
]76
.282
.191
.110
0.9
111.
812
3.8
136.
713
6.7
165.
818
2.4
200.
6
Bal
ance
of t
rade
in g
oods
and
ser
vice
s, U
S$b
n [7
]-1
1.3
-13.
4-1
5.2
-16.
8-1
8.5
-20.
4-2
2.3
-22.
3-2
5.3
-26.
6-2
7.9
Bal
ance
of t
rade
in g
oods
and
ser
vice
s, %
of G
DP
[7]
-4.5
-4.8
-5.0
-5.0
-4.9
-5.0
-4.9
-4.5
-4.7
-4.5
-4.3
Cur
rent
acc
ount
bal
ance
, US
$bn
[7]
7.1
6.1
5.8
5.9
6.1
6.4
7.2
7.2
10.4
12.7
15.3
Cur
rent
acc
ount
bal
ance
, % o
f GD
P [7
]2.
82.
21.
91.
71.
61.
61.
61.
51.
92.
22.
4
Fore
ign
rese
rves
ex
gold
, US
$bn
[7]
70.5
76.6
82.4
88.2
94.3
100.
810
8.0
108.
012
6.9
139.
615
4.9
Impo
rt co
ver,
mon
ths
[7]
11.1
11.2
10.9
10.5
10.1
9.8
9.5
9.5
9.2
9.2
9.3
Not
es: e
BM
I est
imat
es. f
BM
I for
ecas
ts. 1
Incl
udes
‘Int
elle
ctua
l Pro
perty
Pro
duct
s’ fr
om 1
998
onw
ards
; 2 In
clud
es ‘I
ntel
lect
ual P
rope
rty P
rodu
cts’
from
199
8 on
war
ds; B
ase
Yea
r = 2
000;
3 R
epur
chas
e R
ate.
S
ourc
es: 4
Nat
iona
l Sta
tistic
al C
oord
inat
ion
Boa
rd/B
MI;
5 W
orld
Ban
k/U
N/B
MI;
6 N
atio
nal S
tatis
tics
Offi
ce, B
MI;
7 B
angk
o S
entra
l ng
Pili
pina
s, B
MI;
8 IM
F, B
MI;
9 B
MI;
10 B
urea
u of
the
Trea
sury
, BM
I.
3Business Monitor International Ltd www.businessmonitor.com
Contents
Executive Summary ................................................................................................................................. 5Core Views ......................................................................................................................................................................................5Major Forecast Changes ................................................................................................................................................................5Key Risks To Outlook ....................................................................................................................................................................5
Chapter 1: Political Outlook .................................................................................................................... 7SWOT Analysis .......................................................................................................................................................... 7BMI Political Risk Ratings ........................................................................................................................................ 7Domestic Politics ...................................................................................................................................................... 8Aquino's Midterm Victory Provides Medium-Term Clarity .........................................................................................................8
In line with our expectations, Team PNoy's Senatorial team as well as allies of President Aquino both scored wid e-scale midterm election victories. While we note that the victory will bolster Aquino's reform-minded agenda over the next three years, we caution that Philippine politics nevertheless remain largely dominated by the same political dynasties of old, and that a backslide in 2016's general elections is possible if the current government fails to pursue more structural, long-term reforms.
Long-Term Political Outlook .................................................................................................................................... 8Prospects For Improving Governance .........................................................................................................................................8
The Philippines faces a number of political challenges over the coming years that, if handled successfully, could improve governance. However, given low income levels and high levels of inequality, we expect the political scene to remain vulnerable to intermittent instances of turmoil.
TABLE: PHILIPPINES POLITICAL OVERVIEW ..................................................................................................................................................... 9
Chapter 2: Economic Outlook ............................................................................................................... 11SWOT Analysis ........................................................................................................................................................ 11BMI Economic Risk Ratings ................................................................................................................................... 11Fiscal Policy ............................................................................................................................................................ 12Upgrades Well Deserved, But Fiscal Progress Becoming More Difficult ...............................................................................12
The Philippines continues to garner substantial sovereign credit rating upgrades, and we believe that there is a strong possibility that the country could finish 2013 with an investment grade rating from all three agencies. That being said, the government's path to fiscal prosperity will likely prove to be more difficult now that the low-hanging fruit has largely been plucked, and we note once again that more structural reforms will be necessary in order to solidify the country's strong fiscal and economic trajectory.
TABLE: FISCAL POLICY .......................................................................................................................................................................................12
Balance of Payment ................................................................................................................................................ 13Exports Continue To Disappoint, Peso Under Pressure ..........................................................................................................13
Despite a pick-up in external trade, including a cyclical bounce in the global semiconductor industry, Philippine exports continue to struggle. Indeed, total exports in May shrank by 12.8% in year-on-year terms, with electronic shipments contracting for the fifth straight month, this time by -0.4%. Over the near term, we expect export performance to continue to disappoint, placing some downside pressure on the Philippine peso despite the country's current account surplus..
TABLE: CURRENT ACCOUNT .............................................................................................................................................................................. 14
Economic Activity ................................................................................................................................................... 15Growth Boom On Solid Footing ..................................................................................................................................................15
Even in the face of a considerable slowdown in exports, the Philippine economy continues to power on, with Q113 figures reflecting impressive real GDP growth of 7.8% y-o-y. Although we reiterate that the Philippines is indeed vulnerable should external conditions continue to worsen, and that medium term risks stemming from a potential Japanese fiscal crisis are pertinent, we believe that strong domestic fundamentals will be enough to power the country on to strong growth over the immediate future.
TABLE: ECONOMIC ACTIVITY ............................................................................................................................................................................. 15
Monetary Policy ....................................................................................................................................................... 17BSP On Cruise Control, For Now ................................................................................................................................................17
With headline inflation trending below its target range of 3.0-5.0%, Bangko Sentral ng Pilipinas should remain comfortable with its monetary policy settings over the near term, likely allowing for its benchmark interest rate to stay pegged at its all-time low of 3.50% through the end of 2013. While we have downgraded our end 2013 headline inflation forecast to 3.4% from 4.0% previously, we note that inflationary pressures should begin to creep up over the medium term in line with rising money supply growth, and we continue to expect some form of tightening in 2014.
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PHILIPPINES Q3 2013
TABLE: MONETARY POLICY ............................................................................................................................................................................... 18
Chapter 3: 10-Year Forecast .................................................................................................................. 21The Philippine Economy To 2022 .......................................................................................................................... 21Uncovering A Forgotten Gem? ...................................................................................................................................................21
The Philippines holds significant economic growth potential and has begun to come into the investment spotlight as a result. Although the country has in the past been hampered by political instability and poor investor perception, we believe President Benigno Aquino III has been able to make progress on both fronts. Moreover, consumerism is expected to pick up in a big way towards the end of the decade as income levels rise.
TABLE: LONG-TERM MACROECONOMIC FORECASTS ................................................................................................................................... 21
Chapter 4: Business Environment ........................................................................................................ 25SWOT Analysis ........................................................................................................................................................ 25BMI Business Environment Risk Ratings ............................................................................................................. 25Business Environment Outlook .............................................................................................................................. 26TABLE: BMI BUSINESS AND OPERATION RISK RATINGS .............................................................................................................................. 26
Infrastructure ........................................................................................................................................................... 28TABLE: BMI LEGAL FRAMEWORK RATING ....................................................................................................................................................... 28TABLE: LABOUR FORCE QUALITY ..................................................................................................................................................................... 29
Market Orientation ................................................................................................................................................... 30TABLE: ASIA – ANNUAL FDI INFLOWS .............................................................................................................................................................. 30
Operational Risk ...................................................................................................................................................... 31TABLE: TOP EXPORT DESTINATIONS .............................................................................................................................................................. 32
Chapter 5: Key Sectors .......................................................................................................................... 33Telecommunications ............................................................................................................................................... 33TABLE: TELECOMS SECTOR – ARPU – HISTORICAL DATA AND FORECASTS, (PHP) ............................................................................... 34TABLE: TELECOMS SECTOR – MOBILE – HISTORICAL DATA AND FORECASTS ....................................................................................... 34TABLE: TELECOMS SECTOR – FIXED LINE – HISTORICAL DATA AND FORECASTS .................................................................................. 35TABLE: TELECOMS SECTOR – BROADBAND – HISTORICAL DATA AND FORECASTS, 2010-2017 ........................................................... 35
Pharmaceuticals ...................................................................................................................................................... 36TABLE: PHILIPPINES GENERICS DRUG MARKET INDICATORS, HISTORICAL DATA AND FORECASTS, 2009-2017 ............................... 37TABLE: PHILIPPINES OVER-THE-COUNTER (OTC) MEDICINE MARKET INDICATORS ................................................................................ 38TABLE: PHILIPPINES PRESCRIPTION DRUG MARKET INDICATORS, HISTORICAL DATA AND FORECASTS, 2009-2017 ...................... 39TABLE: PHILIPPINES PATENTED DRUG MARKET INDICATORS, HISTORICAL DATA AND FORECASTS, 2009-2017 .............................. 40
Other Key Sectors ................................................................................................................................................... 41TABLE: OIL AND GAS SECTOR KEY INDICATORS ........................................................................................................................................... 41TABLE: DEFENCE AND SECURITY SECTOR KEY INDICATORS ..................................................................................................................... 41TABLE: INFRASTRUCTURE SECTOR KEY INDICATORS ................................................................................................................................. 41TABLE: FOOD AND DRINK SECTOR KEY INDICATORS ................................................................................................................................... 42TABLE: AUTOS SECTOR KEY INDICATORS ...................................................................................................................................................... 42
Chapter 6: BMI Global Assumptions .................................................................................................... 43Global Outlook ......................................................................................................................................................... 43Growth Has Troughed ..................................................................................................................................................................43TABLE: GLOBAL ASSUMPTIONS ........................................................................................................................................................................ 43TABLE: DEVELOPED STATES, REAL GDP GROWTH, % .................................................................................................................................. 44TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % .......................................................................... 44TABLE: EMERGING MARKETS, REAL GDP GROWTH, % ................................................................................................................................. 45
5Business Monitor International Ltd www.businessmonitor.com
Executive Summary
Core Views Following a blowout 6.8% performance in 2012, we forecast the
Philippine economy to expand by 5.9% in 2013. Leading the way
forward, we expect the country’s nascent investment boom to power
forward on the back of strong domestic fundamentals, but note that
external headwinds continue to pose a risk.
Despite the fact that the Philippines has passed another expansionary
budget for 2013, we expect the budget deficit to widen to come in at
a manageable 2.2% of GDP in 2013. While spending continues to
be limited by administrative difficulties, revenue growth will be sup-
ported by the government’s increasing tax collection efficacy and the
introduction of a wide-ranging sin tax. As we expected, the Philippines
has finally achieved an investment grade rating from a major credit
ratings agency in view of the country’s improved growth outlook and
the government’s increasingly consolidated fiscal position, and we
expect that further upgrades from the remaining agencies are likely
in the cards.
Major Forecast Changes We believe that strong domestic fund amentals will be enough to
send the Philippines on to above-trend growth over the immediate
future. As such, we note that that risks to our 2013 real GDP growth
forecast of 5.9% are to the upside, and have upgraded our 2014
and 2015 forecasts to 5.5% and 5.4%, respectively.
With headline inflation trending below its target range of 3.0-5.0%,
Bangko Sentral ng Pilipinas should remain comfortable with its
monetary policy settings over the near term, likely allowing for its
benchmark interest rate to stay pegged at its all-time low of 3.50%
through the end of 2013. While we have downgraded our end 2013
headline inflation forecast to 3.4% from 4.0% previously, we note
that inflationary pressures should begin to creep up over the medium
term in line with rising money supply growth, and we continue to
expect some form of tightening in 2014.
Key Risks To Outlook Risks to our end of period 2013 peso forecast of PHP41.55/US$
have shifted to the downside, as hot money outflows have effected
a substantial sell-off in the currency. While we are not yet convinced
that the currency will remain weak over the rest of the year, we note
that continued EM equity weakness could keep the peso depressed.
Growth slowdowns in both China and Japan, to which the Philip-
pines is heavily exposed in both investment and trade terms, could
undermine the country’s strong domestic growth story should they
become more acute than expected.
Brief Methodology
7Business Monitor International Ltd www.businessmonitor.com 7Business Monitor International Ltd www.businessmonitor.com
SWOT Analysis
Strengths The Philippines is one of Asia’s oldest and liveliest democracies.
The current constitution, framed in 1987 following the ousting of
dictator Ferdinand Marcos, guarantees ‘life, liberty and property’ in
a US-style bill of rights.
Weaknesses The executive often faces delays getting its bills through a legislature
dominated by the Philippines’ old landed families, business tycoons
and ‘showbiz’ celebrities.
Rumours of military coup plots are frequent. Disaffected junior offic-
ers have staged a series of mutinies in recent years, while the top
brass played a decisive role in the ‘people power’ uprisings of 1986
and 2001.
Opportunities President Benigno Aquino III of the Liberal Party has promised to
root out the excesses of the preceding administration, which could
help to recover resources lost to corruption in past years.
Tentative plans to adopt a parliamentary-style constitution, a process
referred to locally as charter change, or ‘cha cha’, could reduce the
concentration of executive power. Plans to eventually move towards
a federal structure would decentralise political power and very likely
improve regional governance.
The resumption of peace talks with the Moro Islamic Liberation
Front has significantly raised the prospect of decreased violence in
the south. The government is also seeking a peace agreement with
the communist New People’s Army, which also poses a threat in the
region, but progress in the talks has been slow.
Threats Efforts by former president Gloria Macapagal Arroyo and her allies
to change the constitutional charter has brought on a high degree
of uncertainty about the political system, with knock-on effects on
investor sentiment.
Kidnappings and bombings by separatist groups, such as the Abu
Sayyaf, are expected during our forecast period.
The existence of more than 100 private militias controlled by local
warlords poses an additional security risk, as evidenced by the
Maguindanao massacre in 2009.
BMI Political Risk RatingsIn view of the Philippines’ long history of popular unrest as well as instability
due to the presence of the Abu Sayyaf and communist (New People’s
Army) groups, the country receives a relatively low score of 62.8 (out of
100) in our long-term political risk ratings. A peace agreement with the
Moro Islamic Liberation Front has paved the way for an upgrade in the
Philippines’ short-term political risk rating, which now stands at 72.1 versus
70.0 previously. The trajectory of the rating remains positive, and further
upgrades are possible should President Benigno Aquino III maintain
his popularity, ushering in a new era of political progress and stability.
Chapter 1: Political Outlook
S-T Political Rank TrendSingapore 94.8 1 =Brunei Darussalam 90.6 2 =Hong Kong 84.8 3 =Taiwan 83.3 4 =Laos 80.4 5 =South Korea 77.7 6 =China 77.3 7 =Sri Lanka 77.1 8 =Vietnam 76.9 9 =Malaysia 75.6 10 =Philippines 72.1 11 =North Korea 71.9 12 =Thailand 69.2 13 =Indonesia 68.8 14 =Bangladesh 68.3 15 =Mongolia 67.7 16 =Cambodia 66.0 17 =India 65.4 18 =Bhutan 61.0 19 =Myanmar 57.7 20 -Pakistan 51.7 21 +Papua New Guinea 45.2 22 =Regional ave 73.3/Global ave 65.2/Emerging markets ave 62.7
L-T Political Rank TrendSouth Korea 84.2 1 =Singapore 80.6 2 =Taiwan 75.4 3 =Hong Kong 72.9 4 =Malaysia 67.2 5 =Mongolia 66.7 6 =India 65.7 7 =Brunei Darussalam 65.6 8 =China 62.9 9 =Philippines 62.8 10 =Bangladesh 62.6 11 =Thailand 61.8 12 =Sri Lanka 60.2 13 =Indonesia 60.0 14 =Cambodia 58.9 15 =Vietnam 57.7 16 =North Korea 55.2 17 =Papua New Guinea 54.8 18 =Pakistan 53.7 19 +Bhutan 51.0 20 =Laos 46.9 21 =Myanmar 40.9 22 =Regional ave 62.8/Global ave 63.1/Emerging markets ave 59.5
8 Business Monitor International Ltdwww.businessmonitor.com
PHILIPPINES Q3 2013
Domestic Politics
Aquino's Midterm Victory Provides Medium-Term Clarity
BMI VIEWIn line with our expectations, Team PNoy's Senatorial team as well as
allies of President Aquino both scored wid e-scale midterm election vic-
tories. While we note that the victory will bolster Aquino's reform-mind-
ed agenda over the next three years, we caution that Philippine politics
nevertheless remain largely dominated by the same political dynasties
of old, and that a backslide in 2016's general elections is possible if the
current government fails to pursue more structural, long-term reforms.
The Philippines held mid-term elections on May 13th, and, in
line with our previous expectations, President Benigno Aquino's
'Team Pnoy' locked up a majority of the 12 Senate seats up for
grabs. Team PNoy was able to claim nine seats in the Senate,
and allies of Aquino's Liberal Party secured a majority in the
House of Representatives, in which all 229 seats were contested.
As we wrote previously (see 'Midterm Elections Set To Bolster
Aquino Administration,' April 16), the election can be viewed
as a referendum on President Aquino's first three years in of-
fice, with Team PNoy's strong results reflective of his broad
popularity amongst the electorate.
Likewise, the results will also serve to strengthen Aquino's
hand in the formation of government policy, as his Liberal
Party and its allies now boast a commanding majority within
both the House of Representatives and the Senate. Team PNoy's
Long-Term Risks Still PrevalentAsia - BMI Long-Term Political Risk Ratings (out of 100)
40
45
50
55
60
65
70
Mal
aysi
a
Indi
a
Chi
na
Phili
ppin
es
Bang
lade
sh
Thai
land
Sri L
anka
Indo
nesia
Cam
bodi
a
Viet
nam
Laos
Source: BMI
dominant performance in the Senatorial elections in particular
will provide a boost to Aquino's policy-making efficacy over the
next three years, which in BMI's opinion will help to maintain
the country's demonstrably positive political trajectory that has
largely been responsible for the Philippines' recent investment
grade endorsements.
Long-Term Outlook Far Less CertainHowever, it remains to be seen whether or not Aquino and his
allies are willing to implement the structural reforms that will
be necessary to maintain the positive political momentum over
the long-run, and Aquino himself has thus far remained cool
to the possibility of charter change (colloquially referred to as
'chacha'). Furthermore, old political dynasties remain heavily
entrenched within the system, as evidenced by former president
Joseph Estrada's election as the Mayor of Manila. Estrada, who
was forced to resign from the Presidency after wide-ranging
corruption allegations in 2001, also came in second in 2010's
presidential elections, indicating that Philippine politics remain
dominated by personality rather than party affiliation. As such,
we note that the Philippines' longer-term political outlook is still
clouded, and although Aquino's strong midterm showing suggests
that his favoured candidate will stand a considerable chance at
election in 2016, the political process generally remains the
province of the same elites by which it has long been dominated.
As such, our long-term political rating for the Philippines is a
middling 62.8, which compares with a regional average of 61.7.
Long-Term Political Outlook
Prospects For Improving Governance
BMI VIEW: The Philippines faces a number of political challenges over the coming
years that, if handled successfully, could improve governance. Howev-
er, given low income levels and high levels of inequality, we expect the
political scene to remain vulnerable to intermittent instances of turmoil.
Although the Philippines is one of Asia's longest-established
democracies, it is arguably one of the less mature ones. More
than most other Asian states, the Philippines is prone to public
unrest and either attempted military coups or rumours of such
disturbances. In addition, politics tend to be a glitzy affair, with
celebrities elected largely on name recognition. Furthermore,
the government has had to grapple with an insurgency in the
south for decades. All this conjures up the image of an unstable
9Business Monitor International Ltd www.businessmonitor.com
POLITICAL OUTLOOK
country. That said, President Benigno Aquino III has been ac-
tively seeking to change this perception and had some success
attracting foreign direct investment since he took office in 2010.
Threats And Challenges To StabilityPoverty And Unemployment: The Philippines is a poor country,
with a per capita GDP estimated at around US$2,526 in 2012. In
addition, income distribution is highly uneven, as reflected by
a Gini coefficient of 0.48, which is one of the highest in Asia.
Furthermore, the Philippines' rapid population growth means
that per capita GDP increases less rapidly than in countries
with lower birth rates. Indeed, around 54% of the Philippines'
population is younger than 25, and a high proportion of young
people has traditionally been linked to political instability. The
inability to create enough new jobs has led to 'brain drain, with
around 10% of the population working abroad. Taken together,
these factors mean that there is a substantial segment of society
which can create demand for populist measures or can be mo-
bilised for mass protest.
Family Dominated Political System: An oft-repeated criticism
of the Philippine political system is that all levels of government
are pervaded by 'political families' – that is, officials whose parents
or grandparents were former presidents, senators, representa-
tives or mayors. In addition, the close overlap between politics
and big business means that there exists an oligarchic elite.
While not in itself destabilising, the 'family factor' fosters the
impression that the political system consists of self-perpetuating
elites, making it difficult for outsiders to gain influence. This
dimension in politics also reinforces vested interests, which in
turn mitigates economic or political reform.
Military Discontent: The Philippines has seen dozens of at-
tempted military coups (or rumours to that effect) over the past
20 years, but none have succeeded. Coup attempts are usually
linked to disaffected junior- or mid-level officers rather than
the top brass and thus reflect hierarchical schisms within the
military. However, incumbent presidents cannot automatically be
guaranteed the support of the high command, which was pivotal
in the removal of former presidents Marcos and Estrada. Under
highly adverse circumstances, the president has the option of
declaring martial law.
Security Situation: The Philippines has experienced a number
TABLE: PHILIPPINES POLITICAL OVERVIEW System of Government Presidential republic, universal suffrage: 285-seat house of representatives, 24-seat
senate for the 15th congress. Executive power rests with president.
Head of State President: Benigno Aquino III – one six-year term
Head of Government President: Benigno Aquino III
Last Election Presidential: May 10 2010
Congressional: May 13 2013
Key Figures Vice President – Jejomar Binay; Senate President – Juan Ponce Enrile; Speaker of the House – Feliciano Belmonte Jr; Finance Secretary – Cesar Purisima; Foreign Affairs Secretary – Alberto Romulo; National Defence Secretary – Voltaire Gazmin; Interior and Local Government Secretary – Jesse Robredo
Central Bank Governor: Amando Tetangco Jr
Main Political Parties (number of seats in house of representatives) Liberal Party (110); Nationalist People's Coalition (43); Nacionalista Party (17)
Political affiliations in the Philippines generally do not adhere strictly to party lines. Many legislators defected to Aquino's Liberal Party following the general elections in May 2010, while others expressed support for the president's policies, enabling it to become the ruling party despite winning fewer seats than the opposition Lakas-Kampi-CMD.
Next Election Presidential: May 2016
Congressional: May 2016
Ongoing Disputes Separatist groups – namely Abu Sayyaf and the Communist Party of the Philippines – continue to pose a threat to government stability. Ongoing territory disputes persist with neighbouring countries, namely over Sabah (with Malaysia), Scarborough Shoal (China and Taiwan), Spratly Islands (China, Taiwan, Malaysia, Vietnam and Brunei) and the Sulawesi Sea Islands (Malaysia and Indonesia).
Key Relations/Treaties The Philippines is a founding and active member of the UN and is also a founding member of the Association of Southeast Asian Nations. In addition, the Philippines is a member of the East Asia Summit, an active player in the Asia-Pacific Economic Cooperation and a member of the Group of 24. The country is a major non-NATO ally of the US, but also a member of the Non-Aligned Movement.
BMI Short-Term Political Risk Rating 72.1
BMI Long-Term Political Risk Rating 62.8
Enter table source
10 Business Monitor International Ltdwww.businessmonitor.com
PHILIPPINES Q3 2013
of terrorist attacks over the past decade, linked either to Muslim
or communist rebels. However, the Philippines has received
solid backing from the US, which officially designates the
country a major non-NATO ally. This provision allows for
increased military assistance to the Philippines and ensures
that the country has access to external expertise in combating
domestic insurgencies.
'Power Centres' Hold Key To StabilityHow Philippine politics develop over the coming years depends
very much on the key 'power centres'. These are congress, the
urban middle class, business leaders, wealthy landowners, the
military establishment and the Catholic church. The church in
particular is very important as a moral voice, given that a large
proportion of the predominantly Catholic population is devout.
Indeed, the church played an important role in both Marcos's
and Estrada's removal from power. The Catholic church could
potentially serve as a trigger for mass mobilisation given the
appropriate circumstances.
Scenarios For Political ChangeCharter Change: For some years now, Philippine politicians
have been discussing charter change. Proponents of this change
argue that replacing the executive president-centred structure
with a parliamentary system headed by a prime minister would
reduce the concentration of power and thus lead to less con-
frontational politics. However, it is unclear how a parliamentary
system would operate differently from the existing framework. It
is also unclear how power would be divided between the presi-
dent and prime minister. If all executive power is transferred to
the prime minister, then matters will be clear. However, if the
president retains power over foreign affairs and especially the
military, then he or she could end up clashing with the prime
minister, thus raising the prospect of instability.
Federal Republic: Also linked to constitutional change, but
perhaps of greater significance, are proposals for the Philippines
to adopt a federal system. The plan calls for the creation of 11
federal states and one federal administrative region (Manila).
The federal states would be: Northern Luzon, Central Luzon,
Southern Tagalog, Bicol, Minparom (formed from Mindanao,
Palawan and Romblon), Eastern Visayas, Central Visayas,
Western Visayas, Northern Mindanao, Southern Mindanao,
and Bangsamoro. State governments would share 70% of their
resource allocation with provinces and municipalities. While
the executive branch would remain in Manila, the legislative
branch would move to Central Visayas and the judiciary to
Northern Mindanao.
Supporters of the plan argue that devolving power to the regions
would improve governance, which has been micro-managed or
neglected by 'imperial Manila'. Indeed, critics of the existing
framework say that the highly centralised system has afforded
preferential treatment to localities whose officials are on friendly
terms with the incumbent presidential administration. Thus, the
federal system would give locals more control of their resources
and livelihoods, according to former house speaker Jose de
Venecia. While federalism clearly has its merits, opponents fear
that it could encourage regions to secede from the Philippines
in the same manner as East Timor from Indonesia and Kosovo
from Serbia – ie, through armed conflict.
Radical Change: A third scenario for the Philippines entails
radical political change. Under this scenario, successive ad-
ministrations fail to raise living standards and enact political
or economic reform. Increasing public disaffection could,
meanwhile, lead to a new political movement, possibly backed
by the church or centred on junior military officers, in a similar
fashion to Venezuela's left-wing President Hugo Chávez, who
attempted to seize power in 1992 before being elected president
in 1998. The possibility of a populist president emerging cannot
be ruled out given the Philippines' propensity for celebrity politi-
cians. Former president Joseph Estrada and the 2004 opposition
presidential candidate, Fernando Poe Jr, were both action film
stars before entering politics.
11Business Monitor International Ltd www.businessmonitor.com
SWOT Analysis
Strengths Private consumption is a major driver of economic growth, generating
more than 70% of GDP. A youthful and rapidly expanding population
is likely to support these dynamics.
Home-bound remittances from the 8mn overseas Filipino workers are
a key source of national income and provide much-needed support
to the country’s consumption and balance of payments.
Weaknesses Although the government has done well to decrease its fiscal deficit
(particularly under the Aquino administration), spending inefficiencies
as well as revenue collection efficacy remain substantial concerns.
The jobless rate will remain high as long as economic growth falls
short of the level needed to create jobs for the fast-expanding labour
force.
Opportunities The government could ease pressure on its fiscal accounts by broad-
ening the tax base and eliminating graft at the Bureau of Internal
Revenue.
Outsourcing could provide the Philippines, given its low-cost English-
speaking workforce, with a valuable source of foreign exchange.
Threats Concerns persist over the underperformance of revenue collection
agencies. Failure to improve tax collections will constrain further
ratings improvements, which in turn threatens to curb foreign invest-
ment.
The export sector is geared towards manufactured products, espe-
cially electronics, which are vulnerable to a weakening of the external
economic environment since late 2008.
BMI Economic Risk RatingsThe Philippines short-term economic risk rating is 71.3, with a healthy
‘external’ score of 83.3. Indeed, the Philippines proved to be somewhat
immune to the global trade slowdown in 2012, and could see a rebound
in electronics exports as we move further into 2013. That said, we caution
that the country’s long-term economic prospects are still considerably
below its regional peers, with its long-term economic risk rating only 64.0.
President Benigno Aquino III’s administration has sought to address key
structural issues affecting the Philippines’ long-term economic prospects,
such as attracting more foreign direct investment for infrastructure pro-
jects, which may lead to score improvements in the future.
Chapter 2: Economic Outlook
S-T Economy Rank TrendSingapore 89.4 1 =China 86.0 2 =South Korea 85.6 3 -Taiwan 84.8 4 =Hong Kong 78.3 5 =Malaysia 75.0 6 =Thailand 74.4 7 =Philippines 71.2 8 =Indonesia 70.6 9 -Vietnam 62.3 10 =India 62.1 11 =Bangladesh 57.5 12 =Brunei Darussalam 56.9 13 =Sri Lanka 54.6 14 +Myanmar 53.5 15 -Cambodia 46.5 16 =Pakistan 46.2 17 =Mongolia 44.6 18 =Bhutan 39.0 19 =Papua New Guinea 38.3 20 =Laos 36.2 21 =North Korea - - -Regional ave 63.0/Global ave 54.4/Emerging markets ave 52.7
L-T Economy Rank TrendSouth Korea 81.1 1 =Singapore 79.9 2 =Malaysia 77.5 3 =China 76.4 4 =Taiwan 74.7 5 =Hong Kong 74.3 6 =Thailand 72.5 7 =Indonesia 65.6 8 =Philippines 64.0 9 -Bangladesh 58.4 10 =Vietnam 57.3 11 =Brunei Darussalam 57.2 12 =India 56.1 13 -Sri Lanka 52.4 14 +Myanmar 49.4 15 =Pakistan 46.9 16 -Mongolia 43.1 17 =Cambodia 41.2 18 =Laos 39.6 19 =Papua New Guinea 38.9 20 =Bhutan 37.2 21 =North Korea - - -Regional ave 59.3/Global ave 53.7/Emerging markets ave 51.2
12 Business Monitor International Ltdwww.businessmonitor.com
PHILIPPINES Q3 2013
Fiscal Policy
Upgrades Well Deserved, But Fiscal Progress Becoming More Difficult
BMI VIEWThe Philippines continues to garner substantial sovereign credit rat-
ing upgrades, and we believe that there is a strong possibility that the
country could finish 2013 with an investment grade rating from all three
agencies. That being said, the government's path to fiscal prosperity
will likely prove to be more difficult now that the low-hanging fruit has
largely been plucked, and we note once again that more structural re-
forms will be necessary in order to solidify the country's strong fiscal
and economic trajectory.
The Philippines has enjoyed a surging economic profile over
the past twelve months, and the sovereign's position has been
bolstered considerably as a result. While we have long held that
the Philippines had acceded to the pantheon of investment grade
countries as a result of its manageable external debt dynamics
and generally positive fiscal trajectory, this notion was only
recently reaffirmed for the first time by major ratings agencies
Fitch (in March 2013) and Standard & Poor's ( S&P , in May).
Likewise, rhetoric from the last major ratings agency to hold
the Philippines below investment grade, Moody's , continues to
indicate that an upgrade to investment grade is likely in the offing.
Debt Metrics Looking StrongIn particular, the Philippines has achieved a rapid reduction in
its exposure to external financing, with total external debt drop-
ping to an estimated 30.5% of GDP by the end of 2012 versus
59.8% just seven years prior. In addition to more responsible
borrowing initiatives, the sovereign's debt position has been
strengthened by the economy's above trend expansion (real GDP
grew by 6.8% in 2012), which has not only helped to reduce
debt in GDP terms, but also by supporting government revenue
intakes. Since 2005, revenue growth has averaged 10.5% per
annum, even in the face of a 6.6% decline in 2009.
Heading In The Right DirectionTotal External Debt Stock & Total Government Debt, % GDP
0
10
20
30
40
50
60
70
80
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
Total GovtExternal
2013-2017 = BMI forecast. Source: BMI, BSP
Well Balanced, But Room For ImprovementTotal Government Revenue & Expenditure, % chg y-o-y & Fiscal Bal-
ance, % GDP
-10
-5
0
5
10
15
20
25
2005
2006
2007
2008
2009
2010
2011
f
2012
f
2013
f
2014
f
2015
f
2016
f
2017
f
Balance
Revenue
Expenditure
Source: BMI, BSP
TABLE: FISCAL POLICY2009 2010 2011 2012e 2013f 2014f 2015f 2016f 2017f
Fiscal revenue, PHPbn [2] 1,123.2 1,207.9 1,360.1 1,535.6 1,719.9 1,907.3 2,107.6 2,326.8 2,568.8
Revenue, % of GDP [2] 14.0 13.4 14.0 14.5 14.9 15.1 15.2 15.4 15.7
Fiscal expenditure, PHPbn [2] 1,421.7 1,522.4 1,558.9 1,777.2 1,976.2 2,164.0 2,369.5 2,582.8 2,789.4
Expenditure, % of GDP [2] 17.7 16.9 16.1 16.8 17.1 17.1 17.1 17.1 17.0
Budget balance, PHPbn [2] -298.5 -314.5 -198.8 -241.6 -256.4 -256.6 -261.9 -256.0 -220.7
Budget balance, % of GDP [2] -3.7 -3.5 -2.0 -2.3 -2.2 -2.0 -1.9 -1.7 -1.3
Primary balance PHPbn [1,2] -19.7 -20.2 128.6 149.4 158.6 197.8 212.0 234.7 281.4
Primary balance % of GDP [1,2] -0.2 -0.2 1.3 1.4 1.4 1.6 1.5 1.6 1.7
Notes: e BMI estimates. f BMI forecasts. 1 Fiscal balance stripping out interest payments on government debt. Sources: 2 Bureau of the Treasury, BMI.
13Business Monitor International Ltd www.businessmonitor.com
ECONOMIC OUTLOOK
But Revenue Collection Still A ConcernHowever, the government still has a long way to go in shoring
up tax revenues, and faces a particularly tall task in its efforts
to crack down on rampant tax evasion. In 2011, the government
estimated that approximately PHP40bn is lost each year to tax
evasion, representing approximately 3.5% of the government's
total revenue for the year. According to the National Economic
Development Authority (NEDA), this figure is likely to be sub-
stantially larger in consideration of the fact that approximately
43% of the economy's output originates in the 'underground
economy' in which businesses are not registered with the Bureau
of Internal Revenue (BIR) and therefore do not pay any taxes.
In order for the government to continue to achieve such high rates
of revenue growth, the BIR will also need to sharpen its efforts in
broadening the tax base. According to Finance Secretary Cesar
Purisima, 61% of the government's revenue in 2012 came from
the country's largest 2,000 companies or individual tax payers,
out of a nationwide total of 820,255 businesses. Similarly, only
about 22% (or 403,000) of the country's 1.8mn 'self-employed
persons' were tax payers, indicating another large and untapped
pool of potential revenue.
Notably, we expect the government to see continued high rates
of growth in tax revenue over the next five years, at a forecasted
average clip of 11.4% per annum through to 2017. However,
this rate is in large part a result of low base effects, with total
government revenue currently comprising just 12.9% of GDP.
With expenditures set to rise by a forecasted average of 9.4%
per annum through to 2017, we continue to believe that the
government will maintain a healthy spending balance, and
project the fiscal deficit to average a moderate 1.8% of GDP
through this period.
That being said, the government still needs to prove that it can be
more aggressive in increasing its revenue intake as a proportion
of the economy. Government spending in critical areas such as
healthcare, education, and infrastructure remains insufficient in
light of the Philippines' deficiencies in these areas, as well as
for the country's development level.
Broader Fiscal House In Solid FormThe aforementioned concerns will be somewhat more difficult to
tackle than the relatively low-hanging fruit that the government
has, to some extent, already plucked. To be sure, we believe that
there is a strong possibility that the Philippines will finish 2013
with an investment grade rating from all three major ratings
agencies, and rightfully so given the solid form of the country's
broader fiscal, political, and economic position. However, we
also continue to note that substantive improvements to the
country's fiscal and sovereign outlook will become progressively
more difficult over the coming years, with a greater emphasis
on structural, long-term reforms that can lay the foundation for
an extended period of rapid economic expansion.
Balance of Payment
Exports Continue To Disappoint, Peso Under Pressure
BMI VIEWDespite a pick-up in external trade, including a cyclical bounce in the
global semiconductor industry, Philippine exports continue to struggle.
Indeed, total exports in May shrank by 12.8% in year-on-year terms,
with electronic shipments contracting for the fifth straight month, this
time by -0.4%. Over the near term, we expect export performance to
continue to disappoint, placing some downside pressure on the Phil-
ippine peso despite the country's current account surplus. While we
are retaining our end-year peso target of PHP41.55/US$ for the time-
being, we note that downside risks to this view are mounting.
Philippine exports put in another disappointing performance in
April, shrinking by a worse than expected 12.8% year-on-year
(y-o-y) against consensus estimates of a 5.3% decline. As we
wrote recently (see 'Underwhelming Trade Performance Defies
Regional Pick-Up,' May 28), the Philippines' trade performance
has yet to benefit from a cyclical rebound in global semicon-
Japan A Bright Spot, For Now...Exports To Selected Markets, % chg y-o-y
-100
-50
0
50
100
150
Jan-
11
Mar
-11
May
-11
Jul-1
1
Sep-
11
Nov
-11
Jan-
12
Mar
-12
May
-12
Jul-1
2
Sep-
12
Nov
-12
Jan-
13
Mar
-13
JapanChinaUSSingapore
Source: BMI, NSO
14 Business Monitor International Ltdwww.businessmonitor.com
PHILIPPINES Q3 2013
ductor demand, with electronics exports having declined in
y-o-y terms for the fifth straight month (-0.4%) in April. That
being said, the rate of decline in electronics shipments was
vastly improved from the -22.4% y-o-y print in March, and the
category appears to be enjoying a renewed tailwind as a result
of buoyant Japanese demand.
Following a surprisingly strong quarter in the world's third largest
economy (and the Philippines' largest export market), exports
to Japan have proven to be the outlier in the archipelago's trade
story, expanding by 10.0% in the first four months of the year
compared to the same period in 2012. Given its position in the
semiconductor value-chain, the Philippines may continue to
benefit from a boost in demand from Japan over the coming
months, potentially giving rise to a broader recovery in electron-
ics exports. However, we continue to believe that the bounce
in Japanese economic activity will be a transitory one, with our
full-year 2013 real GDP growth forecast of 1.4% implying a
substantial slowdown in H213, and, in turn, diminishing support
for Philippine exports.
Peso Feeling The HeatAlthough the Philippines enjoys a current account surplus as a
result of substantial remittance inflows, a contraction in exports
nonetheless effects a drag on the peso. With hot money outflows
also surging in recent weeks as a result of a substantial sell-off in
foreign holdings of Philippine equities (the benchmark PCOMP
index has fallen by 14.9% from its peak in May 16), the peso has
been hard-hit, depreciating by 5.0% over the same time period.
Technically, however, the unit has respected long-term trendline
support (as depicted on the chart above), and we continue to
forecast for the peso to meet our end-year target of PHP41.55/
US$ as a result of the fact that net fundamental pressures on
Respecting SupportExchange Rate, PHP/US$
38
40
42
44
46
48
50
52
54
Jan-
06
Jun-
06
Nov
-06
Apr-
07
Sep-
07
Feb-
08
Jul-0
8
Dec
-08
May
-09
Oct
-09
Mar
-10
Aug-
10
Jan-
11
Jun-
11
Nov
-11
Apr-
12
Sep-
12
Feb-
13
Jul-1
3
Source: BMI
TABLE: CURRENT ACCOUNT2009 2010 2011 2012e 2013f 2014f 2015f 2016f 2017f
Goods imports, US$bn [2] 46.5 61.1 62.7 61.5 65.4 72.2 79.7 87.9 96.8
Goods imports, % of GDP [2] 27.5 30.6 28.0 24.6 23.4 23.9 23.8 23.5 23.5
Goods exports, US$bn [2] 37.6 50.7 47.2 46.3 47.2 51.7 56.6 62.0 67.7
Goods exports, % of GDP [2] 22.3 25.4 21.1 18.5 16.9 17.1 16.9 16.6 16.4
Goods exports, % of imports [2] 81.0 83.0 75.4 75.3 72.2 71.6 71.1 70.6 70.0
Balance of trade in goods, US$bn [2] -8.8 -10.4 -15.4 -15.2 -18.2 -20.5 -23.0 -25.8 -29.0
Balance of trade in goods, % of GDP [2] -5.2 -5.2 -6.9 -6.1 -6.5 -6.8 -6.9 -6.9 -7.0
Services imports, US$bn [2] 8.9 11.3 11.9 14.7 16.7 18.8 21.2 23.9 27.0
Services imports, % of GDP [2] 5.3 5.7 5.3 5.9 6.0 6.2 6.3 6.4 6.6
Services exports, US$bn [2] 11.0 13.2 15.4 18.6 21.4 24.2 27.4 31.2 35.6
Services exports, % of GDP [2] 6.5 6.6 6.9 7.4 7.7 8.0 8.2 8.3 8.6
Goods and services exports, US$bn [2] 48.6 63.9 62.7 64.9 68.6 75.9 84.0 93.3 103.4
Goods and services exports, % of GDP [2] 28.8 32.0 28.0 25.9 24.6 25.1 25.1 24.9 25.1
Balance of trade in goods and services, US$bn [2] -6.7 -8.4 -11.9 -11.3 -13.4 -15.2 -16.8 -18.5 -20.4
Balance of trade in goods and services, % of GDP [2] -4.0 -4.2 -5.3 -4.5 -4.8 -5.0 -5.0 -4.9 -5.0
Income account balance, US$bn [2] -0.2 0.3 1.3 -0.7 -1.0 -1.3 -1.5 -1.7 -1.8
Income account balance, % of GDP [2] -0.1 0.2 0.6 -0.3 -0.3 -0.4 -0.4 -0.5 -0.4
Net transfers, US$bn [2] 16.3 16.6 17.6 19.2 20.5 22.3 24.2 26.3 28.7
Net transfers, % of GDP [2] 9.6 8.3 7.9 7.7 7.3 7.4 7.2 7.0 7.0
Current account balance, US$bn [2] 9.4 8.5 7.1 7.1 6.1 5.8 5.9 6.1 6.4
Current account balance, % of GDP [2] 5.5 4.2 3.2 2.8 2.2 1.9 1.7 1.6 1.6
Openness to international trade, % [1,2] 49.8 56.0 49.0 43.0 40.3 41.0 40.6 40.0 39.9
Notes: e BMI estimates. f BMI forecasts. 1 Imports plus exports, % of GDP. Sources: 2 Bangko Sentral ng Pilipinas, BMI.
15Business Monitor International Ltd www.businessmonitor.com
ECONOMIC OUTLOOK
the currency remain appreciatory. That being said, a convincing
break through technical support could presage yet another leg
lower for the peso, at which point we may look to downgrade
both our average and end-year targets.
Economic Activity
Growth Boom On Solid Footing
BMI VIEWEven in the face of a considerable slowdown in exports, the Philippine
economy continues to power on, with Q113 figures reflecting impres-
sive real GDP growth of 7.8% y-o-y. Although we reiterate that the
Philippines is indeed vulnerable should external conditions continue to
worsen, and that medium term risks stemming from a potential Japa-
nese fiscal crisis are pertinent, we believe that strong domestic funda-
mentals will be enough to power the country on to strong growth over
the immediate future. As such, we note that that risks to our 2013 real
GDP growth forecast of 5.9% are to the upside, and have upgraded our
2014 and 2015 forecasts to 5.5% and 5.4%, respectively.
The Philippine economy is by all measures in the midst of an
impressive growth boom, with real GDP growth hitting a new
cyclical high of 7.8% y-o-y in Q113. While the boom was largely
kicked off by robust growth in the production of consumer goods
(private consumption expanded by an impressive 6.6% in real
terms in 2012, contributing 4.6 percentage points (pp) to the
headline growth figure), signs now point to its continuation on
the back of an investment renaissance. Indeed, capital forma-
tion soared by 16.8% y-o-y in real terms in Q113, reflecting a
marked acceleration from Q412's middling -1.4% performance.
Investment Boom On CourseThe surge in investment activity in Q113 owed mainly to a
massive increase in construction activity, which itself expanded
by a hearty 33.7% on strong demand from both the public and
private sectors. As we have been writing for some time now, the
country's investment story has been due for a cyclical pick-up,
particularly in view of the central bank's ongoing easy mon-
etary policy campaign. The Bangko Sentral ng Pilipinas (BSP)
continues to find itself in a policy sweet spot, with its record
low benchmark interest rate of 3.50% supported by below-
target headline inflation of 2.6% y-o-y and benign fundamental
inflationary pressures.
The Philippines' 7.8% headline growth rate made it the fastest
growing economy in the region in the first quarter, outpacing
perennial favourites China (7.7% y-o-y) and Indonesia (6.1%)
even as external demand faltered. The rude health of the Philip-
pines' domestic economy has contrasted significantly with the
slowdown in regional and global growth, which was reflected
by a 7.0% contraction in real exports in Q113. Since then, out-
ward bound shipments have continued to struggle, with total
exports slipping by 12.8% y-o-y (in nominal terms) in April.
While imports also contracted in the first quarter, they posted
a relatively strong nominal gain of 7.4% y-o-y in April, sug-
gesting that, as we would expect, domestic demand continues
to outshine external demand.
Investment To The ForeGDP by Expenditure in Constant Prices, % chg y-o-y and pp. Contri-
bution
-10
-5
0
5
10
15
Q10
9
Q20
9
Q30
9
Q40
9
Q11
0
Q21
0
Q31
0
Q41
0
Q11
1
Q21
1
Q31
1
Q41
1
Q11
2
Q21
2
Q31
2
Q41
2
Q11
3
Stat Error/Restocking NXCapital Formation Govt ConsumptionPrivate Consumption GDP
Source: BMI, BSP, NSO
TABLE: ECONOMIC ACTIVITY2009 2010 2011 2012e 2013f 2014f 2015f 2016f 2017f
Nominal GDP, PHPbn [1] 8,026.1 9,003.5 9,706.2 10,564.9 11,548.5 12,640.8 13,854.0 15,065.3 16,367.2
Nominal GDP, US$bn [1] 168.8 199.7 224.2 250.4 279.6 302.4 335.4 374.3 411.8
Real GDP growth, % change y-o-y [1] 1.1 7.6 3.6 6.8 5.9 5.5 5.4 4.6 4.5
GDP per capita, US$ [1] 1,841 2,141 2,363 2,595 2,850 3,031 3,307 3,631 3,932
Population, mn [2] 91.7 93.3 94.9 96.5 98.1 99.8 101.4 103.1 104.7
Unemployment, % of labour force, eop [3] 7.1 7.1 7.1 7.0 6.8 6.5 6.3 6.3 6.2
Notes: e BMI estimates. f BMI forecasts. Sources: 1 National Statistical Coordination Board/BMI; 2 World Bank/UN/BMI; 3 National Statistics Office, BMI.
16 Business Monitor International Ltdwww.businessmonitor.com
PHILIPPINES Q3 2013
External Risks Pertinent, But Not OverwhelmingOver the coming quarters, we nevertheless point out that poor
external conditions could begin to weigh on the Philippine growth
story, and that headwinds are broadly based. Indeed, the state
of the regional economy is highly reliant upon China, where
an ongoing credit crunch is reflecting the mainland's pressing
need for painful economic reforms. With the new Chinese
government likely to, at least to some degree, embrace these
reforms, we continue to believe that Chinese economic growth
will cool substantially over not only the coming quarters, but
the next few years as well, dragging on demand in a country
that has consistently accounted for approximately 12% of total
Philippine exports.
Furthermore, as we wrote in May (see 'Sovereign Risk Rating
– Japan Poses A Major Risk,' May 30), Japan's increasingly
untenable fiscal position poses a considerable (and growing)
risk to the Philippines. In the 12 months through April, ship-
ments to Japan made up approximately 20.0% of total outbound
shipments, making Japan the Philippines' largest export market
(while at the same time making the Philippines the most exposed
regional economy to Japan) as well as its largest foreign investor.
Although markets have thus far largely cheered 'Abenomics',
which has been credited with providing a boost to Japanese
economic growth as well as asset prices, we believe that there is
a growing risk that the government eventually buckles under its
growing debt burden and that monetary authorities lose control
of the bond market. While the main Japan-related risk in the
near-term for the Philippines is that of an expected slowdown in
economic activity (we expect Japan's economy to post real GDP
growth of just 1.4% for 2013 following a Q113 performance
that saw annualised real growth surge to 4.1%), we stress that,
over the medium term, the threat of a Japanese fiscal meltdown
is the external risk that poses the highest potential threat.
Fundamentals In Place For Medium-Term Growth Pick-UpWhile the Philippines bears considerable risk to external head-
winds over both the short and medium term, it is undoubtedly
one of the best positioned countries in the region in terms of
fundamental growth drivers. Firstly, debt ratios across the
board are low, with total external debt at a manageable 30.5%
of GDP (end 2012 estimate) and credit to GDP at 34.3% of
GDP in February. The first metric is a reflection of the country's
increasingly responsible fiscal management; indeed, the figure
has nearly halved since 2005, when it stood at 59.8%. The
Philippines' low credit to GDP ratio suggests that, while both
credit and economic growth have been impressive, there is lit-
tle indication that the economy has entered bubble territory, as
new credit is being directed efficiently towards the production
of each new unit of GDP.
Secondly, as we have noted previously, President Benigno
Aquino's consolidation of power in May's mid-term elections
bodes well for political stability over the next three years, as
well as a continuation of the popular president's successful
reform drive. While Aquino may not be the structural reformer
that the Philippines needs to truly unlock its long-term growth
potential, we nevertheless see promise in the final three years
of his term-limited six-year presidency. Thus far in his term,
the president has led an effective (if not overwhelming) anti-
Japanese Exposure A ConcernKey Export Markets, % of Total Exports
0
10
20
30
40
50
60
70
80
Jan-
01Au
g-01
Mar
-02
Oct
-02
May
-03
Dec
-03
Jul-0
4Fe
b-05
Sep-
05Ap
r-06
Nov
-06
Jun-
07Ja
n-08
Aug-
08M
ar-0
9O
ct-0
9M
ay-1
0D
ec-1
0Ju
l-11
Feb-
12Se
p-12
Apr-
13
Japan HK Singapore US China
Source: BMI, NSO
External Malaise Hitting ExportsTotal Exports & Imports, % chg y-o-y (LHS) & Balance, US$mn
-2,000
-1,500
-1,000
-500
0
500
1,000
1,500
2,000
-50
-40
-30
-20
-10
0
10
20
30
40
50
Jan-
08
May
-08
Sep-
08
Jan-
09
May
-09
Sep-
09
Jan-
10
May
-10
Sep-
10
Jan-
11
May
-11
Sep-
11
Jan-
12
May
-12
Sep-
12
Jan-
13
Balance Exports Imports
Source: BMI, NSO
17Business Monitor International Ltd www.businessmonitor.com
ECONOMIC OUTLOOK
corruption drive, while also working to consolidate government
expenditures and approve budgets on time, both areas which
were often shrouded in the past shrouded in mystery. The politi-
cal and fiscal stability that Aquino has helped to usher in have
greatly augmented confidence in the country, leading to greater
foreign investment potential as well as an improved domestic
business environment.
Additionally, prudent monetary policy has allowed the Philip-
pines to reap the benefits of record-low lending rates. In com-
bination with the expected take-off of the highly anticipated
Private-Public Partnership (PPP) programme (under which
our infrastructure team expects as many as eight projects to
be awarded by the end of 2013), as well as a major boost to
government infrastructure spending (US$10.0bn slated for
2013, a 19.3% increase from 2012), this suggests that the
country's investment boom has plenty of room to run. As a
result of these factors, we not only see upside potential to our
2013 real GDP forecast of 5.9%, but have also upgraded our
2014 and 2015 forecasts to 5.5% and 5.4%, respectively, from
4.5% and 4.6% previously.
Expenditure BreakdownPrivate Consumption Outlook: Strong private consumption
growth continues to be a key pillar of the Philippine growth
story, and we expect the category to notch a 5.5% real expan-
sion in 2013 ahead of a 5.3% performance in 2014 (upgraded
from 4.5% previously).
Slow And Steady Wins The RaceTotal Outstanding Loans (Universal and Commercial Banks), % of
GDP
26
27
28
29
30
31
32
33
34
35
Jan-
07
May
-07
Sep-
07
Jan-
08
May
-08
Sep-
08
Jan-
09
May
-09
Sep-
09
Jan-
10
May
-10
Sep-
10
Jan-
11
May
-11
Sep-
11
Jan-
12
May
-12
Sep-
12
Source: BMI, BSP
Public Consumption Outlook: While we do not expect govern-
ment consumption growth to match 2012's heady 12.2% print,
we do see strong growth of 6.5% in 2013 ahead of a moderate
slowdown to 4.3% in 2014.
Investment Outlook: The Philippines is in the midst of what we
believe to be an investment boom, and with credit metrics still
moderate, we believe that there is little reason for momentum to
fade drastically in the near future. We are forecasting real fixed
capital formation growth of 9.5% in 2013, with the category
slowing slightly to 8.5% in 2014.
Net Exports: Net exports are acting as the key drag on Philip-
pine growth, especially as domestic demand is easily outpacing
external demand. We expect exports to grow by a weak 2.0%
in real terms in 2013 (versus import growth of 3.0%), but note
that risks to this forecast are likely to the downside.
Monetary Policy
BSP On Cruise Control, For Now
BMI VIEWWith headline inflation trending below its target range of 3.0-5.0%,
Bangko Sentral ng Pilipinas should remain comfortable with its mon-
etary policy settings over the near term, likely allowing for its bench-
mark interest rate to stay pegged at its all-time low of 3.50% through
the end of 2013. While we have downgraded our end 2013 headline
inflation forecast to 3.4% from 4.0% previously, we note that inflation-
ary pressures should begin to creep up over the medium term in line
with rising money supply growth, and we continue to expect some form
of tightening in 2014.
Bangko Sentral ng Pilipinas (BSP) continues to find itself in
somewhat of a sweet spot regarding its monetary policy stance
and inflationary forces. Indeed, headline inflation remained flat
in May at just 2.6% y-o-y, posting below the central bank's target
range of 3.0-5.0% for the second straight month. Meanwhile,
fundamentals remain benign, with credit growth printing at a mild
13.1% y-o-y in May and core inflation coming in at just 3.0%.
BSP Comfortable Despite Money Supply UptickAs such, we continue to see little reason for the BSP to abandon
its easy monetary policy stance in the near future, and expect
the central bank to retain its record low benchmark interest
18 Business Monitor International Ltdwww.businessmonitor.com
PHILIPPINES Q3 2013
rate of 3.50% through at least the end of 2013. That being said,
there are some indications that inflation has likely bottomed,
with incipient signs indicating a pick-up in price growth is
ahead. Notably, broad money supply (M3) growth accelerated
somewhat dramatically in May, increasing to 16.3% y-o-y from
13.3% previously and notching its highest rate of expansion
since July 2007.
In fact, the robust increase in money supply at a time when credit
growth is declining presents somewhat of a unique case, but is
likely attributable to the BSP's accumulation of foreign reserves
on the back of the strong capital inflows that the Philippines
witnessed through the first five months of 2013 (which imply
that the central bank was selling local currency, thereby pump-
ing up the money supply). However, following the sell-off in
Philippine (and, indeed, regional) assets that occurred beginning
in late May (culminating in a peak-to-trough decline of 23.1%
in the benchmark PCOMP bourse), we believe that net pressures
on M3 growth, at least in the near-term, will be to the downside.
As such, major monetary policy adjustments are unlikely to
A Non-Traditional RelationshipM3 & Total Outstanding Commercial Bank Loans, % chg y-o-y
-15
-10
-5
0
5
10
15
20
25
30
Jan-
07M
ay-0
7Se
p-07
Jan-
08M
ay-0
8Se
p-08
Jan-
09M
ay-0
9Se
p-09
Jan-
10M
ay-1
0Se
p-10
Jan-
11M
ay-1
1Se
p-11
Jan-
12M
ay-1
2Se
p-12
Jan-
13M
ay-1
3
CreditM3
Source: BMI, BSP
In Comfortable TerritoryHeadline & Core Inflation, % chg y-o-y
2.0
2.5
3.0
3.5
4.0
4.5
5.0
5.5
Jan-
10M
ar-1
0M
ay-1
0Ju
l-10
Sep-
10N
ov-1
0Ja
n-11
Mar
-11
May
-11
Jul-1
1Se
p-11
Nov
-11
Jan-
12M
ar-1
2M
ay-1
2Ju
l-12
Sep-
12N
ov-1
2Ja
n-13
Mar
-13
May
-13
CoreHeadline
Source: BMI, NSO
TABLE: MONETARY POLICY2009 2010 2011 2012e 2013f 2014f 2015f 2016f 2017f
Consumer price index, % y-o-y, eop [3] 4.4 3.6 4.1 2.9 3.5 4.0 4.0 4.0 4.0
Consumer price index, % y-o-y, ave [3] 3.2 3.8 4.4 3.1 3.2 3.8 4.0 4.0 4.0
Producer prices, % y-o-y, eop [3] -4.9 -6.2 4.2 4.2 4.2 4.2 4.2 4.2 4.2
Producer prices, % y-o-y, ave [3] -1.4 -5.0 3.0 4.2 4.2 4.2 4.2 4.2 4.2
Wholesale price index, % y-o-y, ave [3] -4.2 5.9 7.2 5.6 5.1 5.1 5.1 5.1 5.1
Wholesale price index, % change y-o-y, eop [3] 5.7 5.1 6.1 5.1 5.1 5.1 5.1 5.1 5.1
M1, PHPbn [3] 1,221.9 1,345.9 1,413.2 1,500.9 1,598.4 1,718.3 1,855.8 2,022.8 2,225.0
M1, % change y-o-y [3] 14.1 10.2 5.0 6.2 6.5 7.5 8.0 9.0 10.0
M2, PHPbn [3] 3,887.1 4,306.2 4,581.8 4,911.7 5,304.7 5,718.4 6,204.5 6,750.5 7,344.5
M2, % change y-o-y [3] 7.6 10.8 6.4 7.2 8.0 7.8 8.5 8.8 8.8
Central Bank policy rate, % eop [1,3] 4.00 4.00 4.50 3.50 3.50 4.00 4.00 4.00 4.00
Lending rate, %, ave [4] 8.5 7.7 8.2 7.2 7.2 7.7 7.7 7.7 7.7
Real lending rate, %, ave [2,4] 5.3 3.9 3.8 4.1 4.0 3.9 3.7 3.7 3.7
3-month money market rate, % eop [5] 5.0 1.1 2.2 - - - - - -
Real 3-month money market rate, %, eop [2,5] 0.6 -2.5 -1.9 - - - - - -
3-month money market rate, %, ave [5] 4.5 3.8 2.5 - - - - - -
Real 3-month money market rate, %, ave [2,5] 1.3 -0.0 -1.9 - - - - - -
Notes: e BMI estimates. f BMI forecasts. 1 Repurchase Rate; 2 Real rate strips out the effects of inflation. Sources: 3 Bangko Sentral ng Pilipinas, BMI; 4 IMF, BMI; 5 BMI.
19Business Monitor International Ltd www.businessmonitor.com
ECONOMIC OUTLOOK
be necessary over the next two quarters. While we continue to
believe that over the medium term, inflationary pressures are
likely to begin showing through, we have downgraded our 2013
end of period headline inflation forecast to 3.5% from 4.0%
previously, implying a full-year average of 3.2% (against our
previous average forecast of 3.7%). This forecast keeps infla-
tion well within the BSP's target range, and, indeed, we expect
the central bank to retain its benchmark interest rate at a record
low of 3.50% in result.
Real Estate Appreciation A Growing Concern?One area over which the BSP has shown concern is the Philippine
real estate market, which has exhibited some signs of overheating
as price levels continue to rise. As we have written before, the
BSP maintains a 20% target cap for banks' total lending expo-
sure to real estate, and following a revised set of guidelines on
the definition of such loans, it found that total exposure in the
banking sector had breached this level by late 2012 (coming in
at approximately 20.9%). However, in order to dispel fears that
the central bank would act on this data by implementing curbs
on real estate lending, BSP governor Amando M. Tetangco,
Jr. on July 2 announced that he did not believe that the sector
is nearing bubble territory, and that no such cooling measures
are in the works.
Indeed, according to data from Colliers International, a real
estate consultancy, vacancy rates in the prime Makati CBD
district of Manila continue to fall despite a rise in both the sup-
ply of new units and psf prices, which rose by a healthy 2.3%
quarter-on-quarter (q-o-q) in Q113. Furthermore, while the total
expected supply of new residential units across the five main
regions within Manila that Colliers tracks will reach 7,181 in
2013, we believe that the market should continue to benefit over
the medium term from pent-up demand owing to below trend
supply growth dating back to the Asian Financial Crisis in the
late 1990s, as well as record low interest rates and robust real
economic growth.
21Business Monitor International Ltd www.businessmonitor.com
Chapter 3: 10-Year Forecast
The Philippine Economy To 2022
Uncovering A Forgotten Gem?
BMI VIEWThe Philippines holds significant economic growth potential and has
begun to come into the investment spotlight as a result. Although the
country has in the past been hampered by political instability and poor
investor perception, we believe President Benigno Aquino III has been
able to make progress on both fronts. Moreover, consumerism is ex-
pected to pick up in a big way towards the end of the decade as income
levels rise.
We believe the Philippines is a forgotten gem of South East
Asia which, as a result, has begun to come into the investment
spotlight. The former US colony was the most developed na-
tion in the region just after World War II, but mismanagement
over the last few decades has caused the Philippines to languish
as one of the poorest economies. However, we note that the
country has vast economic potential which has yet to be tapped.
Unfortunately, owing to the inordinate amount of attention that
Indonesia (the current investment destination darling of the
region) is getting from foreign investors, we believe that the
Philippines has often been overlooked. With ongoing reforms
and increasing investor awareness, the Philippines is arguably
just beginning to fulfil its potential to be the 'next big thing' in
South East Asia.
At this point, however, we are only projecting real GDP growth
to average a conservative 4.9% (we believe that potential growth
may be nearer 7.0%) over the coming decade. This below-
potential growth projection underpins our concerns about the
country's ability and willingness to enact reforms, longer-term
political stability, and investor perception. While President
Aquino's administration has done well to unlock the country's
near-term growth potential thus far, we believe that he has not
yet tackled the structural reforms necessary to maintain such
growth over the long-term.
Investment-Led Growth To Take Place FirstConditions for an investment-led boom are becoming more
favourable. The Philippines has enjoyed relative monetary
stability over the past five years (barring the sharp run-up in
food prices in 2008) and this is likely to translate into a greater
More Working, More SavingTotal Active Population, ‘000 (LHS) & % of Total Population
61.0
61.5
62.0
62.5
63.0
63.5
64.0
64.5
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
2010
f
2011
f
2012
f
2013
f
2014
f
2015
f
2016
f
2017
f
2018
f
2019
f
2020
f
2021
f
2022
f
2023
f
2024
f
2025
f
Total Active Population '000 LHSTotal Active Population, % RHS
Source: World Bank
TABLE: LONG-TERM MACROECONOMIC FORECASTS2015f 2016f 2017f 2018f 2019f 2020f 2021f 2022f
Nominal GDP, US$bn [1] 335.4 374.3 411.8 451.2 493.1 538.9 588.9 643.6
Real GDP growth, % change y-o-y [1] 5.4 4.6 4.5 4.6 4.6 4.6 4.6 4.6
Population, mn [2] 101.4 103.1 104.7 106.4 108.1 109.7 111.4 113.1
GDP per capita, US$ [1] 3,307 3,631 3,932 4,240 4,563 4,911 5,286 5,691
Consumer price index, % y-o-y, ave [3] 4.0 4.0 4.0 4.0 4.0 4.0 4.0 4.0
Current account balance, % of GDP [3] 1.7 1.6 1.6 1.6 1.5 1.9 2.2 2.4
Exchange rate PHP/US$, ave [4] 41.30 40.25 39.74 39.45 39.25 39.05 38.86 38.66
Notes: f BMI forecasts. Sources: 1 National Statistical Coordination Board/BMI; 2 World Bank/UN/BMI; 3 Bangko Sentral ng Pilipinas, BMI; 4 BMI.
22 Business Monitor International Ltdwww.businessmonitor.com
PHILIPPINES Q3 2013
savings rate. Moreover, the country is unlikely to face inflation
concerns in 2013, underscoring the central bank's credentials.
We expect monetary stability to be maintained, translating into
a higher savings rate over the longer term.
Demographics are also favourable for an increase in the savings
rate in the Philippines. Much of the 95mn-strong population is
youthful (implying a greater level of savings compared with
an ageing population) and we expect the proportion of active
population to increase from around 62.0% in 2010 to around
64.0% in 2025. In absolute terms, the labour force is expected
to increase by around 18.3mn to 2025.
With these dynamics in mind, the accumulation of aggregate
savings over time is likely to translate into a channelling of funds
into investment, improving productivity over the longer term.
Gross fixed capital formation (GFCF) makes up 19.3% of GDP,
down from a peak of 26.0% in 1997 (GFCF growth averaged
just4.6% annually from 2000-2010) and quite low relative to the
country's level of development. We expect GFCF to continue to
grow as a percentage of GDP, projecting average GFCF growth
of 6.7% through to 2022. The increase in the savings rate has
also manifested in the country's external balances; the current
account balance increased from 0.4% of GDP in 2003 to an
estimated 3.2% of GDP in 2012.
Consumption Growth To Take Off LaterEssentially, an investment-led boom would pave the way for a
rise in consumption as a share of GDP towards the later years
of this decade. Currently, consumption loans make up less
than 10.0% of total loans, and we expect this segment to be
better served as per capita GDP more than doubles from the
estimated US$2,490 in 2012 to US$5,630 in 2022. This will be
facilitated by the fact that the banking sector remains decidedly
underleveraged, implying ample room for credit expansion over
the longer term.
Catalysts: Reforms And Political StabilityIn order to reach a higher growth plane, we need to see more
reforms and a period of political stability in order to bring
about a shift in investor perception in the Philippines. Political
stability is a big impediment to investment-led growth in the
Philippines. Indeed, this component of our long-term political
risk ratings scores an uninspiring 62.8 (out of 100), held down
by high levels of poverty and income inequality. These points
have manifested in the form of conflict between the govern-
ment and Muslim and communist rebels, who have regularly
launched attacks within the country. Moreover, the country
also has a high propensity for unrest, with rumours of military
coup and popular uprising all occurring fairly frequently over
the past three decades.
Regarding the fight against corruption, President Benigno
Aquino III has taken some encouraging steps by trying to in-
vestigate alleged graft by former president Gloria Macapagal
Arroyo. However, these efforts appear to be largely thwarted
(see 'Another Setback In Fight Against Corruption', December
8 2010) and we believe that progress will continue to be slow.
Given these issues, it is unsurprising that investors do not view
Philippines as a prime destination in South East Asia. However,
investor perception may change in the coming three or four years
About Average In The RegionBMI Business Environment Ratings, out of 100
0
20
40
60
80
100Infrastructure
InstitutionsMarket Orientation
Philippines Region
Scores out of 100. Source: BMI
Heavy Bottom To Support ConsumptionPopulation By Age Group
0 2,000 4,000 6,000 8,000 10,000 12,000 14,000
0-45-9
10-1415-1920-2425-2930-3435-3940-4445-4950-5455-5960-6465-6970-75
75+2030f
2010e
Source: World Bank
23Business Monitor International Ltd www.businessmonitor.com
10-YEAR FORECAST
BMI’s long-term macroeconomic forecasts are based on a variety of quantitative and qualitative factors. Our 10-year forecasts assume in most
cases that growth eventually converges to a long-term trend, with economic potential being determined by factors such as capital investment,
demographics and productivity growth. Because quantitative frameworks often fail to capture key dynamics behind long-term growth determinants,
our forecasts also reflect analysts’ in-depth knowledge of subjective factors such as institutional strength and political stability. We assess trends in
the composition of the economy on a GDP by expenditure basis in order to determine the degree to which private and government consumption,
fixed investment and the export sector will drive growth in the future. Taken together, these factors feed into our projections for exchange rates,
external account balances and interest rates.
if political stability continues through Aquino's term, possibly
culminating in a peace treaty with rebel groups, and steady
progress is made in combating graft.
Favourite Picks: BPO, Consumer PlaysThe business process outsourcing (BPO) industry in the Philip-
pines has the potential to grow exponentially over the coming
decade. Indeed, the country has a very high literacy rate of more
than 90% and a population that speaks English with a neutral
accent. The government has also leveraged on this competi-
tive edge by deregulating the telecoms industry and introduc-
ing tax breaks, leading to a rapid expansion of this sector. In
2012, BPO revenues in the Philippines are estimated to have
reached US$13bn, easily surpassing India. Encouragingly, Tata Consultancy Services (a leader in the industry) announced in
December 2010 that it will set up a BPO centre in Manila, its
first in South East Asia.
Industries that cater to consumer demand are also attractive for
the longer term. This is starting to play out, with a trend of foreign
companies indicating their willingness to invest in the country.
Notably, US soft drinks giant The Coca-Cola Company has
announced plans to invest another US$1bn into the country in
the next five years. Meanwhile, the autos industry also holds
significant promise. In 2010, vehicle sales surged to a record
168,490 units, surpassing the previous peak set in 1996. Should
the Motor Vehicle Development Programme, which has been a
source of uncertainty for automakers, be approved after missing
its deadline in December 2010, we would expect investment in
this segment to increase significantly.
Infrastructure: Will PPP Work? The public-private partnership
(PPP) programme continues to disappoint, failing to launch ap-
proximately half of the projects slated to begin in 2012. Once
again, however, the government has pledged to speed up progress
on PPP bidding and awarding procedures, and the PPP centre
claims that 2013 will be a watershed year. We are encouraged
that the government has taken initiatives such as involving the
country's largest financial institutions and stating that it will
establish several regulatory changes and financial incentives
to attract investors to these PPPs.
Mining Potential UnderminedThe Philippines is well endowed in terms of mineral resources
(mineral deposits total around US$1trn), but growth in the sector
has consistently underperformed. As a measure of its resource
wealth, the Philippines has the world's second largest gold deposit
and one of the world's largest copper deposits. In addition, it
is also rich in nickel and zinc. However, government efforts to
attract foreign investment in the sector have been hampered by
staunch opposition from several groups; in particular, Maoist
rebels from the longstanding Communist Party of the Philip-
pines (CPP), which accuses large, foreign mining companies of
destroying the environment and exploiting local communities.
In recent years, the New People's Army, the armed wing of the
CPP, has raided and damaged equipment at mines throughout
the country. At this point, we are by no means optimistic about
the mining sector, but this view can change quickly if Aquino
manages to secure stability in the coming years.
25Business Monitor International Ltd www.businessmonitor.com
SWOT Analysis
Strengths A low-cost but educated, English-speaking workforce is the Philip-
pines’ greatest business strength. A number of Western firms have
shifted their operations, particularly call centres, to the Philippines.
The Philippines is a member of the Association of South East Asian
Nations Free Trade Area, under which the association’s 10 member
states are committed to reducing tariff and non-tariff trade barriers.
Weaknesses Political and security concerns are often cited as reasons not to
do business in the Philippines. Much-needed economic reforms
remain stalled, while rebel insurgencies continue in many parts of
the country.
Ageing infrastructure, particularly in the power sector, is a key con-
cern for would-be foreign investors. Efforts to attract greater private
funding through build-operate-transfer schemes have met with only
limited success.
Opportunities The move towards outsourcing by North America and Western Eu-
rope provides the Philippines with an opportunity to attract greater
foreign investment.
The government is targeting the mining sector for a major revival.
The Philippines has considerable metal and mineral resources, and
permits 100% foreign ownership of its mines.
Threats China’s rising economic influence presents opportunities to Philip-
pine firms but also threatens to starve the country of much-needed
foreign investment.
Corruption remains a problem. Transparency International ranked
the Philippines 105th out of 178 countries in its 2010 Corruption
Perceptions Index.
BMI Business Environment Risk RatingsThe Philippines fares rather poorly in our business environment ratings,
scoring only 48.5, as it is dragged down by the country’s score of only
36.8 on the ‘institutions’ component. Indeed, corruption and red tape
have been perennial challenges to companies wishing to do business in
the Philippines. Even with recent initiatives introduced to clamp down on
graft, we do not expect the country’s business environment to improve
overnight. That said, the country scores reasonably well in the ‘market
orientation’ component, with 60.1, indicating a conducive environment
for investment and trade flows.
Chapter 4: Business Environment
Business Environment Rank TrendSingapore 80.0 1 =Hong Kong 78.7 2 =South Korea 71.1 3 =Malaysia 68.6 4 =Taiwan 61.9 5 =Thailand 61.7 6 =China 59.4 7 =Brunei Darussalam 57.8 8 =Vietnam 53.1 9 =Sri Lanka 51.3 10 =Philippines 48.5 11 =Mongolia 47.9 12 =India 46.0 13 =Cambodia 40.4 14 =Indonesia 40.2 15 =Papua New Guinea 40.0 16 =Bangladesh 38.3 17 =Pakistan 37.2 18 =Laos 34.4 19 =Bhutan 33.7 20 =North Korea 18.7 21 =Myanmar - 22 -Regional ave 49.4/Global ave 48.5/Emerging markets ave 45.1
26 Business Monitor International Ltdwww.businessmonitor.com
PHILIPPINES Q3 2013
Business Environment Outlook
IntroductionDespite substantial improvements in its investment climate
in recent years, there is still substantial work to be done if the
Philippines is to continue attracting foreign direct investment
(FDI). Regulatory inconsistency and lack of transparency per-
sist in many sectors, and regulatory authority remains weak or
ambiguous. Foreign businesses often cite corruption as a serious
impediment to investment, and commercial disputes are often
difficult to resolve quickly or satisfactorily in the understaffed
and complex judicial system. In addition, the Philippines has
not sufficiently addressed other key issues such as inadequate
public infrastructure. However, the government acknowledges
the importance of foreign investment to economic development
and, despite the numerous obstacles, many foreign investors
maintain long-term commitments to the Philippines and have
prospered there.
Institutions
Legal Framework The legal system is a blend of Roman civil law, US common
law, Islamic law and indigenous law. The supreme court is
the highest judicial court and the court of last resort. Below
this are courts of appeal, regional trial courts at municipal and
metropolitan levels, district and circuit courts, and shari'a courts.
Islamic law is highly influential in parts of the country, notably
the south. A Code of Muslim Personal Laws has been developed
and special shari'a courts created.
The legal system is often characterised as being weak and in-
efficient, creating logjams in processing cases and producing
inconsistent decisions. It is now in the process of being reformed,
though much work remains to be done.
The constitution guarantees an independent judiciary. However,
the system has been plagued by concerns over the courts' tendency
to go beyond legal interpretation into areas of policymaking.
Allegations of bribery are also rife.
TABLE: BMI BUSINESS AND OPERATION RISK RATINGSInfrastructure Rating Institutions Rating Market Orientation Rating Business Environment
Afghanistan 21.8 20.1 17.9 19.9
Australia 80.3 85.8 68.1 78.0
Bangladesh 40.5 35.2 39.1 38.3
Bhutan 28.8 43.3 29.0 33.7
Cambodia 37.4 31.8 52.0 40.4
China 66.0 56.6 55.7 59.4
Hong Kong 71.1 84.2 80.7 78.7
India 47.4 41.8 48.8 46.0
Indonesia 37.1 31.2 52.3 40.2
Japan 76.4 77.1 49.8 67.8
Laos 39.2 28.7 35.3 34.4
Malaysia 60.1 74.9 70.9 68.6
Maldives 42.7 43.7 41.3 42.6
Nepal 29.4 29.9 30.8 30.0
New Zealand 69.3 92.7 65.3 75.7
Pakistan 33.4 37.0 41.1 37.2
Philippines 48.6 36.8 60.1 48.5
Singapore 71.1 84.2 80.7 80.0
South Korea 63.0 79.1 71.3 71.1
Sri Lanka 54.3 51.8 47.9 51.3
Taiwan 56.1 68.2 61.4 61.9
Thailand 61.0 56.8 67.2 61.7
Vietnam 58.2 39.0 62.2 53.1
Source: BMI. Scores out of 100, with 100 representing the best score available for each indicator
27Business Monitor International Ltd www.businessmonitor.com
BUSINESS ENVIRONMENT
Byzantine court rules allowing much room for delays and appeals,
together with the tendency of the supreme court to take on more
cases than it is equipped to deal with, mean the legal system can
work very slowly. Businesses have complained that the courts
have issued temporary restraining orders too freely in some cases.
Furthermore, those involved in commercial disputes say judges
are often inadequately trained to deal with business-related cases.
Investment disputes can take years to settle. Competition law is
sketchy. The government has pledged to reform the bankruptcy
law, but concrete results have yet to emerge.
Reforms currently under way may improve this situation. Inter-
national organisations have been supporting reform efforts in
areas including improving judicial capacity and integrity, legal
education, bar reform and anti-corruption measures. Moves such
as 2004 legislation clarifying foreign investment legislation for
the mining sector are helping to boost confidence in the system,
but investor scepticism remains.
Property Rights The 1987 constitution bars foreigners from owning land in the
Philippines. The Investors' Lease Act of 1994 allows foreign
companies to lease land for 50 years, renewable once for another
25 years, for a maximum of 75 years. The dual-citizenship holder
is entitled to full rights of possession of land and property as a
Philippine citizen.
Deeds of ownership are difficult to establish and ill-regulated.
The legal framework is ambiguous, making the establishment
of clear ownership difficult. Property disputes can take a long
time to resolve within the court system.
Private individuals or firms have the right to buy and sell prop-
erties or business interests. Business mergers and acquisitions
involving foreign equity must meet foreign nationality cap
requirements.
Philippine law allows expropriation for public use or in the
interest of national welfare or defence. In such cases, the gov-
ernment offers compensation for the affected property. Most
expropriation cases involve acquisition for major public sector
infrastructure projects. In the event of expropriation, foreign
investors have the right under Philippine law to remit sums
received as compensation in the currency in which the invest-
ment was originally made and at the exchange rate at the time
of remittance. However, agreeing on a mutually acceptable price
can be a protracted process.
Intellectual Property Rights Protection of intellectual property rights (IPRs) is seen as weak.
Counterfeit DVDs, CDs, branded designer clothing, handbags,
cigarettes and other goods are widely available.
The country is party to the WTO Trade-Related Aspects of
Intellectual Property Rights agreement, the Paris Convention
for the Protection of Industrial Property and a number of other
relevant organisations. The Philippines is also a member of the
World Intellectual Property Organization but has yet to fully
ratify key elements of the associated treaty.
The Optical Media Act regulates the manufacture and trade of
optical media. An Optical Media Board was established in 2005.
Enforcement has since been stepped up, but prosecutions policy
against IPR infringement is still seen as lacking.
Corruption Corruption within the government and business community
is holding back investment, in spite of efforts to stem the tide.
The Philippines stood at a lowly 105th out of 183 countries
in Transparency International's 2012 Corruption Perceptions
Index, although this represents a marked improvement from
139th place in 2010 and 129 th place in 2011.
Measures to combat corruption and other anti-competitive
business practices include the Philippine Revised Penal Code,
Anti-Graft and Corrupt Practices Act, and Code of Ethical
Conduct for Public Officials.
A US$330mn telecommunications deal with Chinese firm
ZTE , which was meant to create a broadband network to link
government agencies, has redirected focus back on corruption
in the Philippines. Allegations emerged that the contract signed
between the Philippine government and China's second largest
telecoms equipment manufacturer was over-priced, and progress
on the initiative was halted. The alleged involvement of former
president Gloria Macapagal-Arroyo's husband, Michael Arroyo,
made the scandal particularly noteworthy.
Meanwhile, former president Joseph Estrada was pardoned
by Arroyo just six weeks after he was given a life sentence on
charges of plunder. State prosecutors who helped convict Estrada
have criticised the decision, saying that it 'totally demeans the
prosecutor efforts to combat graft and corruption'.
28 Business Monitor International Ltdwww.businessmonitor.com
PHILIPPINES Q3 2013
Infrastructure
Physical InfrastructureThe Philippines lags behind many of its regional peers with
respect to the level of basic infrastructure. In recognition of
this, the government has allocated PHP404.6bn to infrastructure
projects for 2013. This represents a 19.3% increase over 2012,
and the funds will go towards building much-needed highways,
railways, ports, airports and other transport facilities that will
link strategic areas and business centres crucial to trade and
investments.
According to latest estimates, the Philippines has a total of
199,950km of highways, but only 39,590km (19.8%) of these
are paved. Meanwhile, although rail is a growing means of
transport for passengers and cargo, the country's rail network
(which stretches approximately 900km) is largely confined
to the main island of Luzon. Commuters in the Metro Manila
region do, however, benefit from the Manila Light Rail Transit
System and the Manila Metro Rail Transit System.
Transport, including nautical highways and tourism infrastruc-
ture, will be given priority, but the government is also planning
to provide for digital infrastructure, with more schools set to be
equipped with computers – both servers and workstations – and
receive assistance in reducing connectivity costs.
The Philippines also has an estimated 3,219km of navigable
waterways, although these are limited to shallow-draft (less than
1.5m) vessels. The main gateway to the Philippines from the sea
is through the Manila International Cargo Terminal and the Eva
Macapagal Port Terminal, both located in Manila. In addition,
the country has 266 airports, although just 76 of these have
paved runways and only four are more than 3,047m in length.
On the back of the government's increased focus on infrastructure
investment, as well as consistent demand for office space from the
business process outsourcing industry, the construction industry
remains strong. The industry also has the distinct advantage
of having competitive price and quality, environment-friendly
operations, customer orientation, sales and delivery reliability
and post-sales service commitments.
Labour Force The labour force amounts to around 62.7mn out of a total popu-
TABLE: BMI LEGAL FRAMEWORK RATINGInvestor Protection Score Rule Of Law Score Contract Enforceability
ScoreCorruption Score
Afghanistan 1.9 20.1 17.9 19.9
Australia 78.9 85.8 68.1 78.0
Bangladesh 59.1 35.2 39.1 38.3
Bhutan 14.8 43.3 29.0 33.7
Cambodia 31.5 31.8 52.0 40.4
China 64.4 56.6 55.7 59.4
Hong Kong 93.7 84.2 80.7 78.7
India 61.5 41.8 48.8 46.0
Indonesia 53.9 38.7 64.7 50.8
Japan 80.7 77.1 49.8 67.8
Laos 14.0 28.7 35.3 34.4
Malaysia 80.1 74.9 70.9 68.6
Maldives 24.3 43.7 41.3 42.6
Nepal 41.8 29.9 30.8 30.0
New Zealand 94.6 92.7 65.3 75.7
Pakistan 46.4 37.0 41.1 37.2
Philippines 36.4 36.8 60.1 48.5
Singapore 96.2 87.1 81.2 80.0
South Korea 68.5 79.1 71.3 71.1
Sri Lanka 63.2 51.8 47.9 51.3
Taiwan 67.2 68.2 61.4 61.9
Thailand 53.7 56.8 67.2 61.7
Vietnam 24.4 39.0 62.2 53.1
Source: BMI. Scores out of 100, with 100 representing the best score available for each indicator
29Business Monitor International Ltd www.businessmonitor.com
BUSINESS ENVIRONMENT
lation of some 96.5mn. Around half the workforce is employed
in the service sector, just over a third works in agriculture, with
the remainder in industry. The official unemployment rate in
Q213 came in at 7.5%, with considerable under-employment at
19.2%. This has led to more than 10% of the population to seek
jobs overseas, leading to a potentially destabilising 'brain drain'.
The shift towards export-oriented manufacturing and process-
ing has boosted the proportion of the workforce working in this
area. Labour is in abundant supply and is generally produc-
tive, especially within foreign-owned companies. Workers are
regarded as highly trainable; many speak good English, and
skilled professionals are fairly easy to find. The wage bill is
relatively cheap by international standards in both skilled and
non-skilled sectors.
Labour laws are reasonable and do not generally bring com-
plaints from investors. The Labour Code of the Philippines
of 1976 and its subsequent revisions house all labour-related
legislation. Grounds for termination of employment include
neglect of duties, fraud and installation of labour-saving devices,
redundancy or retrenchment to prevent losses or cessation of
operations, among others.
Employers must give the Department of Labour and Employ-
ment one month's notice of the termination of employee services.
All new workers serve probation usually not exceeding six
months. Minimum wages are determined regionally by wage
and productivity boards. Recently, these boards have adjusted
the minimum wage rate around once a year. The minimum wage
in Metro Manila is currently PHP426.
The country fully participates in International Labour Organiza-
tion conventions. However, failure to comply with minimum
wage regulations is quite common, as is failure to pay social
security and other contributions.
The constitution gives workers the right to form and join trade
unions. Management-labour relations are generally good, in-
cluding those with all but the most politically motivated trade
unions. There are more than 25,000 unions in the Philippines,
but they are generally not militant. Plant closures in the past in
industries vulnerable to falling trade barriers have made unions
more prepared to accept productivity-based job packages.
Foreign companies are generally considered to provide the best-
paid jobs with the best conditions, so their employees tend to
TABLE: LABOUR FORCE QUALITYLiteracy Rate,% Labour Market Rigidity Score Female Labour Participation, %
Afghanistan 28.0 20.0 33.1
Australia 99.0 0.0 58.4
Bangladesh 52.5 28.0 58.7
Bhutan 54.3 7.0 53.4
Cambodia 75.6 36.0 73.6
China 93.0 31.0 67.4
Hong Kong 93.5 0.0 52.2
India 65.2 30.0 32.8
Indonesia 91.0 40.0 52.0
Japan 99.0 16.0 47.9
Laos 72.5 20.0 77.7
Malaysia 91.5 10.0 44.4
Maldives 97.0 18.0 57.1
Nepal 55.2 46.0 63.3
New Zealand 99.0 7.0 61.8
Pakistan 54.2 43.0 21.7
Philippines 93.3 29.0 49.2
Singapore 94.2 0.0 53.7
South Korea 99.0 38.0 50.1
Sri Lanka 90.8 20.0 34.2
Taiwan 96.1 46.0 n/a
Thailand 93.9 11.0 65.5
Vietnam 90.3 21.0 68.0
Source: BMI/World Bank/ILO. Labour Market Rigidity score from Ease of Doing Business report, 1 = highest score
30 Business Monitor International Ltdwww.businessmonitor.com
PHILIPPINES Q3 2013
have good attendance records. The Labour Code recognises a
number of unfair practices, such as discrimination against women
and bargaining stalemates, as grounds for strikes. Suppression
of labour rights is a criminal offence.
Market Orientation
Foreign Investment Policy Attracting investment has been a stated government priority.
Significantly, FDI has begun to recover from the effects of the
global economic downturn owing to encouraging capital inflows
and higher reinvestments.
That said, the major obstacle in attracting FDI to the Philippines
remains corruption, with businesses complaining that graft
remains a serious issue, while legislative reform is needed and
IPRs are in urgent need of improved protection. Furthermore, the
continued growth of China as a manufacturing centre continues
to siphon off investment from other Asian countries, including
the Philippines.
The Foreign Investment Act of 1991, amended in 1996, sets the
framework for foreign investment in the Philippines. This per-
mits full ownership of businesses in sectors not subject to legal
restrictions. All investors have to register with the authorities.
In the case of corporations or partnerships, the relevant body
is the Securities and Exchange Commission.
A number of incentives are available in certain sectors. The
basis for these is established in the Omnibus Investment Code
of 1987. The Board of Investment deals with many of these. In
particular, incentives are extensive in the energy sector, where
private sector reform plans are extensive. The Electric Power
Industry Reform Act of 2001 provides the framework for pri-
vatisation of state electricity generation and transmission assets.
As the result of a December 2004 supreme court ruling, foreign-
ers are now allowed 100% ownership of companies involved in
large-scale exploration, development and utilisation of mineral
resources. Approximately US$500mn in investments were
registered in 2007, which is about 60% of the capital invested
in new mining projects since 2004.
However, foreign investment remains partially or entirely re-
stricted in a number of sectors, among which are engineering,
medicine, accountancy, environmental planning, small retail
trade firms, most of the mass media, small-scale mining, private
security, management and use of marine resources.
There are generally no restrictions on the full transfer of funds
TABLE: ASIA – ANNUAL FDI INFLOWS2009 2010 2011
US$bn Per Capita US$bn Per Capita US$bn Per Capita
Australia 26.6 1212.4 35.6 1596.7 41.3 1827.7
Bangladesh 0.7 4.8 0.9 6.1 1.1 7.6
Cambodia 0.5 38.6 0.8 55.4 0.9 62.3
China 95.0 71.2 114.7 85.5 124.0 92.0
Hong Kong 52.4 7497.7 71.1 10076.2 83.2 11675.6
India 35.6 29.5 24.2 19.7 31.6 25.4
Indonesia 4.9 20.5 13.8 57.4 18.9 78.0
Japan 11.9 94.3 -1.3 -9.9 -1.8 -13.9
Malaysia 1.5 52.0 9.1 320.5 12.0 414.6
Mongolia 0.6 233.4 1.7 626.0 4.7 1725.2
New Zealand -0.8 -176.1 0.6 145.5 3.4 761.8
Pakistan 2.3 13.7 2.0 11.6 1.3 7.5
Philippines 2.0 21.4 1.3 13.9 1.3 13.3
Singapore 24.4 4937.2 48.6 9562.1 64.0 12336.9
South Korea 7.5 156.4 8.5 176.6 4.7 96.3
Sri Lanka 0.4 19.5 0.5 22.9 0.3 14.3
Taiwan 2.8 121.3 2.5 107.6 -2.0 -84.5
Thailand 4.9 71.6 9.7 142.8 9.6 139.7
Vietnam 7.6 87.5 8.0 91.1 7.4 83.7
Source: BMI, UNCTAD
31Business Monitor International Ltd www.businessmonitor.com
BUSINESS ENVIRONMENT
linked to foreign investments.
Foreign Trade Regime The Philippines has been a member of the WTO since its incep-
tion in January 1995 and, as a member of Association of South
East Asian Nations (ASEAN), the Philippines is on schedule
to comply with the trade bloc's harmonised tariff targets. Other
members are Brunei, Cambodia, Indonesia, Laos, Malaysia,
Myanmar, Singapore, Thailand and Vietnam. The Philippines
is also a member of the Asia Pacific Economic Cooperation or-
ganisation, which aims to foster growth in the region. However,
the government remains reluctant to open up some sensitive
areas of the economy to unfettered foreign competition. Free
trade agreements (FTAs) with the US and the EU (via ASEAN)
remain under negotiation. The Philippines signed a bilateral
FTA with Japan in September 2006.
Tax RegimeCorporate Tax: Rate is 30%. Resident foreign corporations
– foreign corporations carrying out trade or business in the
Philippines – are taxed on net income sourced in the Philip-
pines. A foreign corporation with a branch in the country is
taxed as a domestic corporation on taxable income from sources
in the Philippines.
Individual Tax: Levied progressively from 5-32%. Resident
individuals are taxed on global income. Non-residents are taxed
on Philippines-sourced income only.
Indirect Tax: VAT is chargeable on most transactions at 12%.
Registration is obligatory for firms with turnover greater than
PHP1.5mn. There are various exemptions. Exports are zero-
rated, as are services related to processing, manufacturing or
repackaging goods for export.
Capital Gains: Usually taxed as income. Gains from share
deals and gains of individuals from property sales are handled
separately. Gains from the sale of property located in the Philip-
pines are liable to a 6% withholding tax. Individuals are exempt
on tax on the sale of a main residence, as long as the proceeds
are used to buy another main residence. A stock transaction tax
of 0.5% is levied on the sale price of shares listed on the Philip-
pine stock exchange. Net gains on the sale of unlisted shares
are liable for a 5% withholding tax on the first PHP100,000 and
10% on amounts above that.
Operational Risk
Security Risk As in many major metropolitan areas, crime is a serious issue
in Metro Manila. Alongside non-violent crimes such as pick-
pocketing and fraud, which are common occurrences, there
have been several kidnappings and violent assaults – includ-
ing of foreigners – in Metro Manila as well as elsewhere in
the Philippines.
The terrorist threat in the Philippines is significant, with persis-
tent reports of ongoing activities by known separatist groups.
Although a ceasefire remains in place with the Moro Islamic
Liberation Front (MILF) and peace talks with the government
were resumed in August 2009, groups – including the Abu Sayyaf
Group (ASG) and Jemaah Islamiyah as well as the Communist
Party of the Philippines and its New People's Army – continue
to present a nationwide threat. However, the groups' main pres-
ence remains concentrated in the south of the country.
In August 2009, the government and the MILF resumed peace
talks after a one-year hiatus. To date, the talks have focused on
establishing a common ground between the government and the
rebel group's wishes to establish a Muslim region across southern
Mindanao: the Autonomous Region in Muslim Mindanao. Dur-
ing the 2008 talks, the government confirmed that both parties
would draft memoranda of agreement on the issue but a peace
agreement was deemed unconstitutional by the Supreme Court
in August 2008.
With the help of the US, government operations against the
ASG have led to a dramatic fall in the group's membership
since mid-2005. The army has stated that counter-insurgency
campaigns have been largely successful in recent years. How-
ever, the ASG has remained active and has conducted several
high-profile attacks in 2007. More recently, the group was behind
the kidnapping of three Red Cross workers in January 2009.
Twenty-three Filipino soldiers and more than 30 rebels were
killed when the army attacked an Abu Sayyaf camp on the
island of Basilan on August 13 2009. While Abu Sayyaf has
suffered several setbacks in recent years – including the death
of its leader Albader Parad following a military raid in February
2010 – it remains a threat to foreigners and Filipinos alike in
the southern parts of the Philippines.
Moreover, the presence of local warlords outside the control of
32 Business Monitor International Ltdwww.businessmonitor.com
PHILIPPINES Q3 2013
the central government in the restive south has also added to
security concerns within the region. In November 2009, more
than 50 people including supporters of Ismail Mangudadatu –
who won a gubernatorial election in May 2010 – and journalists
were killed in a politically motivated attack in Maguindanao,
south-western Mindanao. The perpetrators were allegedly
militiamen affiliated to the rival Ampatuan clan. Andal Am-
patuan Jr (former mayor of Datu Unsay, Maguindanao), who
was accused of being the mastermind, was arrested soon after
the murder took place.
The Foreign & Commonwealth Office (FCO) of the UK gov-
ernment advises against all travel to the Mindanao region – the
country's hub for separatist and terrorist movements – because
of ongoing terrorist activity. There are frequent terrorist attacks
against foreign businesses, particularly foreign mining interests,
such as the one that took place on March 7 2008 when the Apex Mines Company site, which is partly owned by Norway-listed
Intex Resources, was attacked by around 50 men, who disarmed
security guards and set fire to equipment. The FCO also advises
against all travel to the Sulu archipelago, also located in the
south, where there are ongoing military and police operations
against insurgent groups.
TOP EXPORT DESTINATIONS 2002 2003 2004 2005 2006 2007 2008 2009Exports to US 8,690.77 7,274.81 7,208.66 7,429.25 8,607.58 8,601.40 8,216.44 6,924.20Exports to Japan 5,293.29 5,768.05 7,983.39 7,203.24 7,741.36 7,304.15 7,707.06 6,391.65Exports to Netherlands 3,054.91 2,921.71 3,582.95 4,031.80 4,753.10 4,149.52 3,708.37 3,712.31Exports to Hong Kong 2,358.53 3,093.90 3,145.61 3,338.85 3,675.76 5,803.52 4,987.49 3,296.84Exports to China 1,355.83 2,144.65 2,653.04 4,076.68 4,617.33 5,749.86 5,469.19 2,986.46Total 32,693.25 33,712.42 37,423.95 39,313.30 44,956.61 48,448.92 47,135.36 37,559.94Top 5 20,753.33 21,203.12 24,573.65 26,079.82 29,395.13 31,608.45 30,088.55 23,311.46% from top 5 trade partners 63.48 62.89 65.66 66.34 65.39 65.24 63.83 62.06
Source: IMF
33Business Monitor International Ltd www.businessmonitor.com
Chapter 5: Key Sectors
Telecommunications
Executive Summary BMI VIEWThe Philippine telecoms market harbours low-term growth
opportunities in light of factors such as the high percentage of
prepaid subscribers and comparatively low broadband penetra-
tion rate. At present, the overall industry has not been negatively
impacted by the acquisition of Digital Telecommunications Philippines (Digitel) by the Philippine Long Distance Tel-ephone Company (PLDT) even though several market segments
have become a duopoly.
Key Data:
• Although the mobile penetration rate has reached 100%,
we believe that there are still relatively strong growth
opportunities, particularly higher value services as LTE
services are being deployed.
• The number of fixed-line subscribers could be experiencing
a sustained period of contraction due to mobile substitution.
We forecast 4.0mn subscribers by end-2017, representing
3.8% penetration rate.
• Despite the mobile market effectively being a duopoly,
mobile ARPUs continue to trend lower. Based on the current
market situation, we envisage the average market ARPU
(weighted based on market shares of PLDT and Globe Telecom) to fall to PHP126 at end-2017.
Key Trends And Developments
Latest data from PLDT and Globe Telecom showed the Philip-
pine telecoms market continued on its robust growth trajectory,
particularly the mobile and wireless broadband sectors. The
industry is moving towards next generation technologies after
operators embarked on major network programmes over the past
two years. PLDT's two-year network transformation programme
cost PHP67bn and delivered improvements such as increasing
3G population coverage to 71% and deploying 1,000 LTE-ready
sites. Meanwhile, Globe Telecom has announced that its LTE
coverage expanded to key cities in Metro Manila and major
areas outside the metropolis.
A new draft of guidelines governing foreign ownership in sectors
such as telecoms, real estate and other utilities was released by
the Philippines Securities and Exchange Commission. The guide-
lines, which are based on a ruling passed by the Supreme Court
in 2011, were released after a previous draft of such guidelines
was criticised. The guidelines are less strict and provide more
flexibility in determining foreign ownership compared to the
definition mentioned in the Supreme Court ruling, according
to Hans Sicat, president of the Philippines Stock Exchange.
The Philippines remained in 10th position in BMI's Asia Pacific
Telecoms Risk/Reward Ratings with a telecoms rating score
of 51.3. The Philippine real GDP growth smashed consensus
estimates, coming in at 6.6% in 2012 and marking the country's
fastest growth rate since its 2010 post GFC-rebound. We expect
the Philippine economy to continue to outperform as a result of a
robust investment environment as well as the country's increas-
ingly healthy domestic consumer, and have upgraded our 2013
growth forecast to 5.5% from 5.0% previously.
Industry ForecastMobile: The Philippine mobile market experienced a sharp spike
in net additions in Q112, outpacing the numbers of subscribers
added in Q311 and Q411 combined. The momentum continued
in the remainder of 2012, although it was slightly weaker. By
end-2012, there were 103.0mn mobile subscribers, which were
in line with our estimate of 103.1mn.
As we had previously said, we do not expect the recent strong
performance to be replicated in the long term given that the
Philippine mobile market is approaching saturation. The strong
growth in Smart Communications' mobile subscriber base,
which is primarily prepaid subscriptions, could be due to pro-
motional efforts, particularly lower tariff rates to Sun Cellular subscribers, in addition to an increasing incident of multi-SIM
ownership. Smart Communications gained 5.0mn prepaid sub-
scribers in 2012, which dwarfed Globe Telecom's 2.8mn and
Sun Cellular's 791,000.
34 Business Monitor International Ltdwww.businessmonitor.com
PHILIPPINES Q3 2013
Given that our previous end-2012 mobile subscriber estimate
was spot on, we have retained our forecast scenarios. We envis-
age 110.2mn mobile subscribers in the Philippines at end-2013,
representing a penetration rate of 112.3%. We continue to see
prepaid subscriptions forming the main growth driver due to
multiple SIM ownership and expansion into untapped rural
regions, although some of the momentum would be eroded by
operators' efforts to encourage migration to postpaid services.
The tapering of the growth momentum through 2017 is also
a reflection of market saturation. By end-2017, we envisage
121.1mn mobile subscribers in the country, an equivalent of
115.5% penetration rate.
Meanwhile, 3G subscriber data continue to be unavailable from
the NTC and mobile operators. The Philippine Long Distance
Telephone Company, Globe Telecom and Digital Telecommu-
nications Philippines reported that they had a combined mobile
broadband subscriber base of 3.7mn at the end of December
2012, although these figures include fixed-wireless and fully
mobile broadband subscribers and therefore are not an exact
representation of the 3G market in the Philippines. Neverthe-
less, it provides a rough insight into the growth momentum, and
the impressive annual growth rate (14% as of Q412), as well as
strong demand for smartphones, indicates that 3G services are
becoming increasingly popular in the Philippines.
Operators have recently stepped up efforts to promote smart-
phones such as Apple's iPhone, BlackBerry devices and
Android-based devices, and we believe that these mobile handsets
are well received by the Philippine consumers. The launch of
low-cost devices will also play a significant role as the majority
of the consumers are still price-sensitive. We estimate that there
were 9.9mn 3G subscribers in the Philippines at the end of 2012,
and we expect this number to increase to 11.9mn by end-2013,
representing 10.8% of the mobile market. By end-2017, we
envisage 17.3mn 3G subscribers in the country.
ARPU: Both the Philippine Long Distance Telephone Company
(PLDT) and Globe Telecom have not provided their recent
blended ARPUs, although they have released a breakdown
based on subscription type. In the previous quarter's update, we
revised our data set for Globe Telecom given that the operator
has stopped providing its net ARPUs. Instead, our ARPU forecast
for Globe Telecom is based on its gross ARPUs.
According to our calculations, PLDT-owned Smart Communi-
cations saw its blended ARPU continue trending downwards
in 2012. By Q412, we believe that Smart Communications
had a blended ARPU of PHP137. Although the operator has
a significantly higher postpaid ARPU, its postpaid subscriber
base accounts for only 1% of its total. Smart Communications'
prepaid ARPUs have been trending downwards due to a variety
of factors such as expansion into rural regions and focusing on
the lower end of the market. We expect this trend to continue
as Smart Communications continues to focus on this market
segment. We also do not expect the adoption of mobile data to
fully compensate for the decline in voice revenues, as seen in
other countries.
Likewise, Globe Telecom's prepaid ARPUs have been trending
downwards while its postpaid segment has been providing sup-
port. While the operator's postpaid subscriber base is gradually
increasing, its percentage of the total is still small. Consequently,
this means that Globe Telecom's blended ARPU is most likely
to be influenced by changes in its prepaid ARPUs. Addition-
ally, although the operator is actively trying to encourage the
TABLE: TELECOMS SECTOR – MOBILE – HISTORICAL DATA AND FORECASTS2010 2011 2012 2013f 2014f 2015f 2016f 2017f
No. of mobile phone subscribers ('000) 86,147 93,737 102,985 110,194 115,704 118,018 119,789 120,986
No. of mobile phone subscribers/100 inhabitants 92.4 98.8 106.8 112.3 116.0 116.4 116.2 115.5
No. of mobile subscribers/100 fixed-line subscribers 2,075 2,245 2,479 2,665 2,813 2,898 2,971 3,031
No. of 3G phone subscribers ('000) 6,130 8,276 9,931 11,917 13,704 15,075 16,281 17,257
3G market as % of entire mobile market 7.1 8.8 9.6 10.8 11.8 12.8 13.6 14.3
f = BMI forecast. Source: BMI, NTC, operators
TABLE: TELECOMS SECTOR – ARPU – HISTORICAL DATA AND FORECASTS, (PHP) 2010 2011 2012 2013f 2014f 2015f 2016f 2017f
Smart Communications 171 153 137 126 118 115 112 110
Globe Telecom 225 186 177 172 167 163 159 155
Weighted Average ARPU 191 165 152 143 136 132 129 126
f = BMI forecast. Source: BMI, operators
35Business Monitor International Ltd www.businessmonitor.com
KEY SECTORS
adoption of mobile data services, it will not completely negate
the decline in voice ARPU. Coupled with competition from
PLDT, which became stronger after the acquisition of Digital
Telecommunications Philippines (Digitel), we envisage Globe
Telecom's blended ARPU to trend lower in the future. Globe
Telecom reported a blended gross ARPU of PHP177 in Q412,
down from PHP186 in Q411.
Meanwhile, PLDT has started to provide Digitel's ARPU data,
but there are insufficient historical figures to formulate a fore-
cast. We calculate that Digitel had a blended ARPU of PHP92
in Q412, up from PHP82 in Q112. Digitel saw its blended
ARPU increase throughout 2012, which could be attributed to
its higher proportion of postpaid subscribers and a net loss of
408,000 prepaid subscribers in Q412.
BMI estimates the weighted average ARPU (based on market
share) of Smart Communications and Globe Telecom to reach
PHP152 in Q412. Thereafter, we expect the average to decline to
PHP126 in 2017. At present, we have yet to incorporate ARPU
data from Digitel due to a lack of historical data.
Fixed Line: BMI's forecast for the Philippines' fixed-line sector
is based largely on data published by PLDT, Globe Telecom
and Digitel.
Although the National Telecommunications Commission has
provided 2010 and 2011 data, the figures are incomplete as
PLDT's data were as of September 2011. Additionally, a num-
ber of smaller operators did not submit their 2011 results. We
estimate that there were about 4.176mn fixed-line subscribers
in the country at the end of 2011, higher than the regulator's
estimate of 3.556mn. By end-2012, we estimate there were
4.155mn fixed lines.
In many parts of the world, fixed-line operators are experiencing
downward pressure on their customer numbers because of the
increasing popularity of affordable, convenient and sophisticated
mobile services. However, in the Philippines, operators have
been reporting an increase in their fixed-line subscriber bases
in the last few years. We attribute the increase to companies'
efforts to bundle other telecoms services with the basic fixed-line
service, expansion into the country's rural regions and consumer
demand for non-fibre-based broadband services. However, the
uptrend is unlikely to sustain in the long term. This view has
started to play out as PLDT reported declining fixed-line sub-
scribers in 2012 while Digitel's fixed-line subscriber base has
been contracting since mid-2011.
In future, a number of trends are expected to put further pres-
sure on the traditional fixed-line market. These include the
spread of VoIP, which is often provided free, and the rising
use of fixed-wireless connections, with mobile operators al-
lowing fixed accesses to their wireless networks. However, we
note that some fixed operators are launching their own fixed-
wireless services and the ongoing expansion into rural parts of
the country should continue to provide some growth support in
the short-to-medium term.
W e have revised down our forecasts due to PLDT's declining
fixed-line subscriber base. We forecast that there will be 4.1mn
fixed-line subscribers in the Philippines at the end of 2013,
representing a penetration rate of 4.2 %. By the end of 2017, we
forecast there will be 4.0mn fixed-line subscribers in the country.
Broadband: Latest data from the International Telecommu-
nication Union showed that there 27.481mn internet users in
the Philippines in 2011, up from 23.276mn in 2010. This was
largely in line with our previous estimate of 27.930mn internet
users at the end of 2011. By end-2012, we estimate that this
TABLE: TELECOMS SECTOR – FIXED LINE – HISTORICAL DATA AND FORECASTS2010 2011 2012e 2013f 2014f 2015f 2016f 2017f
No. of main telephone lines in service ('000) 4,151 4,176 4,155 4,134 4,114 4,073 4,032 3,991
No. of main telephone lines/100 inhabitants 4.5 4.4 4.3 4.2 4.1 4.0 3.9 3.8
e/f = BMI estimate/forecast. Source: BMI, NTC, operators
TABLE: TELECOMS SECTOR – BROADBAND – HISTORICAL DATA AND FORECASTS, 2010-2017 2010 2011 2012e 2013f 2014f 2015f 2016f 2017f
No. of internet users ('000) 23,276 27,481 30,779 33,241 35,235 36,997 38,847 40,789
No. of internet users/100 inhabitants 25.0 29.0 31.9 33.9 35.3 36.5 37.7 38.9
No. of broadband internet subscribers ('000) 4,543 5,815 7,094 8,088 8,896 9,608 10,377 11,207
No. of broadband internet subscribers/100 inhabitants 4.9 6.1 7.4 8.2 8.9 9.5 10.1 10.7
e/f = BMI estimate/forecast. Source: BMI, ITU, NTC, operators
36 Business Monitor International Ltdwww.businessmonitor.com
PHILIPPINES Q3 2013
number increased to 30.779mn due to the growing adoption
of fixed internet services such as broadband as well as mobile
solutions such as 3G and WiMAX services. By 2017, we fore-
cast 40.789mn internet users in the Philippines, representing a
penetration rate of 38.9%.
Meanwhile, we continue to estimate that the Philippines had a
little more than 7mn broadband subscribers at the end of 2012.
The exact size of the market is difficult to estimate given that
many of the providers do not release their subscriber data.
However, we believe that PLDT and Globe Telecom are the
market leaders with 2.6 mn and 1.7 mn broadband subscribers
(fixed and mobile) respectively at the end of December 2012.
Meanwhile, Digitel had about 707,000 subscribers. Mobile
broadband has been the main driver of subscriber growth for
all three companies, and we expect this trend to continue in the
long run, especially when the sector is still in its infancy stage
and presents substantial growth potential.
We hold an optimistic view on the Philippines' broadband in-
dustry due to operators' efforts to improve coverage and spur
subscriber growth by offering competitively priced services.
PLDT and Globe Telecom have clearly stated that mobile
broadband services play a vital role in their companies' growth
from 2012 onwards and they have committed significant capital
expenditure for network expansions and upgrades. Both operators
have launched commercial LTE services for smartphones and
mobile broadband, and are in the midst of expanding coverage.
We expect this to help fuel the overall growth for broadband
services in the country. Additionally, the operators have been
upgrading their network infrastructure, which should help to cope
with the growing demand and ensure that network congestion
would be minimised. This should enhance the attractiveness of
mobile broadband services. Unlike the increasingly marginalised
WiMAX sector, LTE has garnered greater support from telecoms
operators and device manufacturers globally, which will ensure
that low-cost devices will be available.
At the end of 2013, we expect 8.088mn broadband subscribers,
representing a penetration rate of 8.2%. By 2017, we forecast
the number of fixed and mobile broadband subscribers in the
Philippines to increase to 11.207mn, a 10.7% penetration rate.
Pharmaceuticals
Executive SummaryBMI VIEWOpportunities in the Philippines pharmaceutical and healthcare
markets are currently supported by a lack of governance over
drug pricing, providing short-term revenue growth opportunities
for pharmaceutical firms. Expansion of expenditure is also un-
derpinned by overall economic stability , as well as the eventual
implementation of universal healthcare coverage. However,
potential threats to political stability may threaten overall growth
in the sector in terms of policy continuity.
Headline Expenditure Projections
• Pharmaceuticals: PHP129.78bn (US$3.07bn) in total
sales in 2012, rising to PHP133.78bn (US$3.24bn) in 2013;
+3.1% in local currency terms and +5.7% in US dollar terms.
• Healthcare: PHP399.54bn (US$9.45bn) in sales in 2012
rising to PHP440.99bn (US$10.69bn) in 2013; +10.4% in
local currency terms and +13.2% in US dollar terms.
Risk/Reward Rating: The Philippines' Pharmaceutical Risk/
Reward Rating (RRR) score for Q213 is unchanged from the
previous quarter. This is also the case for all other countries in
BMI's proprietary system that ranks pharmaceutical markets
according to attractiveness to multinational drugmakers. A
minor re-weighting of one of the RRR components is being
implemented to improve the tool, and the adjusted scores for
all markets will be published in the Q313 updates of the Phar-
maceuticals & Healthcare reports. The Philippines has a RRR
score of 45.7 out of 100, making it the 14th most attractive
pharmaceutical market in Asia Pacific. On the whole, there is
evidence that the market is maturing, with some sectors calling
for the expansion of the socialised healthcare system to serve the
entire nation. It is thought that such changes will boost volume
consumption in particular.
Key Trends And Developments
• A 'sin tax bill' has received support from 12 medical as-
sociations in the Philippines, as well as by a survey. The
survey results, revealed in December 2012, showed that
teenage smokers would quit smoking if cigarette prices were
increased by PHP10.00 (US$0.24). The medical fraternity
described the bill as a 'good compromise'; generating more
tax revenues for the Filipino healthcare system and avoiding
37Business Monitor International Ltd www.businessmonitor.com
KEY SECTORS
further deaths from smoking.
• In January 2013, the Philippine Charity Sweepstakes Of-
fice (PCSO) introduced new reforms to accelerate financial
transactions and assure faster repayments to drug suppliers.
The institution-wide reforms intend to reduce pharmaceuti-
cal prices by 20% and decrease repayment time to suppliers
from six months to 45 days. The new arrangement also al-
lows medicine suppliers to identify key points near PCSO
assistance centres (such as clinics and provincial branches)
for easy access to and availability of medical supplies.
BMI Economic View: By nearly all accounts, the Philippine
economy experienced a solidly above consensus year in 2012,
expanding by at least 6.0% even as the rest of the region slowed.
While we expect headline growth to moderate somewhat to
5.0% in 2013, we believe that the economy will continue to be
an outperformer in the region on the back of strong investment
activity and a resilient consumer. However, we also note that the
Philippines will need to more effectively address its structural
inefficiencies and barriers to foreign investment in order for the
economy to achieve consistently high rates of growth.
BMI Political View: In view of China's ongoing ascendancy
to the position of Asia's regional hegemon, the Philippines has
found a natural partner in Japan as a potential counterbalance in
increasingly contentious territorial disputes with the mainland.
While we expect Philippine security relations with Japan and
the US to continue to strengthen, we note that territorial dis-
putes between China and the Philippines are as of yet unlikely
to cause anywhere near the scale of economic damage seen in
the Japan-China row, even in the relatively likely event that
confrontation re-emerges.
Industry ForecastGenerics: The country's generic drug market has registered
significant development in the past years. According to Ben-
jamin Liuson, the Generics Pharmacy's President, speaking in
January 2013, the generic drug market is now larger than the
branded medicines market. However due to their lower price
point, BMI estimates that in value terms, generics account for
around 20% of the overall drug market.
Spending on generic medicines was calculated to have reached
PHP23.56bn (US$0.56bn) in 2012, representing a modest but
growing 18.2% of the total market's value. While we expect this
share to improve further, the price control strategy employed
by the authorities – lowering the costs of branded drugs – has
also restricted the supply of inexpensive generic drugs, as
those products are now facing competition from lower-priced
brand-name drugs, according to Edward Isaac of the Philippine
Chamber of the Pharmaceutical Industry. Some drug retailers
have put their expansion plans on hold due to a decline in their
profits. Additionally, the non-government Centre for Legisla-
tive Development (CLD) conducted a study in 2009, which
concluded that the enforcement of 50-70% drug price cuts had
only benefited the middle class, while the poor failed to benefit
from cheap medicine.
Nevertheless, by 2022, the generic drug sector is forecast to
have a value of PHP68.25bn (US$1.69bn), posting a CAGR
of 11.2%, significantly above the growth rate expected for
the pharmaceutical market (+4.2%) as a whole. Key drivers
of the generic drug sector over the forecast period include the
increasing need for low-cost drugs, budgetary increases, new
legislation, patent expirations and the push to increase compli-
ance with public sector generic prescribing and substitution.
Additionally, Secretary of Health Enrique Ona recommended
the compulsory use of generic drugs for users of PhilHealth to
help cut the prices of medicines in March 2012. During a hear-
ing of the Quality Affordable Medicine Oversight Committee,
Ona stated that the government might not pay PhilHealth if
prescribed drugs are not generics.
Despite an entrenched preference for branded products, we
project demand for generic drugs will outpace patented prod-
TABLE: PHILIPPINES GENERICS DRUG MARKET INDICATORS, HISTORICAL DATA AND FORECASTS, 2009-2017 2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f
Generic drug sales (US$bn) 0.36 0.44 0.50 0.56 0.63 0.69 0.77 0.87 0.97
Generic drug sales (US$bn), % chg y-o-y 12.0 22.7 13.7 12.1 13.2 9.1 12.1 12.9 11.1
Generic drug sales (PHPbn) 16.94 19.71 21.53 23.56 26.01 28.73 31.81 35.26 39.18
Generic drug sales (PHPbn), % chg y-o-y 19.9 16.4 9.2 9.5 10.4 10.5 10.7 10.9 11.1
Generic drug sales, % of prescription sales 20.14 22.99 24.51 25.94 27.83 29.66 31.61 33.69 35.91
Generic drug sales, % of total sales 14.00 16.00 17.08 18.16 19.45 20.75 22.15 23.63 25.22
f = BMI forecast. Source: BMI, Pharmaceutical and Healthcare Association of the Philippines (PHAP), IMS Health Combined Philippines Pharmaceutical Index and Philippine Hospital Audit
38 Business Monitor International Ltdwww.businessmonitor.com
PHILIPPINES Q3 2013
ucts and OTC medicines as their popularity increases. Doc-
tors' prescriptions are typically written using generic names,
although prescribers can also stipulate brands (in parenthesis)
below generic names. We therefore believe there are significant
opportunities for manufacturers of generic medicines operating
in the Philippines.
In fact, a 2008 questionnaire found that six out of 10 consumers
had purchased low-cost generic medicines. State-employed doc-
tors are required to prescribe by international non-proprietary
name. Prices of some common medicines–including simvastatin,
amoxicillin and paracetamol–have already dropped significantly,
with more preparations having fallen under the maximum retail
price scheme in H110.
A major driver of the generic drug sector has been the Universally
Accessible Cheaper and Quality Medicines Act of 2008, which
aimed to increase the use of affordable generic medicines while
simultaneously reducing reliance on foreign-patented medicines.
Specifically, the legislation stipulates that pharmaceutical com-
panies cannot apply for patents based on newly discovered uses
of a known drug. Local companies can test, manufacture and
register generic versions of patented drugs so they can be sold
immediately after expiration of intellectual property protection.
It also gives the government powers to put price ceilings on
various medicines, as is the case in many emerging markets.
According to a government survey, generic drugs can be up
to 80% cheaper than the original, patent-protected medicine.
Moreover, the Botika ng Bayan (BNB) and Botika ng Baran-
gay (BnB) outlet schemes have also boosted the availability of
generic drugs, despite a slow roll-out and unequal distribution.
The programme provides medicines at very low prices to people
that previously had only minimal access to healthcare. More
recently, the government approved legislation for compulsory
licensing as well as for Bolar-style legislation, which will allow
extra generic medicines to enter the market earlier.
A factor limiting growth of the generic drug market is that
doctors are often neglectful when it comes to using generic
names in prescriptions, forcing patients to purchase brand-name
products. Additionally, pharmacies do not always inform the
consumers accurately about the possible choices available. This
last obstacle could be overcome if the government offered incen-
tives for generic dispensing. Another problem is that parallel
imports are, for the most part, restricted to lower-cost branded
drugs and not generic products, although Norvasc (amlodipine)
is a notable exception.
OTC: OTC drugs account for around 30% of the total market,
with the percentage remaining relatively constant over the past
decade, but forecast to fall in the medium term, as the authori-
ties strive to make prescription drugs more affordable. OTCs
can be sold in non-pharmacy outlets, such as supermarkets and
convenience stores, according to the Cheaper Medicines Act,
Section 25. Switching of prescription medicines to OTC status is
supported by the government, for a variety of reasons, including
costs and the fact that there is a trend towards self-medication.
In recent years, some of the switches included Roche's obesity
drug Xenical (orlistat) and Unilab's antihistamine Allerta (lo-
ratadine) and cold treatment Allerin AH (dipehndyramine HCl).
Non-prescription medicines can be advertised to the public
through all media channels. PHAP members conform to the
voluntary code of practice, which was originally created in 1995.
New retail establishments are reversing a previous trend that has
seen OTCs found behind the counter, through the creation of
self-serve areas, which should have a positive impact on OTC
market development.
However, compulsory licensing, the encouragement of parallel
trade and the government programme to boost the use of generic
drugs will strive to lower OTC market share in relation to its
prescription counterpart. Additionally, the plan to cut drug prices
is likely to encourage wider use of prescription pharmaceuti-
cals, although the OTC sector will be encouraged by economic
improvements, posting a 2012-2022 CAGR of 3.9% in local
currency terms, in comparison to 4.3% for prescription drugs.
OTC sales growth will be driven by a combination of direct-
TABLE: PHILIPPINES OVER-THE-COUNTER (OTC) MEDICINE MARKET INDICATORS, HISTORICAL DATA AND FORECASTS, 2009-2017
2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017fOver-the-counter (OTC) medicine sales (US$bn) 0.78 0.83 0.88 0.92 0.98 1.00 1.04 1.10 1.14Over-the-counter (OTC) medicine sales (US$bn), % chg y-o-y 1.5 7.1 6.2 4.3 6.1 2.0 4.7 5.5 3.8Over-the-counter (OTC) medicine sales (PHPbn) 36.89 37.46 38.20 38.94 40.31 41.60 43.03 44.56 46.24Over-the-counter (OTC) medicine sales (PHPbn), % chg y-o-y 8.7 1.6 2.0 1.9 3.5 3.2 3.4 3.6 3.8Over-the-counter (OTC) medicine sales, % of total sales 30.49 30.41 30.31 30.01 30.13 30.04 29.95 29.86 29.77
f = BMI forecast. Source: BMI, AESGP
39Business Monitor International Ltd www.businessmonitor.com
KEY SECTORS
to-consumer (DTC) advertising, the rising importance of self-
medication and the low cost of OTC products, as well as more
extensive distribution channels (including the entry of foreign
chains and the establishment of mobile pharmacies), which were
made possible by the 2000 decree allowing foreign investment in
the retail market. Chains such as Watsons have generated supply
chain efficiencies, enabling drugs to be sold at lower prices. For
example, some stores sell OTCs in smaller pack sizes to reflect
low disposable income in the country. Others make it possible
for consumers to fill their prescriptions one day at a time.
Analgesics are expected to perform well in the OTC market over
the next five years, with many multinationals exploring business
opportunities in this field and consumers increasingly becoming
accustomed to treating pain with consumer health products. The
increased prevalence of 'Western' style working habits and sub-
sequent, associated rising levels of stress and related ailments,
such as headaches, should see the segment continue to develop.
The most popular ingredient is acetaminophen/paracetamol.
Marketing and branding remain an important determinant of
OTC purchases.
Herbal medicines are estimated to be worth around PHP100mn
(US$2mn), according to the Department of Trade and Industry.
They have posted strong growth in recent years, boosted by
cultural factors and the high price of conventional medicines.
Recent legislation giving consumers more choice in purchasing
OTCs should aid the development of the market. However, nega-
tive press from PMA, which has criticised herbal medicines as
unscientific, could cause confidence to fall. Herbal producers have
responded by pointing out that they perform stringent tests with
regard to toxicity. With large sections of the population unable
to gain access to healthcare, this sector should remain buoyant.
Prescription: Prescription medicines will continue to account
for the majority of the market, at over 70% of the total by
value. Key drivers of growth will be demographic changes, IP
improvements and the government's desire to improve public
health. On the other hand, government measures–such as those
stipulating that certain antibiotics can only be purchased by a
government-controlled company – will continue to hamper sec-
tor development in value terms. An increase in the amount of
parallel trade medicines and the introduction of a price ceiling
for more products also have the potential to negatively impact
prescription values. By 2017, the prescription medicine sector
is forecast to be worth PHP109.09bn (US$2.69bn), posting a
five-year local currency CAGR of 3.7%.
Foreign companies account for the majority of sales in all
therapeutic categories, apart from hospital solutions. According
to IMS Health data from September 2007, foreign companies
supply over 80% of the drugs used in the following therapeutic
areas: dermatological, antineoplastic and immunomodulating
agents, sensory organ, diagnostic agents and parasitological
preparations. Domestic manufacturers have a 40-45% share in
the alimentary tract and metabolism, musculoskeletal system
and anti-infective categories, which is indicative of the basic
nature of local production.
The rising number of HIV/AIDS patients recorded in the country
has encouraged the use of ARVs, and vice versa. According
to Mario Villaverde, an undersecretary to the Department of
Health, one of the reasons for the increasing number of cases,
which is currently being verified by the Department, could be
the free availability of antiretroviral drugs, which are encour-
aging more people to declare their HIV status. Antiretrovirals
have been dispensed free of cost in the Philippines since 2006.
With regard to other therapeutic areas, health specialists in the
country have warned about the over-prescription of antibiot-
ics, which in other Asian markets has resulted in high levels
of resistance. On a more positive note, central nervous system
(CNS) drugs and cardiovascular treatments are also beginning
to show signs of development, as conditions extensively treated
in 'Western' nations – such as depression and heart disease – are
better understood. However, the growth of those segments will
be hampered by the low purchasing power of the majority of
the population.
TABLE: PHILIPPINES PRESCRIPTION DRUG MARKET INDICATORS, HISTORICAL DATA AND FORECASTS, 2009-2017
2009 2010 2011 2012 2013f 2014f 2015f 2016f 2017fPrescription drug sales (US$bn) 1.77 1.90 2.03 2.15 2.27 2.32 2.44 2.58 2.69Prescription drug sales (US$bn), % chg y-o-y -6.2 7.5 6.7 5.9 5.5 2.4 5.1 5.9 4.2Prescription drug sales (PHPbn) 84.11 85.74 87.84 90.84 93.47 96.87 100.63 104.66 109.09Prescription drug sales (PHPbn), % chg y-o-y 0.3 1.9 2.4 3.4 2.9 3.6 3.9 4.0 4.2Prescription drug sales, % of total sales 69.51 69.59 69.69 69.99 69.87 69.96 70.05 70.14 70.23
f = BMI forecast. Source: BMI, Pharmaceutical and Healthcare Association of the Philippines (PHAP), IMS Health Combined Philippines Pharmaceutical Index and Philippine Hospital Audit
40 Business Monitor International Ltdwww.businessmonitor.com
PHILIPPINES Q3 2013
Another issue currently discussed in the Philippines with regard
to prescription medicines is the fact that many drugs are wasted
or not used properly. Esperanza Cabral, former health secretary,
said the majority of Filipinos do not complete prescribed courses
of medication, despite the availability of cheap generic and
branded medicines. She added that people tend to discontinue
their medication once they feel well and the symptoms of illness
disappear. Cabral also added that this practice might complicate
patients' illnesses, leading to more expensive treatment in the
longer term.
On the other hand, the Philippine government has been pres-
sured to subsidise prescription medicines for the poor after
an informal think-tank survey found that only 2.7% of 547
respondents were able to buy the complete amount of required
medicine, BusinessWorld Online reported in March 2010. The
survey, conducted in six Metro Manila settlements, found that
medicines remain expensive despite recent mandated price cuts.
Clearly, the balance between the two extremes – the inequitable
medicines access and the failure to use the drugs correctly –
will need to be addressed in order to optimise public health and
public funds outcomes.
Patented Drug Market Forecast
Despite the promulgation of the Generic Law in 1998, most
drugs available in the Philippines are branded pharmaceuticals
that are too expensive for the typical patient. Even though over
90% of medicines listed on the country's formulary are off-patent,
90% of drugs sold through retail channels are branded goods.
According to the government, this is because a cartel of multi-
national drug makers controls the marketing channels. Cheap
and high-quality drugs made by local firms exist but they are
not promoted effectively, although this is expected to change.
Generic drugs represented just 18.2% of the total market by value
in 2012, although this figure is expected to have improved to as
much as 25.2% in 2017. In contrast, patented drugs represented
51.8% of the market in 2012. By 2022, the patented product
sector is forecast to grow to PHP69.84bn (US$1.72bn), posting
a low CAGR of 0.4% in local currency terms – well below what
is expected for the overall pharmaceutical market (+4.2%). By
2022, we expect patented drugs' share of the total market by value
to have fallen to 35.8% – about level with generic medicines.
Over the coming years, the patented market will be negatively
affected as the government continues to put pressure on the
industry to lower drug prices. The latest policies include ex-
panding the role of PITC as well as amending the patent regime.
This includes using international patent expiries to trigger local
expirations and implementing a Bolar-style division, which will
aid the launch of generic drugs. In many ways, these moves
are inevitable and multinational drug makers may decide to
voluntarily lower prices themselves, rather than face a further
backlash. An additional issue will be that of patent expirations.
Multinationals' advantageous position in the branded segment
will also be challenged by the government's plans to halve drug
prices within the forecast period, through the combination of
the increased use of generic drugs and parallel imports, as well
as by the legalisation of compulsory licensing and the creation
of a maximum drug prices system. While market revenue will
certainly be negatively affected by the expected changes, patchy
compliance with generic prescribing guidelines will benefit the
continued usage of branded products, as will the failure of some
retail outlets to adhere to the new price list. Multinational firms
have also challenged the parallel import measures, claiming
that allowing this trade would make the problem of controlling
counterfeit drugs even more difficult.
TABLE: PHILIPPINES PATENTED DRUG MARKET INDICATORS, HISTORICAL DATA & FORECASTS, 2009-20172009 2010 2011 2012 2013f 2014f 2015f 2016f 2017f
Patented drug sales (US$bn) 1.41 1.46 1.53 1.59 1.64 1.63 1.67 1.71 1.73
Patented drug sales (US$bn), % chg y-o-y -9.9 3.7 4.6 3.8 2.8 -0.2 2.2 2.7 0.7
Patented drug sales (PHPbn) 67.17 66.03 66.31 67.27 67.45 68.13 68.81 69.40 69.91
Patented drug sales (PHPbn), % chg y-o-y -3.6 -1.7 0.4 1.4 0.3 1.0 1.0 0.8 0.7
Patented drug sales, % of prescription sales 79.86 77.01 75.49 74.06 72.17 70.34 68.39 66.31 64.09
Patented drug sales, % of total sales 55.51 53.59 52.61 51.84 50.42 49.21 47.90 46.51 45.01
f = BMI forecast. Source: BMI, Pharmaceutical and Healthcare Association of the Philippines (PHAP), IMS Health Combined Philippines Pharmaceutical Index and Philippine Hospital Audit
41Business Monitor International Ltd www.businessmonitor.com
KEY SECTORS
Other Key Sectors
Latest Forecast DataBelow are the latest forecast tables for our other core key sectors:
TABLE: OIL & GAS SECTOR KEY INDICATORS2010 2011 2012e 2013f 2014f 2015f 2016f 2017f
Oil Proved Reserves, mn barrels 139 139 139 139 143 144 146 144
Oil Production, 000b/d 27 32 25 22 32 37 37 38
Oil Consumption, 000b/d 309 316 302 303 304 307 310 313
Oil Refinery Capacity, 000b/d 273 273 273 290 290 290 290 290
Oil Net Exports, 000b/d -282 -284 -277 -281 -272 -270 -273 -275
Oil Price, US$/bbl, OPEC Basket 77 108 110 103 101 100 99 97
Value of Net Oil Exports, US$bn (BMI base case) -8 -11 -11 -11 -10 -10 -10 -10
Value of Net Hydrocarbons Exports, US$bn (BMI base case) -8 -11 -11 -11 -10 -10 -10 -10
Value of Net Oil Exports at constant US$50/bbl – US$bn -5 -5 -5 -5 -5 -5 -5 -5
Value of Net Oil Exports at constant US$100/bbl – US$mn -10 -10 -10 -10 -10 -10 -10 -10
Value of Net Hydrocarbons Exports constant US$50/bbl – US$mn -5 -5 -5 -5 -5 -5 -5 -5
Value of Net Hydrocarbons Exports constant US$100/bbl – US$mn -10 -10 -10 -10 -10 -10 -10 -11
Total Net Hydrocarbons Exports, 000boe/d -281 -284 -274 -280 -273 -272 -275 -292
Gas Proved reserves, tcm 0 0 0 0 0 0 0 0
Gas Production, bcm 3 3 4 4 4 4 4 4
Gas Consumption, bcm 3 3 4 4 4 4 4 5
LNG Price, US$/mn btu 12 16 16 15 15 15 15 14
Reserves/Production Ratio 14 12 15 17 12 11 11 11
e/f = BMI estimate/forecast. Source: BMI, National statistics, Industry sources
TABLE: DEFENCE & SECURITY SECTOR KEY INDICATORS2011 2012e 2013f 2014f 2015f 2016f 2017f
Defence expenditure, PHPmn 85,101 95,701 107,344 120,036 134,332 150,328 168,073
Defence expenditure, PHPmn % change y-o-y 11.4 12.5 12.2 11.8 11.9 11.9 11.8
Defence expenditure, % of GDP 1 1 1 1 1 1 1
Defence expenditure, PHP per capita of population 897 992 1,094 1,203 1,324 1,458 1,605
Defence expenditure, US$mn, constant prices 1,918 2,142 2,378 2,533 2,767 3,044 3,281
Defence expenditure, US$mn, constant prices % change y-o-y 11.9 11.7 11.0 6.5 9.3 10.0 7.8
Defence expenditure, constant US$ per capita of population 20 22 24 25 27 30 31
e/f = BMI estimate/forecast. Source: BMI, National statistics, Industry sources
TABLE: INFRASTRUCTURE SECTOR KEY INDICATORS2010 2011 2012e 2013f 2014f 2015f 2016f 2017f
Construction industry value, PHPbn 551 535 629 703 782 866 960 1,062
Construction industry value, US$bn 12 12 14 17 19 21 24 27
Construction industry, real growth, % y-o-y 1.1 14.8 20.0 10.0 12.2 13.6 12.1
Construction industry value, % GDP 6 6 6 6 6 6 6 7
e/f = BMI estimate/forecast. Source: BMI, National statistics, Industry sources
42 Business Monitor International Ltdwww.businessmonitor.com
PHILIPPINES Q3 2013
This report is abstracted from BMI’s industry report series, which covers 22 sectors across global markets. Every quarter, we will provide tables
showing the latest five-year forecasts for key industries as well as a forecast scenario for a key sector. If you would like to order a full report, or find
out about BMI’s other 1,113 industry reports, please contact [email protected]
TABLE: FOOD & DRINK SECTOR KEY INDICATORS2010 2011 2012e 2013f 2014f 2015f 2016f 2017f
Food consumption, US$bn 31 36 39 43 44 48 51 54
Food consumption PHPbn 1,418 1,551 1,660 1,755 1,855 1,963 2,078 2,202
Food consumption, US$ per capita 337 378 407 434 445 469 498 519
Confectionery sales, US$mn 411 451 486 523 543 579 623 659
Confectionery sales, PHPmn 18,513 19,520 20,549 21,560 22,673 23,895 25,225 26,675
Alcoholic drinks sales, US$mn 534 604 650 714 756 815 884 943
Alcoholic drink sales, PHPmn 24,080 26,150 27,502 29,436 31,579 33,620 35,821 38,195
Soft drinks sales, US$mn 1,116 1,286 1,435 1,579 1,681 1,838 2,005 2,170
Soft drink sales, PHPmn 50,323 55,704 60,708 65,145 70,177 75,807 81,213 87,901
Total mass grocery retail sales, US$bn 11 12 14 15 16 17 19 20
Total mass grocery retail sales, PHPbn 480 536 579 617 659 704 751 801
Exports of food and drink, US$mn 2,793 2,915 3,034 3,196 3,413 3,648 3,904 4,174
Imports of food and drink, US$mn 4,032 4,122 4,327 4,678 5,114 5,578 6,084 6,637
Food and drink trade balance US$mn -1,239 -1,207 -1,293 -1,483 -1,701 -1,929 -2,181 -2,463
e/f = BMI estimate/forecast. Source: BMI, National statistics, Industry sources
TABLE: AUTOS SECTOR KEY INDICATORS2011 2012e 2013f 2014f 2015f 2016f 2017f
Vehicle production, units 53,921 55,360 61,839 69,837 79,507 88,616 97,245
Passenger car production, units 45,751 46,390 52,421 59,760 68,724 76,970 84,667
Vehicle sales, units 141,616 156,649 173,864 187,360 196,806 205,687 216,074
Vehicle sales, units, % chg y-o-y -15.9 10.6 11.0 7.8 5.0 4.5 5.1
Passenger car sales, units 44,862 48,328 53,644 57,520 61,706 66,172 72,260
Passenger car sales, units, % chg y-o-y -23.6 7.7 11.0 7.2 7.3 7.2 9.2
Commercial vehicle sales, units 96,754 108,321 120,220 129,840 135,100 139,515 143,815
Commercial vehicle sales, units, % chg y-o-y -11.9 12.0 11.0 8.0 4.1 3.3 3.1
Passenger car density, cars per 1,000 of population 8 8 7 7 7 7 6
e/f = BMI estimate/forecast. Source: BMI, National statistics, Industry sources
43Business Monitor International Ltd www.businessmonitor.com
Chapter 6: BMI Global Assumptions
TABLE: GLOBAL ASSUMPTIONS2012e 2013f 2014f 2015f 2016f 2017f
Real GDP Growth (%)
US 2.2 1.8 2.7 2.6 2.4 2.4
Eurozone -0.6 -0.5 1.0 1.4 1.5 1.6
Japan 1.9 1.4 1.3 1.0 0.9 1.1
China 7.7 7.5 6.7 6.0 5.8 5.8
World 2.7 2.7 3.3 3.4 3.4 3.4
Consumer Inflation (ave)
US 2.1 2.1 2.1 2.1 2.1 2.1
Eurozone 2.4 1.8 1.8 1.7 1.8 1.8
Japan 0.0 0.0 0.6 1.3 1.8 2.3
China 2.7 2.8 2.9 2.8 2.7 2.7
World 3.5 3.3 3.1 3.1 3.2 3.1
Interest Rates (eop)
Fed Funds Rate 0.00 0.00 0.00 0.75 2.00 3.00
ECB Refinancing Rate 0.75 0.25 0.25 0.75 1.00 1.50
Japan Overnight Call Rate 0.10 0.10 0.10 0.10 0.25 0.50
Exchange Rates (ave)
US$/EUR 1.27 1.31 1.27 1.23 1.20 1.20
JPY/US$ 79.85 91.00 94.00 97.00 98.50 100.50
CNY/US$ 6.31 6.20 6.28 6.35 6.45 6.55
Oil Prices (ave)
OPEC Basket (US$/bbl) 109.5 103.0 101.0 100.0 99.0 97.0
Brent Crude (US$/bbl) 111.7 106.0 103.0 102.0 101.0 99.0
e/f = estimate/forecast. Source: BMI
Global Outlook
Growth Has TroughedOur global real GDP growth estimates for 2013 have been revised
down since our last Global Assumptions update, from 2.8% to
2.7%, with our 2014 forecast remaining at 3.3%.
Overall, we believe that global growth will improve going into
2014, but we are hardly exuberant over the prospects for the
world economy. Trade, production and consumption growth
have been relatively flat since the second half of 2012, mainly
due to US and eurozone weakness. However, we believe activ-
ity overall has troughed and will pick up in H213 and more so
as we enter 2014. Meanwhile, inflation will remain well con-
tained, as commodity prices – in particular industrial metals and
oil – appear to have topped out, in line with our long-standing
view. Our 2.7% global real GDP growth forecast for 2013 is
characteristic of a muddle-through scenario in the eurozone,
a slowdown in China and a revival of growth in the US, with
a range of economic trajectories among emerging markets.
Monetary policy remains loose, but there are increasing signals
from the US that the Federal Reserve may pare back its asset
purchase programme in late 2013. Fed tightening presents
significant risks to the near-term economic outlook, with local
debt in emerging markets exhibiting bubble-like characteristics,
in our view. Furthermore, bond volatility in Japan suggests that
we are correct to be sceptical of the benefits of ‘Abenomics’ in
putting the Japanese economy and government debt load on a
more sustainable path.
We have adjusted down our forecast for the average US$/EUR
exchange rate to US$1.31/EUR for 2013, from US$1.33/EUR
44 Business Monitor International Ltdwww.businessmonitor.com
PHILIPPINES Q3 2013
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %2012e 2013f 2014f 2015f
Developed States Aggregate Growth 1.2 1.1 1.9 2.0
G7 1.4 1.3 2.0 2.0
Eurozone -0.6 -0.5 1.0 1.4
EU-27 -0.3 -0.1 1.2 1.7
Selected Developed States
Australia 3.7 2.1 1.8 2.5
Austria 0.8 0.8 1.5 1.9
Belgium -0.3 0.1 1.6 1.9
Canada 1.8 1.5 2.1 2.4
Denmark -0.5 0.6 1.3 1.6
Finland -0.2 0.1 1.6 2.0
France 0.1 -0.3 0.7 1.6
Germany 0.7 0.5 1.9 1.6
Ireland 0.9 0.8 1.8 2.0
Italy -2.4 -1.3 0.1 0.7
Japan 1.9 1.4 1.3 1.0
Netherlands -1.1 -0.6 0.9 1.5
Norway 3.1 2.5 2.5 2.7
Portugal -4.7 -2.6 0.5 0.9
Spain -1.3 -1.7 0.2 0.9
Sweden 0.8 1.0 2.5 3.2
Switzerland 1.0 1.5 1.8 1.7
UK 0.0 1.1 1.4 2.0
US 2.2 2.1 2.7 2.6
e/f = estimate/forecast. Source: BMI
TABLE: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, %US Eurozone Japan Brazil China Russia India
2013 Bloomberg Consensus 1.9 -0.1 1.7 3.0 7.8 2.8 5.1
BMI 1.8 -0.5 1.4 3.3 7.5 2.6 5.5
2014 Bloomberg Consensus 2.7 1.0 1.5 3.5 7.8 3.5 6.0
BMI 2.7 1.0 1.3 3.6 6.7 3.9 6.0
Source: BMI, Bloomberg
previously, predicated upon further US dollar strength in the
second half of the year alongside a broadly stable euro. Beyond
this year we hold to our view of gradual depreciation. Mean-
while, we have downgraded our 2013 average Brent crude oil
forecast to US$106/bbl, from US$110/bbl previously, and we
have upgraded our WTI forecast to US$94.5/bbl, from a previ-
ous forecast of US$93.5/bbl.
Developed StatesOur developed state aggregate growth projection for 2013 has
been revised down to 1.1% from 1.2%, while it remains 1.9% for
2014. We have lowered our 2013 real GDP growth forecast for
Germany to 0.5%, from 0.8% previously, as first-quarter data
show that business confidence was hit harder than expected
by several negative shocks early in the year. In Portugal, we
now project growth of -2.6% in 2013 and 0.5% in 2014. Our
previous 2013 and 2014 forecasts were for a slightly flatter
economic trajectory of -2.4% and 0.3% growth respectively. As
a result of these two downgrades, our eurozone growth forecast
in 2013 has been revised down to -0.5% from -0.3%, with the
2014 projection remaining 1.0%. For Denmark, we have revised
down our forecast for real GDP growth in 2013 from 1.2% to
0.6%, reflecting a worse-than-forecast contraction of economic
activity in late 2012.
Emerging MarketsWe estimate emerging market (EM) real GDP growth of 4.7% in
2013, representing a slight downgrade from our previous 4.8%
45Business Monitor International Ltd www.businessmonitor.com
BMI GLOBAL ASSUMPTIONS
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %2012e 2013f 2014f 2015f
Emerging Markets Aggregate Growth 4.7 4.7 5.1 4.9
Latin America 2.8 3.4 3.7 3.7
Argentina 1.9 1.8 2.9 3.8
Brazil 0.9 3.3 3.6 3.5
Mexico 3.9 3.6 3.8 3.4
Middle East And North Africa 3.4 2.9 4.9 4.0
Saudi Arabia 6.8 4.1 4.6 2.3
UAE 4.1 3.3 3.8 3.9
Egypt 2.2 1.9 3.7 5.6
Sub-Saharan Africa 4.4 5.5 5.7 6.1
South Africa 2.5 2.3 3.3 3.8
Nigeria 6.6 6.7 7.2 7.3
Emerging Asia 6.1 6.2 6.0 5.6
China 7.7 7.5 6.7 6.0
Hong Kong 1.4 3.3 3.6 3.7
India* 5.0 5.5 6.0 6.2
Indonesia 6.2 6.1 6.4 6.5
Malaysia 5.6 4.6 4.4 4.2
Singapore 1.3 2.5 3.2 3.2
South Korea 2.1 2.6 4.6 4.6
Taiwan 1.3 3.0 4.0 4.1
Thailand 6.4 4.0 4.5 4.4
Emerging Europe 2.4 2.5 3.6 4.2
Russia 3.4 2.6 3.9 4.3
Turkey 2.2 4.0 4.7 5.2
Czech Republic -1.3 1.2 2.0 2.3
Hungary -1.7 -0.3 1.1 1.9
Poland 2.0 1.5 2.7 4.1
e/f = estimate/forecast; *Fiscal years ending March 31 (2012 = 2011/12). Source: BMI
projection, with a slight acceleration in growth in 2014 to 5.1%.
The most significant change to our EM macro country projec-
tions is to Russia. Fiscal and monetary policy has been tighter
than we had previously anticipated, prompting a downgrade of
our 2013 real GDP growth forecast to 2.6%, from 3.6% previ-
ously. We have also pared back our outlook for neighbouring
Poland, and now forecast real GDP to grow by just 1.5% in 2013
and 2.7% in 2014, from previous forecasts of 1.9% and 3.0%
respectively. All in all, these revisions have pushed our emerg-
ing Europe growth forecasts as a whole down to 2.5% in 2013,
from 3.0% previously. Meanwhile, in South Africa, in light of
recent data and the increasing likelihood of industrial unrest in
the mining sector, we have revised downward our forecast for
real GDP growth in 2013 to 2.3%, from 2.8% previously. This
downgrade has reduced our estimate of Sub-Saharan African
growth to 5.5% in 2013, from 5.7% previously. We continue
to forecast a 5.7% growth rate in 2014, however. On a regional
basis, emerging Asia will remain an economic outperformer,
with 6.2% growth in 2013, and this is expected to moderate to
6.0% in 2014 as the Chinese economy cools.
Analyst: Andrew WoodKey Sector Analyst: Jamie Davis, Jianwei SheEditor: Stuart AllsoppSub-Editor: Ahmad AlshidiqSubscriptions Manager: Katie PattonMarketing Manager: Sarah SutcliffeProduction: Neil Murphy, Reema PatelPublishers: Richard Londesborough, Jonathan Feroze
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