Copyright (c) Mizuho Bank, Ltd. All Rights Reserved.

Investment Climate Statement – The Philippines

October 2018

Mizuho Bank, Ltd.

Global Strategic Advisory Department

1

Economic Characteristics

Presence of financial conglomerates Overseas Filipinx Workers (OFW)

In the Philippines, the Spanish-based financial conglomerates had

great power, partially due to the history of Spanish rule. However,

now, except for the Ayala financial conglomerate, the Chinese

financial conglomerates have greater presence.

Financial conglomerates are said to actually control 70% to 80% of

the Philippine economy. They have developed businesses in the fields

of finance, real estate, communications, retail, food, and so on. In

recent years, they are actively developing infrastructure.

Many of the conglomerates exercise great influence in politics, for

example by producing members of parliament and governors from

their families.

Main financial conglomerates in the Philippines

The total amount remitted by OFWs in 2017 through banks to the

Philippines was USD28 billion (an increase of 4.3% from the previous year).

The remittance amount including non-bank transfers was approximately

USD31.2 billion, which accounts for about 10% of the Philippines’ GDP.

These remittances make a major contribution to Philippine economic growth

by supporting private consumption, together with making a major

contribution to the acquisition of foreign currencies in the Philippines.

One-third of all OFWs are permanent residents in the United States, and a

high percentage of them have high-paid occupations such as doctor, nurse, or

accountant. Meanwhile, looking at new destination countries where workers

are dispatched, demand is growing from Middle Eastern countries such as

Saudi Arabia and the United Arab Emirates, etc. Workers are often

dispatched there as construction workers or domestic workers (housemaids).

Remittance amount from OFWs

Sources: Compiled by the Global Strategic Advisory Department of Mizuho Bank, Ltd., based on data from the Central Bank of the

Philippines (BSP), etc.

0

5,000

10,000

15,000

20,000

25,000

30,000

2011 2012 2013 2014 2015 2016 2017

(USD million)Name Main Companies Ethnicity

Ayala Group Ayala Corp. (conglomerate), Bank of Phil. Islands (bank), Pure

Foods (foods), Globe Telecom (telecommunications), etc.

Spanish

Soriano Group A. Soriano Corp. (ANSCOR, conglomerate), Int’l Container

Terminal Services (logistics), Phelps Dodge Phils., Inc. (copper

ore), etc.

Spanish

SM Group BDO Unibank (bank), SM (retail), etc. Chinese

JG Summit JG Summit Holdings (holding company), Robinson’s Land (real

estate), Universal Robina (foods), Digital Telecom Phil.

(telecommunications), etc.

Chinese

San Miguel Group San Miguel (beer), etc. Chinese

Yuchengco Group Rizal Commercial Banking Corp. (finance), etc. Chinese

LT Group Share Holdings (holding company), Philippine Airlines (airlines),

Allied Banking Corp. (finance), etc.

Chinese

Lopez Group Benpres Holdings (holding company), Manila Electric Com.

(MERALCO, electric power), Bayan Telecommunication

(telecommunications), etc.

Philippines

2

Trade Overview (1): Exports

Electronics products account for the majority of exports from the Philippines (2000: approximately 70%; 2016: approximately 50%) due to the entry of Western semiconductor manufacturers in the 1970s and the expansion of Japanese electrical equipment manufacturers in the 1980s and 1990s.

Looking at export destinations, the US was the largest (about 30%) by the mid-2000s. However, as exports shifted to electronics-related items, exports increased to Asian countries, which are manufacturing bases. The dependence on the US decreased proportionally.

Export trends (by country)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

2010 2011 2012 2013 2014 2015 2016Other Petroleum products

Copper ingot Food and beveragesFruits and vegetables Coconut productsTextiles and clothing Chemical products

Furniture and wood crafts Machinery and transportation equipmentElectronics products

(USD million)

Japan

21%

U.S.

15%

Europe

13%China

11%

Hong Kong

12%

Singapore

6%

South Korea

4%

Taiwan

4%

ASEAN (excl.

Singapore)

8%

Middle East

1%

Others

5%

Source: Compiled by the Global Strategic Advisory Department of Mizuho Bank, Ltd., based on data from the National Statistics Office

of the Philippines

Export trends (by commodity)

3

Trade Overview (2): Imports

The development of the Philippines manufacturing industry has been delayed in the capital goods and intermediate goods sectors. Imports of capital goods and intermediate goods also increase as exports increase, and so the trade deficit has become permanent.

In the past, the US and Japan were central as import partners. However, the proportion of Asian countries has risen due to trade expansion within Asia. Currently, China is the largest import partner.

Import trends (by country)

0

10,000

20,000

30,000

40,000

50,000

60,000

70,000

80,000

90,000

2010 2011 2012 2013 2014 2015 2016Other FeedCommunications and electrical equipment Iron ore and steelChemical products PlasticsCereals Industrial equipmentTransport equipment FuelElectronics parts

(USD million)

Japan

12%

U.S.

9%

Europe

9%

China

18%

Hong Kong

3%

Singapore

7%

South

Korea

6%

Taiwan

6%

ASEAN (excl.

Singapore)

20%

Middle East

4% Other

6%

Source: Compiled by the Global Strategic Advisory Department of Mizuho Bank, Ltd., based on data from the National Statistics Office

of the Philippines

Export trends (by commodity)

4

Industrial Structure

Industrialization advanced faster in the Philippines than in surrounding Asian countries after World War II. However, subsequently the shift to export-oriented industries was delayed in the Philippines. So, the country’s manufacturing industry has been sluggish since then.

Meanwhile, the service industry has become the industry where people seek employment, and as a result, the unemployment rate is relatively high (⇒ wage increase rate is low).

In recent years, BPO business (included in “other services”) has grown into a major industry that accounts for about 10% of GDP. Sales in recent years have expanded by about 10% every year.

The Philippines GDP by economic sector (YOY)

Tertiary industry:

Approx. 54%

Secondary industry

Approx. 32%Primary industry:

Approx. 14%

Tertiary industry:

Approx. 58%

Secondary industry:

Approx. 27%

Primary industry:

Approx. 10%

Agriculture,

forestry, and

fishing

8.8%

Mining

1.0%

Manufacturin

g

23.2%

Electricity and

gas

3.3%

Construction

6.2%Wholesale and

retail

16.8%

Transportation and

telecommunications 7.6%

Finance

7.3%

Real estate and

leasing

11.6%

Public service

3.9%Other

services

10.4%

Agriculture,

forestry, and

fishing

13.3%

Mining

1.0%

Manufacturing

23.7%

Electricity and

gas

3.6%Construction

4.4%

Wholesale and

retail

16.5%

Transportation and

telecommunications

8.1%

Finance

5.7%

Real estate and

leasing

9.4%

Public service

9.6%

Other services

4.7%

2005 2016

Sources: Compiled by the Global Strategic Advisory Department of Mizuho Bank, Ltd., based on data from the National Statistics Office

of the Philippines, JETRO materials, NNA news, etc.

5

Industry Characteristics

Manufacturing: Development is delayed and the percentage of the working population is low. Reduction of the manufacturing cost through infrastructure improvement is expected.

BPO industry: This industry has grown into a major industry that accounts for about 10% of GDP. In the future, boosting of the value added will be an issue.

Retail: This industry is supported by robust domestic demand, and growth is expected in the future.

Features and trends of major industries

Sources: Compiled by the Global Strategic Advisory Department of Mizuho Bank, Ltd., based on data from the National Statistics Office

of the Philippines, NNA news, etc.

Development of manufacturing is

delayed; the percentage of the

working population in

manufacturing dropped from 9.3%

in 2005 to 8.2% in 2016

The types of businesses include

food processing, electronics-

related businesses

(semiconductors, etc.), and petro-

chemical products

Manufacturing

Features

Recent

trends

While labor cost is cheap in the

Philippines, the infrastructure is

weak. As a result, the high

manufacturing cost is a problem

Under the current administration,

infrastructure development is an

important policy, and reduction of

manufacturing cost is anticipated

BPO industry Retail

Because there are many English

speakers and labor is cheap, the

BPO (Business Process

Outsourcing) industry has

developed

It has grown into a major industry

that now accounts for about 10%

of GDP

Retail will experience strong

growth due to the continuing

population bonus and the increase

in middle-income earners

Due to high hurdles that restrict

foreign investment, major

financial conglomerates have a

strong presence

BPO in the Philippines focuses on

labor-intensive operations (call

centers are common)

In the future, it will be a challenge

to add value to the BPO industry,

such as by strengthening non-

voice fields (accounting, law,

healthcare, etc.)

The Philippines is a country made

up of many islands, and so

development of modern retail

markets is delayed outside urban

areas

In the future, modern retail

markets utilizing cold chains, etc.,

and EC are expected to expand

6

Direct Investment Trends : Inward Investment

Source: Compiled by the Global Strategic Advisory Department of Mizuho Bank, Ltd., based on data from the National Statistics Office

of the Philippines

Direct investment decreased due to the 2008 financial crisis, but it gradually recovered thereafter and hit a record high in 2012.

In 2014, direct investment decreased due to concern about electric power shortages and the turmoil in logistics due to regulation of heavy truck driving in Manila City that began in February of that year. (The truck regulation was lifted in September 2014.)

In 2017, the amount of approved FDI dropped by half because many companies decided to take a wait-and-see approach due to the impact of the regime change in the previous year and social unrest, including armed conflict with Muslim extremists. By industry, the manufacturing industry, which accounts for 52% of the total, decreased by 43%.

Meanwhile, domestic investment was steady. The total amount approved both domestically and overseas was PHP911.3 billion, an increase of more than 30% YOY.

Trends in foreign direct investment (approved) New FDI approved by business type (2017)

121,816

196,069

258,231

289,118274,014

186,943

245,216

219,039

105,639

0

50,000

100,000

150,000

200,000

250,000

300,000

350,000

2009 2010 2011 2012 2013 2014 2015 2016 2017

Japan The Netherlands Australia U.S.

Singapore South Korea China Other

(Peso million)

Manufacturing

52%

Real Estate-related

21%

Management operations, etc.

(including BPO)

13%

Energy-related

5%

Other

9%

7

The Attractions and Pointers (Issues) for Investors

The Philippines has abundant human resources with high English ability and low wages. It has the potential to be an attractive consumer market.

Meanwhile, the Philippines is in the developmental stage. It is necessary to pay attention to the lack of infrastructure and non-transparent policy management, etc.

Under the sponsorship of the president, security measures and anti-poverty measures are being implemented, and the number of crimes has decreased greatly. However, there are security problems such as armed conflict with Islamic extremists in some areas.

Sources: Compiled by the Global Strategic Advisory Department of Mizuho Bank, Ltd., based on data from various public sources

Abundant labor force

Low wage levels for workers

High number of English speakers

Pro-Japanese sentiment

Market with latent potential

Geographical proximity to Japan

Weak infrastructure environment

Support industries still emerging

High corporate tax rates compared

to other ASEAN members

Security/safety problems

Non-transparent policy

management

Relatively expensive electricity

Attractions for foreign investors Pointers (issues) for foreign investors

8

About the Mizuho Bank Manila Branch

Address

25th Floor, Zuellig Building, Makati Avenue corner

Paseo de Roxas, Makati City 1225, Metro Manila,

Philippines

Tel. 63-2-860-3500

Open Monday - Friday

Activities

Deposits

Lending

L/C issuance, acceptance, and confirmation

Acceptance and negotiation of import/export bills

Remittances, foreign exchange contracts

Guarantees Access from the airport

approximately 45 minutes by taxi

Source: Compiled by the Global Strategic Advisory Department of Mizuho Bank, Ltd.

9

Business Cooperation (1): Bank of the Philippine Islands (BPI)

Established in 1851, BPI is the oldest bank in the Philippines.

BPI is part of the Ayala Group, a Spanish financial conglomerate with the

longest history of any financial conglomerate in the Philippines.

Branches: 820 domestic branches and 5 foreign branches

ATMs: 2,575 ATMs

Shareholder structure: Ayala and affiliates, 48.3%; Roman Catholic Archbishop

of Manila, 8.3%; GIC Private Limited (formerly known as Government of

Singapore Investment Corporation), 5.6%, Other, 37.8%

Ratings: Moody’s Baa2; Fitch BBB-

Financial information: Total assets: PHP1,450,197 million; loan balance:

PHP800,170 million; current net income: PHP18,039 million

Purpose of signing MOU

To promote cooperation in various fields such as local settlement business,

business matching, foreign exchange-related guarantee transactions, etc.,

through a partnership with a major local bank that possess advantages

financially and in its domestic network

To establish a system that can support domestic settlement transactions (salary

transfers, etc.) that has been flowing to local banks (including study of an

efficient payment scheme from Mizuho Bank’s accounts to affiliated

employees’ accounts, etc.)

Content of MOU

1. Local currency services

2. Introduction of local partners and

local sales outlets, etc.

3. Mutual cooperation on developing the

local debt market

4. Exchange of information on local

financial markets and regulations

BPI outline

Sources: Compiled by the Global Strategic Advisory Department of Mizuho Bank, Ltd., based on the bank’s website, etc.

10

Business Cooperation (2): The Department of Trade and Industry (DTI)

DTI (Department of Trade and Industry)

The DTI is a government body responsible for industrial

development and the promotion of trade and inward direct

investment.

The Philippine Economic Zone Authority (PEZA) and the Board

of Investment (BOI) are both DTI affiliates which encourage

inward foreign direct investment.

Purpose of the signing of a Memorandum of Understanding (MOU)

Through the MOU, smoother support will be offered for Japanese

companies to expand their investment in the Philippines to

domestic demand-oriented industries. This will be achieved

through collection of information from the DTI and visits to

individual companies together with the DTI.

(Mizuho Bank is the first Japanese bank to sign an MOU with the

DTI.)

Contents of the MOU

1. Mutual cooperation on attraction of

Japanese companies and their expansion

into the Philippines

2. Collaboration on the introduction of

companies for investment, arrangement

of interviews in the Philippines, and

investment promotion activities

Sources: Compiled by the Global Strategic Advisory Department of Mizuho Bank, Ltd., based on the bank’s website, etc.

11

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