Upload
hakhue
View
220
Download
4
Embed Size (px)
Citation preview
CONFIDENTIALFOR INTERNAL USE WITHINCLIENT COMPANY ONLY
Draft – for discussion
PHILIPPINES MARKET OUTLOOKBUSINESS SWEDEN
Philippines
2018
BUSINESS SWEDEN 19 JANUARY, 2018 2
FOREWORD
Ulf WennblomCountry Manager
Philippines
Harald FriesAmbassador of Sweden
to the Philippines
The Philippine economy offers robust and high growth fueled by a growing middle class, favourable
demographics, and large infrastructure projects that are now taking off. It is important to keep in
mind that the economy is still developing, that poverty is very much present and that most of the
economic development so far has been concentrated to Manila. To deal with this the current
government focuses on poverty reduction through regional growth and large infrastructure
investments.
Business opportunities in the Philippines are large and many, and lie in infrastructure development,
manufacturing, retail and services. The country is often referred to as a high risk market to do
business in, but we believe the opportunities outpace the risks as long as a market entry is well
prepared and well executed by focusing on best practise factors from leading companies. This is
proven by Swedish companies that are established in the Philippine experience high and profitable
growth.
We believe that now is a good timing to enter the Philippine market. But before you enter make
sure to do a proper analysis and set a suitable strategy. We hope that this report will give you new
and valuable insights as well as direction in that process.
Philippines economy and outlook
Swedish business in the Philippines
Our point of view
BUSINESS SWEDEN 19 JANUARY, 2018 3
AGENDA
SOURCE: ADB, BDO, PSA, BUSINESS SWEDEN ANALYSIS
20107,6%
20113,7%
20126,7%
20137,1% 2014
6,1%20156,1%
20166,9%
20176,8%
20186,7%
GDP GROWTH (CONSTANT PRICES)
The Philippines is an island nation with 105 million people, the second largest
population in the Asean region
The historic annual growth (CAGR) of the Philippines is 4 %. The new long term
growth trajectory is at 6.6 %. By that, Philippines is among the fastest growing
economies globally. And, the economy is robust with 76 consecutive quarters of growth
Key underlying growth factors are a growing middle class, the fact that the Philippines
has the youngest population globally (24,6 years), almost half the median age of
Sweden, and the massive infrastructure projects that are now taking off
PHILIPPINES IS AMONG THE FASTEST GROWING MARKETS GLOBALLY
0
50
100
150
200
250
300
196
6
196
9
197
2
197
5
197
8
198
1
198
4
198
7
199
0
199
3
199
6
199
9
200
2
200
5
200
8
201
1
201
4
201
7
2011 – 2017
CAGR of 6.6%
GDP CONSTANT PRICES, BUSD
Summary Market OutlookSwedish business in the
PhilippinesOur point of view
BUSINESS SWEDEN 19 JANUARY, 2018 5
PUTTING THE PHILIPPINES INTO PERSPECTIVE
SOURCE: IMF, UN
GDP B$ & Growth 2016 GDP / Capita (USD) Geography
Philippines is an island
nation with 7107islands and a land size
that is 2/3 of
Sweden
Sweden has 0.3 %
and Thailand 1.1 %
Infant mortality rate Urban population Individuals using internet Seats held by women in
national parliaments
Thailand has 6.1 %
and Sweden 43.6 %
27,2%
€
PHILIPPINES IS CONSIDERED AS A LOWER MIDDLE INCOME COUNTRY, IN NEED OF DEVELOPMENT
Median age
2.3%
Summary Market OutlookSwedish business in the
PhilippinesOur point of view
0%
2%
4%
6%
8%
0
200
400
600
800
1 000
1 200
2 300
3 000
6 000
Vietnam Philippines Thailand
25
4147
Philippines Sweden Japan
44%
75%
86%
Philippines Malaysia Sweden
40%48%
93%
Philippines Vietnam Sweden
NATIONAL CAPITAL REGION
CORDILLERA ADMINISTRATIVE REGION
ILOCOS
CAGAYAN VALLEY
CENTRAL LUZON
CALABARZON
MIMAROPA REGION
BICOL
WESTERN VISAYAS
CENTRAL VISAYAS
EASTERN VISAYAS
ZAMBOANGA PENINSULA
NORTHERN MINDANAO
DAVAO REGION
SOCCSKSARGEN
CARAGA
AUTONOMOUS REGION IN MUSLIM MINDANAO
-1%
0%
1%
2%
3%
4%
5%
6%
7%
8%
9%
10%
11%
12%
0 1 000 2 000 3 000 4 000 5 000 6 000
GD
P G
RO
WT
H (
CA
GR
20
14
-20
16)
GDP PER CAPITA (2016, CONSTANT YR 2000 PRICES)
BUBBLE SIZE REPRESENT SIZE OF GDP IN 2016
BUSINESS SWEDEN 6
THE ECONOMY IS CONCENTRATED IN MANILA, THE OPPORTUNITY LIES IN REGIONAL GROWTH
SOURCE: IMF, PSA
2017 2017
Summary Market OutlookSwedish business in the
PhilippinesOur point of view
19 JANUARY, 2018
National GDP
growth 2016
Manufacturing, construction and services show strong
growth, and are large and important sectors
Agriculture is a sector that has started to develop slowly,
with many challenges such as low efficiency. The sector
is a key target for the government to develop
Mining has experienced downturns due to bans and
legislative barriers, but the sector is showing positive
signs
BUSINESS SWEDEN 19 JANUARY, 2018 7
PRIVATE INVESTMENTS AND GOVERNMENT SPENDING ACCELERATE ECONOMIC EXPANSION
Investments and Gov spending leads expansion
Private consumption fuelled by the growing middle
class and young population forms the foundation of the
economic growth
Key drivers for the current and future expansion of the
economy, factors that make a difference, are private
sector investments and government spending
Another challenge is to reverse the current goods trade
deficit, to boost exports by strengthening the
manufacturing industry
Manuf., constr. & services shows robust high growth
SERVICES, MANUFACTURING AND CONSTRUCTION ARE THE KEY INDUSTRIES FOR GROWTH
0%
5%
10%
15%
20%
25%
Q1 Q2 16 Q3 Q4 Q1 17 Q2 Q3
Yo
Ygro
wth
Priv consumption
Gov spending
Capital formation
0%
5%
10%
15%
20%
Q1 Q2 16 Q3 Q4 Q1 17 Q2 17 Q3 17
Yo
YG
row
th
Agri, Fishery, Forestry Mining & QuarryingManufacturing ConstructionUtilities Services
SOURCE: ADB, BDO, BUSINESS SWEDEN ANALYSIS
Summary Market OutlookSwedish business in the
PhilippinesOur point of view
The Philippine government has committed up to USD 180 billion in
investments until 2022 in 75 projects primarily in railways, roads &
bridges, airports, new city development and mass transit systems. The
program labeled Build Build Build aims at supporting economic growth
and solve major infrastructure hurdles
Development in 2018 and 2019 will be crucial to regain trust among the
public for Build Build Build, as previous administrations have made
similar commitments without delivering on them
The Asian Development Bank (ADB) is supporting Build Build Build
through a USD 100 million loan labeled the Infrastructure Preparation
and Innovation Facility (IPIF), and with a USD 5 million technical
assistance grant to help the government recruit experts for the projects
and for capacity building in implementing agencies
Infrastructure projects worth about USD 3.8 billion will be prepared
under the IPIF and is expected to shorten start-up periods for priority
infrastructure projects. Including complex road networks, long-span
bridges, flood control and urban water systems, and crucial public
transport, port, airport, and railway investments
The IPIF will support only a small slice of the huge infrastructure
investment needed, but it will allow the government to accelerate
project implementation and bring in international expertise and
innovative practice
BUSINESS SWEDEN
“BUILD BUILD BUILD”, THE GOLDEN AGE OF INFRASTRUCTURE
UPCOMING PROJECTS
Rail
Road / bridges
Airports
New cities
BRT
Build Build
Build project
scope
Summary Market OutlookSwedish business in the
PhilippinesOur point of view
14,0
1,2
1,0
0,3
Bulacan Airport
Clark-Subic Rail
East-West RailProject
Clark InternationalAirport Expansion…
Projects to target in 2018 (BUSD)
SOURCE: PSE, BUSINESS SWEDEN ANALYSIS
The Philippine private sector is dominated by conglomerates such as San
Miguel, SM, JG Summit, Ayala and Pangilinan (MVP, PLDT). Ownership
structures are complex and sometimes non transparent. These companies
are large in global comparison. It is almost impossible to do business in
the Philippines without having them as customers and/or partners. These
companies invest primarily in energy, manufacturing, real estate and
infrastructure.
The trend is to go outside Philippines. Ayala has made several strategic
investments in the automotive supply chain in Europe. In the Philippines,
the company is investing USD 150 million in the automotive sector through
its electronics subsidiary IMI. Furthermore, Ayala has a JV plant with KTM
motorcycles in the Philippines, to use as export base in Asia.
An indicator of the maturity of the private sector is the capitalization of the
stock exchange. The capitalization of the Philippines Stock Exchange is
comparatively low, almost half of Thailand and 1/5 of Stockholm OMX.
Sweden has 10 % of the population of Philippines and OMX is still 5
times larger! It is clearly room for growth in the Philippines.
To enable a more flourishing private sector, the Government has an
inclusive growth agenda to create better conditions for SMEs
BUSINESS SWEDEN
THE PRIVATE SECTOR IS STILL DOMINATED BY A FEW COMPANIES
KEY FACTS
0 10 20 30
Construction
Admin
Hospitality
Infrastructure
Real Estate
Manufacturing
Energy
252450
1 300
PSE SET OMX
Market cap BUSD
Largest companies by revenue 2016, BUSD
Conglomerates industries (BUSD)
SOURCE: PSE, BUSINESS SWEDEN ANALYSIS
Summary Market OutlookSwedish business in the
PhilippinesOur point of view
4,0
4,7
4,7
5,0
5,8
13,4
PLDT
Ayala
JG Summit Holdings
Manila Electric
SM Investments
San Miguel
High potential sectors that are especially promoted by the Government for all investors include manufacturing,
infrastructure and IT & BPM. Investments outside Manila are also heavily promoted, especially on Mindanao.
The country is quite open for foreign investments, and the Government is pushing for more foreign investments
by reducing existing restrictions on foreign ownership.
Foreign investors may set up businesses through the Board of Investment (BOI), in export zones (PEZA) and in
specific free trade zones
If BOI conditions are met, BOI offers incentives such as lower import tariffs and income tax holidays
In PEZA zones, VAT exemption is also an incentive as the majority of goods are produced for exports
Total investment levels and FDI have shown a solid development in recent years. FDI is almost 30 % of all
PEZA and BOI approved investments. Measuring in monetary terms, manufacturing and utilities are the largest
sectors, yet in number of employed people the services sector is likely to be in top.
BUSINESS SWEDEN 19 JANUARY, 2018 10
FOREIGN INVESTMENTS EXPECTED TO INCREASE AS BARRIERS ARE MOUNTED DOWN
INVESTMENTS, BUSD (PEZA AND BOI) 2016 TOP ORIGIN
SOURCE: BUSINESS SWEDEN ANALYSIS, BOI, UNCTAD
0
200
400
600
800
0
200
400
600
800
2012 2013 2014 2015 2016
Total FDI
Rank Country
1 Netherlands
2 Australia
3 USA
4 Japan
5 Singapore
2016 TOP SECTORS
Rank Top sectors
1 Manufacturing
2 Utilities
3 Real Estate
4 Transportation & Logistics
5 Tourism & hospitality
Summary Market OutlookSwedish business in the
PhilippinesOur point of view
The median age of the Filipinos is only 24.6 years, among the lowest in global comparison
With a population growth close to 2 %, driven by birth rates, the Philippines is expected to continue to have a young
population in an elsewhere aging world. On top of that, most of the young are English speakers. The young English
speaking population is a key competitive advantage for the service industry, especially for the BPO industry.
The middle class is growing at high pace, and is expected to reach over 50 million in 2020. This safeguards strong
consumer demand for many years ahead.
A challenge though is that the difference between the rich and the poor is increasing, a challenge not limited to the
Philippines but common across Southeast Asia. In the 10-point Socioeconomic Agenda, President Rodrigo Duterte
envisioned the reduction of poverty from 21.6% in 2015 to 13%-15% by 2022.
BUSINESS SWEDEN
DEMOGRAPHICS AND A GROWING MIDDLE CLASS SUPPORT INVESTMENTS AND CONSUMER SPENDING
SOURCE: BUSINESS SWEDEN ANALYSIS, BOI, UNCTAD, : PHILIPPINES INFRASTRUCTURE TRANSPARENCY PORTAL
0 10 20 30 40 50
Philippines
China
Thailand
Sweden
Japan
DEMOGRAPHICS (MEDIAN AGE)DAILY CONSUMPTION PER PERSON, SHARE OF POPULATION
0%
20%
40%
60%
80%
100%
2010 2020 2030
< $ 1,25 (poverty)
$ 2-4 (lower-middle class)
$ 4-10 (middle-class)
$ 10-20 (upper-middle class)
More than $ 20 (rich)
CONSUMER
CLASS
Summary Market OutlookSwedish business in the
PhilippinesOur point of view
0%
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
0
10
20
30
40
50
60
70
80
90
2012 2013 2014 2015 2016 2017f 2018f 2019f 2020f 2021f 2022f
US
D b
illio
n
Tourism BPO revenue OFW remittances % of nominal GDP
BUSINESS SWEDEN 19 JANUARY, 2018 12
REVENUES FROM OVERSEAS FUEL INVESTMENTS AND SPENDING IN THE PHILIPPINES
SOURCE: BDO BANK
Summary Market OutlookSwedish business in the
PhilippinesOur point of view
BUSINESS SWEDEN 19 JANUARY, 2018 13
THE PHILIPPINES IS DEPENDANT ON GOODS IMPORTS AND SERVICES EXPORTS
Export vs import (Goods, BUSD) Key goods trading partners (BUSD)
-50
0
50
100
150
2012 2013 2014 2015 2016 2017f
Export Import Balance
SOURCE: ADB, BDO, BUSINESS SWEDEN ANALYSIS, EU DELEGATION IN MANILA
0 2 4 6 8
Food & live animals
Other machinery
Transport equipment
Office & telec. Equipm.
Chemicals
20162015
Key EU exports to the Philippines (BUSD)Export vs import (Services, BUSD)
0
10
20
30
40
50
2012 2013 2014 2015 2016 2017f
Export Import Balance
-5%
0%
5%
10%
0
2
4
6
8
10
12
China Japan US EU
2016 2017f YoY Growth
Summary Market OutlookSwedish business in the
PhilippinesOur point of view
0
2000
4000
6000
8000
10000
12000
14000
16000
2012 2013 2014 2015 2016 2017f
US
D b
iilio
n
BUSINESS SWEDEN 19 JANUARY, 2018 14
SOURCE: BMI
CAGR
6.9 %
9.7 %
4.0 %
12.8 %
4.7 %
0.5 %
SERVICES IS THE LARGEST SECTOR, MANUFACTURING EXPECTED TO BE THE NEXT DRIVER
MINING – potential lies in stable and
predictable rules governing the sector
UTILITIES – Almost completely privatized
sector (90 %) with many players in the
market
CONSTRUCTION – Road, rail, air, flood
control, power, residential and
commercial construction to drive growth
AGRICULTURE – focus sector of the
government. Key is to increase size of
farms and thereby increase efficiency
MANUFACTURING – F&B, chemicals
and electronics largest. Chemicals, pulp
& paper and metals with highest growth
SERVICES – Services production (incl.
BPO), retail and real estate are the
largest sectors and still have high growth
SECTORS
Summary Market OutlookSwedish business in the
PhilippinesOur point of view
Philippines economy and outlook
Swedish business in the Philippines
Our point of view
BUSINESS SWEDEN 19 JANUARY, 2018 15
AGENDA
BUSINESS SWEDEN 19 JANUARY, 2018 16
SWEDISH EXPORT FIGURES INDICATE THAT THERE IS ROOM FOR GROWTH
Swedish Exports vs imports (Goods, MSEK) Nordic trading with Philippines (MEUR)
-500
0
500
1 000
1 500
2012 2013 2014 2015 2016 2017f
Export Import Balance
SOURCE: ADB, BDO, BUSINESS SWEDEN ANALYSIS, SCB
0 100 200 300 400 500
Pulp & paper
Telecom
Industrial machinery and…
Automotive total
Pharma
Heating and cooling…
Vegitable oil and fats
2015
2016
What Sweden exports Sweden has a trade surplus with the Philippines
Trade has been increasing slightly in recent years
Finland and Denmark have both larger and higher
growth in exports than Sweden, indicating that there
is room for growth
Sweden primarily exports pulp & paper, telecom
equipment, industrial machinery and automotive
products
Automotive and industrial machinery have seen the
highest growth in recent years
-40%
-20%
0%
20%
40%
0
50
100
150
200
Finland Denmark Sweden Norway
2016 2017f YTD growth
Summary Market OutlookSwedish business in the
PhilippinesOur point of view
Approximately 40 Swedish companies are present in the Philippines, whereof some 20 are
multinationals
Several Swedish companies have a long history in the Philippines, being present here more than 20
years. Swedish Match is the company with the longest history of almost 100 years of local presence
Swedish investments since 2012 are approximately at SEK 120 million, and are mainly in
manufacturing and services
The primary customer group for Swedish companies is B2B*
The combined annual Swedish revenue on the Philippine market is SEK 4 to 5 billion*
The average Swedish sales growth in the recent 3 years was 19 % per year*
The forecasted average Swedish growth rate in the coming 3 years is 15 % per year*
SWEDISH REVENUE IN
THE PHILIPPINES BSEK
GROWTH - CAGR
4-519%
15%
2015-2017 2018-2020
SWEDISH INVESTMENTS (USD MILLION) AND FDI
STOCK (2012-2017) (BOI & PEZA)
0
2
4
6
8Manufacturing
Services production
ICT
USD 14 million
SOURCE: BUSINESS SWEDEN ANALYSIS, BOI* INTERVIEWS WITH 14 SWEDISH COMPANIES WITH LOCAL PRESENCE IN THE PHILIPPINES
Summary Market OutlookSwedish business in the
PhilippinesOur point of view
SWEDISH COMPANIES ARE DOING WELL IN THE PHILIPPINES BUT INVESTMENTS ARE LOW
020406080
100120140160180
Starting abusiness
GettingElectricity
GettingCredit
ProtectingMinority
Investors
Paying taxes Tradingacrossborders
Enforcingcontracts
Worl
d r
an
kin
g
Corruption is widespread in the Philippines and common in both the
private and public sector
Swedish companies perceive that regulations and processes for
taxation and VAT is handled in a non transparent way
Lack of sufficient infrastructure nationwide limits efficient logistics flows
and constantly poses large barriers in Manila in the form of traffic
congestion
Bureaucracy in the public and private sector slows down processes
114th place in World Bank’s ease of doing business index, with very low
ranking in categories “starting business”, “protection of minority
interests” and “enforcement of contracts”
BUSINESS SWEDEN
THERE ARE SEVERAL PERCEIVED CHALLENGES
SOURCE:WORLD BANK, BUSINESS SWEDEN ANALYSIS
KEY PERCEIVED CHALLENGES AMONG SWEDISH BUSINESSES
CORRUPTION
INFRASTRUCTURE
CONSTRAINTS
BUREAUCRACY
TAXATION & VAT
World Bank ease of doing business ranking
among 190 countries in 2018
114 rank
Summary Market OutlookSwedish business in the
PhilippinesOur point of view
BUSINESS SWEDEN 19 JANUARY, 2018 19
THE RECIPE AMONG SUCCESSFUL SWEDISH COMPANIES
SOURCE: BUSINESS SWEDEN ANALYSIS
PARTNER WITH THE RIGHT PEOPLE- From start. Including employees, business
partners, advisors, lawyers, clients etc..
BUILD TRUST - By strong local presence, either through your own
local company or a strong local partner that
represents your company with strong commitment
and dedication
BE PATIENT- Living and working in the Philippines can
sometimes feel like being in a roller coaster.
However, the economy is resilient and it is important
to be patient and have a long term focus to
overcome the perceived short term hurdles
INVEST IN PEOPLE- Salaries are high and in specific cases on par with
Singapore levels. Education is needed even if
experienced people are recruited
Summary Market OutlookSwedish business in the
PhilippinesOur point of view
Philippines economy and outlook
Swedish business in the Philippines
Our point of view
BUSINESS SWEDEN 19 JANUARY, 2018 20
AGENDA
BUSINESS SWEDEN 19 JANUARY, 2018 21
THE MARKET BRINGS OPPORTUNITIES IN BOTH SALES AND PRODUCTION FOR SWEDISH COMPANIES
SOURCE: BUSINESS SWEDEN ANALYSIS
Materials, solutions and
equipment for the
manufacturing sector
Infrastructure solutions:• Urban, road, rail and air
transportation
• Energy & power
• Waste water
• Flood control
• Public safety
• Telecom
Retail, consumer
products and food
Pharma, healthcare and
medical devices
Agriculture products &
solutions
Services
production• Contact centre & BPO
• Global In-house
centres
• IT services
• Healthcare information
management
• Animation and Game
development
Manufacturing, use
Philippines as hub for
export & domestic sales
Construction equipment
and solutions
THESE OPPORTUNITIES ARE NOT ONLY IN MANILA, BUT SPREAD OUT IN THE REGIONS
Summary Market OutlookSwedish business in the
PhilippinesOur point of view
BUSINESS SWEDEN 19 JANUARY, 2018 22
NOW IS A GOOD TIME TO ENTER THE PHILIPPINES
SOURCE: BUSINESS SWEDEN ANALYSIS
Reasons to enter
Solid economic fundamentals – high and stable growth
The large infrastructure programs that are now taking off
Optimal demographics – 100+ million with 50 % being under 25 years
Developing and growing manufacturing sector
Leverage the increased presence of Team Sweden
Impediments
Political situation
Corruption
Infrastructure
Bureaucracy
Summary Market OutlookSwedish business in the
PhilippinesOur point of view
BUSINESS SWEDEN 19 JANUARY, 2018 23
FIVE STEPS FOR A SUCCESSFUL MARKET ENTRY IN THE PHILIPPINES
SOURCE: BUSINESS SWEDEN ANALYSIS
Build a good understanding of your market before entry
Develop a market entry strategy to build trust, through local presence and / or partners
Partner with the right people from start
Train your people and partners to fulfill the needs of the clients
Keep patience and maintain continuity when the market conditions changes
1
2
3
4
5
Summary Market OutlookSwedish business in the
PhilippinesOur point of view
BUSINESS SWEDEN 19 JANUARY, 2018 24
THANK YOU! CONTACT INFO
+63 917 841 7784
www.business-sweden.se
Ulf Wennblom, Country Manager
Philippines at Business Sweden
Please contact Business Sweden
if you have any questions
regarding this report, or if you need
support in growing your business
internationally, in Philippines or in
any of the other 50+ locations
where we are represented in the
world. We advise our clients, from
the smallest start-ups to the global
corporations, in all steps of their
international endeavours. We have
the network and can complement
your internal resources in an
efficient way, worldwide.