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I. INTRODUCTION
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The Philippines is currently being packaged as Asia’s E-services
Hub, with its vast pool of information technology (IT)-trained human
resources and wide opportunities for future expansion and development,
particularly in the IT field. Recognizing the need to harmonize national
development efforts with the fast-paced, knowledge-driven global community,
the Philippine government has placed IT services and development as
one of its priority programs. In line within this, both the Philippine
government and the private sector have been exerting cooperative efforts
to fully optimize the country’s potential in the IT field. |
Ii. COUNTRY PROFILE
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A. |
Location |
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Consisting of approximately 7,100 islands, the Philippines
is located at the Southeast Asian region and is considered the “Gateway
of Asia to the Pacific” due to its strategic location. It is
surrounded by Taiwan on the north, South China Sea on the west, the
archipelago of Indonesia on the south, and the vast Pacific Ocean
on the east. It has a total land area of 300,000 square kilometers,
the largest islands being Luzon, Mindanao, Palawan, Negros Island,
Cebu, Samar Island, Panay Island, Mindoro Island, and Leyte. Major
international airline and shipping companies serve the country as
one of their primary destinations. |
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B. |
Outsourcing Categories |
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The basic economic structure of the Philippines is free
enterprise or laissez-faire, with minimal intervention from the government.
The important role of the private sector is well recognized by the
State and finds its way through the policy of harnessing the immense
technical and capital resources offered by the business sector. This
is shown by the increasing pubic-private sector participation in various
infrastructure and development activities.
Concomitant with the phenomenon of market globalization, the Philippines
has participated in the General Agreement of Tariff and Trade of
the World Trade Organization and the Asian Free Trade Agreement.
It has placed several structural reforms which opened up investments
in various key sectors, liberalized importation of products and
services, deregulated important economic industries, and privatized
key government corporations.
Although most of its neighbors have been suffering negative growth
rates during the recessionary years in the late 1990s, the Philippines
has managed to post positive modest progress during the same period.
Currently, the inflation rate is at a controllable 2.9%. The average
Filipino household expenditure is placed at approximately US$2,310.00
during the previous year.
The official legal tender in the Philippines is the Philippine
peso (PhP). However, under Republic Act 8139, parties to any transaction
are allowed to stipulate that a foreign currency be the currency
of payment or performance of the obligation. Presently, the average
foreign exchange rate between the PhP and the U.S. dollar (US$)
is PhP 54.1 to US$1.00.
The services sector continues to be the sector with the highest
contribution to the economy, followed by manufacturing and agriculture.
With its vast trained human resource and the latter’s proficiency
in the English language, the service sector of the Philippines is
very competitive, particularly in the areas of IT and computer software
services.
Major exports of the Philippines include manufactured goods such
as semi-conductors and electrical equipment and machinery, garments,
minerals and metals, and agricultural products such as coconut products
and bananas.
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C. |
Government Structure |
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The Philippines prides itself in having a dynamic democracy
and representative form of government. Pursuant to the constitutionally
declared principle of democratic republican state, the voice of the
general public plays a very significant role in the Philippine political
environment, as shown by two historic peaceful “People Power”
revolutions, both of which toppled what were considered as corrupt
and autocratic regimes. The current administration under Pres. Gloria
Macapagal-Arroyo promises a commitment to more responsive, morally
upright, and transparent governance.
The Philippines has a presidential form of government, with the
President as the head of state. The President appoints the various
heads of executive departments (called Secretaries) to supervise
and administer the daily tasks of running the various aspects of
governance. Its lawmaking body, known as the Congress, is composed
of two chambers – the Senate, which is composed of twenty-four
(24) senators elected at large, and the House of Representatives,
which is composed of not more than two hundred fifty (250) congressmen
elected by their constituencies in their respective legislative
districts and of representatives from various marginalized sectors.
The task of interpreting the laws and resolving legal disputes is
vested in the Supreme Court, the country’s highest judicial
tribunal, with various trial courts (i.e., Regional and Municipal/Metropolitan/Municipal
Circuit Trial Courts) performing as the courts of preliminary resort
or first instance. The country is divided into political subdivisions
known as local government units (LGUs, for brevity) (i.e., provinces,
municipalities, cities, barangays) and each unit is headed by a
local chief executive. It should be noted that LGUs are vested with
considerable power and authority by the central government, in line
with its policy of dispersing development activities in the countryside.
The Philippines is predominantly composed of Christians, with
Roman Catholics composing almost 85% of the population. This is
due to the almost four centuries of Spanish presence in the country
which made the Philippines as Asia’s Cradle of Christianity.
Moslems, which constitutes 5% of the population, are primarily concentrated
in Mindanao.
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D. |
Philippine Macroenvironment |
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1. |
Population |
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Projected population growth is expected to hit 83 million
by 2004 with a disproportionately large number of young people as
against more senior citizens. Households will continue to expand in
number of members and income, but earning parity is expected to drop;
given current prognoses for real GDP growth to 2011 based on the earlier
discussion trends in the size and productivity of the labor force,
it is expected that the real average household income will increase
1.8 % per annum to 2006 and then 1.7 % per annum to 2011 bolstered
by the expected increase in gross salary |
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2. |
Consumption |
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The average household is currently spending 76 % of
its total expenditure on food, clothing and housing with growth in
discretionary expenses expected because of projected increases in
disposable income for households. It is expected that expenditure
of all households on “transport and communications” and
“recreation and education” may grow at over 4.2 % per
annum for the next 5 years.. |
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3. |
Social |
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Filipino consumers are now less concerned about a worsening economy
than they were in July 2002. People remain optimistic that personal
economic situations will improve in the next 12 months. In terms of
peace and order, Filipinos want the government to put an end to the
insurgency problem, illegal drugs, kidnapping, the Moro insurgency,
rape, robbery, child abuse and terrorism. Other concerns respondents
want the government to address are employment, salaries and wages,
and corruption in government. |
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4. |
Physical Infrasructure |
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Government projects are on track; road improvements and active measures
to curb road traffic are seen to improve business productivity. The
completion of mass transit projects will increase domestic travel
Suspension of opening of NAIA Terminal 3 will cosset incumbent ground
handlers from market changes |
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5. |
Technological |
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Increased market adoption of wireless devices, particularly in the
field of telecommunications (use of bluetooth, satellite services,
et al.) will improve overall communications and logistics in terms
of real-time communications of needs and services. Increased spending
on information and communications technologies by large enterprises
will force firms to comply with systems integration requirements,
in order to actively participate in supply chains |
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6. |
Economic |
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The 2003 GDP forecast of 4.2% is achievable because of increased
government spending and increased output by manufacturing and ICT
firms. GNP is expected to grow at about rough 3.9%. The industrial
sector is expected to expand between 3.4 – 4.4% in 2003 from
4.1% in 2002, driven by construction and manufacturing activity. Growth
will be highest in the logistics (transportation, communication and
storage), mining and manufacturing industries
Agriculture is projected to rise between 3.0 – 4.0% in 2003
from 3.5% in 2002, notwithstanding the expected recurrence of a mild
El Niño. In 2003, the service sector is set to be the fastest
growing sector and a major source of economic growth.
Trade will also be boosted by the expansion of large local retailers
in regions outside Metro Manila and healthy domestic demand.
Financial services are expected to further gain from the recent approval
of bank assurance rules by the Monetary Board allowing the sale of
insurance products by and also from the recent approval of the Special
Purpose Vehicle Act that will strengthen the banking sector by disposing
of bad loans and infusing greater liquidity through the sale of such
non-performing assets.
Investments are expected to climb between 2.6 – 3.1% as additional
financing resources for small and medium enterprises (SMEs) and housing
sector drives stronger investment demand.
Exports are forecast to rise between 5.2 – 5.7% on the back
of strengthening world semiconductor demand and the expansion of the
country’s export markets in Asia, as well as the continued export
growth to traditional markets such as Europe and the Americas.
Meanwhile, imports are projected to grow between 5.0 and 5.5% in support
of the economic expansion and expected improvement in semiconductor
exports.
However, in view of possible adverse agricultural output, instability
of fuel prices and war, inflation is expected to increase to around
5% for the coming months
Interest rates will go up due to domestic sourcing of funds and a
weaker peso; war jitters and increased oil prices are expected to
push peso value down by as much as 6%
The government's commitment to a low interest rate regime augurs well
for domestic industries. At the very least, it allows industries to
service their debts at a lower cost, although the ultimate goal of
said policy is to encourage new investments especially from the private
sector.
The IMF expects a higher budget deficit this year equivalent to 6.2%
of GDP |
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7. |
LAbor and Employment |
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Trends indicate that the labor market will continue to be an employers’
market; the country is expected to exhibit an increasingly negative
net migration rate over the next ten years.
Women will continue to increase participation in the labor force,
accounting for half of the Filipino workforce by the year 2005. Major
growth is seen for women in the managerial and professional sectors
as well as services and administrative support.
Increase in educational levels does not assure increase in number
of skilled workers adequate to meet industry demands |
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1. |
Economic Environment |
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The Philippine Government is confident that the 2003
Gross Domestic Product (GDP) forecast of 4.2% will be met, according
to the National Economic Development Authority (NEDA). The report
takes into account the resiliency of the private sector particularly
Services in providing the confidence to the government that the GDP
forecast would be attained. The telecommunications sector is geared
for expansion and retail giants are also expanding in anticipation
of competition that will be brought by foreign retailers. It was noted
that there are two important policies that will provide the manufacturing
sector to have some leeway in coping with the oil price increase.
The minimum wage increase remains stable given the low inflation rate
in 2002 and 2003 and tariffs for capital goods and other imported
goods are reduced to zero %.
The forecast for 2003 based on the “2002 Economic Performance
and Prospects for the next 18 Months”: |
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2. |
Philippine GNP and GDP Forecasted Rates |
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2002
Actual |
2003
Forecast |
| GNP g.r. |
5.2 |
4.5-5.4 |
| GDP g.r. |
4.6 |
4.2-5.2 |
| Agriculture |
3.5 |
3.0-4.0 |
| Industry |
4.1 |
3.4-4.4 |
| Services |
5.4 |
5.2-6.2 |
To sustain economic growth, some structural reforms were needed including,
agricultural modernization; grains reform program, improvement in
port services and liberalization of the airline industry. Other recommended
policy directions were as follows: |
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Pursuing competitive enhancing trade measures |
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Reducing fiscal deficit |
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Continuing financial market reforms |
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Investing in education, training and health |
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Creating high-wage and high skill jobs through
human capital investments and technological progress |
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Promoting a culture of good governance in the
public and private sectors |
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Other analysts, however, forecast a much lower growth rate for the
Philippines. The Asian Development Bank expects only a 3.9 % growth
for the country. Similarly, Singapore-based Nomura Research Institute
projects that the Philippines’ GDP will grow by only 3.6% this
year. The International Monetary Fund, which forecasted a growth of
3.8 % in its September 2002’s World Economic Outlook, downgraded
its forecast to just 3.5 % due to the failure of the country to address
the banking sector’s fragility and speed up reforms in the power
sector.
From a local perspective, a BusinessWorld poll revealed that the consensus
among bank officials and economic forecasters is that domestic economic
growth will range from 3.8% to 4.1%. |
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3. |
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| Industry |
2002 |
2003 Forecast |
| Actual |
Low |
High |
| Sector Breakdown |
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| Agriculture |
3.5
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3.0 |
4.0 |
| Industry |
4.1 |
3.4 |
4.4 |
| Mining & quarrying |
4.2 |
6.0 |
7.0 |
| Manufacturing |
3.3 |
3.4 |
4.4 |
| Construction |
0.0 |
3.5 |
4.5 |
| Electricity, gas & water |
2.1 |
2.5 |
3.5 |
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| Services |
5.4
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5.2 |
6.2 |
| Trans., comm., & storage |
8.9 |
9.5 |
10.5 |
| Trade |
5.7 |
5.8 |
6.8 |
| Finance |
3.2 |
1.6 |
2.6 |
| Ownership dwellings & real estate |
1.6 |
3.1 |
4.1 |
| Private services |
5.5 |
5.0 |
6.0 |
| Government services |
4.6 |
1.5 |
2.5 |
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| Expenditures Breakdown |
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| Personal Consumption |
3.9
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3.2 |
3.7 |
| Government Consumption |
1.6 |
-3.1 |
-2.6 |
| Investments |
-0.6 |
2.6 |
3.1 |
| Exports |
3.3 |
5.2 |
5.7 |
| Imports |
4.9 |
5.0 |
5.5 |
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Agriculture is projected to rise between 3.0 – 4.0% in 2003
from 3.5% in 2002, notwithstanding the expected recurrence of a mild
El Niño that will run through the first half of 2003. Agriculture
and fishery production will also be supported by initiatives to improve
productivity and increased agriculture-related lending.
The industrial sector is expected to expand between 3.4 – 4.4%
in 2003 from 4.1% in 2002, driven by construction and manufacturing
activity. Construction will benefit from the joint efforts of the
government and the private sector to enhance housing credit facilities.
Meanwhile, manufacturing is expected to continue its recovery supported
by robust nominal dollar exports growth and stable domestic demand.
In 2003, the service sector is set to be the fastest growing sector
and a major source of economic growth. It is expected to increase
between 5.2 – 6.2% in 2003 from 5.4% in 2002. Leading the growth
in services is the communications sector that will continue to benefit
from strong demand for expanded cellular phone and IT services by
both the business and public sectors.
Trade will also be boosted by the expansion of large local retailers
in regions outside Metro Manila and healthy domestic demand. Financial
services are expected to further gain from the recent approval of
bank assurance rules by the Monetary Board allowing the sale of insurance
products by and also from the recent approval of the Special Purpose
Vehicle Act that will strengthen the banking sector by disposing of
bad loans and infusing greater liquidity through the sale of such
non-performing assets.
Ownership of dwellings and real estate will benefit from the boost
in private construction and low interest rate environment, while the
completion or near-completion of ODA projects in 2002 will also stimulate
economic and business activities.
Private consumption growth is expected to continue to expand between
3.2 – 3.7% in 2003. The upbeat momentum of communications services
demand, expansion of trade in major cities outside Metro Manila and
a relatively benign price environment will continue to support consumer
demand. Government spending, on the other hand, will remain in line
with the Administration’s commitment to exercising fiscal prudence.
Investments are expected to climb between 2.6 – 3.1% as additional
financing resources for small and medium enterprises (SMEs) and housing
sector drives stronger investment demand. The start of major foreign
assisted projects in transportation, flood control and agriculture
coupled with a stable domestic interest environment is also expected
to encourage investments.
Exports are forecast to rise between 5.2 – 5.7% on the back
of strengthening world semiconductor demand and the expansion of the
country’s export markets in Asia, as well as the continued export
growth to traditional markets such as Europe and the Americas. Meanwhile,
imports are projected to grow between 5.0 and 5.5% in support of the
economic expansion and expected improvement in semiconductor exports.
Reduction of tariff rates, in line with the Government’s commitments
to international economic organizations in 2003, will also support
growth in imported manufacturing goods and promote competitiveness
in trade and industry. |
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4. |
Summary of GDP and GNP Forecasts for 2003 |
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| Summary of Forecasts for 2003 |
GDP |
GNP |
| International Monetary Fund |
3.5 |
3.5 |
| Nomura Research Institute |
3.6 |
3.8 |
| The Wallace Business Forum, Inc. |
4.2 |
4.8 |
| Asian Development Bank |
3.9 |
4.2 |
| The Economist Intelligence Unit |
3.8 |
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| GDP Forecasts for 2004 to
2007 |
2004 |
2005 |
2006 |
2007 |
| The Wallace Business Forum, Inc. |
5.0 |
5.3 |
4.8 |
4.5 |
| The Economist Intelligence Unit |
4.0 |
3.8 |
3.7 |
3.6 |
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