Philippines - Country Profile

COUNTRY ANALYSIS REPORT
Philippines
In-depth PESTLE Insights
Publication Date: August 2010
OVERVIEW
Catalyst
This profile analyzes the political, economic, social, technological, legal and environmental structure in the Philippines.
Each of the PESTLE factors is explored on four parameters: current strengths, current challenges, future prospects and
future risks.
Summary
Key findings
Positive response to Aquinos win in the presidential elections; threat from communist rebels remains high
The outcome of the presidential elections in May 2010 has raised hopes for reform. Benigno Aquino III of the Liberal Party
won with a large majority and assumed office as the countrys 15th president on June 30, 2010. Aquinos core electoral
platform was based on improving governance and reducing corruption and poverty. Given Aquino's reputation for honesty,
investors are particularly positive about his victory in the elections.
The Philippines continue to face serious threats from the communist rebels as they have refused to disarm and resume
peace talks. In August 2010, the communist rebels on Panay Island (who are part of the National Democratic Front) stated
that they were not willing to end hostilities with the government unless an agreement on major reforms was reached. The
National Democratic Front (NDF) in Panay demands the government to sign a precise agreement under which major
political, economic and social reforms will be implemented. In addition, the NDF seeks the investigation and the prosecution
of government officials allegedly accused of corruption and human rights violations. The NDF has threatened that it would
strengthen its forces and continue to attack the government troops if these conditions are not met.
Remarkable growth in the first quarter of 2010, but a high deficit level is an immediate challenge
The Philippines economy posted impressive growth in early 2010. The countrys GDP expanded 7.3% year-on-year in the
first quarter of 2010. Robust growth was supported largely by strong election-related spending. Other factors such as a
rebound in global trade, growth in manufacturing and investment activity, and private consumption also supported growth in
Q12010. After a strong first-quarter performance, the Philippine economy is set to grow faster than estimated. While strong
Philippines: Country Analysis Report In-depth PESTLE Insights

Datamonitor. This brief is a licensed product and is not to be photocopied
Published 08/2010
Page 1
Overview
economic growth in the coming months will help to manage deficit levels, the government will still need to lay out a prudent
fiscal strategy to order to bring its deficit and debt levels under control.
The Philippines ran a fiscal deficit of 3.9% of GDP in 2009. In the first half year of 2010, the budget deficit reached 60.5% of
the full-year target of $7 billion. Despite this, the new government has maintained its earlier target of achieving a budget
deficit of PHP325 billion ($6.9 billion), corresponding to 3.9% of GDP for 2010. For 2011, the government targets to reach a
budget deficit level of PHP290 billion ($6.48 billion), or 3.2% of GDP. The countrys debt in 2009 reached around 58.7% of
GDP, compared to 56.9% in 2008. At a debt level of almost 59%, the countrys debt level is comparable to the levels of
some of the more vulnerable European economies.
The country's population is young, but plagued with poverty
Recent official estimates indicate that more than 60% of the population belongs to the 1564 age group, 34.9% of the
population to the 014 age group and 4.2% of the population to the 65-and-over group. As per 2010 estimates, the
Philippine population has a median age of 22.7 years, which means that half of the population is below that age. While
many developed nations are faced with the problem of ageing population and rising social expenditure, the Philippines
demographic structure works in its favor by providing a regular boost to its labor force.
Stark poverty in the Philippines against the backdrop of robust economic growth is a serious concern. According to an
Asian Development Bank study (2009), the Philippines' poverty reduction rate of 0.47% per year is slower than those of
neighboring Cambodia, Indonesia, the Lao People's Democratic Republic, Thailand, and Vietnam. Among Southeast Asian
nations, the Philippines is the only country which has recorded an increase in the absolute number of poor people since
1990. It is estimated that poverty rates have increased even further due to the global economic crisis and natural disasters
in 2008 and 2009. Lack of employment opportunities especially in the agriculture sector is identified as the main reason for
the slow decline in poverty rates. Although the government has implemented several poverty reduction measures, low
investment and structural weaknesses have constrained development.
A strong BPO sector, but low R&D spending is a key challenge
The Philippines has a strong Business Process Outsourcing (BPO) sector due to an abundance of human resources with
excellent English language skills; the similarity of the Philippines legal, accounting, medical, and other social systems with
those of the US; and greater cost-competitiveness. The outsourcing industry of Philippines offers several services ranging
from voice and IT services to several value-added services such as finance, animation, engineering, medical transcription
and architectural services. According to Business Processing Association Philippines (BPAP), the country could increase
its share of the global outsourcing and offshoring market to 10%. In the BPO sector, the country generated revenues of
$7.3 billion in 2009 and is expected to generate revenues of about $13 billion with direct employment of approximately 1
million by the end of 2010. The countrys strong BPO sector is further evidenced by a recent award by the National
Outsourcing Association, the UK. The Philippines received the Best Offshoring Destination of the Year award for 2009 for
its BPO sector. The growing strength of the BPO market is expected to attract more and more foreign companies to shift
their operations to Philippines.
The spending on R&D in the Philippines has been very low. According to a report by the Department of Science and
Technology (published in April 2010), the countrys R&D expenditure was just 0.14% of the GDP, is well below the 2% of
GDP recommended by the United Nations Educational, Scientific and Cultural Organization (UNESCO). Low R&D funding
has negatively impacted innovation in the Philippines, which is reflected in the low number of patents received by local
firms; the number granted by the USPTO came down from 35 in 2006 to 25 in 2009. In comparison, Singapore and South

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Page 2
Overview
Korea were granted 493 and 9,566 patents in 2009, respectively. The low number of patents indicates the low level of R&D
expenditure and strengthens the perception that that country does not foster innovation. This is a big risk in the current
scenario, which is characterized by the dominance of the knowledge economy.
The Philippines ranks poorly as a business-friendly country, but there has been significant progress in
privatization
The Philippines ranks poorly as a business-friendly country in the World Banks Doing Business report (2010). In terms of
th
nd
the ease of doing business, the country was ranked 144 out of 183 economies. The Philippines also ranked in the 162
place in terms of starting a business, falling behind all countries in East Asia except Cambodia. Starting a business takes
an average of 52 days, compared to the world average of 35 days. Closing a business can also be a difficult and lengthy
process. The Philippines is one of the most difficult countries to close a business (ranking 153rd in the world and the lowest
in the East-Asia region). The government needs to work towards simplifying processes and removing impediments to
investment.
The government is looking to privatize government-owned entities and make government corporations profitable. In 2007,
the governments Power Sector Assets & Liabilities Management Corporation (PSALM) made significant progress in
privatization. PSALM sold a major power station and succeeded in giving a 25-year old concession to operate the national
power grid; it also sold around 39% of the state-owned National Power Corporations (NPC) power generation assets. The
brisk pace set by PSALM is expected to continue in the near term. The Aquino government is expected to privatize
television firms Radio Philippines Network (RPN-9) and Intercontinental Broadcasting Corporation (IBC-13) in the near
future. The government is also likely to privatize the operation and maintenance of the Ninoy Aquino International Airport
Terminal 3. Privatization initiatives in various sectors are expected to open up business opportunities and increase
competition.
Steps towards climate change adaption are in place, but air pollution levels are high
The Post-Disaster Needs Assessment (PDNA) estimated that the damage and losses from the two major typhoons in 2009
amounted to about $4.4 billion. To counter this situation, the Philippine government has invested in climate change
adaptation. Philippines is the only country in Southeast Asia with a dedicated agency on climate change. The department of
agriculture introduced a rainwater harvesting technology to irrigate water during the dry season and control floods in the
rainy season. In addition, the non-governmental institutions are also educating the farmers to use organic methods of
farming, which can be productive without depending too much on water and fertilizers. These initiatives taken by the
government will help deal with natural calamities.
The country faces increasing levels of air pollution. The poor air quality in urban areas and indoor air pollution is affecting
health of the people. For instance, an estimated 5% of all reported disease cases and 4% of all reported deaths in the
country are attributed to increasing pollution levels. There has been a surge in the number of respiratory diseases such as
acute and chronic bronchitis, pneumonia, and cardiovascular diseases. The government needs to curb the levels of air
pollution which translates into an increase in costs in terms of productivity and increase in health care expenditure.

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Overview
PESTLE highlights
Political landscape
There might be resistance to President Aquino's efforts to improve the political administration and in particular, to
investigate former president Macapagal Arroyo's administration for alleged corruption.
In April 2010, the then President Gloria Macapagal-Arroyo expressed the view that stake holders could work
towards a win-win solution to the territorial dispute in the Spratlys. However, a permanent resolution of the issue
remains a far cry.
Economic landscape
In the aftermath of the global economic crisis, the growth in remittance from overseas foreign workers slowed
down to 5.4% in April 2010, compared to more than 10% annual growth in recent years.
Despite robust growth in Q12010, unemployment in the Philippines economy is on the rise. Unemployment
increased to 8% in April 2010 (or 3.1 million people) from 7.5% (or 2.8 million people) during the same period in
2009.
Social landscape
The Philippines faces a dearth of health care professionals. According to 2010 estimates, the country has a
doctor-to-population ratio which is as low as 1:15,000. Moreover, a large majority of the doctors reside in the
urban areas.
President Aquino aims to strengthen social services through increased spending. The education sector will be
allocated the highest appropriations in the national budget for 2011.
Technological landscape
In 2010, the government took key initiatives to encourage start-up companies through the technology business
incubation (TBI) program.
Legal landscape
Corruption has long been an issue of concern in the Philippines. The country lags behind most of its neighbors in
the Asian region in terms of combating corruption. In the Transparency Internationals Corruptions Perception
Index for 2009, the Philippines was ranked 139th out of the 180 countries.
The Philippines has a convoluted tax structure that not only requires too many transactions but also takes a lot of
time to fulfill. A company has to make 47 tax payment transactions in the Philippines, which is higher than the
East Asia average of 25. Moreover, in the Philippines, it takes 195 hours to prepare, file, and pay taxes.
Environmental landscape
th
According to 2010 Environmental Performance Index (EPI), the Philippines was ranked 50 among 163 countries
with a score of 65.7.
CO2 emissions came down during 200608 but rose again in 2009 to reach 75.1 million metric tons during the
year. Datamonitor forecasts suggest that CO2 emissions will increase to reach 80 million metric tons by 2011.

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Overview
Key fundamentals
Table 1:
The Philippines key fundamentals

2008
2009
2010
2011
2012
2013
2014
110.8
111.9
116.3
121.3
126.4
131.6
136.9
GDP, constant 2000 prices ($ billion)

GDP growth rate (%)
GDP, constant 2000 prices, per capita ($)
4.2
1.0
3.9
4.3
4.2
4.1
4.0
1,153.1
1,141.9
1,164.1
1,191.2
1,218.1
1,244.7
1,271.1
9.3
3.2
3.9
4.6
4.4
4.4
4.4
Exports, total as % of GDP
34.8
33.4
31.8
30.8
29.9
29.1
28.2
Imports, total as % of GDP
40.4
38.7
38.2
36.3
35.6
34.4
33.5
Mid-year population, total (million)
96.1
98.0
99.9
101.8
103.8
105.7
107.7
7.4
7.5
7.3
7.3
7.3
7.2
7.2
71.5
81.5
88.9
94.2
97.9
100.5
102.2
Inflation (%)
Unemployment rate (%)

Mobile penetration per 100 people
Source: Datamonitor

DAT AMONITOR
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Table of Contents
TABLE OF CONTENTS
Overview
Catalyst
Summary
Key facts and geographic location
10
Key facts
10
Geographical location
11
PESTLE analysis
12
Summary
12
Political analysis
13
Economic analysis
16
Social analysis
18
Technological analysis
20
Legal analysis
23
Environmental analysis
26
Political landscape
28
Summary
28
Structure and policies
30
Performance
32
Outlook
33
Economic landscape
35
Summary
35
Evolution
35
37
Performance
39
Outlook
49
Social landscape
51
Summary
51
Evolution
51
51
Performance
54
Outlook
56

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Table of Contents
57
Summary
57
Evolution
57
57
Performance
58
Outlook
61
Legal landscape
62
Summary
62
Evolution
62
62
Performance
65
Outlook
65
66
Summary
66
Evolution
66
66
Performance
67
Outlook
68
Appendix
69
Ask the analyst
69
Datamonitor consulting
69
Disclaimer
69

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Table of Contents
TABLE OF FIGURES
Figure 1:
Map of the Philippines
11
Figure 2:
The Philippines: political events timeline
29
Figure 3:
The Philippines key political figures
30
Figure 4:
Composition of the Philippines House of Representatives, 2010
31
Figure 5:
The Philippines historical GDP growth (19912009)
36
Figure 6:
Market capitalization of the Philippines stock Exchange, 200208
38
Figure 7:
GDP and growth rate in the Philippines, 200213 (real GDP at constant 2000 prices)
39
Figure 8:
GDP composition by sectors in the Philippines, 2009
40
Figure 9:
Agricultural output of the Philippines, 200209
41
Figure 10:
Industrial output of the Philippines, 200209
42
Figure 11:
Services output of the Philippines, 200209
43
Figure 12:
Current account balance of the Philippines, 200208
44
Figure 13:
External trade of the Philippines, 200209
45
Figure 14:
Balance of trade in the Philippines, 200108
46
Figure 15:
Total foreign investment in the Philippines, 200308
47
Figure 16:
Consumer price index and CPI based inflation in the Philippines, 200213
48
Figure 17:
Unemployment in the Philippines, 200213
49
Figure 18:
The Philippines composition of religion
53
Figure 19: Healthcare expenditure in the Philippines, 200213
55
Figure 20:
Government expenditure on education in the Philippines, 200213
56
Figure 21:
Growth rate of mobile and fixed line subscribers in the Philippines, 200213
59
Figure 22:
Internet users and growth rate in the Philippines, 200213
Figure 23: Carbon dioxide emissions in the Philippines, 200213

60
68
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Table of Contents
TABLES
Table 1:
The Philippines key fundamentals
Table 2:
The Philippines key facts
10
Table 3:
Analysis of the Philippines political landscape
13
Table 4:
Analysis of the Philippines economy
16
Table 5:
Analysis of the Philippines social system
18
Table 6:
Analysis of the Philippines technology landscape
20
Table 7:
Analysis of the Philippines legal landscape
23
Table 8:
Analysis of the Philippines environmental landscape
26
Table 9:
Mid-year population by age (millions), 2009
52
Table 10:
Patents granted by USPTO, 200209
58
Table 11:
The Philippines : individual income tax rates, 2009
63

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KEY FACTS AND GEOGRAPHIC LOCATION

Key facts
Table 2:
The Philippines key facts
Country and capital

Full name
Republic of the Philippines
Capital city
Manila
Government
Government type
Republic
Chief of state and head of government
President Gloria Macapagal-Arroyo
Vice president
Manuel Noli de Castro
Population
97,976,603
Currency
Philippine peso
GDP per capita (PPP)
$3,300
Internet domain
.ph
Demographic details
Life expectancy
71.4 years (total population)

68.5 years (men)
74.5 years (women)
Ethnic composition
Tagalog 28.1%, Cebuano 13.1%, Ilocano 9%, Bisaya/Binisaya 7.6%,

Hiligaynon Ilonggo 7.5%, Bikol 6%, Waray 3.4%, other 25.3%
Major religions (2006 census)
Roman Catholic 80.9%, Muslim 5%, Evangelical 2.8%, Iglesia ni

Kristo 2.3%, Aglipayan 2%, other Christian 4.5%, other 1.8%,
unspecified 0.6%, none 0.1%
Country area
300,000 sq km (total)
Languages
Filipino (based on Tagalog) and English are the two official

languages
Exports
Semiconductors and electronic products, transport equipment,

garments, copper products, petroleum products, coconut oil, fruits
Imports
Electronic products, fuels, machinery and transport equipment, iron

and steel, textile fabrics, grains, chemicals, plastic
Source: CIA, The World Factbook

DAT AMONITOR
Published 08/2010
Page 10

Geographical location
The Philippines is located in Southeastern Asia, on the archipelago between the Philippine Sea and the South China Sea,
east of Vietnam.
Figure 1:
Map of the Philippines
Source: CIA The World Factbook

DAT AMONITOR
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PESTLE analysis
PESTLE ANALYSIS
Summary
In the 1980s and 1990s, the Philippines was part of the East Asian growth miracle, emerging as a leading destination for
inwards investment. However, growth never quite matched the economic dynamism of Singapore, Taiwan or Korea. The
economy was hit by the 199798 regional financial crisis, but returned to a reasonable level of growth, recording a CAGR
of 6% over 200107.
Gloria Macapagal Arroyo assumed presidency of the Philippines in 2001 after the impeachment of her predecessor. She
was re-elected in 2004, although she herself had to face a number of impeachment attempts. Release of tapes showed
former President Arroyo having a conversation with an election official, which dented her governments credibility. Another
troubling feature of her reign was political killings. Although this was not unique to Arroyos tenure as president, the number
of incidents were reported at over 800 and ongoing killings of politicians and journalists are a major problem in the country.
On June 30, 2010, Benigno Aquino III of the Liberal Party won with a large majority and assumed office as the countrys
15th president. The Philippine military forces have been engaged in conflict with the Moro National Liberation Front (MNLF)
and Abu Sayyaf, and the country continues to face high risk in terms of terrorism.
As a result of the global economic crisis, the countrys GDP growth came down to 4.2% in 2008 and to 1% in 2009. The
Philippines will continue to be in a strong position in terms of social security, as its population is very young. Most people in
the country are of working age, which precludes the increased social security expenditures advanced countries have to
bear. More than 10% of the countrys population lives on less than $1 per day, which is a far higher percentage than in
other countries in the region, such as Vietnam and Indonesia. A large amount of people live below the poverty line, and it is
unlikely that the country will achieve the Millennium Development Goal of halving poverty by 2015, given its current rate of
progress. With regard to technology, the country has a strong BPO sector. However, the countrys expenditure on R&D is
meager and it has been granted very few patents. Furthermore, the Philippines has a very poor record in terms of
innovation.
The Philippine constitution bans foreign investment in certain sectors and restricts it in others, which acts as a dampener to
FDI. The country has a complicated tax payment structure that consumes too much of companies' time. The administration
is susceptible to local interests and is very inefficient in implementing new regulations. With regards to the environment,
rapid deforestation has been a problem in the Philippines, especially as it has a high percentage of endemic species.
However, high levels of air pollution and increasing deforestation are particular concerns.

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PESTLE analysis
Political analysis
Overview
The Philippines continues to enjoy close relations with the US, and the countrys foreign policy lays emphasis on bolstering
its relationship with China. Benigno Aquino III of the Liberal Party won with a large majority and assumed office as the
countrys 15th president on June 30, 2010. The new government is expected to improve governance and corruption. The
New Peoples Army (NPA), Abu Sayyaf and the Moro Islamic Liberation Front (MILF) represent armed opposition to the
governments authority.
Table 3:
Analysis of the Philippines political landscape
Current strengths
Current challenges
Strong relations with the US
Territorial dispute in the Spratlys

Unabated political violence
Future prospects
Future risks
Hope for reforms to tackle corruption
Resistance from opposition

Threat from communist rebels
Threat from Muslim separatists
Source: Datamonitor
DAT AMONITOR
Current strengths
Strong relations with the US
The countrys foreign policy places emphasis on strengthening its relationship with the ASEAN and the US, having
maintained strong and close relations with the latter since becoming independent in 1946. The US once had two important
bases in the Philippinesa naval facility at Subic Bay and the nearby air base at Clark Fieldbut the Philippines did not
renew the lease on these bases in 1991. This indicated that the country was realigning its foreign policy, looking to emerge
as an Asian nation that was not overly dependent on the US. However, the US continues to be an important associate, as
both countries face problems with terrorism. The Philippines has been accorded the status of a major non-NATO ally and,
since 2002, US troops, hardware and intelligence have supported the campaign against Muslim separatists. Moreover, the
Philippines has an important commercial relationship with the US with the latter being the Philippines largest export
partner. Therefore, strong relations with the US is a positive sign in the countrys political landscape.
Current challenges
Territorial dispute in the Spratlys
There has been no progress in the resolution of the territorial dispute in the Spratlys. The Spratlys is being claimed by
countries including China, Malaysia, the Philippines, Taiwan, Vietnam and Brunei, which claim all or part of about 100
Spratly islets and reefs that are believed to be have vast deposits of oil and natural gas reserves. A Philippine law passed
in 2008 that outlined Manila's claims to parts of the Spratly islands has strained the countrys relations with China. In April

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PESTLE analysis
2010, the then President Gloria Macapagal-Arroyo expressed that the countries could work towards a win-win solution to
the dispute in the Spratlys. However, a permanent resolution of the issue remains a far cry.
Unabated political violence

The continuation of political violence is a major problem in the Philippines. For instance, a candidate for provincial governor
and two supporters of a mayoral candidate were killed in separate attacks in April 2007. Furthermore, a top aide to the
Philippines congressman Manuel Zamora, Robert Delano, was shot dead by unidentified gunmen in October 2008. This
killing carries significance as Zamora is a key ally of President Arroyo in the House of Representatives. This murder was
allegedly due to some political rivalry, and is a common way of settling scores. As another example, a town mayor and a
former mayor were shot dead in separate attacks in July 2009. Abdul Ayon, mayor of Malangas town, was ambushed by
gunmen on motorcycles in Pagadian city. On the same day, David Ermalino, former mayor of Candelaria, was killed in the
town near the capital, Manila. Before these incidents Godofredo Linao, a radio broadcaster also working as a political aide,
was shot dead in Mindanao, ambushed by gunmen on motorcycles in the Barobo town area.
In December 2009, a candidate for councilor was killed, and two incumbent officials were wounded in an ambush in
Dingras, Ilocos Norte. Furthermore, it was officially reported that 14 persons were killed in a shooting incident prior to the
2010 elections. Since June 2010, after Aquino was proclaimed the president, three journalists and a key witness to the
Maguindanao massacre have been killed. Widespread political violence materializing in the form of murder of politicians
and journalists is not a new phenomenon in the country. According to analysts, the country is ranked as the second highest
in the world in terms of political killings, with more than 800 reported incidents since 2001.
Future prospects
Hope for reforms to tackle corruption
The outcome of the presidential elections in May 2010 has raised hopes for reform. Benigno Aquino III of the Liberal Party
th
won with a large majority and assumed office as the countrys 15 president on June 30, 2010. Aquinos core electoral
platform was based on improving governance and reducing corruption and poverty. Given Aquino's reputation for honesty,
investors are particularly positive about his victory in the elections.
Future risks
Resistance from opposition
Beginning on June 30, 2010, President Benigno Aquino began a six-year term. Benigno Aquino heads a majority coalition
in the House of Representatives but his Liberal Party has only four seats (out of 24) in the Senate. Therefore, the president
might have to seek support from the opposition to pass legislation. In addition, there might be resistance to President
Aquino's efforts to improve the political administration and in particular, to investigate former president Macapagal Arroyo's
administration for alleged corruption. Macapagal Arroyo, being the leader of the largest party in the lower house, LakasKampi-CMD, might oppose the presidents efforts.
Threat from communist rebels

The country faces major threats from the NPA and the MNLF. The NPA is the military wing of the National Democratic
Front (NDF), which in effect represents the Maoist Communist Party. The NPAs membership went up to around 25,000 by
the mid-1980s, with estimates suggesting that it controlled one fifth of villages and was active in around 60 of the 75
provinces, as well as the Manila region. The Corazon Aquino and Fidel Ramos governments stemmed the militia's growth
by encouraging its cadre to come back to the mainstream. They offered amnesty and jobs to the cadre and legalized the

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PESTLE analysis
Communist Party, while waging a military campaign against the NPA. Attempts to negotiate a truce broke down when the
Philippine government refused to accept their condition of requesting the US and EU to take the NPA off their list of terrorist
organizations.
The Philippines continue to face serious threats from the communist rebels as they have refused to disarm and resume
peace talks. In August 2010, the communist rebels in Panay (part of NDF) stated that they were not willing to end hostilities
with the government unless an agreement on major reforms was reached. The National Democratic Front (NDF) in Panay
demands the government to sign a precise agreement under which major political, economic and social reforms will be
implemented. In addition, the NDF seeks the investigation and the prosecution of government officials allegedly accused of
corruption and human rights violations. The NDF has threatened that it would strengthen its forces and continue to attack
the government troops if these conditions are not met,
Threat from Muslim separatists

Peace talks between the government and the MILF, the country's largest rebel group, collapsed in August 2008. The MILF
spearheads the cause of Muslim separatists in Mindanao. This movement goes back several centuries and is a complex
problem with no easy solutions. Migration from Luzon and Visayas in the 1950s and the 1960s has created a situation
whereby the amount of Christians matches or exceeds the number of Muslims in several provinces. Consequently, it
becomes very difficult to accede to the demands of secessionism. A peace settlement was reached in 1996 with the
creation of the Autonomous Region of Muslim Mindanao (ARMM), but talks stalled in 2006 and the situation is now fragile,
with the possibility of renewed hostilities. Peace talks with the MILF collapsed again in 2008.
The Philippines also face a serious threat from Abu Sayyaf, which is suspected of having connections with the al-Qaida
network. The group has been allegedly involved with a number of terrorist incidents, which include the bombing of a ferry in
Manila Bay in 2004. Furthermore, members of the regional Islamist terrorist group, Jemaah Islamiah (JI), are known to be
present in the southern Philippines. The extremists of JI are said to have received support from members of the Abu Sayyaf
and MILF. These extremists are trained in Afghanistan and have ties to al-Qaeda. Military campaigns by the Armed Forces
of the Philippines (AFP) have had some success in eliminating the leaders of Abu Sayyaf; however, senior JI militants
remain at large. Two JI extremists, Dulmatin and Umar Patek, are wanted by the US Justice Department in connection with
the October 2002 Bali bombings. The Philippines continue to face serious threats from active, violent extremist groups.

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PESTLE analysis
Economic analysis
Overview
The Philippines has shown resilience to the global economic crisis but the country saw its GDP growth come down to 1% in
2009 from 7.1% in 2007. However, the economy posted impressive growth in early 2010, supported by gains in the
manufacturing sector. The government is struggling to contain its fiscal deficit through reform measures. Rising
unemployment also poses a challenge for the government in the near future.
Table 4:
Analysis of the Philippines economy
Current strengths
Current challenges
Robust growth in the first quarter of 2010
High deficit and debt levels
Gains in the manufacturing sector
Slowdown of remittances from overseas Filipinos
Future prospects
Future risks
Benefits from the ASEAN-ANZ free trade agreement
Unemployment
Source: Datamonitor
DAT AMONITOR
Current strengths
Robust growth in the first quarter of 2010
Following a GDP growth of 1% in 2009, the Philippines economy posted impressive growth in early 2010. The countrys
GDP expanded 7.3% year-on-year in the first quarter of 2010. Robust growth was supported largely by strong electionrelated spending. Other factors such as a rebound in global trade, growth in manufacturing and investment activity, and
private consumption also supported growth in Q12010. After a strong first-quarter performance, the Philippine economy is
set to grow faster than estimated.
Gains in the manufacturing sector

The sharp growth in the manufacturing sector contributed 4.3 percentage points to overall growth in early 2010.
Manufacturing production grew by 20.7% in Q12010 compared to the same quarter in 2009. Manufacturing of petroleum
products, food, and electrical machinery were the main growth drivers. The strong performance in the manufacturing sector
made up for the 2.5% contraction in agriculture in Q12010. A continued growth in the manufacturing sector will help the
country in making a strong economic recovery.
Current challenges
High deficit and debt levels
The government is struggling to contain its fiscal deficit through reform measures. The Philippines ran a fiscal deficit of
3.9% of GDP in 2009. In the first half year of 2010, the budget deficit reached 60.5% of the full-year target of $7 billion.
Despite this, the new government has maintained its earlier target of achieving a budget deficit of PHP325 billion ($6.9
billion), corresponding to 3.9% of GDP for 2010. For 2011, the government targets to reach a budget deficit level of
PHP290 billion ($6.48 billion), or 3.2% of GDP.

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PESTLE analysis
The countrys debt in 2009 reached around 58.7% of GDP, compared to 56.9% in 2008. At a debt level of almost 59%, the
countrys debt level is comparable to the levels of some of the more vulnerable European economies. While strong
economic growth in the coming months will help to manage deficit levels, the government will still need to lay out a prudent
fiscal strategy to order to bring its deficit and debt levels under control.
Slowdown of remittances from overseas Filipinos

Earnings from Filipinos working overseas have long been a strong contributor to the Philippines' current account surplus,
which also provided a substantial boost to private consumption. The country registered growth rates of more than 10% in
remittances for several years. However, in the aftermath of the global economic crisis, the remittance growth slowed down
to 5.4% in April 2010. The most affected overseas foreign workers were male production workers (especially construction
workers) and newly recruited employees. A decline in remittance inflows is likely to negatively affect consumer spending in
the Philippines in the coming months.
Future prospects
Benefits from the ASEAN-ANZ free trade agreement
Philippine exporters will now be able to benefit from the opportunities presented by the Free Trade Agreement (FTA)
between the ASEAN and Australia and New Zealand (ASEAN-ANZ). The FTA took effect on February 10, 2010. The FTA
will provide improved market access to the Australian and New Zealand economy. Beginning in January 2010, most of the
countrys exports to Australia will enjoy zero tariffs. And by 2020, nearly all sectors would benefit when Australia and New
Zealand eliminate tariffs on all products. Through the FTA, most of the companies will be able to take advantage of
preferential tariff rates with Australia and New Zealand.
Future risks
Unemployment
Despite robust growth in Q12010, unemployment in the Philippines economy is on the rise. Unemployment increased to
8% in April 2010 (or 3.1 million people) from 7.5% (or 2.8 million people) during the same period in 2009. The sharp
decrease in employment during this period may be attributed to the phasing out of the Comprehensive Livelihood and
Emergency Employment Program (CLEEP) job creation program. In addition, the El Nino drought has had a major negative
impact on agricultural employment, with more than 800,000 jobs lost. Unemployment is largely accounted for by the major
slump in jobs in the agriculture sector (which accounts for more than 35% of the total labor force). Datamonitor estimates
suggest that the unemployment rate is not likely to improve and will stay around 7.2% through 2013.

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PESTLE analysis
Social analysis
Overview
The demographic profile of the country indicates that the Philippines is a young society, with more than 60% of its
population in the working age. In the United Nations Development Programs Human Development report (2009), the
Philippines scored low on the Gender Development Index (GDI) and Human Development Index (HDI). This indicates that
the country has to spend more on social advancement and create more measures for female empowerment. The country
has been facing a major shortage of doctors in the rural areas, as most of them are retraining as nurses and leaving for the
US and other countries. Rising inequality and high levels of poverty continue to be a problem in the country.
Table 5:
Analysis of the Philippines social system
Current strengths
Current challenges
A young society
Low performance on social development indicators

Shortage of healthcare resources
Future prospects
Future risks
Increased spending on social services in 2011
Poverty
Progress in the achievement of Millennium Development Goals
Source: Datamonitor
DAT AMONITOR
Current strengths
A young society
Recent estimates indicate that more than 60% of the population belongs to the 1564 age group, 34.9% of the population
to the 014 age group and 4.2% of the population to the 65-and-over group. As per 2010 estimates, the Philippine
population has a median age of 22.7 years, which means that half of the population was below that age. While many
developed nations are faced with the problem of an ageing population and rising social expenditure, the Philippines
demographic structure works in its favor by providing a regular boost to its labor force.
Current challenges
Low performance on social development indicators
According to the UNDPs Human Development report (2009), the Philippines had an HDI score of 0.751, placing the
country in the 105th rank among 182 countries. The nations performance in terms of the GDI was not exceptional either.
The GDI captures inequalities in achievement between women and men. The Philippines, with a GDI score of 0.748 or
99.6% of its HDI value, was ranked behind 39 other countries which had a better GDI to HDI ratio. Furthermore, the country
ranked in the 59th position out of 109 countries in the gender empowerment measure (GEM), with a low value of 0.560. The
GEM indicates the extent of womens active participation in economic and political life, measuring the percentage of seats
in parliament held by women along with the share of female legislators, senior officials, managers, and professional and

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PESTLE analysis
technical workers. It also measures the economic independence of women. The above index indicates the Philippines'
inability to create a positive social climate for women.
Shortage of healthcare resources

The Philippines is suffering from a shortage of rural doctors, as about 11,000 in the past eight years have been retrained as
nurses to work abroad, mostly in the US. The country is facing a brain drain, which has led to an acute shortage of doctors
in rural hospitals across the country. The availability of healthcare services has been declining and the proportion of
Filipinos dying without medical attention has risen to 70%. In the last few decades, the country has lost more than 164,000
nurses. According to 2010 estimates, the country has a doctor-to-population ratio which is as low as 1:15,000. To make
matters worse, a large majority of the doctors reside in the urban areas. Scarcity of doctors in the country has crippled the
healthcare system, which has, in the last few years, witnessed a steady decline in quality.
Future prospects
Increased spending on social services in 2011
President Aquino aims to strengthen social services through increased spending. The education sector will be allocated the
highest appropriations in the national budget for 2011. Other areas which are prioritized in the budget include poverty
reduction, school infrastructure and healthcare. The government budget is expected to achieve improvement in the above
mentioned areas.
Progress in the achievement of Millennium Development Goals

The Philippines is a signatory to the 2000 Millennium Declaration (which is supported by the United Nations) which led to
the development of the Millennium Development Goals (MDGs) as a global agenda for development by 2015. As part of
this declaration, the country has made significant progress in reducing child mortality, combating HIV and AIDS, malaria,
and other diseases, improving access to safe drinking water, sanitary toilet facility and improving nutrition. However, there
still remain wide regional disparities concerning access to education, maternal mortality and access to reproductive health
services.
Future risks
Poverty
Stark poverty in the Philippines against the backdrop of robust economic growth is a serious concern. According to an
Asian Development Bank study (2009), the Philippines' poverty reduction rate of 0.47% per year is slower than those of
neighboring Cambodia, Indonesia, the Lao People's Democratic Republic, Thailand, and Vietnam. Among Southeast Asian
nations, the Philippines is the only country which has recorded an increase in the absolute number of poor people since
1990. The result, according to the latest official available statistics, is an increase in poverty incidence from 30% in 2003 to
32.9% in 2006, with one in five households living in chronic poverty. It is estimated that poverty rates have increased even
further due to the global economic crisis and natural disasters in 2008 and 2009. Lack of employment opportunities
especially in the agriculture sector is identified as the main reason for the slow decline in poverty rates. Although the
government has implemented several poverty reduction measures, low investment and structural weaknesses have
constrained development.

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PESTLE analysis
Technological analysis
Overview
The country has a strong BPO sector due to its abundant human resources with good English language skills. The
regulatory framework to protect intellectual property rights (IPR) is fairly comprehensive, but patchy implementation
continues to be a challenge. The country spends less than 0.14% of its GDP on R&D and the number of patents granted by
the USPTO came down to about 25 in 2009. This indicates that the country does not encourage innovation at the same
level as some of its Asian neighbors.
Table 6:
Analysis of the Philippines technology landscape
Current strengths
Current challenges
Strong BPO sector
Weak implementation of IPR laws
Food security through biotechnology
Future prospects
Future risks
Government initiatives to promote software companies
Low R&D expenditure as percentage of GDP
Support for start-ups
Source: Datamonitor
DAT AMONITOR
Current strengths
Strong BPO sector
The Philippines has a strong BPO sector and the following three factors have contributed to its rapid growth:
an abundance of human resources with excellent English language skills;
the similarity of the Philippines legal, accounting, medical, and other social systems with those of the US;
greater cost-competitiveness in the Philippines BPO/IT services industry, following increases in labor costs and
real estate prices in India.
The outsourcing industry of Philippines offers several services ranging from voice and IT services to several value-added
services such as finance, animation, engineering, medical transcription and architectural services. According to Business
Processing Association Philippines (BPAP), the country could increase its share of the global outsourcing and offshoring
market to 10%. In the BPO sector, the country generated revenues of $7.3 billion in 2009 and is expected to generate
revenues of about $13 billion with direct employment of approximately 1 million by the end of 2010. The government is
committed to invest in the BPO sector. As of April 2010, the government invested P35.5 billion in technical education and
training skills, of which P1.7 billion went towards BPO scholarships.
The countrys strong BPO sector is further evidenced by a recent award by the National Outsourcing Association, the UK.
The Philippines received the Best Offshoring Destination of the Year award for 2009 for its BPO sector. The growing
strength of the BPO market is likely to make foreign companies to shift their operations to Philippines.

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PESTLE analysis
Food security through biotechnology

The Philippines has made great strides in the development of biotechnology. The countrys biotechnology program, which
was adopted by the University of the Philippines in Los Banos (UPLB), Laguna in the late 1990s, has used genetic
modification to create disease-resistant corn and eggplants and a variety of delayed-ripening papaya. Experts say that the
country is near the end phase of the first generation and is entering second generation biotechnology, which involves the
development of crops rich in amino acids, with high nutritional values and which provide premium quality and low
allergenicity.
The government aims to attain food security through sophisticated techniques used in biotechnology. The UPLB is carrying
out field tests of golden rice, which is a vitamin A-fortified rice variety. If the results are positive, golden rice will be available
in the market by 2012, and may serve as an alternative to commercial rice. In the future, the country stands to gain from
advances in biotechnology, especially with the development of golden rice.
Current challenges
Weak implementation of IPR laws
Although the Philippines has elaborate patent laws, implementation of these has been tardy. The International Intellectual
Property Association (IIPA) has the country on its watch list for IPR violations, causing huge losses to companies.
According to IIPA estimates, business software piracy losses increased for the fifth straight year. Losses due to business
software piracy increased from $121 million in 2008 to $126.4 million in 2009. Unless adequate measures are taken toward
intellectual property rights (IPR) protection, the country will not succeed in achieving its target of increasing foreign
investment in R&D-intensive industries.
Future prospects
Government initiatives to promote software companies
The Philippiness Commission on Information and Communications Technology (CICT) has taken several initiatives as part
of its strategic objective to improve the countrys technology landscape. For instance, 10 companies of the Philippine
Software Industry Association (PSIA), with support from the CICT, participated in the 2010 Software Development Expo
(SODEC), Japan's largest trade show involving more than 1,400 companies worldwide featuring several products for
development and maintenance of software. The participation of the software companies in SODEC is expected to attract
business investment in Philippines.
Support for start-ups

The government is taking key initiatives to encourage and develop start-up companies by adopting the technology business
incubation (TBI) program. In 2010, the government announced that it would make an initial investment of about PHP100
million ($2.1 million) in 12 technology entrepreneurial centers for food processing, industrial manufacturing, and software
development. The setting up of the TBI is assisted by the Philippine Council for Advanced Science and Technology
Research and Development (PCASTRD). Financiers from the Development Bank of the Philippines (DBP) and the BuildOperate-Transfer-Department of Trade and Industry (DTI) are also keen on building partnerships with the TBIs. Such
initiatives by the government will stimulate the innovation environment in the country.

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PESTLE analysis
Future risks
Low R&D expenditure as percentage of GDP
The spending on R&D in the Philippines has been very low. According to a report by the Department of Science and
Technology (published in April 2010), the countrys R&D expenditure was just 0.14% of the GDP, which is well below the
2% of GDP recommended by the United Nations Educational, Scientific and Cultural Organization (UNESCO). Low R&D
funding has negatively impacted innovation in the Philippines, which is reflected in the low number of patents received by
local firms; the number of granted by the USPTO came down from 35 in 2006 to 25 in 2009. In comparison, Singapore and
South Korea were granted 493 and 9,566 patents in 2009, respectively. The low number of patents indicates the low level
of R&D expenditure and strengthens the perception that that country does not foster innovation. This is a big risk in the
current scenario, which is characterized by the dominance of the knowledge economy.

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PESTLE analysis
Legal analysis
Overview
The government has launched some innovative programs, such as the 'no audit' program to increase its tax revenues. The
Philippine constitution bans foreign investment in certain sectors and restricts it in others, which acts as a dampener to FDI.
According the World Banks Doing Business report (2010), the country has a complicated tax payment structure that
consumes too much of companies' time. The Philippine government has created the Civil Aviation Authority (CAA), the new
aviation regulator, due to international concerns over the safety of airports and carriers. The CAA is expected to improve
the standards of safety and supervision in the airline industry in the country. The Philippine governments Power Sector
Assets and Liabilities Management Corporation (PSALM) has made significant progress in privatization in 2007 and is
expected to continue the process. Finally, administration continues to be patchy in respect to the implementation of new
regulations, and is also susceptible to local interests.
Table 7:
Analysis of the Philippines legal landscape
Current strengths
Current challenges
Privatization initiatives
Rampant corruption
Unfavorable environment for business
Future prospects
Future risks
New civil aviation regulator
Complicated tax payment structure

Administration susceptible to local influence
Source: Datamonitor
DAT AMONITOR
Current strengths
Privatization initiatives
The government is looking to privatize government-owned entities and to discipline the operations of government
corporations that are operating at a loss. In 2007, the governments Power Sector Assets & Liabilities Management
Corporation (PSALM) made significant progress in privatization. PSALM sold a major power station and succeeded in
giving a 25-year old concession to operate the national power grid; it also sold around 39% of the state-owned National
Power Corporations (NPC) power generation assets. The brisk pace set by PSALM is expected to continue in the near
term. The Aquino government is expected to privatize television firms Radio Philippines Network (RPN-9) and
Intercontinental Broadcasting Corporation (IBC-13) in the near future. The government is also likely to privatize the
operation and maintenance of the Ninoy Aquino International Airport Terminal 3. Privatization initiatives in various sectors
are expected to open up business opportunities and increase competition.

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PESTLE analysis
Current challenges
Rampant corruption
Corruption has long been an issue of concern in the Philippines. The Philippines lags behind most of its neighbors in the
Asian region in terms of combating corruption. In the Transparency Internationals Corruptions Perception Index for 2009,
the Philippines was ranked 139th out of the 180 countries. In comparison, Singapore was ranked 2nd; South Korea, 39th;
Malaysia, 56th; Thailand, 84th and Indonesia, 111th. A culture of corruption in the country is long-standing, and enforcement
of anti-corruption laws is inconsistent. The Philippines needs to get out of its image of being corruption-ridden in order to
enhance overall development.
Unfavorable environment for business

The Philippines ranks poorly as a business-friendly country in the World Banks Doing Business report (2010). In terms of
th
nd
the ease of doing business, the country was ranked 144 out of 183 economies. The Philippines also ranked in the 162
place in terms of starting a business, falling behind all countries in East Asia except Cambodia. Starting a business takes
an average of 52 days, compared to the world average of 35 days. Closing a business can also be a difficult and lengthy
process. The Philippines is one of the most difficult countries to close a business (ranking 153rd in the world and the lowest
in the East-Asia region). The government needs to work towards simplifying processes and removing impediments to
business investment.
Future prospects
New civil aviation regulator
The countrys aviation sector faces serious problems. The Federal Aviation Administration has downgraded the Philippines
from Category 1 to Category 2, which means that the country does not meet the International Civil Aviation Organizations
standards for safety and supervision. The Philippine government has created the Civil Aviation Authority (CAA), a new
aviation regulator, due to international concerns over the safety of airports and carriers. Former President Arroyo signed the
act in March 2008. The CAA has replaced the Air Transportation Office and is attached to the Department of Transportation
and Communications. The agency will have financial independence as it will collect $74 million in taxes and fees, which are
allocated toward improving facilities and training personnel. In July 2010, the CAA ordered a close audit of all aviation
schools in the country after they discovered fake licenses issued to trainee pilots. The CAA is expected to bring in changes
and improve the standards of safety and oversight in the airline industry.
Future risks
Complicated tax payment structure
The Philippines ranks in the 135th position in terms of simplicity of paying taxes, according to the World Banks Doing
Business report (2010). A company has to make 47 tax payment transactions in the Philippines, which is higher than the
East Asia average of 25. Moreover, it takes 195 hours to prepare, file, and pay taxes. In comparison, other Asian countries
fared better in the survey; Malaysia ranked in 24th place with 12 payments that take just 145 hours a year. It is evident that
the Philippines has a convoluted tax structure that not only requires too many transactions but also takes a lot of time to
fulfill.

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PESTLE analysis
Administration susceptible to local influence

The administration in the country is pliable and susceptible to local firms who want to protect their interests. The Philippine
government has, therefore, established one-stop shops for fair and transparent enforcement of laws. The system is known
to be quite inefficient in implementing new regulations. Business registrations, meanwhile, are fairly cumbersome in the
country. It is expected that the local administration will continue to be susceptible to vested local interests and quite slow, in
terms of the application of new laws.

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PESTLE analysis
Environmental analysis
Overview
The Philippines is bestowed with a high percentage of endemic species and has been designated as a global biodiversity
hotspot. However, the country is hit by about 20 typhoons and storms a year. Natural calamities can damage the countrys
infrastructure and make it less attractive to investors. The country also faces a massive challenge in terms of deforestation,
the rate of which is one of the highest in the world.
Table 8:
Analysis of the Philippines environmental landscape
Current strengths
Current challenges
Biodiversity
Increasing pollution
Diminishing forest cover
Future prospects
Future risks
Efforts towards climate change adaptation
Effects of global warming
Source: Datamonitor
DAT AMONITOR
Current strengths
Biodiversity
The Philippines is one of the most biodiverse countries in Southeast Asia. The Philippines has among the highest rates of
discovery in the world with 16 new species of mammals discovered in the last 10 years. As a result of this, the rate of
endemism for the Philippines has risen and is likely to rise. Over 65% of the species found there are found nowhere else on
Earth, and more new organisms are discovered every year than in any other nation worldwide. Luzon, the largest island,
has at least 31 endemic species of mammals and the tiny Camiguin has at least two. Of the 1,196 known species of
amphibians, birds, mammals and reptiles in the country, nearly 46% are endemic. Among plants, the number is around
40%.Biodiversity is a valuable asset, as the poor depend on it for food, fuel, shelter, medicines and livelihoods.
Current challenges
Increasing pollution
The country faces increasing levels of air pollution. The poor air quality in urban areas and indoor air pollution is affecting
health of the people. For instance, an estimated 5% of all reported disease cases and 4% of all reported deaths in the
country are attributed to increasing pollution levels. There has been a surge in the number of respiratory diseases such as
acute and chronic bronchitis, pneumonia, and cardiovascular diseases. The government needs to alleviate the levels of air
pollution which translates into an increase in costs in terms of productivity and increase in health care expenditure.
Diminishing forest cover

The Philippines has been rapidly losing its forest cover; the rate of deforestation is among the highest in the world.
According to the United Nations Food and Agriculture Organization, 57% of the country or 42 million acres were covered

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PESTLE analysis
with forest in 1934, 26 million acres of which was primary or virgin forests. It is estimated that the forest cover is down to
about 20% or less of total land area. It is further predicted that at the current rate of deforestation, no forest cover will
remain within the next decade. More than 10 million hectares of virgin forest present at the time of independence also will
have been completely lost. Even the remaining forests are seriously endangered, due to extensive logging. Illicit wood cut
from secondary and primary forests is routinely smuggled to other Asian countries, and threats such as legal and illegal
mining operations, agricultural fires, the collection of lumber for fuel, and rural population expansion are also contributing to
the degradation of the woods. Although the rate has come down in recent times, continued deforestation is a major
challenge.
Future prospects
Efforts towards climate change adaptation
Climate change has emerged as a significant concern. Recent incidents such as the intense dry spell that struck in 2010
and typhoons Ketsana and Parma in northern Philippines are some cases in point. The Post-Disaster Needs Assessment
(PDNA) estimated that the damage and losses from the two major typhoons in 2009 amounted to about $4.4 billion. To
counter this situation, the Philippine government has invested in climate change adaptation. Philippines is the only country
in Southeast Asia with a dedicated agency on climate change. The department of agriculture introduced a rainwater
harvesting technology to irrigate water during the dry season and control floods in the rainy season. In addition, the nongovernmental institutions are also educating the farmers to use organic methods of farming which can be productive
without depending too much on water and fertilizers. These initiatives taken by the government will help deal with natural
calamities.
Future risks
Effects of global warming
Due to global warming and subsequent climate change, the Arctic ice caps are melting; this could lead to an increase in
sea levels by seven meters (23 feet), according to NASA scientists. The melting of the solar ice caps leads to the Sun's
rays going into the Arctic waters and warming them up instead of being reflected. Currents from the Arctic Ocean travel
around the world to all the other oceans, including the waters surrounding the Philippines. This could foster the growth of
algae in the world's oceans, which would gravely affect the world's food chain. It is also believed that this increase in
temperature could lead to the death of various creatures. Marginal changes in temperature could lead to the bleaching of
coral reefs, which will have a direct impact on the fishes that feed there. Experts believe that global warming could lead to
extensive destruction of the country's flora and fauna, and the capital Manila could be flooded. The continuing climate
change could bring a grave disaster to the country in the future.

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Political landscape
POLITICAL LANDSCAPE
Summary
The Philippines is one of the key members of the ASEAN and generally has good relations with its neighbors. The country
has a low percentile rank in political stability, due to a series of attempted coups and has been given low percentile ranks
by World Bank governance indicators in voice and accountability, political stability and absence of violence, rule of law and
control of corruption; corruption is perceived to be widespread, as the enforcement of anti-corruption laws is inconsistent
and slow.
Filipino politics are characterized by a lack of ideologically defined political movements. Instead, political parties are largely
based around loyalty to the major players on the political scene, and vast networks of patronage stretching from national to
local level. Widespread corruption has become an established feature of political life, while party loyalty is minimal. Benigno
Aquino was elected president in the May 2010 elections; this development is likely to reduce corruption levels to some
extent.
Evolution
The significant political events in the Philippines are shown below:

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Political landscape
Figure 2:
The Philippines: political events timeline
189840
In 1898, Spain ceded

the Philippines to the
US under the treaty of
Paris and the US
proclaimed military rule.
The US forces were
f aced with insurgency
against military rule in
1899.
In 1902, the US civil
government replaced
military rule.
A plebiscite approved
the establishment of the
Commonwealth of the
Philippines in 1935.
Manuel Quezon
became the f irst
president. The country
was promised full
independence within 10
years.
194172
Japan attacked the

Philippines in 1941.
197383
In 1944, the US forces

retook the islands.
In 1973, a new
constitution was
adopted that gave
Marcos absolute
powers.
The islands were

granted f ull
independence and
renamed the Republic
of the Philippines in
1946.
In 1977, opposition
leader Benigno Aquino
was sentenced to
death, however,
Marcos delayed the
execution.
Peace treaty was

signed with Japan in
1951 and Philippines
received war
reparations of $800
million.
Aquino was allowed to

travel to the US f or
medical treatment in
1980.
Ferdinand Marcos
became president in
1965.
Marcos declared
martial law in 1972 and
the parliament was
suspended.
Martial law was lifted

and he went on to win
presidential elections
in 1981.
Aquino was shot dead
in 1983 as he left his
plane.
Source: Datamonitor

1984 1998
Marcos declared
himself winner in the
1986 presidential
elections, which was
opposed by her
opponent Corazon
Aquino.
Mass protests f orced
the ouster of Marcos in
the same year.
Military off icials were
convicted of the
murder of Benigno
Aquino in 1990.
Aquino's def ense
minister, Fidel Ramos,
won the presidency in
1992.
Joseph Estrada was
elected the president in
1998.
1999 onwards
Estrada resigned in
2001 after the military
withdrew its support
and his vice-president,
Gloria Arroyo, was
sworn in as the
president.
President Arroyo
survived an opposition
attempt to impeach her
in 2005 over
allegations of vote
rigging.
Ex-president Estrada
was jailed for life as he
was f ound guilty f or
corruption in 2007. He
won a presidential
pardon immediately.
Benigno Aquino III of
the Liberal Party won
with a large majority
and assumed off ice as
the countrys 15th
president on June 30,
2010.
DAT AMONITOR
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Political landscape
Key political figures
Key political figures in the Philippines include:
President Benigno Simeon Cojuangco Aquino III
Vice President Jejomar Cabauatan Binay
Figure 3:
The Philippines key political figures
Benigno Simeon Cojuangco Aquino III, also known as Noynoy Aquino, is the 15th and current
president of the Philippines. Aquino is a fourth-generation politician. On June 9, 2010, the
Congress of the Philippines proclaimed Aquino the winner of the 2010 presidential election.
Jejomar "Jojo" Cabauatan Binay is the 15th and incumbent vice president of the Philippines
and former mayor of Makati City, Philippines. He is also the president of the United Opposition,
president of Partido Demokratiko Pilipino-Lakas ng Bayan (PDP-Laban), chairman of AsiaPacific Region Scout Committee and the president of the Boy Scouts of the Philippines.
Source: Datamonitor
DAT AMONITOR
Structure of government
The political system in the country is modeled on that of the US. There is an executive presidency and a bicameral
legislature, comprising the Senate and the House of Representatives. The presidential term of office is six years, and
presidents are limited to one elected term. Discussions are continuing to change the government from the current
presidential form to a parliamentary system.
Key political parties/figures

Partido Liberal ng Pilipinas
The Liberal Party of the Philippines (Filipino) is a liberal party in the Philippines, founded on November 24, 1945 by a
breakaway from the Nacionalista Party. It is the current ruling party after the election victory of Benigno Aquino III as the
President of the Philippines. It is the second-oldest political party in the Philippines in terms of establishment, and the oldest
active political party in the Philippines. The party has been led by people like Manuel Roxas, Elpidio Quirino, Diosdado
Macapagal and Benigno Aquino, Jr.
Lakas Kampi CMD

Lakas Kampi CMD (Lakas-Kabalikat ng Malayang Pilipino-Christian Muslim Democrats) is a centrist political party in the
Philippines and the current minority party in the country. Its ideology is influenced by Christian and Islamic democracy and

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Political landscape
by populism. The party's influence on Philippine society is very evident, especially after the People Power Revolution,
which led the country to elect two presidents from the party, namely Fidel V. Ramos, a United Methodist, and Gloria
Macapagal-Arroyo, a Roman Catholic.
Composition of government
The Lakas-KAMPI CMD held 105 seats after the last elections of May 2010. The opposition won the majority of Senate
seats, while the president's support in the lower house was strengthened. The other parties in the House of
Representatives are: LP (25), NPC (31), NP (25), Independents (7), and others (20).
Figure 4:
Composition of the Philippines House of Representatives, 2010
Others
9%
Independents
3%
NP
11%
Lakas-Kampi CMD
46%
NPC
13%
LP
18%
Source: Datamonitor
DAT AMONITOR
Key policies
Economic policies
The Philippine government introduced a newly expanded value-added tax (VAT) law in November 2005. This move was
initiated to control the country's increasing foreign debt and to improve government services such as healthcare, education,
social security, and transport. This improved confidence in the governments fiscal capacity and helped to strengthen the
peso, which continues to appreciate against the US dollar. The VAT reform boosted tax revenues by 22% in 2006.

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Political landscape
The national budget for 2011 was pegged at PHP1.75 trillion ($36.9 billion), an increase of PHP210 billion ($4.2 billion)
from that of 2010. The education sector will be allocated the highest appropriations in the budget. Among other areas,
poverty reduction and healthcare are prioritized in the budget. The government also aims to strengthen transparency,
accountability and good governance; improve infrastructure; and create a safe environment in the country. Spending will be
made cautiously so as to contain the fiscal deficit.
Social
The Philippine constitution stipulates full respect for social, economic and cultural rights, and gives special attention to the
rights of women and workers, which it sees as a primary economic force whose welfare is in need of advancement. The
employers and employees bear the cost of social security in the country by proportional contribution. The public social
insurance system is centrally managed and comprises two programs: social security and industrial injury-related services.
The Social Security System (SSS) administers the program for private sector employees and the Government Service
Insurance System (GSIS) handles it for government workers. The SSS is found to benefit the better-off because they live in
urban areas where most services are accessible, and know how to use the system.
The Philippine Health Insurance Corporation (PhilHealth) runs the national health insurance program that gives Filipinos
access to inpatient and outpatient services in accredited medical facilities nationwide. The PhilHealth program covers the
employed sector, the poor, individually paying entrepreneurs, self-earning professionals and farmers, paying elderly
members, and overseas workers. The program for the poor is well-funded, as it is allocated 2.5% of the government
revenues from taxes on alcohol and tobacco for 200712 and 10% of the local government share in expanded VAT
proceeds.
In the national budget for 2011, the government plans to spend the most in the education sector. Other areas which are
prioritized in the budget include the poverty reduction program, school infrastructure and healthcare.
Foreign
The Philippines was a founder member of the ASEAN in 1967 and has enjoyed generally good relations with its neighbors.
The country has close military relations with the US, which have improved further under the leadership of President Arroyo.
Annual military training exercises are conducted between the two armed forces and the Filipino president has lent full
support to the campaign against terrorism, and was supportive of the US-led military action in Iraq. Around 100 army, police
and medical personnel were sent to Iraq as part of a humanitarian assistance team from the Philippines, but were
withdrawn following the kidnap of a Filipino national. Malaysia has been helpful to the Philippines in hosting and facilitating
negotiations with the MILF. The country has also been designated as a major non-NATO ally by the US.
The territorial dispute in the Spratlys continues to cause tension between the Philippines and China. The Spratlys is being
claimed by countries including China, Malaysia, the Philippines, Taiwan, Vietnam and Brunei, which claim all or part of
about 100 Spratly islets that are believed to be replete with oil and natural gas reserves. A Philippine law passed in 2008
that outlined Manila's claims to parts of the Spratly Islands strained the countrys ties with China. A solution to this dispute
appears far from imminent.
Performance
Governance indicators
The World Bank report on governance uses voice and accountability, political stability and absence of violence,
government effectiveness, regulatory quality, rule of law, and control of corruption as indicators for 212 countries and

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Political landscape
territories over the period 19962008. The study was carried out by Daniel Kaufmann and Massimo Mastruzzi of the World
Bank Institute, and Aart Kraay of the World Bank Development Economics Research Group. For any country, a percentile
rank of 0 corresponds to the lowest rank, and 100 to the highest.
As of 2008, the Philippines had a percentile rank of 41.3 on voice and accountability. This parameter measures the extent
to which a country's citizens are able to participate in selecting their government, as well as freedom of expression,
freedom of association, and free media. In comparative terms, it is higher than Malaysia, which had a percentile rank of
31.7.
The Philippines had a low rating on the political stability and absence of violence indicator with a percentile rank of 10.5 in
2008, which declined from its 2003 ranking of 14.4. The countrys score is very low compared to Malaysia, which registered
a rank of 50.2 in 2008. The former president faced repeated attempts to impeach her, which were defeated in the House of
Representatives. However, the countrys political administration continues to be dependent on the armed forces for its
survival. The Philippines has faced coups or attempted coups, the most recent one being in 2007. Therefore, the
Philippines has a low rank in this indicator.
In terms of government effectiveness, the Philippines had a percentile rank of 55.0 in 2008. Government effectiveness
measures the quality of public and civil services, and the degree of governmental independence from political pressures,
the quality of policy formulation and implementation, and the credibility of the government's commitment to such policies.
Malaysia is way ahead in terms of government effectiveness, registering a percentile rank of 83.9 in 2008.
The Philippines percentile ranking in terms of regulatory quality was 51.7 in 2008. Regulatory quality measures the ability
of the government to formulate and implement sound policies and regulations that permit and promote private sector
development. The performance on this parameter is lower than that of Malaysia, which has a percentile ranking of 60.4.
Philippine bureaucracy continues to be slow and susceptible to influence from local vested interests. The implementation of
rules also remains patchy.
The Philippines had a percentile rank of 39.7 in the rule of law index in 2008. Rule of law measures the extent to which
agents have confidence in, and abide by, the rules of society, in particular the quality of contract enforcement, the police
and the courts, as well as the likelihood of crime and violence. Malaysia is, again, way ahead in terms of rule of law, with a
percentile rank of 65.2 in 2008. Political killings are a common occurrence in the country and there are allegations of
human rights abuses, especially with government forces waging war against armed movements such as Abu Sayyaf and
the MNLF. Consequently, the country has a low percentile rank.
The Philippines percentile ranking in terms of control of corruption was 26.1 in 2008, which declined from 36.9 in 2003. The
Philippines ranked 139th out of 180 countries in Transparency International's Corruption Perceptions Index for 2009. The
country has been troubled with widespread corruption, and the enforcement of anti-corruption laws has been ineffective
and inconsistent. No national institution, including the judiciary, executive and legislature, is perceived to be plagued with
corruption.
Outlook
The general public and global investors responded positively to the victory of Benigno Aquino III in the elections in May
2010. Aquinos anti-corruption stance is expected to bode well for the country. Aquino has resolved to improve governance
and reduce corruption. He also plans to investigate former president Macapagal Arroyo's administration for alleged
corruption. However, Macapagal Arroyo, being the leader of the largest party in the lower house, Lakas-Kampi-CMD, might

Published 08/2010
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oppose the presidents efforts. Though Benigno Aquino heads a majority coalition in the House of Representatives, his
Liberal Party has only four seats (out of 24) in the Senate. Therefore, the incumbent president might have to seek support
from the opposition to pass legislation.
There remain serious threats to security in the Philippines. The communist rebels in Panay Island are unwilling to put down
arms unless a definite agreement on the implementation of economic and social reforms is reached. The threat from
Muslim separatists also remains high. Besides these threats, widespread political violence and killings continue to plague
the countrys politics.

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Economic landscape
ECONOMIC LANDSCAPE
Summary
The Philippines is a developing country with a diversified economy, reflecting its varied resource endowment, both physical
and human. The important sectors of the economy include services (accounting for 53.9% of GDP in 2009), and industry
(31.9% of GDP), particularly food processing, textiles and garments, and electronics and automobile parts. Services have
been the best-performing sector in recent years. This is especially true of the financial sphere, which was supported by
strong inflows of remittances through the banking sector. Although the Filipino economy was fairly resilient to the global
economic crisis like other Asian economies, its GDP growth rate plunged to 4.2% in 2008 and to 1% in 2009. Given the
countrys recovery in early 2010, Datamonitor estimates suggest that the economy is expected to expand by 3.9% in 2010.
Evolution
195090
The Philippines mainly exported agricultural or mineral products in raw or minimally processed form before 1970. The
country began to export manufactured commodities, especially garments and electronic components, in the 1970s. The
countrys traditional agricultural exports declined in a major way and nontraditional exports comprised 75% of the total
value of exports by 1988. The economy grew at a high average annual rate of 6.4% during the 1970s, financed in large part
by foreign-currency borrowing. External debt grew from $2.3 billion in 1970 to $24.4 billion in 1983, much of which was
owed to transnational commercial banks. In the early 1980s, the economy began to run into difficulty because of the
declining world market for Philippine exports, trouble in borrowing on the international capital market, and a domestic
financial scandal. In the late 1980s, the countrys mining industry was relatively well-developed. The Philippines was the
world's 10th largest producer of copper, the sixth largest producer of chromium and the ninth largest producer of gold in
1988.
The figure below shows the evolution of the Philippines economy since 1980.

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Economic landscape
Figure 5:
The Philippines historical GDP growth (19912009)
8
7
Growth rate (%)
6
5
4
3
2
1
0
1991
1993
1995
1997
1999
2001
2003
2005
2007
2008
2009
-1
Year
Source: Datamonitor
DAT AMONITOR
19912009
The Philippine economy performed relatively strongly in the first half of the 1990s on the back of a robust export
performance. However, the regional financial crisis of 199798 led to a sharp growth slowdown and left banks balance
sheets in a precarious state. Although growth bounced back to reasonable levels during 19992003, the financial system
was still hampered by a significant volume of bad debt, while unemployment remained high in the wake of the crisis.
However, in recent times it has subsided to below 10% levels.
In 2001, the growth rate fell back slightly as a result of fallout from the countrys political crisis and the global technology
sector slowdown. Exports from the Philippines include computer chips and electronic products, which accounted for almost
90% of total merchandise exports in 2003. The economy showed renewed strength in 20022004.
Although the annual economic growth rate was recorded above 5% during 2006 and 2007, future growth prospects are
linked with reforms undertaken to improve macroeconomic stability and address structural problems. Moreover, the global
economic crisis led to a slowdown; the economy slowed down to a growth rate of 4.2% in 2008 from 7.1% in 2007. It further
decelerated to 1% in 2009.

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Economic landscape
Financial authorities/regulators
Bangko Sentral ng Pilipinas (BSP)
The BSP is the central bank of the Republic of the Philippines. It was established in 1993 in accordance with provisions in
the Philippine Constitution of 1987 and the New Central Bank Act of 1993. The BSP succeeded the Central Bank of the
Philippines, which was established in 1949, as the countrys central monetary authority. The BSP enjoys fiscal and
administrative autonomy from the national government, while discharging its mandated responsibilities. BSP has the
mandate to foster and maintain price stability and to create the regulatory framework for the functioning of a strong and
stable financial system. Consequently, the BSP is entrusted with the supervision of financial institutions under its
jurisdiction.
Securities and Exchange Commission (SEC)

The SEC was established in 1936 in accordance with the Securities Act. It was created due to the stock market boom at
that time. It was abolished during the Japanese occupation and replaced with the Philippine Executive Commission only to
be reactivated in 1947. The SEC was reorganized by the erstwhile President Ferdinand Marcos in 1975 as a collegial body
with three commissioners and was given quasi-judicial powers. In 1981, the SEC was expanded to include two additional
commissioners and two departments, one for prosecution and enforcement and the other for supervision and monitoring. In
December 2000, the SEC was reorganized as per the stipulations of the Securities Regulation Code. The SEC has the
mandate to strengthen the corporate and capital market infrastructure of the country, and is expected to maintain a
regulatory framework based on international best standards and practices. It is also entrusted with the responsibility of
promoting the interests of investors in a free, fair and competitive business environment.
Insurance Commission
The Insurance Commission supervises and regulates the operations of life and non-life companies, mutual benefit
associations and trusts for charitable uses. It issues licenses to insurance agents, general agents, resident agents,
underwriters, brokers, adjusters and actuaries. It has also the authority to suspend or revoke such licenses. It is a
government agency under the Department of Finance.
The Philippines Stock Exchange (PSE)

The PSE has its roots in the country's two former exchanges: the Manila Stock Exchange (MSE) and the Makati Stock
Exchange (MkSE). The MSE, founded in 1927, was the first stock exchange in the Philippines and one of the oldest in
Asia. The MkSE was established in 1963 and became the second exchange to operate in the country. The PSE maintains
two trading floors in two cities: Makati and Pasig. Even with two trading floors, PSE maintains a 'one price, one market'
exchange through the MakTrade System. This is a single order-book system that tallies all orders into one computer and
ensures that these orders match with the best bid or offer, regardless of the floor from which they were placed. The market
capitalization of the PSE came down from $103 billion at the end of 2007 to $52 billion at the end of 2008. Due to the global
economic crisis, PSE lost around half of its value at the end of 2008. At the end of December 2009, the Philippine Stock
Exchange had a total market capitalization of $130 billion.

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Economic landscape
Figure 6:
Market capitalization of the Philippines stock Exchange, 200208
120.0
100.0
Value ($ billion)
80.0
60.0
40.0
20.0
0.0
2002
2003
2004
2005
2006
2007
2008
Year
Source: Datamonitor
DAT AMONITOR
Insurance
The Philippines insurance market is expected to grow. Many South East Asian economies including the Philippines have
shown resilience to the global economic crisis and will emerge as key insurance markets in the near future. The top five
insurance companies in the countryin terms of assetsare Philippine American Life & General Insurance, Sun Life of
Canada (Phils.), Insular Life Assurance., Phil. AXA Life Insurance, and Manufacturers Life Insurance.
National budget outline for 2011

President Aquino announced, in August 2010, that the proposed national budget for 2011 would be at about the same level
as that of 2010. The national budget for 2011 was pegged at P1.75 trillion, an increase of PHP210 billion ($4.2 billion) from
that of 2010. The budget outline broadly indicates that the president is keen to strengthen social services. The education
sector would be given the highest appropriation in the budget. Other areas which are prioritized in the budget include
poverty reduction programs, school buildings and healthcare.
Besides the basic services, the budget aims to strengthen transparency, accountability and good governance; improve
infrastructure; and foster a safe environment in the country. The armed forces modernization program will also be funded
as per the planned budget for 2011. The president also stated that spending will be made judiciously so as to contain the
fiscal deficit.
Proposed appropriations are expected to be submitted on August 25, 2010.

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Economic landscape
Performance
GDP and growth rate
The Philippine economy experienced a slowdown after the country recorded a year of robust growth of 7.1% in 2007, the
fastest expansion in 31 years. The countrys GDP growth came down to 4.2% in 2008. After plunging to 1% in 2009, GDP
growth jumped to a high of 7.3% in the first quarter of 2010. It is further predicted the growth in the second quarter of 2010
could be even higher than the first. Datamonitor estimates suggest that GDP growth rate for 2010 as a whole is expected to
be close to 4%.
Figure 7:
GDP and growth rate in the Philippines, 200213 (real GDP at constant 2000 prices)
140.0
8.0
7.0
120.0
6.0
5.0
100.0
Growth rate (%)
$ billion
4.0
80.0
3.0
2.0
60.0
1.0
40.0
0.0
-1.0
20.0
-2.0
0.0
-3.0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
GDP
Real GDP growth rate
Source: Datamonitor
DAT AMONITOR
GDP composition by sector

The services sector constitutes the largest sector in terms of contribution to the GDP. Services output comprises 53.9% of
the GDP and employs around 50% of its population. The industry sector contributes around 31.9% of the GDP and
employs around 15% of the countrys labor. The agriculture sector contributes around 14.2% to the countrys GDP but
provides employment to more than 35% of the labor force in the country.

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Economic landscape
Figure 8:
GDP composition by sectors in the Philippines, 2009
Agriculture, 14.2%
Services, 53.9%
Industry, 31.9%
Source: Datamonitor
DAT AMONITOR
Agriculture
Agriculture output in the country recorded a growth rate of 7.2% in 2007, which went up to 23.2% in 2008. However, growth
slowed to 0.8% in 2009. In value terms, the agricultural output was PHP1,121.7 billion ($23.6 billion) in 2009, a marginal
increase from PHP1,113.3 billion ($23.4 billion) in 2008. The country is one of the leading producers of rice and coconuts in
the world. However, the agricultural sector generally suffers from low economies of scale, poor productivity and inadequate
infrastructural support. Fishing contributes 3% to the GDP.

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Economic landscape
Figure 9:
Agricultural output of the Philippines, 200209
1200.0
25.0
1000.0
20.0
PHP billion
15.0
600.0
10.0
400.0
Growth rate (%)
800.0
5.0
200.0
0.0
0.0
2002
2003
2004
2005
2006
2007
2008
2009
Year
Agriculture output
Source: Datamonitor
Growth rate
DAT AMONITOR
Note: Sectoral breakdown given in local currency due to

exchange rate fluctuations and its impact on growth figures
Industry
In the industrial sector, the electronics and food processing are the two main activities. The country has rich mineral
resources and untapped mineral wealth is estimated to be worth more than $800 billion. The countrys industrial output
grew at healthy rates of 9.6% and 14.3% in 2007 and 2008, respectively. Growth decreased to 5.1% in 2009. In terms of
value, the industry output in the Philippines stood at PHP2,516.1 billion ($53 billion) in 2009, an increase from PHP2,393.2
billion ($50.4 billion) in 2008.

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Economic landscape
Figure 10:
Industrial output of the Philippines, 200209
3,000.0
16.0
14.0
2,500.0
12.0
PHP billion
10.0
1,500.0
8.0
6.0
1,000.0
Growth rate (%)
2,000.0
4.0
500.0
2.0
0.0
0.0
2002
2003
2004
2005
2006
2007
2008
2009
Year
Industry output
Source: Datamonitor
Growth rate
DAT AMONITOR

Services
The Philippines registered a robust services output during 200108. The country registered an average increase in output
growth of 10.5% during the same period. The services output recorded a growth rate of 12.3% in 2006, which came down
to 11.4% in 2008 and to 4.7% in 2009. Services output reached a value of PHP4,256.3 billion ($89.7 billion) in 2009, from
that of PHP4,067.0 billion ($85.7 billion) in 2008. The telecommunications sectors, call centers and the financial sector
have grown substantially in the past few years, and the services sector accounts for more than 50% of the GDP in the
country.

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Economic landscape
Figure 11:
Services output of the Philippines, 200209
4,500.0
14.0
4,000.0
12.0
3,500.0
10.0
PHP billion
2,500.0
8.0
2,000.0
6.0
1,500.0
Growth rate (%)
3,000.0
4.0
1,000.0
2.0
500.0
0.0
0.0
2002
2003
2004
2005
2006
2007
2008
2009
Year
Services output
Growth rate
Source: Datamonitor
DAT AMONITOR

Fiscal situation
Fiscal deficit/surplus situation
The countrys fiscal deficit widened to 3.9% of GDP in 2009. In the first half year of 2010, the Philippiness budget deficit
reached a value of PHP196.7 billion ($4.1 billion), exceeding the government-set ceiling by around PHP50 billion ($1.1
billion). This was due to lower-than-estimated revenues and spending above expected levels. The countrys fiscal position
is the most immediate challenge for the Aquino government. As per government estimates, the Philippines is expected to
run a budget deficit of PHP325 billion ($6.9 billion), corresponding to 3.9% of GDP for 2010. For 2011, the government
targets to reach a budget deficit level of PHP290 billion ($6.48 billion), or 3.2% of GDP.
Current account
The Philippines consistently maintained a current account surplus during 200309. The average current account surplus of
the country has been recorded at $3.4 billion during 200307. The current account surplus was recorded at $5 billion in
2006, which went up to $7.1 billion in 2007. This was equivalent to 4.5% of the GDP in 2006 and 5.5% of GDP the following
year. The current account surplus came down in 2008 to reach $4.2 billion, equivalent to 3% of GDP. Remittances from
Filipino workers abroad will continue to bolster the current account surplus of the country, although this might be diminished

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Economic landscape
in the near future due to a deteriorating trade balance. For 2009 as a whole, the surplus in the current account widened to
$8.55 billion, compared with $3.63 billion in 2008. According to the central bank estimates, the Philippines posted a current
account surplus of $1.85 billion in the first quarter of 2010.
Figure 12:
Current account balance of the Philippines, 200208
8.00
6.0%
7.00
5.0%
6.00
4.0%
4.00
3.0%
3.00
2.0%
Percentage
$ billion
5.00
2.00
1.0%
1.00
0.0%
0.00
2002
2003
2004
2005
2006
2007
2008
-1.00
-1.0%
Year
Current account balance
Source: Datamonitor
Current account balance as % of GDP

DAT AMONITOR
Exports and imports

The Philippines recorded a fall in exports in 2009 to reach $54.9 billion, down from $59.2 billion in 2008. Similarly, imports
also fell, reflecting a general slowdown of the economy, to reach $63.7 billion in 2009 from $68.8 billion the year before.
The total trade in the country fell to $118.6 billion in 2009 from $128.1 billion in 2008. Around two thirds of total exports are
generally accounted for by electronic goods. However, the country is facing stiff competition from the Chinese electronics
sector, which could have a dampening effect on exports in the future. The US is a major destination for Philippine exports
accounting for 15.4% of total exports in 2009, followed by Japan (with a share of 14.2% in total exports in 2009), China
(13.2%), Singapore (9.4%), and Hong Kong (9%). Other important export partners are South Korea and Germany. The US
is also a key supplier for the country accounting for 11.5% of total exports in 2009. Japan is, however, the countrys main
import partner accounting for 15.3% in 2009, followed by the US (11.5%), Singapore (9.5%), China (8.9%), and Taiwan
(8.3%)

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Economic landscape
The Philippiness trade deficit has been on a declining trend. Recent estimates suggest that the countrys trade balance
deficit narrowed to around $513 million during May 2010, compared with a deficit of $846 million in the same period in
2009.
Figure 13:
External trade of the Philippines, 200209
140
128
126
120
101
96
100
88
85
$ billion
119
114
80
60
46
40
39
48
40
44
54
55
52
60
60
69
65
59
64
55
46
20
0
2002
2003
2004
2005
2006
2007
2008
2009
Year
Exports
Source: Datamonitor

Imports
Total trade
DAT AMONITOR
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Economic landscape
Figure 14:
Balance of trade in the Philippines, 200108
0.0
0.0
2001
2002
2003
2004
2005
2006
2007
2008
-1.0
-2.0
-2.0
-3.0
-4.0
$ billion
Percentage
-4.0
-6.0
-5.0
-6.0
-8.0
-7.0
-8.0
-10.0
-9.0
-10.0
-12.0
Year
Balance of trade
Source: Datamonitor
Balance of trade as % of GDP

DAT AMONITOR
External debt
The countrys external debt came down to $61.8 billion in 2007 from $67.6 billion in 2006. This was the equivalent of a
marginal decline to 48% of GDP from 57.6% the year before. The countrys debt came down from $66.3 billion as of
December 2008 to $53.1 billion as of September 2009. However, the foreign debt increased slightly in 2010 as a result of
net borrowings in both the private and public sectors. According to the central bank estimates, the countrys foreign debt
rose to $55.4 billion at the end of the first quarter of 2010.
International investment position
Foreign direct and portfolio investments

Recent FDI figures suggest that investors are still wary of the global financial conditions and its impact upon Asian
economies. According to the United Nations Conference on Trade and Developments World Investment report 2010, the
FDI in the Philippines rose slightly to $1.9 billion in 2009, compared to $1.5 billion in 2008. In 2009, the FDI outflow
amounted to $359 million, up from $259 million in 2008. The main investors in the first five months of 2010 came from the
US, Switzerland, Japan, the Netherlands, Singapore and Hong Kong. The central bank forecasts suggest that the net FDI
inflows will reach $2 billion in 2010, up 5.3% in 2009.

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Economic landscape
Figure 15:
Total foreign investment in the Philippines, 200308
14.00
11.33
12.00
10.00
7.36
8.00
$ billion
6.00
5.20
4.00
2.00
2.00
1.11
0.73
2003
2004
0.00
-2.00
2002
2005
2006
2007
2008
-4.00
-6.00
-6.35
-8.00
Year
Total foreign investments
Source: Datamonitor
DAT AMONITOR
Credit rating
As of August 2010, Standard & Poors affirmed BB+/Stable/B to the local currency in the Philippines. The foreign currency
was given a rating of BB-/Stable/B. These ratings reflect the governments fiscal consolidation program and an improved
external liquidity position. The credit rating agency has also taken into consideration the fact that the Philippines has a track
record of steady economic growth.
Monetary situation
Key monetary indicators

Inflation
Inflation increased sharply from 2.8% in 2007 to reach 9.3% in 2008. However, inflation fell sharply from the 17-year high in
2008 to reach 3.2% in 2009. The downward trend of inflation was driven primarily by base effects from record-high
commodity prices in 2008, as well as low domestic demand. Inflation in the country was stable in July 2010 due to a decline
in utilities prices. However, this was offset by an increase in the cost of food, services and housing repairs. According to
estimates by the National Statistics Office, the consumer price index rose 3.9% year-on-year in July 2010. Datamonitor
forecasts suggest that inflation in the Philippines will hover around 3.9% in 2010.

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Economic landscape
Consumer price index and CPI based inflation in the Philippines, 200213
200
10
180
160
140
120
100
80
60
40
20
Inflation (%)
Consumer price index
Figure 16:
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
Consumer price index
Source: Datamonitor
Inflation
DAT AMONITOR
Interest rate
The policy rate of the central bank, Bangko Sentral ng Pilipinas (BSP) is unchanged since August 2009. BSP's overnight
borrowing or reverse repurchase (RRP) facility rate is at 4% and the overnight lending or repurchase (RP) facility is at 6%.
According to the central bank, the rates remain unchanged keeping in mind the prevailing inflation outlook for the country.
Banking sector
The country has a relatively underdeveloped financial sector; however, it is open to foreign competition and has high capital
standards. The banking division dominates the financial sector. In late 2006, there were 17 commercial banks, of which
three were foreign. The country now has 24 regular commercial banks (15 foreign), 85 thrift banks, and 746 rural and cooperative banks. Two large banks are state-owned, and one is partly state-owned. Furthermore, a small government-run
Islamic bank serves Muslim citizens in the south. The banks offer credit at market terms; however, legal stipulations require
banks to lend specified portions of their funds to preferred sectors. Non-performing loans are declining and the regulatory
framework has been bolstered to improve oversight.
Employment
The services sector employs 50% of the population, followed by agriculture and industry sectors with shares of 35% and
15%, respectively. Unemployment fell from around 11.8% in 2004 to 7.3% in 2007. Since then, the employment situation in

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Economic landscape
the country has been much the same. The unemployment rate increased slightly reaching 7.5% during 2009. As per
Datamonitor forecasts, unemployment is expected to reduce marginally to reach 7.3% in 2010.
Figure 17:
Unemployment in the Philippines, 200213
4.5
14
12
3.5
10
3
2.5
1.5
4
1
Rate of unemployment (%)
Number of unemployed (millions)
0.5
0
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
Total unemployment
Rate of unemployment (%)
Source: Datamonitor
DAT AMONITOR
Outlook
The year 2010 holds promise for the Philippine economy with recent quarterly results indicating a growth of 7.3% in
Q12010. Moreover, growth in the second quarter is predicted to surpass that of the first. The manufacturing sector also
showed robust growth in Q12010, contributing about 4.3% to overall growth. Another positive development came from the
Free Trade Agreement (FTA) between the ASEAN and Australia and New Zealand (ASEAN-ANZ) that took effect on
February 10, 2010. Philippine exporters will now be able to benefit from the opportunities presented by the FTA. Effective
from January 2010, a number of major Philippine exports to Australia will enjoy zero tariffs. And by 2020, nearly all sectors
would benefit when Australia and New Zealand eliminate tariffs on all products.
On the downside, the newly formed government faces the challenge of a rising budget deficit. In the first half year of 2010,
the budget deficit reached 60.5% of the full-year target of $7 billion. The government aims to achieve a budget deficit of
3.9% of GDP for 2010, and 3.2% for 2011. To contain the budget shortfall, government should follow pragmatic fiscal
policies.

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Economic landscape
While new taxes will not be imposed, the government has introduced two major bills that are expected to help plug leaks in
revenue collection. The first is the fiscal responsibility bill would mandate lawmakers to determine a revenue source for bills
they would file. The second is the rationalization of fiscal incentives bill. With these laws in place, the Bureau of Internal
Revenue is expected to raise PHP959 billion ($20.2 billion), while the Bureau of Customs will collect PHP340 billion ($7.2
billion) to support the national budget.

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Social landscape
SOCIAL LANDSCAPE
Summary
The Philippines has operated a range of social security programs for decades. These are categorized into social insurance,
pensions and other forms of long-term savings, social safety nets, welfare and social payments, and labor market
interventions. However, coverage is incomplete and delivery ineffective, while financing remains uncertain and is vulnerable
to corruption. More than 60% of the population is of working age, which reduces social security expenditure. The
Philippines has a large pool of human resources, with good English-language skills. More than 90% of children at school
age are in education, which is an encouraging sign.
Evolution
The social security system in the Philippines was established in 1957, and contribution is mandatory for all employees in
the public and private sector. Retirement is optional from the age of 60 and compulsory at 65. The Philippine government
created an employees compensation program in 1975 that pays double compensation for work-related death, injury or
illness, to employees who are not self-employed. The Philippine Health Insurance Corporation was established in 1995 to
administer the National Health Insurance Program, with the goal of providing universal coverage.

Demographic composition
Composition by age and gender

As per 2010 estimates, 4.2% of the population was aged above 65 years, 60.9% were between 1564, and 34.9% were in
the 014 age group. The country has a very low percentage of older people and a large working population. The gender
ratio at birth was recorded in 2009 at 1.05 males per female, while the life expectancy of the total population is 71.4 years.
Life expectancy is 68 years for men and 74 for women. The infant mortality rate has been falling, standing at 20.5 deaths
per thousand live births in 2009, which is far higher than Malaysias rate of 16.3.

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Social landscape
Table 9:
Mid-year population by age (millions), 2009
Age
Female
Male
04
5.3
5.5
59
5.2
5.4
1014
5.0
5.2
1519
4.6
4.8
2024
4.2
4.3
2529
3.9
4.0
3034
3.4
3.5
3539
2.9
3.0
4044
2.5
2.5
4549
2.2
2.0
5054
1.9
1.6
5559
1.4
1.2
6064
1.0
0.9
6569
0.8
0.7
7074
0.6
0.5
7579
0.4
0.3
80+
0.3
0.2
Source: Datamonitor
DAT AMONITOR
Females comprise around 54% of the total population and males account for the remaining 46%.
Urban/rural composition and migration

The Philippines has been witnessing continual migration from rural to urban areas since 1991. According to 2008
estimates, 65% of the population lived in urban districts. The rate of urbanization in the Philippines was around 3% during
200510. The country loses very few people due to emigration, with an estimate of 1.31 migrants per 1,000 persons (2010
estimates).
Religious and ethnic composition

According to the 2000 census, the countrys population comprises the following religious groups: Roman Catholic 80.9%,
Muslim 5%, Evangelical 2.8%, Iglesia ni Kristo 2.3%, Aglipayan 2%, other Christian 4.5%, other 1.8%, unspecified 0.6%,
and none 0.1%.

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Social landscape
Figure 18:
The Philippines composition of religion
Iglesia ni Kristo,
Aglipayan
4%
other Christian
5%
Others
2%
Evangelical
3%
Muslim
5%
Roman Catholic
81%
Source: Datamonitor
DAT AMONITOR
Education
The law in the country allows for six years of free and compulsory primary education, while the four-year secondary stage is
free, but not obligatory. The Philippines has a good human resource base with English language skills. Although fluency in
English has been declining in the last few years, the countrys labor force is flexible and adept at finding jobs overseas. The
skill levels of emigrants from the Philippines have been rising, which increases the prospects of the country continuing to
enjoy a robust growth in remittances. The Philippines also has encouraged public-private partnerships to raise the
standards of teaching science and technology (S&T) in the country. Teacher training initiatives like the Foundation for
Upgrading Standards in Education (FUSE), a program led by the private-sector, educate tutors to effectively teach math
and science. Another such initiative is the National Institute of Science and Mathematics Education Development
(NISMED).
Social welfare
Social welfare policies

PhilHealth runs the national health insurance program, which grants Filipinos access to inpatient and outpatient services in
accredited medical facilities. PhilHealth has approximately 16.26 million members and 68.4 million beneficiaries, including
the poor and destitute. The program for the underprivileged in the Philippines is well-funded, being allocated 2.5% of

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Social landscape
government revenues from taxes on products such as alcohol and tobacco for 200712 and 10% of local government
share in expanded VAT. People have to pay annual premiums of about $22 as a contribution towards health insurance.
Retirees who have reached the age of 65, or who are older than 60 but not yet 65 and have already paid 120 monthly
premiums, pay nothing. Depending on their level of income, poorer households may pay one standard annual premium to
cover four family members, or have their entire premiums paid in part by the national government and in part by their local
government. Benefits do not necessarily cover the full costs of medical expenses, and many poor people still cannot afford
to pay the difference. In 2011, the government plans to increase its spending towards education, poverty reduction
program, school infrastructure and healthcare.
Performance
Healthcare
Government expenditure on healthcare has increased marginally over the years, yet continues to be low compared with
developing countries; healthcare expenditure rose to $5 billion in 2007 from $4.2 billion in 2006. The country spent around
$5.4 billion in 2009, which corresponds to around 3.3% of its GDP. Datamonitor forecasts suggest that expenditure on
health care will increase significantly in the next few years; health care spending is estimated to reach $6.2 billion in 2011,
constituting 3.2% of GDP. According to Philippine Health Statistics (latest available figures), heart diseases account for
more than 15% of all deaths in the country. The Philippines has about 95,000 physicians. The country operates roughly
1,700 hospitals, of which about 40% are government run and 60% are in the private sector. The Philippines had a total of
about 85,000 hospital beds.

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Social landscape
Figure 19: Healthcare expenditure in the Philippines, 200213
3.6
3.5
3.4
$ billion
3.2
4
3.1
3
Percentage (%)
3.3
2.9
2.8
2.7
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
Healthcare expenditure
Source: Datamonitor
Healthcare expenditure as % of GDP

D AT AM O N IT O R
Poverty/ income distribution

Poverty continues to be a serious problem in the country. More than half of the population has consistently rated itself
as mahirap (the Tagalog word for poor) in the last two decades. The countrys Gini index was recorded at 0.458 in 2006.
According to an Asian Development Bank (ADB) study (2009), the Philippines' poverty reduction rate of 0.47% per year is
slower than those of neighboring countries such as Cambodia, Indonesia, Thailand, and Vietnam. The Philippines was the
only country in Southeast Asia to record an increase in the absolute number of poor people since 1990. According to the
latest official available statistics, there has been a rise in poverty incidence from 30% in 2003 to 32.9% in 2006, with one in
five households living in extreme poverty. The global economic crisis and natural disasters in 2008 and 2009 are believe to
have further worsened the condition.
Education
Spending on education is low compared to other Asian nations such as Malaysia, Taiwan, among others. Expenditure on
education stood at $3.8 billion in 2009, corresponding to 2.3% of GDP. It is forecast to increase to $4.2 billion in 2011.The
literacy rate is estimated to be 92.6% (2000 census).

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Social landscape
Figure 20:
Government expenditure on education in the Philippines, 200213
3.5
3
2.5
2
3
1.5
2
1
1
Percentage (%)
$ billion
0.5
0
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
Education expenditure
Education expenditure as % of GDP
Source: Datamonitor
DAT AMONITOR
Outlook
High poverty levels and widening inequality is of particular concern. Efforts to meet the social development goals are
challenged by high population growth, inefficient governance and implementation gaps, insufficient financing and a series
of natural disasters. Although the country has achieved some progress in reducing child mortality, combating HIV and
AIDS, malaria, and other diseases, improving access to safe drinking water, sanitary toilet facility and improving nutrition,
much remains to be done.
The new government has pledged to improve social services as strengthened social protection and improved human
development are quintessential for the countrys sustained growth. To this end, the government proposes to allocate
increased resources towards education, healthcare and poverty reduction programs.

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TECHNOLOGICAL LANDSCAPE
Summary
The Philippine government has initiated programs to foster science and technology initiatives. The incumbent government
has created a core S&T complex, modeled after Stanford Research Park in Silicon Valley, to provide impetus to new startups in the country. The number of patents acquired is very low in comparison with other Asian nations. The Philippines has
also witnessed healthy growth rates in the number of internet and mobile phone users.
Evolution
The Philippine economy evolved slowly from being predominantly agricultural to service oriented. The manufacturing sector
developed rapidly during the 1950s, but then leveled off and did not increase its share of either output or employment in the
overall economy. The evolution of technology in the country is, to some extent, linked with the development of the services
sector.
The internet in the Philippines started to take form in 1994 when the Philippine Network Foundation, an association of
private and government institutions, enabled Filipinos to be connected live via a 64 kbps link to Sprint in the US. It was then
supposed to be the Philippines only public gateway to the internet. In the following year, the Public Telecommunications
Act of the Philippines was formulated into law which exempted the need for value-added service (VAS) providers to secure
a franchise. This enabled many organizations to establish connections to the internet, creating websites and running their
own online services. All these developments encapsulate the history of the internet in the country.

The Philippine government has taken a series of measures to promote S&T in the country. A meeting held in August 2006
between the government and the PAASE led to the development of 22 hectares by Diliman University as the core S&T
complex with technology incubation, modeled after Stanford Research Park in Silicon Valley. This National Science
Complex in Diliman, Quezon City will cost around $30m (PHP1.7 billion) during 200610. The Department of Science and
TechnologyAdvanced Science and Technology Institute launched new R&D programs in April 2008 to support the use of
information and communications technology (ICT) for natural resource and environmental management, research
collaboration over computer networks, and eGovernment for the DOST.
The three new programs that commenced in 2008 were:
ICT for the environment;
Philippine eScience Grid (PsiGrid) Program;
eDOST (E-Department of Science and Technology).
The ICT for the Environment program builds on the gains made by previous climate and weather information monitoring
system projects to develop technology applications that enhance capabilities in observation, collection, and transmission of
environmental data. The Philippine eScience Grid (PsiGrid) program aims to establish a computing grid infrastructure as
well as applications that will run over the grid for use in collaborative research activities. Finally, the eDOST program plans
to e-enable DOST through ICT and further improve internal operations and delivery of front-line services. The program
consists of infrastructure and connectivity, information systems improvement, open standards and change management. By

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upgrading its ICT capabilities, the DOST expects to enhance its productivity and efficiency, and promote inter-agency
collaboration.
Intellectual property
The Philippines compares poorly with other Asian economies as is shown in the table below. The country was granted only
25 patents by the US Patent Trademark Office (USPTO) in 2009, compared to 493 and 9,566 patents granted to Singapore
and South Korea, respectively.
Table 10:
Patents granted by USPTO, 200209
Year
The Philippines
Singapore
South Korea
Japan
Malaysia
2002
19
421
4009
36339
62
2003
25
460
4132
37248
63
2004
21
485
4671
37032
93
2005
18
377
4591
31834
98
2006
35
469
6509
39411
131
2007
21
451
7264
35941
173
2008
22
450
8730
36679
168
2009
25
493
9566
38066
181
Source: Datamonitor
DAT AMONITOR
Performance
Telecoms
The country witnessed robust growth rates in the number of mobile phone users during 200607; as of 2006, mobile
phones subscribers outnumbered fixed line subscribers in the Philippines. The fixed line segment saw an annual growth of
1.5% in 2009, while the mobile phone segment witnessed 16.3% growth during the same year. Datamonitor estimates that
growth in both segments will taper off in the years through 2013.

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Figure 21:
Growth rate of mobile and fixed line subscribers in the Philippines, 200213
50.0
Growth rate (%)
40.0
30.0
20.0
10.0
0.0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
-10.0
Year
Mobile phones growth
Source: Datamonitor
Fixed line growth

DAT AMONITOR
Internet
The number of internet users has increased consistently during 200209 and went up from 5.2 million in 2006 to 5.9 million
in 2009. Datamonitor estimates suggest that the number of Internet users is expected to increase to 7.1 million by 2013.

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Internet users and growth rate in the Philippines, 200213
8.00
80.00
7.00
70.00
6.00
60.00
5.00
50.00
4.00
40.00
3.00
30.00
2.00
20.00
1.00
10.00
0.00
Growth rate (%)
Number of users (millions)
Figure 22:
0.00
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
Number of users
Growth rate
Source: Datamonitor
DAT AMONITOR
Opportunity sectors
The main opportunities lie in the BPO sector and the biotechnology industry.
BPO
BPO in the country has great potential for the following reasons:
an abundance of human resources with excellent English language skills;
the similarity of the Philippines legal, accounting, medical and other social systems with those of the US;
greater cost-competitiveness in the Philippines BPO/IT services industry following increases in labor costs and
real estate prices in India.
Biotechnology
The Philippines has stepped up R&D of various agri-biotech products with the Department of Agriculture (DA), in a bid to
become a leader in biotechnology. In 1990, the Philippines became the first ASEAN country to initiate a biotechnology
regulatory system, with the establishment of the National Biosafety Committee of the Philippines (NCBP). The country's
biosafety regulation system follows strict scientific standards and has become a model for member countries of the ASEAN
seeking to become producers of agricultural biotechnology crops. Some of the countrys achievements in the area of
biotechnology include:

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The Philippines has the third biggest biotechnology crop area in Asia, after India at 6.2 million hectares and
China at 3.8 million hectares (both of which produce genetically modified cotton);
The plantation of genetically modified corn expanded by 25% in the Philippines to reach 250,000 hectares in
2007, from 200,000 in 2006. Herbicide tolerant corn was planted across 110,000 hectares while Bacillus
thuringiensis corn (borer resistant) was sown in 75,000. Stacked trait corn (with both borer and herbicide
resistance) was planted across 63,000 hectares;
The Philippines is expected to become the first Asian country to commercialize biotech eggplants resistant to fruit
and shoot borer pests. The Bt eggplant variety, funded by the US Agency for International Development (USAID),
was harvested at a trial site in Pangasinan in 2010. Bt eggplant seeds are expected to be released in the market
in 2011.
Outlook
The Philippines has cashed in on the strength of its BPO sector and biotech industry. In the BPO sector, the country
generated revenues of $7.3 billion in 2009 and is expected to generate revenues of about $13 billion with direct
employment of approximately 1 million by the end of 2010. The government continues to invest in the development of the
BPO sector, As of April 2010, the government invested P35.5 billion in technical education and training skills, of which P1.7
billion went towards BPO scholarships. The government also aims to attain food security through sophisticated techniques
used in biotechnology. The country stands to gain from advances in biotechnology, especially with the development of
golden rice.
Although the government is taking key initiatives to encourage start-up companies through the technology business
incubation (TBI) program, total R&D spending remains low (0.14% of GDP). This is reflected in the low number of patents
granted to the Philippines by the USPTO. The government needs to lay more emphasis on research and innovation to be
on par with other Asian economies.

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Legal landscape
LEGAL LANDSCAPE
Summary
The Philippines' judiciary is independent of the legislature and executive. However, judicial delays continue to be a major
problem. The courts allow defense lawyers to use delaying tactics, which leads to cases dragging on for a long time. The
Supreme Court has an inclination to give controversial judgments, such as when mining service contracts were termed to
be unconstitutional, a decision that was later rescinded. The Supreme Court cancelled the automated counting of votes in
the 2004 elections, which led to manual counting instead. The court also suspended the implementation of the extended
VAT scheme, another judgment that was subsequently revoked. Although the regulatory system is transparent, domestic
players with vested interests tend to influence events in their favor.
The number of procedures required to start a business is higher than the South East Asian average. Firing costs are also
fairly high in the country. The number of days required to start a business is above the regions average, which indicates
that the country should do a lot more to improve the business environment.
Evolution
Under the 1973 constitution, the Supreme Court is the highest judicial body of the state and holds supervisory authority
over the lower courts. The entire court system was overhauled with the creation of new regional courts of trials and appeals
in 1981. Justices at all levels are appointed by the president, and the courts do not have juries. The countrys judicial
system is plagued with delays, and detention periods in national security cases have been long. Cases dealing with
national security in the 197281 period of martial law were tried in military courts. The 1987 constitution restored the
system to what it was in 1973. The delivery of justice continues to be slow, despite the reinstitution of many procedural
safeguards and guarantees.

Judicial system
Spanish and Anglo-American law form the basis of the legal code in the Philippines, while Muslims living in some southern
parts of the country are subject to Islamic law. The constitution of the Philippines gives the accused the right to be
represented by counsel, and to have a speedy and fair public trial. Defendants are presumed innocent until proven guilty
and have the right to confront witnesses, present evidence and appeal convictions. However, judicial delays, corruption and
inefficiency dog the judicial system. As a result, the Supreme Court has undertaken a five-year program to speed up the
judicial process and crack down on corruption.
Structure of the system

The Judicial Reorganization Act of 1981 provides for courts at four levels, along with some special courts. The metropolitan
trial courts, municipal trial courts, and municipal circuit trial courts exist at the local level. Regional trial courts are present in
each of the nation's 13 political regions, including Manila. Courts at the local level have jurisdiction over less serious
criminal cases, while more major offenses are heard by the regional level courts, which also have appellate jurisdiction. The
Intermediate Appellate Court exists at the national level, which is also called the Court of Appeals. A Shariah (Islamic law)
court system, with jurisdiction over domestic and contractual relations among Muslim citizens, operates in some Mindanao
provinces. Special courts include the Court of Tax Appeals and the Sandiganbayan, which tries government officers and
employees charged with violation of the Anti-Graft and Corrupt Practices Act.

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Legal landscape
Legislation affecting business
Establishing operations as a foreign enterprise

The principal methods of establishing a business in the Philippines are through a branch, a subsidiary, a licensing and
franchising agreement or a joint-venture agreementof these, the shared corporation system is the most popular business
form in the country. Some of the conditions necessary to start a corporation are:
there must be 515 shareholders and the majority of them must be residents of the country, unless other laws
allow otherwise;
the SEC must receive audited financial statements;
at the time of incorporation, at least 25% of the authorized capital stock must be subscribed and 25% of the
subscribed capital (minimum PHP 5,000 or $105.4) should be paid up.
Tax regulations
Income tax
Filipinos are subject to staggered tax rates between 5% and 32%. Non-resident immigrants are subject to a tax rate of
25%, but are not entitled to any deductions.
Table 11:
The Philippines : individual income tax rates, 2009
Tax (%)
Tax on base amount
5%
Taxable income (PHP)
Up to 10,000
10%
500
1000130,000
15%
2,500
30,00170,000
20%
8,500
70,001140,000
25%
22,500
140,001250,000
30%
50,000
250,000500,000
32%
25,000
500,001 and above
Source: Datamonitor
DAT AMONITOR
Corporate tax
Domestic corporations are taxed at the rate of 30%. Non-resident foreign corporations are charged at the rate of 35% from
their gross income in the Philippines.
Capital gains tax

For PHP100,000 ($2,108) or less, capital gains from the sale of shares of domestic corporations not traded on the stock
exchange are taxed at 5%, rising to 10% for any amount exceeding PHP100,000 ($2,108).
Withholding tax
Dividends paid by Philippine corporations to non-resident corporations are generally subject to a withholding tax of 30%.

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Legal landscape
VAT
A VAT rate of 12% is applied to the provision of services, the sale of goods and property and the import of goods into the
country.
Trade regulations
The country has authorized the creation of special economic zones (ecozones)which include the export-processing areas
set up under government direction and industrial estates developed by the private sectorto attract export enterprises.
Firms in these zones have access to various tax and non-tax incentives. Foreign loans for developmental purposes granted
to any enterprise licensed to do business in the Philippines are guaranteed by the Trade and Investment Development
Corp of the Philippines (Tidcorp). Tidcorp also guarantees and provides insurance cover for investments. The Philippines
has different regulations with regard to working hours in different sectors; the normal working week in manufacturing is 44
48 hours, while a 40 hour working week is observed in other sectors.
According to the 2010 Index of Economic Freedom (a product of the Heritage Foundation and Wall Street Journal), the
Philippines has relatively good ratings in trade freedom, monetary freedom and fiscal freedom. However, it has scored
poorly on indicators such as business and investment freedom, property rights and freedom from corruption. The
Philippines is ranked 109th in the world in terms of its overall economic freedom; the country is 20th freest among 41
countries in the AsiaPacific region.
The country has a weak judicial system and is subject to political influence. Foreign investment is limited in many sectors:
the maximum foreign equity investment allowed in advertising is 30%; in utilities, deep-sea fishing, and education, 40%;
and in radio and communications, 20%. Foreigners are also not allowed to own land in the country. The other major
deterrent is widespread and pervasive corruption. In 2009, the country ranked in the 139th position among 180 countries,
according to Transparency International's Corruption Perceptions Index. There are many other deterrents to foreign
investment, such as regulatory inconsistency and persistent political flux.
Corporate governance
The Philippine SEC, a principal player in matters of corporate governance, issued the Code of Corporate Governance in
2002. If the code is not adhered to, penalties are bound to follow. The code aims to promote corporate governance reforms
that will raise investor confidence, develop the capital market and help to achieve high sustained growth for the corporate
sector and the economy. The code applies to corporations whose securities are registered or listed, corporations who are
grantees of permits or licenses and secondary franchises from the commission, public companies, and branches or
subsidiaries of foreign corporations operating in the Philippines, whose securities are registered or listed. Some of the
salient features of the code are:
The code prescribes that the board of directors shall be primarily responsible for the governance of the
corporation. The board should establish the corporations vision and mission, strategic objectives, policies and
procedures that guide and direct the activities of the company, and the mechanism for monitoring managements
performance.
Disclosure is a vital and dominant theme of the code. The more transparent the internal workings of the company
and cash flows, the more difficult it will be for management and controlling shareholders to misappropriate or
mismanage company assets.

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Legal landscape
The following stockholders rights should be respected: voting rights, pre-emptive rights, power of inspection, the
right to information, the right to dividends and appraisal rights. The management may establish a performance
evaluation system to measure the performance of the board and top-level management of the corporation.
Performance
Effectiveness of the legal system
According to the World Banks Doing Business report (2010), the Philippines was ranked 144th among 183 economies in
terms of the ease of doing business. The number of procedures required to start a business is 15, compared to the average
of 8.6 in the Southeast Asia region, and the number of days needed is 52, compared to the regional average of around 44.
The Philippines has been assigned a value of 55.6 compared to the Southeast Asian average of 19.2, in terms of difficulty
of hiring in 2009, with a higher value indicating that it is more difficult to recruit employees. Firing costs in the country are
high, as employers have to pay 91 weeks' salary, compared to the 38.6 weeks regional average.
Outlook
The Philippines ranks poorly as a business-friendly country in the World Banks Doing Business report (2010). The
countrys legal system is particularly cumbersome for starting and closing a business. In terms of the ease of doing
business, the country was ranked 144th out of 183 economies. In addition, the country has a convoluted tax structure that
not only requires too many transactions but also takes a lot of time to fulfill. The Philippines ranks in the 135th position in
terms of simplicity of paying taxes, according to the Doing Business report (2010). A company has to make 47 tax payment
transactions in the Philippines, which is higher than the East Asia average of 25. Besides the legal impediments, corruption
is a long-standing problem which could repel business investors. However, privatization initiatives in various sectors are
expected to open up business opportunities and increase competition.

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ENVIRONMENTAL LANDSCAPE
Summary
The country is encouraging the development of alternative and sustainable sources of energy, both for power and
transport, as it seeks energy security. The development of Clean Development Mechanism (CDM) projects under the Kyoto
Protocol has provided the country with opportunities to develop its energy infrastructure, on the basis of garnering
renewable sources of energy. However, with its rapid GDP growth, the countrys carbon dioxide emissions have increased.
Evolution
The commonwealth government set out rules on the use and protection of the environment in the country's 1935
constitution. Section 1 of the charter asserts the sole right of the Filipino people to use, exploit and develop its abundant
natural resources. Until the 1980s, the environment was hardly given any thought in the course of policy formulation. As a
matter of fact, the country's various natural resources were perceived as mere instruments to be utilized by the people for
the greater goal of economic development.
The 1987 constitution also takes account of the high impact of developmental activities on the welfare of indigenous
peoples, mandating the state to safeguard the rights of native cultural communities to their ancestral lands, to ensure their
economic, social, and cultural wellbeing. For the first time, the right of the person to a balanced and healthy ecology was
recognized not only as an abstract policy statement, but as an enforceable legal right. This is clear from the discussion of
the members of the Constitutional Commission that drafted the 1987 constitution. Among the most significant of these
statutes are the Clean Air Act, the Ecological Solid Waste Management Act and the NIPAS Act.

Environmental regulations
The major legal instruments guiding environmental and natural resource management in the country are:
the 1998 Fisheries Code;
the 1975 Forestry Code;
the 1976 Water Code;
the 1976 Pollution Control Law;
the 1978 Philippines Environmental Impact Statement System;
the 1992 Toxic Substances, Hazardous and Nuclear Waste Law;
the 1992 National Integrated Protected Areas System Act;
the 1987 Comprehensive Agrarian Reform Law;
the 1991 Local Government Code;
the 1997 Indigenous Peoples Rights Act;
the 1999 Clean Air Act;
the 1997 Agriculture and Fisheries Modernization Act.

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Furthermore, the ongoing institutionalization of the Philippine Economic-Environmental and Natural Resource Accounting
(PEENRA) system aims to incorporate the costs of using environmental resources for production into the nation's accounts.
Participation in global efforts/agreements/pacts

The major international pacts and agreements the Philippines has been a party to are the following: Biodiversity, Climate
Change, Climate Change-Kyoto Protocol, Desertification, Endangered Species, Hazardous Wastes, Law of the Sea,
Marine Dumping, Ozone Layer Protection, Ship Pollution, Tropical Timber 83, Tropical Timber 94, Wetlands and Whaling.
Copenhagen conference on climate change

The United Nations Framework Convention on Climate Change (UNFCCC) sets an overall framework for intergovernmental
efforts to tackle the challenge posed by climate change. It recognizes that the climate system is a shared resource whose
stability can be affected by industrial and other emissions of carbon dioxide and other greenhouse gases. The convention
has a universal membership, with 192 countries including the Philippines having ratified the convention. No deal could be
clinched in Copenhagen, however, talks on a binding international climate change pact continue in 2010.
Performance
Environmental impact
The country's carbon dioxide emissions rose consistently during 200405, increasing from around 75.1 million metric tons
in 2004 to 78 million metric tons in 2005. CO2 emissions reduced during 200608 but rose again in 2009 to reach 75.1
million metric tons during the year. Datamonitor forecasts suggest that CO2 emissions will increase to reach 80 million
metric tons by 2011.

Published 08/2010
Page 67
Figure 23: Carbon dioxide emissions in the Philippines, 200213
86.00
84.00
4
2
80.00
78.00
76.00
-2
74.00
72.00
Growth (%)
Million metric tons
82.00
-4
70.00
-6
68.00
66.00
-8
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Year
Volume
Source: Datamonitor
Growth rate
D AT AM O N IT O R
Outlook
According to 2010 Environmental Performance Index (EPI), the Philippines was ranked 50th among 163 countries with a
score of 65.7. The Philippines is one of the top performers in the Asian region, after Japan, which was ranked in the 20th
position. Despite its strong performance on EPI, the Philippines faces several environmental challenges. The country faces
high levels of air pollution which translates into an increase in costs in terms of productivity and increase in health care
expenditure. A diminishing forest cover is yet another threat. Climate change has also emerged as a significant concern in
the wake of the recent intense dry spell and typhoons Ketsana and Parma in northern Philippines. The Post-Disaster
Needs Assessment (PDNA) estimated that the damage and losses from the two major typhoons in 2009 amounted to about
$4.4 billion. To counter this situation, the Philippine government has invested in climate change adaptation. The department
of agriculture introduced a rainwater harvesting technology to irrigate water during the dry season and control floods in the
rainy season.

Published 08/2010
Page 68
Appendix
APPENDIX
Ask the analyst
DATAMONITORs Country Analysis Practice consists of a team of economists, analysts and researchers, all with expertise
in their given fields. For any questions or comments about this report you can contact the author directly.
countryanalysis@datamonitor.com
Datamonitor consulting
We hope that the data and analysis in this brief will help you make informed and imaginative business decisions. If you
have further requirements, Datamonitors consulting team may be able to help you. For more information about
Datamonitors consulting capabilities, please contact us directly at consulting@datamonitor.com.
Disclaimer
All Rights Reserved.
No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means,
electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Datamonitor.
The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the
findings, conclusions and recommendations that Datamonitor delivers will be based on information gathered in good faith
from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such
Datamonitor can accept no liability whatever for actions taken based on any information that may subsequently prove to be
incorrect.

Published 08/2010
Page 69
Copyright of Philippines Country Profile is the property of Datamonitor Plc and its content may not be copied
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COUNTRY ANALYSIS REPORT

Philippines: Country Analysis Report In-depth PESTLE Insights

Philippines: Country Analysis Report In-depth PESTLE Insights

Philippines: Country Analysis Report In-depth PESTLE Insights

Philippines: Country Analysis Report In-depth PESTLE Insights

The Philippines key fundamentals

GDP, constant 2000 prices ($ billion)

Exports, total as % of GDP

Imports, total as % of GDP

Mid-year population, total (million)

Unemployment rate (%)

Philippines: Country Analysis Report In-depth PESTLE Insights

Key facts and geographic location

Structure and policies

Structure and policies

Structure and policies

Philippines: Country Analysis Report In-depth PESTLE Insights

Structure and policies

Structure and policies

Structure and policies

Ask the analyst

Philippines: Country Analysis Report In-depth PESTLE Insights

Map of the Philippines

The Philippines: political events timeline

The Philippines key political figures

Composition of the Philippines House of Representatives, 2010

The Philippines historical GDP growth (19912009)

Market capitalization of the Philippines stock Exchange, 200208

GDP composition by sectors in the Philippines, 2009

Agricultural output of the Philippines, 200209

Industrial output of the Philippines, 200209

Services output of the Philippines, 200209

Current account balance of the Philippines, 200208

External trade of the Philippines, 200209

Balance of trade in the Philippines, 200108

Total foreign investment in the Philippines, 200308

Unemployment in the Philippines, 200213

The Philippines composition of religion

Figure 19: Healthcare expenditure in the Philippines, 200213

Government expenditure on education in the Philippines, 200213

Internet users and growth rate in the Philippines, 200213

Figure 23: Carbon dioxide emissions in the Philippines, 200213

Philippines: Country Analysis Report In-depth PESTLE Insights

The Philippines key fundamentals

The Philippines key facts

Analysis of the Philippines political landscape

Analysis of the Philippines economy

Analysis of the Philippines social system

Analysis of the Philippines technology landscape

Analysis of the Philippines legal landscape

Analysis of the Philippines environmental landscape

Mid-year population by age (millions), 2009

Patents granted by USPTO, 200209

The Philippines : individual income tax rates, 2009

Philippines: Country Analysis Report In-depth PESTLE Insights

Key facts and geographic location

KEY FACTS AND GEOGRAPHIC LOCATION

The Philippines key facts

Country and capital

Republic of the Philippines

Chief of state and head of government

President Gloria Macapagal-Arroyo

Manuel Noli de Castro