Country Risk: Philippines

Full Name: Republic of the Philippines
National Symbol: The Philippine Eagle (also known as “the monkey eating eagle”)

Internet Domain: .ph
International Dialing Code: +63

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Location and Size

Located in Southeastern Asia, the Philippine archipelago lies east of Vietnam between the Philippine Sea and the South China Sea. It is made up of 7,107 islands with a land area of 300,000 sq km, making it slightly larger than the U.S. state of Arizona.

The Philippines is divided into 3 island groups – Luzon, Visayas, and Mindanao. Its capital, Manila, is located on the island of Luzon.

Government

The Philippines is a republic comprised of 80 provinces.

Branches:

• Executive: President Rodrigo DUTERE (since June 30, 2016); Vice President Leni ROBREDO (since June 30, 2016); the president is both chief of state and head of government.
• Legislative: Bicameral Congress consisting of the Senate (24 seats) and the House of Representatives (287 seats).
• Judicial: Supreme Court (15 justices appointed by the president on the recommendation of the Judicial and Bar Council serve until 70 years of age); Court of Appeals; Sandigan-bayan (special court for hearing corruption cases of government officials).

Legal System

The Philippines has a mixed legal system of civil, common, Islamic (shariah), and customary law.

The country accepts compulsory International Court of Justice (ICJ) jurisdiction with reservations. (What does this mean?) It also accepts International Criminal Court jurisdiction. (What does this mean?)

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Interesting Facts About the Philippines

1. With a population of about 105 million people, the Philippines is the 13th most populous country in the world.
2. The Philippine flag is the only flag in the world which is hoisted upside-down when the country is at war.
3. The Conus Gloriamaris, the rarest and most expensive seashell in the world, is one of the 12,000 species of seashells found in the Philippines.
4. Four hundred eighty-eight of the 500 coral species known worldwide are found in the Philippine archipelago.
5. On the islands of Philippines, there are more than 200 volcanoes, though only a few are active.
6. Manila, the Philippine capital, is the world’s most densely populated city.
7. The Philippines is the largest supplier of nurses in the world.
8. The Philippines is home to Asia’s oldest existing university, the University of Santo Tomas (UST), established in 1611.

Economy

The economy has been relatively resilient to global economic shocks due to less exposure to troubled international securities, lower dependence on exports, relatively resilient domestic consumption, large remittances from about 10 million overseas Filipino workers and migrants, and a rapidly expanding services industry. During 2017, the current account balance fell into the negative range, the first time since the 2008 global financial crisis, in part due to an ambitious new infrastructure spending program announced this year. However, international reserves remain at comfortable levels and the banking system is stable.

Leading Markets (2017): Japan 16.4%, US 14.6%, Hong Kong 13.7%, China 11%, Singapore 6.1%, Thailand 4.3%, Germany 4.1%, South Korea 5.5%

Leading Exports – Commodities: Semiconductors and electronic products, transport equipment, garments, copper products, petroleum products, coconut oil, fruits

Leading Suppliers (2017): China 18.1%, Japan 11.4%, South Korea 8.8%, US 7.4%, Thailand 7.1%

Leading Imports – Commodities: Electronic products, mineral fuels, machinery and transport equipment, iron and steel, textile fabrics, grains, chemicals, plastic

Top Industries: Electronics assembly, garments, footwear, pharmaceuticals, chemicals, wood products, food processing, petroleum refining, fishing

Top Agricultural Products: Sugarcane, coconuts, rice, corn, bananas, cassavas, pineapples, mangoes, pork, eggs, beef, fish

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Comparative Economic Indicators ” 2018

*July 2017 estimate
** PPP ” Purchasing Power Parity
*** 2018 Corruption Index: 80-100=Clean; 0-39=Corrupt
**** 2019 Index of Economic Freedom: 100-80 = Free; 49.9-0 = Repressed

Economic Data from CIA World Factbook

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Credit and Collections

Philippines Statutes of Limitations:

• Open Account: 4 years
• Promissory Notes: 4 years
• Written Contracts: 4 years
• Oral Agreements: 4 years

Dispute Resolution

It can take years to reach final settlement on investment disputes in the Philippines. A number of actions taken by the Philippine government in recent years have clouded the investment climate by raising questions about the sanctity of contracts. Inefficiency and uncertainty of the judicial system, including understaffing and corruption, has been seen by many foreign investors as a significant disincentive to investment.

The Philippines is a member of the International Center for the Settlement of Investment Disputes and of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards. Philippine courts have, however, shown a reluctance to abide by the arbitral process or its resulting decisions. As a result, enforcing an arbitral award in the Philippines can take years.

Risk Assessment

Coface Country Rating: A4 — In 2019, the economy is expected to maintain its momentum, buoyed above all by domestic demand. Although consumer sentiment will remain negatively affected by high inflation due to a weaker peso and rising energy prices (80% imported; not subsidised), household spending (70% of GDP) is expected to remain the main driver of growth. 

Coface Business Climate Rating: B — Same as above

Credendo Political Risk Rating: 2.5 — Low
Credendo Commercial Risk Rating: B — Moderate

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Business Climate

Foreign investment is viewed as important to economic development and, as such, is promoted by the Government of the Philippines. Advantages to investment include free trade zones such as the Philippine Economic Zone Authority. Nevertheless, legal restrictions, regulatory inconsistency, and a lack of transparency hinder foreign investment. The retail trade industry, in particular, is highly restricted to foreign investment.

Doing business requires going through a broad network of subcontractors, and most companies use the services of agents, distributors, and intermediaries for distribution. All imported articles invite import taxes, even those that have been previously exported.

Due to the fact that the country is an archipelago and its highway system is inadequate at best, conveying products to and within the Philippines can be a long and expensive process. Other long term challenges include building infrastructure, improving regulatory predictability and the ease of doing business, and attracting higher levels of local and foreign investments. The Philippines does, however, boast a highly productive and adaptable workforce.

Economic Freedom: The Philippines’ economic freedom score is 58.2, making its economy the 97th freest in the 2013 Index of Economic Freedom. The Philippines ranks 17th out of 41 countries in the Asia”Pacific region, and its overall score is slightly below the world average.

Market Access: Due in part to its membership in ASEAN (Association of South-East Asian Nations), the relatively closed economy of the Philippines has opened up considerably during these last two decades. Trade represents almost 70% of the country’s GDP. Imports generally enjoy a liberalized regime; however, certain products are regulated and sometimes forbidden in accordance with current laws. These include laws designed to protect the development of local industry. Enterprises located in export processing zones, free trade zones, and certain industrial estates enjoy preferential tax treatment and are allowed to import capital equipment and raw material free from customs duties, taxes, and other import restrictions.

Regulatory System: Philippine national agencies are required by law to develop regulations via a public consultation process, often involving public hearings. In most cases, this ensures some transparency in the rule making process. New regulations must be published in national newspapers of general circulation or in the government’s official gazette before taking effect. On the enforcement side, however, regulatory action is often weak, inconsistent, and unpredictable.

Physical Property Rights: Philippine law recognizes the private right to acquire and dispose of property or business interests, subject to foreign nationality caps specified in the Philippine Constitution and other laws.

Intellectual Property Rights: Of particular concern is the challenge of intellectual property rights protection, for which the Philippines is listed on United States Trade Representative (USTR) Special 301 Watch List. U.S. distributors continue to report high levels of pirated software, music, movies, and computer games. Trademark infringement of a variety of product lines is also widespread, with counterfeit merchandise openly available in all major cities. The Intellectual Property  (IP) Code provides the legal framework for intellectual property rights protection in the Philippines. Investor concerns include deficiencies in the IP Code and other IP laws that have unclear provisions relating to the rights of copyright owners over broadcast, rebroadcast, cable re-transmission, or satellite re-transmission of their works, and burdensome restrictions affecting contracts to license software and other technology.

Exchange Control: The Philippine central bank announced in April of 2013 the “6th wave of foreign-exchange liberalization“. These are the latest changes to its rules on foreign currency transactions designed to allow easier access to foreign exchange, boost demand for dollars, spur capital outflows and slow peso appreciation.

Corruption: Corruption is a pervasive and longstanding problem in the Philippines. The “2012-2016 Good Governance and Anti-Corruption Cluster Plan” identifies specific measures to curb corruption through greater transparency and accountability in government transactions. Although efforts to reign in corruption have improved public perception, achieving successful prosecutions remains a serious challenge to the current administration.

Political Violence: Terrorist groups and criminal gangs operate in some regions of the country. Arbitrary, unlawful, and extrajudicial killings by national, provincial, and local governments continue to be serious problems. The justice system is constrained by limited resources and staffing that result in limited investigations, few prosecutions, and lengthy trials. Terrorist groups, including the Abu Sayaaf Group and Jema’ah Islamiyah, periodically attack civilian targets in Mindanao, kidnap civilians for ransom, and engage in armed skirmishes with the security forces.

For more detailed information on these topics, visit the 2019 Investment Climate Statement – Philippines, U.S. Department of State.

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Business Protocol in the Philippines

• Appearances matter and visitors should dress well. However, keep in mind that the Philippines has a tropical climate. The best choices are dress shirts and ties for men and conservative, lightweight dresses for women.
• Mid-morning and late afternoon are the best times to schedule meetings. Confirm them in advance, and be punctual.
• Send an agenda and informational materials in advance of the meeting so your colleagues may prepare for the discussion.
• Filipinos are status conscious; therefore use formal titles as a means of showing respect. People without a professional title should be addressed with courtesy titles such as “Mr.”, “Mrs.”, or “Miss”, followed by their surname.
• Always accept any offer of food or drink. If you turn down offers of hospitality, your colleagues lose face. Likewise, it is important to remain for the period of social conversation at the end of the meeting.
• Decisions are made at the top of the company. You may never actually meet with the decision maker or it may take several visits to do so.
• Filipinos avoid confrontation if at all possible. It is difficult for them to say ‘no’ and their ‘yes’ may merely mean ‘perhaps’. At each stage of the negotiation, try to get agreements in writing to avoid confusion or misinterpretation.

Other Sources of  information on doing business in the Philippines

American Association of the Philippines Inc.

American Chamber of Commerce of the Philippines

Doing Business: Philippines, World Bank (2019)

Embassy of the Philippines, Washington, DC

Embassy of the United States, Manila, Philippines

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This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including the Philippines. For further information, contact [email protected].

This report represents a compilation of information from various reputable sources.

Comparative Economic Indicators: CIA World Factbook

Risk Assessment information: Coface Country Rating and Credendo

Exchange Rates: OANDA.com The Currency Site.