Our comprehensive assessment of the Philippines's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect the Philippines, as well as the latest industry developments that could impact the Philippines's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in the Philippines before your competitors.

Country Risk

Philippines Country Risk

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Core Views

•  We continue to hold a positive outlook for the Philippine economy, and are forecasting for real GDP growth to come in at 6.3% in 2014. However, tighter monetary policy in 2015 is likely to cause real GDP growth to ease to 6.0%.

•We continue to see the Bangko Sentral ng Pilipinas raise its benchmark interest rate by another 50 basis points to 4.50% in 2015, owing to continued price pressures emanating from a potential electricity shortage in Luzon and likely interest rate normalisation in the US in the coming year.

•Ongoing fiscal consolidation efforts by the Philippine government will ensure a sustainable budgetary trajectory over the coming years. We forecast for the country's budget deficit to narrow to 0.8% of GDP in 2014 and 0.6% in 2015, from 1.4% in 2013. However, the lacklustre fiscal spending will...

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Philippines Operational Risk Coverage (9)

Philippines Operational Risk

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The Philippines' geographic location, large labour market size and strong trade connectivity should mark it out as one of the most attractive investment destinations regionally and worldwide. However, a number of key risks limit the market's overall appeal, not least the threat of terrorism along with other security concerns. Furthermore, bureaucratic corruption remains a major issue, with inefficient transport networks and high labour costs meaning that the Philippines is often overlooked in favour of other markets in the region.

Within the wider global context, the Philippines ranks 101st out of 170 markets for its Operational Risk score of 43.1 out of 100, putting in the bottom half of the index. It sits just behind Azerbaijan and the Dominican Republic and ahead of Belize and Lebanon, indicating a significant underperformance given the Philippines' large market size and strategic geographical location. The Philippines is regarded as being...

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Philippines Crime & Security

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The Philippines poses considerable security threats to international investors, and we hold a generally bearish outlook in regards to criminal, terrorism, and interstate conflict risks.

Petty crimes, particularly those to the person, remain a pertinent issue in the Philippines, affecting both locals and foreign tourists and business travellers. Organised crime is also an issue, with foreign criminal gangs, particularly from China, Hong Kong, and Taiwan, operating in the country. As with most countries of the world, but especially emerging markets, official crime statistics understate the true level of crime. The Philippine National Police (PNP) is limited in its capacity to respond and assist victims of crime due to a lack of response vehicles, radios, and other essential equipment. Moreover, corruption is a major problem in the Philippines. According to Transparency International's Global Corruption Index, 69% of Filipinos consider the...

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Philippines Labour Market

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The Philippines is a country with huge potential to be one of the premier destinations as a market for labour, with a large population and growing pool of educated workers. However, it frequently underperforms the rest of the Asia region across a number of indicators in our Labour Market Risk Index, with competitive labour market countries such as India able to undercut its low minimum wages to attract investors. Overall the Philippines scores a total Labour Market Risk ranking of 47.2 out of 100 in our Labour Market Risk Index.

One area in which The Philippines looks set to perform well is through its high production of English-speaking, science, engineering and ICT graduates, which has resulted in an a boom in companies looking to outsource work to the Philippines, preferring the accent of Filipino-English speakers to that of the Indian accent. Unemployment and underemployment remains high, with a potentially large pool of workers...

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Philippines Logistics

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Two of the worst risks facing incoming businesses are the limited reliability and comparatively high costs for utilities and fuel, and the inadequate and poorly maintained transport networks. However, these risks are mitigated by the comparative ease of trading to and from the Philippines, and the limited costs and bureaucracy which make the country an attractive destination for companies reliant on imports or focused on trade. With an overall score of 55.7 out of 100, placing it in 16th place regionally in our Logistics Risk Index, it is clear that there are a number of detrimental factors increasing the operational risks facing potential investors and businesses considering entering the Philippines.

We believe that with greater reform and investor awareness, the Philippines may fulfil its potential in South East Asia in the near future. Private consumption growth will follow investment growth, resulting in an increase in containerised...

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Philippines Trade & Investment

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BMI believes that there are a number of trade opportunities in the Philippines, but highlight that risks remain fairly pertinent. The country scores 43.7 out of 100 in our Trade And Investment Risk ranking, placing it in 15th position out of its 29 Asian peers. This puts the Philippines just ahead of Vietnam and Kiribati, but behind Fiji and China.

While the Philippines still lags behind its regional peers in terms of foreign direct investment (FDI) inflows, we believe that the country will soon catch up, owing to its strong macroeconomic fundamentals, an ongoing improvement in its business environment, a possible relaxation of its foreign ownership rules which could act as a catalyst, and its increasingly stable political climate.

The country's banking sector outlook is relatively positive, as we expect healthy demand for loans, combined with steady remittance inflows, improving governance, and...

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Philippines Industry Coverage (21)

Agribusiness

Philippines Agribusiness

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BMI View:   We hold a positive view on the Philippines' agribusiness sector in the long term given the potential for expansion of new sectors such as palm oil. Our outlook is especially positive for sugar production, and we also believe the livestock sector will continue to post healthy growth rates. The Philippines' vast consumption market, along with strong government support, will foster domestic and foreign investment and favour output expansion. However, backyard farming and infrastructure problems, especially transport costs, will continue to hamper the sector's growth. This paradox is well illustrated in the island of Mindanao: a recent peace deal between the government and a rebel group could inspire investor confidence, which would help to develop the region's strong agricultural potential. However, lingering issues regarding business environment and security issues in Mindanao will...

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Autos

Philippines Autos

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According to the Chamber of Automotive Manufacturers of the Philippines (CAMPI) and the Truck Manufacturers Association (TMA), vehicle sales in the Philippines rose 19.9% year-on-year (y-o-y) in April 2014, to 18,094 units. This brought sales for the first four months of 2014 to 69,737 units, an increase of 22.1% y-o-y.

While we are maintaining our CV sales forecast for the full year, passenger car sales have been growing from strength to strength, prompting us to upgrade the segment's sales forecast. We now forecast passenger car sales to grow 22.0% versus 13.0% previously, which will revise our 2014 total vehicle sales growth forecast from 11.6% to 14.7%.

April's car sales were helped by the extension of summer promotions by automakers and we expect sales to remain strong over the course of the year, supported by the country's strong economic growth outlook. Our Country Risk team maintains its 2014 real GDP growth...

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Commercial Banking

Philippines Commercial Banking

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...
Commercial Banking Sector Indicators 
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Philippines Consumer Electronics

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BMI View: We upgraded our outlook for consumer electronics sales in the Q4 2014 update, based on strong sales growth as incomes rise and device prices decline amidst intense vendor competition.   We forecas t growth of 10.1 % in 2014 , a slight acceleration from 2013 as the AV segment returns to growth . Consumer electronics spending is expected   to remain strong over the medium term , with government spending providing a stimulus supplementing technology trends such as demand for smartphones and tablets. Given the Philippines' low PC penetration,...

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Defence & Security

Philippines Defence & Security

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BMI View:   While opportunities exist in the Philippines defence market in the short term, opportunities in the medium-to-long term are far from certain. Although the defence spending is increasing, there is a need to place it within a regional perspective. We think that the risk of Philippine involvement in an interstate conflict has increased slightly over the last quarter. Also, the scaling back of US support for the Philippines counter-terrorism program may not bode well in the long term.

Relations with China further deteriorated following the Philippines sentencing of 12 Chinese fisherman arrested for illegal fishing in non-disputed waters. Another trial of Chinese fishermen for supposed activity near the disputed Spratly Islands risks aggravating further tensions between the two countries.  BMI thinks that these incidents demonstrate the...

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Food & Drink

Philippines Food & Drink

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Executive Summary

BMI View : While the Philippines' economy continues to expand at a healthy rate and despite its expanding base of young consumers, we believe that the country offers limited potential in its grocery and food and drink markets. Multinational investment has been slow to penetrate the market, which in itself continues to present numerous challenges to players in the sectors. Issues such as widespread poverty, highly uneven income distribution, under - developed mass grocery retail networks and high levels of unemployment will continue to weigh on the consumer outlook.

Headline Industry Data (local currency)

? 2014 per capita food consumption = +5.98%; compound annual growth rate (CAGR) forecast 2014 to 2017 = +4.54%

...

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Freight Transport

Philippines Freight Transport

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The Philippines' decision to seek international arbitration in its maritime dispute with China will raise tensions between the two countries, and could accelerate US efforts to 'pivot' towards Asia. The dispute also increases the risk of Beijing imposing economic sanctions on the Philippines, which would pose downside risks for our 6.3% real GDP growth forecast in 2014. We continue to hold a positive outlook for the economy, and maintain our forecast for real GDP growth of 6.3% in 2014, as investment is likely to pick up and the export sector should see a modest rebound this year.

The freight mix in the Philippines is anticipated to register relatively healthy growth over the short and medium term. Air freight's annual growth is set to rise in 2014 from last year (5.58% year-on-year (y-o-y) compared to 2013's 4.34%). Meanwhile, the Port of Cebu is pencilled in to see higher y-o-y tonnage growth in 2014 than its regional peer the Port of MICT...

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Information Technology

Philippines Information Technology

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BMI View: W e have a bullish outlook for the development of the   Philippines ' IT market , which we believe   will be a regional outperformer over the medium term . L ow penetration of products and services has left an opportunity for vendors to target the market as incomes rise and device prices decline , creating a fertile environment for a period of robust catch-up growth . Meanwhile, the booming business process outsourcing ( BPO...

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Infrastructure

Philippines Infrastructure

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BMI View:   We still expect construction and infrastructure growth in the Philippines to be relatively robust over 2014 , despite a slow Q114. S ome of the conditions that currently support construction and infrastructure activity may not last, which will result in a slowdown for both sectors over the medium term.   Rising interest rates are the main   short ar-term concern, while the major long-term threat to the sector remains the poor outlook for execution risks in the country, which is underscored by ongoing difficulties with the government's highly touted Public-Private Partnership Programme.

Key Trends And...

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Insurance

Philippines Insurance

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BMI View: Philippines life insurance will remain among the fastest growing in the region, expanding by 16% in 2014 and 22% in 2015 to USD5.6bn. Growth of 11% of non-life premiums in 2015 masks the fact that, at just USD1.6bn, the market is underperforming. Non-life insurance density will only reach USD15.5 in 2015.

Life segment growth of 42% in 2013 was far below the initial estimates prompted by over-zealous reports for the first three quarters of the year. However, it remains a promising growth market and is the fastest growing in the South East Asian region (excluding the newly-formed Cambodian life market). 2014 and 2015 will see slower expansion than recent years, but growth of over 15% will remain through to 2020 and beyond. Despite these positives, the market remains small, reaching just USD5.6bn in 2015, only USD55 per capita.

Non-life growth will suffer in 2014...

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Medical Devices

Philippines Medical Devices

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Espicom Industry View:   An above average market growth rate of 9 .7% is projected for the Philippine medical device market and much of this demand will continue to be met by imports. Demand continues to vary by region, with the capital and surrounding areas continuin g to provide the best prospects for growth.

Headline Industry Forecasts

  • The Philippines medical device market is expected to grow at a solid 9.7% in the medium term. This growth will be spearheaded by the growth of imports, health expenditure, the private sector and medical tourism.

  • In US dollar terms, annual imports grew by 7.1% to reach US$243.9mn in 2013. Imports grew every year during the 2009-2013 period, with growth...

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Mining

Philippines Mining

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BMI View : The looming exit of Glencore Xstrata's stake in the US$5.9bn Tampakan copper-gold project reinforces our conviction that mining investment in the Philippines will become less attractive amidst the downturn in commodity prices over the coming years. Despite rice mineral deposits in the country , resource nationalism will remain an issue a s the Philippine government looks to implement more onerous regulatory reforms in the mining s pace.

We believe the retreat of commodity prices and...

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Oil & Gas

Philippines Oil & Gas

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BMI View:   The Philippines will likely remain a small producer of both oil and gas over our forecast period. Faster consumption growth than output increases will see the Philippines remain a net importer of crude oil and oil products, as well as join ing the ranks of gas importers in the world.    

The main trends and developments we highlight for the Philippines' oil and gas sector are:

  • We forecast relatively stagnant growth in the Philippines' oil and gas reserves, owing to the limited number of discoveries made.

  • Crude oil production may increase between 2014 and 2018 thanks to new projects coming online, but without further discoveries this could again fall from 2018.

  • ...

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Petrochemicals

Philippines Petrochemicals

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The Philippines' first cracker has witnessed a difficult start to operations with a temporary halt in mid-June 2014 when the facility broke down leading to a big fire, but BMI's latest Philippines Petrochemicals Report expects the facility to ramp up operations in H214 and facilitate strong polymers output growth in coming months.

The company was on the third phase of its plant commissioning when the accident occurred. The cracker restarted in early August 2014 and ordered 30,000 tonnes of naphtha for operations in September 2014 as it ramped up production. The mechanical set-back is not unusual when bringing cracker units into production.

In H114, the Philippines' value of production index (VaPI) for basic chemicals and industrial gases declined 13.5% year-on-year (y-o-y) following growth of just 0.8% in 2013. The VaPI for plastic also fell 0.9%, a decline that was largely ameliorated by a...

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Pharmaceuticals & Healthcare

Philippines Pharmaceuticals & Healthcare

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BMI View:  The Philippine government's aim to lower pharmaceutical expenditure through medicine price cuts, parallel imports and the use of generic drugs will continue to hinder multinational pharmaceutical firms' investment and interest in the country's pharmaceutical market. Nevertheless, the government's intention to improve healthcare through the implementation of a universal healthcare scheme will continue to present significant revenue-generating opportunities for firms over the long term. 

Headline Expenditure Projections

  • Pharmaceuticals: PHP140.20bn (USD3.25bn) in 2013, rising to PHP145.05bn (USD3.30bn) in 2014; +3.5% in local currency terms and +1.6% in US dollar terms.

  • Healthcare: PHP545.09bn (USD12.62bn) in 2013, rising to PHP613.05bn (...

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Power

Philippines Power

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BMI View: We expect to see robust growth in the power sector in the Philippines, with total generation expected to expand by an average by 4.3% during out ten-year forecast period until 2023. With recovery from the 2013 typhoon gathering pace, good domestic economic growth and a range of new projects being announced, overall the future is looking positive for the Philippines power market.

The Philippines was struck by Typhoon Haiyan in November 2013, which caused widespread devastation, affecting 10% of the population and causing at least 10,000 deaths. A substantial portion of the country's infrastructure was affected, including power transmission and distribution networks. Geothermal and other power plants were also affected,...

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Real Estate

Philippines Real Estate

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BMI View: The Philippines ' comm ercial real estate sector is well plac ed for long-term growth, with demand driven by a rapidly-expanding services sector and a growing and increasingly mobile population.

While less developed than other property markets in South East Asia, the Philippines' commercial real estate sector is enjoying a sustained period of expansion, with a number of factors helping the sector to close the gap on more mature markets in the region. These trends include high levels of growth across the Philippine economy. In particular, we note the rapid expansion of the services sector as the country establishes itself as a leading base for business process outsourcing (BPO). Industry association IBPAP is forecasting that the industry will make...

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Renewables

Philippines Renewables

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BMI View : The Philippines faces a potential short fall in energy supply in 2015, with growth in demand outstripping the growth in supply . With the threat of rolling blackouts looming , t he government is keen to develop energy independence and reduce the country's reli ance on expensive imports; as such the renewables sector presents an increasingly positive potential investment environment and we expect to see a range of projects in development over the next few years .

In late 2013 and early 2014, the energy sector was largely consumed with recovery efforts following the widespread damage caused by typhoon...

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Retail

Philippines Retail

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BMI View:   An expanding population with increasing levels of disposable income should result in a strong rise in household spending across all retail subsectors in the Philippines over the next few years. We are particularly positive about the future growth prospects for communications, health and transport, with spending on restaurants & hotels and furnishing & home also set to rise. However, we expect the highest proportion of the household budget to be spent on food and drink s throughout our forecast period, with personal, insurance & other spending also taking a substantial share.

The Philippines retail report provides an extensive and comprehensive forecast of various retail indicators including household spending and headline total spending across each retail subsector, household income and employment...

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Shipping

Philippines Shipping

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Manila International Container Terminal (MICT), the country's top container facility in terms of container throughput, is set to continue holding this position in Philippines' maritime sector in 2014, with BMI forecasting further steady growth.

The port of Cebu, one of the country's largest facilities in terms of total throughput is also expected to post another increase in its freight volumes.

Over the medium term, growth will continue at both the MICT and the port of Cebu.

Headline Industry Data

  • 2014 port of Cebu tonnage throughput forecast to grow 5%, over the medium term we project a 22% increase.

  • 2014 MICT container throughput forecast to grow 4%, over the medium term we project an 18% increase.

  • 2014 total trade growth forecast at 5.3%.

    ...

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Telecommunications

Philippines Telecommunications

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BMI View :   The Philippines telecoms market is largely a two-horse race dominated by incumbent Philippine Long Distance Telephone (PLDT) - which owns 63.4% subscription share - and Globe Telecom - with 36.6% share of the mobile market in Q114. A new entrant - media conglomerate ABS-CBN Corporation -launched its MVNO service under the ABS-CBNmobile brand in December 2013 using the network infrastructure of Globe Telecom. Despite the new competition, BMI believes market dynamics is likely to remain in favour of PLDT and Globe Telecom given their strong brand and unassailable scale, which make it hard for new entrants to compete effectively.

Key Data:

  • Strong mobile subscription growth continued in Q114, reaching a subscription base of 111.2mn...

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