Doing business in the Philippines - Bucking the global slowdown, building for the future April 2019 - Deloitte
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Doing business in the Philippines Bucking the global slowdown, building for the future April 2019
Foreword
I would like to laud the efforts of Navarro Amper & Co.—one of
the leading professional services firms in the country and a part of
Deloitte's global network—for creating this investment guide to show
investors that now is the best time to partner with the Philippines.
The Philippines is on an economic breakout: it is the second fastest
growing economy in Southeast Asia, with a GDP growth of 6.2 percent
in 2018. The economy is projected to grow by 7 to 8 percent in the
medium term. The main drivers for this growth are manufacturing and
construction due to the influx of foreign investments in the country,
and the government’s massive Build, Build, Build infrastructure
program.
Our Board of Investments (BOI) has registered record-breaking
investment approvals for the past two consecutive years. In fact,
the BOI approved Php915 billion worth of investments in 2018, with
many of these in Mindanao, CALABARZON, and Central Luzon. These
investments are set to bring more decent jobs and employment
Ramon M. Lopez for Filipinos throughout the country. To ensure that these regions
DTI Secretary
become more accessible, the government is pushing its centerpiece
infrastructure program to build more roads, ports, airports, and other
structures to better link our country.
The Duterte administration also put forward several legislative reforms
including the Ease of Doing Business Law, the Rice Tarrification Law,
the revision of the Corporation Code, and the proposed TRABAHO
The Philippines: An overview 06 Bill. Likewise, the Department of Trade and Industry (DTI) is lobbying
for more reforms to improve the Public Service Act, the Retail Trade
Economic overview 08 Liberalization Act, and the Foreign Investment Negative List.
Sector in focus: E-commerce 22 With the collaboration of the private sector, your government is
Mergers & Acquisitions 30 determined to make the Philippines more competitive and more
conducive to business. That's why on behalf of the DTI, I wish to thank
Foreign investment 38 Navarro Amper & Co. for helping attract more investments in the
country and doing its part in creating inclusive growth and shared
Public-Private Partnerships 44 prosperity for all our countrymen.
Taxation 47
Mabuhay!
About Deloitte Philippines 50
Preface
In recent years, the Philippines has been one of the better
performers in the Asian region and, while we experienced a bump
in 2018 due to inflation, forecasts remain positive on the back of
strong macroeconomic fundamentals. In fact, the Philippines is
expected to be the second fastest growing emerging market in the
world in the next 10 years.
The country, nonetheless, is not resting on its laurels. The
government, in partnership with the private sector, has embarked
on a massive infrastructure program that will serve as the backbone
of further growth. Legislative efforts to improve the ease of doing
business in the country, to further liberalize foreign participation,
to rationalize the tax structure, and to improve competition are in
place. The Revised Corporation Code of the Philippines, for one,
revamped the decades-old Corporation Code, making way for the
existence of the one-person corporation, shifting to perpetual
corporate term, and removing the subscribed and paid-up capital
requirement. This new law has made it relatively simple to set up a
legal entity in the Philippines.
There is also much anticipation surrounding efforts to improve
the country’s internet and digital infrastructure, with a new telco
player coming in to break the current duopoly in the market. This
will further boost the incredible growth of the e-commerce sector,
which in turn has fueled the expansion of related industries such as
mobile payments and logistics.
We expect these welcome developments to make the Philippine
M&A environment a more vibrant space, especially in the
technology, consumer, financial services, and life sciences sectors.
I am proud to present our Doing Business in the Philippines 2019
edition, where we focus on why now is the best time to invest in the
Philippines. This is Deloitte Philippines’ way of making an impact that
matters to our clients, to society, and to our people.
Eric Landicho
Country Managing Partner & CEO
Manila
The Philippines:
An overview
Republic of the Philippines
an archipelago with over 7,000 islands
and a land area that spans 300,000
square kilometers
Currency Philippine Peso (US$1=Php52.66, 2018 average)
Language Filipino, English, many local dialects/languages
Religion Roman Catholic: 80.6%
Islam: 5.6%
Evangelicals: 2.7%
Iglesia Ni Cristo: 2.4%
Others: 8.7%
Real GDP per capita Labor force Bank lending rate Major exports (2018)
(2018) (2018 average)
43.5 million Semiconductors,
Php86,334 6.1% electronic data
processing, metal
components, control
Inflation rate Working age population Time deposit rate instrumentation
(2018 average) (61-90 days, 2018 average)
66.4 million
5.2% 3.1% Major imports (2018) Population Politics Real GDP
Unemployment rate (2018) Form of government: (2018)
Electronic products,
(as of 2018)
106.6
Unitary Presidential
mineral fuels, Constitutional Republic Php9.2T
million
transport equipment,
5.3% President: (US$174,760M)
machinery and Rodrigo Roa Duterte
mechanical (June 2016 - June 2022)
appliances
Presidential term length:
6.2%
6 years growth rate
06 07
Doing business in the Philippines | Economic overview
01 The global economy is projected to slow down in 2019, but optimism
regarding the Philippines’ ability to buck this trend remains high. The country
continues to be an attractive investment option amidst an uncertain global
environment and other external headwinds due to its strong growth,
increased competitiveness, and commitment to inclusive reforms.
Economic overview
The Philippine economy is still one of the region’s faster
growth performers, with real Gross Domestic Product World Economic Forum's
56th out of 140
(GDP) growing by 6.2 percent in 2018, albeit slower than Global Competitiveness economies
the 6.7 percent growth in 2017 due to the dampening Index (2018)
impact of inflationary pressures on consumer spending.
This growth performance translates to a 4.5 percent
increase in per capita GDP to Php86,334 (c. US$1,639).
Aligned with the country’s back of higher excise taxes, food Investment grade credit ratings (2018)
development objectives of supply bottlenecks, global oil price
driving rapid but inclusive hikes, and a weaker peso. But the
economic growth, accelerating Bangko Sentral ng Pilipinas (BSP)
employment on a massive expects inflation to rapidly slow to
scale, and reducing poverty, the 3.0 percent in 2019 and 2020, well On the production side, the
Poor Good Poor Good Poor Good
unemployment rate dropped within the 3 to 4 percent target services sector continues to
to 5.3 percent in 2018 from
the 2017 rate of 5.7 percent.
band, as price pressures continue
to ease.3
contribute the lion’s share of
GDP, accounting for 57.7 percent
BBB Baa2 BBB
Fitch Moody's Standard & Poor's
The poverty incidence among in 2018 in terms of gross value
Filipinos declined to 21.0 percent Fixed investments, which added (GVA). It posted slower
in H1 2018 from 27.6 in H1 accounted for 31.0 percent of growth, however, at 6.6 percent
2015,1 while the Gini coefficient, GDP, registered the highest compared to the previous year’s
a statistical measure of income growth in 2018 at 13.9 percent 6.8 percent due to the slowdown Historical real GDP growth4
inequality, improved to 40.1 in owing to construction and of the automotive industry— 6.9%
2015 from 42.9 in 2006.2 intellectual property products. arising from the additional excise 6.7%
This partly reflects the increase in taxes imposed on cars and
The Philippines is heavily reliant infrastructure-related activities by fuel—and the real estate sector.
6.1% 6.1% 6.2%
on household consumption, both the private (including build- The industry sector, meanwhile,
which accounted for 68.5 operate-transfer projects) and recorded the fastest growth at
percent of GDP in 2018. Private public sectors over the course of 6.8 percent year-on-year mainly
consumption’s growth slowed the year. Meanwhile, government due to construction’s strong
to 5.6 percent from the previous expenditure increased by 12.8 performance. Improving the
year’s 5.9 percent, however, percent, representing the highest country’s agriculture sector
due to inflation, which surged gain since 2012. remains a challenge.
to 5.2 percent in 2018 on the
08
2014 2015 2016 2017 2018 09
Doing business in the Philippines | Economic overview Doing business in the Philippines | Economic overview
Tailwinds Headwinds
Forecasts
••As with previous elections, the midterm ••The slower global growth, exacerbated
The Philippine economy is poised to grow at a faster elections in May 2019 is expected to drive by the US-China trade war and increasingly
pace in 2019 as inflation cools. The World Bank and the additional public spending and private protectionist stance of trading partners,
consumption that would help accelerate may dampen exports and widen the current
Asian Development Bank expect 2019 real GDP growth
growth for the year. account deficit, although the country’s
of 6.4 percent, while the International Monetary Fund domestic demand-driven economy should
••The 11th Foreign Investment Negative List
pegs it at 6.5 percent. These rates reflect downgraded (FINL) further liberalizes foreign participation
limit the impact. The Economist believes that
growth projections due to the impact of the El Niño the Philippines will not be among the Asian
and encourages investment. Refer to pages
“winners” in the US-China trade war when the
phenomenon on the agricultural sector and the BSP's 40-41 for details of the additional foreign
world supply chain shifts due to the “country’s
ownership allowance.
decision to hike policy rates by 175 basis points in 2018 weak regulatory and business environment”
following surging inflation, capacity constraints, and ••The ambitious infrastructure program of and its underdeveloped digital ecosystem,7
the government has been met with much although there have been reports that
currency pressures. The outlook, however, remains enthusiasm and is expected to reinforce Chinese manufacturing companies are
decidedly positive. the foundation of long-term economic considering the Philippines in order to avoid
development. US tariffs.8
This is due to the country’s sound Oxford Economics, on the other ••Several legislative priorities designed ••While the TRABAHO Bill aims to bolster
macroeconomic fundamentals, hand, expects the Philippines to to encourage a more vibrant business investments in the country by gradually
vibrant labor market and young be the second fastest growing environment are being pushed. Refer to reducing the corporate tax rate, the provisions
population, continued investment emerging market, next only to pages 12-13 for a discussion on some relevant on the rationalization of key tax incentives
in infrastructure, and commitment India, between 2019 and 2028 legislative developments. has created uncertainty among potential
to investment-friendly legislation, with GDP projected to grow by ••The proposed free trade agreement investors. Pledges with the Philippine
including the liberalization of an annual average of 5.3 percent.6 involving the 10 ASEAN member states plus Economic Zone Authority (PEZA), a beneficiary
foreign ownership, tax reforms, Australia, China, India, Japan, South Korea, of current tax incentives, fell 41 percent in
and improving ease of doing and New Zealand, dubbed as the Regional 2018.9
business. Comprehensive Economic Partnership ••Delays in the infrastructure program
(RCEP), which is close to being finalized, is arising from lengthy bureaucratic processes,
Long-term projections are expected to improve the country’s export inefficient procurement, right of way issues,
similarly bullish. The Organization performance and inflow of foreign investments, and coordination failures, coupled with the
for Economic Cooperation and and to reduce commodity prices in the region. legislative bottleneck in passing the 2019
Development (OECD) forecasts ••The commitment to raise corporate governance budget, are preventing the government from
real GDP to grow by 6.6 percent, standards, which is reflected in the signing of ushering in a Golden Age of Infrastructure.
on average, between 2019 the Revised Code of Corporate Governance, ••The administration’s push for a federalist
and 2023. This represents the will promote more transparency to protect the form of government creates worries around
highest growth among the financial backbone of the economy. the local government’s ability to manage fiscal
ASEAN-5 countries, i.e., Indonesia, resources and stanch corruption, especially
••The Philippines is becoming a fintech,
Malaysia, Thailand, Vietnam, and blockchain, and cryptocurrency hub since Congress appears disinclined to pass
the Philippines. OECD expects especially with the grant of accommodating a bill that limits political dynasties. The
overseas remittances and robust policies to foreign cryptocurrency exchanges transitional costs may also pose short-term
public budgetary spending to operating within the Cagayan Economic Zone risks, while the long-term economic impact
primarily buoy the economy.5 Authority (CEZA). is uncertain: international experience of
decentralization is mixed.10
10 11
Doing business in the Philippines | Economic overview Doing business in the Philippines | Economic overview
Significant legislative updates Tax revenue13
Ease of Doing Business Act Comprehensive tax reform program
Signed into law in mid-2018, R.A. No. The Tax Reform for Acceleration and 2016 41.7 13.7%
11032, also known as the Ease of Doing Inclusion (TRAIN) Law is the first package
Business and Efficient Government Service of the comprehensive tax reform program
Delivery Act of 2018 (EODB), hopes to (CTRP) currently being implemented. The
further address bureaucratic red tape by first tranche of the TRAIN Law, which took
2017 44.7 14.2%
improving the efficiency and transparency effect on 1 January 2018, lowered personal
of government procedures at all levels . The income taxes, simplified transfer taxes,
law is an amendment of the Anti-Red Tape expanded the value-added tax base, and
H1
Act of 2007. adjusted/introduced different forms of
2018
24.2 15.2%
excise taxes. Finance Secretary Carlos
Features (non-exhaustive):11 Dominguez III is counting on the TRAIN
Law to ensure a steady revenue flow for Tax revenue (US$ billion) % of GDP
••Standardization of deadlines for
the government’s aggressive infrastructure
government transactions
program, while the lower personal income (Amounts are converted in US$ based on average exchange rates from BSP during the respective
••Streamlining of business application tax is expected to boost consumer periods –Php47.49, Php50.40, and Php52.00 in 2016, 2017, and H1 2018, respectively.)
procedures by requiring a unified spending and spur economic activity.12
business application form, set up of a There are worries, however, regarding the
“one-stop shop” that puts several offices tax law’s contributing impact on price hikes
in one location, and automation of of goods and commodities.
permits and licenses
The proposed second package of the CTRP, Revised Corporation Code Features (non-exhaustive):15 ••Electronic filing of reportorial
••Automatic approval of any business
called by the House of Representatives as The Revised Corporation Code of requirements
application that the agency fails to ••One-person corporations (lifting
the Tax Reform for Attracting Better and the Philippines, which amends the
approve or disapprove within the of the five-person requirement) ••Strengthening of corporate
High-Quality Opportunities (TRABAHO) Bill, country’s 38-year-old Corporation
prescribed processing time governance standards and
Code, aims to create a more ••Removal of the minimum capital
intends to gradually lower the corporate provision of protection for
••Zero-contact policy that prevents business-friendly environment requirement
income tax rate and overhaul fiscal minority stockholders
government officers from interfering with incentives. Refer to Page 47 for the other and improve the ease of doing ••Perpetual existence of
business applications or requests proposed packages of the CTRP. business. The Code is one effort corporations
••Set up of a central business portal to to reverse the Philippines’ slide in
the World Bank’s Doing Business ••Stockholders’ and directors’
receive and capture application data, and remote participation in meetings
establishment of the Philippine Business Report – from a rank of 113 in
2018 to 124 in 2019 among 190 and elections
Databank as a source of information on all
registered businesses in the country economies.14
12 13
Doing business in the Philippines | Economic overview Doing business in the Philippines | Economic overview
Corporate Governance Women in leadership
The Philippine Securities and respondents stated that enhancing The Philippines has made significant Global gender gap
index
1st
Exchange Commission (SEC) released the quality, availability, and timeliness strides in managing cybersecurity
a new Code of Corporate Governance of risk data was a main priority, while risk, primarily due to the passage of
for Publicly-Listed Companies in late 68 percent cited enhancing risk Cybercrime and Data Privacy Laws,
14th 13th
2016, with the intent of raising the information systems and technology as well as the crafting of the National
corporate governance standards infrastructure. This affirms the Cybersecurity Plan 2022, which Educational
of Philippine corporations. As a growing threat of online attacks, outlines appropriate responses to attainment
8th
Economic Political
whole, the Code aims to expand cyber threats, how to secure data,
42nd
and highlights the importance of empowerment
the responsibilities and ensure the digital risk management in corporate and how to educate the public about participation
competence and commitment of the governance. cybersecurity.17 Health and and
board, strengthen safeguards that survival opportunity
protect shareholders, and promote
full disclosure and transparency. World Economic Forum’s Global Gender Gap Report (out of 149 economies)19
The World Economic Forum’s 2018 Global Competitiveness Report
The revised Corporation Code breaks down corporate governance into three aspects:18
will also strengthen and simplify
corporate governance standards The Philippines has long been a Five percent of the companies Expanded Maternity Leave Bill
Strength of auditing and reporting
and provide protection to minority leader in the Asian region when analyzed have women board was signed into law in early
standards
stockholders. Specifically, the code
it comes to gender parity. In chairs, and 2.9 percent have 2019,23 extending the paid
deters corporate abuse and fraud,
43rd
2018, it was among the 10 best women CEOs. maternity leave from 60 days
strengthens the regulatory authority
of the SEC, and encourages the countries to be a woman – the to 105 days, with an option to
inclusion of independent directors in only one from Asia – based on Another Deloitte study22 extend for 30 days without
out of 140 economies
the board. the World Economic Forum’s finds that the presence pay. This allows women the
Global Gender Gap Index. of women in leadership opportunity to care for their
One corporate governance issue positions correlates with families without sacrificing their
that boards across industries have Conflict of interest regulation
While women are fairly higher financial performance, career or present leadership
been grappling with is cybersecurity. represented in managerial better team dynamics, and tracks.
This refers to the practice of
implementing policies and strategies
that defend and protect the integrity
121st positions (e.g., women occupy
30 percent of the top executive
higher productivity. Gender
diversity also leads to improved In the public sector, although the
out of 140 economies Philippines has had two female
and privacy of computers, servers, positions in the Philippine operational performance, better
systems, and data from malicious Stock Exchange’s 200 highest problem solving, and increased heads of state, women remain
attacks. market-capitalized companies, innovation, among others. underrepresented: only 21.5
Shareholder governance usually as treasurers, corporate percent of elective positions that
In a recent Deloitte global survey, 16
secretaries, and finance Several initiatives exist to are currently occupied are held
106th
67 percent of respondents managers20), there is still room strengthen the presence by women. Cabinet posts have
identified cybersecurity as a major for improvement as female of female leadership in the also historically been dominated
factor to consider in the near representation at the C-suite country. In the SEC’s Revised by men. It is an imbalance that
out of 140 economies
future. Meanwhile, 79 percent of
level remains limited. According Code of Corporate Governance, needs to be addressed in order
to a Deloitte report,21 only 10.4 the commission recommends to give women equal voice in
percent of board seats in the establishing a policy on board crafting and deciding on key
Philippines are held by women. diversity that covers gender policies.24
diversity. Furthermore, the
14 15
Doing business in the Philippines | Economic overview Doing business in the Philippines | Economic overview
Build, Build, Build
Infrastructure flagship projects by area27
The Philippine government’s massive US$180-billion Area No. of projects
infrastructure program is expected to alleviate the
Luzon 45
country’s traffic woes, which ratchet up opportunity
losses estimated at US$66.5 million per day by the
Visayas 10
Japan International Cooperation Agency. It is also
set to modernize provincial areas, reduce poverty
Mindanao 17
incidence to 13-15 percent by 2022, and create 1.1
million jobs annually until 2022.
Nationwide 3
The ambitious program includes The ongoing expansion of Clark Total 75
the construction of railways, roads International Airport is expected
and highways, airports, and the to decongest the country’s
country’s first ever subway, as well main international airport and
as energy facilities, water resource turn Central Luzon into a major
projects, irrigation systems, and economic hub. For one, it will
flood control facilities. The plan serve as the gateway to New
has drawn near unanimous Clark City, a 9,450-hectare
praise and support with hopes metropolis that is currently Target infrastructure spending, in percent of GDP28
that it will translate to a stronger under development to be the
development backbone, economic country’s first smart city, a “hub
opportunities, and overall of agro-industrial activities,
competitiveness. home to cutting-edge technology 2022
and logistics companies, and
Of the 75 flagship projects, 44 host to well-equipped backup
government centers and world-
7.3%
are already in implementation
(i.e., budgeting, procurement, class sports facilities.”25
design, and construction) as of
30 November 2018. Some of the Two of the flagship projects have 2021
bigger ticket projects include completed construction, while 6.9%
the US$6.8-billion Metro Manila nine have on-going construction.
Subway (Phase 1), which is set Thirty-one projects are expected
to be completed by 2022, and to be completed in 2022 when the
the Philippine National Railways’ term of President Rodrigo Duterte 6.9%
746.2-km railway system, which ends.26 2020
will run from the north of Manila
(Clark and New Clark City) to the
south (Laguna and Bicol). 6.8%
2019
16 17
Doing business in the Philippines | Economic overview Doing business in the Philippines | Economic overview
New Clark City The comprehensive
master plan was
The Philippines' first smart city rises outside the capital, developed by the Bases
giving shape to the future of urbanization today Conversion and
Development Authority
(BCDA) in partnership
with the Japan Overseas
Infrastructure
Investment Corporation
for Transport and Urban
Development (JOIN), U.S.
engineering design firm
AECOM, and Japanese
engineering firm NIPPON
KOEI.
The National
Multi-Sports
Training Park
will include a
20,000-seating
capacity
Athletics
Stadium, a
2,000-seating
capacity
Aquatics
Stadium, and
an Athletes
Perhaps one of the most to typhoons; and the smart city’s disaster and risk recovery center,
Village that will
ambitious infrastructure projects lowest elevation (58 meters above is expected to be completed by
house
currently in full swing is the sea level) and highest elevation (800 November 2019, in time for the
delegates to
Philippines’ first smart city – New masl) make flooding an unlikely country’s hosting of the 30th
the SEA
Clark City in the Clark Special problem. Southeast Asian (SEA) Games.
Games.
Economic Zone. The green
metropolis will feature, among The smart city is set to offer Other developments in the
others, mixed-use real estate the lowest water and power pipeline for New Clark City are a
developments for housing, distribution rates in the country 288-hectare mixed-use industrial Singapore’s Surbana
a business continuity center through joint venture agreements area for BPOs (business processing Jurong was tapped for
that would also house national with two major consortia. It is outsourcing), KPOs (knowledge development
government agencies and a sports targeting a 10 percent renewable process outsourcing), light management services,
complex, and an agro-industrial energy share after the first year of industries, residential, commercial, including the design of a
park that will provide a platform for commercial operation, increasing and educational spaces, and a framework that
research and development. annually until it achieves its food processing terminal and harmonizes sustainability
renewable energy target of 35 international food market that and smart city concepts.
The location for the 9,450-hectare percent share by 2030. would facilitate the exchange of
city in Central Luzon, some 100 fresh agricultural produce and According to the BCDA,
kilometers north of Metro Manila, Construction of Phase 1A of the processed products within the the scale and planning for
was chosen for its disaster-resilient 200-hectare National Government country and with neighboring New Clark City makes it
features: Unlike the capital, it Administrative Center (NGAC), countries in Asia. comparable to other
does not sit on a fault line; nearby which is designed to serve as the modern cities in Asia, such
mountain ranges serve as barriers government’s continuity hub and as Sejong City in South
Korea, Zhuzhou in China,
and Iskandar in Malaysia.
18 Information and photos appearing in this section are from the Bases Conversion and Development Authority (BCDA). 19Doing business in the Philippines | Economic overview Doing business in the Philippines | Economic overview
Foreign trade with ASEAN36
Year-on-year growth % of global
ASEAN integration
of ASEAN trade trade
9.2
2014 11.0% 19.5%
15.7
The establishment of the Association of Southeast
Asian Nations Economic Community (AEC) was a 8.8
2015 7.4% 20.6%
breakthrough for ASEAN integration. The AEC is 18.0
designed to be a single market and production 8.6
2016 21.7%
base where there is free flow of capital and skills, 22.1
15.0%
and open access to travel, education, healthcare,
9.7
and other social services. 2017 11.2% 20.7%
24.5
A Deloitte study found that biggest market in terms of visitor Another key component of the 5.2
H1
ASEAN has immensely helped arrivals, behind the US and East ASEAN market liberalization is 11.2% 21.5%
2018 13.0
its member states achieve Asia. the ASEAN Single Aviation Market
economic growth and regional (ASAM), which aims to liberalize
stability, with the region posting Negotiations on the RCEP air service (passenger and
an annual growth rate of 5.2 are close to being finalized. cargo), and facilitate trade and Exports to ASEAN (US$ billion) Imports from ASEAN (US$ billion)
percent between 2007 and 2015. Studies indicate that upon investments in the region. This is
Meanwhile, the poverty rate has implementation of the trade particularly important at a time
dropped from 33 percent in 2000 agreement, Philippine exports when e-commerce is expanding
to 15.3 percent in 2015.29 In 2019, to RCEP members and real rapidly. ASAM is expected to Tourism from ASEAN37
the AEC as a whole is expected to household income will rise, while support 2.5 million jobs across
remain resilient to external shocks commodity prices will decline. An ASEAN by 2030, with Indonesia Twenty-six pilot cities have
2014 2015 2016 2017 Jan-Oct 2018
and maintain steady growth, estimated US$2.4 billion worth of and the Philippines benefiting been identified for the
bolstered by growing intra- foreign direct investments (FDI) the most, given the size of their network, including three
regional trade and foreign direct will also funnel into the Philippine domestic market.34 from the Philippines: Manila,
investment linkages. Forecasted market between 2014 and 2023.32 Cebu City, and Davao City. As 481,567 488,346 444,213
461,486 461,698
GDP growth for the region is 5.2 These developments are the various member states
percent for 2019.30 With the establishment of expected to trigger a mass begin implementing their own
the AEC, the ASEAN Banking migration of an estimated 90 city-specific plans for urban
10.1%
The Philippines benefits from Integration Framework was also million people to the region’s development, the ASCN will 9.3% 9.5% 9.0%
the ASEAN integration through launched to make it easier for cities by 2030. To prepare for this complement and harmonize 7.7% 7.4% 7.6%
a variety of factors, including member states to provide cross- influx, the ASEAN Smart Cities these efforts, driving sustainable 5.8%
foreign trade and investments, border banking services, and give Network (ASCN) was launched growth at a regional level. 4.4%
and heightened tourism. In H1 certain qualified banks within at the 32nd ASEAN Summit in
2018, leading exports to ASEAN the region greater market access 2018.35 It will serve as a platform
(4.1)%
were electronic products and and operational flexibility while to facilitate cooperation between
other manufactured goods, promoting intra-regional trade. member states with regard to
while top imports were transport The framework uses reciprocal using technology and digital
equipment, electronic products, agreements among member infrastructure to transform cities
and mineral fuels and lubricants.31 states: so far, the Philippines into smart cities. Year-on-year growth of ASEAN arrivals Arrivals from ASEAN
Meanwhile, ASEAN was the third has signed bilateral agreements
% of global arrivals
with Malaysia, Thailand, and
Indonesia.33
20 21Doing business in the Philippines | Sector in focus: E-commerce
02 Mobile payments
Sector in focus:
The growing demand for financial technology (fintech) has
reshaped the finance industry. In 2018, fintech in the Philippines
had a transaction value estimated at US$5.7 billion and it is
E-commerce pushing boundaries expected to grow at an annual rate of 16.4 percent, settling at
of payment and logistics systems an estimated value of US$10.5 billion by 2022.41
Mobile payment lies at the heart startups in the country include allow individuals to perform
Innovations are disrupting traditional business models of the country’s fintech landscape. Citadax, BuyBitcoin.ph, and mobile fund transfers between
at a faster and larger scale than ever before. In the A report42 indicates that 33 MergeCommit. different banks or other financial
percent of all fintech startups in institutions.
retail sector, perhaps no development has changed the
the Philippines operate under the In its goal to make the country’s
landscape as much as e-commerce. With its promise ‘mobile wallet’ or ‘digital payments’ economy cash-lite by promoting With the immense growth of
of around-the-clock availability, speed of access, and sector. Other dominant sectors in online and mobile financial e-commerce and the enabling
international reach, online shopping has given rise to fintech include alternative finance transactions, the BSP launched initiatives of the BSP—by
firms such as Acudeen, BanKo, two automated clearing houses 2020, it wants 20 percent of all
“Everywhere commerce,” allowing consumers to shop
Cropital, First Circle, and Lendr; under the National Retail Payment transactions to be digital43 —
however, wherever, and whenever they want.38 and blockchain technology and System—i.e., the Philippine digital payment businesses are
cryptocurrency, which are riding Electronic Fund Transfer System set for a good ride. Here are some
on efforts to turn CEZA into an and Operations Network of the major players in the sector.
E-commerce in the Philippines Retail disruptions such as
emerging cryptocurrency hub. (PESONet) and InstaPay—that
is growing exponentially due to e-commerce tilt the power
Blockchain and cryptocurrency
an expanding middle class with balance in favor of consumers,
stronger purchasing power and a but as businesses adjust to keep
young and tech-savvy population. up with the new rules of the
Revenue in 2018, considering game, consumer expectations
only the sale of physical goods only increase, emphasizing the
via a digital channel to a private need for a supply chain that
end user in a B2C transaction, is more efficient, predictable,
amounted to US$840 million. convenient, and secure. Not
Between 2019 and 2023, surprisingly, these expectations
revenue is expected to expand are also transforming the
at a compounded annual growth payment and logistics sectors.
rate (CAGR) of 9.5 percent.39 Top
e-commerce sites in terms of
average search interest on Google
and the number of downloads
on IOS and Google Play include
Lazada (which maintains a
wide lead over its competitors),
Shopee, Zalora, and eBay.40
22 23Doing business in the Philippines | Sector in focus: E-commerce Doing business in the Philippines | Sector in focus: E-commerce
GCash PayMaya Coins.ph GrabPay PesoPay Dragonpay
Launched in 2004 as a regular PayMaya is a mobile wallet and Established in 2014 by Ron Hose, GrabPay is a mobile wallet Owned by AsiaPay, one of the Founded in 2010 by Robertson
remittance service, GCash has payment application that has the Coins.ph operates as a mobile payment solution that is used largest payment service Chiang, Dragonpay can operate
evolved into a complete online distinction of being the first wallet, allowing users to pay hand in hand with Grab, a major providers in Asia, PesoPay acts as a mobile wallet through the
wallet and mobile money service non-financial institution in bills, buy load, and send or transport-hailing service in as a payment gateway that use of prepaid Dragonpay
that allows users to buy load, Southeast Asia to be granted an receive money. Coins.ph is also Southeast Asia. Launched in the allows merchants to receive Credits. However, its main
pay bills, and send money, issuing and acquiring license by the first virtual currency Philippines in 2018, GrabPay can payments from a variety of service is acting as a digital
among other features. Visa. This, along with its provider in the Philippines to be be used for different Grab payment methods, including platform that allows merchants
partnership with Mastercard, licensed by the BSP, and services, such as ride payment, credit cards, debit cards, and to accept payments from
allows users of PayMaya to have possesses a Virtual Currency delivery payment, and mobile wallets. Founded in 2006 customers without using
••Operator: Globe Fintech peer-to-peer fund transfers. It as AsiaPay Philippines and traditional channels, such as
their own virtual Visa or Exchange license. This allows it
Innovations, Inc., also known as can also be used to pay bills and rebranded as PesoPay in 2008, credit cards. Dragonpay is a
Mastercard products. to fulfill a unique niche wherein
Mynt purchase from retail stores. the payment gateway is one of Platinum PayPal Partner, and has
users of Coins.ph can easily
••Owners: Globe Telecom, Ant convert money into the oldest players in the Japan’s biggest online payment
••Operator: PayMaya Philippines,
Financial (affiliate of the Alibaba cryptocurrency, including Bitcoin In 2018, Grab acquired industry.47 gateway, GMO Payment
Inc.
Group), Ayala Corporation and Ethereum. competitor Uber’s ride-sharing Gateway, as its investor through
••Owner: Voyager Innovations, and food delivery operations in PesoPay offers several services, the Global Payment Gateway
••Some brands: GCash
the digital innovations Indonesian multi-service Southeast Asia, with Uber including PayCash, which allows Fund managed by GMO Venture
PowerPay+, GCash Remit
company of major platform Go-Jek recently receiving a 27.5 percent stake in merchants to sell online and Partners, Inc.
Service, GCash American
telecommunications service announced that it will be making Grab in return. The deal receive cash, and eVoucher,
Express Virtual Card, GCash
provider PLDT Inc., with a substantial investment in strengthens GrabPay’s position which enables merchants to Dragonpay has emerged as a
beep Mastercard, GCash-Alipay
investments from KKR, Tencent Coins.ph. In line with this, the in the market, with 20 percent of create, distribute, and track major player in the market, in
QR (a partnership with Alipay,
Holdings Ltd., and International fintech startup will be partnering Grab riders using GrabPay to electronic vouchers. large part due to its partnership
an online payment platform
Finance Corporation with Go-Pay, Go-Jek’s payment pay for the company’s services.45 with several government offices,
also owned by Ant Financial
platform and the leading digital In 2017, Grab also acquired including the National Bureau of
and The Island Group), ••Some brands: PayMaya
payments service provider in Indonesian e-commerce Investigation, the Philippine
GSave (digital savings wallet Business, PayMaya Enterprise,
Indonesia. The two services will platform Kudo and payments Overseas Employment
partnership with CIMB Bank Smart Padala
work together to expand access service PayTren to expand its Administration, and the
Philippines, Inc.)
to cashless transactions and digital payments services in the Intellectual Property Office.
banking services.44 region.46
24 25Doing business in the Philippines | Sector in focus: E-commerce Doing business in the Philippines | Sector in focus: E-commerce
Logistics
The Philippines jumped 11 notches in the World Bank
Logistics Performance Index to land at 60th place out
of 160 countries in 2018, from 71 in 2016. The biennial
report ranks countries based on six key logistics
performance dimensions including efficiency of the
clearance process, quality of trade and transport related
infrastructure, ease of arranging competitively priced
shipments, competence and quality of logistics services,
ability to track and trace consignments, and timeliness of
shipments.
A study48 expects the Philippine SM Investments Corporation
logistics and warehousing (SMIC), the owner of the country’s
market to grow by a CAGR of largest chain of shopping malls
8.8 percent from 2018 to 2023 and the only Philippine company
driven by expanding industrial on Deloitte’s list of 50 fastest
activities, growing e-commerce growing retailers in the world,49 Udenna Corporation is now a Metro Pacific Investments The Ayala Group, meanwhile,
sector, upcoming infrastructure acquired a stake in Negros major player in the logistics space Corporation (MPIC) has also entered the e-commerce
projects including those specific Navigation Company in 2017 for with its major acquisition in 2016 been among the active buyers of business in 2017 by acquiring
to the development of the US$125 million to give it access to of Chelsea Logistics Holdings logistics companies. It invested in Zalora Philippines, one of the
country’s logistics framework, and the latter’s 2GO Group, Inc., which Corporation, a shipping company Ace Logistics Inc., Basic Logistics channels under online fashion
consistent economic growth. provides shipping and logistics engaged in the conveyance/ Corporation, A1Move Logistics, retailer Global Fashion Group,
services in the Philippines and carriage of petroleum products Inc., Philflash Logistics, Inc., and which, in turn, is a brainchild
Of late, several conglomerates abroad. This transaction gives and other liquid cargo. Chelsea BasicLog Trading and Marketing of Rocket Internet. Aside from
have been aggressively acquiring SMIC another growth platform Logistics Holdings Corporation, in Enterprises. These acquisitions its warehouse and delivery
logistics companies in order for its retail business, while turn, made several acquisitions in will create synergy and expand hubs, Zalora Philippines has
to take advantage of the cementing a partnership with 2017 including Trans-Asia Shipping MPIC’s diversified business its own delivery system called
opportunities in the sector. Udenna Corporation, another Lines, Inc. (passengers and cargo portfolio in view of strong Zalora Express, operated via its
major stockholder of Negros within territorial waters and/or in demand in the logistics sector. logistics platform Entrego, which
Navigation Company that has the high seas); Starlite Ferries, Inc. To further its goal of becoming handles about 75 percent of the
recently been in an acquisition (ferry operations); and Worklink a leading player in the space, company’s deliveries and serves
spree to diversify its business. Just Services, Inc. (courier, forwarding, MPIC’s wholly-owned logistics arm 90 cities across the country.50
recently, 2GO Group, Inc. invested trucking, and logistics services). Metropac Movers acquired a 12
in Mober Technology PTE, a start- percent stake in Air21 in August
up that offers an online platform 2018, with the option to raise
for booking delivery vans in the the ownership to as high as 100
Philippines. percent.
26 27Doing business in the Philippines | Sector in focus: E-commerce Doing business in the Philippines | Sector in focus: E-commerce
Delivery services Warehousing or distribution centers
On-demand delivery service is expanding include Grab’s GrabFood, Honestbee, Newly listed real estate company Deloitte55 believes that the warehousing,
in the Philippines as a number of start-up Foodpanda, LalaFood Philippines, Zomato DoubleDragon Properties, Inc. is or more aptly called "distribution centers"
tech companies enter the market, such as (through acquiring Quick Delivery, a capitalizing on the industrial warehouse since they are no longer treated as cost
Transportify, Lalamove, Mober, GoMoto, Philippine-based pioneer in food delivery space leasing sector with its CentralHub centers but rather as strategic facilities
Xend Mobile, and Grab’s GrabExpress. and takeout services), Mangan.ph, brand, which has a pilot development in that provide competitive advantage, can
Delivery Guy, and MetroMart (partners Tarlac and succeeding sites planned in also leverage on Industry 4.0 or, simply
With food being the major retail good in with big supermarkets and convenience Iloilo and Cebu in Central Visayas. The put, the marriage of digital and physical
the Philippines, food-focused delivery stores, such as Robinsons, S&R, and company plans to develop a total of eight systems, to adapt to changing global
applications are also on the rise. Players FamilyMart). sites by 2020 with at least 100,000 square demands. Notable Industry 4.0
meters of leasable warehouse space.53 technologies that may soon make
distribution centers “smart” include:
Meanwhile, the country’s biggest
Ride hailing e-commerce business, Alibaba’s Lazada,
••Vision picking as an extension of voice
is planning to build a bigger facility in
picking via augmented reality
Clark, Pampanga and four more
warehouses in different regions in the ••Adaptive robots and connected
The Philippine ride hailing segment has On 4 February 2019, the House of
country in the next three to five years, automated guided vehicles
been virtually monopolized by Grab after Representatives approved on final
it acquired Uber’s Southeast Asian reading a bill that allows motorcycle taxis with smarter algorithm for process ••Semiautonomous, flexible machines for
operation, a deal that raised red flags and to operate as a commuter vehicle, taking optimization to support its immense value-added services
later prompted competition watchdogs in an initial step to amend the Land growth.
••Fully automated picking and quality
the region to impose fines on these Transportation and Traffic Code, which assurance to adjust to rapid changes in
companies. While the Land limits public utility vehicles to With the occupancy rate of operating
warehousing districts in Metro Manila at demand
Transportation Franchising and four-wheeled vehicles. The same code
Regulatory Board accredited six start-up made headlines in 2018 when it barred an average of 98 percent, a study54 ••Next-generation distribution operation
ride-hailing companies—MiCab, Hirna, Angkas, a motorcycle ride-hailing and believes that further growth in the sector systems
Hype, Owto, GoLag, and ePickMeUp— logistics app, from being used for public will be driven in Northern and Central
••Smart, automated facility management
wresting market share away from the transport. Angkas's petition before the Luzon over the medium term, especially
for greater efficiency
giant is proving to be challenging. Supreme Court for the lifting of the with the ongoing expansion of the Clark
International Airport and the ••Safety enhancements and modularity
temporary restraining order that the high
Indonesia’s Go-Jek has the potential to court issued allowing transport construction of the Subic-Clark cargo
make a dent on Grab’s monopoly, authorities to apprehend riders is still railway.
especially if reports51 of an Ayala pending resolution. The fate of Angkas
Corporation investment materialize. The appears to be hanging in the balance until
ride-hailing service is currently in talks the code is amended.
with relevant Philippine authorities.
The estimated gross revenue of Philippine
ride-hailing businesses was close to
US$500 million in 2018. Long-term
forecasts are similarly optimistic with
projected revenue growing by a CAGR of
25 percent from 2019 to 2023.52
28 29Doing business in the Philippines | Mergers & Acquisitions
03
Top deals based on disclosed deal value Philippine deal trends (2016–2018)*
2018 Based on deal volume Based on deal value (in US$ millions)
§
Announcement date 26 September 87
85
AA Thermal, Inc. (49% 78 5,451
Target company
stake) 10,995
Mergers & Bidder company Aboitiz Power Corporation 1,433
58
Deal value US$579.2 million 50
42 1,122
Acquisitions*
2,416
Announcement date 23 March 528
28
Target company Rustan Supercenters, Inc. 17 18
Robinsons Retail Holdings, 614
Bidder company
Inc. 17 370
Increased cross-border deal-making Deal value US$344.4 million
11 9 1,360
activities (i.e., inbound and outbound
2016 2017 2018
deals) on the back of a vibrant economy 2017
have kept the Philippine M&A space active
in 2018 with 87 announced deals, slightly Announcement date 18 December Total Domestic Inbound Outbound 2016 2017 2018
higher than the 85 deals recorded in 2017. Target company
Masinloc Power Partners §
Based on disclosed deal values in Mergermarket; 46% of the total number of deals in 2018 have undisclosed deal value, 41% in 2017 and 37% in 2016
Co. Ltd.
Disclosed deal values, however, plunged
SMC Global Power Holdings
in 2018 as megadeals slid. Globally, private Bidder company
Corp. Investments in the Philippines based on deal volume (inbound and domestic)
companies have been gaining attention for Deal value US$2,400 million
their value, prompting big corporate buyers 11 2016
22 2017
to focus on small takeovers.56 Announcement date 3 November Financial Services
2018
19
San Miguel Food and
Target company
Beverage, Inc. (71.8% stake) 27
Inbound
Consumer 20
Inbound deals grew year-on-year Bidder company San Miguel Corporation
19
by 55.6 percent in 2018, in terms Deal value US$6,478 million
of deal volume, after a lackluster 7
Technology, 10
growth in 2017. Five of the 28 Media & Telecom
2016 12
inbound transactions involve
private equity buyers and venture Announcement date 4 November 19
Energy, Resources
capitalists, which are expected to 20
GNPower Mariveles Coal & Industrials
be highly active across Asia given 11
Plant Ltd. Co. (66.1% stake);
the strong consumer spending in Target company
GNPower Dinginin Ltd Co. 2
the region matched by their high (40% stake) Life Sciences & 2
level of unallocated capital or dry Health Care
Bidder company Aboitiz Power Corporation 7
powder.57 Globally, corporates
also reported increased cash Deal value US$1,200 million 1
Government &
reserves and intentions to use the Public Services 2
2
cash in M&A deals.58
Announcement date 30 May
Total 67
Target company Vega Telecom, Inc.
investments 76
Globe Telecom, Inc.; PLDT, 70
*Based on announced deals in Mergermarket excluding lapsed bids, and including Bidder company
minority stake deals and deals below US$5 million, as of 15 February 2019 Inc.
Deal value US$1,484 million
30 31Doing business in the Philippines | Mergers & Acquisitions Doing business in the Philippines | Mergers & Acquisitions
Top 5 bidder geography based on deal volume It is not surprising that the & Co. L.P., and Tencent Holdings Ltd.
(2018, inbound and domestic) Technology, Media and for US$175 million; the acquisition
Telecommunications sector of consumer financial website C88
42
is one of the most active Financial Technologies Pte Ltd., which
deals for inbound investments as also owns eCompareMo.com, by a
e-commerce gains traction in the group of private equity and strategic
Philippines
5 deals country. Related deals include investors; and the acquisition of web
4 deals Japan
the minority stake acquisition of and app-based restaurant and travel
digital payments, digital finance discovery Looloo by London-listed
Hong Kong and marketing technologies BigDish Plc.
developer Voyager Innovations
3 deals 3 deals Inc. by Kohlberg Kravis Roberts
USA Singapore
There is also increased the list of the most number of
investment in the Consumer acquisitions in the Philippines
space with the acquisitions of in 2018. Deals in the sector
two automotive companies - also include the acquisition of
Mitsubishi Motors Philippines an undisclosed stake in Monde
Corporation (49 percent stake) Nissin Corporation by financial
and Toyota Autoparts Philippines investors CVC Capital Partners
Inc. (27 percent stake) by listed Limited and GIC Private Limited,
Japan-based Mitsubishi Motors and the acquisition of Puregold
Corporation and Aisin Seiki Price Club, Inc.’s 70 percent stake
Co., Ltd., respectively. Japan led in PG Lawson Inc. by Lawson, Inc.
In the Life Sciences and Health Intellicare Group and Ondarea,
Care space, four completed Inc., respectively. Germany-based
deals – compared to almost zero Optoflux GmbH, meanwhile,
since 2016 – signal a growing acquired high-precision plastic
interest among foreign investors. optical lenses manufacturer HPOI
Singapore-based Fullerton Corporation, while Singapore’s
Healthcare Corporation Limited Clearbridge Health Limited
and Hong Kong-based Diamond acquired a 65 percent stake in
Leaf Investment Limited have Marzan Health Care, Inc.
acquired the remaining stake in
32 33Doing business in the Philippines | Mergers & Acquisitions Doing business in the Philippines | Mergers & Acquisitions
Philippine competition
environment
Outbound Domestic Poverty reduction in the Philippines crawled to an
Transactions originating from the The Philippine M&A space
average of 0.9 percentage points annually from
Philippines to the rest of the world continues to be dominated by
also increased to 17 deals from domestic investors although 2006 to 2015 despite rapid economic growth. The
nine in 2017, valued at US$1.4 domestic deals are at their lowest World Bank links this dismal performance to the
billion in 2018, with the following in a three-year period, closing at nexus of limited competition in the product market,
significant deals: 42 deals. As in 2017, the Financial
which in turn leads to weak competition in labor
Services sector, which includes
••US$411 million went to New markets and lethargic wage growth.
real estate, remains the most
Zealand with the acquisition of
attractive industry in 2018 in
listed poultry producer Tegel
terms of deal volume, taking 14 of In recent years, the government ••Size of Transaction Test. PCC is rolling out three
Foods Ltd by Bounty Fresh Food
the 42 domestic deals. has taken steps to facilitate The value of the transaction programs60 to reinforce its
Inc.
inclusive growth, including passing (aggregate value of assets in the efforts against cartels and
••The Ayala group completed In terms of disclosed deal value, the Philippine Competition Philippines being acquired or of anticompetitive practices:
a strong year investing in the Energy sector registered the Act (PCA) in 2015, a bill that the acquiring entity and revenue
••A kind of whistleblower program
real estate, and energy and highest contribution at US$630 languished in Congress for 24 generated in the Philippines by
called the Leniency Program,
resources sectors abroad with million, led by the US$579-million years. the acquired assets) exceeds
which incentivizes cooperation
several deals in Southeast mega deal between Aboitiz Php2.2 billion.
from cartel participants who
Asia and the United States, Power Corporation (buyer) and The law established the
possess information necessary
including MCT Bhd, Eastern AC Energy, Inc. (seller) for the Philippines Competition PCC revisits this threshold every
for detection and investigation
Water Resources Development 49 percent stake in AA Thermal, Commission (PCC) as a quasi- year to accommodate inflation
of existing cartels
and Management Public owner and operator of several judicial body authorized to and economic growth.
Company Limited, The Blue coal plants. This deal, which allows review and prohibit mergers ••Rules on Forbearance that
Circle Pte. Ltd., PT. Sarana Tirta both the buyer and the seller to and acquisitions that could To efficiently execute its function will allow PCC to carry out its
Ungaran, Renewable Energy balance their portfolio and energy substantially prevent, restrict, or of competition enforcement, mandate more efficiently by
Test Center, LLC and Merlin Solar source mix, is also the biggest lessen competition in the relevant PCC identified priority sectors allowing an entity or group
Technologies, Inc. Philippine transaction for the year. market. In particular, PCC subjects for competition analysis of entities to be exempted
parties involved in transactions including manufacturing, rice, from certain provisions of
••In keeping with its North
that meet the following threshold pharmaceuticals, air and land the PCA under very specific
American expansion plans,
to compulsory notification:59 transport, logistics, e-commerce, circumstances and stringent
Jollibee Foods Corporation
retail or supermarkets, conditions
acquired stakes in SJBF LLC ••Size of Person Test. The
telecommunications, agricultural ••Rules on Inspection Orders
(owner and operator of franchise aggregate annual gross
credit, poultry and livestock, that will govern PCC’s conduct
restaurant Smashburger) and revenues in, into or from the
baked products, milk products, of “dawn raids” as additional
Frontera Foods, Inc. (operator of Philippines, or value of the
and fertilizers. In 2019, logistics arsenal of investigative tools
Mexican restaurants) in 2018. assets in the Philippines of the
supply chain, corn milling and
ultimate parent entity (UPE) of
trading, refined petroleum PCC is also planning to create
at least one of the acquiring
manufacturing and trading, sugar, a joint task force with other
or acquired entities, including
and pesticides sectors were agencies to investigate recent
that of all entities that the UPE
included. news of bid rigging in the
controls, directly or indirectly,
exceeds Php5.6 billion. government’s Build, Build,
Build program to ensure fair
participation among investors.
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