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BOARD OF INVESTMENTS

PHILIPPINES

2014 INVESTMENT PRIORITIES PLAN

INDUSTRY DEVELOPMENT
FOR INCLUSIVE GROWTH

MISSION
We, the BOI family, are committed to generate local and foreign
invesments and develop globally competitive industries, thus, increasing
employment through the responsible use of the countrys resources,
guided by the principles of private initiative and government cooperation.
In pursuit of these commitments, we bind ourselves to render competent
and efficient service with utmost integrity and professionalism. Ours is a
challenging task, yet with discipline and the guidance of an enlightened
and strong leadership, we shall move forward.

SERVICES

To meet investors diverse requirements, BOI offers specialized services that include:
Supplying knowledge-based market information
Analyzing your business feasibility
Linking you to the services chain
Matching you with foreign and local businesses
Nurturing your expansion and diversification
Profiling industries

CONTENTS
Memorandum Order No. 74 dated 28 October 2014
Message of the President of the Philippines
Foreword: Message of DTI Secretary Gregory L. Domingo

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Executive Summary of the 2014 Investment Priorities Plan

The 2014 Investment Priorities Plan


I. Introduction
The New IPP
II. A New Industrial Policy
Reviving and Transforming Philippine Manufacturing
A. The Manufacturing Resurgence Program
Action Agenda
III. The 2014 IPP: A New Approach
A. Evidence based and Inclusive
B. Objectives and Strategies
C. The Evaluation Process
IV. Preferred Activities of Investments

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Appendices
1 Sectoral Analysis
2 ADBs Top 20 Nearby Products Based on
Sophistication Level and Labor Intensity
3 Output Multipliers, Income Multipliers, Employment
Multipliers, and Production Linkages
4 References
Memorandum Circular no. 2015- 01
General Policies and Specific Guidelines to Implement
the Investment Priorities Plan (ipp) 2014 - 2016
A. Prefatory Statement
B. General Policies
C. Definition of Terms
D. Specific Guidelines
Annex A - List of Less Developed Areas (Ldas)
ANNEX B - Indigenous Raw Material
ANNEX C-1 - Preferred Locations for General Hospitals
(levels 1, 2 and 3)
ANNEX C-2 - Preferred Locations for General Hospitals
Level 3
ANNEX D - Incentives for BOI-Registered Enterprises

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B OA R D O F INV ES TMENTS

MALACAAN PALACE
Manila
BY THE PRESIDENT OF THE PHILIPPINES

MEMORANDUM ORDER NO. 74


APPROVING THE 2014 INVESTMENT PRIORITIES PLAN

Pursuant to Article 29 of the Omnibus Investment Code of 1987, as amended, the attached 2014 Investment
Priorities Plan (IPP) is hereby APPROVED.
Further to the provision of said Article, upon effectivity of the IPP, all government agencies and entities
are enjoined to issue the necessary regulations to ensure the implementation of this IPP in a synchronized and
integrated manner. No government body shall adopt any policy or take any course of action contrary to, or
inconsistent with, this plan.
The Chairman of the Board of Investments shall render an annual report to the President on the
accomplishments and implementation of this plan.
This Order shall take effect fifteen (15) days after its publication in a newspaper of general circulation as
required under Article 31 of the Omnibus Investment Code of 1987.

DONE, in the City of Manila, this 28th day of October, in the year of our Lord, Two Thousand and Fourteen.

By the President:

PAQUITO N. OCHOA, JR.


Executive Secretary

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MALACAAN PALACE
Manila

M essa g e of the P resident of the P hilippines

The past four years have seen the Filipino people come closer to the
fulfilment of our great potential. After decades of being regarded as the Sick
Man of Asia, our country, by following the straight and righteous path, has
transformed itself into one of the fastest growing economies in the world,
expanding at an average rate of 6.3 percent annually from the period of
2010-2013. Achieving this dramatic turnaround, while overcoming a long list
of challenges and enduring a series of disasters and calamities, lends credence
to the resiliency and strength of our people.
This performance has prompted the three major credit ratings agencies, Fitch,
Moodys, and Standard & Poors, to grant the Philippines investment grade
status, a category that proves our capacity to meet our financial obligations,
and would allow us the wherewithal to further pursue our initiatives towards
inclusive growth. This year, Standard & Poors even gave us another ratings
upgrade, from BBB- to BBB with a stable outlook, believing that, in their
own words, ongoing reforms to address shortcomings in structural,
administrative, institutional, and governance areas will endure beyond the
current administration.
In the latest round of international surveys, the World Banks Doing Business
Survey reports that the Philippines jumped 30 places to 108th out of 189
economies. The World Economic Forum has also improved its outlook on the Philippines. Since 2010, we have moved up 26 notches
in the global competitiveness rankings, from 85th to 59th, which puts us squarely on the top third of economies around the globe. The
country has also improved considerably in the Heritage Foundations Index of Economic Freedom, jumping 20 places since 2010.
All these manifest the basic truth that now is the best time to invest in the Philippines. I invite everyone to join the many companies
who are now enjoying the dividends of their confidence in the country. My administration is bent on making the Philippines even more
attractive to investors, which is why we remain committed to fast-tracking reforms, initiatives, and legislation that will facilitate the entry
of new capital, improve business procedures, and enhance investor confidence in the country.
Beyond a mere guide for prospective investors, this Investment Priorities Plan (IPP) is an expression of our vision to create a more
dynamic and progressive Philippines. Centered on the theme Industry Development for Inclusive Growth, this IPP aims to raise
investments in infrastructure, agriculture, education, and health. It likewise aims to create jobs higher up the value chain, enhance the
competitiveness of local industries, and expand our industries capacity to generate opportunities. It also identifies supply gaps in our
economy and the geographical needs of the country to serve as the basis in granting incentives or other forms of support, so we may bring
about growth that is equitable, comprehensive, and inclusive.
This plan is crucial in sustaining the pace of our growth in the coming years, especially as we prepare our industries and our people for our
countrys impending integration into the ASEAN Economic Community by the year 2015. Through this IPP, we will usher in a policy of
participatory development towards the attainment of our shared goals and the collective aspirations of the Filipino people.
The impressive results that we see today are the results of our push towards good governance. Imagine the heights that we can rise to if,
together, we can give the Filipino people the means to maximize their abilities and demonstrate their limitless potential. Join us in reaping
the fruits of our resurgence in the coming years, as we continue our journey on the straight and righteous path towards the fulfilment of
our dreams and the realization of a truly just and prosperous society.

BENIGNO S. AQUINO III


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MANILA
October 2014

FOREWORD
With its strategic shift of strategy towards industry development which it started in January 2012, the DTI-BOI has now taken a
proactive role in steering the countrys industrialization, and thus a revisit of the annually published Investment Priorities Plan (IPP)
became necessary.
This IPP effected major changes from previous IPPs as it takes off from Chapter 3 (Competitive and Innovative Industry and Services
Sectors) of the updated Philippine Development Plan (PDP) 2011-2016, wherein six (6) broad sectors, i.e., agro-industry, manufacturing,
IT-BPM, tourism, logistics and construction are prioritized. This will be a 3-year document that considers the end-of-plan targets of the
PDP subject to an annual review.
With the updated PDP as its foundation, the IPP espousing the new industrial policy now serves both as a developmental tool for
investment decisions of the private sector and a promotional tool for government to encourage first movers in new investment areas and
to provide appropriate responses to the most binding constraints that prevent the entry of investments or industries from moving up the
value chain. The new industrial policy aims to transform and upgrade the manufacturing industry with the long-term vision to develop
globally competitive industries supported by strong forward and backward linkages.
In developing the 2014 List, a decision framework for the prioritization of economic activities was adopted. The framework focused on the
potentials of the sectors to generate employment, move up the value chain, create spillovers and promote competitiveness in the market
as well as closing the supply or value chain gaps as indicated in the sectoral roadmaps and available studies. The most binding constraints
to the growth of the industries were identified and appropriate policy responses were recommended.
The IPP supports the thrust of the current Administration, thus, the theme Industry Development for Inclusive Growth, to emphasize
that the Philippines is focusing on industry resurgence to promote sustainable and comprehensive growth.
In this connection, the 2014 IPP contains the following priority investment areas:
1. Preferred Activities that include 4 broad sectors (manufacturing, agribusiness and fishery, services, and infrastructure and
logistics) and 4 specific activities (energy, housing, hospitals and PPP projects);
2. Export Activities that cover the production and manufacturing of export products, services exports and activities in support of
exporters;
3. Activities with Special Laws that provide for either the mandatory inclusion of the activity in the IPP and/or the grant of
incentives under E.O. 226; and
4. ARMM List, which encompasses priority investment areas that have been determined by the Regional Board of Investments
of the Autonomous Region in Muslim Mindanao (RBOI-ARMM) in accordance with E.O. 458.
This IPP was formulated through a participative, analytical and multi-sectoral process. Four regional consultations were held in Metro
Manila, Cebu, Davao and Baguio City, along with four sectoral (manufacturing, services, infrastructure and power, and agriculture
and fishery) consultations. There were also two inter-agency consultative meetings conducted, peer review sessions with the countrys
leading economists, and on-line consultation to encourage the widest participation possible nationwide.

GREGORY L. DOMINGO

Chairman, Board of Investments


Secretary, Department of Trade and Industry
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EXECUTIVE SUMMARY
2014 Investment Priorities Plan

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E xecutive S ummary

The 2014 Investment Priorities Plan (IPP) was


formulated based on the updated Philippine
Development Plan (PDP) 2011-2016 and the new
Philippine industrial policy. Its main objectives and
strategies are consistent and aligned with the PDPs
primary goal of inclusive growth and its strategies
focusing on promoting investments in physical
infrastructure, transparent and responsive government,
and human development.
The 2014 IPP takes off from Chapter 3 of the PDP,
which envisions globally competitive and innovative
industry and services sectors that contribute
significantly to inclusive growth and employment
generation. The emphasis is on improved business
environment, increased productivity and efficiency,
and enhanced consumer welfare.
The New Industrial Policy
Embedded in the IPP is the new Philippine industrial
policy, which aims primarily to upgrade and transform
the manufacturing industry to create more decent
jobs. This strategic thrust provides the framework for
an investment policy regime that focuses on improving
productivity, developing human resources, and
upgrading technologies.
Emphasis on reviving the manufacturing industry
started in 2012 when the Department of Trade and
Industry (DTI) and the Board of Investments (BOI)
engaged industry associations to craft industry/sectoral
roadmaps, plotting their industrys contribution to
sustain economic growth, among others. To date,
29 roadmaps have been submitted to the DTI-BOI,
including the Manufacturing Industry Roadmap
(MIR) formulated by the Philippine Institute for
Development Studies (PIDS) based mainly on the
roadmaps submitted by various industry associations.
To enable manufacturing firms to upgrade, thrive and
become catalysts and engines for sustained and inclusive
growth, the industrial policy focuses on implementing
vertical (sector or industry specific) measures and
horizontal (cuts across sectors) measures that address
constraints to growth, and on institutionalizing

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coordination mechanisms to ensure effective program


implementation. The long-term vision of the MIR is to
develop a globally competitive manufacturing industry
supported by strong backward and forward linkages
with both domestic and global supply chains.
Resurgence of Manufacturing
Complementing the policy of supporting the
manufacturing industry is the Manufacturing
Resurgence Program (MRP), designed to revitalize the
countrys contracting manufacturing sector. The thrust
is to intensify government intervention in addressing
market failures and cumbersome business procedures.
The MRP is identified by the government as a priority
program under National Budget Memorandum (NBM)
No. 118, and designates the DTI as lead implementing
agency. Other government agencies involved are: the
Departments of Labor and Employment (DOLE),
Science and Technology (DOST), Agriculture
(DA) and Energy (DOE), and DOLEs Technical
Education and Skills Development Authority (DOLETESDA), Commission on Higher Education (CHED),
Philippine Coconut Authority (PCA), National Power
Corporation (NPC) and the National Electrification
Administration (NEA).
Through the implementation of the MIR, the blueprint
of the MRP, manufacturing contribution to the
economy is targeted to account for 30 percent of
total value added and generate 15 percent of total
employment by year 2025.
The New IPP 2014-2016 Process
The new approach of the DTI-BOI in the formulation
of the 2014 IPP adopts an analytical framework and
a more rigorous process of identifying the priority
economic activities to promote. The framework
employs a mechanism for evaluating the potential
contribution of these activities and industries to create
quality jobs, move up the value chain, diversify the
countrys industrial base, generate spillover effects,
and engender a more competitive environment.

From this evaluation, the most challenging issues


preventing the entry of new firms, and of existing firms
from moving up the value chain are likewise identified. The
process evaluates further the most effective government
intervention to address these constraints either through
incentives or other policies and measures, or a combination
of both (the sectoral analysis is found in Appendix 1 of the
IPP).
Strengthening the research process of the 2014 IPP is a
core group of prominent economists that conducted peer
reviews and a series of consultation sessions with the public
and private sectors and civil society. A total of four (4)
sectoral/cluster, two (2) inter-governmental agency, and
four (4) regional sessions were conducted. In addition, the
draft 2014 IPP was posted on the BOI website for more
interactive consultations with the public.
The 2014 IPP
The DTI-BOI pursues a more integrated approach that
embeds the investment strategy into the countrys
industrial policy and development plan. The new
IPP focuses on competitiveness, skills development,
technology upgrading, infrastructure modernization, and
improvements in overall business environment. Together
with the governance reforms and good macroeconomic
performance of the Philippines in more recent years,
this bodes well for attracting investments and achieving
economic transformation.
Success stories from other countries have shown that
having the right fundamentals simultaneous with an
investment incentive program - placed within the context
of national development strategies results in increased
investments. Research findings reveal that investment
incentives are seriously considered in making investment
decisions. In particular, when political and economic
stability, infrastructure, transport costs are equal, taxes
exert significant impact on enterprises.
In implementing the new approach, the DTI-BOI takes
a more proactive role by facilitating and coordinating
government efforts to correct market failures and
encouraging producers to take risks. By creating an
environment conducive for business to flourish and
embarking on initiatives to strengthen industries, the
government can promote the success of domestic firms
in both the local and international markets. A favorable
business environment will unleash the full potentials of our
industries to take advantage of the market opportunities
and become effective engines for sustained and inclusive
growth.
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2014 Investment
Priorities Plan
Industry Development for
Inclusive Growth

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I.

INTRODUCTION

Since the Board of Investments (BOI) was established in


1987 under Executive Order No. 226, the Investment
Priorities Plan (IPP) has been the countrys basic policy
document that enumerated the areas or sectors of the
economy that were deemed priorities of the state for
investments and development. Government agencies
and the private sector referred to the IPP when making
investment decisions as well as promotional activities.
Every year, for the past 27 years, the IPP has been
crafted by the BOI in consultation with government
agencies and the private sector. After enough time is
given to stakeholders to write position papers, the IPP
is then consolidated and finalized. Without fail, the
final form of the IPP was a list of specific economic
activities and general economic categories (mostly, the
latter) declared as priority activities.
Based on this list, fiscal incentives will be granted by the
State for enterprises that venture into these priority
areas, provided they qualify for certain criteria and
fulfill the terms and conditions of their registration.
These incentives would typically include Income
Tax Holiday from 4 years to a maximum of 8 years,
depending on whether the activity is pioneering or not,
provided the registered enterprise meets the targets of
its project. Registered projects also have the privilege
of importing capital goods free of duties. Other forms
of assistance are provided to BOI registered enterprises
to help ease their way into the business environment.
Although the IPP has served as a practical tool for
identifying the States priority areas and economic
activities as well as attract investors through incentives,
there is a need to strengthen the IPP as a tool for
industrial development and economic growth. Hence,
this new approach of the IPP of 2014-2016.
The New IPP
Aligned with the goals, priorities and strategies of
the updated Philippine Development Plan (20112016), the IPP takes off from the six priority areas
of economic activity under the PDP, namely: agroindustry; manufacturing; IT-BPM; logistics; tourism;
and, construction.

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Departing from tradition, the 2014 IPP attempts


to break down these general categories into specific
economic activities that -based on industry studies,
plans and roadmaps - are strategic or critical to complete
or enhance a particular industry or products value
chain. In other words, applying a modified and more
rigorous methodology, the 2014 IPP is more strategic,
targeted and focused. The PDPs strategies, including
investment in physical infrastructure, transparent and
responsive government, and human development, are
also carried over to the new IPP.
Directly relevant to the IPP is Chapter 3 of the
updated PDP, which envisions a globally competitive
and innovative industry and services sector that
contributes significantly to inclusive growth and
employment generation. Three broad themes permeate
this chapter: improving the business environment,
increasing productivity and efficiency, and enhancing
consumer welfare.
Consistent with these goals and themes, the new IPP
applies a framework of analysis that includes a set
of criteria to identify the priority general or broad
economic categories and specific economic activities.
After this filtering stage is a process of understanding
the key or most binding constraints that hamper
growth and prevent more value added production.
From this premise stems the analysis of which among
the States reserve of policy tools and forms of
interventions would be the most effective response to
address these constraints, with fiscal incentives being
one of the interventions.
After conducting a thorough study of the priority
sectors, its subsectors and specific economic activities,
and depending on the availability of quality industry
roadmaps and studies, the 2014 IPP proceeds to
enumerate the activities the government should
incentivize to meet national development goals.
Although the general objective of the new IPP is to
target investment opportunities and needs that would
fill gaps in the supply or value chain, boost sectors with
latent or obvious competitive advantage, and offset
market imperfections, broad economic categories on
the list of investment priority areas/activities will still be
present, nonetheless. It is simply not possible to have
all the data and information needed to arrive at sound
evaluation of each activity in the national economy.

To address the information gap, a few novel features


were crafted for the 2014 IPP. First is the principle
of geographical application which determines the
relevance and impact of an economic activity in
a particular region, province or a cluster of local
government units. For instance, although a cold
storage facility is included in the category of agricultural
services to be incentivized, a project of similar nature
will still go the evaluation process when it materializes.
The BOI will evaluate it through a geographical analysis
to determine if such a facility is lacking in the area
where it is proposed to be constructed.
Second, instead of crafting a new IPP annually,
the 2014 IPP will be a rolling three-year plan to
ensure continuity, consistency and predictability
factors seriously considered by domestic and foreign
investors. In order to improve the BOIs monitoring

and assessment system for a successful execution of


the IPP over a three-year period, the new IPP will be
reviewed annually.
Finally, there will be new mechanisms of coordination
and convergence among relevant government agencies
to ensure the effective and efficient execution of the
2014 IPP, providing venues for enhanced partnership
and cooperation with the private sector.
These unique features and the new approach transform
the 2014 IPP from just a list of economic categories
or specific activities to be incentivized into a policy
instrument that lays down the States industrial policy,
strategies, and the array of tools to be used to achieve
meaningful and inclusive growth for priority industries
identified in the PDP.

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II.

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A N ew I ndustrial P olicy

Reviving and Transforming Philippine


Manufacturing
A long hiatus in Philippine economic policymaking
necessitates the mainstreaming into government
thought and action, a new approach to industrial policy.
In early 2012, the DTI and BOI called on the private
sector to craft industry roadmaps to envision the future
of their industries or sectors; identify short, medium
and long term goals; identify gaps in their supply
chains; and propose recommended policy reforms and
actions to grow their industries.
With DTI-BOI initiating and facilitating the industry
roadmap project, the lead role of the private sector
in crafting their roadmaps is an innovation that
differentiates the new industrial policy from previous
attempts of its kind in the country.
A second distinguishing feature of the new approach
is its sharp focus or heavy emphasis on the countrys
manufacturing sector as a key result area.
The countrys experience over the past two decades
has shown that we cannot leapfrog industrialization
and that relying on the services sector alone will not
bring about sustainable and inclusive growth. A second
leg, the manufacturing sector, is needed to support the
countrys economy.
The historical performance of our manufacturing
sector has, unfortunately, been weak, owing to the
absence of the economys structural transformation
- from one that is agriculture-based to one that is

industry-led. Observers have noted that the countrys


industry sector has been quickly overtaken by services
and that manufacturing has lagged behind those of
other countries in the region.
With the advent of the ASEAN Economic Community
in 2015, it is imperative to revive and transform our
manufacturing industry into a catalyst to address the
challenges and seize the opportunities of an integrated
regional economy. This is the essence and main thrust
of the countrys industrial policy.
This new industrial policy aims to upgrade and transform
the manufacturing industry to one that addresses the
most binding constraints to manufacturing growth,
strengthen industries and improve the business
environment within which they operate.
Formulated within the context of the PDP and the new
industrial policy, the investment strategy focuses on
improving productivity, human resource development,
and technology upgrading.
A. The Manufacturing Resurgence Program
Adopting the policy objective to support the
manufacturing industry, the national government
has allocated Php2.3 billion for the Manufacturing
Resurgence Program to support the implementation
of the Philippine Manufacturing Industry Roadmap
(MIR). As Figure 1 shows, the MIR aims to increase
the contribution of manufacturing from the current
22 percent to 30 percent of total output and from 9
percent to 15 percent of total employment by the year
2025.

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2014-2017

Medium Term

2017-2021

Long Term

2021-2025

Figure 1. MIR Objectives: Industry Roadmap for Structural Transformation,


Job Creation and Poverty Reduction

globally competitive
manufacturing industry with
strong forward & backward
linkages

shift to high value added


activities
investments in upstream or
core sectors
link & integrate industries
within the economy

maintain competitiveness of
comparative advantage
industries
strengthen emerging products
rebuild existing capacity of
industries

Short Term

OBJECTIVE : Industry Roadmap for Structural Transformation, Job Creation and Poverty Reduction
GOAL : A globally competitive manufacturing industry supported by a strong parts and components sector
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TARGETS: Manufacturing contribution of 30% of total value-added and 15% of total employment

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In the short term (2014-2017), it is imperative to


maintain the competitiveness of our industries with
comparative advantage, strengthen emerging products,
and rebuild the capacity of existing industries, especially
those with strong potential to generate employment,
address missing gaps, move up the product ladder and
create linkages and spill-over effects in sectors such as
automotive, electronics, food, garments, motorcycle,
shipbuilding, chemicals, and allied or support industries.
During this stage, the Philippines intends to deepen its
participation in regional and global production networks
of the automotive, electronics and garments industries.
In the medium term (2017-2021), there will be a
shift to activities with higher value added, increase
investments in upstream or core sectors (such as in the
iron and steel and other metals industry, as well as in
parts and components), and link industries within the
national economy.
In the long term (by 2025), a globally competitive
manufacturing industry with strong forward and
backward linkages is envisioned as the Philippines plays
a vital role in the regional and international production
networks of automotive, electronics, garments and
food. Our target is for the country to serve as a hub for
regional and global production networks.
Action Agenda
To achieve these goals the new industrial policy calls
for three basic action items or agenda: 1) proactively
address the most binding constraints to manufacturing
growth; 2) strengthen industries (raising industry
competitiveness); and, 3) improve the business
environment.
These actions or interventions must be aimed towards
the following elements: (a) vertical measures; (b)
horizontal measures; and, (c) coordination mechanisms.
Below is an illustration of these interventions.
a) Vertical Measures. To achieve the specific
objectives outlined in Figure 2, overcome the
most binding constraints to growth, upgrade
industries and make markets work, the
following vertical or industry specific measures
are recommended:
1. Address gaps in industry supply chains;
and,
2. Expand the domestic market base and
utilize it to grow exports.

b) Horizontal Measures. To address the crosscutting constraints, the following horizontal


measures are recommended:
1. HRD and Skills Training programs. Design
human resource development and training
programs to improve skills and form
alliances with universities and training
institutions. With educated and welltrained workers, it will be easier to learn
new skills and enter new trades.
2. MSME Development and Innovation. Support
MSME development through appropriate
innovation incentives and mechanisms
such as common service and R&D facilities,
clustering, and industry-academe linkages
for new product development and applied
technology for indigenous products/
raw materials. Grants, loans, innovation
vouchers, and counterpart funding to
innovative firms and technical assistance to
promote long-term research collaboration
between universities and business are also
important.
3. Investment Promotion. Pursue aggressive
and strategic promotion and marketing
programs to attract more investments
particularly foreign direct investments
to introduce foreign technologies.
Consolidate and intensify the investment
promotion efforts of the BOI, PEZA, Clark
Economic Zone, and Subic Bay Freeport
Zone.
4.
Business
Environment
Improvement.
Improve the business environment by
addressing smuggling, the high cost of
power and domestic shipping (including
port charges), and inadequate transport
infrastructure. Expedite and facilitate
the implementation of Public-Private
Partnership (PPP) programs to finance
ports, airports, highways, electricity
grids, telecommunications and other
infrastructure along with improvements
in institutional effectiveness particularly in
curbing smuggling.

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5. Competitive Exchange Rate. Maintain a


competitive exchange rate to support and
strengthen the new industrial policy of
the government. Manage the exchange
rate in support of exports, prevent the
surge of capital inflows and avoid excessive
appreciation of the peso.
c) Coordination Mechanism. Throughout the
processes of industrial transformation and
industry upgrading, mechanisms are being
established to coordinate policies and necessary
support measures to address obstacles to

the entry and expansion of domestic firms.


Towards this, the Philippine government
revived the Industry Development Council
or the IDC, consisting of representatives
from national government agencies and
stakeholders from the private sector. The
IDCs primary task is to ensure the effective
and efficient implementation of the countrys
Comprehensive National Industrial Strategy.
This strategy will link manufacturing with
agriculture and services; strengthen forward
and backward linkages in the economy; and,
build globally competitive Philippine industries.

Figure 2. Three Elements of the Manufacturing Industry


Upgrading Roadmap

H ORI ZON TA L
MEA SUR ES

HRD & skills training


SME development
Technology upgrading,
innovation, common facilities
Investment promotion
Power, smuggling, logistics &
infrastructure
Competitive exchange rate

30% value added; 15%


employment

V E R TICA L
ME A S UR E S

CO O R D INAT IO N
M EC H A NIS M

open trade regime, sustainable macro policies, sound tax policies &
administration, efficient bureaucracy, secure property rights

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Close supply chain gaps:


- access to raw materials in
furniture, garments, food
processing
- integration mechanism for
copper, iron & steel and
chemicals
Expand domestic market and
exports: automotive and
shipbuilding

III.

THE 2014 IPP: A NEW APPROACH

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A. Evidence based and Inclusive


Crafting the 2014 IPP began in the latter part of 2013
with the traditional inter- agency consultations which
surfaced official views of the different government
agencies. The BOI also collated and analyzed data on
the different sectors of the IPP over the past five years
to evaluate the economic impact of the incentives
provided. Indicators included the actual investments
generated, the jobs created, and government revenues
from the projects. The result of these internal studies
and assessment were later on presented in the cluster
consultations to stimulate discussions and gather
feedback.
An internal team was created to review all government
development plans, industry roadmaps and studies, as
well as relevant empirical work on investment incentives
to ensure alignment and harmonization.
The evaluation process was prepared and subjected
to several peer review sessions with a core group
of the countrys prominent economists. Extensive
consultations were likewise conducted with government
agencies, the private sector and civil society through a
series of consultative workshops in the national capital
and key regional centers in the three main island
groupings of the country. The evaluation process, along
with its annexes such as the roadmaps, was posted in
the BOI website to elicit more feedback and comments
from the public. By far, this method has been the most
inclusive and participatory exercise ever conducted for
the IPP. Shown in Figure 3 is an illustration of the IPP
process.

3. Strengthen participation in global and regional


production networks including the ASEAN
Economic Community.
To attain these objectives, the IPP will employ the
following key strategies:
1. Support activities that generate high
employment, encourage inclusive business
practices and foster stronger intra- and interindustry linkages;
2. Raise productivity by upgrading technology
and developing industry clusters;
3. Identify and develop market niches to enable
participation in the global and regional
production networks.
C. The Evaluation Process
Under Chapter 3 of the PDP, Competitive and
Innovative Industry and Services Sectors the following
areas are identified for promotion in the mediumterm: 1) Agro-industry; 2) Manufacturing; 3) IT-BPM;
Logistics; 4) Tourism; and, 5) Construction.
Focusing on this list, the first step of this process
determines if a particular economic sector or activity
meets certain criteria that are consistent with the IPPs
stated objectives. This set of criteria helps assess the
potential of the industry, sector or activity to generate
the following:

B. Objectives and Strategy

1. Employment contribution. Labor intensity


of an activity measured by its employment
multiplier (see Appendices 2 [A2-2] and 3)
and its contribution to the total employment.

The 2014 IPP reinforces the PDPs focus on inclusive


growth by setting specific objectives meant to optimize
the impact of incentives in attracting investments and
generating employment opportunities. These are:

2. Move up the value chain. Potential to move up


the global value chain and whether the activity
presents a latent comparative advantage (see
Appendix 2).

1. Increase employment opportunities by


revitalizing growth sectors, especially the
manufacturing sector;
2. Promote higher value adding activities and
deeper MSME integration in the supply chains;

3. Create spill-over effects. Impact on output of


other sectors measured by output multiplier
(see Appendix 3).

20

B OA R D O F INV ES TMENTS

Figure 3. Process of Formulating the 2014 IPP

UPDATED PDP 2011-2016

Sectoral Development Plans


Industry Roadmaps

Other Sectoral
Studies and
Researches

On-line Consultation

IPP Framework
and List of
Preferred
Activities

Intra & InterAgency


Consultations

Board
Approval

Peer Review by a Core


Group of Economists

Approval by
the President

Multi-Sectoral
Consultations*

*Regional multi-sectoral consultations in Metro Manila, Cebu, Davao and Baguio City; Sectoral/Cluster
consultations for manufacturing, agriculture/fishery, sevices, and infrastructure/energy.
2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

21

4. Create competition which is important to


ensure that promotion of the activity would
not impair competitive outcomes in both input
and output markets.
Note that the analysis takes the geographic context
into account by defining markets based on products
(good or service being produced) and geographic areas
(location of producers and consumers).
Once the economic sector or activity meets the set
of criteria provided, the next step is to determine if
there are gaps in the industrys supply or value chain
(upstream, midstream or downstream) that prevent
or hinder the industry from growing or moving up the
value chain. The identification of gaps in the industry
supply or value chain guides the government and the
private sector in designing more focused and targeted
interventions.
The third step in the evaluation process is to determine
the obstacles preventing firms from investing in the
potential areas and upgrading the quality of their
products such as barriers or most difficult challenges
that may be discouraging firms from moving up the
value chain. Based on research and the industry
roadmaps, the different constraints are listed below.
1. High production cost, power, logistics
infrastructure
2. Lack of raw materials or suppliers of
intermediate inputs
3. Lack of scale economies
4. High risks for first movers especially for
activities requiring large capital
5. Government regulations: franchises, licenses,
smuggling (due to inefficient regulation)
6. Others: finance access, inability to comply with
international product standards and quality,
lack of R&D, lack of skilled workers, lack of
competition, etc.

22

B OA R D O F INV ES TMENTS

The fourth step is to determine the policy mix that will


help address challenges to the entry of new firms and
move up the value chain and participate in regional
production networks. These are grouped into two broad
categories, namely:
1. Policy reforms, sound and reasonable
regulations, and other non-fiscal interventions,
and
2. Fiscal incentives with other non-fiscal
interventions and support
The policy mix will consist of horizontal and vertical
interventions as well as coordination mechanisms
to allow firms and industries to increase their
competitiveness, latch on to regional production
networks, increase capacity to export and enable
domestic firms (especially MSMEs) to grow and
develop. Figure 4 shows an illustration of the evaluation
process to identify the 2014 IPP list of preferred
activities.
Introducing this new evaluation process brings rigor
to the policymaking process for industry development
and encourage more meaningful collaboration between
the government and the private sector in formulating
and executing sound policies and other interventions
that would develop domestic industries, and prepare
them for regional economic integration.
More important is the way the new approach improves
the IPP formulation process and how the IPP is used
and perceived by the stakeholders and the BOI. From
just a list of economic activities that can be granted
incentives by the BOI as incentives administrator, the
new IPP is a strategic policy pronouncement of the
government, contributing to the national development
goals in the PDP, through a new industrial policy under
the stewardship of the DTI-BOI.

Figure 4. Evaluation Process

FRAMEWORK FOR PRIORITIZATION OF ECONOMIC ACTIVITIES


1. Employment contribution?H, M, L
2. Potential to move up the value chain, Latent comparative advantage? H, M, L
3. Spill over effects and forward & backward linkages? H, M, L
4. Create competitive market? H, M, L

A SUPPLY GAP?
UPSTREAM MIDSTREAM DOWNSTREAM GEOGRAPHIC

MOST BINDING CONTRAINTS


PREVENTING ENTRY AND/OR
MOVING UP VALUE CHAIN

HIGH PRODUCTION
COST
Power
Logistics
Raw Materials
Lack of scale

HIGH RISKS
Huge capital
requirements
New technology

GOVERNMENT
REGULATIONS
Licenses
Smuggling

GOVERNMENT
POLICIES
Tax
Labor
Foreign Equity
Restriction

HOW TO MAINTAIN
COMPETITIVENESS

HUMAN CAPITAL
Skills gap
Labor mismatch

OTHERS
Financing
Competition
Standards, quality, etc.

POLICY RESPONSE

INCENTIVES +

OTHER POLICIES
(WITHOUT INCENTIVES)

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

23

IV.

24

PREFERRED ACTIVITIES OF INVESTMENTS

B OA R D O F INV ES TMENTS

Using the evaluation process discussed in the preceding


section, the BOI reviewed all available national and
sectoral development plans, industry roadmaps,
sectoral studies and researches (see Appendix 4); and
evaluated the comments and inputs from the various
consultations, including a peer review with a core
group of economists. Appendix 1 contains the sectoral
analyses made by the BOI.

d. Chemicals
Oleo-chemicals
Petrochemicals and derivatives
Chlor-Alkali Plants
e. Virgin paper pulp
f. Copper wires and copper wire rods
g. Basic iron and steel products, steel
grinding balls, long steel products
(billets and reinforcing steel bars), and
flat hot/cold-rolled products
h. Tool and Die
Simple, Compound and Progressive
Dies for metal stamping or metal
forging
Molds for die casting, for plastic
injection or blow molding, glass blow
molding, forging, encapsulation
molds
Jigs and fixtures for metal cutting
and metal forging

The following activities comprise the recommended list


of preferred activities for investments under the 2014
Investment Priorities Plan:
I. Preferred List of Activities
1. Manufacturing
a. Motor vehicles1 (excluding motorcycles,
e-bikes and golfcarts) and motor
vehicle parts and components:
Body panel stamping
Engines, transmissions, and transaxle
Large injection moulded parts
Bumpers; instrument panel; door
trims; center console; grill; wheel
house finisher; lamps; shock
absorber; wiper motor/blade; engine
mounts; electric power steering;
combination meter; instrument
cluster; chassis & sub-frame; interior
finishing; switches; seat mechanism;
retractable seat belts; window
regulator; constant velocity joints/
transmission; aluminium radiators;
plastic fuel tanks; fuel pumps;
brake system and components;
evaporators and condensers; relays;
flame laminated automotive fabric;
door & rear view mirrors; automotive
glass; engine parts & assembly; and
transmission parts & assembly
Controller assembly, motor, and
battery (other than lead acid) for
electric vehicle
b. Shipbuilding including parts and
components
c. Aerospace parts and components

Based on Logistics Efficiency Index

2. Agribusiness and Fishery


a. Commercial production2
Coconut, corn, cassava, coffee,
cocoa, fisheries, poultry and livestock;
High value crops - rubber, spices,
vegetables and fruits;
Emerging commodities sampaloc,
jackfruit, peking duck, native pigs,
siling labuyo, peanuts, monggo, and
achuete.
b. Commercial processing2
Extraction of higher value substances
from agricultural and forest-based
raw materials through bioprocessing;
Conversion of agricultural and fishery
products, their by-products and
wastes, to a form ready for further
processing or final consumption.
c. Production of animal and aqua feeds
excluding those for game animals,
fowls and other species for pet/leisure
purposes2
d. Production of fertilizers and pesticides2
e. Modernization of sugar mills
f.
Mechanized
agriculture
support
services2, e.g. harvesting, plowing, and
spraying/dusting

Subject to geographical supply considerations. In the case of poultry and livestock production, this is
limited to areas in ARMM, Mindoro and Palawan.

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

25

g. Agriculture support infrastructures2,


e.g. facilities for drying, cold chain
storage, blast freezing, bulk handling
and storage; packing houses, trading
centers, ice plants in Less Developed
Areas, AAA slaughterhouses, AAA
dressing plants

4.
Economic and Low-cost
(horizontal and vertical)5
5. Hospitals6

6. Energy
a. Exploration and development of
energy sources (including energy crops
or upstream biofuels)
b. Power generation plants7
c. Ancillary services

3. Services
a. Integrated Circuit Design
b. CreativeIndustries/Knowledge-Based
Services3:
Animation
Software development4
Game development
Health Information Management
Systems
c. Ship repair
d. Charging stations for e-vehicles
e. Maintenance, Repair and Overhaul
(MRO) of aircraft
f. Industrial waste treatment

7. Public Infrastructure and Logistics


a. Airports and seaports (includes RORO ports) for cargo and passenger
b. Air, land and water transport (Limited
to brand new ships, aircrafts, seaplanes,
RO-RO; buses, boats, mass rail limited to capital equipment incentive
only)
c. LNG Storage and Regasification
Facility
d. Bulk water treatment and supply

Based on a price ceiling of Php3.0 million and subject to geographical considerations.


Subject to geographical considerations.
7 Subject to capacity installation gap based on DOEs five-year supply-demand forecast or up to
2019, i.e., if forecast is 6000MW, then the first 6000MW capacity receives the incentives, and
said installation gap will be divided among areas in Luzon, Visayas and Mindanao.
5

Covers start-ups of small newly incorporated domestic players/enterprises only.


Covers only those with own Intellectual Property that are developed for commercial sale.

26

B OA R D O F INV ES TMENTS

Housing

8. PPP Projects
II. Export Activities
1. Production and manufacture of export
products
2. Services Exports
3. Activities in support of exporters
III. Special Laws
1. Industrial Tree Plantation (P.D. 705)
2. Mining (R.A. 7942) (limited to capital
equipment incentive)
3. Publication or Printing of Books/Textbooks
(R.A. 8047)
4.
Refining, Storage, Marketing and
Distribution of Petroleum Products (R.A.
8479)
5. Rehabilitation, Self-Development and
Self-Reliance of Persons with Disability
(R.A. 7277)
6. Renewable Energy (R.A. 9513)
7. Tourism (R.A. 9593)
IV. ARMM List
The ARMM List covers priority activities that
have been identified by the Regional Board of
Investments of the ARMM (RBOI-ARMM)

in accordance with E.O. No. 458. The RBOIARMM may also register and administer
incentives to activities in this IPP for project
locating in the ARMM.
A. EXPORT ACTIVITIES
1. Export Trader and Service Exporters
2. Support Activities for Exporters
B. AGRICULTURE, AGRIBUSINESS/
AQUACULTURE & FISHERY

This covers the production of processed


foods (production of Halal meat and
foods), vegetable oils, food crops, integrated
coconut processing and
plantation,
activated carbon, production of beverage
crops and plantation, seaweeds production
and processing, fruit processing, aquaculture
(fish production and processing), young/
sweet corn production, potato and sweet
potato plantation/processing, cutflower
production/processing, abaca plantation/
processing, oil palm plantation/processing/
refining and germinated oil palm seeds,
feeds production, sugarcane plantation/
processing and refineries, quality seeds

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

27

and seedlings of fruit trees and other


planting materials propagated asexually or
by tissue culture, pearl culture/processing,
production of livestock and poultry that
includes processing, crocodile farming and
processing, sericulture, feeds production
and production of plantation crops and
other pharmaceuticals, medical herbs/
essential oil plants, biomass, rubber,
carrageenan, mangosteen and moringa.


C. BASIC INDUSTRIES

This
covers
the
production
of
pharmaceuticals such as antibiotics
and medical devices, textile and textile
products, inorganic and organic fertilizers
using solid waste materials, exploration and
development of natural gas and mineral
resources which includes small scale as
defined under P. D. 1899 (but to exclude
river beds in operations and processing
of minerals such as beneficiation and
other metallurgical methods) and cement

production of at least 1.0 million MTPY


capacity (clinker based).
D. CONSUMER MANUFACTURES

This covers processing of rubber products


to be integrated with plantation and leather
products.


E. INFRASTRUCTURE AND SERVICES

This covers public utilities with


developmental route of the five provinces
and one city from ARMM and other
adjacent cities and provinces such as
common carriers, electric transmission/
distribution, electric motor vehicles and
its parts and components, water supply
facilities/waterways and sewerage systems,
buses/cargo trucks, other specialized mass
transport systems, power generation like
hydro power, geothermal and natural gas,
and telecommunications with international
gateways.
F. INDUSTRIAL SERVICE FACILITIES
This covers the following activities:
common centers to include testing and
quality control laboratories, training and
demonstration centers, tool shops and
similar facilities, metal casting, metal
working, furniture, ceramics and food
processing, petrochemical complex and
industrial gases.
G. ENGINEERING INDUSTRIES
This covers engineering products,
electronics
and
telecommunication
products, fabrication of construction
materials and hydro power plants.
H. LOGISTICS

This covers shipping of cargoes (air, sea and


land) and forwarders.

I. BIMP EAGA TRADE AND


INVESTMENT ENTERPRISES
This covers enterprises located or have
their base of operation in the BIMP
28

B OA R D O F INV ES TMENTS

EAGA, namely, Brunei; Sabah and Sarawak in Malaysia; Malusu, Sulawesi, Kalimantan and Iringaya
in Indonesia; and Mindanao and Palawan in the Philippines, who shall invest and engage in economic
activity in the ARMM including SMEs.
J. TOURISM

This covers the establishment of tourism estate subject to guidelines developed jointly by RBOIARMM and the Department of Tourism ARMM, tourist accommodation facilities, tourist transport
facilities and development of retirement villages which shall include health and medical facilities
including amenities required by the Philippine Retirement Authority (PRA) and subject to the
guidelines to be approved by RBOI-ARMM in consultation with the PRA, the Department of Health
(DOH), the Regional Planning and Development Office (RPDO) and other concerned agencies.

K. HEALTH AND EDUCATION SERVICES AND FACILITIES


The ARMM has the lowest indication in the country regarding health and education as reflected
in the Human Development Index. For this purpose, there is a need for incentives to be given to
investors in the health and educational sectors such as putting up of private hospitals, medical clinics,
wellness centers, primary education, secondary education, tertiary education (colleges, universities
and vocational - technical schools) and ancillary services including any and all health and education related investments.

L. HALAL INDUSTRY

The MTPDP 2004 2010 provided that ARMM shall be the production and processing center for
the Halal industry. ARMM being the only Muslim region in the country, has a comparative advantage
in the Halal industry. Any Halal related business enterprises shall be covered. Halal refers to the
permissible products and services under Islamic Law.

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

29

30

B OA RBO
D OAFR D
INV
OF
ESINV
TMENTS
ES TMENTS
30

APPENDICES

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

31

1.

32

B OA R D O F INV ES TMENTS

SECTORAL ANALYSIS

1. Manufacturing
The overall performance and contribution to
economy of the manufacturing industry has been
weak and declining for the past two decades of
the Philippines. With its GDP declining from 26.3
percent to 23.7 percent and share to value added
and employment performing the same from 28.2
percent to 23.7 percent and 11.3 percent to 9.1
percent, respectively, the manufacturing sector
has failed to influence growth, employment and
productivity of the country.

percent; and Electrical machinery and apparatus,


declined further to 15.0 percent from negative
13.5 percent.

Based on the studies of The Manufacturing Institute


(TMI), the manufacturing sector has a multiplier
effect of 1.4. For every liter of paint produced, it
required a range of raw chemicals, raw materials,
packaging like metal or plastic containers, printed
paper labels, delivery trucks, it required capital
equipment that grinds, blends filters and stores
the product. It employed chemists in laboratories,
engineers and operators to run and maintain the
plant. It requires utilities like electricity and water.
It requires services such as financial, marketing,
sales and logistics services. Manufacturing is called
the engine of the economy. Many services exist
because of manufacturing; and many service jobs
will disappear if manufacturing disappears1.

Thus, the revival of the manufacturing industry


could highly contribute in the attainment of the
commitment of the President to the Filipino
people to pursue economic growth and generate
more employment. It is for this reason that for
2014-2016, the government has declared the
Manufacturing Resurgence Program as a flagship
program. The manufacturing industry roadmap
crafted by the Philippine Institute for Development
Studies (PIDS) would be its main blueprint.

Nevertheless, the industry remains to be the


most important sector for long-term productive
employment, revenue and value-added generation
and innovation. The manufacturing sector remains
to be the largest sector of the country accounting
21 percent of the total GDP in 2010 and generating
Php3.4 trillion in 2009.
Now, the manufacturing sector continues to
exhibit growth rates above 9.5 percent since the
first quarter of 2013 and accelerated growth in
the fourth quarter with 12.3 percent compared to
5.5 percent a year ago. Manufacturing even grew
faster than services reaching a full year growth of
10.5 percent, nearly double the 2012 growth of
5.4 percent.

The following subsectors contributed positively to


the growth of the sector: Chemical and chemical
products, which grew by 124.5 percent from 3.5
percent in the previous year; Furniture and fixtures,
which rebounded to 72.8 percent from a decline of
3.8 percent; Radio, television and communication
equipment and apparatus, 3.6 percent from 19.9
percent; Beverage industries, 4.5 percent from
2.7 percent; and Footwear and leather and leather
products, 17.5 percent from 24.5 percent.
On the other hand, the following subsectors pulled
down the growth of the sector: Wearing apparel,
which plummeted 25.3 percent from 10.2 percent;
Petroleum and other fuel products, which declined
by 18.8 percent from a growth of 3.1 percent;
Miscellaneous manufactures, dropped by 15.8
percent from 1.9 percent; Textile manufactures,
further dropped by 20.4 percent from negative 6.9

a. Automotive (Motor Vehicle Assembly and


Parts Manufacturing)
The motor vehicle industry represents a
significant portion of the global economic
activity with extensive upstream and
downstream linkages to many diverse industries
and sectors. The employment, skills, and export
potentials associated with car production are
enormous. The fact is, the top 20 industrial
economies in the world are also the top 20
auto producers; lending credence to the fact
that no country has ever become a developed
industrial economy without an auto industry;
from Japan, to the United Kingdom, to China
not even the United States.
1

Based from an article of Mr. Bobby Batungbacal, Director, Federation of Philippine Industries, Inc., entitled,
The Strategic Importance of the Philippine Manufacturing Sector dated October 6, 2011.
2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

33

In 2013, it posted a 16 percent increase in


the total number of four-wheel vehicles
sold, that is, from 182,779 units in 2012 to
212,414 units sold in 2013. The Philippine
automotive manufacturing sector, particularly
car manufacturing, has an annual capacity of
200,000 units. Unfortunately, these facilities
are highly underutilized at 36 percent. The
growing preference for CBUs, importation of
used cars, and smuggling of vehicles have all
factored in the decline of local production.
There are a total of four (4) car manufacturers
currently operating in the Philippines Toyota
Motor Philippines Corp. (TMPC), Mitsubishi
Motor Philippines Corp. (MMPC), Honda Cars
Philippines Inc. (HCPI), and Nissan Motor
Philippines Inc. (NMPI). Ford Motor Company
Philippines (FMCP) used to manufacture
vehicles in Santa Rosa, Laguna until December
2012. FMCP closed its Philippine assembly
citing low production volume and lack of supply
base as the main reason of its closure.
Aside from car manufacturers, there are 14
firms producing commercial vehicles such
as light trucks, trucks, and buses. MAN
Automotive Concessionaires Corp., Pilipinas
Hino, and Universal Motors Corp. (Nissan
Diesel) dominate the truck and bus categories
while others focus more on the production of
light trucks.

The presence of these automotive


manufacturers in the Philippines gave birth to
some 272 original equipment manufacturers
(OEM) supplying more than 300 parts and
component requirements of local automotive
manufacturers. Some of these parts and
components, e.g., transmissions, wiring
harness, among others, are also exported.

34

In the case of electric vehicles (e-vehicles),


the market is just starting to develop in the
country. There are already a few that have

B OA R D O F INV ES TMENTS

registered with the BOI to assemble e-trikes in


anticipation of the implementation of the Asian
Development Bank (ADB) program for the
supply of e-trikes to several local governments.

Employment and Export Performance

The automotive and auto parts manufacturing


provides stable wages and working conditions
even across a range of other industry sectors.
In the Philippines, the industry employs 8,000
in the auto manufacturing and 60,000 in the
auto parts manufacturing. Careers are also
often long-lived; workers are employed for
an average of 20 or 30 years. In addition, the
industry employs around 340,000 in the
auto-supporting industries.

The auto parts industry has also generated


exports for the country, thus making it a
foreign currency earner. In 2013, the industrys
export reached $3.3B which alone is already
0.5 percent of the countrys gross domestic
product.

There is still no local production of e-vehicles in


the country.

Latent Comparative Advantage and Potential to


Move up the Value Chain

The supply network of the automotive industry


is characterized by a tiered structure. The
OEM is supported by a small number of first
tier suppliers which are also supported by other
suppliers. Tier 1, which is mostly large firms, is
surrounded by lower tier suppliers. Tier 2 firms
may be large or small and medium enterprises
(SMEs) supplying parts, components and other
inputs to the next higher-tier suppliers. Tier 3
firms are at the lower-end of the value chain and
are predominantly SMEs performing low-skill,
low value added activities and manufacturing
relatively simple products. Higher level tiers
1 and 2 are characterized by greater skill,
technology, knowledge, innovative and value
adding and creation activity as well as pricing

power and brand presence. Lower tiers 2 and


3 are characterized by lower skill, technology,
innovative and value adding activity and the
need to compete on cost. The activities of tiers
3 and 4 are considered as relatively simple and
require unskilled labor and standardized low
level of technology (Abonyi 2005).

The auto parts potential to move up the value


chain is also high, considering the capability of
existing players and high trainability of Filipino
workers and that there are 30,000 parts in
every vehicle, and currently there are 256
parts manufacturers producing only over 300
parts and components made of metals, plastic,
rubber and composite materials for both the
original equipment manufacturer (OEM) and
replacement market.

Considering the current sentiment on


sustainable development and fearful of the
climate change effects, the government
has made e-vehicles part of the priorities.
Further, the Electric Vehicle Association of
the Philippines (EVAP) has formulated its
roadmap that would see the Philippines as a
significant player in the global production of
e-vehicles.

Spillover Effects

Of the 256 parts manufacturers, 124 are


considered first-tier manufacturers while the
remaining 132 are mostly small and medium
enterprises that act as sub-contractors and
serve as second- and third tier suppliers. Tier
1 suppliers are multinational affiliations while
Tiers 2 and 3 suppliers are mostly 100 percent
Filipino owned companies.

Tier 1 suppliers are large firms with capitalization


of more than Php100 million and account
for about 7 percent of the industry. They are
mostly suppliers from Japan brought in by
assemblers forming part of their vertically
integrated operations. For example, Toyota
Motor Philippines is supported by large first tier

enterprises such as Aichi Forging metal/casting/


forging), Fujitsu Ten (audio/electronics),
Philippine Auto Components (electrical/
meters), Technol Eight (metal parts), Tokai
Rica Philippines (electrical/mechanical parts),
Toyota Autoparts Philippines (transmission),
and Toyota Boshoku Philippines (interiors/seat
assembly).

Tiers 2 and 3 suppliers, on the other hand, form


the bulk of the industry mostly composed of
small firms with capitalization of Php5 million
and below. Most of them operate as mom and
pop style suppliers with varying capabilities and
some real quality problems. These firms failed
to develop as they have insufficient capital and
technology that are necessary to improve their
products. They comprise the major players
of the industry and are the same companies
manufacturing parts for OEM car assemblers
and engaged in exporting activities. The
major players in the automotive components
manufacturing sector are Yazaki-Torres
Manufacturing Corp. and United Technologies
Automotive Phils. (wiring harness); Temic
Automotive (Phils.), Inc. (anti-brake lock
system); Honda Parts, Asian Transmission
Corp. and Toyota Autoparts Phils. (automotive
transmission), Fujitsu Ten Corp. of the Phils.
(car stereos) and Aichi Forging Co., Inc. (forged
parts). These companies are manufacturers
of wiring harness; transmission; alloy wheels;
radiator, leaf spring, and stamp parts; tires;
and auto rubber parts. Almost 60 percent of
all parts manufacturers produce OEM parts
while the remaining 40 percent caters to the
replacement market.

The automotive industry generate skills


base, comprising of mechanical, process and
materials engineering, foundry engineering,
fluid mechanics, CAD/CAM designers, welders
and fitters & turners, alongside specializations
in chassis systems and lubrication products.
There are also significant spillover effects of this
skills base into critical elements of the mining,
aerospace and possibly the defense sectors.

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

35

Supply Chain Gaps/Binding Constraints

As mentioned earlier, there is lack of locally


manufactured parts and components and other
support activities. Of the 30,000 parts to
make a car, only 300 are currently produced
in the country.

Further, there is lack of scale in the production


by the car assemblers that lead to a cost
handicap relative to the ASEAN competitors
like Thailand and Indonesia. This could
be attributed to high logistics cost in the
importation of the large parts, particularly,
the body shell and other large plastic moulded
parts.

It may be noted that the Metals Industry


Research and Development Council (MIRDC)
of the Department of Science and Technology
(DOST) has approved funding for a testing
facility for automotive parts and components
in its compound.

The establishment of stamping facilities to


make these large parts require high capital
investments, and thus, production volumes
would have to be increased to make it a sound
investment.

The motorcycle industry covers the


manufacture and assembly of motorcycles and
its parts and accessories. For the year 2010,
the motorcycle industry contributed Php8.2
billion worth of value-added. In the same year,
the industry produced around 1.052 million
motorcycles, making the Philippines no. 8 in
the worlds motorcycle production, overtaking
Japan, and 4th in ASEAN, surpassing Malaysia.

At present, there is a relatively small domestic


market for the local producers. The concern
on market size is further aggravated by the
cases of smuggling and cheaper imports from
ASEAN and China.
In the case of e-vehicles, the binding constraint
is in the absence of batteries for such vehicles,
i.e., batteries other than lead acid batteries,
as well as control assembly. It is noted that
e-vehicle batteries (e.g., lithium-ion batteries)
accounts for 40-50 percent of the cost of the
vehicle.

Policy Response

To address the above supply chain gaps and


binding constraints, the following interventions
have been identified:
Provision of incentives to investments
in assembly operations with stamping
facilities and production of critical parts and
components;

36

B OA R D O F INV ES TMENTS

Provision of R&D support to the parts and


components manufacturers;
Demand stimulation measures such
as refleeting of government vehicles,
facilitation of franchising procedures, and
strict implementation of the ban on used
cars importation.

b. Motorcycle

There are five motorcycle companies that are


members of the Motorcycle Development
Program Participants Association (MDPPA)
and thirteen members of the Chamber of
Assemblers & Manufacturers of Motorcycles
in the Philippines (CHAMMP) all of which are
registered participants of the Motor Vehicle
Development Program (MVDP).

The Philippines motorcycle density for 2011,


i.e., the ratio of number of people for every
motorcycle, is 24:1. Untapped domestic
market presents a healthy picture for the
industry. Even after saturation, Filipinos will
continue to use motorcycles in various travel
needs and livelihood.

foundry engineering, fluid mechanics, CAD/


CAM designers, welders, fitters & turners
and lubrication products. Upstream from the
motorcycle manufacturing there also lies a
network of direct and indirect suppliers. There
are the motorcycle supporting industries
that include machinery and equipment, dies
and moulds, metal stamping and die casting
and machining. Parts and components
manufacturing also has a place in the supply
chain feeding motorcycle manufacturing, as
first, second or third tier suppliers. Thus, the
spillover effects of the motorcycle industry,
like the automotive industry is also high.

Employment

The motorcycle manufacturing industry


employs around 5,000 personnel, and
generates 3,000 additional jobs for its support/
allied sectors.

Supply Chain Gap/Binding Constraints

The motorcycle industrys upstream sectors


include iron and steel, the metalworking
industries, such as metalcasting and tool and
die, rubber, petrochemical and electrical
industries. Its downstream industries include
the dealerships networks and distributors
around the country.

The most binding constraints preventing entry


and/or moving up value chain of the industry
are as follows:
Underdeveloped local parts manufacturing
sector;
Short model life cycle;
Lack of testing facilities;
Smuggling and proliferation of counterfeit
motorcycles and parts.

The steady rise in production of motorcycles


has led to increased demand for parts and
components. However, the industry has a
very low localization rate. The local parts and
component industry has not been able to
capitalize on this demand increase and has
been highly dependent on imports for a variety
of critical parts and components. The local
parts manufacturing on the other hand has
been hesitant to invest because of the short
model life cycle, in short, any investment must
be recovered within 3 years before the model is
phased out of the market thereby making their
components uncompetitive in terms of price.

Spillover Effects

The motorcycle industry, like the automotive


industry, also generates skills base in areas of
mechanical, process & materials engineering,

The domestic market presents a healthy


picture for the industry, such that the current
Philippine possession ratio of 24:1 is an
appealing factor to the industry compared to
other ASEAN countries where the density of
motorcycles per person is near the saturation
point. The situation offers tremendous growth
potential in the near future.

Policy Response

The domestic market presents a huge potential


for growth with motorcycle density still far
from our ASEAN neighboring countries. It is
therefore important to equip the industry to
capitalize on the opportunities, as well as face
the changes and challenges in a liberalized and
open market environment. This is where the
government can step in and provide the boost
to the industry to increase their competitive
edge, especially in the motorcycle parts
manufacturing.

The following have been identified as possible


interventions for the industry:
Provision of fiscal incentives to develop
critical parts manufacturing and allied
industries such tool and die, injection
molding facilities;
Establishment of testing facilities;
Strict enforcement of customs and IP laws.

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

37

c. Electronics
The Philippine electronics industry began
in the mid-seventies when industrialized
nations relocated their production facilities to
third world countries in order to control the
escalating cost of production. The Philippines
was an ideal relocation site due to its cost
competitive, highly-educated and Englishspeaking labor. Other factors included
the countrys geographical location (being
at the crossroads of international trade),
and attractive government incentives. The
conditions that encouraged foreign electronics
companies to turn to the Philippines have
remained and have been further enhanced by
the countrys political transition to popular
democracy in 1986. Since then, the industry
has grown rapidly and overtook agriculture as
the leading export earning industry in 1996.

Sales from semiconductors will continue to be


on a downward slide, as these are mainly legacy
products with declining profit margins that
are dependent on the industrys fast turnover
trend of cheaper and increasingly more
efficient products (similar to how the price of
USB flash drives has gone down while memory
capacities have doubled). This means that the
Philippines will definitely have to focus more
on the electronics side to remain competitive
for the long term.

To this end, SEIPI, with the support of BOI,


is currently in the process of securing funding
for its proposed industry think tank project,
entitled Product and Technology Holistic
Strategy (PATHS), which aims to identify
product niches and an overarching long-term
industry strategy for the Philippine electronics
sector over the next 5 to 10 years.

Spillover Effects

Employment and Export Performance

The Philippine electronics industry remains


to be the major contributor to the economy,
accounting still for 40 percent of total exports
in 2013.

38

is the traditional top choice worldwide for Test


and Assembly operations, but value-adding
does not come from these operations, and
instead derives from semiconductor research
and chip design processes.

As of December 2013, in terms of employment,


the sector directly employs around 273,000
and contributes around 1.91 million indirect
employment.

Latent Comparative Advantage and Potential to


Move up the Value Chain

Semiconductor Manufacturing Services (SMS)


account for 77 percent of all electronics exports,
but include only back-end testing and assembly
as the country does not have manufacturing
capability for semiconductor wafer fabrication.
The remaining 22 percent is comprised of
Electronics Manufacturing Services (EMS).
According to SEIPI, industry trends identify
several EMS subsectors with high growth
potential: Medical/Industrial Instrumentation,
Automotives, Consumer Electronics and
Office Equipment. Similarly, the Philippines

B OA R D O F INV ES TMENTS

The Electronics industry has the highest


global value chain (GVC) participation rate,
with a share in foreign value added in trade
of all exports at 45 percent. This is because
the products of this industry can be broken
down into discrete components that can be
separately produced, easily transported and
assembled in low-cost locations.

Supply Chain Gaps/Binding Constraints

Based on the current structure of the industry,


the identified supply chain gaps include IC
design, wafer fabrication and R&D in the
upstream section and no manufacturing
diversification in the downstream. Constraining
the development of the upstream and
downstream activities are the lack of highlyskilled workforce, high power costs, lack of

technology and product innovation, financing,


and SME product development initiatives.

Policy Response

To address the above constraints, the Philippine


Council for Industry, Energy and Emerging
Technology Research and Development
(PCIEERD) of the DOST approved funding
for the establishment of the following facilities:
Advanced Device and Materials Testing
Laboratory (ADMATEL);
Electronics Product Development Center
(EPDC); and
Philippine Institute for Integrated Circuits
(PIIC).

In addition, the government will develop SME


localization programs (Big Brother- Little
Brother) to further enhance the participation
of SMEs in the value chain.
Other interventions include human resource
development, reducing the cost of doing
business in the country (taxes, energy cost,
logistics cost, etc.), and investment promotion.

d. Chemicals,
chemicals

Petrochemicals,

and

provided industry estimates on the number of


direct workers for the following sub-sectors:
petrochemicals3,000 direct workers; oleochemicals3,000 direct employees; and the
chlor-alkali sector600 direct employees.
However, industries which use their products
employ huge numbers of employees (food
processing, healthcare, electronics, transport
and energy, construction and automotive).

The Philippine Chemical export performance


has been increasing. Based on the industrys
export performance from 2009 to 2013,
exports grew by 167.80 percent from US$969
Million in 2009 to US$2.595 billion in 2013.
However, the industry is still a net importer
of chemical products with a value of US$5.1
billion imports compared to the export value of
US$2.3 billion, both as of October 2013.

Latent Comparative Advantage and Potential to


Move up the Value Chain

There is a high potential for the industry to


move up the value chain given that it shall
make use of the latest available technology in
their operations. As an example, the expansion
in chlor-alkali production capacity would be
making use of the latest available technology
called the Ion Exchange Membrane (IEM)
which will give more efficient and cleaner
processing. The first naphtha cracker plant in
the Philippines has been constructed and will
commence commercial operations in August
2014. The said naphtha cracker will be the
base producer of the raw materials to be used
as feedstock by the midstream petrochemical
polymerization plants. Further, one of the
countrys vital assets, the coconut, serves
as the major input for oleo-chemicals, i.e.,
cocochemicals, which are recognized as natural
and sustainable.

Spillover Effects

A wide window of opportunities exists for


the domestic chemical industry market as
it exhibits strong linkages to industries such

Oleo-

The chemical industry is considered as one


of the pillar industries in any economy as it
supports all sectors of the economy, namely:
agriculture, services, and manufacturing.
The various chemical sub-sectors include
petrochemicals, oleo-chemicals, coatings and
inks, adhesives, plastics, fertilizers, cosmetics
and personal care, soap and detergent.

Employment and Export Performance

Based on the Labor Force Survey (LFS)


conducted by the Bureau of Labor and
Employment Statistics (BLES), the chemical
industry employs a total of 176,000
employees as of July 2013. The Samahan sa
Pilipinas ng mga Industriyang Kimika (SPIK)

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

39

as agriculture, agribusiness and fishery,


housing, cement, pharmaceuticals, and
creative industries. Petrochemical products
may be used in construction, electronics,
transportation,
telecommunications,
agriculture, packaging, and furniture. Chloralkali, which is an input for petrochemicals,
may also be used in water treatment, batteries,
agrochemicals, electroplating and galvanizing,
and pharmaceuticals. Lastly, oleo-chemicals,
which are derived from coconut oil, can be used
in everyday products such as soap, cosmetics,
pharmaceuticals, detergents, and food
products. The development of the Philippine
chemical industry would give support to
the roadmaps of the plastics, automotives,
electronics, and copper industry roadmaps,
among others.

Supply Chain Gaps/Binding Constraints

The nature of the industry that covers the


upstream, midstream, and downstream sectors
makes the network of the different sectors
an interactive partnership and competition in
itself.

The petrochemical industry is a strategic


industry in an economy. In most countries, the
development of the petrochemical industry is
primarily hinged first on supplying the domestic
market resin requirements and subsequently,
expanding capacity to cover export market to
further achieve economies of scale.

40

Based on the Philippine Chemical Master Plan,


the industry emphasized the importance of the
full integration of the petrochemical industry
which includes the expansion of naphtha
production and diversification of petrochemical
products, so as to help in achieving inclusive
growth and sustainable socio-economic
development. The need for the petrochemical
industry integration is seen vital as there are
gaps in the supply value chain that needs to be
filled in.

B OA R D O F INV ES TMENTS

The midstream petrochemical industry has 7


major players which provide the needs of its
downstream plastics industry consisting of
more than 100 players. Due to the insufficient
supply of raw materials, the downstream
industry is forced to import its requirement.
Therefore, a supply chain gap in the midstream
petrochemical exists; and this will be partly
addressed by the Naphtha Cracker as it
will produce the raw materials ethylene and
propylene, to produce PE and PP. Other than
PE and PP, an expanded PVC production is
needed to meet domestic demand. The size of
a PVC expansion necessitates an economical
supply of chlorine from a chlor-alkali plant.

In addition, the Philippines is currently


confined to only one component of the oleochemical value chain, which is an ingredient
manufacturing. But the entire value chain is
quite long, comprisingof feedstock production,
ingredient manufacturing, compounding and
formulation, branding and packaging, logistics
and distribution, retail or direct marketing.

Policy Response

Having stable operations of the domestic


petrochemical facilities, leading to a steady
supply of ethylene, propylene, PE and PP
materials, will help develop local olefins and
polyolefins demand and as such may lead to an
increased market size for the said products. This
creates the environment for having the current
facilities undergo further capacity expansions,
for which the granting of investment benefits
will play an important role in ensuring the
sustainability of the industrys operations.

It is a known fact that chemical plant facilities


are highly capital intensive and usually require
foreign technologies. Thus, it is not uncommon
that foreign investors are highly encouraged
by governments to participate/invest on
these projects considering the huge capital
investments required.

Other than incentives, there should be


research & development (R&D) support given
to the industry in order to be innovative, both
in its products and processes. Further, product
innovation and technological advancements
should be supported by strong knowledgebased workers in the sciences. R&D support
should then be supplemented with skill training
programs for chemists, scientists and engineers
who shall mobilize the industry.

Technical smuggling shall be addressed through


the strict and proper implementation of customs
laws. Lastly, investing in the construction of
power plants and logistics infrastructure should
also be considered to address the concerns
of high power costs and availability, as well as
logistics costs.

e. Shipbuilding and Ship repair


For the year ending 2013, the Philippines
regained its position as the 4th largest
shipbuilding nation of the world in terms of
gross tonnage, with just a 0.3 percent edge
over Brazil.It is thus noteworthy that more
shipyards in the country are building more ships
of higher tons such as bulk carriers, container
ships and passenger ferries. Investments in
shipbuilding facilities are seen to benefit the
food manufacturing, tourism, transportation,
oil and steel industries.

Employment and Export Performance

One of the major contributions of the sector


is its employment generation. At present,
the sector employs 45,038 Filipino workers,
70 percent of whom belong to the skilled
and semi-skilled category. Hanjin Philippines
alone employs 25,000 workers. Enhancing
investments in the ship building and ship repair
sector (SBSR) will surely generate additional
jobs for Filipinos. Based on the Input-Output
(I-O) Analysis2, the sector has a simple global
employment multiplier of 395. This means that

Input-Output Analysis was prepared by the COMPETE Project and Center for Research and Communication (CRC) with funding from the United States Agency for International Cooperation (USAID)

a one-billion peso investment in the sector


can potentially generate 395 jobs across the
various industries.

The sector has also generated exports for the


country, thus making it a foreign currency
earner. In 2012, the sectors export receipts
reached US$1.07 billion, which was already
0.7 percent of the countrys gross domestic
product.

Latent Comparative Advantage and Potential to


Move up the Value Chain

A latent strength of the sector which still


needs to be fully taken advantage of is the
countrys strategic location to the shipping
routes of oceangoing ships serving the AsiaPacific region. Such strategic location could
be translated into the country becoming a hub
for ship repair and dry-docking of oceangoing
ships, including fishing vessels operating in
international waters. For this latent strength to
be realized, the countrys shipyards would need
to be capable and competitive with neighbouring
foreign shipyards, in servicing the dry-docking/
repair requirements of oceangoing ships.
Ship building, being a heavy industry with
high degree of technology immersion, offers
an opportunity for foreign collaboration.
According to the Nomura study entitled
Accelerating Foreign Direct Investments
(FDIs) in the Philippines Shipbuilding
Industry, Japan seems to be the most
promising to the Philippines in attracting FDIs
in the SBSR sector, followed by Korea. The
study further indicates that Japan, China and
Korea are potential markets for investments
in shipbuilding. At present, the Philippines
hosts some of the worlds biggest players in
shipbuilding such as Japans Tsuneishi with its
Cebu facility now its second largest shipyard.

A more concrete strength of the sector is the


readily available cheap and easily trainable
technical and skilled manpower for shipbuilding
and ship repair works in the country. Many
2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

41

Filipino workers have inherent skills for


shipyard-related jobs like welding, pipe fitting,
moulding, etc., including technical/engineering
competence. With comprehensive training
programs, a pool of skilled shipyard manpower
would easily become a basic asset of the sector,
not only for local shipyard requirements but
also for foreign-based shipyards.

42

Spillover Effects

The local industry has the potential to develop


18 backward linkage industries which may
include ship out-fittings, safety accessories,
marine lighting, maritime signs, symbol and
posters, switch gear, furniture, marine cables,
anchor and chain, electrical and electronic
items and shipbuilding steel plates.

Noting the countrys current small market due


to the preference of ship operators to import
second-hand ships from Japan, South Korea,
and more recently from Europe, it is advised
that the provision on vessel retirement under
the Domestic Shipping Act be implemented by
the Maritime Industry Authority (MARINA).

Other possible support to the industry include


investment promotion activities to forge jointventures, partnerships or tie-ups with foreign
shipyards to address concerns on capitalization
and access to more advanced technology and
modern facilities.

f. Aerospace

The Philippines has the potential to be a center


for manufacturing for the global aerospace
and aviation industry. According to the
industry, the next two decades could see the
country becoming a manufacturing hub of
aerospace and aviation parts and components
in the ASEAN region, generating jobs that will
surely upgrade the capabilities of local labor
to advanced stages of competence in varying
degrees. In 2013, the aerospace industry
accounted for 0.15 percent of the estimated
US$257 billion GDP.

The aerospace industry projects a double


phased growth over the next five years.

Further, it is very seldom that a Filipino


shipping firm orders a brand-new vessel. Ship
operators choose to import second-hand ships
from Japan, South Korea, and Europe Thus,
there is low domestic demand that likewise
result in small and outdated shipyards.

Employment and Export Performance

The aerospace industry directly employs 2,200


personnel in 2013. With government help,
the industry projects to employ about 14,932
personnel by 2022.

Policy Response

To ensure that the Philippines remains as a


major player in the SBSR sector, it is necessary
that investments are encouraged in the
local parts manufacturing and other support
industries as well as ensure that the countrys
regulatory environment remains competitive
with other ship building countries.

In 2013, aerospace parts exports amounted


to US$385 million. The industry projects to
export about US$2.57 billion worth of parts by
2022 if the roadmap recommendations would
be followed. It should be noted that the local
aerospace industry is a net export industry, with
99 percent of industrial output manufactured
for export.

In addition, the shipyards could also provide


ship repair services to the local shipping
industry and serve as an alternative ship repair
hub to Singapore in the ASEAN region.

Supply Chain Gaps/Binding Constraints

At present, virtually all raw materials, ranging


from engines to steel, electronics, furnishings,
cabling, piping and washbasins are imported.
Thus, investments in parts and components as
mentioned above would be most beneficial to
the economy.

B OA R D O F INV ES TMENTS

Latent Comparative Advantage and Potential to


Move up the Value Chain
Currently, there are three principal Tier 1
International Suppliers/Original Equipment
Manufacturers (OEMs) in the Philippines:
Moog Controls Corp., which manufactures
flight control actuation systems, B/E
Aerospace, which specializes in aircraft galley
and equipment manufacture, and JAMCO,
which manufactures airframes and subassemblies. These major OEMs subcontract
some of the processes to Tier 2 and Tier 3
suppliers in the Philippines. Thus, there is the
potential to move up the value chain and secure
the chance to supply more of the critical aircraft
parts and components. A complete supply
chain will potentially attract more principal Tier
1 manufacturers to locate in the country, which
can have spillover effects as their demands can
create more subcontracts to local Tier 2 and 3
suppliers.
Young, relatively cost-competitive, Englishproficient,
highly-trainable
and
fairly
knowledgeable manpower has been the
comparative advantage of the Philippines,
which is supported by a chain of aerospace and
aviation schools.

Spillover Effects

An aircraft requires thousands of spare parts


which provide large opportunities for OEMs,
their Tier 1, 2 and 3 suppliers, plus the MRO
companies. The manufacturing industry for
aerospace is fast gaining momentum, bringing
with it related industries in the supply chain as
well as other backward and forward linkages
of industries. These include: tool and die,
metalworking, chemicals, plastic, rubber,
electronics, logistics, and tourism. Promoting
the aerospace parts and components
manufacturing industry will generate more
economic activities by increased outsourcing
of manufacturing to more of our local SME
subcontractors and suppliers of our principal
OEM locators.

Further, the aerospace sector, being an


export-oriented industry, is densely located
in industrial areas and export zones such as
Laguna/Batangas, Baguio, Bulacan and Metro
Manila. Thus, employment generation and skills
development would likewise have geographical
spillovers in nearby areas.

Supply Chain Gaps/Binding Constraints

Industry challenges limit its full capabilities into


machining, assembly, production and delivery.
The countrys major players in Tier 1, i.e., Moog
Inc., B/E Aerospace and JAMCO, are mainly
involved in said processes with some companies
in Tier 2.

Also, raw materials are imported because


aerospace parts manufacturing is a highly
standards-dependent industry. United States,
Canada, United Kingdom, Singapore and some
European countries are the main sources of
raw materials for aerospace manufacturing.
Raw material gap in the value chain goes with
inadequacy in terms of special processing,
chemical / metallurgical testing and fine
machining. Though some of the Tier 1 players
have the capabilities on some of those
processes, firms still resort to outsourcing
these processes from Singaporean companies.

In terms of production and process capability,


the following are the identified gaps:
High-end machine tools and metrology
equipment;
Fine Machining (hone, fit , lap, extrude,
hone, deburr equipment);
Heat treat, surface treatment process;
Gear manufacturing;
Non-destructive inspection (NDI) and
plating/metallurgical;
General functional testing for compliance
to aerospace requirements;
Chemical test / solution test compliance to
aerospace requirements.

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

43

Likewise, accreditation for potential entrants to


the aerospace industry is said to be expensive,
tedious and time-consuming. Standards for
aerospace parts manufacturing is high because
of the demands for safety. Tier 1 companies
and their suppliers and subcontractors must
comply with certain aerospace standards (such
as AS9100 or NADCAP) to be able to supply
to Boeing or Airbus for instance.

Policy Response

There should be a focus on the build-up of the


aerospace supply chain through the promotion
of productive partnerships between buyers and
suppliers, the enhancement of the business
environment and the improvement of the
technical base capability through manpower
education and training, and technology systems
upgrading.

Recognizing that integrating the aerospace


supply chain locally can reduce costs by 19
percent, trade facilitation/integration of the
supply chain should be encouraged for these
components:
Raw material supply/distribution (MIL/
AMS Specifications);
Transport and import / export turn-around;
Completion of process capability in the
supply chain;
Tooling and chemical supply distribution.
Likewise, investments should also be
encouraged in aerospace parts and components
manufacturing to attract the other major
Tier 1/OEMs to locate in the Philippines that
would ultimately increase manufacturing
opportunities for our local metals and
engineering industries.
Partnership between industry and the
government, particularly the MIRDC-DOST
would be enhanced through support programs

44

B OA R D O F INV ES TMENTS

on process capability building, supply chain


integration, and training & education. The
MIRDC can provide training programs and
certifications on industry accreditation for
Aerospace Standards (AS 9100, NADCAP)
to Tier 1, 2 and 3 supplier companies.

Further, policies that support trade facilitation


for imported raw materials and processes, and
improvement of logistics efficiency to reduce
cost and import and export lead times would
also be considered.

g. Copper Industry

The copper industry is a disjointed industry,


local productions of copper concentrates and
cathodes are being exported while domestic
requirements for concentrates, cathodes and
rods are being imported. There is minimal or
no linkage between industry players.

The output of the Philippine copper mines


today is less than 25 percent of what it was in the
1970s, coming from just four mining projects
with deposits that are about to be exhausted.
At 250,000 metric tons per year, this is not
enough to supply the annual concentrate
requirement for smelting, which is about
720,000 MT under the existing full capacity
cathode production. All the concentrate
output is exported by mining companies. The
sole smelting plant, Philippine Associated
Smelting and Refining Corp. (PASAR),
buys all its copper concentrate requirements
abroad and also exports almost all of its copper
cathode produce abroad. Only a minimal
quantity goes to the domestic rod production
for the use of less than a handful of wire and
cable manufacturers on an intermittent basis.
The rest of the establishments in the wire and
cable industry source their copper wire rod
requirements abroad and essentially sell to the
domestic market, with only one exception.

Employment and Export Performance

The mining industry supplies roughly 250,000


metric tons (MT) of concentrates annually,
but all of these go to foreign markets as there
is no local demand for copper concentrates
at this time. There is potential demand from
PASAR, but only when concentrate output
increases substantially giving some comfort on
the supply reliability to the cathode producer.
Locally-produced copper cathodes are also
nearly 100 percent exported.

Moreover, at least 90 percent of the output


of the local wire and cable producers goes to
the domestic market, while 10 percent are
exported, mostly to Taiwan and Korea (sold
mainly to the companies subsidiaries in these
countries). The domestic market, in turn, is
about 60 percent supplied by local producers
and 40 percent by imports including possibly
smuggled substandard products, according to
industry sources. Capacity utilization among
local producers averaged about 50-60 percent,
indicating that existing capacity is sufficient to
meet local demand over the medium-term.
In 2011, export of copper products reached
US$1.64 billion.

The 2009 Annual Survey of the Philippine


Business and Industry (ASPBI) reported
3,700 employed in insulated wires and cables,
with total compensation accounting for 4
percent of production cost. PASAR employs
about 1,000 with annual salaries and wages
representing 20 percent of total operating
expenses.

Latent Comparative Advantage and Potential to


Move up the Value Chain

The Philippines has significant deposits of


copper, reputed to be among the biggest in
the world. It also has a world class copper
smelting plant. It has a thriving local wire and
cable manufacturing, and exports automotive
wiring harnesses and copper foil in significant

quantity out of its special economic zones. It


used to operate copper wire rod casting plants
commercially.

If the industry gaps would be connected, it is


envisioned that the Philippines could produce
and export more of the higher value added
copper products that are used in the other
industries such as electronics, construction,
automotive, and chemicals, among others. A
start in this endeavour is the establishment of a
copper wire rod facility that would connect the
copper concentrate production to the copper
wire production.

Spillover Effects

The actual production of copper, its


transformation and further processing of
semi-finished products into components for
end-user goods comprise the product segment
of the industry. Coppers final products are
essentially inputs to the manufacture of enduser goods like cars, mobile phones, computers,
valves, and electrical materials, among others.
Currently, there are four (4) operating copper
mines that are producing concentrates of about
250,000 MPTY.

As the full integration will not be about having


a single entity performing most or all stages
of processing, but more of an industry where
one entity performs the crucial stage of
processing and provides for the needs of others
in the various stages of processing, there is a
great opportunity to create spillover benefits
across the industry. As integration happens
from the upstream with the development of
major copper mines to the midstream with the
establishment of a copper rod casting facility
and the downstream with the development of
new copper products, cost competitiveness
across all user industries would be enhanced,
thereby, spurring further access to the local
and regional/global supply chains.

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

45

Supply Chain Gaps/Binding Constraints

The product segments of the copper industry


can best be described by considering the
industrys supply chain which is divided into
three main areas: (1) the actual production of
copper, (2) its transformation and (3) further
processing of semi-finished products into
components for end-user goods. Coppers final
products are essentially intermediate products,
entering as inputs in the manufacture of enduser goods like cars, mobile phones, computers,
valves, electrical materials, etc.

As mentioned earlier, the copper industry


is disjointed. The local production of copper
concentrates and cathodes are being exported
while domestic requirements for concentrates,
cathodes and rods are being imported. Thus,
there are several gaps to close in this industry.
For starters, the government is looking at
encouraging investments into the copper wire
rod facility to link the copper concentrates to
the copper wire production. The pre-feasibility
study for the establishment for such a facility
has already been completed.

46

For the upstream integration, this becomes


physically viable if local supply of concentrates
is sufficient and stable enough to meet the
volume requirement of PASAR, which is
720,000 metric tons per year (MTPY) under
existing smelting capacity (the company plans
to expand its capacity shortly), more than twice
the available domestic concentrates supply.
The development of major copper mines like
Tampakan, Far Southeast and Silangan will
increase the potential for upstream integration.
In order to support the development of a few
large scale, efficient and sustainable copper
mines, a rational mining policy and program is
needed.

For the downstream integration, the objective


is to have local production of 12,000 MTPY of
copper rods by 2016. A pre-feasibility study on
the establishment of a copper wire rod facility

B OA R D O F INV ES TMENTS

has already been completed and indicated that


such activity is profitable. Support is needed
to promote investment in the copper wire rodmaking facilities.

Policy Response

Based on the copper industry roadmap, to


achieve integration of the industry, the priority
focus is to: (1) support the development of a
few large scale, efficient and sustainable copper
mines; (2) immediate actions covering the
downstream industry, as this is where value can
be optimized and can achieve results relatively
more quickly; and, specifically, (3) the rebuilding of the copper wire rod segment of the
downstream industry, which is currently the
missing link in the value chain and where the
country used to have a brief success.

To this end, the following interventions have


been identified:
Develop a rational mining policy to develop
world-class copper mines;
Work on the integration of the copper
industry by encouraging investments in
the current industry gaps, e.g. conduct
investment promotion activities for a copper
wire rod facility;
Encourage agglomeration of allied and
related industries to reduce logistics
cost and promote industry linkages. The
development of a domestic manufacturing
industrial zone in Leyte for copper industry
cluster is recommended;
Review tariffs on copper products to remove
distortions. Raw materials are imposed Most
Favored Nation (MFN) tariffs of 1-3%
(cathodes: 1%), while copper wires, cables
and all other finished products have zero
tariffs under ASEAN Free Trade AreaCommon Effective Preferential Tariff
(AFTA-CEPT). Note that the imported raw
materials for the local downstream copper
industry mostly come from non-ASEAN
countries, while most of the Philippine

imports of semi-finished copper products


like rods and wires come from within the
ASEAN sub-region.

produces billets for the long product sector.


The upstream section of the industry is said


to have one of the most value addition in the
industry. However, it may not be feasible to
develop the upstream section at this time in
view of the scattered iron ore deposits. In this
regard, the approach of small-scale mining with
on-site processing is currently being discussed.

Another potential exists in the midstream


section to produce the flat sheets for the
automotive, shipbuilding and home appliance
industries, among others. These require specific
technical specifications that could command
higher prices than the low-end iron and steel
products.

Spillover Effects

The iron and steel industry is widely considered


one of the catalysts of industrialization and
a major backbone of all industries in the
economy. It remains a major driver in raising
national output. In fact, industrialization in
many countries is strategically linked with
the growth and development of the iron and
steel industry. The domestic output multiplier
of the industry is higher than construction,
private health services, transportation,
financial intermediation, wholesale and retail
trade, other personal services, real estate,
nickel mining, private education and mining/
quarrying. It is overtaken by only five other
sectors: manufacturing, fishing, agriculture
and forestry, electricity/gas/water, and hotel/
restaurants.

Supply Chain Gaps/Binding Constraints

h. Iron and Steel


The iron and steel industry plays a pivotal
role in long term economic development
because it provides key material inputs for
the construction of roads, buildings, houses
and factories as well as the manufacturing of
automobiles, ships and electronics.

Sustained long-run economic growth will require


growth in public spending for infrastructure
and private construction spending, which will
also undoubtedly boost demand for iron and
steel products. In the Philippines, the surge of
public-private partnerships in infrastructure
development, expansion of the real estate
industry, growth of the housing industry, and
the emergence of the shipbuilding industry will
intensify demand for iron and steel products.

Employment and Export Performance

The local iron and steel sector contributes less


than 2 percent of total employment in the
manufacturing industry. The lack of upstream
steel manufacturing facilities after the closure
of Global Steel has led to the downscaling or
closure of many steel plants. This development
has even reduced the industrys manpower by
16 percent from 19,700 in 2003 to 17,000 in
2012. Its employment multiplier effect shows
that it can generate at least 155 additional
permanent employees for every Php100
million investment in the industy.

Latent Comparative Advantage and Potential to


Move up the Value Chain

The Philippine Iron & Steel industry is currently


operating far below its economic potential
because it lacks the integration of the industry.
There is no iron and steel making to supply the
midstream and downstream steel requirements
of the flat steel producers. The industry

The iron and steel industry is highly


energy-intensive industry due to the huge
requirements of the electric arc furnaces.
According to industry estimates, the share of
fuel and electricity cost to total operating cost
is within the range of 5-30 percent depending
on the technology and age of the steel plant
and the type of steel product produced. The
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47

countrys lack of available sustainable power


in Mindanao and high cost of electricity have
been cited as impediment to the development
of the local iron and steel industry and one of
the major factors why it cannot compete in the
international markets.

48

Further, the level of production technology


of Philippine steel producers vary from stateof-the-art to over two decades old. Most new
investments in process technologies are driven
by short-term profit-seeking brought about by
a lack of long-term vision. The last mini-mills
in the country were established in 1996-1998,
and no new mills to produce steel products like
bars, wire rods, hot rolled coils/sheets/plates
have been opened since then. Most of the
new steel mills (actually, using second hand
equipment from China) are rolling mills for the
long products sections and rebars. Scrap-based
integrated mills using Electric Arc Furnace
are normally called Mini-mills to distinguish it
from ore-based integrated mills using the Blast
furnace route.
There is also rampant smuggling of iron and
steel products. Smuggling creates an uneven
playing field among competing firms since the
effective price of the smuggled raw materials
and/or intermediate goods are much lower
than the prevailing market price. The bulk of
the smuggled steel products come from China.
It has resulted in the closure of several steel
plants in the country. Moreover, capacity
utilization of the surviving firms continues to
drop with unabated smuggling. Smuggling of
steel products occurs through: (1) technical
smuggling; (2) diversion through customsbonded warehouses; and (3) outright smuggling.
Technical smuggling is prevalent through
undervaluation of prices, misdeclaration of
nature of goods, misclassification of tariff
heading, and undervaluation of volume
or weight. On the other hand, in outright
smuggling, imported goods are not registered
at all with customs and other institutions.

B OA R D O F INV ES TMENTS

The industry has likewise raised distortion


in tariff rates wherein some raw materials
are subjected to duty, whereas the finished
product is not. The distortion stems out of the
differences in the schedule of tariff reduction in
the MFN rate and the Free Trade Agreement
rates. In the case of steel billets (the raw
material for steel angle bars), the MFN rate
is at 3 percent while the ASEAN, China and
Korea are zero-rated. The finished product
produced from billets (including steel angle)
from China, ASEAN and Korea are also zerorated. The finished product from the rest of the
world has an MFN rate of 7 percent.

Policy Response

Below are the proposed policy responses to the


mentioned binding constraints of the industry:
Entitlement to generate its own electricity,
either directly or through co-generation,
build-operate-and-transfer and other
contracts;
Financing of projects through official
development assistance;
Tax and duty exemptions on imported
equipment;
Tax credit on domestic capital equipment;
Authority to contract loans, credits and
indebtedness in any convertible foreign
currency or capital goods from foreign
financial institutions or fund sources;
Rationalization of the countrys tariff
incentive and protection scheme to enhance
the viability of the local iron and steel
industry.

i. Tool and Die


The tool and die industry is one that uses general


and specialized metal cutting technology to
fabricate dies, molds and toolings employed to
convert raw materials into a desired shape. The
common products of this sector include dies
(simple, compound and progressive), molds

(for forging, plastics injection or blow molding,


die casting, glass blow molding) and tools, such
as jigs and fixtures used for cutting and shaping
different materials.

Employment and Export Performance

An industry survey conducted in 2005 showed


that the tool and die industry employed a total
of 5,862 personnel.

The tool and die industry has exported a total


of US$7.2 million in 2012, a much accelerated
performance from 2011s export figures of
US$1.3 million and US$1.25 million in 2010.
The estimated local sales of the industry is
US$12 million in 2011.

Latent Comparative Advantage and Potential to


Move up the Value Chain

Based on the Japan Overseas Development


Corporation (JODC) study in 2002 on
technical assistance for capacity building for
the Philippine Die and Mould Association
(PDMA), it has been found that with respect to
the cost of tool and die making, the Philippines
is on the least expensive side and can still
compete with better quality and delivery time
of Taiwan, Thailand and China.

The tool and die industrys main strength


and comparative advantage are the skills and
competence of Filipino tool and die engineers,
technicians and specialists. The Philippines
wages are relatively cost-competitive compared
to ASEAN neighbors, plus we have a growing
pool of engineers that can be employed in the
metalworking industries.

Spillover Effects

The tool and die industry exhibits linkages with


the major manufacturing industries in the
country, such as the motor vehicles, electronics/
semiconductors, furniture, homewares, food and
beverage, health, cosmetics and pharmaceutical

products. A goal of the roadmap is increased


localization of dies and moulds, which means
expanding the local market and providing
measures which would encourage large
manufacturing companies to procure their die
and mould requirements locally.

Supply Chain Gaps/Binding Constraints

The major raw materials used in the industry


are mainly special steels which are not locally
produced. There is no steelmaking facility in
the Philippines to process these special metals.
High cost of shipping adds to the price of the
already expensive raw metal. If high quality
metals, such as high grade steel and aluminum
are required, then the price is driven up
more. Indeed, the cost of direct raw materials
account for 34 percent of production cost.
Consumables for this industry are likewise
imported, e.g., cutting tools, and coolants.

The industry employs general and specialized


metal machining equipment, (e.g. lathes,
milling machines, surface grinders, EDM,
CNC, etc.) and software, (such as CAD
and CAM). These expensive technologies,
such as CNCs, coating techniques, (e.g.
CVD and PVD), robotics, automation and
rapid prototyping, while necessary for future
viability, is discouraging acquisition by a lot of
companies. This directly leads to the industry
lagging behind in technological competency
compared to other countries. Recent studies
show that the Philippines tool and die industry
is about 3-5 years behind developing countries
and 10 years behind compared to highly
developed ones.

Tool and die firms also mention the absence


of some metallurgical facilities which are
needed by the industry. These facilities are
not regularly needed, thus capital investment
on one is not really justifiable. However, its
use may be occasionally warranted when some
special projects are undertaken. A commonly
cited facility is a vacuum heat treatment

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

49

facility used for treating specialty alloys like


high grade steel and aluminum. Another
engineering facility that would be useful to the
industry is the surface hard coating facility. This
facility may employ current techniques such
as physical vapor deposition (PVD), chemical
vapor deposition (CVD) and plasma-enhanced
deposition.
One upgrade that the industry needs,
especially the small companies, is in software
applications. The field of tool design is one of
the most diverse and time-consuming aspects
of tool and die making. It consists of several
steps which include analysis, planning, design
and construction. Design software cuts the
processing time and allows for the prediction of
mould or tool performance without the need for
actual prototyping and qualification tries. In the
absence of this software, tool manufacturing
turns to trial and error which proves costly in the
end. Unfortunately, advanced design software
is continually becoming more expensive and
unaffordable for small enterprises.

Policy Response

In view of the above, investments will be


encouraged for pioneering and expanding
tool and die firms to invest and build up their
capabilities through upgrading and acquiring
new technologies to enhance their firmlevel competitiveness. Incentivizing the tool
and die industry can help in building up their
capability, with the ultimate goal of meeting
the local die and mold requirements of the large
manufacturing companies in the Philippines,
thereby strengthening domestic linkages in
manufacturing, increasing sound economic
activities and promoting employment
generation among the metals and engineering
industries.

50

The industry is open to partnership and joint


ventures with foreign companies in order to
improve the reliability of the Philippines as
a tool and die making country. This includes

B OA R D O F INV ES TMENTS

investment promotions and crafting of value


propositions for the tool and die industry to be
handed out to foreign investors. In addition,
the BOI may look for potential investors who
are willing to set up a steelmaking facility in the
country so as to localize the sourcing of raw
materials such as special steel.
The DOST-MIRDC has approved funding
for the establishment of the Die and Mould
Solution Center (DMSC) in its compound. The
DMSC aims to enhance the competitiveness
of the local tool and die sector in support of the
automotive industry through the acquisition of
the needed technology and facilities to support
the competitiveness in the localization of
currently imported dies and moulds. It serves
as a common service facility for the local tool
and die makers under a facility-sharing scheme
at reasonable rates. The agency is also gearing
up to provide consultancy and training on
specialized techniques and procedures relevant
to tool, die and mould-making.

To address the shortage of tool and die engineers


and specialists, work on the integration of tool
and die in the education system, as well as
creation of an updated Tool and Die vocational
course by the Technical Education and Skills
Development Authority (TESDA), and a
dedicated engineering course will be pursued.

j. Rubber Products
At present, there are 46 companies that
comprise the rubber products industry. Of
these, 26 are direct industry players while
the rest are suppliers (e.g. natural latex, and
crumb rubber, synthetic rubber, additives,
and polymers, carbon black, release agent,
tube valve, organic pigments, bead wire,
and tire cord) as well as sources of business
development services (e.g. agents, brokers and
cargo container lines).

The manufacturing output of the group looks


robust but capacity utilization is relatively low
at an aggregate of 66 percent. Information
gleaned from interaction with stakeholders
shows that the sector is not competitive, if
competitiveness is expressed as the ability to
export rubber products. The 4 firms that are
currently exporting have tie-up arrangements
with foreign companies (in the form of
ownership as well as technology transfer). The
sectors process technology is a mix of low,
medium, and very high.

Employment and Export Performance

Respondent firms employed a total of 2,994


direct workers and 921 indirect employees.
Product price is cited as the most important
driver that influences the sectors market,
followed by quality, marketing channels, and
industry standards (in that descending order).

to non-tire products such as gloves, medical


wares, sports wares, shoes, balls, rubberwood
for floor tiles, furniture, plywood, cabinets, and
toys. Thus, there is potential for the Philippines
to be a major supplier of rubber products both
in the domestic and international market.

Supply Chain Gaps/Binding Constraints

The gap in the industry is the supply of natural


rubber to the local producers. As informed
by the industry, most of the natural rubber
produced in the country is exported mainly to
China. Thus, rubber product manufacturers
resort to importation and are subject to
fluctuations in the global supply. Hence, the
clamor for an export ban on natural rubber.

Further, the following are the identified binding


constraints in the industry:
Low quality of cup lumps;
High cost of logistics for imported goods as
well as for the transport of natural rubber
to the processors/manufacturers(Note:
Most of the rubber product manufacturers
are in Luzon while the plantations are in
Mindanao);
High cost of power;
Lack of business development services to
support the industry;
Lack of R&D support and testing facilities;
Outdated manufacturing facilities /
processes;
Smuggling;
Peace and order situation in Mindanao;
Investment in higher value-added products.

Latent Comparative Advantage and Potential to


Move up the Value Chain

Rubber products are used in a myriad of


industrial, household and medical goods. At
present, the local rubber product manufacturers
produce only a limited number of products.
There is thus the potential to move up the value
chain in terms of doing more products that
could be supplied to the automotive, industrial
machinery, footwear, medical supplies,
coatings, and other industries.

Spillover Effects

The Philippines is one of the few countries


where rubber trees can viably grow. The rubber
tree grows best in the tropics at temperatures
ranging from 20C to 28C. It grows in all
types of soil with year-round rainfall. In the
Philippines, rubber grows mostly in Mindanao.

It is noted that 70 percent of total natural


rubber production goes to the tire industry and
construction works (roads, bridges, buildings,
sports race tracks, etc.) while the rest goes

Policy Response

The following are the recommendations to


address the key constraints in the industry:
Provision of incentives to new and
modernizing manufacturing facilities;
Establishment of an accreditation system
for raw rubber suppliers;
Provision of marketing support;
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51

Provision of R&D support for product


development and establishment of testing
facilities;
Provision of financing support for the
upgrade of machinery and equipment.

Supply Chain Gap/Binding Constraints

Cement production is highly capital intensive.


As informed, power cost is around 40 percent
of production cost. According to the industry,
local cement prices are still lower than in
Indonesia, India, Japan and Brunei even without
government subsidies.

k. Cement

The Philippine cement industry is one of the


few integrated industries in the country. It
has strong backward (mining and quarrying)
and forward linkages (construction-related
sectors). With intensified efforts on improving
the countrys infrastructure, the more cement
the country needs to sustain the increasing
construction activities. According to the
industry roadmap, total demand for cement
is expected to still increase beyond 2016. The
increase will be lower at 3 percent in 2017 but
will improve at an average of 4 percent up to
2022. In 2023, there will be a higher increase
of 5 percent and an average of 4 percent
increase for the next years up to 2030.
Cement production is highly capital-intensive.
It requires huge investments and commission
of cement plants usually take 3-5 years. The
cost of building a cement plant is approximately
US$150 million per 1 Million MT of annual
production capacity.
Employment and Export Performance

The industry employs around 120,000


direct and indirect employees. The cement
companies operate in 17 municipalities. These
cement plants are often the major source of
livelihood and employment opportunities for
the community.

52

Historical data on domestic cement production


show that the industry has the general capacity
to export. The highest export sales for this
industry happened in 2001 with around 1.86
million metric tons and the next highest was in
2008 at US$1.57 million. Since then, exports
were declining to 1.57 million metric tons in
2010 to zero in 2011.

B OA R D O F INV ES TMENTS

Based on the industry roadmap, domestic


clinker and grinding capacities can meet any
upsurge in cement demand. With construction
spending expected to increase by an average of
10 percent for the public sector and an average
of 8 percent for the private sector up to 2016,
cement demand is expected to increase by 4
percent annually.

Other constraints to the further growth of


the industry are: input costs, pricing, logistics
difficulties and the threat of dumping from
China and Vietnam.

Clinker and cement grinding operations are


highly efficient and produces minimal scrapped
output relative to production process and
product quality.

Spillover Effects

The industrys strong backward and forward


linkages with the infrastructure and housing
sectors and backward linkages with the mining
and quarrying sectors show the extent of
spillover the industry has in the economy.

With the industrys current work withthe


Department of Environment and Natural
Resources (DENR) and DOST to absorb
wastes in the operation of its kilns, the industry
can also process agricultural and industrial
wasteslike used tires, oils, mold runners, rice
husks and coco husks as alternative fuel and
raw material. Such initiative not only benefits
the cement manufacturers but also helps in
the communitys solid waste management and
environmental protection. At full capacity, the
industry can co-process more than a million

tons of rice husks annually. The industry is, at


present, looking for a mechanism whereby the
rice farmers (not millers) will benefit directly
from the on-going procurement of rice husks
by the industry.

Policy Response

To address the above constraints, the following


measures have been identified:
Strict enforcement of customs laws and
technical regulations;
Continuing investments in the energy
sector and infrastructure development to
help reduce cement input costs and increase
capacity utilization;
Rationalize transport policy and planning
to significantly enhance road network
expansion, the development of an extensive
railroad system and the modernization of our
ports and sub-ports systems. The resulting
increased market reach of cement producers
can greatly improve the utilization of plant
capacities and allow for greater efficiencies
in energy consumption.

l. Paper

Paper is a commodity so vital for mankind


to fully realize the benefits of modern life,
without necessarily bringing undue damage
to the environment or depletion of nonrenewable natural resources. All aspects of
human activities, at one time or another,
involved the use of paper and paper-based
products. The amount of paper consumed by a
country is a measure of its economic progress.
Communication between individuals and
among nations became possible with the use of
paper and business transactions were recorded
on paper. Mans vast knowledge of the world
around him is based on messages written on
paper in books, magazines, journals, reports,
etc. Indeed, a paperless society predicted
by scientists in the early 80s has not actually
materialized even with the advent of modern
technology such as computers, internet, TV,
mobile phones, and electronic mail.

The pulp and paper industry in the Philippines


has not developed as fast as its Asian
counterparts, such as Indonesia, Thailand,
Malaysia and China. The development in
terms of production and technology levels in
this sector is about 15-20 years behind that
in Japan, Korea, Taiwan and Australia. For
the last 10 years, most of the paper mills have
been unable to allocate enough investments
in technology upgrading projects needed to
attain quality or cost-competitiveness in open
market.

By 2012, only 23 paper mills and 5 abaca


pulpmills remain in operation. With the
shutdown in 2010 of the countrys only
integrated pulp and paper mill, PICOP
Resources Inc. (forestry-to-papermaking
operations), the local industry now has only
two (2) types of mills operating: (a) nonintegrated recycling paper mills; and (b) nonintegrated pulp (abaca) mills. The paper mills,
all recycle-based (non-integrated), consist of
10 firms located in Metro Manila (48 percent)
and in the regional provinces (52 percent).

Employment and Export Performance

As of 2012, the local paper industry directly


employs about 6,000 personnel, mostly
skilled workers and technical professionals,
and contributes value to the economy by
sustaining the livelihood opportunities of
about 1.2 Million workers in the wastepaper
collection, sorting, and hauling sub- sectors.
This figure already excludes the more than
12,000 direct and indirect workers who lost
their jobs when the countrys only integrated
mill, PICOP Resources Inc. ceased operations
in Mindanao, which included tree plantation
workers and agro-forestry farmers who
grew trees and supplied harvested wood to
PICOPs pulp mill.

In 2011, the industrys exports of paper and


board was valued at US$144 million. Exports
of abaca pulp, on the other hand, amounts
to about US$40 million/year in the past
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53

decade. The paper industry contributes about


P30 billion/annum in domestic sales value to
the economy, or saves the country US$700
Million/year in foreign exchange from imported
paper and board.

Latent Comparative Advantage and Moving Up


the Value Chain

Domestic paper demand relates directly to per


capita economic growth. Since the local paper
industry was confined to the local market for
so long a time, its development almost merely
followed whatever growth there was due to
population increase. When literacy, print
media, and production and export of goods
slumped, demand for paper stagnated. As
an indicator of standard of living, the paper
products we use today is a fraction of that
consumed by Americans, Europeans and our
advanced neighbors in Asia. This indicates
that, apart from having a lower per capita
income, the average Filipino has been reading
less, manufacturing goods less, and engaging
less actively on educational, cultural, sports,
scientific and many economically-productive
activities. Despite that use of paper is part of
modern societys life, be it in communication,
packaging of products, entertainment or health
care, local demand alone could not drive the
paper industry into fully developing itself and
becoming globally competitive.

54

In 2010, the country exported 165,000


MT paper and paperboard valued at US$132
million, mostly to Singapore, Hong Kong,
South Korea, Taiwan, India and Thailand. Most
of these exports are newsprint from Trust
International Paper Corporation (TIPCO),
averaging 140,000 tons/year. The country
also exports abaca pulp to Japan, Netherlands,
United Kingdom, USA and France. Around 80
percent of the worlds abaca fiber requirements
are sourced from the Philippines.

The domestic demand for paper continues to


rise in real terms because of population growth,
rise of electronics and agriculture-based

B OA R D O F INV ES TMENTS

exports, office services, education, media, and


growing demand for consumer items, food, and
entertainment. While markets for newspaper
and printed communication was hit by the
shift to electronic media, paper remains a
cost-effective and environmentally-acceptable
material for packaging consumer and industrial
goods, as well as a practical medium for
education, print media and advertising, and
office and commercial documents.

The Philippines is the worlds primary source


of abaca fiber for cordage production and pulp
for specialty paper manufacture (DBP, 1992).
Abacas strong fibers can be used to reinforce
the quality of recycled paper if measures are
undertaken to reduce the cost of abaca fiber.
Due to its superior strength, abaca pulp is used
by the importing countries in the production
of tea bags, currency notes, high-strength
disposables, and valuable documents requiring
long storage and durability in use

Supply Chain Gap/Binding Constraints

Most of the paper mills are small by


international standards, with capacities lower
than 60,000 tons per year (TPY). There are
only 4 manufacturers capable of producing
70,000 tons or more per year. These are Trust
International Paper Corporation, United Pulp
and Paper Corporation, Bataan 2020 Inc., and
Container Corporation of the Philippines.

The following have likewise been identified as


constraints to the growth of the industry:
Raw Material Problem (Wastepaper) The quality and volume of locally-available
wastepaper is not sufficient to meet the
requirements of our recycled paper mills.
Paper mills resort to importation to help
meet their fiber requirements in terms
quantity and quality. Many mills are 90-100
percent dependent on wastepaper but are
not equipped to handle this kind of material,
especially, the low grades of wastepaper and
local wastepaper which has poor strength

and contains too high levels of dirt. There


is not enough process equipment to clean
and treat the low-quality recycled fiber.
Recycled paper mills can use some special
equipment and chemicals to help solve
process problems caused by low-quality
wastepaper, but many mills lack funds to
invest in these modern methods. Most mills
do not even have enough laboratory facilities
to evaluate the effects of chemicals and new
equipment. These bring production losses
and, therefore, increased operating costs.
Raw Material Problems (Virgin Pulp) There is no local market pulp mill to support
the virgin fiber requirements for strong
packaging and high-grade graphic papers or
for enhancing the quality of recycled fibers
in tissue, newsprint and paperboard. Pulp is
totally imported and its supply is subject to
the uncertainties of foreign exchange rate.
More than these, there is no local producer
of long-fiber pulp after the countrys only
wood pulp mill supplying the industry
(Cellophil Resources in Abra), shutdown
20 years ago. There are four abaca pulpmills
exporting about 12,000 TPY of the specialty
material, but this source of non-wood pulp is
just too small or too expensive for common
paper grades. In fact, the industry imports
about 80,000 TPY virgin pulp, half of
which is long-fiber (softwood). In contrast
Indonesia, Malaysia, Thailand, and Vietnam
have established at least 10 modern pulp
mills ranging in sizes from 500-3000 tons
per day (TPD) and based on sustainablymanaged tree plantations.
Small-sized Mills, Old Equipment - There are
too many small and slow machines running
commodity grades like containerboard and
packaging paper, surviving on low profit
margin and making inconsistent quality
products. Majority of paper machines in the
Philippines are still in the 50-60 TPD (and
lower) capacity. The international standard
for paper machines running commodity

grades of paper and board is 500-1,000


TPD. It is widely known that the minimum
economic size for a new paper machine on
commodity grades is 150 TPD and should
operate at speeds exceeding 400 meters/
minute. In developed countries (e.g. Canada,
Scandinavia, Australia) paper machine sizes
of 800-1,200 TPD running at speeds of
600-1,200 m/min. are typical. The new
mills in Indonesia, Thailand, Malaysia and
China have paper machine capacities of
500-1,200 TPD and run at speeds of 6001,000 m/min.
Although obsolescence is not a problem
per se in many mills, spare parts for very
old machines are difficult to find. Drawings
and plans are not updated or missing
and equipment specifications are not
known to younger workers, delaying parts
replenishment, downtime troubleshooting
or execution of improvement projects. And
with metal fatigue or too advanced wear and
tear, equipment reliability is greatly reduced.
This has led to frequent breakdowns and
more shutdown time for scheduled repairs,
lowering machine efficiencies.
High Energy Costs - The paper
manufacturing industry suffers from high
electricity and fuel costs.
Dumping - Imports are rising not only
because of customer demand for grades
having qualities that local manufacturers
could not satisfy but also because of cuts
and reduced duties on imports. There have
been dumping from giant producers in
North America and Indonesia and other
developed countries when their own markets
weaken (naturally, they would constrict
supply or drastically raise prices when their
home demands pick up). This concern is
now overtaken by the influx of low-cost
exports from large exporters of paper from
Indonesia, Thailand and China who have
globalized their paper industries ahead of us.

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

55

The industry is plagued with heavy


financial burden, especially, interest on
working or short-term capital while long
term investment funds with international
borrowing rates are lacking.
By early 2000s, labor problems,
environmental sanctions and changes in
ownership or corporate priorities hit the
operations of several paper mills, taking out
of commission about 200,000 TPD or 20
percent of productive capacity.
Loss of productivity and plant efficiency
caused by the continued departure of skilled
craftsmen and technical professionals from
the industry. Experienced and highly-trained
personnel have left the local paper industry
to work overseas or move to other local
industries. This large turnover contributed
significantly to a decline in maintenance
effectiveness at many mills and our
capabilities to manage operating problems
methodically. Many young engineers who
received pulp and paper trainings from the
late 70s to early 90s have left the industry.
Ironically, one can locate these talents
serving competitor mills overseas or other
industries. Many mills lack technicallytrained and well-motivated personnel to
handle pulp and paper mill operations.

56

Upstream, the paper industry is linked to the


recycling sector, from where most of the fiber
raw materials are sourced by the countrys nonintegrated paper mills. As of 2011, the paper
industry provides the market for 1.2 Million
tons recycled wastepaper per year of which 25
percent is imported.

The paper industry is also vertically linked (albeit


indirectly) to the forestry and commercial tree
plantation sectors, as well as to agricultural
sub-sectors producing by-product fibers and
annual crops, for its requirement of virgin pulp.
Currently without a local market pulp mill in
operation supplying fiber to non-integrated
mills, the country imports 80,000 TPY of virgin
pulp. In addition, the industrys requirements
for pulp is substituted by importation of highgrade wastepaper and actually diminished
significantly by the local paper mills nonproduction of higher grades of paper (which are
instead imported from other countries).

This means that the raw material sourcing of


the paper industry in Philippines is currently
linked to virgin pulp production and forestry
operations of pulp producing countries like
Indonesia, New Zealand, Europe, and North
and South Americas. But a resumption of the
tree plantation and pulp production operations
in the Philippines similar to that done in
Northeastern Mindanao by PICOP from
the 70s-90s, driven by the paper markets

Spillover Effects

Most if not all industry sub-sectors,


particularly exports of electronics, fruits,
handicrafts, garments and furniture, as well
as local production of processed food and
consumer goods rely significantly on locallymanufactured and imported paper and board
as packaging materials.

packaging is a requirement for success in the


global market. (Paper Industry Structure and
Competitiveness, FT Asia Consult, Ref. 2). In
manufacturing corrugated boxes, paper sack,
paper bags and carton boxes, the packaging
sector uses linerboard and fluting medium,
multi-ply paperboard, sack kraft, and bag paper
as component materials. Improving the paper
industry as a source of packaging inputs for
exporters translate to better competitiveness
of Philippine exports.

The packaging industry, a downstream sector


of the paper industry, is critical to the export
sector since high-quality and sophisticated

B OA R D O F INV ES TMENTS

demand for fiber, offers tremendous potential


to revitalize the local paper industry and
restore its huge contributions to the countrys
economic development.

Policy Response

Several strategies are recommended to assist


the industry. These include improving the
recovery of local waste paper and encouraging
its use locally; modernization, retooling and
rehabilitation of old paper mills; improving and
expanding the fiber raw material base of the
industry to include agricultural wastes, such
as rice straw, sugarcane bagasse, banana, and
other plantation wastes, as well as developing
mass-plantations of abaca and other annual
crops like kenaf, which have promising
potentials for utilization in pulp and paper
making; possible consolidation of small mills;
and, most important of all, developing massive
tree plantations and commercial agro-forestry
integrated with virgin wood pulp production to
help meet the fiber requirements of existing
non-integrated paper mills with locally-grown
wood pulp.

Specific recommendations are found below:


Discourage the exportation of local
wastepaper,
Remove remaining tariff duty on imported
wastepaper;
Provide incentives for programs/projects
that support improved recovery and
recycling of local wastepaper;
Maintain current tariff duties on finished
paper and paper products;
Fast track the implementation of electronic
monitoring of importations and systems,
to minimize misdeclaration and technical
smuggling and bring greater transparency in
Customs operations;

Grant incentives for programs and projects


that address raw material and equipment
problems, including capital costs to improve
environmental performance in pulp and
paper mills;
Promote the Philippine pulp and paper
industry as an attractive business area for
investors;
Support strongly the campaigns of
environmental, health and local government
authorities and NGOs to replace plastic
with paper in packaging;
Intensify the campaign against corruption
and reward businesses that faithfully comply
with government and international laws and
regulations.
m. Metalcasting

Metalcasting is the process of forming a shaped


metal component by pouring the desired
molten alloy into a mould containing a cavity
of the desired shape. It is one of the most
economical method of making a shaped metal
component.

Almost all metalcasters in the Philippines


belong to the small and medium business
(SME) category. This is true with metalcasters
in Japan, the USA and most other countries.
As an SME, metalcasters have different
institutional support requirements compared
to micro and large businesses. Because of their
differences, SMEs are more affected by the
changes in the environment, such as inflation
and changes in the exchange rates than large
enterprises (OECD, 2004).

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

57

Since 1996, the annual domestic casting production has been on a steady decline as shown in the table
below. The most recent survey available showed very significant drop in the production, with a lower than
10% volume in 2012 viz 2002 production.
Alloy
Gray Iron
Ductile Iron
Malleable Iron
Low Alloy Steel
High Alloy Steel
Bronze
Brass
Aluminum
TOTALS

1996
466,164
15,912
Nil
6,000
45,132
54,780
6,696
303,960
898,644

1997
408,204
11,544
Nil
23,700
42,720
34,980
6,294
306,000
833,412

1998
351,072
11,856
Nil
25,500
26,640
24,420
5,508
190,333
635,329

58

2000
301,392
12,168
Nil
25,500
36,240
33,000
12,420
161,160
581,880

2001
370,000
11,376
Nil
36,612
34,308
29,076
14,496
137,520
633,388

2002
242,340
10,644
Nil
52,572
32,472
25,608
16,920
117,348
497,904

2012
24,500
3,500
1,000
11,000
40,000

Employment and Export Performance

Supply Chain Gap/Binding Constraints

As of 2003, there are 195 foundries in the


Philippines with total employment estimated
at 12,285 personnel, for an average of 63
personnel per foundry. Almost all metalcasting
companies have less than 200 employees.

Based on National Statistics Office statistics3


on the export data for cast iron, aluminum
and bronze from 2006-2011, the following
observations can be derived:

Metalcasting is an example of low level


integration industry. Except for scrap metal,
energy and manpower, almost all physical
production inputs such as raw materials,
supplies, production and quality control
equipment are all imported.

Casting processes and products are constantly


evolving with advancing technology. Processes
are increasing in productivity but becoming
more complicated and knowledge intensive.
Likewise, castings are also evolving higher
performance is being required, alloys are
changing or even replaced with non metal
materials. New markets and applications
emerge as old markets and applications are
slowly being phased out. In this highly dynamic
environment, the only way to compete, or even
survive is through innovation continuous
improvement of products, processes and
organization. Thus, there is a need to
continuously upgrade the local industrys
technology and skills development in new
foundry technology.

Cast iron exports have decreased over


the 6-year period down to approximately
US$150,000.00 in 2011;
Cast steel exports have decreased over
the 5 year period from 2006-2010,
and jumped significantly from almost zero
export to US$13.5 Million worth of export
in 2011;
The cast aluminum exports gradually
increased over the 3-year period from
2009-2011 with an approximate US$17
Million worth of exports in 2011;
Cast bronze exports are almost nil in 2011
following a declining trend over the 6-year
record.

1999
342,792
9,984
Nil
32,400
23,520
31,680
3,240
212,160
655,329

Metalcasting Industry Roadmap

B OA R D O F INV ES TMENTS

Spillover Effects

Cast metal products are used in virtually all


sectors of the economy from transportation,
aerospace, defense, energy exploration and
conversion, mining, construction, maritime,
fluid power, instrumentation, computers
and household appliances and products.
Examples of cast metal components are engine
blocks, suspension parts for all land transport
vehicles, valves, pumps, faucets, pipes, fittings,
replacement parts for mining, cement, oil
field, energy production, surgical equipment,
prosthetic and biomedical implants, and
components for majority of household and
electronic devices we use today. In fact, 90
percent of all manufactured durable goods and
100 percent of all manufacturing equipment
contain castings. All industrialized and
newly industrialized countries have a strong
metalcasting industry as one of the major
drivers of industrialization.

The Philippine metalcasters need to


be competitive if they are to survive.
Competitiveness is created within the
organization but its implementation is dictated
and influenced by the availability of support
from government institutions and suppliers
(Aldaba, 2008). Support programs such as
easy access and competitive financing rates,
availability of skilled workers, technical support
programs for training, technology development
and transfer, and market linkages create the
confidence needed by entrepreneurs to invest
and increase exposure.To assist the industry,
the following measures have been identified:

Majority of the durable goods and


manufacturing machines do not exist as
purely castings. Most of them contain parts
manufactured through other processes such
as metalworking, machining and integration. In
itself, the contribution of metalcasting industry
to the countrys GDP is small. But with the
development of other metals engineering
industries such as metalworking, equipment,
and machinery manufacturing, the metalcasting
industry contribution can be significant. In
this age of globalization, the presence of a
competitive metalcasting industry can attract
and maintain MNCs which use castings as
one of the major inputs. The Philippines needs
a strong and capable metalcasting industry
to support the development of machine,
equipment manufacturing and other metals
engineering sector.

Policy Response

Promotion of clustering of industries;


Provision of incentives to the production of
identified critical metal industries in the core
industries such as automotive, shipbuilding,
electronics, etc.;
Strengthening of MIRDCs focus on the
foundry innovation center;
Inclusion of metalcasting in relevant
engineering courses; and
Updating of TESDAs foundry training
courses to current level of technology.
n. Furniture

As envisioned by the industry, the Philippine


furniture industry will be the global design
innovator/center/hub for products using
sustainable materials by the year 2030.
To achieve this, the industry will focus its
programs on four (4) key development factors:
(1) product development, (2) marketing, (3)
capacity building and (4) advocacy.

The three major furniture production areas in


the country are in Metro Manila, Pampanga
and Cebu. Metro Manila and nearby peripheral
cities in CALABARZON (Cavite, Laguna,
Batangas, Rizal and Quezon consist of small,
medium and large furniture enterprises which
specialize on wood furniture and other mixed

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

59

materials. Pampanga is associated with handcarved wood, wicker and iron products whereas
Cebu, which used to be the heart of rattan
furniture making in the country is now known
for its fine wood furniture works.

Employment and Export Performance

The Philippine furniture industry, which is 98


percent categorized under SMEs, provides
2.1 million indirect workers nationwide and
provides business to 5.4 million in supply chain.
In 2013, employment by the industry was
recorded at 123,000.

The industrys overall revenue was estimated


to reach US$750 million in 2013 of which
exports accounted for US$177 million in 2013
from US$150 million 2012. For this year, the
industry is expected to grow by 8 percent with
domestic sales growing faster at 8 percent
viz export growth at 5 percent. The domestic
market has even a bigger potential because
of the robust housing sector although there is
no official data. The contract markets are also
growing here and abroad for hotels, resorts,
and entertainment facilities.

Latent Comparative Advantage and Moving Up


the Value Chain

Being regarded as the Milan of Asia because


of its recognized creativity, design and quality,
the Philippines has potential to earn more
from exports and local sales particularly, in
the sophisticated and high end market. At
present, the industry represents 0.08 percent
of the total exports of the Philippines, with 99
percent of exported furniture coming from
Cebu, Metro Manila and Pampanga.

It is noteworthy that the industry intends


to be technologically advanced to meet the
global market standards by having sustainable
materials, improving existing processes,
available skilled labor, and advanced machinery.

60

B OA R D O F INV ES TMENTS

Supply Chain Gap/Binding Constraints

One major constraint of the industry is the lack


of raw materials, specifically wood, because of
the total log ban in the country, which deprive
manufacturers access to quality wood at
affordable prices. Local furniture companies
are therefore forced to import their wood
requirements from Indonesia and Malaysia.
Adding on to the difficulties are the stringent
requirements in importing specialty wood
species from Europe.

Further, the surge of imports of cheap


furniture from the competitor countries has
hugely affected the Philippine industry. This
aggravated the impact of the recession in major
markets as well as the fluctuation in the PesoUS dollar exchange rate resulting to massive
downsizing in the industry and at worst, the
closure of some firms.

ASEAN countries do not have strong intraregional furniture trade as the bulk of ASEAN
furniture imports come from China. The
Philippines, for example, exports most of
its products to the US and Europe. Filipino
furniture manufacturers are not actively
opening outlets in other ASEAN countries.

There is also a shortage of mid-level and skilled


workers to sustain the growth of the industry
and a lack of a globally-accredited testing
laboratory.

Spillover Effects

The industry has strong backward linkages with


the forestry and agriculture sectors. It utilizes
wood, rattan, bamboo and other materials
such as buri, metal, stone/marble and plastic,
which are creatively and finely handcrafted
into various products including: leg items for
chairs, tables, beds, setters case goods such
as cabinets, desks, chests of drawers, kitchen
storage units, combinations for building/home

fittings, shelves and ornaments. Any increase in


sales of the industry would definitely redound
to the benefit of farmers and communitybased forest organizations.
There would likewise be spillovers in other
sectors such as the creative/design, logistics,
business services, and packaging sectors.
Furniture
manufacturers/exporters
use
the following packaging materials: double
corrugated carton box with polyethylene tubes
on critical points, kraft paper, abaca fiber
straps, plastic bubble sheets, and styropor.

In terms of forward linkages, we also have the


hotels, restaurants, offices and other public
institutions, contractors and interior design
offices.

Policy Response

To assist the industry, the following have been


identified as possible interventions:
Provision of incentives to investments in
common service facilities, plantations not
covered by the Industrial Tree Plantation law
and supply/trading hubs for raw materials;
Intensified support to marketing and
promotion, and market intelligence;
Provision of R&D support in terms of raw
materials and supplies and establishment of
testing facilities;
Assistance in skills training through TESDA.

o. Ceramic Tiles

The ceramic tile industry is a subsector of the


construction industry. There are currently
four (4) active local players namely: Mariwasa,
Lepanto, Ten Zen, and Euro Tiles. The industrys
total installed capacity is estimated at around
30M square meters per annum. All four (4)
domestic tile manufacturers have their plant in
Luzon and is under the umbrella of the Ceramic
Tile Manufacturers Association (CTMA).

The ceramic tile market has been expanding,


but the growth is hardly felt by the local tile
manufacturers due to the surge of imported
tiles. The cost of local players are high thus,
they are hard up in competing with imported
tiles that are sold cheaply in the market. The
market share of local players is being eroded by
imported tiles which now accounts for more
than 50 percent of the total tile market.

The industrys performance has been negatively


affected by the surge of low priced imported
tiles. As a result, some of the local players have
already streamlined their operations reducing
the capacity utilization of the industry to only
about 65 percent. The high cost of production
has placed local players in a disadvantaged
position where imported tiles enterprises
seized the opportunity to expand their market.
Imported tiles are slowly eating up the market
share of local players.

Employment and Export Performance

The industry is directly employing more than


2,000 and several thousand more by industries
that are directly and indirectly linked to the
Ceramic Tile Industry.

Supply Chain Gap/Binding Constraints

The industry has identified the following as


challenges to their growth:
Industry Cost and Production.
- Relatively high production cost of local
players as compared to its foreign
counterparts due to :
High fuel and power cost;
High raw material cost;
High repair and maintenance cost of
machinery due to age.
- Limited source of local raw materials and
high domestic inland freight costs
Technical

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

61

- Entry of imported tiles that are not


within product standard quality;
- Continuous threat of de-listing ceramic
tiles from the mandatory list of items
subject to testing.
Institutional
- Lack of policy/ guidelines with regards
to the trade remedies fund that should
be appropriated to the local industry in
accordance with RA 8800, Safeguards
Duty Act;
- Enforcement of customs regulations to
minimize/ prevent entry of smuggled
and misdeclared goods;
- Policy of DTI-BPS with regards to
imported tiles who failed from testing;
- Lack of government assistance in
developing small-scale raw material
suppliers.

Spillover Effects

As a major construction material, enhancing


the competitiveness of the ceramic tiles
industry would create significant spillovers
to various industries such as hotels, resorts,
housing, hospitals, industrial and commercial
buildings and other facilities.

It also has strong linkages with mining and


quarrying sectors in terms of its raw material
sourcing.

Policy Response

The following are the recommendations of the


CTMA to address the challenges facing their
industry:
To facilitate/fast track the availability of
natural gas and other alternative sources of
energy;
To pass the Anti-Smuggling Bill and
undertake strict enforcement of customs
regulations;
Institution of non-trade barriers to help local

62

B OA R D O F INV ES TMENTS

manufacturers be more competitive with


their foreign counterparts (e.g. retention of
the mandatory testing of ceramic tiles);
Review policy of DTI-Bureau of Product
Standards (BPS) regarding imported tiles
that failed the test; if possible, consult the
local industry concerned during the review;

More defined guidelines on the
implementation of DTIs monitoring of the
mandatory standard for ceramic tiles under
PNS ISO 13006:2007;
Help develop small-scale raw material
suppliers to become more efficient and
professional in their method of mining and
to extend assistance in their capitalization.
2. Agribusiness and Fishery

The agriculture and fisheries sectors are important


components of the Philippine economy. From
2009 to 2013, these sectors contributed 10 to 30
percent of the countrys Gross Value-added (GVA),
6 to 8 percent of the countrys total merchandise
exports and 31 to 34 percent of the countrys
total employment. Further, the agriculture sector
employs 32 percent of the Filipino workforce as
of 2013, according to World Bank statistics and
accounts for 12 percent of Filipino GDP.

While the sectors has been included in the DTIBOIs IPP list since 1968, the performance of
the agriculture and fisheries sector remained
unimpressive. Poverty incidence in the sector
is prevalent. In 2009, the highest incidences of
poverty among the basic sectors were recorded for
fishers (43.6 percent) and farmers (42.4 percent).

Foregoing considered, there is a need to specify


agriculture/fishery-related activities for inclusion
in the IPP and optimize such inclusion to contribute
in the development of the sector and support the
government in its pursuit for inclusive growth. The
sub-sectoral utilization of the supply-chain based
framework of the 2014 IPP enabled the BOI to
identify these strategic agriculture/fishery-related
activities.

a. Crops

The Department of Agriculture (DA) opines


that investments in the commercial production
of the following agricultural crops should be
continuously promoted:
Coconut, cassava, coffee and cocoa.
High value crops such as rubber, spices,
vegetables and fruits.
Emerging commodities such as sampaloc,
jackfruit, Peking duck, native pigs, siling
labuyo, peanuts, monggo and achuete.

The crops production sub-sector is faced


with high cost of inputs such as fertilizers and
pesticides two important components to
improve land productivity and increase yield.
These inputs typically account for 20-30
percent of total production cost. For some
players, high fertilizer and pesticide costs
translate to usage rate below recommended
thresholds. In line with sustainable development
principle, promotion of investments in fertilizer
and pesticides comes with an aggressive
information/education campaign on the
appropriate fertilizer and pesticide usage to
avoid agro-climatic imbalance and pollution.

In the case of sugar, particular focus is on the


full implementation of the ASEAN Economic
Community (AEC) in 2015 when the sugar
tariff rate will be reduced to 5 percent from
this years rate of 10 percent. To enable the
local players to be competitive, there is a need
to increase productivity not only on the farm
side but also on the milling side. There is a need
to promote modernization of existing sugar
mills to increase sugar recovery rates.
Other non-incentive government interventions
required by the sector include:

Strengthening research and development


for the sector (currently less than 1 percent
of the sectors GVA contribution) and
full integration with agricultural extension
services;
Increased irrigation service area; and,
Bloc farming for scale-sensitive crops such
as sugarcane.
b. Livestock and Poultry
Producers of livestock and poultry
products, specifically for hogs and chicken,
are concentrated in Central Luzon and
CALABARZON regions. Promotion of
investments in the livestock and poultry subsectors may be concentrated in the nontraditional production areas such as ARMM,
Mindoro and Palawan.
The poultry/livestock producers are faced
with high cost of feeds, which accounts for as
much as 70 percent of total production cost.
On top of promoting investments in feed
milling (to exclude those feeds to be used for
game animals, fowls, and other species for
pet/leisure purposes), there is also a need to
promote investments in mechanized drying
(to reduce post-harvest losses for yellow corn)
and production of yellow corn (major feed
component). Incentivizing production of corn,
in general, was already discussed in the previous
section on crops.
For the downstream livestock/poultry
industry such as the meat processing industry,
investments in AAA slaughterhouses and
dressing plants shall also be encouraged.
Currently, the 24 National Meat Inspection
Service (NMIS)-accredited slaughterhouses
and dressing plants are not sufficient to cater
to the needs of the industry.

Establishment of additional nurseries


producing
improved
seedling/plating
material varieties;

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

63

Strengthening of the DA-Bureau of Animal


Industrys (BAI) regional testing laboratories
(for efficient detection of aflatoxins in yellow
corn); and,

Strengthening
of
the
DA-NMIS
considering the expanding demands of the
industry beyond meat inspection (e.g.,
traceability, market surveillance, meat trade
competitiveness, etc.).
c. Fisheries

The Philippines, with a total territorial water


area of 2.2 million km2 and inland resources of
almost 750,000 hectares, is one of the worlds
top fish producing country in the world. While
we have been exporting large volumes and
values of fish products such as tuna, seaweeds/
carrageenan, shrimps/prawns, crabs/crab fat
and meat, and octopus (export values of these
products comprise 76 percent of total fishery
exports), the country is also a net importer
of fish products. Inasmuch as there is need
to boost local fishery production capacity,
investments in fishery production should be
promoted.

d. Natural Rubber
The world production of natural rubber is
projected to increase at three to five percent
per year up to 2020, i.e. from 17.4 million tons
in 2010 to 28.1 million in 2020. According to
the DA, however, the countrys rubber industry
accounted for only 1.05 percent of the world
consumption of rubber in 2004.

Production of rubber reached 106,000 dry


tons from an area of 162,000 hectares in
2011 according to the Bureau of Agricultural
Statistics (BAS). The new planting of rubber
was 22,900 hectares while replanting was
only 800 hectares during the same year
(Association of Natural Rubber Producing
Countries).Industry sources, however, estimate
that rubber output in the Philippines is at best
60,000 dry tons, with about 70 percent of the
total supply (70,000 tons) going to exports
(48,000 tons) and the rest to the domestic
market. Assuming an average yield of 0.6 dry
tons per hectare, the maximum area harvested
would be about 100,000 hectares. The rest of
undetermined areas are immature and senile.

Rubber development plays a key role in the


reduction of rural poverty and agriculture
development in many ASEAN countries
specifically Thailand, Indonesia, Malaysia and
Vietnam. The Philippines can also embark
on the same path as it has the potential of
becoming a major rubber producing nation.
In fact, rubber is regarded as one of the most
profitable agro-industrial businesses in the
country that supply the domestic and export
markets.

As with the livestock and poultry sub-sectors,


investments in the production of aqua feeds
shall likewise be promoted.

Considering the high-perishability of fish


products vis--vis the distance of production
sites to local and international market
destinations, the fisheries sub-sector is also in
need of investments in support infrastructures
such as ice plants, blast freezing and cold chain
storage facilities.
Interventions needed by the fisheries subsector include the following:
Establishment of fish ports/fish landing
facilities in government-identified strategic
locations;
64

Comprehensive stock assessment program


by the DA-Bureau of Fisheries and Aquatic
Resources (BFAR);
Additional
government-accredited
nurseries,
hatcheries
and
testing
laboratories; and,
Institutionalization of a strong partnership
with local government units and the
national government (through BFAR) in
strengthening fisheries regulation.

The much-needed government interventions


include the following:

B OA R D O F INV ES TMENTS

The identified supply chain gaps in the rubber


upstream sector:
Areas for planting;
Lack of quality planting materials;
Low quality of raw rubber;
Lack of skilled tappers;
Location of plantations and rubber
processing facility (Market);
Pre-processing and testing facilities.

The industry has also identified the following


constraints to the growth of the sector:
Tenurial problems (Land Access);
Long gestation period;
Insufficient accredited nurseries, plantations
and pre-processing & testing facilities;
Limited area for rubber planting;
Access to credit;
R&D for the upstream sector;
Slow adaption of productivity-enhancing
technology;
Quality issues for primary rubber processing;
Transport cost (within the Philippines);
Peace and order in the plantation areas.

The following are the recommendations to


address the key constraints:
Incentives for accredited nurseries, certified
plantations and pre-processing facilities;
Support testing facilities;
Support R&D for development of highyield varieties;
Capacity Building for tappers;
Marketing support;
Support infrastructure & logistics to lower
transport cost;
Review existing laws.
Special note is taken that the DA has
implemented the Rubber Development
Program (RDP) in early 2000 as a component
of the High Value Commercial Crops
Program. The RDPs goal was to develop
a globally competitive rubber industry and
empower small farmers, plantation owners,

cooperatives, as well as new investors.


The program not only sought to increase
investment in the industry through policy
reforms and advocacy but was also aimed to
give investors access to financing. It tried to
expand income opportunities for farmers by
identifying derivative products for rubber and
looked into improving the sectors state of
technology to make it globally competitive.
So far, the program has instituted planting
in expanded areas and replanting activities in
existing crop lands. The DA also facilitated
investment in R&D, training, infrastructure,
and human resources development.
e. Natural Health Products
The Philippine Natural Health Products
industry is an emerging industry rising out of
the countrys mainstream agriculture-based
industries. It represents a wide spectrum of
experts and scientists, as well as companies
engaged in R&D, farming, production,
processing, trade and marketing of healthrelated ingredients or raw materials, including
the transformation of raw materials or
ingredients into finished products and healthrelated services. These are in the form of
botanicals, semi-finished products, either
in their natural state or transformed states,
such as using isolated actives and bioactive
ingredients and other similar forms.
In 2011, local sales of Philippine herbal/
traditional products increased by 7 percent
compared to its total value in 2010 (Source:
Euromonitor International website). Increasing
consumer preference for safe treatments and
the growing health and wellness trend in the
Philippines are the major factors contributing
to the growth of the industry. In addition,
companies emphasize the safety of these
products and claim that they provide the same
health benefits as the standard medicines
without risk and other side effects.

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

65

Growing interest in natural and organic food


has transformed a small market niche into a
double-digit growth sector with global sales
estimated at US$91 billion in 2011. Retailers,
suppliers and producers both natural and
mainstream are meeting this demand with new
foods and organic alternatives to conventional
products.

Based on the interview with DA Secretary


Proceso Alcala, the current demand for natural
ingredients in the global market is US$400
billion. From the current forecast of the
Global Industry Analyst, Inc., the global herbal
supplement and remedies is estimated to be a
US$107 billion industry by 2017.

Employment and Export Performance

There is no estimate as to the total employment


of the industry but based on industry survey, a
large manufacturing firm employs an average
of 200 individuals, 50 percent of which would
be involved in marketing and distribution. A
small-scale firm engaged in the production of
natural ingredients gives livelihood to around
450 people, 35 percent of which would be
directly under the firm while the rest would be
the farmers and raw material producers.

66

In 2011, based on the export data from DTIExport Management Bureau (EMB), the
Philippine natural and organic products have an
estimated total export value (FOB) of about
US$153 million. The major contributor of the
growth in the sector is the medicinal plants/
foods and the personal care category.

Latent Comparative Advantage and Potential to


Move up the Value Chain

One of the biggest global trends in the past 20


years has been the growing interest in health
and well-being. It has become increasingly
important to consumers to improve both their
health and the environment they live in. Hence,
natural and organic household and home care

B OA R D O F INV ES TMENTS

products that include surface, laundry and dish


cleaners, pet food, flower and linens and fibers
are becoming more in demand.

Considering the more than 850 species of


medicinal plants that have potential as new
natural ingredients, a growing domestic and
global market and a rapidly increasing number
of companies engaged in the business, there is
a bright prospect for the industry especially in
terms of quality and supply of natural health
products.

Spillover Effects

The development of the natural health products


industry will greatly benefit the agriculture
sector, particularly, the farmers who supply raw
materials such as ampalaya, sambong, lagundi,
malunggay, banaba, and luya, among others
through contract growing schemes.

Supply Chain Gaps/Binding Constraints

Like in the rubber products industry, the main


supply chain gap in this industry is the supply
of organic/natural raw materials. Other raw
materials are imported already processed by
the industry such as in the case of melatonin,
valerian roots, chamomile, steria, insulin fiber,
different plant extracts, amino acids collagens
and other functional raw materials since foreign
suppliers are already internationally certified
and comply with international standards for
ingredients.

Further, the following have been identified by


the industry as key constraints to their growth
and development:
Insufficient nurseries, plantations and preprocessing facilities;
Slow adaption of productivity-enhancing
technology;
Lack of pre-processing and clinical trial
facilities;
Weak industry integration and weak capacity
of players (mostly MSMEs);

Lack of certification system;


Weak linkage among scientists, research
institutions and private sector;
Lack of standards.

Policy Response

To mitigate the impacts of the above, the


following have been recommended:
Provision of incentives to commercial
production of crops used for natural health
products as well as to those that will establish
nurseries and processing plants;
Provision of R&D support, clinical trial
facilities and state-of-the-art testing
facilities;
Establishment of a certification system
consistent with international standards;
Provision of support to marketing,
promotion and market studies;
Provision of financing support and capacitybuilding for MSMEs.
f. Agriculture-related infrastructures, facilities
and support-services

3. Services

In line with the objectives of the government


embodied through R.A. No. 8435 (Agriculture
and Fisheries Modernization Act of 1997)
and the recent R.A. No. 10601 (Agriculture
and Fisheries Mechanization Law of 2012),
investments in mechanized agricultural
support services such as harvesting, plowing,
spraying and dusting should be encouraged.
Investments in support infrastructures (on
top of mechanized drying, cold chain storage,
blast freezing, ice plants, slaughter houses and
dressing plants as these were already discussed)
such as bulk handling, packing house and
trading centers should likewise be encouraged.

The Services sector plays an increasingly important


rolein the growth and development of developing
countries. Services present alternative opportunities
for the Philippines to fast track economic growth
by building on niches to specialize on and scale up
in order to achieve explosive growth.4

The role of the Services sector to poverty


reductionis currently higher than the contribution
to growth of the agriculture or manufacturing
sectors. Strengthening the Services sectorwill
result to increase in backward and forward
integration in the domestic economy and boost
international trade linkages.5 This is in line with
the Comprehensive National Industrial Strategy
(CNIS).
Services grew 7.1 percent in 2013, accounting
for 57 percent of the economy and contributing
more than half of the increase in GDP. The strong
growth was buoyed by business services which
include higher value business process outsourcing
(BPO) and real estate activities, among others.6
Further increase is expected with the growth of
emerging Services revenue streams such as IC
Design, Hospital/Medical Services, Maintenance,
Repair and Overhaul (MRO) of Aircraft, and Ship
Repair Services.

Given the multifaceted contribution to national


economy and trade, it is
important for the
government to ensure that the Services sector is
nurtured and supported through fiscal and nonfiscal measures achieved through a proactive public
and private sector consultation process. The right
blend of policies can be implemented towards
this end in order to synergize policy and mobilize
resources to further boost the sectors contribution
to growth and development.

The Service Revolution, EjazGhanii, Paper presented at ILO Conference, Geneva, 2011
World Bank presentation, Role of Services in Economic Development; Geneva, July 2012 (Data source:
World Bank, 2010)
6
Asian Development Outlook 2014
4
5

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

67

a. Knowledge-Based Services

The Philippines is a mature location for ITBPM services. In 2010, the country emerged
as the number one voice BPM provider in the
world. Non-voice services and global in-house
centers (GICs) also gained traction, raising the
Philippines prominence as the number two
location worldwide.

The anticipated growth in the domestic market


due to the improving economy and resulting
consumption spending will lead to increase
demand. Services play a key role in improving
competitiveness of all industries because
it will strengthen backward and forward
linkages among the primary and the secondary
sectors. This is an effective component of a
comprehensive development strategy.7

all East African countries, especially for small


firms.8 The growth in the services sector is also
more correlated to poverty reductionthan the
contribution of growth in the agriculture for a
sample of 50 developing countries.9 Directly,
they provide the largest source of new job
growth. Indirectly, they provide the income
that, when spent, drives further demand for
goods and services and jobs to produce these.10

IT-BPM services are generally categorized into


horizontal or vertical services, as follows:
Sales and Customer Relations Management;
Back Office / KPO (Marketing Research,
Legal Case Research and Preparation,
Medical Research, Insurance, Mortgage,
F&A, HR, Payroll, Procurement);
Software
Development(Product
Development, Embedded SW, Project
Management, Quality Assurance) and IT
Services (Business Continuity/Disaster
Recovery, Web Hosting, Network
Management);
Health Information Management (HIM),
i.e., Claims Processing, Coding and Billing,
Electronic Medical Records/Electronic
Health Records;
Transcription (Medical, Legal, Publishing,
Data Transformation, Film Subtitling);
Creative Content (Games Development
and Animation);
Engineering and Architecture Design.

The World Bank reports that higher labor


productivity (sales/employees) is associated
with greater usage of professional services in

B OA R D O F INV ES TMENTS

IT-BPM reached about $15.5 billion export


revenues in 2013. This represents a 17 percent
growth from 2012. The industry created
more than 140,000 new jobs reaching about
900,000. It is expected to create 100,000
more in 2014. The industry is still on track
to revenue and employment projections by
2016.11

Latent Comparative Advantage and Moving Up


the Value Chain

One potential growth segment of the industry


is the HIM services sector as it is informationintensive. It leverages ICT to ensure better
delivery of services and widespread access

World Bank, July 2012, Nora Dihel, Africa Region - Poverty Reduction and Economic Management Unit
The Service Revolution, EjazGhanii, Paper presented at ILO Conference, Geneva, 2011
Ibid.
11
Information Technology and Business Process Association of the Philippines (IBPAP)
10

68

World Bank, July 2012, Nora Dihel, Africa Region - Poverty Reduction and Economic Management Unit

Employment and Export Performance

The industry targets to employ more than


1.3 million direct employees and contribute
around 8 percent of GDP. To do this, the ITBPM has to diversify significantly in breadth,
scale, and maturity of services. It has to evolve
dramatically, with non-voice, complex services
as the fastest developing segments. Prominent
industry verticals include healthcare, software
development, and creative services (animation
and game development). These sectors need
a strong domestic base to be able to build
competitiveness. Knowledge-Based Services
providers can help find appropriate solutions/
systems like healthcare, transportation
systems, disaster risk prevention, e-government
systems, among others.

to health care services.12 Many hospitals/


medical facilities lack capacity to implement
HIM systems due to high cost of investing,
installation, and maintenance.

Prohibitive cost of software and hardware


for animation and game development
operations hamper growth. The same can
be observed for hospital/medical facilities in
integrating HIM systems;
Limited resources for marketing and
promotion to build a country brand.

Policy interventions are necessary to


build a knowledge economy in order to
foster development and growth of globally
competitive Filipino companies. The main
drive is to move up the value chain and become
more specialized in high value-added activities
and Knowledge-Based Services represent the
link between innovation and commercialization.

The main constraint of the industry is


insufficient supply of talent to the different
segments. While there is a large pool of labor
available for the industry, additional skills
training and English proficiency are needed
to have them employed. Likewise, there is a
pervading concern that parents do not prefer
their children to be employed in the industry
because of the workshifts.

Other identified constraints include the


following:
Presence of MNCs in the Philippines put a
further strain in the talent supply and cost
of doing business for local companies;
Volume of funds for MSMEs lending has
been inadequate as traditional government
/ private sector financing is more likely
to be allocated toward livelihood and
microenterprise projects, many of which fail
to grow;13
Ibid
Aldaba, PIDS, 2012

Policy Response

To address the above, the following interventions


have been identified for the industry:
Provision of incentives to the selected
segments of the industry to stimulate
innovation and commercialization of locally
produced products/services (e.g. animation
& game development) that create/produce
Intellectual Property for commercial sale
and to the emerging high value services
such as HIM activities to address the lack
of capacity of hospitals/medical facilities to
ensure the achievement of the government
goals of better health outcomes and
responsive health system;14
Promotion of more PPPs to address
concerns on talent supply, financing, ease
of doing business, market access, promotion
and marketing.

Supply Chain Gaps/Binding Constraints

Another constraint would be the lack of


network redundancy in the areas other than
central business districts. This offers limited
location options for IT-BPM companies
that contribute to geographical shortages in
available manpower.

4. Housing

Generally, the housing sector is divided into five


segments namely: socialized (Php450,000.00
and below), economic (above Php450,000.00 to
Php1.25 million), low cost (Php1.25 million to Php3
million), medium cost (above Php3 million to Php4
million) and open market (above Php4 million).

To date, the Philippines faces an estimated unserved


housing need of 3.9-million, including 832,000
households that cannot afford decent shelter. The
magnitude of housing need is estimated to soar to
5.8 million housing units by 2016.

The Housing Industry Roadmap of the Philippines


2012-2030 envisions eliminating the housing

12

13

Philippines eHealth Strategic Framework and Plan 2013-2017

14

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

69

backlog by 2030 by increasing housing production,


enhancing shelter affordability through a
comprehensive housing subsidy program for
targeted beneficiaries, mobilizing and generating
housing finance for end-user financing support,
and improving the regulatory environment for
housing.15
In 2012, the construction sector was able to
contribute a total of Php345 billion to the economy
(from Php302 billion in 2011), increasing its share
to GDP from 5.1 percent in 2011 to 5.5 percent in
2012. For the year 2013, this sector contributed a
significant 5.6 percent share to the countys GDP.
Employment

to ensure its affordability to the lower segment


of the countrys population. There are inputs for
housing construction that are cheaper if imported.
However, there is also a need to increase the inputs
that can be locally produced.

Production inputs of the housing industry can be


divided into intermediate inputs and primary inputs.
Intermediate input accounts for the 46 percent of
the production structure and these include metal,
wood and land transportation. On the other hand,
primary output which composes of labor and capital
accounts for the remaining 54 percent.

In case of the most binding constraints, regulatory


concerns topped the list. Among these regulatoryrelated issues include difficulties in securing permits
and licenses needed such as the Development
Permit (DP), License-to-Sell (LTS), and
Certificate of Registrations (COR). Most of the
developers also experienced difficulty in securing
BIR rulings. Non-harmonized national and local
rules and regulations in securing permits and
licenses, which eventually increase construction
costs, are also among these constraints.

The housing sector has high contribution to


employment as well as the potential to contribute
such in the coming years. This sectors employment
multiplier shows that it can create an additional
2,032 jobs for every 1 billion of investments.
Supply Chain Gap/Binding Constraints

A recent study16 shows that from the years 20012011, bulk of the housing backlog is composed
of the economic type of housing at almost
1.96 million units, followed by the deficit from
socialized and low cost housing at 663,282 units
and 462,160 units, respectively. Taking into
account the countrys future needs until 2028 for
these segments (socialized, economic, low cost),
the country is facing a total deficit of 3.2 million
of housing units for both economic and low cost
housing segments while socialized is expected to be
at a deficit of 1.6 million units. The limited space on
which housing can be provided in highly-populated
areas exacerbate the backlog situation. As such,
vertical housing needs to complement supply
where horizontal housing would not be feasible
anymore.
It is also seen that there is a need for competitively
priced inputs especially needed in building
socialized, economic and low cost housing units

The Housing Industry Roadmap of the Philippine 2012-2030 by SHDA and UA&P, page 3
The Housing Industry Roadmap of the Philippine 2012-2030 by SHDA and UA&P, page 58

15

16

70

B OA R D O F INV ES TMENTS

Spillover Effects

The spillover effects of the housing sector are also


notably high. Creating or developing a community
tends to increase economic activities (opening
up of sari-sari stores and other trade inducing
practices, among others) in addition to the social
development (building of hospitals, schools,
and public transport) that it brings. In addition,
housing construction involves different sectors
such as but not limited to cement, iron and steel,
copper electrical wires, paints, ceramics, etc. that
are of significant contribution to the countrys
economy.

Competitive market is also high for mass housing.


Given the existing and continuous demand for
housing, housing developers have been in dynamic
competition with each other by giving the most
economical housing units for end-users.

The development of public rental housing


opportunities through in-city socialized mid-rise
buildings (MRBs) should also be looked into.

Policy Response

The continued listing of economic and low cost


housing in the preferred areas of investments will
encourage more developers to construct low cost
housing for the low income group, in addition to
the fact that housing is classified as a merit good,
a social aspect of giving incentives. In addition to
direct investments through housing development,
BOI-registered housing projects also contribute
in the production of socialized housing through its
compliance projects, which is equivalent to either
20 percent of the main projects total project cost
or 20 percent of its total saleable area. BOI requires
its registered mass housing projects to comply to
the said 20 percent socialized housing requirement
under Section 18 (Balanced Housing) of R.A. No.
7279 or Urban and Housing Development Act of
1992 (UDHA). Even if it is not stipulated under
the law, vertical housing projects are also required
to comply with the socialized housing requirements
under BOI guidelines and closely monitor the same.
There is also a need to look at common facilities
such as the drainage, sewerage, and other
infrastructure needs for housing and there is also
a need to address financing for low income housing
beneficiaries.

To augment identified supply chain gaps


in the housing sector, the Reverse Trade
Arrangement17 initiative of the DTI-BOI is now in
its conceptualization stage, and is getting positive
response from the industry players that produces
key inputs for the production of housing such as
paints of the chemical industry, cement, iron and
steel. The success of this initiative will not just
address the supply chain gap of the housing sector
but is also expected to contribute in the revival of
the local manufacturing industry.

Other policy responses aside from fiscal incentives,


would be the harmonization of existing national
and local regulations so as not to confuse the
developers and to avoid additional cost to them.
An interaction between buyers/end-users and sellers/manufacturers wherein the buyers/end-users (in
this case is the housing developer) present their needs and arrange for preferential pricing for inputs from
interested sellers/manufacturers (input producers) that will supply the inputs for production needed by the
former.

5. Hospitals

Health service delivery in the Philippines developed


into primary dual administration systems run by
public and private provisioning. In a decentralized
system as that of the Philippines, public health
services are mainly delivered by LGUs with the
technical aid of the national government through
the DOH. The nearest service available to
households is the Barangay Health Services (BHS).
On the other hand, the private sector delivers
services through hospitals, freestanding clinics, and
group practice or polyclinics. The country has 13
private hospitals with international accreditation.

Comparative 2010 figures on hospital bed-topopulation ratio among selected Asian countries
show that the Philippines (at 1:855) lags behind
Indonesia (at 1:667), Vietnam (at 1:610), Thailand
(at 1:467), China at (1:400), Singapore (at 1:381),
and Japan (at 1:71).
Employment

The health care sector has a medical manpower pool


of 1.06 million in 2010(doctors, nurses, dentists,
physical and occupational therapists, pharmacists,
medical technologists, and laboratory technicians),
with estimated multiplier of 2,505 additional
workers for every PhP1 billion additional demand in
healthcare services.

The percentage share of health budget to the total


national budget as of 2014 is 3.07. This is 22.31
percent higher from 2.51 percent in 2013.

Health sector is information intensive.18 It can


benefit from appropriate use of ICT (i.e., medical
coding/ billing, claims processing, electronic
medical records) directed towards ensuring the
achievement of the health system goals of better
health outcomes, sustained health financing and
responsive health system.19

17

Alvin B. Marcelo, MD, Chief Information Officer, PhilHealth, The Philippine eHealth Development Plan,
Leveraging ICT for a More Efficient Health Sector, 2013
Philippines eHealth Strategic Framework and Plan 2013-2017

18

19

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

71

Supply Gap/Binding Constraints

As of 31 December 2012, there are a total of


1,824 public and private hospitals (Levels 1, 2, 3
& 4) spread throughout the country, with a total
of 101,437 beds. Based on this number and the
2012 estimated population, the national hospital
bed-to-population ratio is currently at 1:945. The
ratio is compliant to DOH standard of 1:1000
ratio. However, regional ratios using 2012 number
of beds and 2010 regional population show that
13 out of 17 regions (76 percent) do not yet meet
the standard. Further, 4 out of 17 cities in NCR
(23 percent) and 52 provinces out of 82 provinces
throughout the country (63 percent) do not yet
meet the standard. The hospital bed-population
ratio in some regions/provinces does not meet the
DOH standard of 1:1000, much more the WHO
standard of 1:500 and lags behind our ASEAN
neighbors. In addition, there is lack of investments
and adoption of fast-changing technology to keep
pace with international counterparts.

There are also gaps in the distribution of medical


and allied professionals across the country, more
doctors and nurses are available in cities and urban
areas compared to rural areas. Related to this gap,
is the constraint to growth where medical and allied
health professionals prefer to practice in urban
areas.

Health Information Management (HIM) is likewise


inadequate or lacking in many hospital/medical
facilities due to high cost of investing, installation,
and maintenance.

Policy Response

To improve the hospital bed to population ratio,


the inclusion of hospitals in the BOIs annual IPP
has been considered. This would not only improve
the bed to population ratio but also encourage new
hospital to acquire new equipment and technologies
to enhance healthcare services in the country.


Healthcare
Information
Communication
Techonology (ICT) systems implementation is
crucial to achieve the eHealth 2020 vision of the
DOH which ensures widespread access to health
72

B OA R D O F INV ES TMENTS

care services, health information, and securely


share and exchange patients information. This
transforms the way information is used to plan,
manage, deliver and monitor health services.20
HIM systems integrators, which are covered
by Knowledge-Based Services, will likewise be
considered to help improve on hospital services and
thus, enhance patient care.
Further, more PPP projects for hospitals
particularly in regions/provinces
where most
needed would be encouraged and government
programs to bring doctors/medical professionals to
rural areas would be improved.
6. Energy

Energy is considered the life-blood of the economy.


It is indispensable in achieving economic growth
and critical in sustaining a nations progress and
prosperity. It is an instrument for poverty reduction
and social equity as it serves as an enabling factor to
channel grassroots development with the delivery
of the much needed public services to marginalized
and disadvantaged sectors of our society.

The countrys current installed capacity for power


generation is 17,025 MW, which is largely located
in the Luzon grid. Based on DOEs 2014-2019
demand-supply projections, an additional 5,100
MW is needed from 2014-2019 in all major grids
of the country. The Luzon grid would be needing
some 3,800 MW, Visayas grid would need 900
MW, and the Mindanao grid would need 400 MW.
As such, the 2014 IPP would encourage investors
to put up the necessary additional capacity that
would be needed until 2019.

Even as the government promotes the use of


renewable and alternative energy, we recognize that
fossil fuel remains a dominant source of energy to
fuel the economy. Natural gas-fired plants remain
the top producers of electricity followed by coalfired power plants.

It is recognized that the development of a power


plant takes a long gestation period, requires big
Ibid

20

investments and entails risks. Thus, investors in energy projects are looking for a sound and stable policy and
regulatory environment within which they will operate with an attractive business environment. Due to the
heavy capital requirements to erect a power plant, generating companies usually rely on lending institutions to
supply the needed cash. The lending institutions, on the other hand, look at all the financial support from the
government to mitigate the risk of exposure to the project.

The existing plant generating capacity and additional capacity needed on top of the committed capacity to
meet the demand and the required reserve margin per major grid is shown below:

Luzon
Visayas
Mindanao
Total

Existing Capacity (MW)


Installed
Dependable
12,528
11,349
2,448
2,103
2,049
1,614
17,025
15,066

Source: DOE Electric Power Industry Management Bureau

Additional Capacity Required (MW)


2014 2015 2016 2017 2018 2019
600 1,300 400 500 500 500
0
150
150
250 200
150
300
0
0
0
0
100
900 1,450 550
750
700
750

Total
3,800
900
400
5,100

Per the DOE, from 2014 to 2019, an additional 5,100 MW of power generating capacity is needed in all major
grids of the Philippines. Out of the 5,100 MW required additional capacity, only 45 power generating plants
equivalent to 3,382.75 MW (combined RE and conventionally fueled) are committed to go online in 2016.
Additional
Committed Additional Capacity
Capacity
Major Island Existing Capacity (MW)
(2014 to 2016)
Required (MW)
Grid
Total BOI
Capacity No of No. of BOI

Installed Dependable 2014 to 2019
Registered
(MW)
Plants Registered
Capacity
Luzon
12,528
11,349
3,800
1,724.65
19
12
973.6
Visayas
2,448
2,103
900
579.60
10
7
293
Mindanao
2,049
1,614
400
1,078.50
16
6
318.8
Total
17,025
15,066
5,100
3,382.75
45
25
1,585.4
Source: DOE

Still, the committed power plant that will go online in 2016 is not sufficient to address the projected power
requirement of the three (3) major grids in 2019. However, investors have provided an indicative additional
capacity from (2016 to 2019) of around 13,101.8 MW depending on the market requirements.

Supply Gap/Binding Constraints

Energy security will not be substantially realized if only a small portion of the fuel requirements to run our
generating plants is sourced locally. The slow pace of exploration and development of indigenous and other
alternative energy sources therefore needs to be addressed. Analyzing the supply chain for geothermal energy,
we consider test-drilling during the exploration stage as one ancillary activity to be encouraged. Much of the
cost for the development of geothermal energy and also the risks occur during the exploration stage. Common
industry practice is that developers outsource the exploration and the test-drilling activities to professional
drillers who are better equipped and are more technically capable to do the job to lower their costs and the
risks involved.
2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

73

Based on the DOE data, the geothermal installation targets are as follows:
Location
Luzon
Visayas
Mindanao
Total

74

2013-2015
20
20
40

Commissioning Year
2016-2020
2021-2025
760
20
150
65
250
70
1160
155

For the oil and gas, based on the DOE data as


of 2011, the potential petroleum resources of
the Philippines totalled to 27,905 million of oil
initially in place and 53,870 billion cubic feet of
gas in place. The estimated recoverable discovered
and undiscovered resources include 1,892 million
barrels of oil, 10,349 billion cubic feet of gas and
164 million barrels of condensate. These petroleum
reserves calculations are based on the sixteen
sedimentary basins situated all over the country
from the Cagayan Valley Basin in the north down to
the Agusan-Davao Basin in the south as well as the
prolific Northwest Palawan Basin and the Sulu Sea
Basin along the western flank of the archipelago.
These basins extend on both offshore and onshore
areas. The offshore regions comprise both shallow
to deepwater areas for exploration.
Another ancillary activity considered is commercial
energy storage that would require the setting up of a
battery storage facility. The battery energy storage
facility helps ensure the reliability of the power
system by stabilizing the supply of electricity in the
grid and in meeting peak power demand. Further,
with many of our existing power plants getting older
and prone to sudden breakdowns or emergency
shutdowns, the storage battery serves as a back-up
load to avoid power outages. The electricity stored
would be the excess electricity produced by power
generating plants (RE and non-RE) when demand
for electricity in the grid is low.
As mentioned earlier, the energy sector is still
heavily reliant on imported fossil fuels like coal
and fuel oil. In this connection, intensive efforts
to develop the supply of energy crops for biofuels
should be exerted. Energy crops could be bunker
substitute for many power plants, manufacturing
B OA R D O F INV ES TMENTS

2026-2030
60
20
80

plants and marine vessels and to ensure the future


fuel security of the country. However, the potential
diversion of food supply to fuel use has been raised
in several international discussions as the cause
for increasing food prices. In this connection, it
is recommended that cultivation of non-food
biomass sources be encouraged and in areas that
would not rival food sources. While it may not be
discounted that food sources like coconut, sugar
and palm could still be used for biofuels, these
should already be declared at the outset and should
be planted in areas designated by the Department
of Agriculture for biofuel crops.

There is a need for a long-term reliable power


supply. Private sector investments are relatively low
in power generation, exploration and development
of other energy resources due to high capital
requirement and the 3-5 year gestation period to
build a new plant.

Further, there is heavy reliance on imported fossil


fuels (coal, fuel oil). Most of the local coal-fired
power plant use imported coal with higher British
thermal unit (BTU) as fuel to produce electricity.
Coal will remain the major fuel for power generation.
It is noted though that there is growing opposition
to coal-fired power plants due to environmental
concerns.

Other constraints identified to power generation


include:
Limited supply of local coal;
Non-suitability of local coal for most coal-fired
power plants (low heating value);
Periodic supply of energy resource (hydro limited during summer);

Limited infrastructure to deliver energy services


(grid connection);
Slow phase in the exploration and development
of other potential energy resources (Oil, gas,
coal and geothermal);
Peace and order situation.

For the shipping industry, the 2010 Annual


Survey of Philippine Business and Industry
(ASPBI) records about 17,630 employment
for sea and coastal water transport,22 while
transportation via buses records about 25,535
employees.23

Policy Response

Supply Chain Gap/Binding Constraints

The key constraints that hinder the growth


of the transport sector are the huge capital
requirements considering the cost of brand
new aircrafts, ships and land/mass rail transport,
the high fuel cost determined by global oil
markets, the high barriers to exit and foreign
equity restrictions. The potential migration of
the countrys world-recognized workforce is
also high considering that the salaries of pilots,
engineers and cabin crews are not competitive
as compared with the salaries being offered by
other countries.

Further, the presence of maintenance, repair


and overhaul services (MRO) for the air
transport sector is also necessary while ship
repair is also needed by the shipping industry.
For the shipping industry, there is a need to
retire old ships and modernize vessels, thus the
need to have ship repair facilities. In addition,
the Philippines has the potential to be an
alternative ship repair hub to Singapore.

There are also government policies/ regulations


that need to be looked into:

The following have been identified as required


policy interventions for the energy sector:
Provision of incentives to power generating
plants, drilling services for geothermal projects,
commercial energy storage facilities, and
plantations of biofuel crops;
Support the salt fertilization program for existing
coconut plantations;
Review of the EPIRA law.
7. Public Infrastructure and Logistics
a. Transport

Land, water, and air transport or the tri-modal


transport system plays a very important role in
moving goods and people to various parts of the
country as well as to international destinations.

At present, local transport facilities need


substantial improvements to support the
countrys logistics network. With the
Philippines archipelagic nature, it is really
a challenge to interconnect the more than
7,100 islands in an effective and efficient
transportation network.

R.A. No. 9295 (Domestic Shipping Act);


R.A. No. 9301 (Overseas Shipping Act);
Cabotage Law/Foreign equity investment
restriction;
Bareboat Charter Law Restrictions;
Common Carriers Tax;
Franchising/ Issuance of CPC;
Bill of Rights for Passengers.

Employment

The aviation sector supports 123,000 jobs


in the Philippines which include jobs that are
directly and indirectly supported through
the aviation sectors supply chain and those
jobs supported through the spending by the
employees of the aviation sector and its supply
chain.21

Release date: January 21, 2013 (http://www.census.gov.ph/content/2010-annual-survey-philippinebusiness-and-industry-aspbi-transport-and-storage-final


Ibid.

22

http://www.benefitsofaviation.aero/Documents/Benefits-of-Aviation-Philippines-2011.pdf

21

23

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

75

Other factors that may be considered under


binding constraints that prevents the shipping
industry to move up the value chain:

traders, drivers, and vendors to name a few. In


addition to transporting of goods and services,
passengers also get to their destination at
the least possible cost. The tourism industry
likewise benefit from the shipping industry since
this is also one of the modes of transportation
being used to ferry tourists from one island to
another, thus creating job opportunities and
new markets.

Fuel efficient technology;


Limited port ship calls;
Ocean freight/ fare rates vs. air freight/
fares;
Low cargo volume in some ports;
Ports congestion.

Spillover Effects

The air, land and water transport sector


will create opportunities for growth and
development for industries such as tourism,
logistics and manufacturing industries as well
as global supply chains management of goods
and services sectors. Data shows that the
aviation sector contributes about Php35.5
billion (0.4 percent) to Philippine GDP. This
total comprises: (a) Php17.6 billion directly
contributed through the output of the aviation
sector (airlines, airports and ground services);
(b) Php9.7 billion indirectly contributed
through the aviation sectors supply chain;
and Php8.2 billion contributed through the
spending by the employees of the aviation
sector and its supply chain. 24

In addition, there are about Php156.7 billion


in catalytic benefits through tourism, which
raises the overall contribution to Php192.2
billion or 2.4 percent of GDP.

The shipping industry also has a high spillover


effects. Data shows, the Philippines, being the
worlds leading supplier of seafarers, deployed
365,924 seafarers all over the globe in 2012,
serving 25 percent of the total world fleet and
likewise remitted a total of US$4.8 billion.25
Most of the agricultural commodities and other
products are also being transported through
shipping. This creates job opportunities for
those small to large businessmen who are
engaged into trading of goods, middlemen

http://www.benefitsofaviation.aero/Documents/Benefits-of-Aviation-Philippines-2011.pdf
FR-PH Maritime Prospects Challenges, http://gpcci.org/home/wp-content/uploads/2013/05/FR-PHMaritime-Prospects-ChallengesGPCCI-5.23.pdf

The land transportation sector likewise creates


high spillover effects. Most of the goods
transported either through air and water
are being distributed to several destinations
through land via trucks, buses or rail. Aside
from goods, employees, students, businessmen,
buyers and sellers also use land transportation
in their everyday activities.

Create Competitive Market

The transportation sector is a very dynamic


and competitive sector. Competition occurs
not only within the mode itself but also across
the modes. This is particularly true for interisland travels in the country. The introduction
of comfortable high-speed ferries as a result of
the deregulation of the inter-island shipping
industry opened up an alternative mode of
travel to a market that would previously only
consider travel by air. At the same time, the
lower airfare offered by recent entrants in the
airline industry allowed passengers to have
comparative options for travel between air and
sea. Prior to the entry of the new carriers,
these passengers used to take the boats to
travel.26

Likewise, the improvement of roads in


Mindanao has significantly reduced travel time
by land. Since land travel is a lot cheaper than
by air, this development became a source of
competition for the air transport industry. An
example of this is the Davao-General Santos
route of Mindanao Express. As a result of the
road improvement in the area, the travel time
by land in route was reduced from 6 hours to

24
25

76

B OA R D O F INV ES TMENTS

http://pascn.pids.gov.ph/DiscList/d00/s00-12.pdf

26

2 hours. Thus, load factor was significantly


reduced from 90% to 20-30%.27

country by aligning it with international


standards and thereby achieve unanimity
in customs procedures with all member
states of the World Customs Organization
(WCO) which includes the Philippines.29
Cabotage law30 considering that high local
shipping costs may be attributed largely
to the absence of competition in the local
shipping industry, thus the need for a
comprehensive review and amendment of
the Philippine Cabotage law.31
Common Carriers Tax for cargo. President
Aquino signed last March 2013 RA 10374
exempting foreign carriers tax imposed on
foreign airlines and vessels. However, this
exemption applies to passengers only and
not to cargo.
Strict implementation of the Domestic
Shipping Act, in particular, the Mandatory
Vessel Retirement Program and the
progressive restriction on ship importation.
Level playing field on taxes for both domestic
and foreign vessels.
Review MARINA Memorandum Circular
on maritime incidents/accidents.

The air transport industry is also creating


competition, not only with the other mode
of transportation such as water and land, but
also within themselves. An example of this is
the increasing number of low cost carriers who
would like to increase their market share in the
growing tourism industry.

Policy Response

As a support to the said industries, the


government may provide the necessary
assistance through duty free importation
of capital equipment for air, water and
land transportation and income tax holiday
incentives for airlines and shipping lines.
However, only brand new air, water and land
transportation should be eligible in order to
ensure air and sea worthiness. The requirement
for newly acquired vessels is also in support of
the vessel retirement program of MARINA in
pursuant to the Domestic Shipping Act (R.A.
No. 9295).

b. Water Supply and Distribution

In addition, the following laws and policies


should be looked into:
Foreign ownership restrictions to help
the country attract bigger foreign
direct investments most especially on
infrastructure projects and development.
De minimis rule considering that the
Philippines has one of the lowest de minimis
threshold which is US$0.35.28 Increasing
the de minimis threshold will help reduce
the compliance costs imposed on importers
and accelerate delivery of the merchandise.
It will also allow our government to refocus
their revenue collection efforts on those
parts of the indirect tax base that yield
higher net revenue.
Bill on Customs and Tariff Modernization
Act in view of the need to modernize and
upgrade customs administration in the
Ibid.
https://www.google.com.ph/#q=de+minimis+air+cargo+philippines&safe=active&start=0

27

28

Water is a basic need and everyone has the


right to be provided access to it. In addition,
economic growth must be supported,
specifically by meeting the needs of priority
growth and production centers for water
supply.32 Unfortunately, only 80.2% of the
Philippine households have access to water.
Of the 80.2 percent with access to water
from formal providers, only 44 percent are
connected to Level 3 (waterworks systems)
that are considered the safest and the most
convenient sources of water supply. The rest
get their water from Level 1 or 2 systems that
include protected wells, springs, public faucets,
etc.33

http://www.noodls.com/view4159DB5820A900F85A53079C63A55E53473786B2?904x
xx1401267289
Cabotage law RA 1937, also known as the Tariff and Customs Code of the Philippines contains
provisions that states that maritime transportation of goods and passengers within the country is reserved
for Philippine registered marine vessels.
31
http://www.pids.gov.ph/index2.php?pr=162
32
http://www.neda.gov.ph/wp-content/uploads/2013/09/CHAPTER-5.pdf
33
http://dirp4.pids.gov.ph/webportal/CDN/PUBLICATIONS/pidspn1316.pdf
29

30

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

77

There are approximately 5,400 water service


providers in the country based on latest
available information.34 In Metro Manila,
Maynilad Water Services, Inc. (Maynilad) and
Manila Water Corporation (Manila Water), are
the contracted water providers. Outside Metro
Manila, the 831 local water districts registered
with the Local Water Utilities Administration
(LWUA) are the major water service providers.
The local government units (LGUs) and
community-based organiza
tions (CBOs)
remain to be the biggest provider serving 55
percent of those with access to water, followed
by the water districts at 20 percent and private
operators at 5 percent. The informal sources
provide water to the remaining 20 percent of
the population. While the formal providers
are required to meet national water quality
standards, no such oversight exists for the
informal providers.35

are still 432 identified waterless barangays


and municipalities that need water service
providers.38
Likewise, there is low government budget
allocation for water infrastructure. Of the total
water infrastructure budget of Php97.3 million
(22 percent), only Php3.7 billion (3.8 percent)
was allocated for water supply and the rest
going to irrigation and flood control.39

Prospective investors in the water supply


sector have noted the lack of an economic
regulator and the inadequate capacity
and resources of the current resource
regulator. This discourages foreign investors
from entering the field. The absence
of an independent regulator forced the
Metropolitan Waterworks and Sewerage
System (MWSS), Manila Water, and
Maynilad to establish one by contract. While
the arrangement is novel and apparently
works, establishing an independent regulator
via legislation will afford greater comfort and
long-term stability.40
Weak enforcement of water-related laws
such as Clean Water Act, etc.
Different tariff structures/ methodologies.
Tariff levels are not sufficient for the majority
of the Water Service Providers to recover
recurrent costs and accumulate sufficient
reserves to fund new capital developments.41
Franchise/CPC
Other constraints pertain to the following
issues:
- Water pollution
- Climate change
- Low performance of water utilities

Employment

The water sector industry generate high


employment rate. In 2009, the employment
generated for purification and distribution of
water is 25,510, with additional 1,067 workers
for steam and hot water supply.36 Forward
linkages include the construction and real
estate industry, agriculture and manufacturing
industries. Backward linkages include suppliers
of water, pipes, distribution systems, water
treatment, among others.

Supply Chain Gap/Binding Constraints

One of the major constraints to the


development of the sector is the lack of new
sources of water. Unless new water sources
are developed, the Philippines may face a water
crisis over the next 10 years due to its growing
demand. Among the urban centers where
severe water shortage could be experienced
by 2024 were Metro Manila, Cebu, Davao,
Baguio, and Angeles.37 In addition, there
Sector overview of the Philippine water supply sector roadmap (http://dirp4.pids.gov.ph/webportal/CDN/
PUBLICATIONS/pidspn1316.pdf)
http://dirp4.pids.gov.ph/webportal/CDN/PUBLICATIONS/pidspn1316.pdf
36
http://www.census.gov.ph/content/2009-annual-survey-philippine-business-and-industry-aspbielectricity-gas-and-water-supply
37
http://www.interaksyon.com/business/57541/water-crisis-to-hit-philippines-in-10-years-if-no-new34

35

78

B OA R D O F INV ES TMENTS

In addition, huge capital requirements, foreign


nationality restrictions, high barriers to exit
and the non-revenue water concerns have
been identified as barriers to new entrants. The
following policy related constraints are also
notable:

sources-are-tapped-expert-says
Philippine Water Supply Sector Roadmap 2nd Edition, 2010 National Economic Development Authority
Executive Summary, xvi, Philippine Water Supply Sector Roadmap 2nd Edition
40
http://www.investphilippines.info/arangkada/wp-content/uploads/2011/06/14.-Part-3-Seven-BigWinner-Sectors-Infrastructure-Water.pdf
41
Philippine Water Supply Sector Roadmap 2nd Edition, 2010 National Economic Development Authority
38
39

- Limited access to financing


- Rapid population growth

Spillover Effects

Since water is a basic need, it is expected to


have high spillover effects as the availability
of water supply in an area contributes to its
fast growth and development. It is actually
one of the major services being considered
by any investor or locator in their business
decisions.
With the availability of the
necessary services/ utilities in the vicinity
such as electricity, telecommunication, and
water supply connections, the construction of
residential houses, commercial and industrial
businesses follow, if not preceded by water
supply thus increasing the economic activity
and employment generation in that given area.

Policy Response

To address the above constraints and gaps, the


following have been considered as the required
interventions:
Provision of incentives to new projects
utilizing new water sources and those that
will cater to any of the identified waterless
barangays and municipalities.
Creation of a separate and independent
Water Regulatory Commission.
Promotion of Private Sector Participation/
Joint Ventures.
Tapping Official Development Assistance
(ODA) as complementary funding sources

Harmonization
of
tariff
setting/
methodologies.

manufactured or process used. These wastes


could include chemical solvents, radioactive
wastes, colorants, metallic substances, paper
products, and other industrial by-products.

While sewage plants can treat some industrial


wastes, i.e. those consisting of conventional
pollutants such as biochemical oxygen
demand (BOD), industrial wastes containing
toxic pollutants would require specialized
treatment systems and thus, special treatment
facilities will have to be established to handle
the treatment and disposal of such wastes.
At present, there are no known commercial
treaters of industrial wastes. Some companies
would have in-plant storage facilities for
wastes, especially, hazardous wastes but none
really for treatment and proper disposal. In this
connection, investments in industrial wastes
treatment facilities would be encouraged.
These activities would also add to the
employment opportunities to our engineering
and environmental professionals and contribute
to the environmental protection initiatives of
the government for sustainable development.
---oOo---

c. Industrial Waste Treatment


With the current efforts on reviving the
manufacturing sector, it is expected that there
will be an increase in the generation of industrial
wastes, which could include residuals after a
manufacturing process in factories, mills and
mines. Industrial wastes could be hazardous or
non-hazardous depending on the product being
2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

79

2.

A D B s T op 2 0 N earby P roducts
B ased on S ophistication L evel
and L abor I ntensity

Table 1. Top 20 commodities based on Level of Sophistication (PRODY)


SITC Code
6664
8952
6531
7243
7757
7641
7512
7643
7642
612
8852
8981
8973
8851
350
8811
344
814
7622
7522

80

B OA R D O F INV ES TMENTS

Commodities
Porcelain or china houseware
Pens, pencils, and fountain pens
Fabrics, woven, of continuous synthetic textile material
Sewing machines, furniture, needles, etc and parts
thereof
Domestic electromechanical appliances; and parts
thereof, n.e.s.
Electrical line telephonic and telegraphic apparatus
Calculating, accounting, cash registers, ticketing, etc
Television, radio-broadcasting; transmitters, etc
Microphones; loudspeakers; audio-frequency electric
amplifiers
Refined sugar, etc.
Clocks, clock movements and parts
Pianos, other string musical instruments
Precious jewelry, goldsmiths or silversmiths wares
Watches, watch movements and case
Fish, dried, salted or in brine; smoked fish
Photographic cameras, flashlight apparatus, parts,
accessories, n.e.s.
Fish fillets, frozen
Flours and meals, of meat, fish, etc
Portable radio receivers
Complete digital processing machines

PRODY
11,998
10,829
14,843

Strategic Value
10,039
9,795
9,480

11,250

9,035

10,866

8,559

14,713
13,485
16,537

8,346
8,199
8,103

13,583

7,997

12,595
15,040
11,293
12,091
25,310
13,841

7,539
7,273
6,961
6,952
6,014
5,650

17,702

5,488

13,286
11,284
13,995
28,109

5,413
4,220
3,808
3,403

Table 2. Top 20 nearby products with highest labor intensity


SITC Code
6674
8981
6552
8952
8998
6531
8852
8973
8851
6664
8811
350
344
7243
7522
7641
7643
814
7642
7622

Commodities
Synthetic or reconstructed precious or semi-precious stones
Pianos, other string musical instruments
Knitted, not elastic nor rubberized, of fibers other than
synthetic
Pens, pencils and fountain pens
Smallwares and toilet articles, n.e.s.; sieves; tailors dummies,
etc.
Fabrics, woven, of continuous synthetic textile materials
Clocks, clock movements and parts
Precious jewelry, goldsmiths or silversmiths wares
Watches, watch movements, and case
Porcelain or china houseware
Photographic camera, flashlight apparatus, parts, accessories,
n.e.s.
Fish, dried, salted or in brine; smoked fish
Fish fillets, frozen
Sewing machines, furniture, needles, etc and parts thereof,
n.e.s.
Complete digital data processing machines
Electrical line telephonic and telegraphic apparatus
Television, radio-broadcasting and telegraphic apparatus
Flours and meals, of meat, fish, etc.
Microphones, loudspeakers, audio-frequency electric amplifiers
Portable radio receivers

Labor
intensity
16.177
8.981
4.594
3.547
3.547
3.065
2.982
2.982
2.982
2.829
2.042
1.611
1.611
1.392
1.347
1.193
1.193
1.022
0.957
0.957

Notes:
1. Nearby products are products that can be developed with relative ease since they can intensively utilize existing capabilities embedded in the current export structure.
2. PRODY is an indication of a products level of sophistication, measured by the average of GDP per capita of exporting countries of the product.
Source (Table 1 and Table 2): Usui, Norio. 2012. Taking the Right Road to Inclusive Growth. Asian Development Bank. Manila, Philippines.

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

81

3.

O utput M ultipliers , I ncome M ultipliers ,


E mployment M ultipliers ,
and P roduction L inka g es

Industry

Total
Total Domestic Total Domestic
Domestic
Income
Employment
Output
Multiplier1
Multiplier
1
Multiplier
(additional
Effect1
(additional
domestic
(additional
domestic
household
domestic jobs
output per
income per
per one billion
peso change
peso change in peso change in
in final
final demand)
final demand)
demand)

Backward Linkage2

Forward Linkage2

Strength
(relative
to other
industries)

Dispersion
(relative
to other
industries)

Strength
(relative
to other
industries)

Dispersion
(relative
to other
industries)

Manufacturing
Auto Manufacturing

2.34

0.24

1,134

weak

even

weak

uneven

Auto Parts

2.12

0.20

945

weak

uneven

weak

uneven

Motorcycle

2.37

0.27

1,276

weak

even

weak

uneven

Basic Chemicals

2.13

0.24

1.134

weak

uneven

strong

even

Bamboo

1.61

0.20

945

weak

uneven

strong

even

Biodiesel

1.32

0.08

378

weak

uneven

strong

even

Cement

2.29

0.25

1,181

weak

even

weak

even

Ceramic Tiles

2.59

0.40

1,890

strong

even

weak

uneven

Copper and Copper Products


Non-ferrous
smelting, refining
plants, rolling, etc.

1.98

0.16

756

weak

uneven

strong

even

Non-ferrous
foundries

2.24

0.24

1,134

weak

uneven

strong

even

Electrical machinery

1.75

0.17

803

weak

uneven

weak

uneven

Furniture
Wooden

2.55

0.30

1,418

strong

even

weak

uneven

Rattan

2.66

0.39

1,843

strong

even

weak

even

Other Furniture

2.77

0.36

1,701

strong

even

weak

even

Garments and Textile

2.16

0.21

992

strong

uneven

strong

even

Iron and Steel


Blast furnace and
steel making
furnace, etc.
Iron and steel
foundries

82

B OA R D O F INV ES TMENTS

2.14

0.17

803

weak

uneven

strong

even

2.38

0.21

992

weak

even

weak

uneven

Industry

Total Domestic
Total Domestic
Total Domestic
Output
1
Income
Multiplier
Employment
Multiplier1
(additional
Multiplier Effect1
(additional
domestic household (additional domestic
domestic
income per peso
jobs per one billion
output per
change in final
peso change in final
peso change in
demand)
demand)
final demand)

Backward Linkage2

Forward Linkage2

Strength
(relative
to other
industries)

Dispersion
(relative
to other
industries)

Strength
(relative
to other
industries)

Dispersion
(relative
to other
industries)

Metal Casting

2.07

0.18

851

strong

even

weak

even

Plastics

2.04

0.22

1,040

weak

uneven

strong

even

Paper
Pulp, paper,
Paperboard
Paper and
paperboard
containers
Articles of
paper
Semiconductor
devices
Shipbuilding
Air Cargo
Information
TechnologyBusiness
Process
Management
Private business
services
Private
recreational
services
Mass Housing

2.19

0.20

945

weak

uneven

strong

even

2.19

0.26

1,229

weak

uneven

weak

even

2.06

0.20

945

weak

uneven

weak

even

2.21

0.31

1,465

weak

uneven

weak

uneven

2.29

0.21

992

weak

even

weak

uneven

Services
2.42

0.24

1,134

strong

even

weak

even

2.78

0.52

2,457

strong

even

weak

uneven

2.39

0.36

1,701

strong

even

strong

even

2.21

0.33

1,559

strong

even

weak

uneven

2.69

0.43

2,032

strong

even

strong

even

Medical Travel
Private medical,
dental, other
health services
Other hospital
activities,
medical
and dental
practices, vet.

2.89

0.53

2,505

strong

even

weak

uneven

1.97

0.27

1,276

weak

uneven

weak

uneven

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

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Industry

Total Domestic
Total Domestic
Total Domestic
Output
1
Income
Multiplier
Employment
Multiplier1
(additional
Multiplier Effect1
(additional
domestic household (additional domestic
domestic
income per peso
jobs per one billion
output per
change in final
peso change in final
peso change in
demand)
demand)
final demand)

Backward Linkage2

Strength
(relative
to other
industries)

Forward Linkage2

Dispersion
(relative
to other
industries)

Strength
(relative
to other
industries)

Dispersion
(relative
to other
industries)

Agribusiness: Food Processing


Slaughtering
and meat
packing
Meat and meat
products
processing

3.23

0.41

1,937

strong

even

strong

even

3.45

0.37

1,748

strong

even

weak

even

Milk processing

2.47

0.23

1,087

strong

uneven

weak

even

Canning and
preserving of
fruits

2.57

0.31

1,465

strong

even

weak

even

Mining
Copper mining

2.16

0.26

1,229

weak

uneven

weak

uneven

Gold mining

2.07

0.24

1,134

weak

uneven

weak

even

Chromite
mining

2.12

0.29

1,370

weak

uneven

weak

uneven

Nickel mining

2.03

0.26

1,229

weak

uneven

weak

uneven

Other metallic
Mining
(silver, etc)

1.89

0.23

1,087

weak

uneven

weak

uneven

Notes:
1
The total domestic output, income, and employment multiplier effects incorporate the initial, direct, indirect, and induced effects. The total domestic output and income multipliers were derived from a semi-closed domestic inverse
matrix. The total employment multiplier effect is derived by dividing the total domestic income multiplier effect by the annual average compensation. The annual average compensation used in this study is 211,615 pesos. This was
based on the 2010 Annual Survey of Philippine Business and Industry. (Terosa, 2013, Sec. III).
The relative strength of the production linkages of an industry is considered strong if the corresponding linkage index is greater than 1. If the linkage index of the industry is less than 1, the relative strength of its production linkages
is considered weak. The relative dispersion of production linkages is deemed even if the coefficient of variation of the industry is less than the average coefficient of variation for all industries. Otherwise, the relative dispersion of
production linkages is considered uneven. (Terosa, 2013, Sec. IV).

Source: Terosa, C. L. (2013). Multiplier Effects and Production Linkages in 2000 of Selected Industries in the Philippines. Report submitted to the United States Agency for International Development Advancing Philippine
Competitiveness Project (USAID-COMPETE), for the Department of Trade and Industry.

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4.

R eferences

Aldaba, Rafaelita. (forthcoming) Surviving Trade Liberalization in Philippine Manufacturing. ERIA Discussion Paper.
Economic Research Institute for ASEAN and East Asia.
Blomstrom, Magnus and Ari Koko. 2003. The Economics of Foreign Direct Investment Incentives in Herrmann, Heinz
and Robert Lipsey (eds.) Foreign direct investment in the real and financial sector of industrial countries. Heidelberg and
New York: Springer.
Botman, Dennis, Alexander Klemm, and Reza Baqir. 2008. Investment Incentives and Effective Tax Rates in the Philippines:
A Comparison With Neighboring Countries. IMF Working Paper 08/207. International Monetary Fund.
Klemm, Alexander and Stefan van Parys. 2009. Empirical Evidence on the Effects of Tax Incentives. IMF Working Paper
09/136. International Monetary Fund.
KPMG International. 2014. Corporate tax rate table. Retrieved from http://www.kpmg.com/global/en/services/tax/taxtools-and-resources/pages/corporate-tax-rates-table.aspx
Lin, Justin. 2011. New Structural Economics: A Framework for Rethinking Development. Policy Research Working Paper
Series 5197, The World Bank.
Lin, Justin and Ha-Joon Chang. 2009. Should Industrial Policy in Developing Countries Conform to Comparative
Advantage or Defy it? Development Policy Review, Overseas Development Institute, vol. 27(5), pages 483-502, 09.
Manasan, Rosario G., 2002, Explaining the Decline in Tax Effort, PIDS Policy Note No. 200214 (Makati City: Philippine
Institute for Development Studies).
Morisset, J. and N. Pirnia. 2001. How tax policy and incentives affect foreign direct investment: a review. In Wells, L. Jr.,
N. Allen, J. Morisset and N. Pirnia. 2001. Using tax incentives to compete for FDI: are they worth the costs? Foreign
Investment Advisory Service Occasional Paper No. 15. Washington, DC: World Bank.
Nakayama, Kiyoshi, Selcuk Caner and Peter Mullins. 2011. Road Map for a Pro-Growth and Equitable Tax System.
Washington, D.C.: International Monetary Fund.
National Economic and Development Authority. 2011. Philippine Development Plan: 2011-2016. Pasig: NEDA.
National Economic and Development Authority. 2014. Philippine Development Plan: 2011-2016 Midterm Update with
Revalidated Results Matrix. Pasig: NEDA.
Reside, R. 2006. Fiscal incentives and investments in the Philippines. Report for the Economic Policy Reform and Advocacy
Project of the USAID and Ateneo de Manila University.
Terosa, C. L. 2013. Multiplier Effects and Production Linkages in 2000 of Selected Industries in the Philippines, Report
submitted to the United States Agency for International Development Advancing Philippine Competitiveness Project
(USAID-COMPETE), for The Department of Trade and Industry.
Usui, Norio. 2012. Taking the right road to inclusive growth: Industrial upgrading and diversification in the Philippines.
Mandaluyong City, Philippines: Asian Development Bank.

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PHOTO

Development

86

B
OA RBO
D OAFR D
INV
OF
ESINV
TMENTS
ES TMENTS
86

PHOTO

Development

MEMORANDUM
CIRCULAR NO. 2015- 01
GENERAL POLICIES AND SPECIFIC
GUIDELINES TO IMPLEMENT THE
INVESTMENT PRIORITIES
PLAN (IPP) 2014 - 2016

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

87

A.

PREFATORY STATEMENT

In line with the Administrations thrust of creating a more dynamic and progressive Philippines, the
President issued Memorandum Order No. 74 dated 28 October 2014 approving the 2014 Investment
Priorities Plan (IPP), which is centred on the theme Industry Development for Inclusive Growth. A
fundamental investment policy tool of the DTI-BOIs industry development strategy, the 2014 IPP is
a strategic plan to grow industries, not just or necessarily through incentives, but through other policy
interventions and initiatives. The IPP undertakes to address the most binding constraints to the entry of
new investments and moving up the value chain to enhance the local industries competitiveness while
creating a competitive market.
The 2014 IPP is a rolling three-year plan to ensure continuity, consistency and predictability factors
seriously considered by domestic and foreign investors. This new IPP will, however, be reviewed annually
over the three-year period.
Therefore, notice is hereby given that the Board approved the following General Policies and Specific
Guidelines to implement the 2014 IPP.

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B OA R D O F INV ES TMENTS

B.

GENERAL POLICIES

I.

APPROVAL OF APPLICATION AND ENTITLEMENT TO INCENTIVES

The approval of application for registration and entitlement to incentives under this IPP is subject to Article
7, paragraph 3 of Executive Order (E.O.) No. 226.

The approval of applications for registration shall be based on the IPP listing. However, the extent of
entitlement to incentives shall be based on the projects net value-added, job generation, multiplier effect
and measured capacity.

The BOI, if national interest requires, may deny registration of projects engaged in the export of a product
including industry inputs that are in short supply domestically.

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

89

II.

EQUITY OWNERSHIP

Except as provided for under the Constitution


and the Foreign Investments Act of 1991
(Republic Act No. 7042, as amended), there are
no restrictions on foreign ownership of exportoriented and/or pioneer enterprise that will
engage in the activities listed in the IPP.

V. GEOGRAPHICAL CONSIDERATION IN
INDUSTRY DEVELOPMENT POLICY

III. EQUITY REQUIREMENT


The minimum equity of the project applied for


registration is 25% of the project cost unless
exempted under any of the following:

A. Regional Dispersal of Industries


1. Projects of applicants with good track record


in implementing registered projects;
2. Projects of publicly-listed companies; or
3. Projects not entitled to ITH.

B. Locational Restriction in NCR


For multi-phase projects, the 25% equity


requirement shall be based on the annual
capital requirement of each phase; Provided
that the total equity requirement for the first
phase is complied with on the first year of ITH
availment; and the corresponding cumulative
equity requirement for the succeeding phases is
complied with on the first ITH availment of each
succeeding phase thereafter. Non-compliance
with this policy shall result in forfeiture of ITH
incentives for the taxable year.

90

Pioneer status with pioneer incentives shall be


governed by Article 17 of E.O. 226.

B OA R D O F INV ES TMENTS

The BOI shall limit incentives to firms that


locate in congested urban centers. The
locational restriction applies to the National
Capital Region (NCR) wherein projects are
not entitled to ITH. Exemption from the
above locational restriction, however, may be
given to the following:
1. Projects in government industrial estates1
declared by national law or presidential
proclamation prior to 01 January 1989
(unless subsequently privatized);
2. Projects that will engage in service type
activities;

IV. PROJECT STATUS


The dispersal of economic activities to the


countryside is encouraged.

Projects in any of the identified less


developed areas (LDAs) listed in Annex A
shall be entitled to pioneer incentives and
additional deduction from taxable income
equivalent to 100% of expenses incurred
in the development of necessary and major
infrastructure facilities unless otherwise
specified in the Specific Guidelines.

For projects with a gestation period of more than


three (3) years, the 25% equity requirement
shall be based on the annual capital requirement
of the project; Provided that the total equity
requirement of 25% is complied with on the first
year of ITH availment. Non-compliance with this
policy shall result in forfeiture of ITH incentives
for the taxable year.

The BOI shall include geographical considerations


in evaluating projects to be qualified for incentives
based on, among others, regional development
plans, industry roadmaps, industry clustering
strategies and other relevant government
initiatives to fill in the gaps of supply chains,
enhance competitiveness, and promote global
value chains.

Government Industrial Estates


a) Dagat-Dagatan (P.D. No. 569 dated 30 October 1974)
b) Vitas Industrial Estate, Tondo (E.O. No. 1086 dated 31 January 1986, as amended/expanded through
Presidential Proclamation No. 39 dated 09 September 1992 and Proclamation No. 465 dated 01 August
1994) (Vitas Industrial Estate/Smokey Mountain)
c) Bagong Silang Industrial Estate, Caloocan City (Presidential Proclamation No. 843 dated 26 July 1971)
d) Food Terminal Inc., Taguig (LOI No. 900 dated 25 July 1979)
e) Navotas Fishing Port Complex (E.O. No. 772 dated 08 February 1982)

3. Expansion of export-oriented projects


effected within the firms existing
premises; and
4. Modernization projects.
VI. EXPORT OF PRODUCTS
DOMESTIC SUPPLY

IN

SHORT

The export commitment of a registered enterprise


may be suspended to satisfy national interest or
in an emergency situation.

VII. ITH AVAILMENT

3. ITH shall only be applicable to revenues


on sales generated/services rendered to
other enterprises. For projects involving
services inherent to a projects operation
(e.g. air cooling and similar activities),
entitlement to ITH shall be subject to the
condition that 70% of the revenues are
generated from non-related entities and
service fees are within normal/ regular
rates.

A. General Rules
1. In the grant of incentives, the Board
shall give priority to projects with
substantial benefits to the economy. In
this regard, the extent of the projects
ITH entitlement shall be based on the
following parameters: (1) projects net
value added, (2) job generation, (3)
multiplier effect, and (4) measured
capacity.

4. Only net income from operation of


registered activity as certified under oath
by CEO or CFO shall be entitled to ITH.

In the event that the registered


enterprise fails to implement the project
as represented in its project application,
the Board may opt to reduce the projects
ITH availment proportionate to the
actual performance (e.g. investments,
employment generation, production and
sales, timetable) of the enterprise.

The income qualified for ITH shall be


limited to the income directly attributable
to the eligible revenue generated from
registered project.

2. Except for renewable energy projects, the


basis of net income qualified for ITH shall
be limited to the 110% of the projected
gross revenues as represented by the
firm in its application for registration.

In cases where the projects actual revenues


exceed the projections in its application
due to, e.g., new markets/orders, additional
employment/shifts, additional investments,
the Board may increase the projects ITH
availment proportionately. Request/s for
adjustments of projected revenue must
be filed before the projected revenue is
exceeded, otherwise ITH on the excess
revenue (i.e. in excess of 110% of the
projected gross revenue) shall not be
granted.

5. Enterprises with multiple registrations


with the Board and/or several activities
(whether BOI-registered or not) shall
submit a list of cost items that are
common with the qualified project and
their cost allocation methodology for the
said cost items, to ensure proper, fair and
equitable allocation of common cost such
as overhead and administrative costs.
B. Base Figure and Rate of Exemption

In general, ITH of expansion projects are


subject to a base-figure equivalent to the
enterprises highest sales volume in case of
homogenous products or sales value in case
of heterogeneous products, in the last three
(3) years, prior to the filing of the application
for registration of the project.

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91

Projects registered under the modernization program without increase in capacity may be entitled to
three (3) years ITH and other incentives without prejudice to compliance with other requirements. The
computation of ITH for projects without increase in capacity is as follows:
For single product/activity:
New Investment (in US$)
Rate of Exemption (ROE) = ---------------------------------------------------- x 100

Total Investments (replacement cost + new)

Relative to the Concerned Plant (in US$)

For multiple products/ activities or when ITH period of other products/ activities has lapsed:

Sales arising from the modernization project
% Sales Entitled to ITH = ------------------------------------------------------- x 100

Total Sales
New Investment (in US$)
ROE = ---------------------------------------------------- x 100
Total Investments (replacement cost + new)

Relative to the concerned plant (in US$)

Where:
ROE shall be fixed for the ITH entitlement period.
Exchange rate shall be the existing rate at the time of actual investment or time of availment of ITH
whichever will result in lower rate of ITH.
Replacement cost shall refer to the appraised value of its Fixed Assets relative to the concerned plant
in the first year of ITH availment duly assessed and certified by an Independent Appraiser accredited
by the Bangko Sentral ng Pilipinas. This shall thereon be used as a basis in succeeding ITH availments
until the end of the ITH entitlement period of the project.
% Sales Entitled to ITH shall be based on actual sales values for the year of availment.

C. Availment of ITH Bonus Year


New registered pioneer and non-pioneer enterprises and expansion enterprises granted pioneer incentives
under Art. 40(a) of E.O. 226 may be granted one (1) additional year of ITH incentive for each of the
following criterion:
1. Capital Equipment to Labor Ratio Criterion
a) Formula:
Derived $ cost of capital equipment
Average number of direct labor

US$10,000.00

b) The acquisition cost of the machinery and equipment pertaining to the registered activity covering
the taxable year immediately preceding the period applied for extension and not the depreciated
cost shall be used and, in converting the value of equipment from pesos to dollars, the average
foreign exchange rate at the time of acquisition shall be used.
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B OA R D O F INV ES TMENTS

c) The direct labor count shall represent an average of the month end labor count for the same
taxable year as represented in b.
d) On the year of the actual availment of the ITH bonus year, the firm must still comply with the
capital equipment to labor ratio criterion to be entitled to it.
2. Net Foreign Exchange Earnings/Savings Criterion
a) Foreign Exchange Earnings is the total foreign exchange proceeds from the export of the registered
product or services while Foreign Exchange Savings is the local sales of the registered product
(must be justified as an import substitute) equivalent to the foreign exchange costs of the said
product had these been imported.
b) The export sales/local sales of import substitutes or the derived average foreign exchange earnings/
savings less the foreign exchange costs/expenses for the first three years of commercial operation
should at least be US$500,000.00.
c) Foreign exchange costs/expenses include imported raw materials, imported supplies/spare parts,
depreciation of imported machinery/equipment, among others.
3. Indigenous Raw Material Cost Criterion

a) Formula:
Cost of Indigenous Raw Materials
Total Cost of Raw Materials

x 100% 50%

b. Indigenous Raw Materials and/or intermediate indigenous products must be used as inputs in the
manufacturing or processing of the registered product. The derived ratio should not be lower than
fifty percent (50%) for each taxable year beginning the start of commercial operation up to when
the extension using this criterion was applied for.
c. Lists of indigenous raw materials and Intermediate indigenous products are provided in Annex B.
d. On the year of the actual availment of the ITH bonus year, the firm must still comply with the
indigenous raw material cost criterion to be entitled to it.

D. Projects with Government Guarantee


Projects with government guarantee/subsidy are not entitled to ITH except in cases where ITH has been
considered in the rates/tariffs approved by the regulatory agency concerned.

The ITH is deemed to have been imputed in the grant of the government guarantee/subsidy if the ITH was
incorporated in the bid documents of the project proponent/contract with government on the project,
or the ITH was included in the financial model by the regulatory agency in approving the projects tariffs/
rates. The latter case is particularly applicable to power projects and thus, subject to a certification by the
Energy Regulatory Commission (ERC).

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

93

VIII. MULTI-PHASE PROJECTS


IX.

Projects of an enterprise with multiple phases/


locations may be registered on a per phase/
location.
INCLUSIVE BUSINESS

Registered enterprises are encouraged to


adopt the Inclusive Business (IB) strategy
that provides: a) goods and services; and b)
income and decent work opportunities for
the low-income segment of the society within
the enterprises supply or value chain directly
contributing to the improvement of living
standards and poverty reduction.

X.

The IB strategy of the registered enterprise


may be accredited by the Board subject to
the guidelines that will be issued by the Board
separately.
CORPORATE SOCIAL RESPONSIBILITY
(CSR)

BOI registered entities, recognizing the


benefits derived from the fiscal incentives
granted by the government, should endeavour
to undertake meaningful and sustainable CSR
projects in the locality where the projects are
implemented.
XI. GOOD CORPORATE GOVERNANCE

94

BOI registered enterprises must be committed


to the tenets of Good Corporate Governance.
Boards must function properly in decisionmaking processes that affect their stakeholders.

B OA R D O F INV ES TMENTS

XII.

SUPPORT TO ENVIRONMENTAL
PROTECTION AND CONSERVATION

Registered enterprises shall adopt measures


intended to reduce climate change risks in
support of the National Framework Strategy
on Climate Change.

Likewise, registered enterprises are encouraged


to implement best practices to protect and
conserve biodiversity in their respective area
and/or activities, and promote biodiversityfriendly businesses.

New and expansion projects shall be required


to secure an Environmental Compliance
Certificate (ECC) pursuant to P.D. No. 1586
(Philippine Environmental Impact Statement
System) and other clearances under relevant
environmental laws.

A Certificate of Non-Coverage (CNC) issued


by the Environmental Management Bureau
(EMB) shall be submitted for projects that are
not critical to the environment.

Applicants for BOI registration must submit


proof of application for ECC/CNC filed with
DENR.

Registered enterprises are encouraged to


participate in the Philippines Eco-labeling
Program (ELP), when applicable.
Registered enterprises are encouraged to
secure environmental certifications based
on internationally-recognized standards,
whenever applicable.

XIII. INTERNATIONAL STANDARDS


CERTIFICATION

Registered enterprises shall obtain applicable


certifications based on internationallyrecognized standards such as a Hazard Analysis
and Critical Control Points (HACCP), ISO
certification, quality standards (e.g. ICC, CE)
or other similar certifications.

XIV. EQUIPMENT
Registered enterprises shall use brand new
equipment except for projects utilizing
consigned equipment, projects involving
transfer of facilities, when specified in the
Specific Guidelines, and apply production
processes that meet environmental standards.
Application for availment of capital equipment
incentive shall be filed prior to the ordering of
equipment.
XV.

PROJECTS IN THE AUTONOMOUS


REGION IN MUSLIM MINDANAO
(ARMM)

The ARMM List covers priority activities that


have been identified by the Regional Board of
Investments of the ARMM (RBOI-ARMM)
in accordance with E.O. No. 458. The RBOIARMM may also register and administer
incentives to activities in this IPP for projects
locating in the ARMM.

Projects in the ARMM should register with the


BOI-ARMM.

XVI. PROJECTS WITH REVENUES DERIVED


FROM CARBON CREDITS PURSUANT
TO THE KYOTO PROTOCOL
Revenues from the sale of carbon credits
through certified emission reduction (CER)
units generated from registered activity may
be considered as part of the income entitled
to ITH, provided that the enterprise made
representation at the time of application for
registration that such projects would earn CER
units.
XVII. OUTSOURCING OF PRODUCTION
PROCESS OR SERVICES

Portion/s of the production process or services


of the registered activity may be outsourced
provided that the core activity or the integrated
nature of operation is undertaken by the
registered enterprise.

XVIII. PUBLIC WELFARE CONSIDERATION


The BOI may deny applications for registration


and/or grant of incentives for reasons of
public health or morals or for environmental
considerations.

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95

C.

DEFINITION OF TERMS

a) Alternative Fuel Vehicles refer to vehicles that run on electric batteries, flexible fuels, hybrid systems.
b) Book - a printed non-periodical publication of at least forty-eight (48) pages, exclusive of cover pages,
published in the country and made available to the public.
c) Content Development of Books consists of the following:
(1.) Development of new technologies directly related to book printing or publishing, such as but not limited
to digitization, electronic books (E-books), internet-based archiving and retrieval systems, electronic
content creation and development systems, educational and/or how-to audio-visual presentations
with or without interactive segments, and the like.
(2.) Research and development activities directly related to book printing or publishing, such as but not
limited to translation, editing, analysis and/or interpretation of text and materials into local dialects or
adaptation/application to the domestic setting.

96

B OA R D O F INV ES TMENTS

d) Copy refers to the certified true copy of the


original document.
e) Distribution - refers to bunkering and fuel
shipping and transport. Fuel shipping and
transport cover shipping and transport through
land such as tank trucks, lorries and pipeline
and tankers, and barges for the fuels to get
to the points or areas where they are needed.
Bunkering covers the activity of selling fuel for
direct use by a vessel, usually for water and air
transport, through a smaller transport vessel.
Distribution projects are limited to those
acquiring brand new equipment.
f) Electric vehicles - refer to vehicles that run
solely on electric power.
g) Energy crops - refer to plants that may be
used as feedstock for biofuels and/or power
generation. These include grass, bamboo,
leguminous tree species, sugarcane, sweet
sorghum, cassava, algae, coconut, and oil palm
and other crops as may be identified by the
DOE.
h) Existing Project refers to a project of an
existing enterprise that has started commercial
operation at the time of application with the
Board.
i) Expansion Project refers to a project of
an existing enterprise that would involve the
installation of additional facilities/equipment
that will result in increase in capacity of the
same/similar activity within the same existing
plant/facilities of the enterprise. Projects that
do not qualify as new shall be considered as
expansion.
j) Flexible-fuel vehicles refer to vehicles that
run on gasoline/diesel in combination with
alternative fuel such as but not limited to:
Bioethanol vehicles that run on gasoline
and a minimum ethanol content/blend of
at least 20%
Biodiesel vehicles that run on diesel and
a minimum biodiesel blend/content of at
least 5%

Compressed Natural Gas Vehicles are


vehicles that run on Compressed Natural
Gas (CNG)
Other vehicles powered by LPG, fuel cell
and other alternative fuels.
k) General Hospital refers to a hospital with
Levels 1, 2 or 3 that provides services for all kinds
of illnesses, diseases, injuries, or deformities.
It shall provide medical, surgical, maternity,
newborn, and child care. It shall employ Boardcertified/eligible medical specialists and other
licensed physicians.
l) General Hospital Level 1 refers to a hospital
that has the following:
Staff of qualified medical, allied medical
and administrative personnel headed by
a physician duly licensed by Professional
Regulation Commission (PRC);
Operating room with standard equipment
and provision for sterilization of equipment
and supplies;
Post-operative recovery room;
Maternity facilities consisting of ward(s),
room(s), a delivery room, exclusively for
maternity patients and newborns;
Isolation facilities with proper procedures
for the care and control of infections and
communicable diseases;
Separate dental section/clinic;
Blood station;
DOH licensed secondary clinical
laboratory with the services of a consulting
pathologist;
DOH licensed level 1 imaging facility with
the services of a consulting radiologist;
DOH licensed pharmacy.
m) General Hospital Level 2 refers to a hospital
that has, as minimum, all of Level 1 capacity
including the following:
An organized staff of qualified and
competent personnel with Chief of
Hospital/Medical Director and appropriate
Board-certified Clinical Department
Heads;
General ICU for critically-ill patients;

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

97

Provision for Neonatal Intensive Care Unit (NICU);


Provision for High Risk Pregnancy Unit (HRPU);
Provision for respiratory therapy services;
DOH licensed tertiary clinical laboratory;
DOH licensed level 2 imaging facility with mobile x-ray inside the institution and capability for contrast
examinations.

n) General Hospital Level 3- refers to a hospital that has, as minimum, all of Level 2 capacity including the
following:
Teaching and/or training hospital with accredited residency training program for physicians in the four
(4) major specialties namely: Medicine, Pediatrics, Obstetrics and Gynecology, and Surgery;
Provision for physical medicine and rehabilitation unit;
Provision for ambulatory surgical clinic;
Provision for dialysis facility;
Provisions for blood bank;
DOH licensed tertiary clinical laboratory with standard equipment/reagents/supplies necessary for
the performance of histopathology examinations;
DOH licensed level 3 imaging facility with interventional radiology.
o) Government Guarantee refers to the rate of return granted by the regulating agency to include profit and
the recovery of capital expenditure (guaranteed rate of return), assured payment whether or not services/
product were produced/delivered (take or pay provision), and assurance to lender by a government agency
that a financial obligation will be honored even if the borrower is unable to repay the debt.
p) Government Subsidy - refers to the financial contribution by the national government or any of its
agencies to defray, pay for or shoulder a portion of the project cost or the expenses and costs in operating
or maintaining the project.
q) Inclusive Business are those profitable core business activities that deliberately target the low-income
segment (below US$3/day) as part of their value proposition. IB creates or expands access to goods,
services, and livelihood opportunities for the poor and vulnerable in commercially viable and scalable way.
r) Integrated Circuit refers to a semiconductor device that holds a number of electronic components that
are internally connected to form a larger electronics circuit which can operate either using analog or digital
technology.
s) Logistics Efficiency Index refers to the measure of cost efficiency of the logistics involved in the supply
of motor vehicle parts and components for the enrolled Model. It is computed as follows:
LEI = Nf - Na Where: Na =

Nf Nt


Nf =

Nt =

annual volume of imported parts (m3)


total annual production (units)
total m3 of parts for one complete vehicle
total m3 of part/unit that are deemed too
technology- or investment-intensive and
that cannot be viably manufactured in the country

t) Job Generation - refers to the number of jobs directly generated by the project regardless of the length
of employment.

98

B OA R D O F INV ES TMENTS

u) Marketing of Petroleum Products/Natural


Gas covers the following:
(1) Retailing or selling in retail generally
directed to the end users, through
dispensing pumps in stations or in packaged
containers such as drums for the liquid fuels
or metal cylinders that are compliant with
PNS. This includes the establishment and
operation of gasoline/natural gas stations
and retailing.
(2) Fuels bulk marketing or selling in wholesale
through tank trucks, lorries, doublehulled vessels/tankers, barges or pipelines,
which may be sourced from ones own
storage facilities. Investment shall include
underground tanks and other equipment
intended for fuels retailing through outlets
such as gasoline/natural gas stations and
LPG/LNG outlets.
(3) A combination of storage, distribution, and
marketing activities.
v) Measured Capacity - the estimated additional
volume of production/ service which the Board
determines to be desirable in each preferred
area of investment taking into account the
export potential of the product. For housing
projects, the estimated housing backlog for
units between four hundred fifty thousand and
three million pesos (economic and low-cost
housing) in the country shall be the basis of
measured capacity.
w) Metro Cebu is composed of Cebu City,
Lapu-Lapu City, Mandaue City, Cordova,
Consolacion, Liloan, Compostela, Talisay,
Minglanilla, and Naga.
x) Metro Davao is composed of Davao City and
the adjoining towns of Panabo and Sta. Cruz.

y) Modernization Project refers to a project


of an existing enterprise that would involve
improvements in systems, processes,
equipment, and/or facilities that must result in
any of the following:
(1) At least 25% substantial reduction of
production cost/cost of provision of the
service; or
(2)
Upgrading of product/service quality
or classification of the facility (e.g.,
hospitals, hotels, resorts) to a higher class
in accordance with accreditation standards
applicable to the industry concerned.
z) Motorcycle refers to conventionally-powered
two or three-wheeled vehicle fitted with an
auxiliary motor, with or without sidecars.
aa) Multiplier Effect - refers to the increase
in economic activity and interrelationships
generated and stimulated by the investment.
bb) New Plantation Area - refers to new hectarage
of plantation or lands that have been idle for
at least one year or those involving change of
crops/variety to achieve higher yield or shifts in
the production system such as organic farming.
cc) New Project - refers to a project/activity listed
in the IPP that has not started commercial
operation undertaken by:
(1) A newly organized/formed enterprise
that:
i. has no common stockholders in any
existing enterprise, or
ii. has common stockholders in the
existing enterprise but own not more
than fifty percent (50%) of equity in
the new enterprise, or
iii. has common stockholders but will
engage in an entirely distinct and
separate activity, or

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

99

iv. has common stockholders (regardless


of percentage of common ownership)
and will engage in the same activity
as that of the existing enterprise but
will locate in a different municipality,
province, or region.
(2) An existing enterprise that shall engage
in:
i. an entirely distinct and different
activity from its existing business
operations; or
ii. the same activity provided it shall
establish a new facility2 in an area
not contiguous to the premises of
its existing project and with new
investments.
(3) An enterprise involving the manufacture
of products utilizing local R&D.
Applications for registration utilizing
local R&D must be endorsed by the
Department of Science and Technology
(DOST) stating that this was undertaken
in the Philippines and has not yet been
commercialized.
(4) For industrial tree plantations, an
enterprise involved in the development
of any public or private land to plantation
of timber and non-timber species to
supply the raw material requirements of
forest-based industries. It also includes
plantation with existing tree crops,
which have not yet reached commercial
harvest.
dd) Net Value-added - refers to the value of
final product/service less the value of inputs.
The projects net value added should be at
least 25% except for projects dependent on
imported raw materials/ supplies.

New Facility refers to new complete line used in the production of the registered product/service separate
from existing line

100

B OA R D O F INV ES TMENTS

ee) Original Text with Annotations refer


to written works where the original text
is augmented with annotations, such as
additional comments, highlights, evaluation,
or explanation, that are provided by the same
or another author for the purpose of further
analyses and understanding of the said
original text by a specific audience.
ff)

Original Works are original intellectual


creations in the literary and artistic domain
protected from the moment of their
creation and shall include in particular books,
pamphlets, articles and other writings.

gg) Other Health Facilities shall refer to the


following:
(1) Custodial Care Facility a health facility
that provides long-term care, including
basic human services like food and shelter
to patients with chronic or mental illness,
people requiring ongoing health and
nursing care due to chronic impairments
and a reduced degree of independence in
activities of daily living.
(2) Diagnostic/Therapeutic Facility - a
facility that examines the human body or
specimens from human for the diagnosis,
sometimes treatment of diseases.
(3) Specialized Out-patient Facility - a
facility with highly competent and
trained staff that performs highly
specialized procedures on an out-patient
basis; examples are, but not limited
to the following: (i) Dialysis Clinic,
(ii) Ambulatory Surgical Clinic, (iii)
Oncology Chemotherapeutic Center/
Clinic, (iv) Radiation Oncology Facility,
(v) Physical Medicine and Rehabilitation
Center / Clinic.
(4) Geriatric Care Facilities.

hh) Phase - a distinct period or stage pertaining


to the development or operational capacity
of a project
ii)

jj)

mean the date when a particular registered


enterprise begins catering to or servicing its
clients on a commercial basis. In the case
of export traders and service exporters, the
term shall mean the date when the initial
export shipment in commercial quantity has
been made or initial performance of service
as borne out by the appropriate supporting
documents.

Specialty Hospital refers to a hospital that


specializes in a particular disease or condition
or in one type of patient. A specialized
hospital may be devoted to treatment of any
of the following:
(1) Treatment of particular types of illness for
a particular condition requiring a range of
treatment. Examples of these hospitals
are Philippine Orthopedic Center,
National Center for Mental Health, San
Lazaro Hospital, and hospitals dedicated
to the treatment of cancer.
(2) Treatment of patients suffering from
diseases of a particular organ or groups of
organs. Examples of these hospitals are
Lung Center of the Philippines, Kidney
and Transplant Institute, and hospitals
dedicated to treatment of eye disorders.
(3) Treatment of patients belonging to a
particular group as children, women,
elderly and others. Examples of these
hospitals are Philippine Childrens
Medical Center, National Childrens
Hospital, and Dr. Jose Fabella Memorial
Hospital.

Start of Commercial Operations shall


be the date specified in the project study
submitted to the Board or the date when
a particular enterprise actually begins
production of the registered product
for commercial purposes or commercial
harvest in the case of agricultural activities,
whichever comes first, irrespective of phases
or modules or schedule of development. In
the case of service oriented activities, it shall

mm) TSD (Treatment, Storage, and Disposal)


Facilities - are the facilities where hazardous
wastes are stored, treated, recycled,
reprocessed, or disposed of.

For renewable energy projects (RE), start of


commercial operations shall refer to the state
at which the RE Plant generated the first
kilowatt-hour of energy after commissioning
or testing, or two (2) months from the date
of such commissioning or testing, whichever
comes earlier, as certified by the DOE.

kk) Storage - refers to the business of receiving/


discharging and storing petroleum crude and/
or products of others for compensation or
profit. Storage projects are limited to those
establishing new facility, i.e., depot or storage
tanks.
ll)

Trial Operation refers to the initial precommercial phase based on 10% of the
annualized sales vis--vis the first year of the
projects projected revenues. This shall not
apply to energy projects.

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101

D.

SPECIFIC GUIDELINES

I. PREFERRED ACTIVITIES
1. Manufacturing
a. Motor vehicle (excluding motorcycles, e-bikes and golfcarts) and motor vehicle parts and components

This covers the assembly of motor vehicles, manufacture of parts and components, research &
development, research/testing laboratories, and technical vocational education and training institutions.
(1) Motor Vehicle (excluding motorcycles, e-bikes and golf carts)

102

Projects must include the manufacture of parts and components.

B OA R D O F INV ES TMENTS

Any of the following may qualify as


new:
a) Projects that will involve the
establishment of a factory complete
with
production
machinery/
equipment and facilities.
b) Projects of an existing motor
vehicle manufacturer/assembler of
passenger car/commercial vehicle
that involves the production of a
new model or a full model change
(FMC) provided there is new
investment of at least Php 200
million.
Any of the following may qualify for
pioneer status:
a) Projects on the manufacture/
assembly of alternative fuel vehicle
and electric vehicles. Alternative
fuel vehicles include hybrid
vehicles, and flexible-fuel vehicles.
b) Manufacture/assembly of brand
new three or four-wheel Philippine
utility vehicles for cargos and/or
passengers.
The projects ITH Rate of Exemption
shall be proportionate to the Logistics
Efficiency Index (LEI).

(2) Parts and Components


a) Body panel stamping
b)
Engines,
transmissions,
and
transaxle
c) Large injection moulded parts
d) Bumpers; instrument panel; door
trims; center console; grill; wheel
house finisher; lamps; shock absorber;
wiper motor/blade; engine mounts;
electric power steering; combination
meter; instrument cluster; chassis &
sub-frame; interior finishing; switches;
seat mechanism; retractable seat
belts; window regulator; constant

velocity joints/transmission; aluminium


radiators; plastic fuel tanks; fuel
pumps; brake system and components;
evaporators and condensers; relays;
flame laminated automotive fabric;
door & rear view mirrors; automotive
glass; engine parts & assembly; and
transmission parts & assembly
e) Controller assembly, motor, and
battery (other than lead acid) for
electric vehicle
Original Equipment Manufacturer
(OEM) parts and components may
qualify for pioneer status.
b.
Shipbuilding
components

including

parts

and

This covers shipbuilding, manufacture


of parts and components, research &
development, and technical vocational
education and training institutions.
(1) Shipbuilding

This covers the construction of ships


that are at least 500 GT and the
manufacture of parts and components.

Registered enterprises must comply


with Department of Labor and
Employment (DOLE) Department
Circular No. 1 series of 2009 on the
Guidelines on Occupational Safety and
Health in Shipbuilding, Ship Repair and
Shipbreaking Industry.

Prior to start of commercial operation,


the registered enterprise must submit
a copy of its License to Operate or its
equivalent from the Maritime Industry
Authority (MARINA) or other
concerned agency.

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

103

(2) Parts and Components

(3) Chlor-Alkali Plant Products

This covers the manufacture of parts


and components such as but not limited
to fit-outs, pumps, marine engines,
navigational equipment, marine boilers,
and propellers.

c. Aerospace parts and components


This covers the manufacture of aerospace


parts and components, and support activities
(e.g., R&D activities, research/testing
laboratories, and technical vocational
education and training institutions).

d. Chemicals
This covers the production of the
Oleochemicals,
Petrochemicals
and
derivatives, and Chlor-Alkali Plants
products, research & development, and
research/testing laboratories.
(1) Oleochemical Products
Oleochemical products include the
manufacture of fatty acid and fatty
alcohol.
(2)
Petrochemical
Derivatives

Products

and

its

Petrochemical products and its


derivatives include, but are not limited
to, the manufacture of derivatives from
ethylene such as ethylene dichloride
(EDC) and vinyl chloride monomer
(VCM); olefins and polyolefins
[Polyethylene (PE), Polypropylene
(PP), Polystyrene (PS), and Polyvinyl
Chloride (PVC)], derivatives from
propylene, derivatives from mixed C4,
and aromatic derivatives.

104

B OA R D O F INV ES TMENTS

Chlor-Alkali plant products include the


manufacture of chlorine, alkali (caustic
soda), and hydrochloric acid (muriatic
acid).

e. Virgin paper pulp


This covers the production of pulp
integrated with forest plantation, research
& development, and technical vocational
education and training institutions.
f. Copper wires and copper wire rods
This covers the manufacture of copper
wire rods and enamelled wires, research
& development, and technical vocational
education and training institutions.
(1) Copper Wire Rod
Projects must have a minimum
production capacity of 12,000 MT
per year and would produce wire rods
compliant with applicable international
or Philippine National Standards for
the production of copper wires and
cables.
(2) Copper Wires

This covers the production of copper


enamel wires. All enamelled wire
products must be compliant with
the applicable Philippine National
Standards (PNS).

g. Basic iron and steel products, steel grinding


balls, long steel products (billets and
reinforcing steel bars), and flat hot/coldrolled products.

All iron and steel products must be


compliant with the applicable Philippine
National Standards (PNS).
h. Tool and Die
This covers the production of dies and
molds, research & development, and
technical vocational education and training
institutions.
Simple, compound and progressive dies
for metal stamping or metal forging
Molds for die casting, for plastic
injection or blow molding, glass blow
molding, forging, encapsulation molds
Jigs and fixtures for metal cutting and
metal forging.

2. Agribusiness and Fishery


a. Commercial production3
(1) Coconut, corn, cassava, coffee, cocoa,
fisheries, poultry and livestock;
(2) High value crops - rubber, spices,
vegetables and fruits;
(3) Emerging commodities sampaloc,
jackfruit, peking duck, native pigs, siling
labuyo, peanuts, monggo, and achuete.
All projects must be endorsed by the
Department of Agriculture (DA).
b. Commercial processing3
(1) Extraction of higher value substances
from agricultural and fishery raw
materials through bioprocessing; or
(2) Conversion of agricultural and fishery
products or wastes to a form ready for
further processing or final consumption.

Commercial processing of agricultural


products should involve the use of
domestically-produced raw or semiprocessed agricultural products, unless
these inputs are not locally produced (NLP)
or are not in sufficient quantity (NISQ).

If using imported raw or semi-processed


agricultural products that are locally
produced (LP) or in sufficient quantity
(ISQ), the project may qualify for
registration, provided that the finished/
final product is for export, or the project
qualifies for pioneer status.

c. Production of animal and aqua feeds


excluding those for game animals, fowls
and other species for pet/leisure purposes.
d. Commercial production of organic and
inorganic fertilizers and pesticides.
e. Modernization of sugar mills which will
increase mill efficiency measured in terms
of Overall Recovery (OAR) rate to at least
85%.
f. Mechanized agriculture support services,
e.g. harvesting, land preparation, spraying/
dusting and other related agricultural
service.
g. Agriculture support infrastructures, e.g.
facilities for drying, cold chain storage, blast
freezing, bulk handling and storage; packing
houses; trading centers; ice plants in Less
Developed Areas; AAA slaughterhouse;
research & development/testing facilities;
technical vocational education and training
institutions; and AAA dressing plant.
For projects under (c), (d), (f), and (g) above
supporting agricultural commercial production,
the qualification for registration is subject to
the geographical market conditions, industry
roadmaps and industry clustering strategies.

Subject to geographical supply considerations. In the case of poultry and livestock production, this is limited
to areas in ARMM, Mindoro and Palawan.

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

105

3. Services

d. Charging stations for electric vehicles

a. Integrated Circuit Design

This covers research & development,


technical vocational education and training
institutions, and all logic & circuit design
techniques required to design integrated
circuits (ICs).
b. Creative Industries/
Services4

Knowledge-Based

This covers the start-ups of small newly


incorporated domestic players/enterprises
engaged in the following activities:
Animation
Software development5
Game development
Health Information Management
Systems

c. Ship repair

This covers repair of all types of vessels and


offshore structures.

Ship repair facilities must have a drydocking facility with a minimum capacity
of 1,500 DWT.

Prior to start of commercial operation, the


registered enterprise must submit a copy
of its License to Operate or its equivalent
from the MARINA or other concerned
agency.

Covers start-ups of small newly incorporated domestic players/enterprises only.


Covers only those with own Intellectual Property that are developed for commercial sale.

4
5

106

B OA R D O F INV ES TMENTS

This covers the establishment of charging


stations for electric vehicles. The charging
stations could refer to a service station
designed to simultaneously fast charge
multiple vehicles similar to gasoline/diesel
stations or a network of at least 5 charging
stands.

Application for registration must be


accompanied by an endorsement from
the Department of Energy-Investment
Promotion Office (DOE-IPO).
e. Maintenance, Repair and Overhaul (MRO)
of aircraft
This covers R&D activities and the
establishment
of
research/testing
laboratories, Centers of Excellence and
technical vocational education and training
institutions in support of the manufacturing
of aerospace parts and components (or
maintenance, repair and overhaul of
aircraft).
f. Industrial waste treatment

This covers the establishment of treatment


facilities for toxic and hazardous wastes
(THW) from an industrial operation.

The following are the qualifications for


registration:
Must involve treatment, storage and
disposal (TSD)
Must be capable of handling THW
Must handle only locally generated
industrial wastes.

Prior to start of commercial operation, the


registered enterprise must submit a copy of
its TSD Registration Certificate issued by
the Environmental Management Bureau
(EMB) of the DENR.

4. Economic and Low-cost Housing (horizontal


and vertical)6
This covers the development of economic
and low-cost housing and the manufacture of
modular housing components.
a. Economic and Low Cost Housing
The following are the qualifications for
registration:
The selling price of each housing unit
shall be more than Php450,000.00
but not exceeding Php3.0 million;
Minimum of 20 livable dwelling units in
a single site or building;
Must be new or expanding economic/
low-cost housing project;
For vertical housing projects, at least
51% of the total floor area, excluding
common facilities and parking areas,
must be devoted to housing units.

In cases of un-incorporated joint venture


and similar arrangements between
landowner and developer wherein the
sharing scheme is in terms of the number
of lots or units built, only the share of the
developer may qualify for registration.

Projects that have already been completed


and have incurred sales (booked sales)
of housing packages shall not qualify for
registration.

Any of the following may be considered as


an expansion project:
Construction of additional floors or
annexes intended for housing units;
If the project will locate adjacent or
contiguous to an existing housing
project owned by the same entity and
shall share common facilities including
access to the existing project.

All economic/low-cost housing projects


must comply with the following:
Socialized housing requirement (SHR)
by building socialized housing units
in an area equivalent to at least 20%
of the total registered project area or
total BOI registered project cost for
horizontal housing and 20% of the total
floor area of qualified saleable housing
units for vertical housing projects.

This may be done through any of the


following modes:
- Development of a new settlement
directly undertaken by the
registered entity;
- Development of a new settlement
through joint venture arrangements
with any of the following:
i. Local Government Unit,
ii Affiliate or other related
enterprise of the BOIregistered entity,
iii. Developer accredited by the
HLURB.

In the case of joint venture projects,


the BOI registered entity shall be
required to provide proof of funds
transferred to the implementing
entity.

Based on a price ceiling of Php3.0 million and subject to geographical considerations.

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

107

- Development of a new settlement


through donation of land with
basic
infrastructure
facilities
(roads, water system, etc.) and/or
construction materials intended
for the calamity stricken areas as
identified in the Comprehensive
Rehabilitation and Recovery Plan
of the Areas Battered by Yolanda
in partnership either with any of
the housing agencies, relevant
LGUs, or with HLURB accredited
NGOs.
In lieu of the above modes for
compliance with the SHR, vertical
housing projects may opt to donate
provided: (1) the donation is made
to BOI accredited NGO and (2)
the amount to be donated shall be
equivalent to 30% of (20% of the
building construction cost based on
the actual number or equivalent total
floor area of qualified saleable low cost
housing units) or not less than 40%
of the estimated ITH. Equivalent total
floor area refers to the sum total of the
floor area of all the registered low-cost
housing units.
For purposes of ITH availment,
compliance with the 20% socialized
housing requirement shall be computed
based on the actual units sold during
the ITH availment period. Failure to
submit proof of compliance shall result
to forfeiture of ITH for that particular
taxable period.
Non-compliance with the 20% SHR
on previous registrations using the ITHbased Compliance (IBC) shall result in
denial of applications for registration
for succeeding projects.

108

B OA R D O F INV ES TMENTS

Project shall conform with the design


standards set forth in the Rules and
Regulations to Implement B.P. No.
220/P.D. No. 957 and other related
laws.

Eligible projects in NCR, Metro Cebu, and


Metro Davao may only be granted three
(3) years ITH unless the SHR compliance
of the said projects would be undertaken
in any of the identified calamity-stricken
areas in the Comprehensive Rehabilitation
and Recovery Plan of the Areas Battered
by Yolanda. In such cases, said projects
may be eligible to four years of ITH.

Interest income arising from in-house


financing shall not be entitled to ITH.
Application for registration must be
accompanied by a copy of the Development
Permit issued by HLURB or concerned
LGU.
Prior to registration, horizontal housing
project applicant must submit copies of
License to Sell (LTS) and Certificate of
Registration (CoR) issued by HLURB.
For vertical housing project, applicant
may submit a copy of its temporary LTS
provided that the copies of the final LTS
and CoR shall be submitted prior to start
of commercial operation.
b. Modular Housing Components

This covers the manufacture of modular


housing components preferably using
indigenous materials. These include roof/
framing systems, wall/partition systems,
flooring systems, door/window systems,
and finishing/ceiling systems.

Application for registration must be


accompanied by an endorsement from
Accreditation of Innovative Technologies
for Housing (AITECH).

5. Hospitals7

(1) Exploration and


Energy Sources

This covers the establishment and operation of


general and specialty hospitals and other health
facilities.
Any of the following may qualify for registration:
General Hospitals (Level 1, 2 and 3) in any
of the locations listed in Annex C-1,
General Hospital Level 3 in any of the
locations listed in Annex C-2,
Specialty Hospitals and Other Health
Facilities outside Metro Manila. Other
Health Facilities include:
a) Custodial Care Facilities (excluding
those for rehabilitation owing to
substance abuse),
b) Diagnostic/Therapeutic
Facilities
(excluding Clinical Laboratory, Drug
Testing Laboratory, Laboratory for
Drinking Water Analysis), and
c)
Specialized Out-Patient Facilities
(excluding
In-Vitro
Fertilization
Center and Stem Cell Facility).
Geriatric Care Facilities.

Exploration and development of energy


sources should be covered by a valid
service contract with the Department
of Energy (DOE).

Exploration projects shall only be


entitled to duty free importation of
capital equipment.

Only new plantations/growing areas


dedicated for energy feedstock may
qualify for BOI registration.

Applications for registration must be


accompanied by a certification from
the DA as provided under Section 4 of
Joint Administrative Order (JAO) No.
2008-1, Series of 2008 (Guidelines
Governing the Biofuel feedstock
production under R.A. 9367).

b. Power generation plants8


This covers power generation projects
utilizing conventional fuels (i.e., coal, diesel,
bunker, natural gas, and geothermal),
waste heat and other industrial wastes.
Only projects that will respond to the
capacity installation gap based on DOEs
five-year supply-demand forecast and will
operate on or before 2019 may qualify for
registration. Availment of ITH shall be on a
first to operate basis.

Prior to start of commercial operation, the


registered enterprise must submit the License
to Operate from the Bureau of Health Facilities
and Services of the DOH, where applicable.
Prior to availment of ITH, the registered
enterprise must submit a copy of its Certificate
of PhilHealth Accreditation, where applicable.

Registration of projects shall be based


on the below indicative allocation of the
installation target in accordance with the
Energy Supply-Demand Outlook of the
DOE as of February 2015 and may be
subject to re-allocation based on regional
power demand and supply situation.

6. Energy
a. Exploration and development of energy
sources (including energy crops or
upstream biofuels)
8

Subject to geographical considerations.

of

(2) Energy Crops

Only revenues derived from medical and


diagnostic services rendered by the registered
entity shall be entitled to ITH. Income from
lease/rent, and revenues from any other nontreatment related services will not be eligible
for ITH.

Development

Subject to capacity installation gap based on DOEs five-year supply-demand forecast or up to 2019, i.e., if
forecast is 6000MW, then the first 6000MW capacity receives the incentives, and said installation gap will
be divided among areas in Luzon, Visayas and Mindanao.
2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

109

Luzon
(in MW)
Visayas
(in MW)
Mindanao
(in MW)

2015

2016

2017

2018

2019

1,300

500

500

500

50

150

50

50

50

100

50

50

50

100

100

(2) Support services such as frequency


regulation and contingency reserves,
voltage control, load following,
reactive power support, and black
start capability which are necessary to
support the transmission capacity and
energy that are essential in maintaining
power quality and the reliability and
security of the grid.

Power projects that are built contiguous


to its existing generating facilities shall be
considered as expansion projects. However,
if the existing base load power plant has
consistently dispatched at least 80% of its
registered capacity for the past 3 years, the
project to be registered may be considered
new.

d. Energy efficiency projects


This covers the establishment of energy
efficiency-related facilities and the
manufacture of equipment for use in
energy efficient systems.

Revenues of base load plants derived


through the Wholesale Electricity Spot
Market (WESM) shall not be entitled to
ITH.
Within one (1) year from the date of
registration, projects with loan components
in their financing scheme must have
achieved Financial Close; otherwise the
projects registration shall be subject to
automatic cancellation. As evidence of
financial closing, the enterprise shall submit
a certification, in a form and substance
satisfactory to BOI, issued and addressed
by the lenders to BOI confirming the
financial agreements are in full force and in
effect.
Power generation projects located in
missionary areas or off-grid areas may
qualify for pioneer status.
c. Ancillary services
(1)
Drilling Services
Projects

110

B OA R D O F INV ES TMENTS

for

Geothermal

Projects should utilize energy sources adopting


environmentally-friendly technologies that
comply with the Clean Air Act, the Environmental
Impact System law, the Biofuels Act, where
applicable, and other relevant environment laws.
Applications for registration must be
accompanied by an endorsement from the
Department of Energy (DOE).

7. Public Infrastructure and Logistics


a. Airports and seaports (includes RO-RO
ports) for cargo and passenger

The qualification for registration of projects


is based on the governments infrastructure
development policy and other relevant
plans.

Application for registration must be


accompanied by an endorsement from the
Civil Aviation Authority of the Philippines
(CAAP) or the Philippine Ports Authority
(PPA), whichever is applicable.

b. Air, land and water transport (limited to


brand new ships, aircraft, seaplanes, RORO; buses, boats, mass rail - limited to
capital equipment incentive only)
(1) Air Transport

This covers passenger and/or cargo air


transport operation for commercial
purposes.

(2) Land Mass Transport


This covers mass transport using brand


new buses that run on electric batteries,
and/or compressed natural gas.

The following are the qualifications for


registration:
Must utilize buses with at least
Euro IV-compliant engine and
using Euro IV fuel, if applicable;
and
Must have own terminal and garage
that can accommodate all the buses
under its franchise(s).

Lease with option to purchase an


aircraft may be allowed. Acquisition of
additional brand new aircraft may be
registered as new.
Application for registration must be
accompanied by an endorsement from
the Civil Aeronautics Board (CAB),
when applicable. Such endorsement
must contain information on the routes
to be served.

Prior to start of commercial operation


of each aircraft, the registered
enterprise must submit a copy of the
Certificate of Airworthiness issued
by Civil Aviation Authority of the
Philippines (CAAP).

Only revenues derived from cargo


air freight fares, passenger air fares,
and revenues on refund, cancellation
and rebooking fees shall be entitled to
ITH. Incidental revenues such as those
earned from excess baggage (including
prepaid baggage), seat selector options,
merchandise sales such as sale of meals/
beverages, souvenirs, travel related
products and other commodities,
package tours and other incidental
revenues as may be determined by the
Board shall not be entitled to ITH.

Application for registration must


be accompanied by a copy of the
application for franchise with the
Land Transportation Franchising &
Regulatory Board (LTFRB).

Prior to start of commercial operation,


the registered enterprise must submit
a copy of its original LTFRB Franchise
Verification with Original Receipt.

(3) Water Transport


This covers domestic/inter-island
shipping, i.e. pure cargo, passenger,
and passenger-cargo vessel operations
including RORO Terminal System
operations.
Tankers, High-speed Craft, RORO
Vessels serving primary routes and
Passenger/Cargo vessels having gross
weight of 150 GT and above may qualify
for registration.
Application for registration must be
accompanied by an endorsement of the
project and proof of accreditation of
the shipping enterprise by MARINA.

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

111

Prior to start of commercial operation,


the registered enterprise must submit
proof that the vessel is registered with
MARINA and a copy of the vessels
Class and Statutory Certificate as
required by MARINA.

RORO operator/ enterprise serving


missionary routes, as indicated in the
Certificate of Public Convenience
(CPC) issued by MARINA, may
qualify for pioneer status.

Bulk water supply projects must involve


extraction of water from its natural source,
except shallow and deep wells, and water
treatment for commercial purposes. The
water treatment facility shall cover the
minimum basic process flow of a treatment
plant (i.e. screening, mixing, flocculation,
sedimentation, filtration and chlorination)
with capacity sufficient to handle the
volume of raw water to be supplied to its
target service area.

Only new bulk water treatment and supply


projects may qualify for registration.
Supply of water (or distribution) should
include extraction of water, treatment and
installation of distribution lines and flow
metering systems. Treated water should be
in accordance with the PNS for Drinking
Water.

d. Bulk water treatment and supply

Acquisition of additional brand new


vessel/s may be registered as new
project.
(4) Mass Rail

This covers mass rail transport system


for passengers and cargoes in line
with the transport development plans
and programs of the Department of
Transportation and Communications
(DOTC).

c. LNG Storage and Regasification Facility


This covers the establishment and operation


of natural gas storage and regasification
facilities in accordance with relevant
Philippine National Standards (PNS).

LNG gasification plants may be located on


land and/or on floating barges.

The following are the qualifications for


registration:
Must have new facilities
Must cater to power plants, industrial
plants, commercial establishments,
etc.
Must cater to at least one (1) clientele,
other than the proponents own
business.

112

B OA R D O F INV ES TMENTS

The registered enterprise must submit a


copy of its Permit to Operate issued by
the DOE prior to start of commercial
operations.

Projects involving any of the foregoing


areas of water operations dedicated to
a particular industrial estate, industrial
community, or subdivision are not qualified
for registration.
Application for registration must be
accompanied by a copy of the Water
Permit.

Prior to start of commercial operations, the


registered enterprise must submit a copy
of the Certificate of Public Convenience
(CPC), if applicable.

Applications covering both supply and


distribution projects shall be unbundled
showing the revenue and cost structure of
each.

8. PPP Projects

Mere deployment of people or individual


practice of profession abroad is not qualified
for registration.

This covers projects implemented under


Republic Act No. 6957, as amended by
Republic Act No. 7718 (Amended BuildOperate-and-Transfer Law).

For contact centers, projects must have a


minimum investment cost of the Philippine
Peso equivalent of US$5,000 per seat
to qualify for registration. This amount
covers the cost of equipment (hardware and
software), office furniture and fixture, building
improvements and renovation, and other fixed
assets except land, building and working capital.
If equipment used were leased, the same should
be converted to assets in terms of commercial
interest rates and amortized over a five-year
period. If equipment were consigned, the same
should have an assigned value to be considered
as part of the project cost.

Application for registration must be


accompanied by an endorsement from the
Public-Private Partnership (PPP) Center.
II. EXPORT ACTIVITIES
This covers the manufacture of export products,
services exports and activities in support of
exporters.

1. Production and Manufacture of Export


Products
This covers the production/manufacture of
non-traditional export products and with
export requirement of at least 50% of its
output, if Filipino-owned or at least 70%, if
foreign-owned.
Export products include electronics, garments
and textiles (including brassieres, gloves and
mittens, and infants wear), footwear and
leather goods, furniture, jewelry, marine and
aquaculture, mineral products, and others.
In the export of mineral products, the Specific
Guidelines for R.A. No. 7942 of this IPP shall
apply suppletorily.

2. Services Exports
This covers service activities rendered to
clients abroad and paid for in foreign currency
with export requirement of at least 50% of its
revenue, if Filipino-owned or at least 70%, if
foreign-owned.

In the case of contact centers, revenues shall be


unbundled to show the breakdown of servicing
domestic and overseas markets.

3. Activities in Support of Exporters


This covers activities directly supporting export
producers as follows:
a. Manufacture of parts/components and
materials and supplies directly/ reasonably
needed in the production of the export
product;
b. Services comprising a portion of the
manufacturing process;
c. Product testing and inspection;
d. Repair and maintenance; and
e. Logistics services.
This also covers service providers to foreign
film and television production projects in the
country as endorsed by the Philippine Film
Export Services Office (PFESO) as mandated
by E.O. No. 674.

This also covers non-voice business processing


operations such as administrative and business
services including analytics, data management,
engineering and architectural services.
2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

113

III. SPECIAL LAWS

The following may qualify as new:

New book titles (original works, and original


text with annotations), and
First format by which the new book title will
be produced or published. The succeeding
format (e.g., print to digital, or vice versa)
by which the same title is published will be
regarded as Expansion.

1. Industrial Tree Plantation9


This covers extensive plantation of forest land of
tree crops (except fruit trees) for commercial
and industrial purposes.
Tree crops include timber and non-timber
species such as rubber, bamboo, rattan, etc.
(excluding fruit trees) for commercial and
industrial purposes.

In cases of tree plantations that are joint


venture agreements with other private entities,
community organizations or government
entities, only the share of the registered
enterprise may be entitled to ITH.

For unpublished content, application for


registration may be on a per book title or a
maximum of five (5) book titles per application.

Application for registration must be


accompanied by an endorsement from the
DENR.

A minimum of 10 titles with 1,000 copies


each for its first print run, in case of printed
books; and
A minimum of 10 titles each, in case of
e-books.

Mining/quarrying and mineral processing


projects are limited to capital equipment
incentives.
Application for registration must be
accompanied by a copy of the Exploration
Permit,
Mineral
Production
Sharing
Agreement (MPSA), or Financial or Technical
Assistance Agreement (FTAA), whichever is
applicable.
3. Publication or Printing of Books
This covers content development intended
for books and publication of books in print or
digital format.
9

114

For publishing, the following will apply:

2. Exploration, Mining, Quarrying and


Processing of Minerals
This covers the exploration and development
of mineral resources, mining/quarrying and
processing of metallic and non-metallic
minerals.

Re-prints, revisions, and succeeding editions of


existing titles will not qualify for registration.

Industrial Tree Plantation (ITP) is also known as Industrial Forest Plantation (IFP) based on DENR AO 1999-53
B OA R D O F INV ES TMENTS

Application for registration must be


accompanied by an endorsement from the
National Book Development Board (NBDB).

4. Refining, Storage, Marketing and


Distribution of Petroleum Products
This covers refining, storage, distribution, and
marketing of petroleum products.
For gasoline retailing stations, except those
locating in LDAs listed in this IPP, the applicant
shall be required to invest a minimum capital of
PhP10 million per station, excluding land, or
such amount as may be determined jointly by
BOI and DOE for augmentation purposes, as
the need arises; Provided, that foreign retailers
shall comply with the requirements provided
under R.A. No. 8762, otherwise known as
the Retail Trade Liberalization Law, and its
implementing rules and regulations.

For storage, marketing and distribution, only


investments of new industry participants may
be entitled to incentives.

Manufacturing of technical aids and appliances


used by persons with disability includes but is
not limited to the following:

Application for registration must be


accompanied by an endorsement from the
DOE certifying that the applicant is a new
industry participant with new investments.

Walk-in baths designed for persons with


disabilities;
Commode chairs;
Braille books;
Hoists and lifting chairs designed for
incapacitated people, including stair lifts;
Wheelchairs, scooters and automobiles
using special controls or assistive technology
designed for persons with disabilities;
Hearing-aids;
Artificial limbs, orthotics, prosthetics and
orthopedic braces;
Automatic/mechanical lifts to be attached
to motor vehicle.

For storage, marketing and distribution,


petroleum products excluding liquefied
petroleum gas (LPG), shall be sourced from
the new industry participants as defined under
R.A. No. 8479, except in cases of emergency
supply situation.
For projects that involve more than one activity,
i.e., storage, marketing and distribution, each
must be unbundled showing the revenue
streams and costs for each activity.
Blending of petroleum products alone may
only be entitled to capital equipment and other
non-fiscal incentives.
Applicant enterprises shall elect to be governed
by the provisions of E.O. No. 226 or R.A.
No. 8479 at the time of their application for
registration, provided that such election once
made shall be final.

5. Rehabilitation, Self-Development and Self-


Reliance of Persons with Disability
This covers the manufacture of technical aids
and appliances for the use and/or rehabilitation
of persons with disability, and the establishment
of special schools, day care centers, homes,
residential communities or retirement villages
solely to suit the needs and requirements of
persons with disability.

Application for registration must be


accompanied by an endorsement from
the Department of Social Welfare and
Development (DSWD).

6. Renewable Energy
This covers developers of renewable energy
facilities, including hybrid systems. This also
covers manufacturers, fabricators and suppliers
of locally-produced renewable energy (RE)
equipment and components.
Application for registration must be
accompanied by a copy of the DOE Certificate
of Registration, Certificate of Accreditation or
DOE endorsement, whichever is applicable.
Applicant enterprises shall elect to be governed
by the provisions of E.O. No. 226 or R.A.
No. 9513 at the time of their application for
registration.

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

115

7. Tourism
This covers tourism enterprises that are outside
the tourism enterprise zones (TEZs) and are
engaged in the following:

Tourist transport operators must have


garage, hangar or berthing/docking
facilities.

Application for registration of water and air


transport operators must be accompanied
by an endorsement from MARINA or
CAAP, respectively.

Prior to start of commercial operation, the


registered tourist land transport operator
must submit a copy of Certificate of Public
Convenience (CPC).

a. Tourist transport services whether for land,


sea and air transport for tourist use;
b. Establishment and operation of:
Accommodation establishments such
as but not limited to hotels, resorts,
apartment hotels, tourist inns, motels,
pension houses, private homes for
home stay, eco-lodges, condotels,
serviced apartments, and bed and
breakfast facilities;
Convention and exhibition facilities or
meetings, incentives, conventions and
exhibition (MICE) facilities;
Amusement parks;
Adventure and eco-tourism facilities;
Sports facilities and recreational
centers;
Theme parks;
Health and wellness facilities such as
but not limited to spas;
Agri-tourism farms and facilities; and
Tourism training centers and institutes.
c. Development of retirement villages;
d. Restoration/ preservation and operation of
historical shrines, landmarks and structures.
(1) Tourist transport

This covers transport services whether for


land, water and air transport for tourist use.

Land transport covers the operation of


brand new, world-class buses and/or minibuses/coasters. The quantity or number of
units of vehicles that may be allowed shall
be determined based on the number of
tourist arrivals in the area or the ratio of
hotel/resort facilities/rooms.
116

B OA R D O F INV ES TMENTS

(2) Tourism-related facilities


(a) Accommodation facilities
Condotel/apartment
hotel/serviced
apartment/ tourist inn/pension house/
motel, must cater to tourists/guests to
qualify for registration. For condotel/
apartment hotel/serviced apartment,
each unit must have fully equipped
kitchen and laundry facilities.

Income arising from gaming and mall


operations are not qualified for ITH.


For
modernization
projects,
replacement of carpets, pillows,
mattresses and other similar items shall
be excluded from the computation of
the ITH rate of exemption.

For hotels and resorts:


The quantity or number of units of
buses and/or mini-buses/coasters
that may be allowed shall be
determined based on the number
of tourist arrivals in the area or
the ratio of hotel/resort facilities/
rooms.

Accommodation establishments
locating in the following areas shall
not be entitled to ITH:
-
-
-
-

Metro Manila;
Cebu City;
Mactan Island; and
Boracay Island.

Only income directly attributable to


revenue generated from the hotel
operations, specifically from room
accommodation and income from food
and beverage outlets within the hotel
owned by the registered enterprise
shall be qualified for ITH.

(b) Health and Wellness


This covers the establishment and
operation of destination spa, resort/
hotel spa, therapeutic centers,
traditional healing (e.g., Philippine
hilot, dagdagay, ventossa, etc).
(c) Tourism Training Centers and Institutes

The following are the requirements for


registration:
The curriculum must be endorsed
by the appropriate industry
association and approved by either
the TESDA for training courses or
CHED for degree courses or other
concerned government agencies/
authority.
The registered education/training/
learning institutions must provide
training laboratories/On-the-Job
facilities and equipment.

Application for registration must be


accompanied by an endorsement from the
Department of Tourism (DOT).
Prior to ITH availment, the registered
enterprise must submit a copy of DOT
accreditation.

Only income derived from tourism-related


activities shall be entitled to ITH.

(3) Retirement Village


Locators engaged in the activities listed


in the IPP that are related to retirement
business may be registered as separate
activity.

(4) Restoration/ preservation and operation of


historical shrines, landmarks and structures

This covers the conservation, preservation


or restoration of national sites or properties.

Projects undertaking the conservation and


preservation, restoration or maintenance
of historico-cultural heritage that includes
any of the following may qualify for
registration:
(a) National shrines, monuments, and/or
landmarks
(b)
Local
historical
sites/properties
classified, identified, and listed in
the National Registry of Historic
Structures
(c) Cultural properties, treasures and/or
artifacts.

Application for registration must be


accompanied by an endorsement from the
National Historical Commission of the
Philippines (NHCP).
These General Policies and Specific Guidelines
shall take effect immediately upon publication.
By the Authority of the Board:

ADRIAN S. CRISTOBAL
Undersecretary and BOI Managing Head

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

117

ANNEX A
LIST OF LESS DEVELOPED AREAS (LDAs)
Province
Province

ABRA

AGUSAN DEL NORTE


AKLAN
ANTIQUE

BATANES

Batangas
Benguet

Biliran

Municipality/City
Boliney
Bucay
Bucloc
Danglas
Daguioman
Dolores
Lacub
Lagangilang
Lagayan
Langiden
La Paz
Licuan-baay (Licuan)
Luba
Malibcong
Manabo
Pearrubia
Pidigan
Pilar
Sallapadan
San Isidro
San Juan
San Quintin
Tayum
Villaviciosa
Remedios T. Romualdez
Buruanga
Lezo
Tangalan
Belison
Libertad
Itbayat
Basco
Sabtang
Ivana
Mahatao
Uyugan
Balete
San Nicolas
Santa Teresita
Tingloy
Sablan
Tublay
Almeria
Biliran
Cabucgayan
Caibiran
Culaba
Kawayan
Maripipi

Bohol

Cagayan
Camarines Norte
Camarines Sur
Camiguin

Catanduanes
Cavite

Cebu

Davao del Norte


Dinagat Islands

Eastern Samar

Guimaras

118

B OA R D O F INV ES TMENTS

Municipality/City
Alburquerque
Anda
Batuan
Clarin
Corella
Cortes
Dagohoy
Lila
Loay
San Isidro
Sevilla
Sikatuna
Rizal
Santa Praxedes
San Vicente
Bombon
Cabusao
Gainza
Camaligan
Catarman
Guinsiliban
Mahinog
Sagay
Bagamanoc
Baras
Bato
Gigmoto
Panganiban (Payo)
San Miguel
General Emilio Aguinaldo
Alcantara
Alcoy
Boljoon
Ginatilan
Malabuyoc
Pilar
Ronda
Samboan
Tudela
San Isidro
Dinagat
Libjo (Albor)
Tubajon
Balangkayan
General Macarthur
Giporlos
Hernani
Jipapad
Lawaan
Maslog
Mercedes
Quinapondan
Salcedo
San Julian
San Policarpo
San Lorenzo

Province
Ifugao
Ilocos Norte

Ilocos Sur

IloIlo
Isabela
Kalinga
Laguna

Lanao del Norte

Lanao del Sur

La Union

Leyte

Municipality/City
Hingyon
Asipulo
Adams
Gregorio del Pilar
(Concepcion)
Lidlidda
Nagbukel
San Esteban
San Ildefonso
San Vicente
Santa Catalina
Sigay
Sugpon
Mina
Batad
Bingawan
San Rafael
San Isidro
Luna
Pasil
Famy
Mabitac
Pakil
Rizal
Kauswagan
Linamon
Magsaysay
Matungao
Pantar
Salvador
Sapad
Tagoloan
Tangcal
Bayang
Butig
Calanogas
Lumbatan
Masiu
Pagayawan (Tatarikan)
Pualas
Sultan Dumalondong
Tamparan
Tugaya
Bagulin
Burgos
Pugo
Hindang
Julita
La Paz
Macarthur
Mayorga
Merida
Pastrana
Santa Fe
Tabontabon
Tolosa
Tunga

Province
Maguindanao

Masbate

Misamis Occidental

Misamis Oriental

Mountain Province
Negros Oriental

Northern Samar

Nueva Ecija
Nueva Vizcaya
Occidental Mindoro
Pangasinan
Palawan

Quezon

Quirino

Municipality/City
Datu Unsay
Kabuntalan (Tumbao)
Mamasapano
Northern Kabuntalan
Sultan Mastura
Batuan
Esperanza
San Fernando
Baliangao
Concepcion
Panaon
Sapang Dalaga
Sinacaban
Balingoan
Binuangan
Gitagum
Kinoguitan
Lagonglong
Libertad
Sugbongcogon
Barlig
Besao
Sabangan
Sadanga
Sagada
San Jose
Allen
Biri
Capul
Lapinig
Mapanas
Rosario
San Antonio
San Jose
San Vicente
Victoria
Nampicuan
Palayan City
Ambaguio
Villaverde
Looc
Santo Tomas
Agutaya
Cagayancillo
Linapacan
Magsaysay
Agdangan
Alabat
Jomalig
Patnanungan
Perez
Plaridel
Quezon
Sampaloc
Saguday

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

119

Province

Romblon

Samar (Western Samar)

Siquijor
Sorsogon

Southern Leyte

120

B OA R D O F INV ES TMENTS

Municipality/City
Alcantara
Banton
Calatrava
Concepcion
Corcuera
Ferrol
Magdiwang
San Andres
San Jose
Santa Fe
Santa Maria (Imelda)
Almagro
Jiabong
Marabut
Matuguinao
Pagsanghan
San Sebastian
Santo Nio
Tagapul-an
Talalora
Zumarraga
Enrique Villanueva
Larena
Maria
San Juan
Barcelona
Prieto Diaz
Santa Magdalena
Anahawan
Hinundayan
Libagon
Limasawa
Padre Burgos
Pintuyan
San Francisco
San Juan (Cabalian)
San Ricardo
Tomas Oppus

Province

Sulu

Surigao del Norte

Surigao del Sur


Tarlac
Tawi-Tawi
Zamboanga del Norte

Zamboanga del Sur


Zamboanga Sibugay

Municipality/City
Hadji Panglima Tahil
(Marunggas)
Kalingalan Caluang
Lugus
Maimbung
Panglima Estino (New
Panamao)
Pata
Tapul
Alegria
Bacuag
Burgos
Del Carmen
General Luna
Malimono
Pilar
San Benito
San Francisco (Anao-aon)
San Isidro
Santa Monica (Sapao)
Sison
Tagana-an
Tubod
Bayabas
Carmen
Anao
Ramos
San Clemente
Turtle Islands
Mutia
Rizal
Sibutad
Josefina
Sominot (Don Mariano
Marcos)
Tigbao
Vincenzo A. Sagun
Talusan

ANNEX B
I ndi g enous R aw M aterials

NOTES
(a)

Live animals born and raised in


the Philippines

The term animals covers all animal life, including mammals,


birds, fish, crustaceans, mollusks, reptiles, bacteria and viruses

(b)

Animals obtained by hunting,


trapping, fishing, gathering or
capturing in the Philippines

Covers animals obtained in the wild, whether live or dead,


whether or not born and raised in the Philippines

(c)

Products obtained from live


animals in the Philippines

Covers products obtained from live animals without further


processing, including milk, eggs, natural honey, hair, wool,
semen and dung

(d)

Plants and plant products


harvested, picked or gathered in
the Philippines

Covers all plant life, including fruit, flowers, vegetables, trees,


seaweed, fungi and live plants grown in the Philippines

(e)

Minerals and other naturally


occurring
substances,
not
included in (a) and (d), extracted
or taken in the Philippines

Covers crude minerals and other naturally occurring


substances, including rock or solar salt, crude mineral sulphur
occurring in free state, natural sands, clays, stones, metallic
ores, crude oil, natural gas, bituminous minerals, natural
earths, ordinary natural waters, natural mineral waters, natural
snow and ice

(f)

Scrap and waste derived from


manufacturing or processing
operations or from consumption
in the country and fit only for
disposal or for the recovery of
raw materials

Covers all scrap and waste, including scrap and waste resulting
from manufacturing or processing operations or consumption
in the Philippines, scrap machinery, discarded packaging and
household rubbish and all products that can no longer perform
the purpose for which they were produced, and are fit only
for discarding of for the recovery of raw materials. Such
manufacturing or processing operations include all types of
processing, not only industrial or chemical but also mining,
agricultural, construction, refining, incineration and sewage
treatment operations.

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

121

I ntermediate I ndi g enous P roducts


Indigenous Materials

122

Intermediate Indigenous Products

Abaca

Abaca Pulp / Fiber

Chromite Ore

Chromite Fines / Concentrates / Sand

Clay

Beneficiated Clay

Coal

Beneficiated Coal

Coconut

Crude Coconut Oil

Copper Ore

Copper Concentrates / Cathodes

Crude Petroleum

Refined Petroleum Products (*)

Dolomite

Beneficiated Dolomite

Industrial Stones

Aggregates

Iron Ore

Iron Concentrates, Ingots / Billets, Cast Iron

Limestone

Hydrated Lime, Quick Lime, Industrial and Agricultural Lime

Limestone for Cement

Clinker

Marble

Marble Blocks

Nickle Ore

Beneficiated Nickle Ore / Briquettes

Other Dimension Stones

Blocks

Other Metallic Ores

Concentrates / Smelting Products

Other Non-Metallic Minerals

Beneficiated Non-Metallic Minerals

Other Scrap / Wastes

Processed Products as raw material inputs to produce another product

Palm Oil

Crude Palm Oil

Plastic Scraps and Wastes

Moulding Compounds as inputs to packaging materials

Precious Metallic Ores

Bullion

Rubber

Latex / Crumb Rubber

Scrap Metal

Billets / Ingots / Cast and Forged Products

Seaweeds

Carrageenan

Seed Cotton

Cotton Lint / Cotton Yarn

Silica Sand

Flat Float Glass

Sugar Cane

Raw Sugar

B OA R D O F INV ES TMENTS

ANNEX C-1
Preferred Locations for General Hospitals (levels 1, 2 and 3)
List of Sub-Regions and Provinces Which Did Not Meet the
DOH Standard Hospital Bed-to-Population Ratio of 1: 1,000
(DOH-HFSRB data as of December 2013)

Sub-Regions and Provinces


Distribution per DOH License to Operate Category
ARMM (Autonomous Region of Muslim Mindanao)
Basilan
Lanao Del Sur
Maguindanao
Sulu
Tawi-Tawi
CARAGA Region
Agusan del Norte
Agusan del Sur
Surigao del Sur
Dinagat Island
CAR (Cordillera Autonomous Region)
Abra
Benguet
Region I Ilocos
Ilocos Norte
Ilocos Sur
La Union
Pangasinan
Region II Cagayan Valley
Cagayan
Isabela
Quirino
Region III Central Luzon
Aurora
Bataan
Bulacan

2 0 1 4 I N VEST M EN T P R IO R IT IE S P L A N

123

Sub-Regions and Provinces


Nueva Ecija
Pampanga
Tarlac
Zambales
Region IVA CALABARZON (Cavite, Laguna, Batangas, Quezon)
Batangas
Cavite
Laguna
Quezon
Rizal
Region IV-B MIMAROPA (Mindoro, Marinduque, Romblon, Palawan)
Marinduque
Occidental Mindoro
Oriental Mindoro
Palawan
Romblon
Region V Bicol
Albay
Camarines Norte
Camarines Sur
Masbate
Sorsogon
Region VI Western Visayas
Aklan
Antique
Capiz
Iloilo
Guimaras
Negros Occidental
Region VII Central Visayas
Bohol
Cebu
Negros Oriental

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B OA R D O F INV ES TMENTS

Sub-Regions and Provinces


Region VIII Eastern Visayas
Biliran
Eastern Samar
Leyte
Northern Samar
Southern Leyte
Western Samar
Region IX Zamboanga Peninsula
Zamboanga del Norte
Zamboanga del Sur
Zamboanga Sibugay
Region X Northern Mindanao
Bukidnon
Misamis Occidental
Misamis Oriental
Lanao Del Norte
Region XI Davao
Compostela Valley
Davao Del Norte
Davao Oriental
Davao Del Sur
Region XII SOCCSKSARGEN
North Cotabato
South Cotabato
Sultan Kudarat
Saranggani

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ANNEX C-2
P referred L ocations for General
H ospitals L evel 3

1.

Boracay Island

2.

Cebu City

3.

Lapu-Lapu City

4.

Puerto Princesa City

5.

Baguio City

6. Albay
7. Batangas
8.

Cagayan de Oro City

9.

Davao City

10. Bohol

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B OA R D O F INV ES TMENTS

ANNEX D
INCENTIVES FOR BOI-REGISTERED ENTERPRISES

Entitlement and availment of incentives shall be subject to the terms and conditions set forth under the relevant law
and the projects Certificate of Registration as well as the rules and regulations of the implementing/administering
agency.
A. Omnibus Investments Code of 1987 (E.O. No. 226)

1. Income Tax Holiday (ITH)


a. Six (6) years for projects with pioneer status and for projects located in a Less Developed Area (LDA);
b. Four (4) years for new projects with non-pioneer status;
c. Three (3) years for expansion/modernization projects.
2. Duty exemption on imported capital equipment, spare parts and accessories;
3. Exemption from wharfage dues and any export tax, duty, impost and fees;
4. Tax exemption on breeding stocks and genetic materials;
5. Tax credits on imported raw materials;
6. Tax and duty-free importation of consigned equipment;
7. Additional deduction for labor expense;
8. Employment of foreign nationals;
9. Simplification of customs procedures;
10. Access to bonded manufacturing warehouse.

B. Revised Forestry Reform Code of the Philippines (P.D. No. 705)


Incentives under E.O. No. 226 or the following:
1. Treatment of the amounts expended by a lessee in the development and operation of an industrial tree
plantation or tree farm prior to as ordinary and necessary business expenses or as capital expenditures; and
2. Deduction from an investors taxable income for the year, of an annual investment allowance equivalent
to thirty-three and one-third per cent (33-1/3%) of his actual investment during the year in an enterprise
engaged in industrial tree plantation or tree farm.
C. Philippine Mining Act of 1995 (R.A. No. 7942)
Incentives under E.O. No. 226 and the following:
1. Exemption from real property tax and other taxes or assessments of pollution control devices;
2. Income tax-carry forward of losses;
3. Income tax-accelerated depreciation.

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127

D. Book Publishing Industry Development Act (R.A. No. 8047)


Incentives under E.O. No. 226.
E. Downstream Oil Industry Deregulation Act of 1998 (R.A. 8479)
1.
2.
3.
4.
5.
6.
7.
8.
9.

Income tax holiday (5 years);


Additional deduction for labor expenses;
Minimum tax and duty of three percent (3%) and value-added tax (VAT) on imported capital equipment;
Tax credit on domestic capital equipment;
Exemption from contractors tax;
Unrestricted use of consigned equipment;
Exemption from the real property tax on production equipment or machineries;
Exemption from taxes and duties on imported spare parts;
Such other applicable incentives under Article 39 of Executive Order No. 226.

F. Magna Carta for Disabled Persons (R.A. No. 7277)


Incentives under E.O. No. 226.
G. Renewable Energy Act of 2008 (R.A. No. 9513)
1.
2.
3.
4.
5.
6.
7.
8.
9.

Income tax holiday (7 years);


Duty-free importation of RE machinery, equipment and materials;
Net Operating Loss Carry-Over (NOLCO);
Corporate tax rate of 10% after ITH;
Accelerated depreciation;
VAT- zero rate on sale of fuel or power generated;
Cash incentive for missionary electrification;
Tax exemption of carbon credits;
Tax credit on domestic capital equipment and services.

H. Tourism Act of 2009 (R.A. No. 9593)


Incentives under E.O. No. 226.


Note: The 2014 IPP GP & SG were published in the 6 April 2015 issue of the Philippine Star with effectivity
immediately upon publication.
***********************NOTHING FOLLOWS**********************

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B OA R D O F INV ES TMENTS

BACK COVER
At the Board of Investments,
We offer total investment management solutions:
- Supplying knowledge-based market information
- Analyzing your business feasibility
- Linking you to the service chain
- Matching you with foreign and local businesses
- Nurturing our expansion and diversification
- Profiling industries

Industry & Investments Building


385 Sen. Gil Puyat Avenue, Makati City, Philippines 1200
Tel. Nos: (632) 897-6682 / (632) 895-3640
www.boi.gov.ph

www.investphilippines.gov.ph