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THE PHILIPPINE

BUSINESS CLIMATE
Director EVARISTE M. CAGATAN
International Marketing Department
Board of Investments

March 2011
Presentation Outline
 MACROECONOMIC INDICATORS

 THE PHILIPPINE ADVANTAGE

 DOING BUSINESS IN THE PHILIPPINES

 INVESTMENT PRIORITIES PLAN

 IPAs and INVESTMENT INCENTIVES

 FOREIGN INVESTMENTS ACT (FIA)

 OPTIONS FOR ENTRY

 THE PHILIPPINE ELECTRONICS INDUSTRY PROFILE

 BOI SERVICES
The Philippines - Economy

Macroeconomic Environment

 “The financial sector has remained


ECONOMIC INDICATORS resilient, owing in large part to the
strengthening of the supervisory and
GDP (2010) 7.3% regulatory framework in recent
years.” -Mr. Vivek, IMF, December 10,
2010
GNP (2010) 7.2%
 Major Trading Partners: China, Japan,
the United States, Singapore, HK,
Headline Inflation (2010) 3.8% Taiwan, South Korea, Thailand,
Germany, and Netherlands
GIR (Dec 2010) US$ 62.1B  Top Merchandise Exports: Electronics,
Garments, Woodcrafts and Furniture,
Ignition Wiring Sets, Coconut Oil,
PhP-US Rate (2010) Php45.11 Petroleum Products, Gold, Metal
Components
Our Inherent Advantages
 Considerable manpower pool of 35.92
M workers
 Highly educated
 92.3% literacy rate
 400,000 college graduates per year
(IT/Computer Sciences/
Engineering, Commerce/Business-
related, Medical and Allied/Natural
Sciences)
 English proficient
 Strong customer service orientation
 High level of commitment and loyalty
 Adaptable to various cultures
Reliable Infrastructure Support
 Presence of economic zones  Telecommunications
and IT parks
 Redundant International
(as of December 2010) Connectivity
 Manufacturing - 65  Expanding Multi-Media
 IT Parks - 139 Infrastructure
 Tourism - 10
 High-bandwidth fiber backbone
 Medical Parks - 1 and digital network
 Medical Center - 1
 Deregulated telecommunications
 Agro-Industrial - 9 industry
EcoZones
Who are with us?

Electronics Motor Vehicle Mining ICT Pharmaceutical Tourism


Investment Priorities Plan 2010
I. Preferred Areas
A. Contingency List
 Job Saving/Creation Projects

B. Regular List
 Agriculture/ Agri-business and Fishery
 Infrastructure
 Manufactured Products
 Business Process Outsourcing (BPO)
 Creative Industries
 Strategic Activities
 Green Projects
 Disaster Prevention, Mitigation & Recovery Projects
 Research and Development and Innovation
II. Mandatory List
III. Export Activities
Cont…
 Export Activities

1. Production and Manufacture of Export Products


‒ 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.

― Exports products include electronics, garments and textiles (including


brassieres, gloves and mittens, and infant’s wear), footwear and leather
goods, furniture, jewelry, marine and aquaculture, mineral products and
others.

― New manufacturing projects with direct production cost of at least the


Philippine Peso equivalent of US$10 million may qualify for pioneer
status. (However, this is only a temporary provision in the IPP to recover
from the effects of the global crisis and will be delisted upon an official
pronouncement by the NEDA that the crisis no longer exists.)
Cont…
 Export Activities

2. Activities in Support of Exporters


‒ Covers activities directly supporting export producers as follows:

 Manufacture of parts / components and materials and supplies


directly / reasonable needed in the production of the export product;
 Services comprising a portion of the manufacturing process;
 Product testing and inspection;
 Repair and maintenance;
 Logistics services
Cont…
 Strategic Activities
‒ Covers projects that exhibit high social economic returns and require
large investments that will significantly contribute to the country’s
economic development taking into consideration any 2 of the following:

 Minimum project investment cost of Phil. Peso equivalent of US$300


million
 Employment generation of at least 1,000
 Use of new, emerging and technologically advanced products /
services involving breakthrough processes and innovation

― Also covers major projects of global companies intended to be located in


1 country as a regional hub where the Philippines is one of the short-
listed countries for investment location. (A global company is one that
has manufacturing and/or services operations in at least 2 countries.)

* Projects under Strategic Activities will be approved upon determination by


the Board in consultation with the Department of Finance (DOF), National
Economic Development Authority (NEDA) and other concerned Competent
National Authority.
Cont…

 Research & Development (R&D) and Innovation


‒ Covers commercial and in-house R&D activities, establishment of Centers
of Excellence (COE), innovation and skills development training
institutions.

1. R&D
 All R&D activities including the establishment of testing
laboratories
 Applications for registration must be endorsed by the DOST or
other concerned Competent National Authority.

2. COE
 Establishment of incubation centers and common service facilities
 Projects that cost at least Phil. Peso equivalent of US$2 million
may be granted pioneer status but with non-pioneer incentives.

3. Innovation
 Refers to the development of a new or improved product, process
and technology, which may be patentable, in support of the
activities listed in the IPP.
Cont…

 Research & Development (R&D) and Innovation


4. Training / Learning Institutions

 Institutions specializing in the development of skills for the activities


listed in the IPP

 The following are the requirements for registration:

a. The curriculum must be approved by either the Technical


Education and Skills Development Authority (TESDA) for training
courses or Commission on Higher Education (CHED) for degree
courses or other concerned government agencies/authority and
endorsed by the appropriate industry association.

b. The registered education / training / learning institutions must


provide training laboratories and equipment, if applicable.
Available Incentives
BOI PEZA CDC / SBMA
INCENTIVE
(Executive Order No. 226, as (Republic Act No. 7916, (Republic Act No. 7227 – Bases
amended) as amended) Conversion Devt Authority
Income Tax Holiday
4 – 6 years (max of 8 years)  Exempted from all local and
(ITH)
national taxes - value-added
taxes, franchise taxes, excise
ITH Bonus 3 years provided the firm meets certain conditions and ad valorem taxes)

Special Tax Rate of 5%


Special Tax Rate of 5% on Gross Income
on Gross Income
Importation of Capital
Equipment, Spare 0% duty-free Tax and Duty-Free
Parts and Supplies
Wharfage Dues and
Export Tax, Duty, Exempted None
Impost and Fees
Simplication of
Available
Customs Procedures
 Foreign nationals may be employed in supervisory, technical or advisory positions within
5 years from a project’s registration, extendible for limited periods. The positions of
Employment of president, general manager, and treasurer or their equivalents, of foreign-owned
Foreign Nationals registered firms may be retained by foreign nationals for a longer period.
 All foreign employees may bring with them their spouses and unmarried children under
21 years of age.
The Foreign Investments Act
Special Features of FIA

 Allows Non-Philippine Nationals (individual or juridical) to invest in domestic or


export-oriented (at 60% export) activities up to 100% of its capital provided
these are not listed in the Foreign Investments Negative List (FINL).

Foreign Investments Negative List

List A – consists of areas of activities reserved to Philippine nationals where foreign


equity participation in any domestic or export enterprise engaged in any activity
listed therein shall be limited to a maximum of 40% as prescribed by the
Constitution and other specific laws.

List B – consists of areas of activities where foreign ownership is limited pursuant to


law for reasons of security, defense, risk to health and morals and protection of
SMEs.
Options for Entry
1. Domestic Corporation - 60:40 equity, BOI or PEZA registrable

2. Subsidiary - more than 40% foreign equity, registrable with


BOI (pioneering or export-oriented); or PEZA

3. Branch Office - 100% foreign owned; registrable with PEZA

4. Regional Head Quarters/Operating Headquarters - 100%


foreign owned, registrable with SEC endorsed by BOI

5. Representative Office - 100% foreign owned; registrable with


SEC
ELECTRONICS OVERVIEW
Electronics as the driver of growth for
Philippines exports
In 2010…

 Registered investments was at its highest value of US$2.27 B

 Export revenue of over US$ 31 B

 Generated 500 M direct employment registering a 5% growth rate


from 2009 figures of 476,000

 10% growth for 2011

Source: SEIPI Pronouncement


Philippine Merchandise Export /
Import

 From 2000 – 2010, the electronics  Imports of electronic products were


industry share in total Philippine valued at US$16.845 B for the period
exports registered an average of January – November 2010.
64.58% % of total exports.
 It accounted for 33.84% of total
 Its highest export value was Philippine imports.
recorded in 2010 accounting for
61.18% of total exports

Source: NSO
Summary of Exports by Sub- Share of Electronics in Total
Sector Exports
Electronic
% Phil. Export % Share
Group 2009 2010 s Exports
Change Year (Value in to Total
(Value in
US$ B) Exports
US$ B)
Total Exports to All 38.0 B 51.0 B 34.21 38.077 27.166 71.34
2000
Countries
Electronics 22.17 B 31.44 41.81 2001 32.150 21.909 68.15
B 35.066 24.321 69.08
Semiconductors 16.0 B 23.8 B 48.75 2002

2003 36.231 24.168 66.71


Electronic Data 5.0 B 5.5 B 10.00
Processing (EDP) 2004 39.598 26.645 67.29
Automotive Electronics 532 M 380 M (28.57)
2005 41.223 27.304 66.23
Consumer Electronics 301 M 293 M (2.66)
2006 47.028 29.718 62.92
Office Equipment 250 M 242 M (3.20)
2007 50.500 31.023 61.43
Communication / Radar 391 M 695 M 77.75
2008 49.080 28.501 58.16
Control / 42 M 39 M (7.14)
2009 38.436 22.182 57.87
Instrumentation
Medical / Industrial 32 M 35 M 9.38 51.393 31.079 61.18
2010
Telecommunications 118 M 78 M (34.19)
Source: NSO
Characteristics Of The Industry
 Dominated by Multinational Companies
 Intel and Texas Instruments (US); Continental Temic and NXP
formerly Philips (Europe); Sony, Toshiba, Hitachi and Fujitsu
(Japan), Samsung (South Korea); Acer and OSE (Taiwan)

 Export-Oriented

 Engaged in assembly & test manufacturing services


 A number of firms are into Electronics Manufacturing Services (EMS)
and Original Design Manufacturing (ODM)

 High quality and productivity


 Most Philippine electronic firms are ISO-certified and have in-
house training capabilities

 Growing base of components supplier


Who’s With Us?
Top Chipmakers

A critical mass of
global players
4 of the Largest HDD Producers

Large employers

Source: SEIPI
Who’s With Us?
A critical mass of global players

Source: SEIPI
BOI Services
 Due diligence assistance
 Information support
 Visit program development & investment briefing
 Business matching

 Business registration facilitation


 Networking with IPUs and other government agencies on
pre-operational business requirements
 Fast tracking with registration procedures
 Assistance with local government requirements

 Aftercare service
 Presence of government network to quickly respond to
concerns
 Regular supervision & monitoring
Contact details:

Director ERIES M. CAGATAN


International Marketing Department
Tel: (632) 896 8907
Fax: (632) 895 3521
Email: EMCagatan@boi.gov.ph
Website: www.boi.gov.ph
THANK YOU