PHILIPPINES: An Introduction
Overview of the Political, Economic and Legal Landscape in the Philippines in 2023
The state of the Philippines in 2023 reflects a nation in transition, navigating the aftermath of a prolonged pandemic lockdown and recalibrating governance strategies under the Marcos administration, which assumed office in June 2022.
Economic challenges
In September 2023, inflation stood at a concerning 6.1%, surpassing the government's target range of 2% to 4% for the year. The surge in prices for commodities and services, including rice and jeepney fares, is attributed to increased costs in fuel, electricity and key agricultural goods, and a weakening peso. Furthermore, total foreign direct investments declined by 12.9% from January to August 2023, as reported by the Bangko Sentral ng Pilipinas, mainly due to the global economic slowdown.
Despite these challenges, the International Monetary Fund projects a 6% economic growth in 2024, although it falls below the government's targets for 2023 and 2024. Fitch Ratings maintains the Philippines' credit rating at “BBB” with a Stable Outlook, indicating robust medium-term growth prospects.
President Ferdinand Marcos Jr.'s administration is actively pursuing economic reforms to attract investments that would propel economic activities and generate jobs. These include:
- issuing the implementing rules and regulations of the amended Public Service Act (RA 11659) in March 2023, opening up various sectors to foreign ownership;
- enacting the Maharlika Investment Fund Act in July 2023 to create a fund for investment in financial instruments and business ventures;
- passing the Public Private Partnership (PPP) Act in September 2023 to streamline processes and address infrastructure gaps; and
- issuing Department of Energy (DOE) Department Circular No DC 2022-11-0034 in November 2022, allowing full foreign ownership of renewable energy businesses, subject to certain qualifications.
The administration reports substantial investment pledges, reaching PHP3.94 trillion, stemming from President Marcos Jr.'s various foreign trips in 2022-2023, potentially generating 200,000 jobs.
To attract investors and encourage local entrepreneurs, the Securities and Exchange Commission (SEC) launched a wave of digital initiatives to promote the ease of doing business by enabling the public to avail of its services online. These include the Electronic SEC Universal Registration Environment (eSECURE), the Electronic SEC Education, Analysis and Research Computing Hub (e-SEARCH), the Electronic Registry Application for Market Participants (eRAMP), the SEC API Marketplace and the SEC CheckApp 2.0.
Maritime disputes and economic implications
The Philippines’ maritime territorial disputes with China in the West Philippine Sea (WPS) are escalating, and are impacting the economy. Due to the recent encounters in the WPS (a Chinese Coast Guard hitting a Philippine Coast Guard vessel with a military grade laser, a Chinese coast guard vessel training its water cannon on a boat hired by the Philippine military, etc), investment pledges to the Philippine government from China have been halted. For instance, in relation to the intergovernmental co-operation agreements signed during President Marcos Jr.'s state visit to China, China had apparently lost interest in projects that included a symbolic freight connection between the two big former US military bases on Luzon Island. As a result, the Philippines will no longer pursue Chinese loans to fund three railway projects valued at USD5 billion, and is exploring alternative financing deals with other Asian countries.
The presence of the United States Navy in the Indo-Pacific Region has increased, and the Philippines has expanded military co-operation with the US pursuant to the Enhanced Defense Cooperation Agreement to address regional security concerns. In addition, diplomatic efforts are under way with neighbouring countries like Malaysia and Vietnam to establish a code of conduct regarding the WPS.
Artificial intelligence and workforce development
Recognising the potential impact of artificial intelligence (AI) on the labour force, the Department of Labour and Employment (DOLE) and the Department of Trade and Industry (DTI) are taking proactive measures. The planned establishment of the Center for AI Research and various innovation hubs underscores the government's commitment to building an innovation ecosystem, attracting investments, generating employment and enhancing competitiveness.
The DTI announced that it will build the Center for AI Research as a hub for data scientists and other researchers to support the AI needs of micro, small and medium enterprises, start-ups and large enterprises. It will also build a Creative and Innovation Hub to support creative and innovative start-ups, and an Industry 4.0 Pilot Factory that will provide new technological equipment. It is also in partnership with the Asian Development Bank for a USD400 million loan to fund the Innovation Gateway, which is a go-to place for innovation activities.
In November 2023, the DTI also presented its implementation of the AI roadmap of the Philippines to Silicon Valley technology companies and investors. This roadmap is expected to drive innovation, create new products and upskill the country’s workforce.
International collaboration, such as the partnership with the United States Agency for International Development (USAID), emphasises upskilling the workforce, particularly in advanced manufacturing and cybersecurity. USAID is currently funding the Advanced Manufacturing Workforce Development Alliance (AMDev) programme, which is a five-year programme implemented by Unilab Foundation, Inc. that aims to equip 11,000 individuals with skills for advanced manufacturing, establishing at least two Advanced Manufacturing Institutes (AMIs) across the country, and institutionalising the Advanced Manufacturing Skills Council (AMSC) to continue the programme after five years.
USAID is also partnering with the national government and local government units (LGUs) in the area of cybersecurity, through its implementation of a USD3.3 million Better Access and Connectivity (BEACON) programme that aims to improve access and connectivity to a secured information and communications technology system.
Based on a report by the Institute for Management Development (IMD) World Competitiveness Center released in September 2023, the Philippines ranked 13th out of 14 Asia-Pacific countries, better only than Mongolia. The report shows that, in terms of readiness, the effectiveness of the talent pool in the Philippines to provide needed competencies has declined. DOLE has emphasised the importance of upskilling, retraining and implementing modified career guidance counselling for incoming workers and youths still in school.
The energy sector and nuclear power
According to Fitch Solutions, the looming depletion of the Malampaya gas field by 2024 poses challenges to the Philippines' energy production. Efforts to encourage alternative energy sources – including solar, wind, hydro and tidal energy – are evident in regulatory changes removing foreign equity restrictions on renewable energy companies. If the Philippines is unable to produce from domestic sources, it will need to rely exclusively on imported liquefied natural gas (LNG) by 2025.
To encourage the production of energy through renewable energy sources, the DOE issued Department Circular No DC 2022-11-0034, which lifted the foreign equity restrictions on owning renewable energy companies, subject to certain qualifications. The government has also incentivised companies that would put up their own renewable energy sources to power their facilities. In October 2023, the Board of Investments issued Memorandum Circular No 2023-006, which provides the guidelines giving incentives on energy efficiency and conservation projects under the special laws listing of the 2022 Strategic Investment Priority Plan.
Notably, in November 2023, the Philippines and the US signed a deal that would allow the US to export nuclear technology and material to Manila to boost energy independence and make nuclear energy part of the Philippines' energy mix by 2032. In the same month, the House of Representatives approved on third and final reading House Bill No 9293, or the proposed Philippine National Nuclear Energy Safety Act, which would create the Philippine Atomic Energy Regulatory Authority (PhilATOM) and provide for a comprehensive legal framework for nuclear safety, security and safeguards in the peaceful utilisation of nuclear energy in the country.
Conclusion
While the Philippines grapples with economic challenges and geo-political tensions, ongoing reforms and strategic initiatives position the country as a prime investment destination in Asia. The commitment to AI, renewable energy and workforce development, coupled with laws and policies that entice foreign investments and enable ease of doing business, is a forward-looking approach to long-term economic sustainability and global competitiveness.