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Philippine Business Opportunities -

Philippine Business Opportunities -. GMA’S State of the Nation Address,2001:. “We will enhance the competitiveness of the “super-regions - North Luzon Triangle, Metro Luzon Beltway, the Central Philippines, and the Cyber Corridor.”

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Philippine Business Opportunities -

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  1. Philippine Business Opportunities -

  2. GMA’S State of the Nation Address,2001: • “We will enhance the competitiveness of the “super-regions - North Luzon Triangle, Metro Luzon Beltway, the Central Philippines, and the Cyber Corridor.” • “. . .so, we have undertaken 5 strategies to attain competitiveness: • Food affordability/availability • Power cost reduction • Modernize infrastructures • Mobilize, upgrade knowledge/technologies • Reduction of government red tape

  3. RP’s FDI agenda beyond 2007 • Increase FDI by USD 9 billion annually & create 1 million jobs in 6 major sectors: • ENERGY, POWER & BIOFUELS • INFRASTRUCTURE –SUBIC, BATANGGAS CORRIDORS • HEALTHCARE, RETIREMENT & TOURISM • IT/ITES • MANUFACTURING • MINING

  4. End result - for global business to appreciate RP business potentials - • Services is major driver-component; a priority of the GMA Administration • Fiscal reforms are kicking in; • We now have the funds to spend on infrastructure, education, and programs to enhance our competitiveness • RP is still LOW-COST • Market analysts and institutional investors response: - “from cautiously bullish to very bullish”

  5. Domestic Stabilization- Macro Indicators

  6. Other Indicators • GDP 1st quarter: 5.5% (target for 2006: 5.5-6.2%) • Services: 6.2 • Industry: 5.5 • Agriculture: 3.8 • Population growth rate: 2.36%

  7. GDP GROWTH TREND At Constant 1990 Prices Source: United Nations Statistics Division

  8. Fiscal and Macroeconomic stability • Fiscal targets and achievements: • balanced budget by 2008; P974.1B total revenue target for 06 • Reduction of fiscal deficit: 2004: -4.2%; 2006: -2.1% • 7-mo. deficit for 2006: P48.5; (in 2005: P82.6B): • Jan-Jul 06 revenues: P544.7B • Jan-Jul 06 expenses: P593.2B • Budget deficit P31.6B for 1st semester 2006 • Overshot target deficit for 1st quarter by P58.9B • Government revenues increased 25% for first 6 months of 2006 • Income tax take up 14% in first 6 months • On target to meet year-end deficit of P125B or 2% of GDP (from 3.5%)

  9. Fiscal reforms are In • Gov’t expenditure management: • Passage of Government Procurement Law (2004) • Government rationalization programme (2005-present) • Implementation of OrganizationalPerformance Indicator Framework for all government agencies and instrumentalities (2005-present) • Compensation reform (ongoing)

  10. BALANCED BUDGET BY 2008 P Billion NG fiscal balance accelerates to 2008 as revenue collection improves on account of the RVAT and tax administration measures

  11. REDUCTION OF NGOVT DEBTto 46% of GDP in 2010 % of GDP

  12. LOW INTEREST RATES 91-Day T-bill Rate falls to 4.86% Arroyo Legacy

  13. FISCAL-DRIVEN EXCHANGE RATE Deficit hits 5.3% Fiscal Reforms Deficit worsens 1.9 to 4.1%

  14. 72% In Billion Pesos NET FOREIGN BUYINGgrew by 72% in the first seven months of 2006 “More and more foreign investors are entrusting their money to us (RP stock market). . . a clear vote of confidence in the country’s future.” - Philippine Stock Exchange

  15. Overall In, Prod and Global competitiveness • Trade balance: (US$1.28) • Total imports: US$19.97B (Jan-May 2006) • Total exports: US$18.69B (Jan-May 2006) • Overseas Filipino remittances: US$10.3B (2005) • Portfolio investments: US$106.3M (June 2006) • 72% increase in foreign purchases • Current account surplus: US$1.2B in 1st Q 2006 • Revenues from Outsourcing (est 2006): $1.2B

  16. Boosting In, Prod and global competitiveness • Generated financial support from US, Millennium Challenge Account, APEC for anti-corruption and governance reforms • Positive global market perception on reform process: • UBS Warburg study: fiscal reforms attract renewed interest; bullish on RP • S&P: RP to outperform its fiscal projection for 2006 • FDI Q1 2006: P63.5B (P31.5 Q105) • P59.6B in manufacturing: (94% of total approved FDIs) • SBMA: P51.4B (81%) • No. 1 investor: Korea at P51.7B (81%); USA: P 6.4B (10%) • Projected employment: 32,434 (98% increase)

  17. Boost investments, productivity and global competitiveness • Core inflation: 7.1% • Rise in petroleum and energy costs… • … but cheaper imports, sound wage regulation, and restrained public expenditures • But RP is still LOW-COST • Manila cheapest place to live; but low income (wages) -Union Bank of Switzerland

  18. Manila Among Top Ten Cheapest Cities Methodology: Cost of weighted shopping basket containing 122 goods and Services (left column: gross; right column: net; New York=100) Source: Prices and Earnings: A comparison of purchasing power around the globe (UBS 2006)

  19. Manila Among Top Ten Lowest Wages Methodology: Effective hourly wages for 14 professions, weighted according to distribution, net taxes and social security (left column: gross; right column: net; New York=100) Source: Prices and Earnings: A comparison of purchasing power around the globe (UBS 2006)

  20. Philippine Stock Exchange Index, 1989-Present

  21. Other perks-- strategic location • Located in the fastest growing outpost of high-tech economy • Gateway of international shipping and airlines • Critical entry point to the $500M ASEAN market • Accessible by air within 4 hours from every Asian capital • From 7-15 hrs time zone difference from major markets allow for optimal operating turnaround; max 12-14 hours

  22. Other perks-- business efficiency • Big numbers of leading high-tech electronic and semiconductor export-- 67% of manufacturing exports • Big numbers of leading MNCs engaged in motor vehicle, distribution and logistics, telecoms, banking, professional services, outsourcing activities • Philippines - 4th most attractive relocation for production of semiconductors and electronics

  23. Other perks-- investment incentives • 4-8 years Income Tax Holiday • Special 5% tax rate after lapse of ITH for IT park locators • Tax and duty exemption on imported capital equipment for IT park locators • Unrestricted use of consigned equipment • Deduction for labor expenses up to 150% • Deduction for training expenses up to 150% • Exemption from wharf duties

  24. Advantages of Philippine human capital: • Skilled labor force of 29 million; low attrition rate • 400,000 fresh college graduates every year in business, engineering, and medicine – with English proficiency and at 94 % literacy rates • Competent senior managers • Western-patterned educational system • Strong work ethic, customer-oriented mindset, easily trainable with a natural inclination for innovative and creative thinking • Superior, competitive educational infrastructure • Adherence to global standards

  25. Services - BPO/KPO • Employment, revenues, investments in RP services sector to rise 42% in 2006 • Outsourcing jobs to rise 44% • Outsourcing Investments to rise 42% • Outsourcing revenues to rise 52% • Close to 120 outsourcing companies in RP • No. of Service Providers: 62 • Total full time employees: 225,000

  26. Services (Accountancy) • No of service providers: 60++ • Total employees: 22,500 • Filipino Registered CPAS: 113,300 (2005) • Projected growth for 2006: 42% • Key players: AIG, JP Morgan, Citibank, Accenture, Thomson Financial, Shell, HSBC, HP, Alitalia, Chevron Texaco

  27. RP is still LOW-COST and increases are moderate: core inflation at 7.1% wage inflation at 8% Low attrition pegged at 35% Average prime interest rates 2005: 8.5% RP is LOW-COST

  28. Reliable Infrastructure Support • REAL-ESTATE • Low rates with liberal lease agreement terms • Mostly administered by international property management companies • POWER • Stable with excess capacity over current demand • TELECOMS • Deregulated telecoms industry

  29. North America Pacific Asia Europe ACeS APCN-1 5 Gbps South East Asia Middle East North America Pacific North Asia Europe BMP 560 Mbps GPT 280 Mbps North America Pacific North Asia Europe G-P 5 Gbps C2C 160 Gbps North Asia East Asia 80 Gbps SEA-ME-WE 3 10 Gbps APCN-2 80 Gbps North Asia Malaysia Singapore Pacific Asia Europe North America Pacific North Asia Europe International Connectivity Philippines, Asia Pacific and Hawaii Agila II South and SE Asia

  30. Business opportunities are enhanced by ICT infrastructure • President’s priority initiative is to strengthen the “Cyber Services Corridor” • Clark Special Economic Zone to be transformed into a U$2B wifi hot-spot zone • SM Group to complete P1.5B OneEcom Center by July 2007 to address the ICT needs of BPO companies

  31. Verdict on RP business potentials:Very bullish • AT Kearney survey: 4th best outsourcing location • UBS Warburg research survey: Fiscal reforms make RP attractive; bullish on RP • McKinsey & Co survey: RP among top 5 Outsourcing destinations • S&P: RP to outperform its fiscal projection for 2006 • META Survey: Filipino workers consistently one of the world’s most competent • GAAP Survey: Filipino accountants best in the world • Phil Services Coalition study: RP poised to be more aggressive in services market • BPAP: Outsourcing to grow 42% in 2006

  32. INVESTORS ARE UPBEAT ON THE PHILIPPINES Goldman Sachs Our bullish Philippines view is centered on the belief that the economy is still in the early stages of a cyclical asset price reflation cycle. Adam Le Mesuriar Merrill Lynch With the strong macroeconomic story continuing to unfold throughout this year, we think that there is more upside for the Philippine debt.

  33. Fitch Ratings Raised RP country rating from BB to BB+. Bullish investor sentiment should provide the backdrop that would signal a possible upgrade in the country’s sovereign ratings. S&P RP may beat its revenue and budget deficit-reduction targets this year after raising and expanding its value-added tax. . . . at this stage the expanded value- added tax is delivering the goods together with tightening up of administrative and enforcement measures…The government's revenue and deficit targets are realistic. . . . . .there's probably some upside as well.

  34. ING Bank RP likely to get another upgrade of its credit rating outlook this year as a result of its improving fiscal condition. Moody’s will raise its outlook on the Philippines to stable before the year ends… and might also raise their credit outlook to positive if the government continues its trend of outperforming its targets. . . . investors will continue to be buying Philippine assets. We expect strong fundamentals and a stable external environment to support Philippine financial markets. Paul Joseph Garcia

  35. QUALITY LOCATION AND PRESENCE OF MAJOR GLOBAL PLAYERS

  36. A.T. Kearney says…

  37. The Swiss Int’l Institute for Management Dev’t says… • In 2004, among 60 countries in the Asia Pacific, the Philippines ranks: • No 1 - Availability of skilled workers • No 3 - Availability of senior managers • No 4 - Availability of IT professionals • No 10 - Availability of accounting and financial skills • No 10 - Availability of expatriate middle management • No 12 - Availability of qualified engineers

  38. What others say about RP … Robin Martin GM, Intel Phils. • “… we’ve been here for 27 years. In spite of the ups and downs, our Philippine operations continue to be very competitive. We take pride in being the country’s top export performer in the last five years, mainly because of a resilient, dedicated, multi-skilled, and English-speaking workforce…” • … supportive Government… the President is pushing for Information and Communication Technology (ICT) as a primary growth engine of the economy…”

  39. . . .and still others say … John Sykes, CEO Sykes Corp. • “The people of the Philippines are a unique people, which is why they fit into the SYKES Global Team so well. They are not only professional, dedicated, and team-oriented but also communicative and responsive – qualities essential to the success of a global company. They are civic-minded, fun-spirited, talented and highly educated – 99.9% of our SYKES Manila employees hold bachelor degrees or higher.

  40. . . . still others say about RP … • “… conveniently located in the middle of the Asian area, politically stable, with good communication facilities, and the English language being widely spoken… • …low cost of manpower, and a good attitude of the people to be trained and to produce a good output….” LUIGI BENEDETTI Director Alitalia Far East

  41. . . . and still others say that RP … Catherine Weir Country Corporate Officer Citibank NA • “... recent international studies reveal that Filipino employees are rated very highly in terms of skill, flexibility, adaptability, cost and ability to speak English compared to other countries in Asia. Ten years ago, there were no centralized services in the Philippines. Today, some 14 companies have moved critical services into centralized operations in the Philippines. The pace can only accelerate…an ideal business location.”

  42. And what else … Kirsten Powers Corporate Communication AOL.com • “…we opened the Philippine center to ensure that our members everywhere continue to receive the highest level of customer service … • …we have seen outstanding results, achieving and surpassing expectations through an incredible workforce and facilities…”

  43. others say about RP … Glen Westerman President and CEO Lexmark Int’l • “Lexmark International (Philippines) Inc. has been successful because of the talent and extra effort of the highly educated, English-speaking Filipino employees. The Philippine Team won the Lexmark “Triple Crown Award” for bringing the new plant on-line ahead of schedule, within budget and exceeding the product shipment plan by 300% in 1999. • In 2000, the Philippine plant delivered the best Lexmark CPD plant performance in areas of cost, productivity, quality and safety. This outstanding performance is the driving reason for Lexmark’s consideration of the Philippines for future expansion.”

  44. Here’s what others say about RP … Terry J Emrick President Ford Group Phils. • “The strength of the Philippines is the Filipinos - - Our expat requirements are much lower than we anticipated during our investment planning. • We have already sent several Filipinos to other locations around the world to provide expertise from what they learned during our launch here. ”

  45. Assessing RP business potential:

  46. “Partnership with the Philippines now - is Profitable” • Fiscal reforms +Sound macro-management = gov’t spending in public investment and infrastructure • Increased gov’t spending + political commitment – political risk = investor confidence • Investor confidence + remittances = private investment (FDI+portfolio) • Increased gov’t spending in infrastructure and ICT - corruption - red tape = business efficiency • Business efficiency + labor productivity = competitiveness End of Presentation

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