Beyond the outsourced business services economy, there is increasing openness to investments in transport, digital, and manufacturing infrastructure
By Editorial Office
The economic transformation of the Philippines is proceeding without fanfare and is benefiting from American policy, according to an article in The Economist on April 23, 2024. While relations with China are poor due to disputes over maritime territorial claims, there is a high level of integration with the US in terms of outsourced service economy. This type of economic relationship could be less affected by potential increases in protectionist policies in the coming years.
What is certain is that Western media rarely discusses what is happening in Manila and in the approximately 8,000 islands of the Philippine Archipelago, of which 2,000 are inhabited by 120 million people.
The Philippines is part of the so-called Tiger Club Economies of the ASEAN area, the Association of Southeast Asian Nations, along with Indonesia, Malaysia, Thailand, and Vietnam. Since 2019, the GDP growth rate has hovered around 6%, with the sole exception of 2020 due to the impact of Covid. In 2024, it will exceed 400 billion euros at current prices, with a GDP per capita of 4,000 dollars.
Demographics are helping the country’s economic development. The Philippines is indeed a young nation. Many citizens are of working age, and the unemployment rate is below 5%. This is true even though economic and social differences remain very strong in a population that is still widely distributed in rural areas (agriculture represents 9% of GDP but still employs 25% of the workforce). Also notable is the contribution of the two million Filipino immigrants living abroad: their currency remittances in 2022 reached a value of 36 billion dollars, 9% of the annual GDP.
Over 60% of the economy is made up of services, with particular relevance in the call center sector and more generally in Business Process Outsourcing (BPO) activities aimed at Western markets, primarily for American multinationals. From this point of view, the Philippines’ greater cultural and linguistic proximity to the West helps (Christianity is by far the most widespread religion, while English is effectively the country’s second language). As many as 1.7 million Filipinos work in outsourced service companies, and the sector’s revenues at the national level are expected to increase by 9% in 2024, reaching a value of almost 40 billion euros. Tourism is also important, although it has not yet returned to pre-Covid levels.
The expansion of industry has also been remarkable, now representing 30% of GDP, although within the ASEAN area, the Philippines does not reach either Vietnam’s manufacturing level or Indonesia’s mining and primary metal processing sector. The country is, however, very rich in deposits, including nickel and copper. In manufacturing, the automotive, aerospace, and electronics sectors are growing, with establishments of various American, European, and Japanese multinationals. Prospects are also good for agro-industry.
Therefore, there is more than one sector in which European companies can consider investing in the Philippines. Although, at the moment, significant legal obstacles remain that limit foreign investors to not exceeding 40% of shares in many sectors. These are even more stringent in agriculture, where ownership is highly fragmented due to the legal limit of five hectares of land per farmer, which does not help economies of scale and farm efficiency.
Particularly ambitious are the ongoing plans for extending and modernizing transport and digital infrastructure, starting with airports, roads, and connections between the many islands. Manila should have its first underground metro line by 2029. The government, which manages public debt not exceeding 60% of GDP, is investing heavily in broadband internet access, which is still very uneven, including through the possibility of opening the market more to competition between different operators. This is a market that attracts foreign investments. Meanwhile, as many as 70% of Filipinos have registered in the national digital identity system, which should facilitate online commerce and public administration services.
The transformation of the energy sector, however, is modest for now, with fossil sources remaining predominant.
