Tuesday, 08 Jan 2013
Overseas Business Risk - Philippines
UKTI's is an essential read to help you avoid some of the common pitfalls businesses can face in the Philippines. The Getting Started and Business Issues and Considerations pages of the Guide offer a wide range of initial advice on issues such as: finding a customer or partner, due diligence, employing staff, language, marketing and branding, daily communications, protecting your intellectual property rights, certification and standards, getting paid and financial issues, insurance, management, control and quality assurance, bribery and corruption and how to avoid some common scams.
Political and Economic
The Philippines is one of the world’s largest English-speaking countries and the 12th most populous (estimated at 98 M), with a birth rate of 2%. GDP per capita is US$2,122 (2011) and 34% of the population live on less than $2 daily.
Economic growth has been in the region of 5% over the past decade. The economy grew by 3.7% in 2011 after a record of 7.3% in 2010. Growth of around 6% is expected in 2012 based mainly on the growth of services. Strong fiscal and economic management recently led to the Philippines becoming a popular destination of portfolio investments. Ten million Filipinos work overseas, and the significant volume of remittances generated ($20 billion in 2011) has helped underpin the economy and drive consumer spending. The country is expected to become the 16th largest economy by 2050 according to HSBC. Other investment banks’ projections are similar. But natural disasters continue to impact economic development in many parts of the Philippines.
Good opportunities exist for British companies in energy, environment, health and education among other sectors and there is potential for collaboration with the government’s thrust towards Public-Private-Partnerships (PPP) for infrastructure development. A well-established business sector, an educated and English-speaking work force, good business and physical infrastructure, and its strategic location in South East Asia, all help make the Philippines an attractive place to do business.
Its former Spanish and US colonial links have left the Philippines Westward-looking, but links with China are growing rapidly. Religion is influential in the society. Around 80% of the population is Roman Catholic, while the Muslim population, approximately 6 million, lives mainly in the region of Mindanao. UK influence stems largely from being one of the Philippines’ biggest investors, especially in power, energy, financial services, BPOs, consumer goods, pharmaceuticals and mining. UK investments are increasing (HSBC now employ 12,000), and UK business frequently seeks Embassy support to ensure a level playing field or speedup Ministerial decisions.
President Benigno “Noynoy” Aquino III took office in June 2010. His government aims to counter corruption, increase transparency, strengthen governance and improve the climate for business through economic and other reforms. Some progress has been made. Aquino remains popular with the electorate and there have been no large-scale demonstrations or coup attempts since he took office. Separatist rebel movements in Mindanao and a long-standing communist insurgency in rural areas of the country present security risks to business, although there is high optimism that a recent agreement between the government and the Mindanao rebels will pave the way for an eventual final peace agreement. The government has underscored a commitment to continue peace negotiations with the communists, which are currently at an impasse. The main political risk to business is the inconsistent application of legislation, including on tax and land use.
Most UN human rights conventions have been ratified by the Philippines and incorporated into domestic law. Yet reporting obligations to treaty monitoring bodies are delayed and implementation of treaty obligations is weak. Labour rights are laid out in legislation, but there are some concerns about the freedom to exercise these rights, especially in Special Economic Zones. Human rights abuses have been reported in the extractive industries, power generation, agribusiness, real estate and tourism, especially in areas where untrained paramilitary groups have been deployed by the government as part of its Investment Defence Force. Peace and order problems in Mindanao continue to be one of the biggest causes of worry amongst investors and business groups in the region. In many cases clashes result from local perceptions of human rights violations. These perceptions are in turn used by non-state armed groups and criminal syndicates to justify extortion activities and armed attacks against infrastructure and business facilities in the island.
Bribery and Corruption
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.
In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.
In 2011, the Philippines ranked 129 out of 183 countries in (CPI), a slight improvement over the previous year (134). The Philippines has a history of corruption, and practically all governments throughout the country's history have had to struggle with the problem. Corruption in the Philippines is characterised by a combination of societal factors, institutional factors and an incentives system that contributes to corruption.
Positive developments in relation to corruption and investment:
The Aquino government has formulated a national action plan on transparency and good governance that includes measures at both the national and local levels. The Philippines is also a party to the Open Government Partnership which was launched at the UNGA in September 2011.
The government has shown commitment to e-governance as an attempt to increase transparency and to stamp out much of the corruption caused by face-to-face interactions with public officials. In March 2012 the Senate approved the Data Privacy Act, which is based on APEC principles. High profile investigations on corrupt officials and tax evasion charges will help level the playing field.
The Philippines acceded to the Revised Kyoto Convention in May 2010. It is intended to streamline and improve the Bureau of Customs, which is considered to be one of the most corrupt state agencies.
One key objective of the new administration is the improvement of business environment in the Philippines, and this includes dealing with bureaucracy and corruption. British companies should ensure that they comply with obligations under both local and UK bribery legislation. Local partners need to be chosen carefully. These conditions do not differ substantially from other countries in the region and should not deter companies from taking advantage of opportunities in the Philippines. UKTI can provide advice and assistance to companies concerned about corruption.
There is a high threat of terrorism throughout the country. Terrorist groups continue to plan attacks and have the capacity and the intent to carry out these attacks at anytime and anywhere in the country. Attacks could be indiscriminate, including in places frequented by expatriates and foreign travellers. Such places could include, but are not limited to, airports, shopping malls, public transport, places of worship etc. In particular, there have been recent terrorist attacks in mainland Mindanao and the Sulu archipelago. Foreigners have also been kidnapped for ransom or publicity in the Philippines, particularly in the South. Businesses and individuals should follow the FCO travel advice.
Protective Security Advice
There is a high incidence of violent crime, including gun crime, in the Philippines. British Nationals have been recent victims, but there is no evidence that they are specifically targeted. Gun ownership, legal and illegal, is extremely widespread but foreign nationals are not permitted to carry firearms. Street “crime” and robberies, such as bag snatching or pick pocketing, are prevalent, even in well-lit and busy city areas and visitors should be wary of drugged drinks.
Street at night
Public transport is also subject to distraction theft and armed robberies from time to time. Although assumed to be wealthy, foreigners are not normally singled out as targets. The majority of crimes against foreigners involve petty thefts and robberies and are not usually violent. British visitors to the Philippines should not feel particularly exposed, provided common sense precautions are taken, particularly when travelling with large amounts of currency, jewellery or other high value items such as PCs, laptops, mobile phones and other electronics etc. Visitors should also be aware that strict limits on bringing in or taking out currencies are in place.
The Philippines is a member of the World Intellectual Property Organisation (WIPO) and the World Trade Organisation (WTO) and is a party to the Berne Convention, an international agreement governing copyright. Good IPR protection laws exist but concerns remain about the level of consistent, effective and sustained enforcement. Counterfeiting is large-scale and organised. Nothing is immune from abuse either in counterfeiting or pirating: computer games, business software, DVDs, clothing, high value consumer goods, pharmaceuticals, industrial products etc are all readily available in both legitimate and illegitimate outlets. In October 2011 the Supreme Court cleared guidelines for special commercial courts to hear both civil and criminal cases involving violation of rights under the Intellectual Property Code, with powers of search and seizure. The new rules, which came into effect in November 2011, form part of the government’s plan to strengthen IPR protection and enforcement.
Read the information provided on our Intellectual Property page.
Organised crime presents no direct threat to UK business in the Philippines. There have been a number of unexplained killings and enforced disappearances including of journalists, those linked to left-wing groups or suspected of criminal activity. Foreigners have not been targeted, although there are occasional murders of westerners as a result of domestic or business disputes. Kidnap for ransom is a serious danger in some parts of Mindanao: see . There is an increasing problem with methamphetamine production for the substantial domestic market, despite Police crackdowns. There is also a substantial amount of marijuana production in many remote rural areas, where Manila’s control is limited.