107370592015

A

GLOBAL / COUNTRY STUDY AND REPORT

ON

“PHILLIPPINES”

Submitted to

Narmada College of Management, Bharuch

IN PARTIAL FULFILLMENT OF THE

REQUIREMENT OF THE AWARD FOR THE DEGREE OF

MASTER OF BUSINESS ADMINISTRATION

In

Gujarat Technological University

UNDER THE GUIDANCE OF

Faculty Guide

Dr. TRUPTI ALMOULA

I/C Director

Submitted by

Atika doctor

Roma Mehta

Kruti bhatt (1015)

Pinal patel

Faraz

MBA SEMESTER III

Narmada College of Management

MBA PROGRAMME

Affiliated to Gujarat Technological University

Ahmedabad

November, 2011

1

Demographics of Philippines

Population: 94,349,600 (2010 est.)

Growth rate: 1.903% (2011 est.)

Birth rate: 25.34 births/1,000 population

(2011 est.)

Death rate: 5.02 deaths/1,000 population (July 2011

est.)

Life expectancy: 71.66 years

–male: 68.72 years

–female: 74.74 years (2011 est.)

Age structure:

0-14 years: 0-14 years: 34.6%

(male 17,999,279/female 17,285,040)

65-over: 4.3%

(male 1,876,805/female 2,471,644) (2011

est.)

Nationality:

Nationality: Filipinos

Major ethnic: Tagalog 28.1% (2000 census)

2

Demographics of the Philippines are records of human population in the country, including its

population density, ethnicity, education level, health, economic status, religious affiliations, and

other aspects of the population. Spanish and Arabic are recognized as voluntary and optional

languages in the Philippine constitution. Christianity is the main religion, with Roman

Catholicism making up the majority of the population. Throughout the colonial era the term

"Filipino" originally referred to the Spaniards, and mestizos. The definition was later applied to

include all citizens, regardless of ethnic origin.

Ethnic groups

The majority of the people in the Philippines are of Austronesian descent. The largest of these

groups are the Visayan, Tagalog, Ilocano, Bicolano, Moro, the Kapampangan and among

others.

Various degrees of interracial marriage between ethnic groups have resulted in the formation of a

new ethnic group of people, collectively known as Filipino mestizos.

Languages

There are between 120 and 170 languages spoken in the country. Most of them have several

varieties (dialects), totaling over 300 across the archipelago. Since the 1930s the government has

promoted the use of the national language, Filipino, based on Tagalog.

English is considered an official language for purposes of communication and instruction.

Consequently, it is widely spoken and understood. Other non-indigenous languages spoken are

Spanish, Chinese, and Arabic.

Religion

About 80% of Filipinos are Roman Catholics, 5% are adherents of Islam, and 10% are Protestant

Christians, Iglesia ni Cristo (Church of Christ), Philippine Independent Church, Mormon, as well

3

as those of other religions, such as Buddhism, Hinduism, Judaism, and those with no religion

form a minority of the population.

Orthodox Christians also live in Philippines. Protestant Christianity arrived in the Philippines

during the 20th century, introduced by American missionaries.

Other religions include Judaism, Mahayana Buddhism, often mixed with Taoist beliefs,

Hinduism, and Sikhism. Animism and Paganism are also followed.

Education

Education in the Philippines is based on both Western and Eastern ideology and philosophy

influenced by both Spain and the United States. Filipino children enter public school at about age

four, starting from Nursery up to Kindergarten. At about seven years of age, children enter a

Elementary school (6 to 7 years). This is followed by Highschool (4 years). Students then apply

for College Entrance Examinations (CEE), after which they enter University (3 to 5 years).

4

Population

101,833,938 (July 2011 est.)

Net migration rate

-1.29 migrant(s)/1,000 population (2011 est.)

Urbanization

urban population: 49% of total population (2010)

rate of urbanization: 2.3% annual rate of change (2010-15 est.)

Infant mortality rate

total: 19.34 deaths/1,000 live births

male: 21.84 deaths/1,000 live births

female: 16.71 deaths/1,000 live births (2011 est.)

Life expectancy at birth

5

total population: 71.66 years

male: 68.72 years

female: 74.74 years (2011 est.)

Literacy

definition: age 15 and over can read and write

total population: 92.6%

male: 92.5%

female: 92.7% (2000 census)

Education expenditures

2.8% of GDP (2008)

Maternal mortality rate

94 deaths/100,000 live births (2008)

Children under the age of 5 years underweight

20.7% (2003)

Health expenditures

3.8% of GDP (2009)

Economy of the Philippines

Currency Philippine peso (PHP) = 100 centavos

(English)

piso = 100 sentimo (Filipino)

Fiscal year Calendar year

6

Trade

organizations

APEC, ASEAN, WTO, and others

Statistics

GDP $199.6 billion (2010 est.) (nominal 46th)

$373.6 billion (2010 est.) (PPP 32nd)

GDP growth 7.6% (2010)

GDP per capita $2,123 (2010 est.) (nominal 122nd)

$3,737 (2010 est.) (PPP 125th)

GDP by sector agriculture (13.9%), industry (31.3%),

services (54.8%) (2010 est.)

Inflation (CPI) 4.5% (May 2011)

Population

below poverty line

national – 32.9% (2006 est.)

international – 22.6% (2006)

regional – 27% (2006)

Labor force 39.7 million (Apr 2011)

Labor force

by occupation

services (52%) agriculture (33%), industry

(15%) (2010 est.)

Unemployment 7.1% (July 2011)

Main industries electronics assembly, garments, footwear,

pharmaceuticals, chemicals, wood products,

food processing, petroleum refining, fishing

Ease of Doing

Business Rank

148th

7

External

Exports $51.4 billion (2010)

Export goods semiconductors and electronic products,

transport equipment, garments, copper

products, petroleum products, coconut oil,

fruits

Main export

partners

Japan 12.5%, Netherlands 9.8%, Hong

Kong 8.6%, China 7.7%, Germany 6.5%,

Singapore 6.2%, South Korea 4.8% (2009

est.)

Imports $54.7 billion (2010)

Import goods electronic products, mineral fuels,

machinery and transport equipment, iron

and steel, textile fabrics, grains, chemicals,

plastic

Main import

partners

Japan 12.5%, United States 12%, China

8.8%, Singapore 8.7%, South Korea 7.9%,

Republic of China 5.7% (2009 est.)

Gross external

debt

$55.416 billion (1st Quarter, 2010)

The Economy of the Philippines is the 46th largest in the world, with an estimated 2010 gross

domestic product (nominal) of $189 billion. Primary exports include semiconductors and

electronic products, transport equipment, garments, copper products, petroleum products,

coconut oil, and fruits. Major trading partners include the United States, Japan, China, Of the

country's total labor force of around 38.1 million, the agricultural sector employs close to 32%

8

but contributes to only about 13.8% of GDP. The industrial sector employs around 13.7% of the

workforce and accounts for 30% of GDP. Meanwhile the 46.5% of workers involved in the

services sector are responsible for 56.2% of GDP.

Macro-economic trend

Government budget

The proposed national government budget for 2011 has set the following budget allocations

Budget Allocation

Millions of

Pesos

(PHP)

Millions of US

Dollars

(USD)

 %

Department of Education ₱207,300 $4,573 30.86

Department of Public Works and

Highways110,600 2,439.8 16.46

Department of National Defense 104,700 2,309.7 15.58

Department of Interior and Local

Government88,200 1,945.7 13.13

Department of Agriculture 37,700 831.7 5.61

Department of Social Welfare and

Development34,300 756.7 5.11

Department of Health 33,300 734.6 4.96

Department of Transportation and

Communications32,300 712.5 4.81

State Universities and Colleges 23,400 516.2 3.48

9

Private sector

Skyline of Makati, the country's financial center

As a newly industrialized nation, the Philippines is still an economy with a large agricultural

sector; however, services have come to dominate the economy.

Automotive

The ABS used in Mercedes-Benz, BMW, and Volvo cars are made in the Philippines. Ford,

Toyota, Mitsubishi, Nissan and Honda are the most prominent automakers manufacturing cars in

the country Toyota sells the most vehicles in the country. ] By 2011, China's Chery Automobile

company is going to build their assembly plant in Laguna, that will serve and export cars to other

countries in the region if monthly sales would reach 1,000 units.

Electronics

Intel has been in the Philippines for 28 years as a major producer of products including the

Pentium 4 processor. Texas Instruments' Baguio plant produces all the chips used in Nokia cell

phones and 80% of chips used in Ericsson cell phones in the world.[18] Until 2005, Toshiba

laptops were produced in Santa Rosa, Laguna. Presently the Philippine plant's focus is in the

production of hard disk drives. Printer manufacturer Lexmark has a factory in Mactan in the

Cebu region.

Mining and natural resources

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The country is rich with mineral and geothermal energy resources. In 2003, it produced 1931

MW of electricity from geothermal sources (27% of total electricity production), second only to

the United States, and a recent discovery of natural gas reserves in the Malampaya oil fields off

the island of Palawan is already being used to generate electricity in three gas-powered plants.

Philippine gold, nickel, copper and chromite deposits are among the largest in the world. Other

important minerals include silver, coal, gypsum, and sulfur. Significant deposits of clay,

limestone, marble, silica, and phosphate exist.

Outsourcing

According to an IBM Global Location Trends Annual Report, as of December 2010[update]

the Philippines has overtaken India as the world leader in business support functions such

as shares services and business process outsourcing. The majority of the top ten BPO firms

of the United States operate in the Philippines.

Statistics

Percentage of population in 2007 living below poverty line, by province. Provinces with darker shades

have more people living below the poverty line.

Economic growth

Year  % GDP  % GNI

1999 3.1 2.7

2000 4.4 7.7

2001 2.9 3.6

2002 3.6 4.1

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2003 5.0 8.5

2004 6.7 7.1

2005 4.8 7.0

2006 5.2 5.0

2007 7.1 6.2

2008 4.2 5.0

2009 1.1 6.1

2010 7.6 8.2

2011 (1st Qtr) 4.6 3.6

and

second

largest

country

in

12

Economy of the phillippines

Overview

The economy of the Philippines was comparatively less affected by the Asian financial crisis of

1998 than its neighboring countries. The country's economy had gone through periods of

expansion and depreciation. In 1998, from a 0.6% decline, the country's GDP expanded by

2.4% in 1999 and further by 4.4% in the year 2000. However in 2001, the GDP came down to

3.2% in the perspective of a world economic slowdown. The economy of the Philippines

accelerated at a rate of 5.4% in the year 2006 thus indicating the sustained resilience of the

services sector, and enhanced exports and agricultural output.

Despite economic growth the country continues to faces problems like higher oil prices,

higher inflation and higher rates of interest on its dollar borrowings.

Major Economic Sectors

The major economic sectors of the Philippines are agriculture, services and

industry, chiefly food processing, textiles and garments, electronics and

automobile parts. The country's major industries are mainly centered in the

urban areas around the capital city Manila.

Agriculture

The agricultural sector in the Philippines, though substantial continues to

decline having contributed only 14.2% of the country's GDP which is the

lowest compared to the industrial and services sectors. Major agricultural

products are rice, sugar, coconut products, corn, bananas, pineapple products,

aquaculture, mangoes pork, and eggs. The agricultural sector is subject to low

productivity, low economies-of-scale, and insufficient infrastructure.

Industries

The industrial sector of the Philippines had accounted for 32.1% of the

population wise and twelfth largest country in economic wise .The economy of India is as

diverse as it is large, with a number of major sectors including manufacturing industries,

agriculture, textiles and handicrafts, and services.

The five plans are give importance to the agriculture sector and rural development and rural

people's employment.Land and water management systems were developed with an aim of

providing uniform growth. Nearly 21.1% of the entire rural population of India exists in difficult

physical and financial predicament .However, the service sector is greatly expanding and has

started to assume an increasingly important role.

 The low productivity in India is a result of the following factors:

•Illiteracy, general socio-economic backwardness, slow progress in implementing land reforms

and inadequate or inefficient finance and marketing services for farm produce.

•Inconsistent government policy. Agricultural subsidies and taxes often changed without notice

for short term political ends.

•The average size of land holdings is very small (less than 20,000 m²) and is subject to

fragmentation due to land ceiling acts, and in some cases, family disputes. Such small holdings

are often over-manned, resulting in disguised unemployment and low productivity of labour.

•Adoption of modern agricultural practices and use of technology is inadequate, hampered by

ignorance of such practices, high costs and impracticality in the case of small land holdings.

•Irrigation facilities are inadequate, as revealed by the fact that only 52.6% of the land was

irrigated in 2003–04,which result in farmers still being dependent on rainfall, specifically the

Monsoon season.

Rice and the Green Revolution

Rice is the most important food crop, a staple food in most of the country. It is produced

extensively in Luzon, the Western Visayas, Southern Mindanao, and Central Mindanao. In 1989

nearly 9.5 billion tons of palay were produced. In 1990 palay accounted for 27 percent of value

added in agriculture and 3.5 percent of GNP. This "green revolution" was accompanied by an

13

expanded use of chemical inputs. Average annual growth for 1980-85 declined to a mere 0.9

percent, as contrasted with 4.6 percent for the preceding fifteen years. Growth of value added in

the rice industry also fell in the 1980s.

Coconut Industry

The Philippines is the world's second largest producer of coconut products, after Indonesia. In

1989 it produced 11.8 million tons. When coconut prices began to fall in the early 1980s,

pressure mounted to alter the structure of the industry. In 1985 the Philippine government agreed

to dismantle the United Coconut Oil Mills as part of an agreement with the IMF to bail out the

Philippine economy.

Sugar

From the mid-nineteenth century to the mid-1970s, sugar was the most important agricultural

export of the Philippines, not only because of the foreign exchange earned, but also because

sugar was the basis for the accumulation of wealth of a significant segment of the Filipino elite.

The principal sugarcane-growing region is the Western Visayas

The sugar industry was in a crisis. Although Philippine sugar exports to the United States were

restricted during this period, the country continued to enjoy a relatively privileged position.

Philippine quotas for the United States market in the early 1970s accounted for between 25 and

30 percent of the total, double that of other significant suppliers such as the Dominican Republic,

Mexico, and Brazil.

Overview of Agriculture

India, the world’s second most populous country, has also been one of the world’s fastest

growing economies since the early 1990s.

Despite a rich and extensive agricultural resource base and rising producer subsidies,

investment and growth in the farm sector have remained sluggish.

Rising food prices and a large food insecure population—about 40 percent of the world

total—are creating pressure for reform of domestic farm policies.

14

Overview of Agricultural Trade and Commerce

India’s Agricultural Policy

Since it gained independence in 1947, India has pursued a policy of food self-sufficiency,

primarily by boosting domestic production of its major food staples: rice and wheat. This basic

goal has been achieved by developing and adopting high-yielding varieties, expanding irrigation,

and increasing fertilizer use—all aided by supportive output price and input subsidy policies.

India’s major policy instruments for domestic agriculture include minimum support prices

(MSPs) for major crops; input subsidies for fertilizer, power, and irrigation water; and a Targeted

Public Distribution System (TPDS) that provides subsidized food staples—primarily wheat and

rice—to food-insecure segments of the population.  MSPs are set annually and, if necessary,

defended through market procurement by central and state government agencies. 

Outlays for input subsidies for fertilizers, electrical power used for agriculture, and irrigation

water distributed through surface irrigation systems increased about 11 percent annually in real

terms (adjusted for inflation) between fiscal years 1993/94 (April-March) and 2008/09, when

high world fertilizer prices pushed the total input subsidy bill to 1,609 billion rupees (US$35.04

billion). On average, fertilizer subsidies, which include both subsidies to farmers and to the

fertilizer industry, account for about 40 percent of all input subsidies. The cost of providing

15

subsidized electricity for agriculture accounts, on average, for about 26 percent of total

agricultural input subsidies, while subsidies to cover the operational costs of providing surface

water irrigation typically account for about 21 percent of the total. 

d

The budgetary costs of operating India’s system of MSPs, public distribution, and storage for

wheat and rice are accounted for in the “food grain subsidy

While India’s policies have largely achieved the goal of self-sufficiency in staple cereals, the

performance in other agricultural sectors has been mixed.  Pulses (chickpeas, pigeon peas,

lentils, dry peas, etc.) are an important protein source in Indian diets, but productivity is low and,

despite having a liberal import policy since the early 1980s, per capita supplies have generally

declined.  In 2007, vegetable oil tariffs were largely eliminated, leading to larger imports,

Stronger economic growth since the major industrial and trade policy reforms of 1991-93 and

slowed farm sector investment and growth continue to create pressure for change in India’s

agricultural policies. 

Domestic Agricultural Market Regulation and InvestmentDespite accelerating growth in the

overall economy, rising consumer demand, and supportive price and subsidy policies, growth

16

and investment in Indian agriculture and agribusiness have remained weak since the early 1990s.

Interventions have included movement, storage, and private marketing restrictions for

agricultural commodities, scale restrictions on agribusiness firms, high taxes on processed

products, relatively high cost credit, and complex food laws.  Recent changes include:

Restrictions on private movement and storage on farm commodities are becoming less

common.

Restrictions that limited many types of agricultural processing to small-scale firms have

been largely removed.

State marketing laws are gradually being changed to permit development of private

marketing channels.

Although power, transport, and other infrastructure problems will likely be solved only in the

longer term, there is evidence that private investment is on the rise. 

Philippines

The Philippines’ Department of Trade and Industry abbreviated as DTI is the executive

department of the Philippine Government tasked to expand Philippine trade, industries and

investments as the means to generate jobs and raise incomes for Filipinos.

Agricultural Economy and Policy Paper - Philippines

GENERAL POLITICAL SITUATION: The bilateral relationship between the United States

and the Government of the Philippines (GRP) is truly unique in the intimacy of its history and

the depth of its human ties. The two countries share a profound commitment to democracy,

broad economic ties, and a treaty defense alliance.

Significant political challenges remain, however, including lack of progress on key economic

and fiscal legislation; need for judicial reforms; rising energy prices; rapid population growth;

and ongoing insurgencies by Islamic groups in the southern islands of Mindanao.

MACROECONOMIC SITUATI0N AND TREND: From the end of the Marcos era to the

present, the Philippine economy has begun a gradual transformation from inward to outward

17

looking orientation. Philippine GDP growth in 2007 reached 7.3 percent, exceeding expectations

and higher than the 5.4 expansion in 2006. Higher GRP spending contributed to the higher

growth rate with all sectors posting positive growth led by services and industry. Significant

remittances from the millions of overseas Filipino workers (OFWs) play an increasingly

important role in the economy. OFW remittances in 2007 reached over $14 billion, equal to

about 11 percent of GDP. The remittances help to curb inflation (2.8 percent) and helped

personal consumption fuel the economy's growth last year.

THE ECONOMY AS IT RELATES TO AGRICULTURE:

Coconut production accounts for the largest average harvest area of 4.25 million hectares (10.5

million acres); sugarcane, 673,000 hectares (1.66 million); industrial crops, 591,000 hectares

(1.46 million hectares); pasture, 404,000 hectares (998,300 hectares); vegetables and root crops,

270,000 hectares (667,180 acres); fruits, 148,000 hectares (365,720 hectares; and 133,000

hectares (328,650 acres) for cut flowers. Four commodities: rice, corn, livestock and poultry

account for about 76 percent of the country’s gross agricultural production. The majority of

Philippine farms are small in size, averaging about 2 hectares and are managed by single families

engaged in subsistence production.

AGRICULTURAL POLICY OVERVIEW: The Philippines formally joined the WTO in

1995, the year the country became a net food importer and in 1996, to comply with WTO rules,

then President Fidel V. Ramos signed Republic Act (RA) 8178, the "Agricultural Tariffication

Act." RA 8178 provided a list of sensitive agricultural products that were regulated by tariff-rate-

quotas (TRQs).

Agriculture Business and Trade at International Level

18

Agricultural Commodity Trade

India's agricultural trade has also expanded rapidly since the early 1990s, with agricultural

imports growing 16 percent annually in U.S. dollar terms during 1990-2009 and exports rising

about 12 percent annually.

Edible oils and pulses (includes chickpeas, pigeon peas, lentils, dry peas, etc.), of which India

emerged as a major importer during the 1990s, continue to account for the bulk of India’s

agricultural imports.  Other major items imported on a regular basis include raw cashew nuts (for

processing), tree nuts (primarily almonds), and fruit (primarily apples). India remains a periodic

importer of wheat when needed to replenish food security stocks, and sugar, when needed after

cyclical downturns in domestic production.

19

India exports a broad variety of agricultural products.  Major traditional exports include tea,

spices, coffee, basmati rice, oilseed meals, edible nuts, and tropical fruit products, which account

for about half of total farm exports.  Nontraditional farm exports, including non-basmati rice,

cotton, and meats (primarily beef), have expanded rapidly since the mid-1990s and now account

for about a third of agricultural exports. 

Philippines

GENERAL AND AGRICULTURAL TRADE SITUATION: Economic liberalization in the

Philippines has pushed the country to extend its formal international economic links. The

Philippines has a relatively open trading system and has some of the lowest applied tariffs in the

region. The Philippines acceded to the WTO in 1995. It is a member of the G-33 and also

belongs to the G-20 and the Cairns Group. As a party to the ASEAN Free Trade Agreement

(AFTA), its exports to ASEAN benefit from the lower common effective tariff (CEPT)

applicable to members’ products.

REGULATORY SYSTEM: The Bureau of Animal Industry (BAI) is charged with regulating

the flow of domestic and imported animals and animal products in the country. The National

Meat Inspection Service (NMIS) ensures that imported or exportable meat and meat products are

produced under acceptable conditions and systems. The Bureau of Plant Industry (BPI) has the

20

task of inspection and certification of imported and exportable plant products such as fruits and

vegetables.

The problem in philippines context  

Agriculture is a major contributor to the Philippines economy, accounting for 21.5% of

its gross domestic product (GDP),(1) generating exports valued at over US$1.5 billion,(2)

and providing one third of all employment, or 11 million jobs.(3) Its contribution

increases when ‘all economic activities related to agro-processing and supply of non-farm

agricultural inputs are included, (as) the agricultural sector broadly defined accounts for

about two-thirds of the labour force and 40% of GDP’.(4) The strategic importance of

this sector makes it compelling for the government to enact a stakeholder-based process

that will fully and effectively render legitimacy not only to its domestic economic

policies but to its international economic commitments as well, such as to the WTO.

Stakeholders believed that inadequate consultation had resulted in this serious

disconnection between the government negotiating position and the complex realities in

the field. The opportunity to transform the function of formulating the negotiating

position into an inclusive process was provided by the preparations needed for the

upcoming WTO Seattle Ministerial in late 1999.

The Task Force on WTO Agreement on Agriculture (Re)negotiations (TF-WAR) was

therefore established amidst increasing public clamour,.

India implements trade pact with Philippines

With the trade pact becoming operational with Philippines, the agreement signed with the

Association of Southeast Asian Nations (Asean) bloc in 2009 has now become functional with

the nine member countries.While the pact was signed between India and Asean, New Delhi had

to separately notify with each of the south east Asian nations.

From the time it gained independence in 1947 until the early 1990s, India maintained firm

control over imports and exports of both agricultural and nonagricultural goods, making it one of

the most closed economies in the world. While India’s bound agricultural tariffs are among the

21

highest in the world, applied tariffs for many products are set well below bound rates. India’s policy

has been to adjust applied tariffs periodically to help meet domestic price stability goals; either raising

tariffs to help strengthen producer prices or reducing tariffs to help moderate rising consumer prices. In

2007 and 2008, India reduced tariffs for a number of major commodities—in a number of cases to zero

—to help curb inflationary pressures and moderate the impact of high world prices on the domestic

market.

Table 3. India's bound and applied agriculture tariffs

 Bound

rate2006 2007 2008 2009 2010

Ad valorem tariff (%)

Cereals            

Wheat 100 50 0 0 0 0

Rice (mild) 70 70 70 0 0 0

Corn 70 50 70 0 50 50

Wheat flour 150 30 30 0 50 30

Pulses 100 10 0 0 0 0

Oilseeds 100 30 30 30 30 30

Oil cakes 100 15 15 15 15 15

Crude vegetable oils

Palm 300 80 45 0 0 0

Repeseed 70 75 75 0 0 0

Soybean 45 45 40 0 0 0

Sunflowerseed 300 75 40 0 0 0

Sugar 150 60 60 60 0 0

Dairy products

Milk 100 30 30 30 30 30

22

Butter 40 40 40 40 30 30

Cheese 40 30 30 30 30 30

Milk powder 60 60 60 60 60 60

Poultry & fish

Chicken leg 150 100 100 100 100 100

Whole chicken 100 30 30 30 30 30

Fish unbound 30 30 30 30 30

India has also removed most quantitative controls on agricultural exports since the late 1990s,

but export controls are not restricted by the terms of the AoA, and India continues to impose

bans and quotas on exports of agricultural commodities to meet domestic price policy goals.

India also provides an array of policy incentives aimed at promoting exports of agricultural

commodities, including the following:  

Import duty reductions or drawbacks for goods needed to produce processed products for

export.

Government support for domestic marketing and transport costs for exported products,

consistent with World Trade Organization rules.

At independence in 1946, the Philippines was an agricultural nation tied closely to its erstwhile

colonizer, the United States. This was most clearly observed in trade relations between the two

countries.

However, let us look at the history of trade and commercial activities over years:

AGRICULTURAL & FORESTRY EXPORTS (1962-1980s)

The year 1962 was an auspicious one for the Philippine export agriculture. Devaluation and

decontrol of foreign exchange brought windfall profits to agro exporters.

Moreover, Philippines was the world’s second largest sugar exporter at that time.

23

The two main export products copra and sugarcane doubled by mid 1970s. At the same time,

bananas and pineapples important export commodities. Along with the forestry products

these four crops accounted for 60% of country’s export earnings between 1962 and 1985.

In the mid-1970s the Philippine sugar industry went into decline, ultimately reaching the point

in 1987 where the country had to import sugar to meet domestic needs.

The two main reasons behind this were:

The softening of the world prices

Loss of preferential access to US market.

In the mid-1980s Philippines ranked as the world’s second largest exporter of both

fresh and canned pineapples (after Thailand in case of canned pineapple and Ivory

Coast in case of fresh pineapple).

IMPORT ACTIVITIES OF PHILIPPINES

Rice is such an integral part of history and culture of Philippines that for many Filipinos rice

imports are the source of national shame. Many reasons are typically advanced for failure to

achieve rice sufficiency:

Conversion of rice land to other uses

Backward rice farmers

Deteriorating irrigation systems

Lack of farm credit

Corruption

Moreover one of the main reasons behind importing of rice is:

They have less arable land and more varied landscapes favouring such alternatives such

as coconut, corn, oil palm. Thus one of the main reasons behind Philippines importing

24

rice is that it is an island. Same is the case with countries like Indonesia and Srilanka

also.

Although one of the major reasons for importing rice is absence of river deltas, other

main reason is, it is located at the eastern edge of Asian continent, bears the brunt of

numerous typhoons which makes the production of rice more risky and difficult.

ACCORDING TO 2008 STATISTICS

Agriculture products: Sugarcane, coconut, rice, corn, bananas, cassavas, mangoes, pork, eggs,

beef, fish.

Industries: Electronics assembly, garments, footwear, pharmaceuticals, chemicals, wood

products, food processing, petroleum refining, fishing.

Industrial growth rate: 7%

Electricity exports: 0 kWh

Electricity imports: 0 kWh

Oil exports: 34,900 bbl/day

Natural gas exports: 0 cu m

Natural gas imports: 0 cu m

Exports: $48.38 billion

Import partners: US-16.3%, %, Japan-13.6%, China-7.1%, Hongkong-4%, Singapore-8.5%,

Malaysia-4.1%, Taiwan-8%, Thailand-4.1%, South Korea-6.2%, Saudi Arabia-5.8%

Stock of foreign direct investment (at home)- $16.02 billion

Stock of foreign direct investment (abroad)- $2.131 billion

Currency (code): Philippine peso (PHP)

TRADE RELATION OF PHILIPPINES WITH U.S.

25

Philippine Exports to U.S.

1. Semiconductors & related devices …US$2.5 billion

2. Cotton household furnishings & clothing … $1.34 billion

3. Computer accessories, peripherals & parts … $1.31 billion

4. Non-cotton household furnishings & clothing … $605 million (6.2%, up 2.5%)

5. Automotive parts & accessories … $488.5 billion

6. Furniture & other household items (e.g. baskets) … $277.7 million

7. Electric apparatus … $268.9 million

8. Household items (e.g. clocks) … $245.7 million

9. Fish & shellfish … $240.8 million

10. Goods returned then re-exported ... $232.5 million

PHILIPPINES IMPORT AND EXPORT INDICATORS AND STATISTICS AT A GLANCE (2010)

Total value of exports: US$50.72 billion

Primary exports - commodities: semiconductors and electronic products, transport equipment,

garments, copper products, petroleum products, coconut oil, fruits

Primary exports partners: US (17.6 per cent of total exports), Japan (16.2 per cent),

Netherlands (9.8 per cent), Hong Kong (8.6 per cent), China (7.7 per cent), Germany (6.5 per

cent), Singapore (6.2 per cent), South Korea (4.8 per cent)

Total value of imports: US$59.9 billion

Primary imports - commodities: electronic products, mineral fuels, machinery and transport

equipment, iron and steel, textile fabrics, grains, chemicals, plast

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The Department of Trade and Industry (DTI) is the primary government agency with the dual

mission of facilitating the creation of a business environment wherein participants could

compete, flourish, and succeed and at the same time ensuring consumer welfare.

Overall, the main role of DTI is to contribute to the country’s goal of achieving economic growth

towards poverty reduction. This calls for expansion of Philippine exports, increase in

investments, and the development and promotion of the country’s micro, small and medium

enterprises (MSMEs). All these, they pursue through 33 foreign trade services posts, 16 regional

offices, 81 provincial/city/area offices, 13 bureaus, 7 attached agencies, 7 attached corporations

and 10 service offices.

Vision of DTI is to see Philippines occupying rightful place in community of nations, prosperous

and free

BUREAUS:

Industry and Investment group (IIG)

International trade group (ITG)

Consumer welfare and trade regulation group (CWTRG)

Regional operations and development group (RODG)

Management services and support group (MSSG)

Policy, planning and communications group (PPCG)

The main bureau of our concern is INTERNATIONAL TRADE GROUP (ITG), which is again

subdivided into following bureaus:

Bureau of Export Trade Promotion (BETP)

Bureau of Import services (BIS)

Bureau of International Trade Relations (BITR)

Center for International Trade Expositions and Missions (CITEM)

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Foreign Trade Service Corps (FTSC)

International Coffee Organization Certifying Agency (ICOCA)

Product Development and Design Center of the Philippines (PDDCP)

Philippine Trade Training Center (PTTC)

E-Commerce Office (ECO)

TRADE AGREEMENTS

The Philippines has historically pursued a trade policy that favoured closed, highly protected

markets.

International trade in Philippines is regulated by many government agencies.

Following are the examples of few agreements of trade:

MOST FAVOURED NATION STATUS

MFN status represents what has come to be seen as a norm in bilateral trade agreements. In

fact the Philippines grants the MFN status to every country with which it trades.

MFN status is reciprocal: each party agrees to grant the status to otheAgreement will also include

additional and specific provisions relating to national security, dispute settlement procedures,

trade promotion and various other matters.

Although in theory MFN status requires equivalent treatment to all trading partners,

international law and practice recognize that specific countries may make special preferences

to other nations without violating MFN precepts.

THE GENERALIZED SYSTEM OF PREFERENCES (GSP)

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Under the terms of GATT, generalized system of preferences (GSP) programs have been set

up to many industrialised nations to assist developing nations by granting selective waivers

or reductions of tariffs on imports of products from these developing countries.

it has to meet certain basic requirements:

The product must be imported from Philippines

The product must be eligible on GSP product list

The product must be entirely grown, produced or manufactured in Philippines or it

must be primarily the product of Philippines with the minimum 35% of its value cost

of materials and/or direct cost of processing in Philippines.

Proper documentation including a certified United Nations Conference on Trade and

Development (UNCTAD) certificate must be submitted in addition to normal customs

entry documents.

The product must be exported directly from Philippines to the grantee country.

The exporter must formally request GSP status

Eligible products: Raw materials are excluded from GSP product list. It generally covers

processed and manufacturing products.

GATT

Known generally as GATT, the general agreements on Tariffs and Trades is designed to

provide standard framework for global trade. It was founded in 1947 with 23 members.

Philippines signed GATT on December 19, 1994.

Of major importance to Philippines are the provisions involving trade in textiles and

apparels. Under GATT, fibre, cloth and garment export import are to be deregulated for the

period of 10 years..

ASSOCIATION OF SOUTHEAST ASIAN NATIONS (ASEAN)

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Founded in 1967 with the signing of Bangkok Declaration by the foreign ministers of

Indonesia, Malaysia, the Philippines, Singapore and Thailand (Brunel was added as member

in 1984, and Vietnam in 1995), The objectives of ASEAN are:

To accelerate economic growth, social progress and cultural development in region

through joint endeavours in order to strengthen foundation for prosperous and

peaceful community of Southeast Asian Nations.

To promote regional peace and stability

To promote active collaboration and mutual assistance in matters of common interest

To collaborate more effectively for the greater utilization of agricultural and

industrial resources .

The primary trade aspects of ASEAN have experienced some setbacks, as the various member

nations particularly the Philippines, Indonesia, Malaysia, Brunel and Vietnam-have advanced

conflicting claims over portions of Spratly Island .some ASEAN supplemental agreements:

Preferential Trade Agreement (PTA): Under the 1977 PTA, members extend each other

discounts on existing tariffs on the list of products traded.

ASEAN Free Trade Area (AFTA): In January 1992, the Philippines and the other ASEAN

countries agreed to create ASEAN free trade AREA (AFTA).

ASEAN Industrial Complementation Agreement: Begun in 1981, this program encourages

member countries to produce complementary products in specific industrial sectors for exchange

among themselves to achieve specialization and economies of scale. So far Philippines have

benefited little from this agreement.

ASEAN External relations: A cooperative agreement exists between ASEAN and EU for

providing for strengthening of existing trade links and increased cooperation in scientific and

agriculture spheres.

INDIA’S TOP 10 EXPORTS TO PHILIPPINES (US MILLION $)

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PRODUCT 2008-09

Meat & Edible Meat 108.78

Oil seed 35.72

Residues & waste from

food

38.33

Mineral fuels 26.57

Pharmaceutical products 36.38

Rubber and articles

thereof

46.75

Iron and steel 64.40

Nuclear reactors and

boilers

41.00

Electrical machinery &

equipment parts

35.90

Vehicle parts 66.18

PHILIPPINE’S TOP 10 EXPORTS TO INDIA (US MILLION $)

PRODUCT 2008-09

Animal veg fats 11.20

Mineral fuels, oils 47.82

Organic chemicals 4.58

Chemical products 4.20

Paper & paper board 23.32

Iron and steel 15.37

Nuclear reactors and

boilers & machinery

15.86

Electrical machinery

equipment parts

28.95

Vehicle parts 18.50

Optical, photos, cine 7.42

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parts

PESTLE ANALYSIS OF PHILIPPINES

POLITICAL ENVIRONMENT :

GOVERNMENT AND POLITICAL CONDITIONSThe Philippines has a representative democracy modeled on the U.S. system. The 1987 constitution, adopted during the Corazon Aquino administration, reestablished a presidential system of government with a bicameral legislature and an independent judiciary. The president is limited to one 6-year term.Administrative subdivisions: 16 regions and Metro Manila (National Capital Region), 80 provinces, 122 cities.Political parties: Liberal Party, Lakas-Christian Muslim Democrats/KAMPI, Nacionalista, Nationalist People's Coalition, Laban ng Demokratikong Pilipino, Political Risks in Philippines - Political risks are moving higher as a result of negative impact that rising rice and other food prices are likely to have on society. Although corruption is a major problem in a number of Asian countries, it is more politicized in the Philippines than in most.

Cost pressures are likely to drive even more Filipinos to leave the country in search of better paying jobs abroad, while at home there will be pressure to offer relief to the poorest Filipinos.

Defects in the Political System

Continued graft and corruption in key agencies Lack of transparency and accountability in governance Regulatory capture – agencies captured by vested interests The weakness of the electoral processes – prone to cheating and manipulation of results Dynasties and traditional politics Armed conflict Worsening human rights situation, particularly extra-judicial killings of journalists and

activists of the left Apathy or withdrawal from political engagement especially at the national level.

Political Initiatives

Electoral Reforms. Advocacy for Human Rights

Advocacy for Peace and Development

Anti-Corruption Advocacy

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ECONOMIC ENVIRONMENT:

Accounting System in PhilippinesThe accounting system of Philippines is strongly influenced by US and, more recently, by international practices. The governing legislative and institutional framework is comprehensive—the components of a developed and robust framework are readily identifiable..

Accounting Bases

Financial statements for business organizations must be prepared using the accrual accounting basis. This requirement is specified in Statement of Financial Accounting Standard (SFAS)

National Income of Philippines On the supply side, the three major sectors (agriculture, industry and services) grew steadily during the 1950s, 1960s and 1970s. But the economic crises in the mid-1980s, early 1990s and late 1990s slowed growth considerably. During the recession in the early 1980s, industry was the hardest hit as the growth rate for the period slipped to 0.6 % from 7.9% in the previous decade. In the course of economic development, the share of agriculture to real GDP is expected to decline. Industry is normally expected to pick up the slack. That did not happen in the Philippines..

GNP of Philippines

Gross National Product (GNP) is the total value of all final goods and services produced within a nation in a particular year, plus income earned by its citizens minus income of non-residents located in the country.GNP measures the value of goods and services that the country's citizens produced regardless of their location.

Gross National Product from 2003 to 2009

(In million pesos : at constant 1985 prices)

Year GNP

2003 1,171,431

2004 1,252,331

2005 1,320,000

2006 1,391,289

2007 1,495,589

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2008 1,587,797

2009 1,634,682

GDP of PhilippinesThe Gross Domestic Product (GDP) is a basic measure of a country's economic performance. It is the market value of all final goods and services made within the borders of a nation in a year.

Gross Domestic Product from 2003 to 2009

(In million pesos : at constant 1985 prices)

Year GDP

2003 1,085,072

2004 1,154,295

2005 1,211,452

2006 1,276,156

2007 1,366,493

2008 1,418,952

2009 1,431,978

Inflation in Philippines Inflation is the overall general upward price movement of goods and services in an economy, usually as measured by the Consumer Price Index and the Producer Price Index. Substantial rise in the general level of prices related to an increase in the volume of money and resulting in the loss of value of currency.

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Year Inflation Rate (Consumer Prices)

2003 3.10 %

2004 3.10 %

2005 5.50 %

2006 7.60%

2007 6.20 %

2008 2.80

2009 9.30 %

Philippines Monetary PolicyThe primary objective of the monetary policy is "to promote price stability conducive to a balanced and sustainable growth of the economy” (Republic Act 7653).

Inflation targeting is focused mainly on achieving a low and stable inflation, supportive of the economy’s growth objective. This approach entails the announcement of an explicit inflation target that the BSP promises to achieve over a given time period.

Open Market Operations

Open market operations are a key component of monetary policy implementation. These consist of repurchase and reverse repurchase transactions, outright transactions, and foreign exchange swaps.

Foreign Exchange Market in Philippines

The Bangko Sentralng Pilipinas (BSP) maintains a floating exchange rate system. Exchange rates are determined on the basis of supply and demand in the foreign exchange market. The role of the BSP in the foreign exchange market is principally to ensure orderly conditions in the market. The market-determination of the exchange rate is consistent with the Government’s commitment to market-oriented reforms and outward-looking strategies of achieving competitiveness through price stability and efficiency.

Economic Risk in Philippines

Economic risk involves the likelihood that events, including economic mismanagement, will cause drastic changes in a country's business environment that adversely affects the profit and other goals of a

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particular business enterprise. In other words, Economic risk is the danger that the economy could turn against your investment.

The Country Risk Tier (CRT) reflects A.M. Best’s assessment of three categories of risk: Economic, Political and Financial System Risk.

A.M. Best defines country risk as the risk that country-specific factors could adversely affect a business enterprise ability to meet its financial obligations.

If Philippines can maintain the growth trend, public and international confidence will strengthen further and provide confidence to the international investors that there is no economic risk of doing business in Philippines.

Clearly the most significant challenge is to continue to strengthen the fundamentals of the economy to ensure sustained high growth that will lead to a sustained decline in poverty.

However on the flip side, the economy faces challenges of implementing essential policy reforms particularly in areas like tax administration, tax revenue collection, public expenditure management, budget execution and transparency. The global meltdown would also pose a challenge to Philippines economy.

On the expenditure side, the continued rise in prices resulted in lower consumer spending at 0.8 percent in 2009 from 5.1 percent a year ago.

SOCIO-CULTURAL ENVIRONMENT:

The great majority of the Philippine population is bound together by common values and a common religion. Philippine respect for authority is based on the special honor paid to elder members of the family and, by extension, to anyone in a position of power. Social organization generally follows a single pattern, although variations do occur, reflecting the influence of local traditions. Among lowland Christian Filipinos, social organization continues to be marked primarily by personal alliance systems, that is, groupings composed of kin (real and ritual), grantors and recipients of favors, friends, and partners in commercial exchanges.

A Filipino's loyalty goes first to the immediate family; identity is deeply embedded in the web of kinship. It is normative that one owes support, loyalty, and trust to one's close kin and, because kinship is structured bilaterally with affinal as well as consanguineal relatives, one's kin can include quite a large number of people.

TECHNOLOGICAL ENVIRONMENT:

With the Philippine's geographical position, close to the IT Meccas Hong Kong and India, the development of new trends and hardware are better reachable and again, more affordable. In this way businesses may offer their consumers more innovative products and services even before it reaches their competitors.

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With all these technological benefits it is important to keep in mind that they are merely narrowed around the IT segment. Other technological channels are far from the level of IT. The transportation infrastructure is awful, especially in big cities like Manila that suffer from overpopulation where it takes extremely long time to get around the city with the embryonic technology.

On the other side, the industrial areas of Makati city have advanced in technological production and currently account for most of the foreign and domestic production in the Philippines. Particular areas in Cebu have also shown a move towards a more technological world, like the Asia Park; a place where giant business buildings have recently been created and where you feel far away from the every-day environment.

LEGAL ENVIRONMENT:

The Philippines legal system may be considered as a unique legal system because it is a blend of civil law (Roman), common law (Anglo-American), Muslim (Islamic) law and indigenous law.

There are two primary sources of the law:

Statutes or Statutory Law : Statutes are defined as the written enactment of the will of the legislative branch of the government rendered authentic by certain prescribed forms or solemnities are more also known as enactment of congress. Generally they consist of two types, the Constitution and legislative enactments.

In the Philippines, statutory law includes constitutions, treaties, statutes proper or legislative enactments, municipal charters, municipal legislation, court rules, administrative rules and orders, legislative rules and presidential issuance.

Jurisprudence or Case Law

Jurisprudence or Case Law is cases decided or written opinion by courts and by persons performing judicial functions. Also included are all rulings in administrative and legislative tribunals such as decisions made by the Presidential or Senate or House Electoral Tribunals.

Human Rights

The Philippines is a staunch advocate of the promotion and protection of human rights. The country not only guarantees and protects human rights under the 1987 Constitution; it is also a signatory to various international treaties and conventions that protect the rights of all people.

As enshrined in the 1987 Constitution, the government promotes respect for social justice and human rights, including freedom of speech, freedom of expression, as well as the rights of workers, children, women and indigenous peoples.

Customs RegulationsCustoms is the Government Agency entrusted with enforcement of laws and regulations to collect and protect import-revenues and to regulate and document the flow of goods in and out of the country.

General Provisions

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All persons and baggage are subject to a search at any time. All articles, when imported from any foreign country into the Philippines, shall be subject to duty and tax upon each importation, even though previously exported from the Philippines, except as otherwise specifically provided in the Customs Code or in other laws.

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