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The Philippine Market

Five promising sectors for U.S. exporters are summarized below. This list is not exclusive, so if your products or services are not listed here, please contact us using the form at the bottom of this page for an assessment of the market. You may also send an email to request information on typical market entry strategies, opening an office in Manila, and an unscreened list of potential local representatives for your company.

  • Leading Sector #1: Aerospace
  • Leading Sector #2: Electrical Power Systems
  • Leading Sector #3: Information Technology
  • Leading Sector #4: Telecommunications
  • Leading Sector #5: Medical Equipment
  • Leading Sector #6: Water Resources Equipment and Services
  • Leading Sector #7: Defense
  • Leading Sector #8: Infrastructure

Introduction

Almost any U.S. product or service can find an interested buyer in the Philippines. The country is solidly pro-American, and the government and people are strong allies of the United States. The United States exports almost $7billion annually to the Philippines, making this our 30 largest export market. Thanks to our close relationship over the past 100 years, Filipinos are very knowledgeable about U.S. products and services and have a great affinity for them. Moreover, the Philippines is the world’s third largest English speaking nation, so U.S. firms seldom encounter language problems when doing business with Philippine companies. The U.S. presence is strong and growing.

(1) Aerospace

The Philippine aerospace industry presents significant opportunities for airport design companies, aviation consultants, airport ground support equipment, security equipment, wide body aircraft, jet engines, and helicopters.

The Department of Transportation and Communications (DOTC) is prioritizing the development of the country’s civil aviation infrastructure. The DOTC has signed the contract with a Filipino-Indian consortium, GMR Infrastructure of India and Megawide Construction Corporation, for the Mactan-Cebu International Airport (MCIA) expansion, and operations and maintenance. This public private partnership (PPP) deal was finalized on April 22, 2014. The contract includes the operations of MCIA for 25 years beginning on October 2014 and the construction of a brand new terminal by 2018. The GMR-Megawide Consortium submitted the winning bid of US$327 million for this project. This is in addition to the US$397 million that will be spent on the construction of a new passenger terminal building. Several other upcoming airport projects are listed below under ‘Opportunities’.

On April 9, 2014, the Federal Aviation Administration (FAA) announced that the “Philippines complies with international safety standards set by the International Civil Aviation Organization (ICAO) and has been granted a Category 1 rating.” This is a significant development in the Philippine civil aviation industry. The return to Category 1 will pave the way for aggressive expansion in the Philippines’ civil aviation industry. To date, Philippine Airlines (PAL) only flies to the U.S. West Coast. PAL announced its intention of adding more U.S. routes after the country regained its Category 1 rating. PAL bought 64 new aircraft in 2013; however, it is expected that they will still need additional wide bodies to service its planned new U.S. routes. There were indications that Cebu Pacific was pursuing the possibility of flying to Guam before the category downgrade. It is likely that the company will re-visit its plans to fly to the U.S. now that the Philippines has regained its Category 1 status.

The Civil Aviation Authority of the Philippines (CAAP), an attached agency of the DOTC, awarded an aircraft rescue and firefighting (ARFF) vehicle contract worth over US$30 million in February 2014. The CAAP and DOTC are undertaking the modernization of navigational aids in the Clark International Airport and several other regional airports. More projects related to upgrading airport security equipment are expected later in the year and through 2016.

The U.S., while having an excellent reputation for quality and reliability, is facing very stiff competition from European and Asian companies. Airbus dominates the large commercial jet market.

Opportunities

The tables below illustrate airport PPP projects in various stages of implementation. All these projects are led by the DOTC. The information provided below is from the PPP website.

Projects for bidding in 2014:

Project

Budget

Description

Operations & Maintenance (O&M): Laguindingan Airport (Cagayan de Oro – Misamis Oriental)

US$353.78 million

Operation and maintenance of the existing facilities of the Laguindingan Airport; expansion/ construction of new passenger terminals; enhancement of airside facilities; and installation of required equipment and associated facilities.

Enhanced O&M of the New Bohol (Panglao) Airport

US$52 million

Operation and maintenance of the airside and landside facilities of the existing airport until completion of new facilities; O&M of the new facility, management of all sub-concessions, commercial development, and future expansion of the airport.

Projects undergoing inter-agency review:

Project

Budget

Description

O&M of Puerto Princesa Airport (Palawan)

US$71.11 million

Operation and maintenance of the airside and landside facilities of the existing airport until completion of new facilities; O&M of the new facility, management of all sub-concessions, commercial development, and future expansion of the airport.

O&M of Davao Airport

US$476.44 million

Operation and maintenance of the existing Davao International Airport; enhancement/ development and O&M of airside facilities to meet the enhanced scale of operations at the airport

O&M of Bacolod Airport

US$208.89 million

O&M of the existing facilities of the Bacolod-Silay Airport; expansion/ construction of new passenger terminal(s); enhancement of airside facilities; and installation of all the required equipment and facilities as per applicable standards

O&M of Iloilo Airport

US$ 322.44 million

O&M of the existing facilities of the Iloilo Airport; expansion/construction of new passenger terminal(s); enhancement of airside facilities; and installation of all the required equipment and facilities as per applicable standards.

(2) Electric Power Systems including Renewable Energy

Guided by the overall vision of providing “Energy Access for More,” the 2012-2030 Philippine Energy Plan (PEP) seeks to mainstream access of the larger populace to reliable and affordable energy services to fuel, most importantly, local productivity and countryside development. The energy sector will ensure the delivery of secure, sustainable, sufficient, affordable and environment-friendly energy to all economic sectors. In pursuit of this goal, the government will mobilize private sector participation and involvement of other stakeholders to make power of choice a reality.

The Philippines has had a very strong history of successful independent power producers (IPPs) implementations. In 2001, the Philippine Congress enacted the Electric Power Industry Reform Act 2001 (EPIRA), which was meant to achieve a total overhaul of the power industry.

(3) Information Technology

The Philippine IT industry plays a significant role in the country’s economic development. The major contributors to its growth are financial institutions, telecommunications companies, the Business Process Outsourcing (BPO) industry, and the Philippine Government.

The BPO industry and software services are among the most important segments of the Philippines’ IT industry. The Philippines is considered one of the world leaders in the BPO industry with an annual growth rate of 20 percent. It is expected to reach its goal of US$25 billion in revenue and 1.3 million employees by 2016. The BPO industry’s contribution to the country’s GDP is now estimated to be between 4 to 5 percent. According to the Philippine Software Industry Association (PSIA), the Philippine software industry is expected to reach US$1.5 billion in revenue by the end of 2014.

The administration of President Aquino created the Philippine Digital Strategy (PDS) 2011-2016. The PDS outlined IT sector priority areas based on its impact on national development. The PDS has four strategic thrusts:

(1) Transparent government and efficient services,

(2) Internet opportunities for all,

(3) Investing in people: digital literacy for all, and

(4) Information communications technology (ICT) industry and business innovation.

(4) Telecommunications

The Philippine telecommunications industry is evolving. Mobile has traditionally been the leading mode of telecom service in the country as shown by its over 100 percent penetration rate. Since most people have multiple subscriber identification module (SIM) cards, the actual penetration rate is estimated to be around 80 percent1.

The Filipino consumer’s communication needs are shifting. From a purely text and call culture, mobile connectivity to the Internet is now driving demand. Growth projections for the telecommunications industry is based on the following sub-sectors:

(1) Mobile: the mobile industry has reached maturity with its 109 million subscriber base (Globe – 36.5 million, SMART – 72.5 million). Fierce competition between Globe Telecom and SMART Communications has led to lower average revenue per user (ARPU) for voice and short message service (SMS). The traditional mobile revenue is expected to slow as consumers shift to wireless broadband.

(2) Broadband: the broadband sub-sector has over five million subscribers (Globe – 2.2 million, SMART – 3.3 million). There is tremendous growth potential for the broadband sub-sector, both fixed and wireless. Wireless broadband is seen as the growth area for the mobile industry. This is based on the continuous increase of smartphone ownership that is becoming more affordable and the growing demand for high-speed Internet access.

The challenge for the Philippines is to continue to upgrade its telecom infrastructure to keep up with the growing demand for broadband. In its “State of the Internet” report published in the third quarter of 2013, Akamai, a content delivery network, states that the Philippines average connection speed is 1.8 Megabits per second (Mbps)2, wellbelow the global average of 3.6 Mbps. Akamai ranked the Philippines at 114th from 185 countries.

(3) Fixed Line: fixed line penetration is at 4 percent with an estimated 4 million subscribers. This sub-sector is expected to remain stagnant.

(5) Medical Equipment

The medical equipment sector continues to present good opportunities for U.S. firms. The Philippine medical industry is almost completely dependent on imports. Additional requirements for medical services, new technology, and equipment replacement spur market growth. Philippine medical tourism continues to grow and offer good opportunities for U.S. sellers of medical equipment and instruments.

Several Philippine investment companies/private corporate groups have taken an interest in healthcare and have acquired stakes in the healthcare sector, providing much-needed capital for facilities to upgrade and modernize equipment. Real estate developers have partnered with known healthcare providers to construct health and wellness centers in and around the communities that they are building, adding more appeal to the community and more value to the real estate.

(6) Water Resources Equipment and Services

The Philippine market for water resource equipment and services is expected to grow by at least five percent yearly in view of the current and upcoming projects that address increasing water requirements, and sanitation and wastewater-related problems.

Government entities fund water-related projects through a mixture of national/local government budgets and foreign (governments, multilateral and bilateral agencies) loans/grants. There are also projects offered for public-private partnerships. Water districts use internally-generated funds and loans. Private entities finance water and wastewater treatment projects through internal funds and/or loans.

The Philippines is highly dependent on imported water and wastewater treatment products and services. Japan, U.S. and Singapore are the major sources of water and wastewater treatment products and equipment of the Philippines.

(7) Defense

The Aquino Administration has allocated US$1.9 billion for defense modernization projects from 2013 to 2017. Republic Act (RA) 10349 or The Revised Armed Forces of the Philippines (AFP) Modernization Program was enacted on December 2012. The RA was created to facilitate the capability upgrade of the AFP to achieve “minimum credible defense in a Joint Force Environment”. This is the largest defense modernization undertaken by the Philippines.

RA 10349 has the following components:

  • Force restructuring and organization development
  • Capability, material, and technology development
  • Bases/support system development
  • Human resource development 
  • Doctrines development

RA 10349 identifies the following core security concerns of the AFP: challenges to territorial integrity, maritime security, natural disasters, internal security, and cyber security. These security concerns directly impact the primary goals of RA 10349:

  • Maritime Domain Awareness (MDA)
  • Maritime Security (MARSEC)
  • Territorial Defense (TD)
  • Joint Operations
  • General Support

(8) Infrastructure

The Aquino administration recognizes the need for dramatic improvements in Philippine infrastructure and thus it has doubled the Government’s 2011 infrastructure spending from $4.5 billion to $9 billion in 2014. Furthermore, the Government has set an infrastructure spending target of 5% of Gross Domestic Product by 2016, up from 2.8% in 2011.

To accelerate infrastructure development, the Philippine Government, through the Public -Private Partnership (PPP) Center, continues to pursue initiatives to create an enabling environment for public-private partnerships. By August 2014, seven PPP projects were been awarded (two school infrastructure projects, two road projects, one hospital project, one airport and one automatic fare collection system for rail lines).

The devastation in infrastructure wrought by typhoon Haiyan (Yolanda) imposed additional challenges to the Philippines. The master plan entitled “Yolanda Comprehensive Rehabilitation and Recovery Plan” which was submitted to President Aquino in August 2014, details the $3.9 billion major rehabilitation projects covering infrastructure, resettlement, livelihood, social services, climate change, and disaster preparedness.

The World Bank and the Asian Development Bank are critical players in Philippine infrastructure given the specialized financing vehicles they offer. These multilateral banks continue to finance Philippine infrastructure projects such as road improvement, water and sanitation, transportation, solid waste management and energy-related projects. The Export-Import Bank of the United States of America (U.S. Ex-Im) offers a financing package for up to US$1 billion in guaranteed loans and direct-dollar loans to finance U.S. exporters in renewable energy and liquefied natural gas (LNG) facilities.

Additional Industry Sectors, Market Entry Strategies, Other Information
Remember, you can contact us for an assessment of the Philippine market for other products or services not listed here. This free assistance is available only to U.S. exporters of goods and services that have at least 51 percent U.S. content.

Please send an email at BusinessPhilippines@trade.gov to request an assessment of the Philippine market for your products or services.

1 Oxford Business Group, “The Philippines Report 2014: Broadening Bandwidth”

2 Rappler - http://www.rappler.com/technology/news/49248-global-broadband-speeds-rising-philippines-third-lowest