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The Philippines' newly industrialised economy has been tipped as being among the most promising in the world, but doing business can a tricky task without the help of local experts.
With the 12th largest population and the 43rd largest economy in the world, the Philippines certainly has the scope for development. Included in Goldman Sachs’s Next Eleven economies among the likes of Mexico, South Korea and Turkey, there has been a tremendous transition over the 21st century from an agricultural base to a service-based economy. As of 2011, approximately 52% of the economy was based in the service sector, 33% was based in the agricultural sector and 15% was based in the industrial/manufacturing sector, according to the CIA World Factbook.
Thanks to its sustained growth and modernisation, the Philippines has managed to attract many large multinational corporations looking to lower their costs and take advantage of competitive domestic wages and a highly educated workforce. Toyota, Intel and IBM have all moved operations to the Philippines thanks to its strategic location in southeast Asia, nestled among high growth nations such as Singapore, Malaysia and China on the mainland.
But despite the many modernisations undertaken by the country, the World Bank and International Finance Corporation (IFC) rank the Philippines in 138th place (out of 185 economies) for ease of doing business, highlighting the importance of local knowledge.
Starting a Business
There are a massive 16 procedures to navigate when starting a business in the Philippines, taking an average of 36 days to complete. The long and arduous nature of setting up a corporate entity has placed the country 161st in the World Bank and IFC rankings, which is a good indication of how complex the process is.
Dealing with Construction Permits
Gaining construction permits is a long, complicated and expensive task. There are 29 procedures to navigate taking 84 days on average. Most correspondence will be with the City Planning and Development Office (CPDO), although there are several government departments to consult during the process.
Electrical connections are carried out by the local power distributor, which will inspect the site and conduct the works. MERALCO holds the power distribution franchise for some 22 cities and 89 municipalities, including Manila. Once works have been carried out, a registered Master Electrician or a Professional Electrical Engineer has to conduct an inspection and sign the “Completion of Certificate of Electrical Installation".
Property registration takes 39 days to complete on average and can be quite a costly endeavour. There are eight procedures to complete in total, some of which have to be presided over by a notary.
Getting Credit and Protecting Investors
Other than private bureau coverage, the Philippines ranks poorly on all indices tracked by the World Bank and IFC for ease of getting credit. Investor protection is another troubling area, landing the country in 128th place in the world.
There are a massive 47 tax payments to make each year which consume an average of 193 business hours. Employee-paid tax requirements involve the most payments per year, and corporate income tax - flat rate of 30% - and VAT take the longest time to process.
Trading Across Borders
As an island economy, the Philippines is reliant on international trade. The cost of exporting and importing is therefore relatively cheap, but the time required to move goods is well above the OECD average.
Enforcing contracts takes an average of 842 days (2.3 years) to complete. There is a total of 37 procedures, and many cases can get held up in filing and service before going to a judicial stage.
Resolving insolvency takes more than three times the OECD average, and the recovery rate is one of the lowest in the world. Insolvent firms can expect to recover only 4.9 cents on the dollar, compared to the OECD average of 70.6.
Business culture quirks in the Philippines can cause many obstacles to successful business endeavours if not carefully considered. Firms are hierarchically-oriented and senior management make all major decisions. Filipinos like to engage in personal small talk and it is important not to get frustrated when meetings do not run efficiently because time is being spent establishing and cultivating relationships.
We have the local knowledge to help you navigate these minefields. Whether you want to set up in the Philippines or just want to streamline your Philippine operations, talk to us.