Secretary Manuel Roxas II Department of Trade and Industry 26 September 2001

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Secretary Manuel Roxas IIDepartment of Trade and
Industry26 September 2001
COMMITED TO GROWTH AND DEVELOPMENT
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COMMITED TO GROWTH AND DEVELOPMENT
Secretary Manuel Roxas IIDepartment of Trade and
Industry26 September 2001
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Governments Message

• The Government is committed to pursue the
  Philippine Economic Plan
• This is underpinned by a stable economy despite
  the tremors from external markets
• The recovery is borne out of immediate measures
  taken the the Economic Team to ensure stable
  prices, adequate liquidity, and funding.
• The Philippines is a full participant in the
  international economic community through good
  governance and institutional reforms.

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A Stable Economy Cushioned by a Strong Consumer
Sector
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Diversified Export Market
of total Exports (Jan-July 2001)
Includes HK, Kor, Sing, Taiwan Includes
Brunei, Indo, Laos, Malay, Thai, Vietnam
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Top FDI Sources
Total Approved FDI (in PhP Million)

• In 1999, investments from the UK at P13,599.8
  million topped Japanese investments at P12,203.7
  million
• In 2000, the Netherlands was the top investor
  country with P27,245 million, followed again by
  Japan with P20,382.4 million
• In 1Q01, approved Japanese investments was
  highest at P10,053.5 million, an impressive 89.4
  y/y growth

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Ensuring Stable Prices, Adequate Liquidity, and
Funding
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Inflation Rate Remains at Single-Digit Levels
Inflation rate
1997-2001 Average 6.47
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Interest Rates at Moderate Levels
91-Day T-Bill Rates
HIGH
LOW
Bank Lending Rates
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Currency Stabilization
Philippine Peso Has Stabilized

• Peso has been trading range bound around 51 per
  US since mid-August.
• The stable reserve position and weaker outlook on
  the USD should be supportive of current levels
• Consistent policy market to determine the
  exchange rate
• BSP has effectively played its role in providing
  liquidity, smoothing out volatility and stamping
  out speculative activity
• Our efforts have been very successful so far

Peso/USD Exchange Rate
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Philippine Reserves remain Adequate
Comparable Levels to Rating Peers

• The Philippines reserve adequacy ratio, strictly
  defined, to be above the threshold of one
• We are above the median level for double B rated
  credits

Reserves/Short-term Debt
Reserves over ST Debt
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Aggressive Financing Program

• Completed onshore/offshore placements totaling
  520 million year-to-date for 2001 funding
• Has lined up funding options for more than half
  of the US1.3bn external funding requirement for
  2002. Will diversify markets to include Yen and
  Singapore-dollar based financing and will focus
  on credit enhancements through loan guarantees
  from JBIC, NEXI and the World Bank.
• Any residual needs will be met through domestic
  borrowing.

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Diversified Energy Base
of total Energy (FY 2000)

• The countrys indigenous energy sources already
  account for 45 of total energy requirement as of
  end 2000 and will grow significantly to
  approximately 70 over the period October 01 to
  2004 as natural gas plants using Malampayas
  production displace oil-based plants.
• Estimated US dollar revenues flows of US405mn
  per annum over a period of 20 years when
  Malampaya starts commercial gas production by
  October 2001
• Additional revenues derived from the Malampaya
  project with a 40 take by the national and local
  governments.
• Estimated savings derived from Malampaya Forex
  US4.5bn, Electricity US2.2bn, Environmental
  US1.1bn

Total Energy 243.4 MMBFOE Self-sufficiency
Level 45
Malampaya, with est. reserves of 3 trillion
cubic feet of natural gas, is the Philippines
largest gas project being developed by Shell,
Chevron, Texaco and PNOC
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Ensuring that the Philippines is a full
participant in the International Economic
Community through Good Governance and
Institutional Reforms
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Changing Face of Philippine Exports
1976
2000
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Export performance has been robust
Export Performance (US Billion)
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DRIVERS OF GROWTH
Open Market Economy Reforms

• Growth-Oriented
• Deregulation of key industries and services
• Privatization of government corporations
• Strengthening of the capital markets and banking
  system

• Business Friendly
• Allows 100 foreign-equity participation
• Market-oriented foreign exchange policies
• Guarantee of basic rights and interests for
  investors

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DRIVERS OF GROWTH
Open Market Economy Other Enabling Laws

• Foreign Investments Act
• BOT Law
• RHQ/ROHQ
• Retail Trade Liberalization Act
• E Commerce Act
• Power Industry Reform Act

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Investment Incentives

• 4-6-8 years Income Tax Holiday
• Special 5 tax rate after the lapse of ITH (for
  Ecozone locators)
• Tax and duty exemption on imported capital
  equipment (for Ecozone locators)
• Unrestricted use of consigned equipment
• Additional deduction for labor expense up to 150
• Additional deduction for training expense up to
  150
• Exemption from wharfage dues
• Employment of foreign nationals

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DRIVERS OF GROWTH
Open Market Economy Commitment to Free and Fair
Trade

• Compliance with WTO, APEC and AFTA agreements
• MFN rates gradual reduction of tariff rates from
  0-5 on industrial products in year 2004
• Reduced AFTA tariff rates on manufactured goods
• Year 2001 - 92.75 of tariff lines at 0 - 5
  range
• Year 2003 - 100 of inclusion list at 0 - 5
  range

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DRIVERS OF GROWTH
High Quality Personnel

• Skilled labor of 29 million
• Literacy rate of 94
• 72 fluent in English
• 3rd largest Eng-speaking nation
• 350,000 graduates/year
• Western-patterned educ system
• Quality Management Staff
• Rubin Report 2000 (META GROUP) ranked 1 out of
  47 countries in Knowledge workers

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Out of 47 countries, RP is no. 1 worldwide in the
availability of knowledge-based jobs and workers
The Filipino KNOWLEDGE Worker

• WORLDWIDE
• Philippines
• Australia
• USA
• Canada
• France
• Finland
• Spain
• India
• New Zealand
• Argentina

• ASIA (WORLD RANKING)
• Philippines
• India
• Singapore
• Taiwan
• Hongkong
• Malaysia
• Japan
• Korea
• Thailand
• China

Ranking based on GLOBAL NEW E-ECONOMY INDEX
launched by US-based META Group, July 2000.
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Proactive Approach to Addressing Challenges
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Investment and Trade Promotion Structural
Challenges

• Integrating Philippine economy into the domestic
  and global supply chain (geographically and
  source of income)
• Enabling SMEs to be competitive
• Strengthening enforcement of competition and
  anti-trust policy

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A. Integrating the Philippine Economy

• 1. Fix domestic trade linkages
• Intra-inter-province transportation system (e.g.,
  inter-island shipping, air transport, rail
  system)
• Domestic telecom system
• Course/guide investments into the countryside
• Reduce cost of doing business in rural areas
• Improve efficiency of distribution channels
• Strengthen rural finance system

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3. Pursue vigorously clustering strategy. To

A. Integrating the Philippine Economy

• build competitiveness and productivity
• accelerate SME development
• disperse economic activities to the countryside
• National clusters
• Wood-based - Microelectronics
• Food-based - Machinery / tool and die
• ICT
• Maintain support for key intermediate industries
• Packaging, Petrochemicals, Shipping, Telecoms

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Priority Trade and Investment Areas

• 1) E-Services ( IT enabled services)
• 2) Micro Electronics
• 3) Motor Vehicle Parts and Components
• 4) Wearables
• 5) Home Furnishings
• 6) Construction Materials
• 7) Giftware and Holiday decor
• 8) Food Products
• 9) Marine Products
• 10) Organic and Natural Products

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B. Enabling SMEs to be Competitive

• Financing/Micro-financing
• E-Business
• Simplified business procedures
• Improved business environment
• Special initiatives (e.g., BIMP-EAGA, Subic-Clark
  Area Development (SCAD), competitiveness survey,
  National Business Registry

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C. Strengthening Enforcement ofCompetition and
Anti-Trust Policy

• National and comprehensive competition policy
• Fair Trade Commission

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Japanese firms outsourcing in RP
NEC Telecom Software Phils software for network
and telecom management systems JGC Phils
engineering, procurement, construction management
services APTi (Toshiba) firmware and device
drivers Fujitsu application software and
middleware Canon Information Technologies Phils.
Inc. computer hardware design and proto
typing Tsukiden Group Computer Software LSI
Design, RD
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U.S. firms outsourcing in RP
America-On-Line technical and billing
support Arthur Andersen custom software
Barnes Noble inventory management on-line
purchases Bechtel Engineering design
Caltex finance accounting support
Citibank systems development support Fluor
Daniel regional design work James Martin
software development Procter Gamble
accounting services
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European firms outsourcing in RP
Societe Generale de Surveillance (Swiss) data
processing International Red Cross (Swiss)
business process outsourcing Alitalia (Italian)
business process outsourcing
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COMMITED TO GROWTH AND DEVELOPMENT
Secretary Manuel Roxas IIDepartment of Trade and
Industry26 September 2001