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Spending power in the Philippines
is one of the highest among
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The financial crisis has hurt a number of Asian countries that, until recently, consistently headed the economic growth tables. But the Philippines, usually a laggard, has held up surprisingly well.
Ironically, that’s largely because it has been putting less focus than many of its neighbours at developing exports, the hallmark of thrusting, tiger economies. As a result, private consumption accounts for more than 70 per cent of the Philippine GDP, and a vibrant consumer market has helped cushion the effects of the collapse in external demand.
Merchandise exports accounted for 29 per cent of the Philippines’ GDP in 2008, which is considerably lower than Thailand, Malaysia, Singapore and Vietnam, where they accounted for more than 50 per cent of the respective GDPs.
Agriculture and fishing remain important in the Philippines, with an 18.3 per cent share of GDP and 35 per cent share of employment. These sectors have, significantly, been virtually unaffected by the external economic environment.
Happily, unemployment has been stable despite the financial tsunami. It has remained at around eight per cent of GDP in 2009, which is similar to 2008 but far better than the 14 per cent unemployment rate seen in 2004.
Fears that a sharp decline in the economic vigour of developed countries would result in job losses for Philippine overseas workers never materialised.
So the all-important remittances, which are equivalent to 10 per cent of GDP, and underpin consumer spending, suffered only a temporary dip.
Outsourcing Advantage
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Hong Kong brands: selling in
the Philippines |
The country’s steadily growing service exports is another positive sector. Business process outsourcing (BPO), which currently employs some 400,000 people, is particularly strong.
The Philippines enjoys a sustainable competitive advantage in receiving outsourcing jobs from the developed, English-speaking world. While India is strong at information technology outsourcing work, the Philippines has more than 60 per cent of its BPO work in voice-related business, which means it doesn’t compete head-on with India.
A vibrant BPO industry helps increase quality employment, with people earning higher wages in a sustainable way. It also boosts other parts of the economy. For example, a burgeoning BPO industry has revitalised the construction sector, as demand surges for multi-storey BPO offices and other infrastructure development. This also underpins the retail sector.
As a result, business confidence has rebounded from a four-year low in the first quarter of 2009, and continues to rise.
Power Spending
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The flagship Mall of Asia is one of the largest of its kind in the region (photo: SM Mall of Asia, designed
by Arquitectonica)
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Spending power in the Philippines is among the highest in ASEAN, despite its low per-capita income of US$1,866 in 2008, and its relatively small middle-class in percentage terms.
In fact, the Philippines has the second-highest population in ASEAN, with 90 million people. Its middle class, at 14.8 million, is not much smaller than Malaysia’s 16 million.
Along with a sizeable middle-class able to afford imported brand items, the country also has sophisticated, organised retail distribution channels.
Shopping malls sprawl across Metro Manila and frequenting them is an activity common to many middle-class Filipinos.
The Mall of Asia, a flagship shopping mall built by the country’s leading mall operator, SM Prime, is one of the largest of its kind in Asia.
Strong Footing
There are attendant risks and challenges in the Philippines, and Hong Kong companies thinking of entering the market should be aware of them.
Although service exports are strong, they represent a fairly small component of the economy, accounting for eight per cent of GDP in 2008, compared with 29 per cent for merchandise exports. These exports will struggle to compensate for any further deterioration in the manufacturing sector.
Also, while remittances are still strong, some importers have noted that consumers are buying less, either because they are waiting for better bargains or simply saving for a rainy day.
Still, the Philippines appears to be on a stronger footing than many of its ASEAN peers, thanks to its high level of domestic consumption. Those in search of market diversification are likely to find the country an unusually promising market.
For more details, see the forthcoming HKTDC Research report: “The Philippines – A Resilient Consumer Market in ASEAN,” which can be ordered at http://www.hktdc.com/bookshop.
