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Philippines - Economy Sectors

The over eight million Overseas Filipino Workers (OFWs) have an important and growing role as an economic force, sending roughly USD 10 billion worth of remittances home each year. million, Through remittances, OFWs -- who represent roughly one quarter of the country's labor force and one-tenth of the population -- provide more than 10 percent of the country's gross domestic product (much of it in hard currency). Poverty, high under-employment and unemployment, and low wages at home drive these Filipinos to seek work abroad in increasing numbers.

The service sector contributed more than half of overall Philippine economic output, followed by industry (about a third), and agriculture (less than 20%). Important industries include food processing; textiles and garments; electronics and automobile parts; and business process outsourcing. Most industries are concentrated in areas around metropolitan Manila. Mining has great potential in the Philippines, which possesses significant reserves of chromate, nickel, and copper. Significant offshore hydrocarbon finds have added to the country's substantial geothermal, hydro, and coal energy reserves.

The Philippines’ business process outsourcing (BPO) industry accounted for about 15% of the global outsourcing market and has been the fastest-growing segment of the Philippine economy. Although industry revenues slowed from 40% growth during 2006 and 2007, the BPO sector exhibited resilience amid the global financial turmoil, generating more than $6 billion in revenues in 2008 (up 26%) and $7.2 billion in 2009. BPO revenues rose 26% to nearly $9 billion in 2010, and will likely surpass 20% growth in 2011. The sector created about 100,000 new jobs in 2011, bringing total BPO employment to about 600,000.

Latest government data shows that the balance of payments surplus is at $10.29 billion as of November 2011, 21% down from $13.08 billion in the same period in 2010. Merchandise exports--which rely heavily on electronics shipments for more than 45% of sales—dropped by 19.4% as of November 2011 year-on-year comparison; electronics industry projected its export revenues to also drop by as much as 25% in 2011 from $1.706 billion record in 2010 due to slow industrial spending of some Western economies. Although there had been some improvement over the years, the local value added of electronics exports remains relatively low.

A decade after the enactment of legislation to rationalize the electric power sector, the state-owned transmission company (Transco) has been privatized and 92% of total generating assets in Luzon and the Visayas have been sold. This has triggered the opening of access to retail competition in the electric power sector. What remains for privatization is to complete the transfer of contracts of the National Power Corporation’s (NPC) Independent Power Producers (IPPs) to private IPP administrators. NPC has transferred about two-thirds of these contracts to date but has postponed further action indefinitely due to concerns about the potential adverse effect on energy supply. Electricity is still relatively expensive in the Philippines, and the central and southern regions still suffer from inadequate and unreliable generating capacity. A Renewable Energy Act was passed in 2008 and provides additional incentives for investment in this sector as a means of ensuring reliable electricity supply and bringing down the cost of power. No new renewable energy investments have been implemented thus far under the act pending consultations on, and approval of, a Feed-in Tariff System (FITS), a major incentive mechanism that aims to accelerate renewable energy investments, and the results of a grid impact study.

The U.S. Trade Representative retained the Philippines on its Special 301 Watch List for 2011. The report lauded recently passed legislation aimed at illegal video recording in movie theaters and Philippine efforts to enforce bans on pirated and counterfeit goods. It, however, lamented inherent weaknesses within the judiciary system that lead to limited enforcement of IPR laws.

Potential foreign investors, as well as tourists, remain concerned about the rule of law, inadequate infrastructure, policy and regulatory instability, and governance issues. While trade liberalization presents significant opportunities, intensifying competition and the emergence of powerful regional economies also pose challenges. Competition from other economies for investment underlines the need for sustained progress on structural reforms to remove bottlenecks to growth, lower costs of doing business, combat corruption and promote good public and private sector governance.

Arable farmland comprises more than 40% of the total land area. Although the Philippines is rich in agricultural potential, inadequate infrastructure, lack of financing, and government policies have limited productivity gains. Philippine farms produce food crops for domestic consumption and cash crops for export. The agricultural sector employs about one-third of the work force but contributes less than a fifth of GDP.

Decades of uncontrolled logging and slash-and-burn agriculture in marginal upland areas have stripped forests, with critical implications for the ecological balance. Although the government has instituted conservation programs, deforestation remains a severe problem.

With its 7,107 islands, the Philippines owns a diverse range of fishing areas. Notwithstanding good prospects for marine fisheries, the industry continues to face a difficult future due to destructive fishing methods, a lack of funds, and inadequate government support.

Agriculture generally suffers from low productivity, low economies of scale, and inadequate infrastructure support. The sector barely grew in real terms during 2009, dragged down by the adverse effects of successive strong typhoons on the crops sector (which contributes over 45% of total agricultural production). Agricultural output declined by 0.5% during 2010 due to the adverse effects of drought during the first 9 months of the year, but grew by 4.5% during the first nine months of 2011.

Industrial production is centered on the processing and assembly operations of the following: food, beverages, tobacco, rubber and plastic products, textiles and textile products, clothing and footwear, leather products, pharmaceuticals, paints, wood and wood products, paper and paper products, printing and publishing, furniture and fixtures, small appliances, and electronics. Heavier industries are dominated by the production of cement, glass and glass products, industrial chemicals, fertilizers, iron and steel, fabricated metal products, mineral products, machinery and equipment, transport equipment, and refined petroleum products. Newer industries, particularly production of semiconductors and other intermediate goods for incorporation into consumer electronics are important components of Philippine exports and are located in special export processing zones.

The industrial sector is concentrated in urban areas, especially in the metropolitan Manila region, and has only weak linkages to the rural economy. Inadequate infrastructure, transportation, and communication have so far inhibited faster industrial growth, although significant strides have been made in addressing the last of these elements.

The Philippines is one of the world's most highly mineralized countries, with untapped mineral wealth estimated at more than $840 billion. Philippine copper, gold, and chromate deposits are among the largest in the world. Other important minerals include nickel, silver, coal, gypsum, and sulfur. The Philippines also has significant deposits of clay, limestone, marble, silica, and phosphate. Natural gas reserves discovered off Palawan have been brought on-line to generate electricity.

Despite its rich mineral deposits, the Philippine mining industry is just a fraction of what it was in the 1970s and 1980s when the country ranked among the 10 leading gold and copper producers worldwide. Low metal prices, high production costs, and lack of investment in infrastructure contributed to the industry's overall decline. A December 2004 Supreme Court decision upheld the constitutionality of the 1995 Mining Act, thereby allowing up to 100% foreign-owned companies to invest in large-scale exploration, development, and utilization of minerals, oil, and gas. Some local government units have enacted mining bans in their territories, citing concerns over environmental degradation, unequal distribution of tax revenue, unemployment caused by displacement of small-scale miners, and marginalization of Indigenous People.

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Page last modified: 19-08-2014 19:53:04 ZULU