The economy of this country is remarkably resilient to the influence of American politics. Travelers are required to wait in a lengthy and uncomfortable queue to pay a tax of ten pesos, which amounts to less than $0.20. After paying in cash (cards are not accepted), customers are left waiting as three officials leisurely generate a paper receipt and stamp it. Many people would be thrilled if they could skip the inconvenience and have the tax included in their ticket, regardless of its size. However, this straightforward reform has yet to take place, possibly due to the potential job loss it would entail for those three officials who are not in a hurry.
Visitors to the Philippines can spend plenty of time brainstorming ways to improve its transportation system, which can often be quite frustrating. When they’re not waiting in rundown airports, they frequently find themselves trapped in congested traffic. Commuting from an outlying suburb to the centre of Manila, the capital, can be quite time-consuming. It usually takes around two hours, which includes the frustrating wait of nearly 30 minutes for a bus to arrive.However, there is progress being made. Infrastructure projects are underway, with roads being paved and bridges being built. In February, the government selected a private consortium to enhance and expand the capacity of Manila’s primary airport. In the coming months, contracts are anticipated to be awarded for the modernization of various regional airports. By 2029, Manila is set to unveil its inaugural underground metro line.Investors often overlook the Philippines, as it is neither as large as India nor as renowned for manufacturing as Vietnam. However, there has been a significant increase in growth since 2012, with the exception of the challenging period during the pandemic. The economy has experienced significant growth under different administrations, ranging from the liberal President Benigno Aquino (2010-16) to the more assertive President Rodrigo Duterte (2016-22). Now, with President Ferdinand “Bongbong” Marcos at the helm, there is an expectation of approximately 6% growth in the coming years. According to the World Bank, the Philippines is on track to become an upper-middle-income country in the near future (see chart).
It may come as a surprise, considering its political stance. Mr Marcos, the son of a notorious corrupt leader, was elected to the highest position in 2022. A substantial disinformation campaign was orchestrated to restore the reputation of the family. However, businesses consider his administration to be more competent than the previous one. While Mr Duterte favored his drinking buddies from Davao for important positions, Mr Marcos has predominantly chosen technocrats for his appointments. His economic team is highly regarded. “The collaboration between the government and the private sector is highly appreciated,” expresses Alberto De Larrazabal, the chief financial officer of Ayala, a conglomerate.
There are numerous reasons to be optimistic about the Philippines that are independent of the current leadership. The country is currently benefiting from a favorable demographic situation, as it has a significant number of citizens in their prime working years. Given that a significant portion of its population resides in rural areas, there exists ample opportunity to transition from agriculture to more lucrative employment opportunities in urban areas. However, the issue of governance is also important, and it turns out that Mr. Marcos is not as terrible as many experts had anticipated.
He has diligently carried forward the previous administration’s initiatives to enhance the infrastructure connecting the archipelago’s 7,600 islands, fostering better connectivity within the country and globally. According to Ndiamé Diop of the World Bank, the Philippines has higher returns on investment in physical and digital infrastructure compared to its neighboring countries due to significant gaps that exist. Enhancing the regard for human rights is also beneficial. While Mr Duterte’s approach involved advocating for the killing of drug suspects and resulting in numerous extra-judicial executions, Mr Marcos, on the other hand, emphasizes the importance of providing treatment for addicts. Although the police still engage in instances of shooting, it is worth noting that the country is now under the leadership of someone who does not express disregard for human rights with statements like “If it involves human rights, I don’t give a care.” That likely reassures investors and makes them more comfortable doing business there.
Mr Marcos has successfully attracted foreign investment to enhance broadband access, which currently varies greatly in quality. Congress is currently considering a bill to encourage more competition in this sector. A national digital identity system is set to revolutionize the way Filipinos conduct business and interact with government services online. Since its inception in 2020, approximately 70% of Filipinos have registered for the program. While this is commendable, it falls significantly short of the nearly 100% enrollment rate observed in India, a country with lower economic resources.
Similar to its neighboring countries, the Philippines has concerns about the possibility of another Donald Trump presidency. The increase in tariffs may have a negative impact on the export of electronic goods. However, it possesses convenient sources of foreign currency that could potentially withstand the impact of Trump.
A significant source of income comes from the remittances sent by its 2 million citizens working overseas, whether it be as sailors on the open waters or as healthcare professionals in the Gulf region (refer to chart 2). Despite comprising only 4% of the labor force in the Philippines, their remittances make up a significant 9% of the country’s income, a steady stream of cash that continued even during the pandemic. Remittances play a crucial role in fueling the growth of small businesses in every village. Norhaya Daud, a young mother in Cotabato, shares that her experience working as a domestic worker in Qatar allowed her to earn significantly more than she could have in her hometown. With the money she saved, she was able to invest in purchasing land. She now cultivates corn and coconuts, while managing a village shop.
Tourism has the potential to thrive once the airports undergo improvements, leading to an increase in revenue. The Philippines is a treasure trove of untapped potential, boasting warm weather, pristine beaches, breathtaking coral reefs, and a rich culture of hospitality. However, the number of international tourists visiting this destination in 2022 was only a fraction of those who visited Thailand. One of the reasons for this is the difficulty in reaching the place. According to a bank’s prediction, the annual tourist arrivals are expected to increase significantly from 5.5 million in 2023 to 43 million by 2030. Additionally, tourism revenues are projected to grow from 9% to a substantial 22% of the total.
One potential challenge to this optimistic situation is geopolitics. The Philippines frequently experiences conflicts with China regarding its unfounded assertions of ownership over Philippine waters. As a result, there is a possibility that the Chinese government may caution Chinese tourists against visiting the Philippines.
Exports of services can provide a valuable source of resilience, as they may be less vulnerable to the potential impact of a trade war compared to physical goods. American firms highly value Filipino call-center workers for their excellent English skills and extensive knowledge of baseball. The country’s business process outsourcing firms have a workforce of over 1.7 million individuals. According to Jack Madrid, the head of the industry association, there is a projected revenue growth of almost 9% in 2024, reaching $40bn. This growth is expected to be driven by the increasing trend of banks and health insurers outsourcing their back-office operations offshore.
There are doubts from Dominic Ligot, the head of research at , regarding the expectation that artificial intelligence will destroy jobs in call centres. Currently, the industry is facing limitations in its growth due to a shortage of highly skilled personnel. He predicts that it could assist in increasing the productivity of those who are less capable.
Challenges persist. Farm sizes in the Philippines are limited to five hectares, resulting in small and less productive farms. Foreign investment is discouraged by a number of laws that restrict ownership stakes to no more than 40% in various industries, including public procurement and trading. Despite facing strong opposition, Mr Marcos has made commitments to relax regulations on foreign ownership.The global environment is highly uncertain. During Mr Marcos’ visit to the White House earlier this month, he was greeted with a warm welcome by President Joe Biden and Japan’s prime minister, Kishida Fumio. However, there is a possibility that Mr. Biden’s presidency may not continue into the next year, and it is also worth considering the potential for Mr. Trump to take a sudden stance against outsourcing by declaring war on it. Relations with China, on the other hand, are extremely poor and have the potential to deteriorate further. Despite the current global situation, Mr. De Larrazabal notes that there is a sense of cautious optimism among businesspeople in the Philippines. •