Country Risk Assessment - the Philippines - Case Study Example

Philippines Country Profile Student’s Name Institution Date Philippines Country Profile Executive Summary The Philippines is a country that consists of more than 7,000 islands located in Asia Pacific. However, most people live on 11 islands leaving the rest sparsely inhabited. The country was colonised by Spain for more than 300 years and in the early years of the 20th century, the US took control of the administration. It got its independence from The country has more than 35, 000 of shoreline consisting of natural beaches, coral reefs and other coastal features that make it an attractive tourist destination. The country has had tumultuous moments in its history due to constant political upheavals which have made its economy lag behind other major economies in the region such as Malaysia, Singapore and Thailand. Some parts of the country are also facing political uprisings especially in regions that are predominantly Muslim, which seek autonomy from the central government in Manila. Table of Contents Executive Summary 2 Table of Contents 3 Country Profile 4 Political System 4 Legal System 6 Economic Status 6 Culture Issues 9 Ethical Issues 10 International Trade Picture 11 Foreign Direct Investment 12 Foreign Exchange 12 Conclusion 13 Recommendations 13 References 15 Balisacan, AM 2003, The Philippine economy: development, policies, and challenges, Oxford University Press, Oxford. 15 IBP USA 2012, Philippines investment and business guide: strategic and practical information, International Business Publications, New York. 15 IBP USA 2009, Doing business and investing in Philippines guide, volume 1, International Business Publications, New York. 16 Country Profile The capital city of the Philippines is Manila and the country is divided into three major geographical zones namely Luzon, Visayas and Mindanao. It has an estimated population of about 100 million people making it one of the most populated countries in the world. The Philippines is located in the ring of fire in the Pacific Ocean, characterised by a lot of earthquakes, typhoons and other natural disasters. Major languages spoken in the country are Filipino and English even though there are other regional languages which are spoken in the country (Abinales &Amoroso 2005). Its capital is Manila and it uses the peso as its recognised currency. It has a presidential system where its president serves one term of six years and is head of state and government. Political System The Philippines is a democratic unitary state that is governed through a presidential system though there is an autonomous Islamic region in Mindanao. The current Philippines president is Benigno Aquino III, who was elected by a popular vote to serve a single term of six years. The president heads the cabinet and appoints ministers to perform various roles as stipulated by the country’s constitution. He is also the commander in chief, of the armed forces head of state and the head of government. All these functions are bestowed on him by the country’s constitutional order which mandates specific functions that he is expected to carry out. The country’s defence is under the responsibility of the air force, the army and the navy who are in charge of safeguarding the country’s territorial integrity. Civilian defence issues are handled by Philippine national police which enforces law and order (Abinales & Amoroso 2005). The Philippines government has faced a domestic insurgency from various rebel groups in different parts of the country which has severely limited its ability to administer the whole of the country effectively. Some sections of the country do not have adequate security because of different insurgencies that have made it difficult for economic activities to thrive in such regions. Since its independence, the country has maintained strong diplomatic relations with the US, which is its key ally (Balisacan 2003). The country also has strong bilateral relations with its neighbours such as Taiwan, Vietnam and other countries in the pacific such as Australia, New Zealand, Thailand and Singapore. The country has a bicameral parliament consisting of the Senate and House of Representatives. The Senate is the upper house where members are elected to a six –year term while the House of Representatives is the lower house and consists of members who are elected to a three year term in office. The country’s bicameral parliament functions in a similar manner with that of the US, because its constitutional provisions are heavily influenced by the US constitution. Representatives in the lower house are elected from different legislative districts representing different regions in the country (Balisacan 2003). The House of Representatives makes laws even though some laws have to be approved by the senate before they are adopted as part of the country’s constitutional order. The senate also has the power to veto some decisions passed by the House of Representatives into law. Legal System The highest judicial organ is the Supreme Court which is headed by the Chief Justice, a figurehead of the country’s judicial system. There are other fourteen associate justices who sit on the judiciary and they serve after being appointed by the president after they get nominated by the Judicial and Bar Council. Just like in other parts of the world, the Supreme Court sets the highest judicial precedents in the country and its decision cannot be challenged in any other court. There are other lower courts in the country which deal with a wide range of civil as well as criminal cases which are brought before it. The country’s economy is dependent on different sectors which have boosted its GDP growth in the last two decades. Its major exports are electronics, industrial machinery, chemicals, livestock, timber, clothing, rice and other food crops (De la Cruz & Paderon 2005). Economic Status The country is one of the Newly Industrial Countries whose growth is mainly fuelled by increases in the volumes of manufactured goods which are exported to different parts of the world. The government has put in place policies meant to increase the country’s competitive edge as an attractive investment destination (Manasan, 2005). The World Bank estimates that the country’s growth income (GNI) per capita is US $ 2,210 and its main currency is the peso. The country witnessed 3 decades of low economic performance from the early 1970’s to the late 1990’s due to various problems that made it difficult for its economy to take off (De la Cruz & Paderon 2005). Since the beginning of the 21st century, the government has improved macroeconomic conditions which have stimulated economic development across various sectors. It has been improving the country’s infrastructure, economic institutions and other policies that are favourable to international investments in the country (IBP USA 2007). There has also been an increase in the number of bilateral engagements the government has with other Asian countries. The country’s foreign policies have targeted to improve multilateral relations with China, Japan, Taiwan, Thailand, Singapore and Vietnam. The Philippines is generally categorised as an emerging economy because it has made economic advances which have increased its competitive edge in the global market. The country has many manufacturing plants specialising in the production of semiconductors, electronic products, transport appliances, clothing, petroleum goods, coconut oil and fruits. Its major export destinations include Singapore, USA, China, Japan, Hong Kong, Germany, South Korea, Taiwan and Vietnam. The country is still making a transition from an economy which is largely dependent on agricultural production to one that is dependent on manufacturing and service industries (Oxford Business Group 2012). Philippines’ 2012 GDP is estimated at more than $250 billion, which made its economy to be among the top 50 economies in the world. The country has a total work force of about 40 million people, and an estimated 32% of the workforce is employed in the agricultural sector. However, the agricultural sector’s contribution to GDP is very low at an estimated 14%. The industrial sector contributes to more than 30% of the country’s GDP yet it employs about 14 % of the total workforce. The service industry employs a large majority of the country’s workforce who are estimated to 47% of the total workforce in the country (Oxford Business Group 2012). The service industry is responsible for about 56% of the country’s GDP and it is the best performing sector in the country (Manasan, 2005). The country is a net importer, a factor that has affected its balance of payments. This has made it have a trade deficit because it imports some products which are consumed locally. It also has an unemployment rate of 7% and has a large public debt. It is estimated that its foreign reserves amount to more than 80 billion dollars. It has foreign debt of more than 66 billion dollars while its public debt percentage to GDP is higher than 70%. This shows that the country suffers from poor fiscal discipline that has affected the performance of its economy in the region (Cris, 2013). The labour market is composed of highly skilled to low skilled workers. Some Filipinos work in other countries in various professional capacities because they have high education and the necessary skills that make them competitive. Labour mobility is high in the service and manufacturing sectors but low in the agricultural sector. (Ito & Rose 2008). However, other sectors of the economy were not seriously affected by the 1997 crisis compared to other Asian countries, which helped it recover more quickly. However, many Filipinos still survive on less than 2 dollars a day, a factor that has pushed them to seek opportunities in other countries where they work as labourers. The country has never gone back to its glory years of the 1960’s when it was considered among the best performing Asian economies (Manasan, 2005). The country has a literacy rate of more than 80% and it spends about 2.5 % of total earnings on education (Ito & Rose 2008). It has more than 2000 higher education institutins which are located in different regions. The education infrastructure is well developed, which attracts students from other countries to come and study in the Philippines. Many institutions have exchange programs with leading universities from Japan, US and Australia which allows students to acquire vital professional skills in different areas. Philippines’ economic growth has not been able to address high income inequalities that exist in the country (Cris, 2013). Tourism and business process outsourcing (BPO) are some of the largest service industries which the country is known for. Some analysts argue that if the country’s economic potential is utilised appropriately, the country will become the largest economy in South East Asia by 2050. The country is a member of the World Bank, IMF, WTO and the Asian development bank. Foreign currency remittances by Filipinos working in different countries abroad have helped the country increase its reserves. The country has natural resources with a tropical climate which makes it favourable for a wide range of tourism and agri-business activities (Canlas, Khan & Zhuang 2011). It is estimated that improvements in political stability in the south will channel more investment funds to these areas which will increase the country’s economic growth. Culture Issues The country has several ethnic groups which live in different regions. The main ethnic groups are the Tagalog, Cebuano, Ilocano, Bisaya and others. There are also other non-indigenous groups living in the country originally from China, Spain, Japan, Malaysia and the US. There are also people with Korean, Indian, Indonesian and Thai ancestry living n the country. The country is predominantly catholic, with about 80% of its population belonging to this denomination. About 10% of its population belong to other Christian denominations such as evangelical, Baptist, Lutherans and Anglicans. The country has the largest Christian population in Asia and differs greatly from other countries in the region whose populations are predominantly Buddhist (Solheim 2006). It is estimated that about 5% of the population consists of Muslims while the rest worships animist and other traditional religions. Ethical Issues For a long time, the country has faced various ethical issues which have dented its image abroad. Corruption during the regimes of Ferdinand Marcos who ruled autocratically by decree was characterised with many excesses, a factor that caused economic stagnation in the country. Many subsequent governments have found it difficult to deal with the negative effects of corruptions which have discouraged foreign investors from channelling their funds into the country. The administrations of Fidel Ramos, Joseph Estrada and Gloria Arroyo have all been bedevilled by unending accusations of graft and abuse of office. As a result, systemic institutional failures have made it difficult for the country to turn around the fortunes of the poor who endure hardships and live in squalor. These three administrations have been accused of various political scandals and the three former presidents have been accused of not doing enough to institute good governance in the country (Canlas, Khan & Zhuang 2011). Some Filipinos are also forced to work under dehumanising conditions both at home and abroad, due to lower living standards. There are about two million Filipinos working in the Middle East doing various jobs. However, some of them work as domestic servants and labourers in this region where they get subjected to inhumane working conditions. It is estimated that there are more than 10 million Filipinos working outside the country. In some manufacturing zones, sustainable labour and environmental practices are not strictly enforced. As a result, some workers are exposed to unsafe working environments without any intervention from the central government (Canlas, Khan & Zhuang 2011). International Trade Picture The Philippines mainly trades with the US, Netherlands, Japan, China, Hong Kong, Germany, Singapore and South Korea. The country’s main exports include semi conductors, electronics, transport equipment, copper products, petroleum products, clothes, coconut oil and fruits. As of 2010, the total value of exports in the country was estimated at more than 50 US dollars. The country mainly imports electronic products, mineral fuels, machinery, steel, chemicals, grains and fabrics. It is estimated that the total value of its imports as of 2010 stood at close to 60 billion US dollars. The major import partners include Japan, US, China, Singapore, South Korea, Taiwan and Thailand. The government has embarked on a program to open up new investment frontiers in the country. It intends to encourage foreign investors to channel their funds into other important sectors in the economy such as business processing operations, mining and tourism (IBP USA 2012). However, unfavourable government policies related to land ownership are likely to discourage many investors from setting up operations in the country. For instance, foreign ownership of land is restricted and this discourages foreign investors from taking advantage of opportunities in the agribusiness sector. Many agricultural investors are attracted to zones that offer them favourable conditions for investment to enable them set up their operations for a longer period of time (IBP USA 2012). There are many opportunities in rice production, sugar, horticulture and livestock rearing. The country also has abundant water resources and a long coastline that is favourable for fishing activities. The country does not have adequate laws to deal with various structural failures that have affected its competitiveness in world trade. Foreign Direct Investment The US is the largest foreign investor in the Philippines. It is estimated that US firms had invested close to 6 billion dollars in the Philippines by the end of 2009. Other notable sources of FDI in the country include Japan, China, Thailand and Spain. It is estimated that the total amount of foreign direct investment in the country stood at more than 21 billion US dollars by the end of 2008. This compares to about 6 billion dollars which is the total amount of foreign direct investment from Philippines to other countries. The exchange rate of the peso to the dollar was 44, which shows that it has been gaining stability over other leading currencies in the world. Economic reforms instituted by the country have managed to make the local currency more stable (IBP USA 2012). The country has also been reducing its trade deficit because the government has embarked on export promotion strategies which are intended to attract more investors. Foreign Exchange The country’s large service industries mainly tourism and business process outsourcing helps it acquire foreign currency from other destinations. This cushions the peso from foreign currency instabilities that are experienced in the global financial market. There are also large amounts of remittances from Filipinos working in different countries. The peso has been performing well in the last decade due to strong foreign direct investment inflows which have increased its value internationally (IBP USA 2012). The peso currently trades at 43 for every dollar. It is valued at 69 against the sterling pound and 0.44 against the Japanese yen. The peso’s value against the euro is 58. 8 while against the Australian dollar it trades at 40. 5. The currency is valued at 7 against the Chinese Yuan and against the Hong Kong dollar, it trades at 5.5. The peso has gained a lot of value against other major currencies in the world, a factor that can be attributed to increases in export volumes coming out of the Philippines. The country now has opened itself up to global economy which has boosted the growth of tourism and business process outsourcing sectors. It is projected that the manufacturing sector in the country will continue to register positive performance in the medium and long term. Many Filipinos have the necessary skills that make them interact with other foreign nationals easily compared to other countries in the region (IBP USA 2009). As a result, this gives them an advantage when communicating with business people from other countries who come to seek for opportunities. The government has worked hard to reduce the inflation rate and it has been constantly reducing the public debt to enable the country improve the performance of its key sectors. Conclusion The government needs to make more investments in the country’s infrastructure to make it more attractive to foreign investors. The country has managed to stimulate its economic recovery plan after years of poor public sector performance, corruption and poor governance. The government should be commended for introducing various reforms that have made it possible for the country to embark on a positive growth path. The service and manufacturing sectors need to be expanded by establishing stronger partnerships with foreign investors who have the necessary expertise. The government also needs to improve service delivery to ensure its citizens benefit fro various social welfare programs, which they desperately need. Recommendations The country needs to make more investments in the energy sector to increase the attractiveness of its local investment climate to foreign investors. It also needs to develop transport and other important amenities in other sections of the country to open up the whole country to investment. It is necessary to carry out radical reforms to make the country have strong institutions that are able to provide services to private firms within a short period of time. The government also needs to increase education levels in the country to make its citizens more educated and exposed to global working systems. For this to work, the government needs to reduce high corruption rates which are experienced in the country. Political stability is a vital driver of economic growth. The government needs to resolve all political conflicts that make it difficult for the country to achieve higher prosperity. References Abinales, PN, Amoroso, DJ 2005, State and society in the Philippines, Rowman and Littlefield, New York. Balisacan, AM 2003, The Philippine economy: development, policies, and challenges, Oxford University Press, Oxford. Canlas, D, Khan, M E & Zhuang, J 2011, Diagnosing the Philippine economy: toward inclusive growth, Anthem Press, Hong Kong. Cris, L 2013, Philippine Economy a standout in Emerging Asia, The Wall Street Journal, viewed 6th Oct. 2013 from http://online.wsj.com/article/SB10001424127887324009304579042140687305548.html De la Cruz, LJR & Paderon, MMA 2005, Agricultural trade liberalization in the Philippines: policy history and competing perspectives, Institute of Philippine Culture, Ateneo de Manila University, Manila. Ito, T, & Rose, AK 2008, International trade in East Asia, University of Chicago Press, Chicago. Manasan, R 2005, Local Public Finance in the Philippines: Lessons in Autonomy and Acountability, Philippine Journal of Development, Vol. XXXII, No. 2, p. 31-102. Solheim, WG, 2006, Archeology and culture in Southeast Asia, University of the Philippines Press, Manila. Oxford Business Group 2012, The report: the Philippines 2012, Oxford Business Group, Oxford. IBP USA 2007, Philippines company laws and regulations handbook, International Business Publications, New York. IBP USA 2012, Philippines investment and business guide: strategic and practical information, International Business Publications, New York. IBP USA 2009, Doing business and investing in Philippines guide, volume 1, International Business Publications, New York. Read More