Infrastructure development, digitalisation key areas of growth in the Philippines

The Philippines has increasingly caught the eye of Singapore businesses in recent years, thanks to its growing middle-class, young population and skilled workforce.

Indeed, even in the midst of Covid-19, Koufu expanded its Supertea and R&B Tea brands in the Philippines in August 2020, via a franchise with Philippine F&B group Shakey’s Pizza Asia Ventures.

AseanBusiness caught up with Enterprise Singapore’s global markets director for Southeast Asia, Chew Hwee Yong to find out where the opportunities lie. 

1. How keen are Singapore businesses on the Philippines? 

In the last three years, Singapore has been ranked as one of the top five foreign direct investors in the Philippines and was the top FDI contributor among Asean countries. Investment was dampened in 2020 due to the pandemic compared with 2019 when Singapore was the top investor; while Singapore was ranked as the fourth largest investor in 2020, it is encouraging to note that investments grew throughout the year and quadrupled by the fourth quarter of 2020. 

2. Do you have some examples of companies who have ventured into/expanded into the Philippines despite Covid-19? 

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Apart from continued demand for traditional brick and mortar shops, Singapore companies are tapping on e-commerce platforms to enter the Philippines. In 2020, e-commerce grew by 55 per cent in the Philippines, driven by extensive lockdowns due to Covid-19 according to a “e-Conomy SEA 2020” report by Google, Temasek and Bain & Company.

Clozette, a hybrid media company that offers a digital ecosystem merging content, community and e-commerce, established its office in the Philippines in 2020. With its team that has now doubled in size, the company aims to tap on the growth potential of e-commerce and digital consumers in the Philippines, deepening engagements with local brands and content creators to help consumers share, discover and purchase new products via its digital platform.

There is growing interest in digitalisation from Philippine corporates, particularly in the areas of financial services, education, insurance, health services, security services, and mobility. 

Recognising this, Enterprise Singapore, in partnership with Plug &  Play and LaunchGarage, organised a Global Innovation Alliance (GIA) Manila Fintech Tech Showcase in March this year for 11 Singapore startups to pitch their ideas to about 70 Philippine corporates and investors. 

Besides fintech, Singapore tech startups in other areas can also participate in the GIA Manila Acceleration Programmes to fast track entry into the Philippine market through mentoring, training and networking.

3. What are some of the sectors Singapore companie scan contribute to in the long term and why? 

Infrastructure development remains a key pillar and priority in the economic recovery of the Philippines. The Philippines government has allocated about 24 per cent of its 2021 fiscal budget to push through investments in sustainable developments for infrastructure such as road, bridges, rail and flood management.

Several Singapore companies have partnered Philippine businesses via the public-private partnership model to contribute to infrastructure development. For example, Changi Airport International was appointed by a consortium of seven Filipino conglomerates to rehabilitate the Ninoy Aquino International Airport. Increasing demand for housing, a booming outsourcing sector and revitalisation of the manufacturing industry are also driving strong growth in private residential, commercial and industrial developments in the Philippines. The Philippine Bases Conversion and Development Authority (BCDA) has also entered into a partnership with Widus Group, to develop a 450-hectare luxury integrated mountain resort at New Clark City, which will include villas under the Banyan Tree Hotels and Resorts brand.

Singapore companies such as Keppel Land and The Ascott Group have also ventured successfully into the Philippines and already have residential, commercial and hotel properties there.

Building on Singapore’s expertise as a regional hub for sustainable infrastructure, Singapore enterprises are well-positioned to support Philippines in developing sustainable solutions to address its pressing infrastructural needs. For example, BCDA has appointed Surbana Jurong to plan and design the 9,450 ha New Clark City, which is envisioned to be the Philippines’ first smart, green and disaster-resilient city. This signalled the start of growing interest from private corporates and developers in new solutions and optimisation of processes in sectors such as water, smart cities and urban solutions. With plans for New Clark City to serve as a Smart City showcase, this is another opportunity for innovative technology solutions to be integrated.

The next GIA Manila Tech Showcase organised by Enterprise Singapore coming up in September this year will focus on smart city solutions to address the country’s rapid urbanisation plans and needs.

4. What are some of the new initiatives undertaken by the government to create a more conducive environment for foreign companies? 

New initiatives and laws that have been introduced to create a conducive environment for foreign companies will also help Singapore companies with technical expertise and innovative solutions to access market opportunities. The change in the Contractors’ License Law for example, now allows 100 per cent foreign owned construction companies to get a Regular License that will allow them to access projects in the Philippines. 

Additionally, the government in March 2021 passed into law the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act, which is a time-bound and tailor-made set of corporate and tax reforms to counter the effects of Covid-19 on the Philippine economy. Its purpose is to reduce the financial burden on foreign and domestic companies through tax incentives and to increase the investment appeal of the Philippines and better compete with Asean counterparts.

Some provisions under the CREATE Act include:

• Reduction of corporate income tax from 30 per cent to 25 per cent; with an annual reduction of 1 per cent per year from 2023 to reach 20 per cent by 2027
• Duty exemption on incorporation of Certificate of Eligibility, raw materials, spare parts or accessories
• VAT and duty exemption on importation and 0 per cent VAT on local purchases

5. Any general advice for companies? 

Filipinos constantly seek elements of familiarity and relatability – even in trendy and novel experiences. As such, Singapore companies should be prepared to adjust their brands to suit the Philippine market’s preferences and needs.

For example, for F&B, as rice is an essential staple in the Filipino diet, Singapore brands can explore incorporating rice to complement their existing menu selections or developing rice-centric dishes in menu engineering. This has been observed in Singapore brands such as Putien, Wee Nam Kee and Char who have expanded to the Philippines – while they previously offered rice in their original menus, they have customised their Philippine menus and expanded their rice options for the market by offering set meals with rice as the staple and other dishes integrated into the set to provide a holistic offering which Filipinos prefer, compared to ordering a few main dishes and rice which is common in Singapore.

Similarly, Singapore retail brands need to undertake adequate research regarding market preferences and be opened to adapt their products to the Philippine market, rather than try to replicate their existing brand concepts. Being aware of the size and colour preferences for consumers in the Philippines is one example.

Singapore companies may also face challenges in navigating highly regulated sectors such as construction and infrastructure, where strong support and approvals from relevant government bodies are required. Moreover, companies new to the Philippines may have difficulties understanding the complex business environment in these sectors, in which various approval processes and documentation requirements must be adhered to.

For example, foreign companies must obtain the relevant licenses and permits that are mandatory for foreign participation in local projects. 

In addition, there are strict foreign ownership restrictions in the Philippines and Singapore companies are encouraged to work with local partners who will be able to provide market insights, local business networks and help in navigating the market's intricacies and complexities. 

Read more: Singapore firms eye opportunities in the Philippines despite Covid-19