The present economic conditions of the Philippines and how it affects the business

industry

As business needs a source of capital to purchase the materials, plant,

equipment and labor it needs to produce a product or service. It needs to have a
reasonably accurate idea of the prices those items will cost, and the interest rates it will
pay to finance the purchase of those items in advance of the decision to produce them.
It also needs a reliable supply of buyers with income sufficient to purchase the products
or services it is selling. Economic conditions can affect some or all of these factors,
causing business to have higher costs, lower demand, or just uncertainty about the
future interest rates it will have to pay for financing its debt. Many businesses issue
stock to raise capital for expansion or other expenses suitable for equity participation. If
the economy is down overall, this can depress stock prices and cause the company to
have to issue more shares to raise money than it otherwise might. This dilutes the value
of the existing shares of stock, unless the plans unveiled when the stock is issued come
to fruition on schedule and investors do not doubt that fact along the way.
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Every business has one goal, to maximize its profit. This can be done by
analyzing the demand of consumers, providing appropriate supply, along with
maintaining quality of goods and services. However, there are many factors that affect
this simple operation. Owing to these economic elements, the sales, production, and
procurement of a business get adversely impacted. Both international and domestic
businesses are often affected by the dynamic economic conditions prevalent in the
market. Factors like demand and supply, interest rates, recession, inflation, etc. often
have an impact on the businesses.

Even though the economy is composed for long-term expansion, it is far from
certain whether the whole country's fortunes will genuinely change for the better. There
are still tens of millions of people suffering underemployment and poverty. The services
sector has become the engine of growth, but its fruits are swallowed by the tiny, mostlyprivileged sectors of the society. Much of the underprivileged and poor can't expect jobs
until the manufacturing and agricultural sectors are revived. They can't expect
affordable healthcare, water, and electricity, unless the government prevents regulatory

capture, streamlines the labor markets, and judiciously subsidizes strategic economic
sectors. So far, there hasn't been any major move on this front.

The Philippines' roaring economy cooled in the first quarter of 2014 as the impact
of Super Typhoon Yolanda (Haiyan) and other natural disasters hit harder than
expected. But it expanded by 6.4 percent in the second quarter of the year, higher than
the revised 5.6 percent in the first quarter but below the government's full-year target of
6.5-7.5 percent. Buoyed by the industry and services sectors, the second quarter gross
domestic product (GDP) growth was lower than the 7.9 percent registered a year ago.
Despite the better-than-expected growth, however, some sectors tamed overall growth
for 2013, as the Socioeconomic Planning Secretary said that, "Construction had the
biggest setback in the fourth quarter. The subsector contracted by 0.8 percent due to
stricter rules imposed on real estate lending in compliance with prudential regulations.
The Board of Investments has also tightened mass housing incentives. The rule
requiring developers to allot 20 percent of their total housing investment for low-cost
mass housing units is now being closely monitored and enforced. Aside from

slowdowns in certain sectors, the combined impact of typhoons and other disasters may
have also reduced the full year real GDP growth by at least 0.1 percentage points.

He also said that the agriculture and industry sectors are expected to be vibrant
this year, as the government promotes linkages between the two sectors to increase
value added as a key strategy identified in the Philippine Development Plan midterm
update. Major infrastructure projects, especially in the transport sector are also
expected to boost growth this year and beyond.

The Philippines enjoys a wide range of assets to draw upon for its development.
Government, business, and academia benefit from world-class talent, and the large
number of Filipino workers overseas reflects international demand for its highly
competitive labor force. Being located in the dynamic East Asia region, the private
sector is well-positioned to exploit trade and investment opportunities. The country
benefits from political stability, a free press, and an active civil society that has been an
important agent for change. It is also currently benefiting from sound macroeconomic

policies and a popular government that many see as committed to improving the lives of
the people.

In spite of its strengths, the country has so far not lived up to its potential. Opportunities
to raise peoples income are limited. There are concerns about the quality of education
and healthcare services, and thus of the quality of the labor force going forward.
Agriculture remains largely backward and unproductive. Manufacturing is stagnant and
offers very few jobs. Only a small segment of the services sector, notably the BPO
industry, is rapidly creating good jobs.

Just this recently, President Aquino said in a roundtable discussion with CEOs and
senior officials from the US Chamber of Commerce and the US-ASEAN Business
Council at the Julliard Ballroom of the Omni Berkshire Hotel, that Philippines' Economy
is getting better. He cited that: First, the credit ratings upgrades we have received have
not only put the Philippines at investment grade; they have also made us, as J.P.
Morgan says, the most upgraded sovereign credit in the region in recent years. Second,
the information technology-business process management industry remains one of our
strongest industries, recording a $6.6-billion increase in revenues, from $8.9 billion in
2010 to $15.5 billion in 2013; and third, Manufacturing has completely rebounded: with
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growth accelerating from 5.4 percent in 2012 to 10.3 percent in 2013. This is not to
mention the other sectors worthy of note, including tourism, agriculture and
infrastructure.

The country needs to continue focusing its attention on generating higher,

sustained, and more inclusive growththe type that creates more and better jobs and
reduces poverty. With good jobs, Filipinos can increase their income, save more, and
invest for the rainy days, thereby reducing vulnerabilities to calamities. More and better
jobs can be created by accelerating reforms to protect property rights, promote more
competition, and simplify regulations, while sustainably ramping up public investments
in infrastructure, education, and health. However, fiscally sustainable increases in
investment levels are only possible through a combination of more efficient government
spending and increased revenues from new tax policy and improved administrative
measures. With these reforms, the private sector will have the incentive to invest more
and create jobs, and the country can attract more investments as the economic
rebalancing in the worlds most dynamic region takes place. An initial assessment of a

new dataset on trade in value-added suggests that the Philippines is well-positioned to

further enhance its participation in the regions supply chains.

As the Philippines' is part of the global supply chain, the recovery of merchandise
exports is contingent on improvements in manufacturing in key trading partners. Slower
growth in high income countries will continue to adversely affect the countrys trade
performance. However, improvements in key trading partners manufacturing sector,
such as China, could spur the Philippine export sector. Moreover, increasing demand
for new generation tablet computers and smart phones, as opposed to laptop
computers, will reduce demand for Philippine electronic parts, as the majority of parts
are used in the assembly of laptop computers, and not tablet computers. To improve
prospects for electronics, industries would have to align its business to the new
technology or diversify into other products.

As a community, businesses of all sizes need to embrace the principle of a level

playing field for all, in the interest of accelerating inclusive growth. This means actively
supporting the governments reforms to reduce barriers to entry and maximize
competition, particularly in sectors currently dominated by monopolies and oligopolies.
This also means that business associations, chambers, and professional groups should
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help the government ensure compliance of its members with basic duties such as
paying correct taxes and adhering to other business and labor regulations.

In addition, Businesses need to extend their corporate social responsibility to

their own employees, especially with regard to core labor standards. These include
ensuring that workers rights, such as freedom of association, compliance with minimum
labor standards, and fair and equitable treatment of employees, are protected,
guaranteed, and fully supported in work premises. To promote mutual trust and
understanding, employers would need to make the first move to engage employees in
meaningful dialogue on various labor issues. Businesses would also need to enhance
transparency in their operations. Some unions recognize businesses need to be flexible
to remain competitive and are willing to cooperate with management especially if
management is fully open and transparent about its true financial conditions. To
improve workers productivity, industry associations need to work more closely with their
members, the government, labor organizations, the academe, and civil society

organizations to provide training, upgrade skills, and improve job matching, especially
for workers in the informal sector. Finally, linking workers pay to productivity would
send a strong signal that employers value the contribution of their workers.

Typhoon Haiyan has come at great cost to the Philippines, but economists say
the storms impact on the overall economy is likely to be minimal, while the rebuilding
effort could even give a boost to the region hit hardest by the deadliest storm in the
countrys modern history. Nonetheless, sustaining the current growth path and avoiding
any bubble requires that the country take advantage of the low interest rate regime by
shifting to productive activities. The concern is the required structural adjustment to
match the need for employment growth. Furthermore, the rebuilding requirements of the
devastated areas will push public spending higher cushioning any potential RE bubbles.
There is nothing wrong with government spending for infrastructure, as this is what is
needed to sustain the growth. With the rebuilding process, government will not be
affected by external interest rate fluctuations as multilaterals like Asian Development
Bank and World Bank will lend at concessional rates. This will most likely be followed
by bilaterals.

Finally, it is time for local investors and entrepreneurs to believe in this country
and not be swayed by external opinions. After all, we live here. It is only us who can
disprove opinions made from outside without coming here and studying the country in
detail.

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