Recent Study Reveals Investor Confidence over Philippines’ Business Horizon
By: Maxfield Brown
Despite concerns over competition and lagging demand, a recent study from the Philippine Department of Economics and Statistics reveals growing confidence from business leaders. Differing levels of risk exposure in Q3 as well as confidence in a speedy Q4 recovery bode well for existing firms and reveal opportunities in a market that is projected – at least according to a study by HSBC – to be ASEAN’s largest economy by 2050.
Business Expectations Survey
Released on a quarterly basis, the Business Expectations Survey provides insight into the latest opinions of firms operating in the Philippines. Most recent figures – collected from July 1st to August 17th – reflect responses from 1516 companies operating in all 17 Philippine regions. Drawn from a pool of the Securities and Exchange Commission’s Top 7,000 Corporations in 2010, and Business World’s Top 1,000 Corporations in 2013, respondents represent all major industry subgroups and provide a nuanced perspective on national business confidence.
With concerns growing of a Chinese slowdown and its impact on businesses across the region, Philippine firms cite competitors (55.4%) and low demand (29%) as the catalytic factors behind a 15% drop in Q3 confidence. While pronounced, this decline is largely isolated to firms that are externally focused – export dependent respondents reporting a 61% decline compared to the previous quarter. More diversified firms and those with domestic focus show declines of only 7.5%. With domestic firms making up 49% of Philippine businesses and 83% of total GDP, it is clear that business sentiment is far from tied to external performance.
In spite of their concerns over exposure to external shocks, business leaders are upbeat on their prospects for the coming quarter. Expectations for Q4 are up 28% over Q3 – propelled by projections of a 4.3% increase in business activity. Plans for business expansion and hiring have also increased as business position themselves to take advantage of improving economic conditions. On the heels of a vote of confidence by the IMF, improvements in local business sentiment send a strong signal that opportunities for investment are on the rise.
Key Industries to Watch
To mitigate exposure to the main concerns of business leaders and capitalize on rapidly improving economic conditions, careful decisions must be made concerning sectors for investment. Respondents’ confidence levels and plans for expansion shed light on two types of investments that retain strong prospects in the face of slowing international growth and thus provide interesting opportunities for investment.
- Services: Hotels and Restaurants
The Philippine service sector has shown exceptional resilience in the face of prevailing concerns. While the confidence of export dependent industrial firms fell by 28% in Q3, hotel and restaurant owners showed a 2.2% increase. Without external competition or clients, hotels and restaurants manage to retain the benefits of improving economic conditions while side stepping exposure to international competition and clientele. For the coming quarter, Hotel and Restaurant Expectations of a speedy recovery have been met with a 124% increase in confidence over current sentiment – a clear indication of ample investment opportunities.
- Goods with local Demand: Agriculture, Fishery, and Forestry
A second way to manage lagging demand and increased competition is by investing in sectors with a combination of international and domestic demand. With the second highest level of population growth as of 2013, GDP growth staying steady at around 4.5% and reduced barriers to ASEAN economies, the Philippines is well positioned to provide industry with strong sources of domestic and regional demand. In light of lagging imports by regional consumers, firm plans for expansion provide a good way to assess dependence on external clientele. The industry with the highest percentage of respondents indicating expansions plans is that of Agriculture, Fishery, and Forestry. Within this industry grouping, 47% of firms indicate plans for increased Q4 capital expenditure.
While exposure to lagging demand and increased competition can be effectively managed by strategic investment choices, the issue of regulatory uncertainty is prevalent across sectoral lines. As the third most cited concern of firms in the current quarter, the Business Expectations Survey indicates that 13% of businesses are concerned by a lack of regulatory understanding. To reduce exposure to regulatory uncertainty and retain competitiveness in the rapidly growing Philippine market, it is recommended that companies seek out clarification from professionals prior to committing capital.
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