The Philippines: An Analysis

AHK World Business Outlook Survey 2015-2019

German-Philippine Chamber of Commerce and Industry (GPCCI)
AHK Philippinen
The Philippines: An Analysis
AHK World Business Outlook Survey 2015-2019
German-Philippine Chamber of Commerce and Industry (GPCCI)
AHK Philippinen

Table of Contents
Summary 3
Part 1: General Evaluation 4
1.1 Overall Analysis 5
1.2 Business Situation 6
1.3 Business Expectations 7
1.4 Investment intentions 8
1.5 Employment Intentions 9
1.6 Economic Development 10
Part 2: Issues & Concerns 11
2.1 Risks and Challenges 12
2.2 External Influences 13
2.3 Internal Influences 14
2.4 Workforce Impact 15
Part 3: Final Remarks 16
3.1 Suggestions for 2020 17
3.2 AHK’s Commitment 17
Acknowledgements 18

The AHK World Business Outlook Survey is based on a regular DIHK survey among member companies of the German
Chambers of Commerce Abroad, delegations and representative offices (AHKs). This study focuses on the surveys conducted
annually in the Philippines during 2015-2019 and encompasses the feedback from about 130 companies which are involved in
German-Philippine economic relations. The German-Philippine Chamber of Commerce and Industry (GPCCI) is the
official representation of German businesses in the Philippines; a bilateral membership organization with around 300 members;
and a service provider to companies in their market entry and expansion.

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SUMMARY: Philippines – The Bullish Economy
The 2019 AHK World Business Outlook survey reiterates the German companies’
bullishness regarding the Philippine market despite global uncertainties and local
policy adjustments.
According to the study, more than 70% of respondents evaluate their current business
situation in the country as “good”. This is a 6% increase compared the last year’s
survey. Similar positive figures persist when it comes to business expectations in the
next 12 months with almost two-thirds anticipate growing business opportunities.
Additionally, more than 53% say that they intend to increase their workforce.
Investment spending remains robust, with almost a half (49%) of participants report
that they have increased expansion plans within the next 12 months. Additionally, 42%
of the respondents claim to have the same amount of investments in the pipeline as
last year. Although high, these positive numbers are lower than last year. Underlying
reasons – on the local setting – are policy uncertainties such as the final structure of
a corporate tax and fiscal incentives, and on a global scale – increasing challenges to
international trade.
The companies involved in German-Philippine businesses relations continue to face
challenges. A plurality of respondents (46%) describes that economic policies mainly
contribute to business challenges in the next 12 months. Exchange rate volatility
comes in second at 36%. Sharing the third place (34%) are challenges in securing
skilled labor and international / domestic market demand. Meanwhile, concerns on
infrastructure seem to have lost its momentum from 3rd place last year as the
government’s “Build, Build, Build” program – with planned investments of up to USD
160 billion – shows its first results.
In terms of other factors influencing the companies’ engagement in the Philippines,
almost 70 % of the respondents refer to the inflation rate. The importance of the
availability of skilled workers, particularly in technical fields on university as well as on
vocational training level, almost doubled from 2017 to 2018 remaining on a high
plateau with 45 % this year.
With regard to a potential EU-ASEAN free trade agreement, companies continue to
emphasize the important influence of such an enhanced cooperation between the two
economic zones.
Overall, the positive and confident business outlook of this survey reflects the view of
respondents engaged in German-Philippines business where the trade volume has
increased from USD 3.9 Billion in 20081, when GPCCI was founded, to USD 7.4 Billion
in 20182.

1
(2008) Außenhandel, Statistisches Bundesamt, pg. 29
2
(2018) Außenhandel, Statistisches Bundesamt, pg. 2

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 GENERAL EVALUATION
Part 1

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1.1 Overall Analysis

Figure 1.1: AHK Philippinen Business Outlook Survey 2015-2019

("better" answers)
90

80

70
Percentage of Respondents

60

50

40

30

20

10

0
2015 2016 2017 2018 2019
Business Situation 68 62 60 66 71
Business Expectation 63 81 65 72 63
Economic Development 47 71 65 58 50
Investment Intentions 52 24 57 55 49
Employment Intentions 60 57 59 52 53

The chart above shows the overall results of “better” answers on the primary inquiries
in different issues such as: business situation, business expectations, economic
development, investment intentions, and employment intentions on the World
Business Outlook Survey from 2015-2019.
The figures regarding the current business situation and employment intentions are
on positive trends while business expectations, economic development, and
investment intentions shows a downtrend. The succeeding parts of this study shall
look unto these in-detail and further understand the underlying causes of these results.

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1.2 Business Situation
Question: What is your company’s general situation by present
judgment?

Figure 1.2: Business Situation 2015-2019

100%

90%

80%

70% 62 60
68 66
71
60%

50%

40%

30%
32
20% 38
30 32
26
10%
8
0% 2 0 2 3
2015 2016 2017 2018 2019

Worse Same Better

AHK Philippinen, World Business Outlook Survey Results 2015-2019, in percent

About 71% of the participating firms evaluate that their current business situation in
the country at a “better” state than last year. This shows a notable increase from 2017
and 2018 with figures of 56% and 65% respectively.

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1.3 Business Expectations
Question: What is your company’s general situation from now on:
expected situation by the end of the next 12 months?

Figure 1.3: Business Expectations 2015-2019

100%

90%

80%

70% 63 63
65
72
60% 81

50%

40%

30%

20% 37 30 37
27
10% 14

5 5
0% 0 2 0
2015 2016 2017 2018 2019

Worse Same Better

AHK Philippinen, World Business Outlook Survey Results 2015-2019, in percent

Asked for the expected company situation in 12 months, the majority expects that the
business situation will continue to be better. However, the 2019 data shows a
downtrend from last year with figures declining from 72% to 63%. Noticeably, the study
shows that the greatest number of “better” votes (81%) was seen in 2015-2016 when
the Philippines experienced a positive development on its economy as the Gross
Domestic Product (GDP) growth reached up to 7.1%.

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1.4 Investment Intentions
Question: What is your company’s expected capital expenditures
and investments in the next 12 months?

Figure 1.4: Investment Intentions 2015-2019

100%

90%
24
80%
52 49
57 55
70%

60%

50%
62
40%

30% 39 45
35 39
20%

10%
14
9 8 6 6
0%
2015 2016 2017 2018 2019

Worse Same Better

AHK Philippinen, World Business Outlook Survey Results 2015-2019, in percent

Capital expenditures and investments are much needed for a growing economy like
the Philippines. The respondents – with the intention to invest more – amounts to about
49%. Although high, the 2019 data shows 6% less than the previous year. The worries
on unsolved international trade tensions between the US and China and uncertainties
brought by expected reforms for the 18th Congress caused this decline. Furthermore,
the strong impact of the national election on investment intentions was already
observed during the presidential campaign in 2015-2016 when the investment figure
of the “investing more” dropped down to 24 %.

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1.5 Employment Intentions
Question: What is your company’s expected workforce one year
from now?

Figure 1.5: Employment Intentions 2015-2019

100%

90%

80%
52 53
70% 60 57 59

60%

50%

40%

30%
41
38 43
20% 36 38

10%

4 5 8 4
0% 3
2015 2016 2017 2018 2019

Worse Same Better

AHK Philippinen, World Business Outlook Survey Results 2015-2019, in percent

The number of companies which expect to extend their workforce grew to 53 %. On

the other end, the number of firms – which foresee less workers – halved from 8% to
4%. The interest to recruit more shows that the planned investments are not only linked
to new machinery and automatization, but also to sectors which are workforce
intensive.

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1.6 Economic Development in 12 months
Question: What is your assessment of the expected situation by the
end of the next 12 months regarding the overall economy?

Figure 1.6: Economic Development 2015-2019

100%

90%

80%
47 50
70% 58
65
71
60%

50%

40%

30% 47
44
33
20% 30
24
10%
7 5 5 8 6
0%
2015 2016 2017 2018 2019

Worse Same Better

AHK Philippinen, World Business Outlook Survey Results 2015-2019, in percent

Analyzing the expectations of the respondents on the overall growth of the Philippines
in the next 12 months shows a continuous decline of “better” answers while staying
above 50% of the total respondents.
As observed in the past years, the number of companies expecting the “same”
situation increased to 44% while respondents expecting a “better” situation decreased.
Similar to the other forecasting of the survey, companies were cautious about the next
12 months as they await the outcome of the mid-term elections in the Philippines and
closely observing global trade developments.

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 ISSUES & CONCERNS
Part 2

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 2.1 Risks and Challenges
Question: Please try to assess the influence or the importance of
the following factors for your company’s engagement in the
country in terms of policies and regulations:

Figure 2.1: Risks and Challenges in PH 2017-2019

2017 2018 2019

0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0%

18.9%
Demand 30.0%
34.4%

16.2%
Financing 23.1%
23.2%

24.3%
Labour costs 16.9%
23.2%

40.5%
Skills shortage 36.9%
34.4%

43.2%
Exchange rate 46.9%
36.0%

27.0%
Energy / commodity prices 27.7%
23.2%

24.3%
Legal certainty 27.7%
24.8%

40.5%
Economic policy framework 48.5%
45.6%

37.8%
Infrastructure 35.4%
30.4%

18.9%
Trade barriers 27.7%
24.8%

AHK Philippinen, World Business Outlook Survey Results 2017-2019

In terms of assessing influence of regulatory-related risks to businesses in the country,

the chart above shows that the respondents continue to face challenges in 2019.
Economic policies are seen to be one of the main business challenges at 46%. This
also holds true in 2017 (41%) and 2018 (49%) where this was seen to be among the
top issues compared to the other fields. Meanwhile, exchange rate volatility comes in
second at 36% but is 11% lower than last year. Sharing the third place (34%) are
challenges in securing skilled labor and potential volatility in international / domestic
market demand.

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2.2 Market Supply and Demand Factors
Question: Please try to assess the influence or the importance of
the following factors for your company’s engagement in the
country in terms of market supply and demand:

Figure 2.2: Market Suppy and Demand Factors 2017-2019

("high influence / important" answers)
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%

67.6%
Demand (domestic) 61.5%
66.4%

37.1%
Demand (regional) 40.2%
41.5%

26.5%
Demand (international) 47.0%
45.4%

34.3%
Supply (domestic) 41.7%
29.3%

42.9%
Supply (foreign) 36.8%
45.6%

52.8%
ASEAN FTA 46.0%
36.7%

44.4%
EU-ASEAN FTA 49.6%
45.4%

2017 2018 2019

AHK Philippinen, World Business Outlook Survey Results 2017-2019

In terms of market demand and supply factors, domestic demand still stands at the top
spot for the participating firms in 2019 while regional and international demands are
also considered as important parameters. With regard to free trade agreements (FTA),
the respondents continue to emphasize the important influence of such cooperation.
While participants see less importance of the ASEAN FTA decreasing from 2017 to
2019, they continue to see that a potential EU-ASEAN FTA would strongly influence
their business engagement in the country.

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2.3 Other Important Factors
Question: Please try to assess other factors influencing your
company's engagement in your country:

Figure 2.3: Other Important Factors 2017-2019

("high influence / important" answers)
0.0% 10.0% 20.0% 30.0% 40.0% 50.0% 60.0% 70.0% 80.0%

67.6%
Inflation Rate 61.5%
66.4%

37.1%
Absence of Corruption 40.2%
41.5%

26.5%
Availability of Skilled Workers 47.0%
45.4%

34.3%
Tax Burden 41.7%
29.3%

42.9%
Access to Financing 36.8%
45.6%

52.8%
Image of Germany 46.0%
36.7%

44.4%
Image of EU 49.6%
45.4%

2017 2018 2019

AHK Philippinen, World Business Outlook Survey Results 2017-2019

Assessing other factors concerning the participants’ business activities in the

Philippines, inflation rate – under the impression of its peak in 2018 – continues to be
at the top spot in 2019. Another important factor is the availability of skilled labor
where the importance almost doubled from 2017 to 2018 and stays high at 45 % in
2019.

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2.4 Workforce / Education-related Impact
Question: How would you rate the difficulty in finding qualified staff
based on education?

Figure 2.4: Difficulty of Finding Qualified Staff based on

Educational Level 2017-2019
("high" answers)
0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0% 35.0% 40.0% 45.0% 50.0%

29.7%
University Level (non-technical) 22.0%
28.0%

41.7%
University Level (technical) 45.0%
39.1%

31.4%
Vocational Level (non-technical) 18.8%
14.8%

38.9%
Vocational Level (technical) 28.3%
20.7%

2017 2018 2019

AHK Philippinen, World Business Outlook Survey Results 2017-2019

Difficulties in finding the right individual still possess a great concern among
participants. One of the reasons is the existence of skill mismatch when employers
hardly find appropriate employees. This reflects to the result of the survey where
participating firms find it difficult to hire qualified technical university level graduates.
These figures are particularly concerning as the country intends to bring more high
added value activities into the country for which high skilled employees are needed.
With regard to the vocational level graduates, the figures have been decreasing. It is
still uncertain if this is a trend was caused by the newly introduced K-to-12 program
and if the trend shall continue in the next years.

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 FINAL REMARKS
Part 3

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3.1 Recommendations
The figures presented in this study suggest that a significant response from the
government is needed to make the country more attractive to more domestic and
foreign investments.
a) While the expected reintroduction of the second package of the comprehensive
tax reform program (TRABAHO) in the 18th Congress remains to largely
contribute on the ambiguity of investors, this also presents an opportunity for
the government to explore and create a more attractive fiscal incentive structure
for both existing and incoming firms. Furthermore, an effort to expedite the
lowering corporate income tax rate – together with an attractive incentive
framework – could make the country immediately more competitive compared
to its neighbors.
b) The implementation of the rules and regulations for the Ease of Doing Business
/ Anti-Red Tape Act need to be promulgated fast, unambigious and transparent.
c) The passage of reforms related to the relaxation of restrictions for foreign
investments will further make the country appealing to investments. Such
reforms are the amendments to the Retail Trade Liberalization Act of 2000,
Foreign Investment Act of 1991, and Public Service Act (Commonwealth Act
No. 146) will further improve the country’s external trade performance, bring in
more competition and introduce new technologies in the country.

3.2 GPCCI’s Message and Commitment

Overall, the results of this study reflect the general economic perspective of the
responding firms. While they remain very bullish in the country, it is important not to
disregard their needs and concerns.
GPCCI-AHK Philippinen, with almost 300 member companies, shall continue to
support and promote the bilateral business relations between the Philippines and
Germany.

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Acknowledgements

© German-Philippine Chamber of Commerce and Industry, Inc. (AHK Philippinen)

June 2019
All rights reserved.

German-Philippine Chamber of Commerce and Industry, Inc.

8F Döhle Haus Manila,
30-38 Senator Gil Puyat Avenue
Barangay San Isidro
1234 Makati City, Philippines

Editor & Layout

Mr. Yves Aguilos, Head of Government Affairs

Contributors
Dr. Martin Henkelmann, Executive Director
Ms. Charlotte Bandelow, Deputy Executive Director / Head of Trade Promotions

Photo Credits
Pexel

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