Key Consumption Centres in the Philippines

OUTPERFORM IN
EMERGING MARKETS
International Enterprise (IE) Singapore
iAdvisory Session – Philippines
November 12th 2014
1
Executive summary
The Philippines has made remarkable progress in recent years. Companies that have not re-evaluated its place in
their ASEAN portfolio should do so now.
The Philippines’ economy has been
improving gradually for quite some
time. The Aquino administration has
bolstered this process by improving
domestic governance
Companies need not cover the entirety
of the Philippines to capitalize on its
growth; the economy is centered on
Luzon, which accounts for the majority
of consumption and manufacturing
The Philippines has lagged behind its
peers in industrial development.
Executives who want to understand its
future trajectory should monitor
developments in three areas:
7
6
PPP Program
(Infrastructure)
5
4
3
Pork Barrel Scandal
(Corruption)
2
1
0
-1
GDP Growth, (US$, %YOY)
GDP Growth, 3-Yr Moving Average (US$, %YOY)
Investment Regime
Rationalization
(Bureaucracy)
Heads of APAC and GMs for the Philippines should use this report to:
■
■
■
Understand the current trajectory of the Philippines’ economy
Pinpoint the most important consumption centers around the country
Benchmark the development of Filipino industry and predict its future path
2
The Philippines island primer
Companies should think of the Philippines as three major islands, each with one major economic center, in order to simplify
the 7,107 islands that are categorized into 80 provinces and further categorized into 17 regions (see below)
LUZON
• Largest island by population and area; accounts
for around 73% of national GDP
• Economic and political center; home to the
national capital as well as the majority of industry
and manufacturing
• Major economic center: NCR (aka Metro Manila)
VISAYAS
• Smallest island by population and area; accounts
for around 12% of national GDP
• Major economic activities include agriculture,
BPO, and tourism
• Major economic center: Cebu City
MINDANAO
• Second-largest island by population and area;
accounts for around 14% of national GDP
• Major economic activities include agriculture and
food processing
• Major economic center: Davao City
Cordillera Administrative Region
Ilocos Region
Cagayan Valley
National
Capital
Region
Central Luzon
CALABARZON
Bicol Valley
MIMAROPA
Eastern Visayas
Western Visayas
Central Visayas
Zamboanga Peninsula
Source: Frontier Strategy Group Analysis; National Statistics Coordination Board, National Census
Autonomous Region
in Muslim Mindanao
Caraga Region
Northern
Mindanao
Davao
Region
SOCCSKARGEN
3
Middle- and upper-class incomes in the Philippines have picked up over the last decade
FSG View: As growth has accelerated and inflation has moderated over the last decade, the Philippines’ middle and upper
classes have seen significant increases to their incomes
■
While the Asian financial crisis undoubtedly weighed on the Philippines’ economy during the late 1990s, the country’s
growth did not start picking up until 2004, when its macroeconomic stabilization began to bear fruit
■
From 2004 to 2014*, the total income of households earning more than US$ 5,000 annually exhibited a CAGR of 12.5%,
significantly more than the 2.7% CAGR seen during the preceding decade (1994–2004)
The Philippines’ middle class has experienced significant income growth over the last decade
Total income of households earning more than US$ 5,000 annually (US$ billions)
250
200
Over US$ 75,000
US$ 50,000–75,000
150
US$ 35,000–50,000
US$ 25,000–35,000
100
US$ 15,000–25,000
US$ 10,000–15,000
US$ 5,000–10,000
50
0
2004
* Forecast
Source: Frontier Strategy Group, EIU
2006
2008
2010
2012
2014
4
Filipino expenditure is centered on Luzon, particularly in the regions around the capital
FSG View: Luzon currently accounts for the majority of Filipino spending and will continue to do so for the foreseeable future
■
The Philippines economy, which is driven largely by consumption, is centered on the island of Luzon, particularly in the
areas around the capital (NCR, CALABARZON, and Central Luzon). Luzon houses only 57% of the country’s households,
but these families spend at least 40% more on average than do households on the other islands
■
While the Visayas and Mindanao also hold substantial opportunities, particularly around Cebu and Davao, those regions
should be considered secondary to the main island
Luzon accounts for around two-thirds of the
Philippines’ consumer expenditure…
…And within Luzon, three regions account for over
three-quarters of the expenditure
Consumer Expenditure by Major Island, 2015 Forecast
(% of national total)
Consumer Expenditure, 2015 Forecast
(% of Luzon’s total, by region)
Visayas
16%
NCR
31%
CALABARZON
27%
Central Luzon
19%
Ilocos
Mindanao
17%
7%
Bicol
Cagayan Valley
Luzon
67%
6%
4%
MIMAROPA
3%
CAR
3%
Source: Frontier Strategy Group, BMI, EIU, Philippines National Statistical Coordination Board, Philippines National Statistics Office
5
Companies need not cover the entire archipelago to tap into Filipino consumption
FSG View: Companies aiming to capitalize on Filipino consumption should focus on Luzon first and then target specific
provinces in the Visayas and Mindanao
Most of the Philippines’ largest consumer markets are located on Luzon
Average Annual Expenditure per Household, 2015 (US$)
20,000
Islands
NCR
Batanes
Rizal
Cavite
Luzon
Visayas
Benguet
Mindanao
Pampanga
Bataan
15,000
Laguna
Bulacan
Iloilo
National
Capital
Cebu
Batangas
Davao Del Sur
10,000
First-tier
Consumption
Centers
Pangasinan
Second-tier
Consumption
Centers
5,000
0
5,000
10,000
15,000
50,000
Total Provincial Expenditure, 2015 (US$ mn)
* Excludes Davao Occidental, Dinagat Islands, Romblon, and Tawi-tawi due to lack of data
Source: Frontier Strategy Group, BMI, EIU, Philippines National Statistical Coordination Board, Philippines National Statistics Office
6
The national capital and the surrounding areas boast the largest consumer bases
FSG View: Companies should tap into the consumer base in and
around the NCR before expanding to other parts of the country
NCR and Surrounding Areas
 The NCR and the provinces surrounding it present
companies with the largest consumption base in
the Philippines
 These provinces have some of the highest total
expenditure levels in the country and also exhibit
high levels of spending on a per household basis
 Outside this core, Bataan may also be worth
exploring; it does not have as many households
but is still quite wealthy
Provinces with the highest-spending households
Bulacan
Pampanga
Bataan
Rizal
Laguna
NCR
Cavite
Expenditure per Household, 2015 (US$)
Batangas
NCR
18,217
Cavite
17,675
Rizal
17,457
Gross Provincial Expenditure, 2015
(US$ Millions)
> 5,500
Bataan
National Ave
15,656
11,526
2,500–5,500
1,250–2,500
0–1,250
Source: Frontier Strategy Group, BMI, EIU, Philippines National Statistical Coordination Board, Philippines National Statistics Office
7
The rest of Luzon offers opportunities that can be tapped from the capital region
FSG View: Companies with a presence in the capital should use their
operations there as a base from which to explore targeted opportunities in
northern and southern Luzon
Batanes (small
islands north
of Luzon)
Benguet
Outer Luzon
 Northern Luzon hosts a number of wealthy
provinces; however, they are generally less
populous than those found around the NCR
 Pangasinan is an exception to this rule; large
numbers of households drive expenditure two
times as high as other provinces in outer Luzon
 Southern Luzon is generally less wealthy, though
places like Camarines Sur and Albay still hold
promise on account of high household levels
Ilocos Norte
Pangasinan
Camarines Sur
Albay
Nueva Viscaya
Provinces with the highest-spending households
Expenditure per Household, 2015 (US$)
Batanes
18,564
Benguet
Nueva
Vizcaya
16,792
12,498
Gross Provincial Expenditure, 2015
(US$ Millions)
> 5,500
National Ave
11,526
2,500–5,500
Ilocos Norte
11,354
1,250–2,500
0–1,250
Source: Frontier Strategy Group, BMI, EIU, Philippines National Statistical Coordination Board, Philippines National Statistics Office
8
Consumption in the Visayas is focused in Cebu and the surrounding provinces
FSG View: Companies aiming to tap into the Visayas’
consumer base should establish themselves in Cebu
and then explore the surrounding areas
Biliran
Leyte
Visayas
 Cebu is home to the Philippines’ “second city;” its
gross provincial expenditure levels are more than
twice that of any other province in the Visayas
 Companies should be able to use Cebu as a base
from which to serve the rest of the Visayas, as it is
a major shipping hub in the Philippines
 Once established there, they can effectively serve
provinces such as Iloilo and Leyte, which offer
relatively large consumer bases
Capiz
Provinces with the highest-spending households
Expenditure per Household, 2015 (US$)
Biliran
Cebu
National Ave
Iloilo
Capiz
13,404
Iloilo
Gross Provincial
Expenditure, 2015
(US$ Millions)
11,814
11,526
10,787
Cebu
10,112
> 5,500
2,500–5,500
1,250–2,500
0–1,250
Source: Frontier Strategy Group, BMI, EIU, Philippines National Statistical Coordination Board, Philippines National Statistics Office
9
Mindanao is less wealthy on average than the rest of the country
FSG View: Companies should take a targeted approach
in Mindanao, as it is a relatively poor island with
significant political and infrastructural challenges
Mindanao
 Mindanao’s economy is focused largely on
agriculture and suffers from an infrastructure
deficit. Household expenditure levels in all
provinces are well below the national average
 The one exception to this rule is Davao Del Sur,
which has the Philippines’ 4th most populous city
 Companies operating in Mindanao should monitor
the political situation closely; in the past, the region
has suffered from violent separatist movements
Gross Provincial
Expenditure, 2015
(US$ Millions)
> 5,500
2,500–5,500
1,250–2,500
0–1,250
Provinces with the highest-spending households
Expenditure per Household, 2015 (US$)
Camiguin
National Ave
11,526
Misamis Oriental
South Cotabato
Camiguin
Davao Del Sur
10,968
Misamis
Oriental
10,475
10,317
10,214
* Davao del Sur includes Davao Occidental; there was not enough data available to conduct forecasts for the latter as a separate entity
Source: Frontier Strategy Group, BMI, EIU, Philippines National Statistical Coordination Board, Philippines National Statistics Office
South
Cotabato
Davao
Del Sur
10
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