Business World, 18 February 2014


There is a small group of wealthy Filipinos who are in search of investment opportunities. They might find an economy that is expanding, albeit at a slower rate, a stock market that’s less vibrant than before, and a real estate market that’s losing steam. In brief, potential investors may have to be more cautious, selective, and circumspect.

Who are these wealthy Filipinos? Consider the richest 10% of the population. Their average per capita income has increased by 11.9% from 2009 to 2012. Even more impressive, for the same group, per capita savings has risen by 24.6%.

For these relatively well-off Filipinos, 2014 will be a challenging year for the Philippines.

During the last three years, the economy has grown with an upward trajectory — 3.6% in 2011, 6.8% in 2012, and 7.2% in 2013. But all good things come to an end. The emerging consensus is that growth will decelerate to 6.0% to 6.5% in 2014.

The prospect of a rebound in 2015 cannot be ruled out. But it will depend on the government’s ability to move its public-private partnership (PPP) projects and its huge rehabilitation and restoration program.

The average GDP growth rate in recent years (2011 to 2013) is one-percentage higher than the average growth rate in the previous decade, 2001-2010: 5.87% vs. 4.77%. That’s good news. But is it sustainable?

With rising income, the savings outlook of individuals continues to improve. The Fourth Quarter 2013 survey results of the Bangko Sentral ng Pilipinas show that for the National Capital Region (NCR), 75% of households earning a monthly income of P30,000 and over can set aside savings in the current quarter. Of this income class, 19.7% of households are willing to allocate 20% or higher of their income to savings.

For areas outside NCR, the potential is even better. Sixty-five percent of households earning a monthly income of P30,000 and higher can afford to save in the current quarter, with 25.7% indicating their desire to save 20% or more of their income.


The Philippine savings rate is one of the lowest in Asia. The difference between gross national savings and total investment, both as percent of GDP, is shrinking and is forecast to shrink in future years.

Yet, the country’s lack of infrastructure has been a major constraint to sustainable and strong growth. For the country to make up for past neglect and to meet the demand of a modernizing economy, it has to spend the equivalent of 5% to 7% of GDP for public infrastructure for the next 10 years.

One way of doing this is by raising long-term infrastructure bonds, which will be subscribed to by wealthy Filipinos and firms.


Individual investors are expected to maximize return on investment net of taxes. Thus, the tax regime is important. Our present tax system discourages setting up one’s business because of the unusually high tax (30%) on corporate income.

The 20% final tax on interest incomes is equally burdensome.

Tax on royalties and winning is a final tax of 10%. Tax on capital gains is a final tax of 5% if less than P100,000 and final tax of 10% on an amount greater than P100,000.

The least taxed among all investment possibilities is real property. Hence, it remains the investment of choice of wealthy individuals. Unfortunately, as a people and society, we have overinvested in real properties and underinvested on modern farms and factories. Such a pattern of investment is a rational response to the existing tax system, labor market policies, and the general difficulty in setting up and running a business in this country.

No wonder, economic growth has failed to create a lot of jobs and opportunities for many Filipinos. The phenomenon called “jobless” growth should not be a puzzle to government authorities.