AE 2QTR PPT11 SOCIO ECONOMIC AND GOVERNMENT IMPACT ON BUSINESS

SOCIO-ECONOMIC AND GOVERNMENT IMPACT ON BUSINESS

Government Impact on Business

• Government spending on socio-economic services can improve business conditions, but micro enterprises face growth limitations due to:

  • Small size

  • Inadequate infrastructure

  • Lack of support services

• Declining debt repayments allow increased spending on services like:

  • Road development

  • Education

Business Access Challenges

• Small business size restricts access to:

  • Technology

  • Credit

  • Market networks

• Poor infrastructure increases:

  • Transport costs

  • Risk of perishability for agricultural and fishery products

• High electricity costs and real estate prices increase production costs, affecting manufacturers.

• Additional challenges include:

  • High taxes

  • Costly registration processes

  • Bureaucratic corruption

• Foreign businesses face the same challenges in local operations.

Economic Landscape in the Philippines

• The Philippines has the highest costs for electricity and real estate in the ASEAN region.

• High tax rates on additional income deter investment and increase registration costs.

• Local micro enterprises struggle against competition from imported goods and foreign investments due to liberalization policies from the 1990s.

Household Impact on Business

• The population is aging with declining fertility and mortality rates:

  • 68% of the population is under 29 years old.

• 35% of those aged 15 to 34 are engaged in sophisticated consumption.

• The proportion of children needing care has declined:

  • Fertility rates decreased from 6 in 2000 to 3.5 in 2010.

  • Children up to 15 years old dropped from 37% to 33% in the same period.

Aging Population Trends

• Mortality rates have decreased, leading to increased life expectancy:

  • Life expectancy rose from 67 to 71 years from 2000 to 2010.

• Forecasts indicate the elderly population will rise to 10% by 2023.

• Declining purchasing power negatively affects family consumption.

• 26% of families remain trapped in poverty due to inadequate wages and unemployment.

Consumer Behavior and Spending

• Typical family spending:

  • 43% on food

  • 21% on housing, utilities, and fuel

  • Only 8% on education and health

• The Philippines has the lowest savings rate in the ASEAN region, leading to price-sensitive consumers.

• Low-quality local products dominate the market, as many consumers can only afford cheaper goods.

Implications for Micro Businesses

• Low-quality consumption could harm care for the young and elderly.

• Sophisticated purchases are declining due to budget constraints.

• Some micro businesses may be pushed out of the market due to reduced consumer demand.

Trade and Capital Movements

• The external sector impacts foreign exchange markets through trade and capital flows.

  • Trade includes remittances and profit repatriations.

• Capital movements consist of:

  • Foreign investments in the country

  • Filipino investments abroad

• Financial flows involve debts and loan repayments impacting the Balance of Payments (BOP).

Balance of Payments (BOP)

• BOP surplus indicates more foreign currency inflow than outflow.

• The central bank regulates currency exchange, buying and selling foreign currencies to stabilize the market.

Local Industry Challenges

• The economy struggles to adopt advanced technology:

  • Imports focus on capital goods and consumer items while exporting mostly raw materials.

• Local manufacturing is often low-tech, unable to compete with imports.

• Electronics exports rely heavily on imported components, contributing little to local employment.

Economic Trade Imbalance

• The country imports more than it exports, escalating costs without generating foreign currency income.

• Net capital inflows from foreign investments help offset trade deficits, leading to BOP surpluses.

Exchange Rate Dynamics

• The peso's exchange rate affects import costs, making them expensive while reducing export competitiveness.

• Local production capabilities struggle against stiff foreign competition and high operational costs.

• The weakening dollar affects the foreign exchange rate and increases local prices.

Herfindahl-Hirschman Index (HHI)

• HHI helps identify market competitiveness and concentration levels:

  • HHI = MS² of Firm 1 + MS² of Firm 2… + MS² of Firm n

• An HHI close to zero indicates perfect competition, while closer to 10,000 indicates a monopoly.

• HHI classifications:

  • Below 100: Highly competitive market

  • Below 1000: Unconcentrated market

  • 1000 - 1800: Moderate concentration

  • Above 1800: High concentration

• Proponents should seek low-concentration industries for better market opportunities.