Significant growth in private and public investment, upward consumer spending, and demand for better connectivity drive the information and communications technology (ICT) industry in the Philippines. The COVID-19 pandemic also fast-tracked digitalization in the government and private sector, drumming up demand for ICT products and services.
According to the Philippine Statistics Authority (PSA), the country’s digital economy surged to about $36.5 billion in 2022, contributing 9.4 percent to the Gross Domestic Product (GDP). This marked an 11 percent increase from about $33 billion recorded in 2021, covering digital transactions spanning digital-enabling infrastructure, e-commerce, and digital media/content. Digital-enabling infrastructure emerged as the largest contributor, accounting for around $28 billion or 77.2 percent of the total. This amount reflected a 7.5 percent rise compared to its 2021 figure of $26 billion, with telecommunication services and professional and business services being the primary contributors.
The Philippine Development Plan (PDP) 2023-2028 specifies digital transformation as one of its underlying themes. In his second State of the Nation Address (SONA), President Marcos directed all government agencies to digitalize all essential public services. Efforts in this direction include the establishment of more common tower infrastructures to increase connectivity, digitalization of business registration processes in local governments, integration of online government services in a single platform through the eGov PH Super App, implementation of the national broadband plan to improve internet and mobile services, and execution of the Cloud First Policy that promotes cloud computing technology for government administration and public services delivery. Philippine micro, small, and medium enterprises (MSMEs) are likewise highly encouraged and supported by the government to embrace digitalization and innovation.
The previous administration enacted laws to facilitate improvements in the ICT landscape. On March 21, 2022, former President Duterte signed the amendment to the Public Service Act (11659), allowing up to 100% foreign ownership of public services in the Philippines, including telecommunications. To create a better business environment and support its digital transformation projects, the former president also signed the Ease of Doing Business and Efficient Government Service Delivery Act (RA 11032) in May 2018. In 2016, the Philippine Government established the Department of Information and Communications Technology (RA 10844) to show its strong support to the ICT industry.
The Philippines’ growing middle class and the young population are also important drivers of IT demand. There is an upward trajectory in their spending levels on technology benefiting premium brands.
Philippine infrastructure projects are another area of opportunity for U.S. exporters. Road, railway, airport, bridge, and port systems will require design software, building information modeling (BIM) for better project management and file-sharing applications. These systems will drive demand for hardware, software, and services.
The following are the leading subsectors with commercial opportunities for U.S. companies:
The Philippines is exposed to a high risk of cyberattacks and security breaches due to its tech-savvy population and limited data protection measures. These risks include malware, data leakage, and compromised websites among government and private organizations.
The Philippines ranked 61st out of 182 countries in the 2020 Global Cybersecurity Index conducted by the International Telecommunication Union. The adoption of legal and cooperation measures was identified as among the country’s strengths in cybersecurity.
The COVID-19 pandemic has accelerated the adoption of digital and cybersecurity tools. Based on a November 2021 survey of 500 respondents from five ASEAN countries published by a global cybersecurity company, it was found that 64% of Philippine respondents increased their cybersecurity allocations for the following year. According to the survey, Filipino companies improved their cybersecurity through identity and access management (57%), cloud security (55%), threat detection and correlation systems and platforms (42%), fifth generation (5G) security strategy (42%), and internet of things or operational strategy (39%). Generally, software-defined area network security is gaining market popularity as a result of the ongoing use of cloud storage and solutions.
The Philippine Government, the business process outsourcing (BPO) industry, education sector, financial sector, health sector, and the telecommunications industry are key vertical markets for ICT. There is also growth in e-payment and fintech platforms with the expansion of e-commerce.
The draft of the National Cybersecurity Plan (NCSP) 2023-2028 is currently being finalized and is set to be released before the end of 2023. Laws on cybersecurity and critical information infrastructure protection are among the major policy proposals put forth in the NCSP. The Philippine Government continues to amplify the Data Privacy Act (RA 10173), set data protection standards, and recommend that all entities register with its online portal and hire a Data Privacy Officer. The rollout with the allocated budget indicates opportunities for U.S. software and hardware solutions providers.
Software and Services
Market research firm Business Management International (BMI) forecasts that Philippine software sales will reach $95 million by 2025. From 2020-2021, software sales benefited from an increased demand for devices from Filipinos working and studying remotely. Local firms have also pushed for digital transformation, increasing spending on enterprise architecture projects. The purchases were also driven by Microsoft Windows 11 releases to access significant security and feature updates. The Philippines jumped two spots to 56th from the previous year’s 58th in the 2022 IMD Digital Competitiveness Ranking report. However, the country ranked second to the lowest among 14 Asia-Pacific countries.
Artificial intelligence (AI) is an emerging sub-sector in the Philippines which is anticipated to reach a market size of approximately $808 million in 2023, according to Statista. Detailed in a 2020 report by EDBI and Kearney, AI is projected to boost Philippine GDP by 12% ($92 billion) by 2030. Global management consulting firm McKinsey also noted the potential for AI to create opportunities by automating approximately 50% of the tasks conducted within ASEAN’s four largest economies, including the Philippines.
More than 400 software firms operate in the Philippines, with U.S. and European firms dominating the enterprise application segment. The Philippines’ robust business process outsourcing (BPO) industry is a strong market for enterprise applications. In 2022, the IT & Business Process Management Association of the Philippines, Inc. reported that the Philippine BPO industry generated $32.5 billion in revenue, and this figure is projected to reach $35.9 billion in 2023. Domestic consumers include sizeable private sector entities such as financial institutions, healthcare facilities, and conglomerates with various business units seeking digitization solutions in HR, accounting, business intelligence, and data warehousing.
In 2021, the Philippine Statistics Authority noted that of 1,080,810 businesses, 99.58% are micro, small, and medium enterprises (MSME). MSMEs are emerging customers in the enterprise application segment as they often lack the digital tools necessary to expand their businesses efficiently. Other sectors with software needs include the retail, manufacturing, and fintech sectors. Many local businesses are emerging, providing low-cost consulting, maintenance, and systems integration services.
Data Hosting and Processing
In 2021, the Philippine data center market saw investments amounting to $298 million, as reported by Colliers. The increasing demand for these facilities is expected to expand, primarily due to factors such as the continuous growth of e-commerce, widespread adoption of cloud computing technologies, and the rising demand for 5G connectivity, among others.
The data hosting and processing segment is expected to grow as more firms seek to utilize cloud solutions for efficiency and resilience in the new normal. Legacy telecom firms are building their own data centers to service more customers.
Large local BPO firms are the consumers of cloud solutions, utilizing regional hubs in Singapore. Most global cloud providers partner with a local firm to offer services.
The Philippine Government is also actively positioning the country as the next major center for hyperscale data centers in the Asia-Pacific region. It envisions a five-fold increase in data center capacity within the Philippines over the next five years, to reach an estimated 300 megawatts by 2025.
The 2023 Q1 market report by S&P Global Market Intelligence highlights a significant 13 percent compound annual growth rate in the operational space of data centers in the country between 2020 and 2025. This growth is driven by the ongoing expansion endeavors of hyperscale data centers and the heightened interest of global enterprises in establishing their presence in the Philippines.
The Philippine government’s Digital Transformation Strategy seeks to improve the government’s digital infrastructure, connectivity, and ease of doing business through innovative tools and solutions. Software development for revenue management systems, tax collection, and a one-stop online platform for business processing are projects in the pipeline. Government cloud data centers, employee email, and national archives management are also part of the government’s cloud-first policy.
Initiatives such as the National A.I. Roadmap, further fuel the requirement for ICT products and services. The requirement outlined in the roadmap provide every household with a minimum of 1 Mbps download and upload capabilities, presenting a significant business opportunity for U.S. companies specializing in telecommunications infrastructure and broadband services. U.S. firms can collaborate with local partners to expand and upgrade the country’s telecommunications networks, laying the groundwork for improved internet access.
The COVID-19 pandemic has spurred Philippine cities to improve citizen services. Their constituents were vulnerable during the lockdown, and they relied heavily on the support of their city governments. Cities moved to digitize services and set standards for data storage, protection, and utilization by rolling out health IT and applications for contract tracing, financial assistance distribution, and city-wide vaccination programs.
Disasters such as Typhoon Odette in 2021 and Typhoon Paeng in 2022 emphasized the importance of ICT solutions for disaster response and resilience management programs. Local government officials have been pushing for the digital transformation of their cities.
Several ICT approaches emerged to mitigate the impact of the COVID-19 pandemic. Efforts vary from command center development, disaster risk mitigation, resilience management, digital health and education, and data center upgrades to cybersecurity and analytics solutions. There are 17 cities in Metro Manila embarking on digital transformation projects. Beyond Metro Manila, Cebu and Davao are also undertaking digital transformation projects as part of the Association of Southeast Asian Nations (ASEAN) Smart Cities Network.
In the July 2023 Ookla Speedtest Global Index, the Philippines ranked 89th of 143 countries in mobile internet speed with 25.88 Mbps (global average of 42.35 Mbps) and 49th of 181 countries with 91.56 Mbps (global average of 82.56 Mbps) in fixed broadband speed often higher in Metro Manila. By 2025, the number of mobile subscribers in the Philippines will reach 159 million, and broadband subscribers will number 10.8 million.
Digital transformation is being led by local telecommunications firms and emerging broadband companies, and these efforts are contributing to strong growth in the telecommunications industry. The Philippines has been identified as among the Asian countries at the forefront of 5G network rollouts, with major telecommunications players spending a combined total of $15 billion on the rollout of their services. Legacy telecommunications players lead the 5G rollout with a combined total of 4,000 5G sites across the country. Emerging broadband providers are focused on 5G, mobile services infrastructure, and satellite connectivity projects.
The pandemic increased the demand for connectivity as more and more Filipinos were working and studying remotely and accessing online content and platforms. According to BMI, higher data revenues are expected with mobile video streaming and e-commerce growth.
In October 2022, President Marcos signed the Subscriber Identity Module (SIM) Registration Act (RA 11934), which mandates all end users to register their SIM cards with public telecommunications entities to protect consumers against illegal and fraudulent activities through mobile and online channels. As of July 30, 2023, almost 114 million SIM cards have been registered according to the National Telecommunications Commission.
In March 2022, former President Duterte signed the amendments to the Public Service Act (RA 11659). This significant ICT amendment allows up to 100% foreign ownership of certain public services in the Philippines, including telecommunications. This measure should foster competition and provide better quality services at a lower cost.
In May 2020, DICT published its first guidelines of the Common Tower Policy for independent cell tower construction in support of the Free Public Internet Access Act (RA 10929). Private companies interested in participating should register at DICT’s Common Tower Registration Portal. This will improve the rollout of mobile networks considering that the Philippines only has 22,834 combined cell sites operated by the three major telecommunications companies, compared to Vietnam that has 90,000.
In May 2021, DICT and the Bases and Conversion Development Authority (BCDA) tendered the first phase of its National Broadband Plan valued at $2 million, which is the rollout of a bypass cable and fiber-optic network. The other phases of the national broadband plan include the national free Wi-Fi program, satellite overlay, and the common tower policy.
With full foreign ownership allowed in the telecommunications sector, foreign investors have greater control and significant incentives to participate in the market. Mobile subscribers would eagerly switch carriers to obtain better coverage and more economical pricing options.
All telecommunications players are expected to upgrade their network capabilities, install fiber-optic and sub-sea systems and cables, purchase modern networking equipment/storage/servers, and utilize cloud and cybersecurity services. The 5G rollout requires digital transformation solutions, including 5G-ready consumer devices. There are opportunities for U.S. financing companies to support medium to long-term telecommunications expansion projects.
In addition to the four leading subsectors, the Philippines is considered a strong market for consumer electronic products.
Statista reported that consumer electronics revenue in the Philippines will reach $9.8 billion this year with an annual growth rate of 0.25% through 2026. Strong demand is driven by Filipinos working and studying remotely as well as the emerging middle class. It is estimated that 1.5 million households will reach an annual income of $25,000 by 2024. This group is expected to purchase consumer electronics for the first time and is eager to own mobile devices, game consoles, televisions, desktop and laptop computers, and other electronic devices.
Consumer electronics market spending between 2021-2026 will reach $9.8 billion. The most popular subsectors include mobile phones, computer hardware, laptops, tablets, and audiovisual devices. The mobile device market is the single largest sector with over 55% of all consumer electronics-related spending.
About 44 million Filipinos own a smartphone and media reports that Filipinos spend an average of 10 hours daily online, with 144 minutes on social media platforms. Major contributors are long commute times, working from home, virtual schooling, and other computer-based work. Emerging markets include premium products such as smartwatches and fitness trackers that target young professionals who use their disposable income for luxury purchases. A side note to consider is that the actual purchasing power for the nation is distorted by robust overseas foreign worker (OFW) remittances that enter the country, amounting to $36 billion in 2022 which accounted for 8.9% of the GDP.
- · Department of Information and Communications Technology
- · Department of Trade and Industry
- · Department of the Interior and Local Government
- · National Privacy Commission
- · National Telecommunications Commission
- · League of Cities of the Philippines
- · Philippine Software Industry Association
- · Philippine Statistics Authority
- · IT & Business Process Association of the Philippines
- Contact Information
Easter Villanueva, Commercial Specialist, U.S. Commercial Service Philippines