THE PHILIPPINES: TOURISM OUTLOOK AND

INVESTMENTS OPPORTUNITIES

(A keynote presentation by the Honorable Alberto A. Lim, Secretary of the

Department of Tourism at the Adelaide House, 09 November 2010)

INTRODUCTION

It is indeed an honor for me to make this presentation on the Philippines.

It is my hope that by the day’s end, you will be encouraged by what you
learn and consider the opportunities open to investors in the Philippines’
tourism and service industries.

Before proceeding, I would like to thank our partners here in the United
Kingdom. This Business Forum on Tourism Investments would not have
been possible without the support of the Philippine Trade and
Investment Center, the commercial section of the Philippine Embassy in
London. Equally important is the assistance extended by Berwin
Leighton and Paisner. BLP has gone out of its way to help the
Philippines by hosting us today in this magnificent building and
auditorium. To the senior officers and partners, please accept my
heartfelt thanks.

We also appreciate the presence of a business delegation from the

Philippines. They have joined us with the intention of sharing their
investment experience and offer their local knowhow. Some may even
propose tourism projects. I encourage you all to meet with the members
of our Philippine delegation, and to discuss with them the many
opportunities for tourism development and business partnerships in the
Philippines.

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Finally, I wish to give special recognition to a woman who has given us
the motivation to push our tourism investments agenda forward in the
UK. To Katrina Panlilio-Craig of Hotel-in-a-Box, the Department of
Tourism is deeply grateful for your dedication and the service you have
so generously given.

THE FUTURE OF PHILIPPINE TOURISM

Six months ago, Benigno S. Aquino III was elected president. One of
the cornerstones of his economic program is tourism, as a key industry
that creates jobs and reduces poverty.

Let me say at the outset that our objective is to double tourist arrivals
from the current base of three million visitors in 2009 to six million in
2016. Our latest statistics reveal that as of July 2010, the arrivals have
increased by 14% over the same period in 2009. Should this pace
continue, we can forecast arrivals to be as much as 3.4 million visitors
by year’s end.

With the doubling of arrivals, we also project a doubling of tourism

receipts to 4.4 Billion US Dollars. Tourism will contribute 6.4% to the
country’s gross domestic product by 2016, and will be directly
responsible for the creation of as many as 3 million new jobs in addition
to the current 3.5 million. Tourism is indeed an industry that can reduce
poverty as it employs people in the poorest yet most attractive parts of
the country.

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EIGHT BASIC REASONS TO CHOOSE THE PHILIPPINES

We believe the goals we set for ourselves are achievable. We enjoy

many advantages that make our country today, one of Asia’s most
attractive investment destinations. Among these are:

1. A new and responsive administration that welcomes and

encourages tourism investments in order to generate
employment and livelihood. To promote tourism investments,
new tax incentives will be offered;

2. A resilient economy that has had 41 successive quarters of

growth in GDP since Q1 of 1999.

3. A new civil aviation policy regime that will lead to greater air
access

4. A coherent expenditure program to upgrade land, sea and air

transportation systems and infrastructure linking us to the major
source markets and facilitating travel and transport to
established and emerging tourism hotspots;

5. Abundance of skilled managerial talent and technical

manpower, which we export in great numbers, but which can
be harnessed in our own service economy;

6. Rich natural and cultural endowments, with an abundance of

natural attractions that include several UNESCO World Heritage
Sites;

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 7. The popular use of the English language as the medium for
communications, commerce and education; and

8. Finally, we are located in the fastest growing region in the world.

After a burst of investments in the mid-1970s, tourism investments in the

Philippines thereafter made slow progress. In spite of the fact that we
started our tourism earlier than our neighbors, we have been bypassed
since then in favor of Malaysia, Thailand, Singapore and Indonesia. Let
me address two basic reasons why the growth of Philippine tourism has
been sluggish in the past and what we intend to do about it.

OPEN SKIES

In 1980, we were able to attract one million visitors. It then took us 27

more years to hit the 3 million mark.

Vietnam started their tourism 20 years later than us yet their 4 million
arrivals are already higher than ours. I will set modesty aside and say
that our natural endowments and infrastructure are at par or better than
Vietnam’s. We have a language facility that should have served us
better. I submit that the main difference is that they allowed foreign
carriers to bring in tourists without demanding reciprocity for their own
carriers.

The Philippines is served by 770 flights per week compared to

Singapore’s 2,390. Thailand’s 2,065, Malaysia’s 1,802, and Indonesia’s
1,017. Vietnam is catching up with us with 730 flights but 430 of those
are foreign carriers compared to 360 foreign carrier flights to the

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Philippines. Clearly Vietnam does not depend on the growth of its flag
carrier to grow their tourism.

Bali grew from 30,000 tourists to 3.3 million after pocket open skies was
declared. Siem Reap went from nothing to over a million carried mostly
by non-Cambodian airlines.

President Aquino has approved a policy of fully implementing a liberal

civil aviation policy. The Civil Aeronautics Board, the government body
overseeing the bilateral civil aviation agreements, has been released
from regulatory capture. From hereon, we will allow the market to
determine the appropriate number of flights and not rely on government
to dictate the level of supply.

While an “open skies” policy can be implemented by the Executive

branch alone, our legislators are also convinced this should be a
permanent policy of government. There is pending legislation for pocket
open skies.

The lessons of Bali, Siem Reap and Vietnam are very clear.
Protectionism has hurt us.

INFRASTRUCTURE DEVELOPMENT

One of the major reasons proffered as to why we do not attract enough

tourists is our inadequate infrastructure. In spite of our grand tourism
master plans that identified our priority destinations, the requisite airports
and roads have not been built to enable those destinations to grow.

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A political economist pundit has said that for too long, our infrastructure
program has suffered from the “divided by ‘n’ syndrome”, where “n” is
the number of legislators. As a result, our infrastructure budgets that
should have been spent on priority tourism destinations, were instead
spent on other less essential infrastructure projects.

Unlike previous presidents, this president who was overwhelmingly

elected on a good governance platform, does not carry the burden of
heavy political debts. So when President Aquino promised that “Key
infrastructure will be put in place to support the development of the
tourism sector,” he has the political capital to carry out his promise.

Funding infrastructure development will not be as challenging as it had

been in the past year. On the fiscal side, the inherited budget deficit of
3.5% of GDP is projected to come down to 2% of GDP by the end of his
term. This, in spite of very ambitious social and infrastructure spending
programs to be implemented over the next six years.

There is also unprecedented liquidity in the banking system. Interest

rates are at an all time low. That is why on November 18, the
government is launching a PPP program (private-public partnership),
where the private sector will be invited to participate in infrastructure
projects like toll roads, airport terminals, power plants, water distribution,
where they can earn better returns on their capital currently sitting in the
bank.

Among the top ten PPP projects are 4 airports in the high priority tourism
destinations. These names may not be familiar to you – Palawan,
Bohol, Legaspi/Daraga and Cagayan de Oro – but they are the

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emerging destinations, the new Maldives, the new Bali, the new Phuket.

TOURISM INVESTMENTS

Regional investors have been aware for some time of the potential of the
Philippine tourism product. Approaching saturation in their invested
markets and seeking new destinations, they now view the Philippines as
the next big Southeast Asian destination, notwithstanding our limited
accessibility and underdeveloped infrastructure.

Since 2002, tourism development projects worth 4.5 Billion US Dollars

were endorsed by the Department of Tourism. This year, the Department
has already endorsed tourism development projects that will result in
2,000 additional rooms, generate investments amounting to 350 Million
US Dollars, and create jobs for 3,300 Filipinos. And we see bigger
developments looming in the horizon, with industry giants like Fairmont
Raffles, Hyatt, Ascott and Shangri-la committed to developing new
properties in the Philippines within the next three to five years.

THE TOURISM ACT OF 2009 (REPUBLIC ACT 9593)

Last year the Philippine Congress passed a landmark act in support of

Philippine tourism – Republic Act 9593, more commonly known as the
Tourism Act of 2009.

The Act was designed to address the issue of lack of national

competitiveness in tourism. The law created a fiscally empowered
promotions arm, the Philippine Tourism Promotions Board, to bring a
greater awareness of the Philippines as an attractive tourist destination.

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The law also created an investment promotions agency, the Tourism
Infrastructure and Enterprise Zone Authority, to generate new investment
in the tourism sector by granting fiscal and other incentives.

Since the Promotions Board is self-explanatory, allow me to expand on

the incentives-giving body.

TOURISM INFRASTRUCTURE AND ENTERPRISE ZONE AUTHORITY

For many years, the Board of Investments and Philippine Export Zone
Authority have been the two agencies responsible for bringing in tourism
investments. Because of the Tourism Act of 2009, investors can also
look to the Tourism Infrastructure and Enterprise Zone Authority (or
TIEZA) as a specialized agency dedicated to the tourism sector. TIEZA
offers several key value propositions to tourism investors.

First, TIEZA is directly linked to the Department of Tourism, allowing for

policy coordination and supervision. Second, it is governed by a board
comprised of members from the public and private sectors, enhancing
good governance and accountability. Third, TIEZA will go further than
BOI and PEZA by recognizing the peculiar needs of the tourism industry.
It will offer the same non-fiscal incentives in terms of providing special
visas, assuring investment repatriation, protecting investments from
government expropriation, and facilitating investments through a one-
stop shop process to cut down on the bureaucracy and red tape. But it
will also assist locators with local issues concerning their host
communities.

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Aside from duty free importation of capital equipment, TIEZA offers a six
year income tax holiday, compared to four years for BOI and PEZA. The
tax holiday is extendable by up to 6 more years for substantial
expansions or upgrades in facilities and services. After the income tax
holiday period, the investor has the option to be taxed on gross income.
Also available is a special social responsibility incentive, which will be a
tax credit of up to 50% of expenses on environmental protection,
heritage preservation, or sustainable livelihood programs for host
communities.

To qualify for incentives, the minimum requirement for a tourism zone is

five hectares in size. The minimum investment is Five Million US Dollars.
Locators in the zone will be entitled to the same fiscal and non-fiscal
incentives provided that they invest in a tourism zone.

TOURIST ATTRACTION

A recent focus group discussion among visitors to the Philippine

revealed that the best attraction in the country is…

It is NOT THE:

- Sun, sea, sand and San Miguel Beer, although Boracay calls itself
the best beach in the world.
- Nature at its best, although one is able to swim with the world’s
largest mammal – the whale shark, or play with the world’s
smallest primate – the tarsier
- Adventure, although our Bicol Region is the site for television’s
popular Survivor series, Amazing Race, etc.

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 - Culture – where West was assimilated into East emerged the only
Latin country in Asia
- Shopping in the region’s largest malls or tightest flea markets.

All nationalities but one feel the best attraction of the Philippines is the
people. We have the world’s warmest welcome. We laugh a lot; we can
even make jokes of our own misfortunes. Filipinos will always offer to
their meal, even to strangers. And of course, we can all carry a tune.

But what else attracts tourists to the Philippines?

MEDICAL TRAVEL

A relatively new segment in Philippine tourism is the health, wellness

and spa sector. Our leading medical centers welcome clients needing
expert but inexpensive procedures, such as cosmetic and plastic
surgery, dermatology, weight loss surgery, ophthalmology, eye laser
surgery, dentistry and the like.

It is not surprising that our doctors and nurses are among the country’s
most successful overseas workers, and here in the United Kingdom,
many of those who work in the National Health Service are well-trained
Filipino medical practitioners. Our care-givers are known for the Filipino
brand of “tender loving care” and genuine compassion.

We now have some of the world’s best but affordable spa retreats and
wellness resorts. A number of these have entered into joint venture with
foreign investors, including a popular resort that offers holistic and
alternative treatment in a lush tropical farm setting. And these are all

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complemented with eco-tours, adventure tours, and cultural tours.

RETIREMENT

The world is graying. One futuristic projection shows that by 2050, 25%
of the world’s population will be over 65 years old. Whether national
social security systems will be able to care for the aged is already a
major concern of developed economies.

The Philippines can be a leading retirement destination for its many

advantages including:

- Warm weather
- Trained care-givers with the Filipino touch
- English language facility
- Religious tolerance
- World class medical/health services
- Telecommunications access.

The Philippine Retirement Authority is now under the supervision of the

Department of Tourism. One of its functions is to facilitate the obtaining
of temporary or permanent resident visas for retirees. It also offers
services to the silver market. We will be more than glad to help you
explore opportunities in this area.

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CONCLUSION

Friends, this is a unique moment in our history.

In 1986, the term “people power” was coined in reference to the

bloodless overthrow of a dictatorship. The revolt was led by Cory
Aquino, the widow of a martyr to the cause of freedom. She restored
democracy (perhaps too much of it).

Today the country is led by the “son of People Power.” The changes he
seeks are social and economic. He hopes to free many in the bottom of
the pyramid from the bondage of poverty. He is working to free people
engaged in business from the shackles of bad governance so they can
bring greater prosperity to the land.

We invite you, our friends and supporters in the UK, to contribute to that
cause:

- By being a visitor on holiday to the Philippines

- Or a medical traveler
- Or a retiree in a warm clime
- Or as an investor seeking higher returns

Do come to the Philippines. You will love it. I wish you… MABUHAY!

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