Consumer

The New Consumer-Led Economy in the Philippines

oliver Event News Leave a Comment

6.9%. That’s how much private consumer spending increased in the Philippines in 2016. Whether compared to neighbours Indonesia and Thailand at 4.8% and 2.1% respectively, or when held up against Western markets like the USA and the UK at 3.2% and 2.4%, the statistic coming out of the Philippines is remarkable.

What is perhaps even more exciting is that the figure is trending upwards. In a market like China, domestic spending that 20 years ago was growing at some 15.4% sunk to just 8% in 2015, and has shrunk further still since then. Meanwhile in the Philippines domestic spending has exploded from 2.3% in 2009 to its current level just only 7 years later.

Driven by a number of key trends which will be the core focus of this post, the Philippines is on a remarkable upwards trajectory. Despite a range of political, geographic and economic challenges which cannot be ignored, the country provides a rich opportunity for businesses local and international who are keen to tap into the expanding middle class, growing financial inclusion and a young digitally savvy population.

Ahead of Seamless Philippines, our event focused upon the transformation of Filipino commerce through technology, here are our 5 key trends driving the consumer-led economy in the Philippines.

Money to Spend

With a 42% increase in middle class households expected by 2030, the Philippines is firmly in the global top 10 when it comes to growth predictions. Along with a 70% growth in median disposable income between now and 2030, the Filipino consumer market will quickly become unrecognisable.

What is particularly interesting about this new wave of middle-class consumers is exactly how they will go about deploying that disposable income. With the 30-34 income bracket claiming the highest average gross income levels in the Philippines, their consumption habits will be markedly different from those had it been their parents amassing wealth.

This young, increasingly affluent market is smartphone driven, highly active on social platforms, values experiences over products and puts great importance on investment in health and education. Merchants looking to benefit from this segment need to understand that traditional retail formats selling commoditised goods are unlikely to gain traction, whereas those providing multi-channel, experiential based commerce will have a phenomenal opportunity to gain market share with this engaged and savvy new consumer base.

Mobility Unlocked

As mentioned already, the Philippines has rapidly become one of the most mobile-enabled countries anywhere in the world. In three years smartphone ownership has almost doubled to around 30% of the total population, with an overall SIM card penetration of 114%.

This trend has been driven by the introduction of affordable yet desirable smartphone devices by the likes of OPPO and Huawei into the market, some selling for as little as US$75. We have also seen falling prices on data plans, with one GB of data available for just $3.71, which has made picking up a mobile device even more of a no brainer for those even in remote parts of the country.

Furthermore, slow broadband speeds averaging as little as 4.3MBPS have encouraged users to move to mobile plans where speeds average at a relatively blistering 8.5MBPS. Driving customers onto mobile devices in this way has led to an explosion in services specifically optimised for the mobile device. From P2P payments platforms like Tapp to mobile first e-commerce sites like Shopee, those service providers able to effective engage with this growing audience will have significant first mover advantage.

As has been demonstrated in other markets, succeeding on mobile is not just about porting traditional web based products onto the device format. Consumers want products that take full advantage of the mobile platform, including personalised and relevant experiences. Local businesses need to fully get to grips with these strategies in order to create the best conditions for success.

Tapping Remittances

Adjusted for population the Philippines is the biggest remittance market in the world, with some $26.9 billion in cash remittances sent into the country in 2016 alone. With a GDP of $292 billion this clearly accounts for a remarkably significant chunk of national income, sustaining households across much of the archipelago.

Until recently, remittances were made largely through one of the major international money transfer businesses, notably Western Union or MoneyGram. In return for a significant fees on transfer, which in some occasions can be as high as 8% or more, OFWs can be comfortable in the knowledge that the recipients can collect the money quickly and safely.

Today though a recent wave of fintech businesses are challenging the dominant market positions held by the major players, offering faster and far more affordable remittances by harnessing a variety of cutting edge technologies and business models. Not only does this put the viability of the incumbents at risk, but more importantly it also puts more money in the pockets of those receiving the remittance payments.

Even more excitingly, the technology is providing a far greater degree of control to the OFW as to how the money is being spent at home. Giving them the direct power of the consumer means that they can ensure the money they are working hard to earn is being used to pay bills, and is not going straight to the casino or liquor store as is often the concern.

Rising Tides

Financial inclusion has long been a buzzword in CSR and microfinance circles, but over the last couple of years has without doubt become more of a common discussion point. Beyond charity work, banks around Southeast Asia are increasingly realising that financial inclusion initiatives can help create the next wave of customers, as well as being increasingly viable as a business model in the meantime.

A number of technological trends are making financial inclusion an increasingly attractive opportunity to private sector businesses. New risk models built on myriad data sets, including social data, are helping banks establish who to provide services to. Mobile-based banking is providing basic financial service access to anyone who can afford a mobile device. Microinsurance and microlending are becoming increasingly affordable as market penetration provides the pre-requisite scale to allow these models to work.

With more than 12 million Filipinos living in extreme poverty, there is clearly still a long way to go in order to turn the entire population into prosperous consumers. Nevertheless, with businesses across Asia increasingly interested in how a combination of technology, sustainable business models, government policy and goodwill can help bring that number down to zero, financial inclusion is set to become a major driver of the future Filipino economy.

Macro Economics

Finally, it is worth saying a few words about the impact that government policy and wider economic conditions are having on evolution on the new consumer-led economy. Firstly, the government have clearly taken steps to ensure interest rates are held low. With rates sitting at 5%, Filipinos are able to enjoy cheap and available lending, which has driven a year-on-year increase in loans taken for household consumption up by 20.3%.

Government spending has also been on the rise, sitting 4% higher in Q1 2017 than Q1 2016 and hitting a record in March of $2.62 billion. Supported by rapidly growing consumer confidence, the Philippines clearly has the wind in its sails, and is expecting GDP to grow by around 7% in 2017.

With the introduction of an excise tax on automotives recently approved, and additional taxes mooted on categories such as sweetened drinks, the government will have to be careful not to “send the wrong signal” to consumers. Nevertheless, with so many trends working together, it will take a lot to stop the freight train that is Filipino consumer growth.

The consumer-led transformation of the Philippines economy is set to be a key theme at the upcoming Seamless Philippines conference and exhibition, running 27th-28th September at SMX Convention Center. To find out more checkout our event website here.

Leave a Reply

Your email address will not be published. Required fields are marked *