Thanks to a robust private consumption, an increase in public spending and an improved agricultural performance, the Philippine economy will continue to grow at a solid pace in 2016. A low interest rate environment and a reduction in down payment requirements are driving a boom in housing construction. But is the Philippines still able to defend its position as a “Rising Tiger” in Asia? The recent change in political direction lead to uncertainty not only among foreign investors but also among local entrepreneurs and early-stage investors.
“Does it still make sense to start a new business? Will I be able to access funding? Do I need to apply for any permits?” These are questions that local entrepreneurs most certainly face when starting a new business.
Innovation is picking up in the Philippines and young companies are gaining more traction but the local start-up ecosystem is trailing behind its regional peers. This is odd considering the huge opportunity that a country with such a large, young, and English-speaking population offers.
At first glance, the Philippines start-up industry is booming for years now and it is hard to deny that it offers very exciting opportunities. According to the “Philippine Roadmap for Digital Start-ups”, the number of start-ups is expected to increase to 500 by 2020 from approximately 150 today and the total funding is expected to increase to $200 million. The young population and the English language proficiency create a very supportive environment for young companies. However, compared with Indonesia and in contrast to the expectations of those who closely observe the local market, the number of new entrepreneurs and companies remained rather flat. Many start-ups are still in very early stages and only few have reached Series A funding stage. Big venture capital firms and accelerators from Silicon Valley, Singapore, and Hong Kong have expressed interest to invest, but are yet to become more active in the market. Indonesia‘s investments grew at a much faster in the past months and entrepreneurs were able to attract high-profile investors such as Sequoia Capital and Softbank. Small businesses in the Philippines complain about delays in the implementation of key infrastructure projects (particularly port congestion) and the costs of complying with regulations related to customs, trade, and labour markets. Too much of the economy is concentrated in the hands of larger groups (or government) and young companies often lack sufficient financing.
While many start-ups in Indonesia don’t declare their funding rounds and others register company headquarters elsewhere to possibly avoid taxes and public scrutiny, the number of seed and later-stage investments saw a significant increase compared with previous years. This stands in contrast to the trend in the Philippines. Current projections put the value of the e-market in Indonesia alone at $130 billion by 2020, coming third behind China and India. Indonesia has also established itself as one of Asia’s foremost mobile-first nations with more than 70 percent of its internet traffic is estimated to originate from mobile devices. The impact of start-up companies became tangible in the offline world early last year. Go-Jek, a transportation start-up, flooded Jakarta’s streets with motorcyclists wearing the green company outfits.
Undoubtedly Indonesian entrepreneurs were facing many regulatory roadblocks on the path to grow their companies but when Joko Widodo came to power in 2014, the government vowed to support the digital economy by creating more favorable policies and investment vehicles. This gave way to a rise of new angel investors and VC funds in 2015. Indonesia‘s conglomerate families show increasing commitment in the tech sector and are teaming up with international networks.
The Philippine government needs to reinstate confidence in the local start-up industry and make stronger commitments to support new business owners to not only attract foreign investors and funds, but also to lure local conglomerates into taking a bigger role in the local start-up ecosystem. Ideaspace, backed by the PLDT Group, and Kickstart, backed by Globe, are leading the way for other local companies to get more involved in supporting local entrepreneurs. Better local support paired with the government commitment to change policies and of course, improvement of the internet speed, would be a strong signal for both investors and entrepreneurs.
Moritz Gastl is the managing director of MoneyMax.ph, a financial comparison website aiming to help Filipinos save money through diligent comparisons of financial products.