The Philippines has made some significant strides in its economic development in recent years. The country’s GDP ranks fifth in the region and with a population of 107 million people, the country can be considered a major player in Southeast Asia. In addition to this, the Philippines’ FinTech sector has experienced some exciting developments lately, which could facilitate a more vibrant start-up climate. This is much needed because when it comes to the archipelago’s performance in the Southeast Asian start-up race, the Philippines has only made modest progress in comparison to its neighbours.

Philippine policy makers and venture capitalist have taken note of this big divide. They have understood that if the country doesn’t want to miss out on the fast development of the digital economy, it needs to nurture and encourage its tech start-ups. With this thought in mind, the Startup Act was born.

The Startup Act for a healthier start-up climate

yellow lighted buildings by the harbor under grey cloudy sky

The Startup Act is a decree that recently passed through the Philippine Congress and has the objective to give the nation’s start-up ecosystem a massive boost with much-needed measures to develop a more fruitful start-up climate. These measures include benefits and incentives like tax breaks, a venture fund worth 10 billion pesos (about $192 million USD), and easier processing of business permits and visas for foreigners.

We make the case for The Philippines as your next startup base

Until very recently, restrictive investment regulations have discouraged foreign investors, thereby obstructing the flow of foreign investment. With the new set of measures, it will make it easier for foreigners to invest. A government spokesperson stated that the newly introduced policies are to strengthen the country’s entrepreneurial culture, to encourage the creation of jobs and the exchange of technology.

Positive developments in the Philippine FinTech sector

In addition to the new decree which will encourage more entrepreneurial innovation in general, the Philippines is actively stimulating FinTech innovation and the digitalisation of the financial sector. The Philippines’ FinTech sector is doing well, which could contribute to an improved start-up environment. Digital payments have increased significantly in recent years and transactions through digital wallets are expected to reach a value of $1.7 trillion USD in 2021, up from $700 million in 2018. The country has also introduced a FinTech Supervisory Sandbox to create a bridge between regulators and financial-sector innovators. The Sandbox is to promote innovation and, at the same time, add a sense of stability and security to the FinTech-sector development to prevent any possible disruption of market activity.

What has been slowing down the Philippines?

Although the country is making economic progress in general and in the FinTech sector in particular, there are several aspects that slow the Philippines’ progress in the Southeast Asian unicorn race. The nation has the worst internet services in Asia and bad internet connectivity has massively restricted the growth of local start-ups. Also, when it comes to venture capital investment in Southeast Asia, the Philippines appears in the bottom three of the list with $28.8 million USD raised in 2018. This is a rather meagre result in comparison with Singapore and Indonesia that top the list with $4.9 billion and $1 billion raised, respectively.

photo of person standing near vehicle and buildings

How far the Philippines is trailing behind in the Southeast Asian unicorn race can be illustrated by the following example: Micab and Grab are both taxi-ride hailing services from the Philippines and Singapore respectively, both were established in 2012. While Micab aims to raise $2 million in its first funding round, Singaporean Grab has become the region’s biggest unicorn having been valued at $14 billion USD and planning to raise an additional $2 billion this year. While Grab has managed to raise funding with the help of strong international backers like Japan’s SoftBank Group, Micab’s capital mostly comes from local sources. According to a 2017 PricewaterhouseCoopers survey, no less than 88% of Philippine start-up owners consider capital requirements as their greatest challenge. Micab co-founder and CEO, Ybanez is of the opinion that his company would have grown much faster if he had more cash at his disposal.

Cultural barriers

Besides bad internet connectivity and the lack of funding and government incentives, there is another aspect that has been slowing down the Philippines: entrepreneurship and taking business risks are not a great part of Filipino culture. Many Filipinos have the aspiration to earn a lot of money as employees, either within the country or abroad, rather than setting up their own business. The general idea is that a business is to supply an income rather than introducing new and possibly disruptive ideas.

If there is the ambition to solve certain problems, these are limited to the country and there is no great desire to conquer the world. Risk-taking is not common and most choose what is considered a secure and stable career path. Further, conglomerates that could function as early-stage investors tend to focus on more traditional industries, like banking and real estate, and when they do consider investing in start-ups, they expect an immediate return.

The Philippine start-up future looks bright

Although the country has a lot of catching up to do, this year is expected to be a big year for the Philippine tech sector. Last January the Indonesian unicorn Go-Jek bought a majority stake in Philippine FinTech start-up and the hope is that other major foreign investors will follow. In terms of the Philippines’ attitude towards digitalisation, the 2018 Manulife Investor Sentiment Index (MISI) revealed that 53% of Philippine middle- and high-income earners over the age of 25 are engaged in digital jobs, either full-time or part-time. This is higher than the Asian average of 44%. About 27% of respondents expressed interest in work conducted through digital channels and no less than 48% of respondents over the age of 50 expressed an interest. Stated reasons for the over-50s are that a digital job could function as a safety net, and create extra income when they reach retirement.

The Filipino tech startup scene is booming

The StartUp Act can be considered as a major step and should have a great effect on the Philippine start-up climate. Together with increased access to 3G and 4G networks, more foreign investment, a large population ready to enter the digital sphere, and a growing middle class, the country’s future looks promising. With determination and focus the Philippines is more than capable of producing a unicorn and catch up with the region’s behemoths.