Our goal here at Alts is to bring you unique investing opportunities. Stuff outside the mainstream. Under-explored assets, companies, and markets.
It’s a big wide world out there. There is so much emphasis on the US (and for good reason — America has the most interesting companies and the most dynamic economy in the world.)
But the fact is opportunities lie all over the place. And some of the most under-discussed opportunities are in investing in other countries.
It’s interesting how few newsletters focus on international investing opportunities. I’m inspired by Stew Glynn and the fine folks at Ten13, who in 25 issues of their excellent Outliers newsletter are spotlighting on startups (especially fintech startups) across Asia, The Middle East, and Africa.
Caleb Maru from Proximity Ventures is another inspiration. His Tech Safari newsletter is the go-to source for all things African tech. A lot happening over there, and Caleb is all over it. 🤘🏽
So this week, we’re kicking off an international investing series, starting with the Philippines 🇵🇭
Why the Philippines?
Ordinarily I wouldn’t start with this country. Nations like India and Brazil have bigger markets, and places like Israel & Romania punch way above their weight.
But as it so happens, I’m in the Philippines this week. I’m here visiting one of our employees in Baguio City, and attending a good friend’s wedding ceremony in Cebu. While here, I got a firsthand look at how the country operates, and had the pleasure of chatting with Vinci Roxas and Russ Malangen, two interesting and well-connected Philippine startup investors.
Let’s go 👇
When you think of the world’s most populous countries, it’s easy to forget about the Philippines.
China, India, Brazil, Russia, Nigeria, America, and maybe Indonesia. These are the household names that come to mind.
Meanwhile, the Philippines sits there quietly in the South China sea, sneakily the #13 most populated country in the world. A massive 109 million people spread across a stunning archipelago of 7,600 gorgeous islands.
The Philippines has a young population. The median age is just 25.7 years old (compared to America’s 38), but it’s less urbanized than you’d expect. Manila is massive and densely populated, but only 47% of the country’s population is urban (compared to 80% in the US)
Oh, and some cities aren’t sure exactly how many people live there. But we’ll get to that later.
With a rich history of ties to the US since 1951, English is one of two official languages taught in schools, and it’s the only Christian nation in Asia. This prevalence of English gives the Philippines a huge advantage in international labor markets.
But what’s fascinating to me is that, despite 1.5m new Filipino babies each year, the country has negative outward migration.
This is due to an enormous & important program called the OFW.
The Philippine economy is disgustingly simple: it’s all based on exporting labor.
The nation is a net exporter of people through the OFW, or Overseas Filipino Worker program. Each day, over 6,000 Filipinos leave home to temporarily work in countries like Saudi Arabia, UAE, Singapore, and Qatar (← no surprises there).
You cannot understand the Philippines without understanding OFWs. There are currently 1.8 million OFWs overseas, working hard to pay for their children’s education, buy a home, start a business, and to save for retirement.
These workers send home an astonishing $43 billion dollars per year back to their families, and these remittance payments power the entire service economy.
This isn’t a country of mega-corps or a middle class with purchasing power. Wages are frustratingly low, 96% of businesses are MSMEs (micro, small and medium enterprises) and just 4% of businesses are enterprise corporations.
And there is some astonishing inequality. For example, 87% of the GDP is accounted for by just 19 wealthy families who own all the major industries (mall & manufacturing owners, condo developers, etc.) This has revived calls for a wealth tax.
In terms of innovation, the Philippines are struggling to keep up with other countries. But President Marcos’ recent CREATE Act is essentially a 7-20 year tax holiday for both domestic and foreign investors, with added benefits for foreign investors.
Top companies and industries
The Philippine Stock Exchange is a relatively young stock exchange, established in 1992 (in part by Dr. Sixto Roxtas, the father of Vinci Roxas, who helped with this issue). It’s currently the fourth largest in Southeast Asia.
There are 275 companies listed on the exchange. You probably wouldn’t recognize most of them, but one exception might be Jollibee Foods Corporation. This is the largest fast food chain in the Philippines, and they’ve recently gone international, expanding to 34 countries including the US, UK, and Australia (albeit with a totally different menu)
One of the first things you notice when you walk into shops here is how many people are behind the counter — many standing around doing nothing.
All this extra labor would be a huge burden for companies in America, but not in the Philippines. The Philippine Peso is hovering among its lowest levels ever, and BPO (Business Process Outsourcing, i.e., call centers) are growing 8-10% annually.
1.2 million Filipinos work in call centers, and most of the office space in downtown Manila is leased by them. Thanks to a well-educated, English-speaking population, the nation owns an estimated 10-15% of the global BPO market.
So there are plenty of talented Filipinos in the market, even non-human ones.
Check out this cool robotic waiter I filmed scooting around:
The Bellabot is made by Pudu Robotics and can deliver 400 dishes per day. Feel free to yell at this thing all you want.
Real estate & tourism
Real Estate is the country’s largest industry.
OFWs used to be the biggest market for condos, but that was before Chinese investors swooped in. Now, the Chinese buy them by the dozen. 80% of new condos are bought by the Chinese, and half of the office space is occupied by offshore gaming operators known as POGOs.
Gambling operations are illegal in China, so investors set up these offshore operations in the Philippines (servers, labor, and operations) and then service the gamblers in China. Pretty wild.
The largest builders in the country are Ayala, which seemed to own every shopping center I went into, and SM, famous for its Supermalls.
Megaworld is the country’s largest hotel chain. Tourism was slammed by covid, tanking from 12% of the nation’s economy to 5.2% today, about half of what BPO operations bring in.
While most tourists come from the US, I’ve noticed a disproportionate number of Koreans here.
What the Philippines lacks in software development, it makes up for in hardware.
The nation fluctuates between being #1 and #2 in high-tech hardware exports (chips, semiconductors, electronic components… You know, all the stuff that western countries foolishly decided to stop making in the 90s.) If you buy a car in Japan, the electronic seatbelt was likely built in the Philippines. At one point the country was making 80% of all IBM hardware.
Challenges and investing opportunities
In terms of development, the Philippines is a case of a country “stuck in stasis.”
Infrastructure can be shockingly poor in some areas. Developments are short-sighted, causing things to feel clogged, rushed and incoherent. It’s been the story for decades now.
Some of the airports were originally US Air Force bases, and airport infrastructure is good. But it’s tough and expensive for Filipinos to fly between regional cities, and the 6,000+ islands make supply logistics especially difficult.
Only about 40% of the country has access to the Internet — you go out into the rural areas and there’s nothing there. But four days ago, SpaceX announced that Starlink service is now live in the Philippines, which will boost rural Internet connectivity. (Although at $50/month, it’ll still be out of reach for many in a country where the minimum wage is about $10/day)
Sanitation infrastructure can feel non-existent at times. While in Cebu I was stunned at how much garbage there was — even the locals understand how bad the problem has become. Sure enough, the very next day I saw this Visual Capitalist article showing that the Philippines is the world’s largest contributor to plastic ocean waste. Very sad.
President Marcos said his administration is developing the country’s infrastructure by promoting public-private partnerships (or PPPs, which I talked about in our recent issue on investing in infrastructure).
Finance, credit, and crowdfunding
Access to credit is brutal. This is a cash economy. No savings, no investment among lower classes. And only 7% of the population has credit cards.
There’s a lot of informal credit, but even then just 15-20% of citizens have bank accounts.
What’s holding things back is actually identity. You can’t open a bank account without a government-issued ID, but to get that you need another, different government ID. It’s a chicken-and-egg scenario that a few startups are trying to solve. More on this in a minute.
Crowdfunding is a new concept in the Philippines. Last January, the government approved the first and only equity crowdfunding platform. While existing platforms like Investree and Seedin lent working capital to SMBs who couldn’t get bank loans, RoundOne is first platform that allows Filipinos to raise money by selling shares in their company.
Since covid, fintech and payments systems have taken off. PayMaya and YC-backed Paymongo are all-in-one payment solutions starting to pop up across the nation. (Still no tipping here though, don’t worry) 😂
Food and agriculture
Food security is a huge concern.
The Philippines are net importers of food, which is a precarious position to be in given rising inflation. Nearly all food is imported. Incredibly, they even import sugar and rice — two staples of other Southeast Asian countries. And they are currently going through an onion crisis. Bleak.
Filipinos joke the Dept. of Agriculture should be called the Dept. of Importation, because all they do is import. Regardless, the average farm size is under 1 hectare, so the department doesn’t even have that much manpower to begin with.
The President knows they’ve under-invested in this area for decades, and has designated himself the “President of Agriculture” to solve the problem, creating a digital farmer registry to attain food security.
But the food crisis also presents an opportunity.
A company called Farm Konek is making waves as an accelerator for farmers and fishermen. Originally hacked together using Google Forms and FB Messenger, these guys have just been awarded a multi-country grant and are about to scale into Brunei, Indonesia, and Malaysia. 🚜
Another company to watch is called Lifecert.
As I mentioned above, identity is a surprisingly huge problem here. 9 million Filipinos don’t even have birth certificates, and it’s not even considered a valid form of ID (?!)
To open a bank account or access what limited credit exists, you need to go through the long process of obtaining a government ID. Line up at City Hall all day long, fill out a bunch of paperwork, and years later, if you’re lucky, you’ll get your ID. It’s remarkable, but many Filipinos don’t even bother! The informal cash economy drives everything. They just don’t see the point of credit.
Lifecert is a baseline identity for individuals. The basic concept is that Filipinos need something between their birth and death certificates; a “life certificate.” It’s a data wallet that allows you access to various services. You pick & choose exactly which entities to share the data with. You own your data completely.
This is not a government program, but Lifecert is working with government units to bring it to life.
The Philippines are a high-growth, hard-working, educated nation that’s well-positioned to compete and thrive in the global economy. It has great historical ties with the US, which are about to get even stronger.
The country has been held back by decades of under-investment. But that’s all changing now. The President is kicking into high gear, setting up green lanes for permits and licenses, and creating massive stimulus and investment incentives.
- As of 20 months ago, foreign companies can own businesses 100%
- Equity crowdfunding is now legal
- From 2021-2023, VC funding doubled to $500m per year. (Still crazy low per capita, but hey you gotta start somewhere)
- Ecommerce is growing 90% YoY (no big deal) and ecommerce distributor GreatDeals just raised $30m
Despite global economic headwinds, the Philippines could be the next big thing in Asia. Life is getting much better there. The country grew GDP an astonishing 7.2% in 2022, and early signs point to them exceeding goals in 2023.
There’s money to be made. But to invest here, you really need boots on the ground. This isn’t the kind of place where you can call up a broker and expect something to happen. You need a trusted partner in the country.
If you’re serious about investing in the Philippines ($250k+), just reply to this email. I’ll connect you with Vinci and Russ. They are on the front lines of Philippine deal flow. If you’re serious about investing here, so are they. 🇵🇭
- The Department of Trade and Industry put out a great paper on Philippine Innovation
- Vinci’s father, Dr Sixto Roxas, was instrumental in setting up the Philippines’ financial infrastructure. He discusses more in his book, Bancom Memoirs
- This issue was sponsored by Nada and ConvertKit
- Ten13 is an investor in Alts
- We have no investments in any companies mentioned in this issue