‘Healthy business climate’: DTI chief explains why PHL is best place to build a franchise

Trade Secretary Alfredo E. Pascual is encouraging investors to set up franchises in the Philippines because of its “healthy” business climate.

“The Philippines is the largest franchise market in the world, contributing 7.8 percent to our country’s gross domestic product [GDP] and creating 2 million direct and indirect jobs,” the Trade chief said in a pre-recorded video message at the Franchise Asia Philippines (FAPHL) 2022 Virtual Franchise Conference on Tuesday.

Pascual added that with a growing middle class, the country is considered one of the largest franchise markets in the Southeast Asian region. This, he said, can be attributed to the Filipinos’ habits of dining out in popular establishments or owning branded items, which “signals societal status” in one of Asia’s most social media savvy populations.

The trade chief laid down the sectors where would-be franchisees and those seeking to expand their business could invest.

Pascual cited the Philippine Franchise Association (PFA)’s data, which revealed that food franchises have an aggregate value of P538 billion or $10.8 billion.

He added that there are two basic franchise categories, but food “expectedly” takes precedence over non-food. The trade chief noted that food makes up 43 percent or almost half of the estimated 1,800 franchise brands in the Philippines.

Pascual also stressed that even the pandemic has not really gotten in the way of the Philippine food sector’s growth “as demand for convenience grows.”

The growth of the sector, he said, can be owed to the liberalized retail trade landscape and to some extent, the reduction of import duties.

Meanwhile, in Philippine manufacturing, Pascual bared that food accounts for nearly half of its total output, growing at an average annual rate of 8 to 10 percent per annum. “This excellent growth prospect stems from the country’s resilient economy and strong consumer base,” Pascual noted.

In fact, Pascual pointed out that 90 percent of the food and beverage (F&B) processing industry’s output is consumed domestically. In turn, he said, the growing consumption contributes to the rapid expansion of the processed F&B subsector.

With this, the trade chief emphasized that the F&B processing industry can open its doors for raw material and high-value ingredient producers.

“This trend presents excellent opportunities for raw material and high-value ingredient producers. As quality and efficiency improve, such producers can exploit export opportunities due to the country’s strategic location and free trade agreements with other countries,” Pascual said.

On the other hand, Pascual said the non-food service and retail sub sectors each serve close to one-third of franchise brands in the country—service accounts for 29 percent of franchise brands in the Philippines and retail for 28 percent.

Non-food franchising trends, he added, cover health and beauty products, affordable indulgences, clinics, laundry services, homeschooling, and microfinance, among others.

Pascual also noted that the contribution value of retail and service franchises amounts to P67 billion or $1.34 billion per category.

As to how the Department of Trade and Industry (DTI) supports franchising, the trade chief emphasized that many franchisees are micro, small, and medium enterprises (MSMEs). He added that the DTI is directing its efforts to support MSMEs post-Covid-19 “by helping them access capital, access technology, and access to marketing resources.”

Specifically, DTI has been extending financial assistance to MSMEs to provide them access to capital through the Small Business Corporation (SB Corp.), the financing arm of DTI.

“We assist them in their debt obligation payment, repurposing existing business capital and acquiring new technologies and systems. We help them adjust their business processes to adapt to the new normal,” Pascual noted.

SB Corporation has several financing tracks for MSMEs, namely, the RISE UP Multi-Purpose Loan, RISE UP Turismo Loan, and RISE UP Tindahan Loan have soft term loans and can be easily accessed.

Moreover, Pascual shared, SB Corporation’s Pondo Para sa Pagbabago at Pag-Asenso (P3) program provides loans in the poorest provinces where participating microfinance institutions (MFIs) and SB Corp. can operate.

“It is for micro-enterprise borrowers with asset size not exceeding P3 million, and all-in interest rate and service charges do not go over 2.5 percent per month,” Pascual added.

The trade chief said the SB Corp.’s P3 program is available to market vendors, agri-businessmen and members of cooperatives, and industry associations and co-operators.