Bull of the Day: MercadoLibre (MELI)

MELI BABA AMZN

MercadoLibre, Inc. (MELI - Free Report) is gaining momentum as it takes on Amazon in the online shopping wars in Latin America. This Zacks Rank #1 (Strong Buy) is expected to see 46% sales growth in 2017.

MercadoLibre is the largest online commerce and payments site in Latin America. It is the eBay/Amazon of the region with websites serving 18 countries including Argentina, Brazil, Mexico, Colombia, Chile, Venezuela and Peru.

It operates MercadoLibre sites in each country as well as its online payment service MercadoPago.

Big Beat as Sales Soar

On May 4, MercadoLibre reported its first quarter results and crushed the Zacks Consensus Estimate by 32 cents. Earnings were $1.10 versus the consensus of $0.78.

Revenue soared 73.8% in US dollars and 78.9% on an FX neutral basis on strong growth in Brazil and Mexico, which grew 52.7% and 70.7%, respectively.

Sold items were up 38.6% while payment transactions through MercadoPago spiked 60.1% to 44.1 million.

In Mexico, items shipped rose 220% year-over-year to $2.6 million but gross margins fell 61.1% from 64.8% a year ago due to free Mexican shipping. Amazon recently entered the market in Mexico so the competition, especially with free shipping, is heating up.

Estimates Rise for 2017 and 2018

After the big blow out quarter, the analysts raced to raise full year 2017 and 2018 estimates.

4 estimates were raised over the last 60 days for this year which has pushed up the 2017 Zacks Consensus to $4.67 from $4.31. That's earnings growth of 34% as the company made just $3.48 in 2016.

They are also bullish on 2018 as the Zacks Consensus has jumped to $6.61 from $5.87 during the last 2 months. That's earnings growth of 41%.

Shares At Multi-Year Highs

With those kinds of numbers, is it any surprise that the shares spiked to new highs? Here's what the 5-year chart looks like.

The stock isn't cheap . It has a forward P/E of 61 so clearly you are buying it as a growth stock. However, it actually does pay a dividend, which is currently yielding 0.2%.

The company has solid cash flow as well and had $300 million cash on hand as of March 31, 2017.

Amazon (AMZN - Free Report) and Alibaba (BABA - Free Report) aren't the only games in town in online shopping. There are 650 million possible shoppers in Latin America and MercadoLibre, which was founded in 1999, was first in.

For those investors interested in owning the global leaders in e-commerce, MercadoLibre should be on your short list.

By Tracey Reniec

Source:https://goo.gl/YcsF1e

Emerging markets will keep crushing the US, traders say

Emerging markets funds could see further upside after logging a stellar first quarter, according to traders betting on emerging markets' growth.

One popular emerging markets exchange-traded fund, the iShares MSCI Emerging Markets ETF (EEM), has gained 13 percent year to date and attracted $674 million in fund flows in that time per FactSet. The S&P 500 ETF (SPY) is up just over 5 percent year to date.

"I think we're going to see continued outperformance of the emerging markets," Richard Ross, head of technical analysis at Evercore ISI, commented Monday on CNBC's "Trading Nation."

 

"If you had [emerging markets] up 13 percent, more than twice the S&P, with crude down 10 percent, then you likely also had Mississippi State over UConn and you had South Carolina and Oregon in your Final Four; you just didn't have it," said Ross, who has apparently been up on his March Madness brackets.

https://www.amazon.com/?&tag=shoprite0597-20&camp=15553&creative=333081&linkCode=ez&adid=1G73FM3BTZRPMX511JFY

Examining a chart of the EEM going back to last summer, Ross noted that shortly after the U.S. election in November the fund "fizzled out quickly, for fears of that pro-U.S. Trump trade, kind of protectionist, but it's gone completely the other way in the face of the collapse in crude oil on a year-to-date basis."

Analyzing the EEM further back, to 2012, Ross pointed out a "head and shoulders" bottoming pattern formed between 2015 and 2016. Such a technical pattern typically shows a bullish-to-bearish reversal in an asset's price movement, but gave way to new highs toward the end of 2016.

"I would stick with the emerging markets on a relative basis; not to say that I'm not buying the U.S., but I like [emerging markets] over the S&P right now," Ross said.

The iShares Core MSCI Emerging Markets ETF (IEMG), which is larger than the EEM by assets under management but charges a lower fee and includes many smaller companies, has logged over $6.6 billion in total fund flows year to date, according to FactSet. The IEMG, which has similar country exposures to the EEM, has gained 13.5 percent in that time.

The growth so far this year in the EEM, top-weighted holdings of which include Samsung, Tencent, Taiwan Semiconductors and Alibaba, could just be the beginning, said Eddy Elfenbein, editor of the Crossing Wall Street bog.

"I think there's a really good emerging markets story going on right now," Elfenbein commented Monday on CNBC's "Trading Nation."

"As well as it did in the first quarter, going back from October 2010, to today, the ETF is flat while the S&P 500 has doubled. People don't realize just how much the U.S. has done better than these other markets around the world. The valuation differential is of the highest in recent history," he said.

And when the trade "turns," as it has in Elfenbein's eyes, "it tends to last for a couple years."

"In fact, I think there's a very good chance that this is the beginning of a long-term cycle that can last three or five years or even longer. I think this is a great time to get into emerging markets," he said.

http://www.stockpiqs.com/p/thanks.html

The EEM rose modestly in Tuesday trading.

RELATED SECURITIES

Symbol	Price		Change	%Change
700	225.20	---	UNCH	0%
EEM	39.63		0.02	0.05%

Source: http://www.cnbc.com/2017/04/04/emerging-markets-will-keep-crushing-the-u-s-traders-say.html

The Week Ahead: All Eyes on Technology's Momentum

The Washington 'swamp' keeps getting murkier, but tech stocks are cutting through the gloom. Here's what to look for in coming days.

 

The Trump administration's looming health reform fiasco, draconian budget blueprint, and foreign affairs missteps are roiling the markets, but one sector appears to have seized sustainable momentum: technology.

Here's a look at the forces driving tech higher and the profitable opportunities emerging among tech companies of all sizes, regardless of the market's excessive valuations and myriad political risks.

The stock market closed on Friday with a gain of 0.2% for the week, although it didn't top its record high from the start of March. The clear outperformer was the tech-heavy Nasdaq, which closed +0.7%, rising near its early-March high to hover near another record close. The Nasdaq is now up 9.6% year to date, versus the S&P 500's (SPY) YTD gain of 6.2%.

One sector that hasn't fared well over the past week is health care. The Republican alternative to Obamacare, inevitably dubbed "Trumpcare," is a toxic stew of half-measures that no one finds palatable.

The consensus in both parties is that the Obamacare replacement bill is dead on arrival, as an increasing number of GOP senators indicate they will vote "no." The political stalemate over health care has dampened enthusiasm for health stocks, with the benchmark Health Care Select Sector SPDR Fund (XLV) falling 1.08% over the past five days.

Trump also has unnerved global investors by alienating America's key allies of Britain and Germany.

The president continues to infuriate the Brits by repeating groundless claims that Britain's intelligence services spied on him at the behest of Obama. Meanwhile, at a White House meeting on Friday, Trump's anti-EU stance was on full display as he treated German Chancellor Angela Merkel with insulting disdain to the point where he refused to shake her hand.

In case anyone has forgotten, Britain is America's most important strategic partner and Germany is the largest economy in Europe.

But through it all, technology paints a rosy investment picture. One tailwind is Trump's promise to make it easier for tech firms to repatriate cash hoards that are parked overseas. Tech companies are likely to use this cash to fund merger and acquisition activity, to fuel organic growth and innovation.

In a sign of the heightened M&A to come, Intel (INTC) announced on Monday that it was making a big bet on self-driving vehicles by acquiring Mobileye (MBLY) for $15.30 billion in cash, paying a 34% premium to Mobileye's share price from the previous session. Mobileye is a small Israeli company that creates vision systems for cars and trucks.

In the week ahead, keep an eye on Silicon Valley giants with deep pockets. They increasingly need to find new avenues of growth by gobbling up smaller, entrepreneurial firms in such hot areas as autonomous cars, the Internet of Things, and the cloud.

Indeed, largely driven by cloud growth, Oracle (ORCL) on Wednesday delivered an earnings beat that sent shares rocketing higher. The tech giant's third-quarter 2017 earnings per share of 63 cents and revenue of $9.27 billion handily exceeded the consensus estimate of 57 cents and $9.24 billion, respectively.

Another positive for technology is the expected increase this year in IT spending, as cash-rich corporations make deferred upgrades. According to research firm Gartner, worldwide IT spending is projected to total $3.5 trillion in 2017, a year-over-year increase of 2.7%. Historically, IT spending is positively correlated with stock performance. One fast-growing segment is cyber security, as hacking incidents continue to mount.

The key takeaway: ignore the dreariness of today's politics and focus on the fundamentals. And right now, several trends strongly favor technology.

Notable tech company earnings on the calendar in the week ahead: Accenture (ACN) and Upland Software (UPLD) (Thursday). Economic reports: Existing Home Sales (Wednesday); Jobless Claims, New Home Sales, and Bloomberg Consumer Comfort Index (Thursday); Durable Goods Orders and Baker-Hughes (BHI) rig count (Friday).

If you walked by this guy on the street, you would not think "millionaire"

You would probably probably think "accountant" or "average cubicle guy." Actually, he was a lawyer until he unlocked this secret that made him $5 million. How does he do it? We'll warn you... it's about as exciting as a ham sandwich. But it's turning regular readers into six-figure income machines. Click here now for all the details.

By John Persinos

Source:https://www.thestreet.com/story/14050220/1/the-week-ahead-all-eyes-on-technology-s-momentum.html

This Kenyan start-up is reinventing the family farm

Source: Markit Opportunity

To most American shoppers, there's nothing remarkable about a red onion in the produce aisle at the closest big box retailer.

But it's a huge victory for Ashley King-Bischof's technology. King-Bischof is the CEO and co-founder of Markit Opportunity, a Nairobi, Kenya-based start-up that connects small farms to big corporate buyers and exporters.

It's a big untapped market opportunity, hence the company's name. Family farms are about 90 percent of all farms worldwide, according toUnited Nations research. In Kenya 75 percent of workers make all or part of their livelihood from agriculture, which constitutes 18 percent of the nation's economy, according to the United States Agency for International Development.

Not only does Markit Opportunity improve the quality of the goods at your local box store, it elevates the earning potential of Kenyans, especially women. The company is currently in the process of incorporating their platform with one of the largest exporters in Africa to sell fine green beans, a huge crop for export in Kenya.

Markit Opportunity provides three different technologies. Farmers get a text-messaging product that lets them exchange simple numerical codes with agents for each transaction — similar to how TV shows ask you to text a short numerical code to vote for your favorite singer. Agents get an Android app to manage those communications with farmers, and buyers, like big box retailers, have access to real-time inventory and transaction from small farmers.

The tools help level the playing field between small local farms and large established farms when international buyers look to buy crops responsibly.

"At the beginning of the chain are people, often women, that are working incredibly hard, that aren't getting to keep much of the value they create, because it's a complex supply chain," said Ryan Ross, a program director at the Halcyon Incubator in Washington, D.C., which supported Markit Opportunity. "This could increase the quality of life for an incredible amount of people in the area."

Simon Maina | AFP | Getty Images

A Kenyan man carries a bag of onions at the Marikiti market in Nairobi

More transparency between buyers and farmers

Before products like Markit, retailers bought produce through a circuitous system of buyers, brokers and other middlemen. Farmers had no visibility into the process, so they were often selling their crops for less money than they could have gotten — and far less than the price retailers are willing to pay.

"Their whole livelihoods are dependent on their crops," King-Bischof said. Sugarcane, maize, potatoes and bananas are among Kenya's top crops, according to the UN. "Storage facilities, transportation are all locked up in the investments of their farm. Working capital is a big concern for them."

From the other end, the old system made it difficult for stores and consumers to verify the source of their produce and determine that it met the right international safety standards.

"In Kenya .... [many] farms are small farms in very rural areas without a lot of infrastructure — access to power, running water, roads. It's a fragmented system geographically," King-Bischof said.

The penetration of mobile phone technology, on the other hand, is about 88 percent in Kenya, according to government data.

"We are using technology that is accessible to them," King-Bischof said.

Now agents can text farmers to ensure that their crops are in demand, free of spoilage and using the right levels of pesticides for their end market, said King-Bischof. And farmers can have a long-term relationship with steady prices, or pick up contracting gigs when they can. The platform also provides farmers with access to financial services like loans and insurance.

Source: Markit Opportunity

Ashley King-Bischof, co-founder and CEO of Markit Opportunity, on location

Hustle and connections

Ross said King-Bischof's willingness to get her hands dirty is a big driver of the company's success.

"With Ashley, before she even got to the program, I would see pictures of her on Facebook in the back of a vehicle shipping onions," Ross said. "That's the kind of hustle you need. It's incredible to see how hands-on she was able to get at an early stage."

King-Bischof, in turn, credits much of the company's rapid success to the connections she made at Halcyon, which houses eight social entrepreneurs for five months at a time in Washington and provides them with stipends and support from Amazon Web Services, Deloitte, KPMG and other major business brands.

"It's a really great example of public-private partnership," said Kate Goodall, the chief operating officer of the S&R Foundation, which operates the incubator. "It provides fellows with headspace so you can breathe and focus on what you're doing. And something we call facilitated serendipity: access, which is really about connecting with great problem solvers."

That's also where King-Bischof met co-founder Zeluis Teixeira, or Ze for short, who is using his expertise as a former bank executive to strike global deals for Markit Opportunity. Teixeira, who has lived in developing nations around the world and has familial roots in agriculture, has a vision for how Markit Opportunity can scale globally.

"With Ze, he has an ability to pivot, do it so seamlessly, and not get down about leaving a lot of work on the table," said Ross, the director of Halcyon.

The two have dramatically different backgrounds. King-Bischof was inspired to create the company after combining knowledge from her Ivy League economics degree, work consulting for NGOs and experience at companies like Yelp and Kiva.org, where she worked in the field in Cameroon. But the pair have one important quality in common, said Ross.

"They have resilience," he said. "It's something you can't just put on an application. You see it in the day to day."

By Anita Balakrishnan

Source:http://www.cnbc.com/2017/02/28/markit-opportunity-kenya-startup-upstart-25.html

Investing Opportunities in Emerging and Frontier Markets

Look to the growing economies of India, Nigeria, Kenya and Russia for great growth potential, but watch out for risks.



As I look back on my experiences exploring and investing in emerging and frontier markets, I realize they came about for one reason—the search for growth. Each time I have traveled, I have grown in my investment wisdom and appreciation for the strong position of the United States. I do expect to continue exploring and seeking those new frontiers for investing for growth.

In this sector, growth and return on invested capital is high. Many say the higher returns relative to the higher level of risks are not worth it. I believe these returns are exceptional and should be utilized in a diversified international and domestic portfolio.

Emerging markets are economies that are still not considered fully developed. India, Brazil and China are in this camp. Frontier economies are similar in nature, but are less developed and still working to establish financial markets that are liquid and effective. Examples would include Nigeria, Kenya, Kuwait and Morocco—all have generally lower per-capita gross domestic products than emerging market countries and less developed financial and legal systems.

Here are some reasons emerging and frontier markets have higher returns than developed economies.

Higher economic growth rates: Generally, emerging and frontier markets grow at twice the rate of developed economies.

Governments are relatively small: Compared with those of developed economies, smaller governments may impose lower levels of tax on citizens and companies.

Lower costs of labor and materials: This often means a company can have higher gross and net margins.

Lower infrastructure costs: There are many costs that developed economies place on companies in the form of payroll taxes, unemployment taxes or other infrastructure costs—all of which raise costs for companies. Countries that have not yet developed these overhead costs will generally (all other things being equal) have a more profitable corporate sector. It has been my experience that companies in countries such as China and India can have higher profit margins because their tax and overhead obligations are smaller.

Of course, emerging and frontier investment spaces are not without risks. Here are just a few to watch out for:

Currency risk: This is probably the number one risk. Many emerging economies have much higher levels of inflation, making their currencies potentially vulnerable to steady regular depreciation.

Some managers suggest that you should hedge out this currency risk and thus attempt to achieve higher real returns. Of course, this comes at a cost and is easier said than done. Over longer periods of time, currency depreciation and appreciation will be less of a factor, unless you have a rogue country, such as Argentina or Venezuela, which recklessly manages their finances, resulting in radical regular depreciation of their currency.

Political risk: Whenever a new government comes into power, carefully consider the risks associated with the new leadership. Some leaders have very different approaches to foreign investors, which can mean new investing risks. The placing of tariffs or taxes on goods sold overseas can give foreign companies a distinct disadvantage and local companies a distinct advantage.

Security and liquidity risk: Some countries have very well-managed and trustworthy securities markets. Others have unique risks and often place your capital in possible harm's way. Most U.S. brokers have reliable relationships with local custodians and broker-dealers who work diligently to protect clients' funds. The smaller the country, the larger the risk that such reliability is absent.

I was in Vietnam about six years ago and learned that their equivalent over-the-counter market for smaller companies still maintained and managed a physical delivery dealer market. This means the only way to sell or buy shares is to show up in person. This type of exchange allows for many new and different kinds of risk, ranging from fraudulent certificates to just plain old robbery.

Environmental risks: Many extraneous factors, including power outages and health-care issues, pose different types of risk. Natural disasters, such as hurricanes, floods or volcanic eruptions, also present issues in many of these emerging or frontier markets.

The best way to invest in emerging and frontier markets is to invest in the products and services required by the emerging middle class of these countries. The middle class in such economies is often defined as having a per capita income between $6,000 and $10,000 per year in U.S. dollars (in the United States, "middle class" incomes are defined as being four to five times higher than this level).

In my opinion, the areas of opportunity are in the following countries.

India is great, young knowledge economy, ready to emerge.

Nigeria offers steady growth with a solid record; it's the best-kept secret of Africa.

Kenya is the youngest, second-fastest grower in Africa with good resources.

Russia may be the most unloved country in the world by investors, so stocks are dirt cheap.

When investing in emerging and frontier markets, be sure to be mindful of both the opportunities and the risks. Also, be prepared to hold these stocks for three to five years—or even longer.

By Bob Lutts

Source: http://www.kiplinger.com/article/investing/T024-C032-S014-investing-opportunities-emerging-frontier-markets.html

ETFs: The No. 1 Emerging Markets Fund (VWO)

The VWO ETF is ideal for investors looking to target emerging markets (EM) as it focuses primarily on nations that include India, Brazil, China, and South Africa. Because of accelerated growth economies in developing countries can experience, major investors often seek exposure to these broader markets instead of investing in companies that may not have market-wide dynamic growth potential. The so-called Vanguard FTSE Emerging Market ETF (VWO) tries to capture this potential for higher returns. (See also: The Top Vanguard Emerging Market ETF.)

With a traditional weighting that has long since favored financial service and technology sectors, VWO has become the standard for ETFs that target EM. VWO also has significant percentages of its holdings invested in telecommunications as well as energy. Additionally, VWO shares can be traded on many platforms without any commission fees. VWO is listed on both the NASDAQ and the NYSE. The ETF was launched in March 2005 and as of Sept. 06, 2016, VWO had asset volume of about $42,198 million. The fund features an expense ratio of .15% and is overseen by the Vanguard Group. In terms of geographical allocation, VWO has a major focus on the Asia Pacific region (ca. 54.18%), followed by Central Asia (ca. 12.20%), South and Central America (ca. 10.81%), Africa/ Middle East (ca. 9.42%) and Eastern Europe (ca. 7.28%). (Bloomberg databases)

Performance Update

As indicated by Vanguard, VWO has both a high growth potential as well as a high risk due to its volatility. Share values have swung up and down at greater margins than funds focused on developed markets. Since the inception of VWO in March 2005, the fund has posted an average annual return of 5.97% (represents changes to net asset value) through Aug. 31, 2016.

Here is the ETF's performance since 2010:

Performance 2010: 19.46%

Performance 2011: -18.75%

Performance 2012: 19.20%

Performance 2013: -4.92%

Performance 2014: -0.07%

Performance 2015: -15.81%

The current year-to-date total return is positive at 19.49%, as of Sept. 06, 2016. (Bloomberg databases)

The Bottom Line

Due to the volatility that comes with targeting EM, VWO naturally offers a greater potential for growth as well as a greater risk than ETFs focused on companies within developed markets. For this reason, VWO cannot be recommended to any investor type looking to build long-term growth. Nevertheless, VWO is the largest U.S.-traded Emerging Markets ETF and provides an interesting as well as liquid investment option for prospective investors seeking to increase exposure to EM countries.

By Daniel Jark

Source: http://www.investopedia.com/news/etfs-no-1-emerging-markets-fund-vwo/

Turned Off by Brazil, Russia and China? Try India, the Last BRIC Standing

As investors wring their hands over financial chaos and falling growth in Brazil, Russia, and China, they're losing sight of the "I" in BRIC, which is India. For technology growth amid a troubled global market, India remains the Jewel in the Crown.

Below, we examine an exchange-traded fund (ETF) that's best positioned to ride India's tech explosion, while broader markets languish and other emerging nations wallow in fear and uncertainty.

Morgan Stanley recently reported that e-commerce sales in India totaled $16 billion in 2015 and are on track to reach $119 billion by 2020. Over the next 15 years, India will witness more people come online than any other country.

Already a major destination for IT outsourcing, India's indigenous tech sector is booming, even as erstwhile emerging market leaders such as Brazil, Russia and China badly stumble.

Driving India's tech sector is the growing appetite for e-commerce among the country's increasingly affluent and tech-savvy middle class, as well as the clamor from businesses for cloud, storage, telecommunications, and data management solutions. Small wonder that e-commerce giant Amazon this month took steps to make India it's second-largest market, after America.

The optimal play on these trends is WisdomTree India Earnings ETF (EPI) , which is comprised of companies incorporated and traded in India that are profitable and that are eligible to be purchased by foreign investors.

 EPI data by YCharts 

With net assets of $1.2 billion, the WiscomTree ETF holds several bellwethers in the India technology sector, includingInfosys and HCL Technologies.

This ETF allows you to leverage India's economic upside (especially in technology), while limiting the downside. Companies selected for the fund's portfolio are weighted based on their earnings in the previous fiscal year; those with negative earnings are excluded and those near break-even are given smaller weighting.

That said, WisdomTree India Earnings gives a larger allocation to small and mid cap stocks than similar India-focused ETFs, which in turn provides more exposure to up-and-coming tech firms.

WisdomTree India is down 7% year-to-date but over the past month it has gained 5.32%, as investors have turned away from other struggling emerging markets to pour capital into a comparatively stronger India.

Burnishing India's prospects in the eyes of investors lately are new reform initiatives from the Indian government to foster high-tech start-ups in the country, in an effort to kick-start growth and break through the bureaucratic red tape for which India is regrettably famous.

WisdomTree India Earnings is a safe and easy way to profit from the multi-year growth of India's tech sector. According to the same Morgan Stanley report, India will be a one-billion-person digital market by 2030. That's the sort ofunstoppable investment trend into which you should put your money.

With the S&P 500 down 2.76% year to date (despite rallies in recent days) and analysts expecting mediocre returns in 2016 at best, or a full-blown correction at worst, now's an opportune time to consider this well-positioned ETF with the potential to beat an overall market downturn. The fund's excellent prospects show that India, in many ways, is the last BRIC standing.

By John Persinos

Source: http://www.thestreet.com/story/13487190/1/turned-off-by-brazil-russia-and-china-try-india-the-last-bric-standing.html

Emerging Markets: Analyzing The Philippines' GDP

The Philippines, under the leadership of President Benigno Aquino III, is slowly yet steadily emerging as a rising tiger, something that was highlighted by Motoo Konishi, World Bank Country Director, during the 2013 Philippines Development Forum. Clean governance, strong leadership, growing infrastructure and policy endeavors have catapulted the Philippines onto a path of faster growth. However, like all growing economies, the ‘trickle down’ effect has yet to gain full momentum and social issues that stymie growth—poverty, inequality and unemployment —need to be addressed in earnest. The future holds promise as the Philippines has a young, growing workforce that speaks English, remittances from abroad are high and household debt is among the lowest in Asia.

Although the Philippine economy grew at a mediocre pace of 3.5% over the past 35 years (1980-2014), recent numbers project a different story. The average gross domestic product (GDP) growth rate over the past 15 years (2000 onwards) has been 5.1%, while in the past five years (2010-14) it has been 6.3%. A Deloitte Report projects that, “the Philippines will grow faster than Southeast Asia as a whole over the next two decades, with overall GDP expanding by 4.8% per year in the 2014-33 period.” (For more, see: This Asian Nation Is Poised For Steady Growth.)

GDP Composition

The composition of the gross domestic product is broadly split among the agricultural, industrial and service sectors. According to 2014 World Bank data, agriculture accounted for 11.5% of GDP, while the industrial and service sectors accounted for 31% and 57.5%, respectively.

Neglected Agriculture, No More

The Philippines has gradually shifted from an agrarian to an industrial and service-oriented economy. In 1980, agriculture accounted for about one-fourth of the nation’s GDP, but that has dwindled over the years. The agricultural sector (including forestry, hunting, fishing, the cultivation of crops and livestock production according to the World Bank) now accounts for only 11.5% of the GDP. That said, it accounts for about 30% of the work force. The main agricultural products are sugarcane, coconuts, rice, corn, bananas, cassava (manioc), tapioca, pineapples, mangoes, pork, eggs, beef and fish.

This low level of productivity and slow growth in the Philippines’ agricultural sector has resulted in high incidence of poverty within the sector. The lack of government initiatives has been primarily responsible for the decline of the agricultural sector, which has suffered from poor infrastructure and low levels of investment. These factors got accentuated with the long seasons of drought that the country suffered.

Fortunately, things seem to be changing as the government is now investing heavily in this sector. The government is backing the Department of Agriculture’s (DA) programs in an attempt to improve food security, rural income and infrastructure. Some initiatives by the DA in a bid to improve the post-harvest losses, while making productive less expensive as well as stabilize labor costs, are Farm Mechanization, National Organic Agriculture and Post-Harvest Development. Then there is the World Bank-supported Philippine Rural Development Project, which aims to improve rural infrastructure. Beyond these, a crop insurance scheme, which will cover the costs of devastating weather phenomena, is being rapidly expanded by the government through Philippine Crop Insurance Corporation. Given these and many more measures, the agricultural sector of the Philippines should witness a spurt in its productivity and output in the near future.

The industrial sector has made a fair and sustained contribution to the GDP of the Philippines over the years, averaging 34% during 1980-2014 and 31% in 2014 alone. The industrial sector is growing faster thanks to lower labor and operations costs in the region. It grew at 9.2% and 7.9% in 2013 and 2014, respectively. The sector employs 16% of the country’s workforce. The government of the Philippines is making efforts to attract foreign direct investment in the country by improving its infrastructure and other paraphernalia. The country has developed a number of economic zones, which have attracted many foreign companies. There are reports that predict some companies are set to relocate their production from China, their traditional base, to the Philippines and neighboring countries in Southeast Asia. These measures will help sustain the growth of the industrial sector in the years to come.

Industry

The major industries of Philippines include manufacturing and agribusiness. Within manufacturing, mining and mineral processing, pharmaceuticals, shipbuilding, electronics and semi-conductors are the focus areas. The Philippines is one of the attractive pharmaceutical markets in the Asia-Pacific region. The Philippines is also richly endowed with metallic resources, and the country has attracted many foreign companies to its land. Anglo American plc, BHP Billiton Ltd (BBL), Sumitomo Metal Mining Co Ltd and Xstrata plc are among them. Moreover, the arrival of foreign players has helped the country to capitalize on its shipbuilding potential. The island nation is the fourth-largest shipping country (after China, South Korea and Japan).

The Philippines’ electronic industry has been active since the mid 1970s, when the companies from the West were looking to relocate production facilities to combat the issues of rising cost of production. The electronics industry in the Philippines has only grown bigger and better since then, and is an important component of the nation’s economy in terms of job creation, tax contribution, exports, household income and share in the GDP.

The agribusiness is mainly composed of processed fruits and vegetables, seaweeds, tropical fruit purees and juices, fresh tropical fruits, mango seed oil, sugar plantation, bioethanol, biofuels and coco methyl ester.

BPO-Driven Service Sector

The service sector of the Philippines overtook the industrial sector in terms of contribution to the GDP during the early 1980s, increasing from 36% in 1980 to 57.5% in 2014, according to the World Bank. The services sector employs 54% of the country’s workforce, which is more than the agricultural and industrial sectors combined.

Within the service sector, business process outsourcing (BPO) has played a significant role in sector growth. According to Invest Philippines, “The Philippines gained considerable traction as a BPO location based on the availability of professionals with the required language skills, cultural affinity with the U.S. (the main BPO market), and strong customer service orientation of its workforce. This government openly acknowledged the industry as key driving force for growth and employment in its Medium-Term Philippine Development (2004-2010).”

The second important segment within the service sector is tourism, which has a long history of moderate growth. Tourism in the Philippines has not been able to tap its resources optimally and has lagged behind its regional cousins (like Singapore, Indonesia and Thailand) in attracting international tourists. Inadequate infrastructure (airports, poor rail and road connectivity), insufficient tourist services and facilities are among the chief reasons for this.

Another segment is export services, which includes the services delivered by Filipinos working outside the country as permanent, temporary or irregular migrants. The remittances by Filipinos working abroad have grown substantially over the years. Their jobs have also undergone a structural change from low-end service jobs to more professional jobs that require higher education skills.

Remittances from abroad continue to be strong (at 10% of GDP), and the emergence of the BPO industry is seen as a driver of consumer spending and employment generator on the back of strong foreign earnings. This is turning out to be a good alternative mechanism for the nation. The expanding base and growth prospects of the BPO industry will not only boost the service sector in the country, but could also persuade some of its people to return home while combating the threat of decline in remittances from its people abroad.

The Bottom Line

For any economy to surge ahead, a balanced and harmonious growth of agriculture, industry and services sectors is quintessential. Once these are accomplished, improvements in tertiary sectors of the economy follow quite naturally. For many decades, the Philippines has lagged behind its more affluent Southeast Asian and East Asian neighbors in terms of economic and social development. But those days are gone. The Philippines today appears to be firmly on the path of growth and sustainability. (For more, see: Find The Top Retirement Cities In The Philippines.)

By Prableen Bajpai, CFA (ICFAI)

Source:http://www.investopedia.com/articles/investing/091815/emerging-markets-analyzing-philippines-gdp.asp