The Philippine GDP growth story is primarily consumer-driven. It is rated as second only to China in Asia for some years now. Many other expanding economies, however, rely on the manufacturing sector.
The consumer-driven GDP growth is helped by the dollar inflows coming from our top earners (the overseas Filipino workers or OFWs and the business-process outsourcing or BPO aggregating more or less $50 billion a year) plus tourism receipts, the third dollar earner. The many cars, motorcycles, appliances and houses one sees around are largely the fruits of the earnings made from these sources.
The Philippines is also not as export dependent as others in the region, as only 34 percent of GDP is accounted for by exports based on data from 1993 to 2013. Malaysia exports account for 81 percent of GDP, Singapore 99 percent, Thailand 68 percent and Vietnam 61 percent. We are thus shielded from the downturns in the importing developed countries.
In a way, service (not agriculture, which has contributed a mere 12 percent of GDP on average) has been the linchpin—and the World Bank has long noticed this pattern of Philippine GDP growth.
Our take is that if we let policies of the post-Aquino administration propel the heretofore anemic agriculture, then we truly will have a more formidable GDP than we have now since our manufacturing has its own redeeming strengths.
Oxford Economics forecasts manufacturing growth from 2013 to 2030 will be 5.5 percent, while value-added for manufacturing has grown 7.9 percent from 2009 to 2013.
The Philippines could yet become a manufacturing hub in Asia. One reason is the fact that some businesses are relocating away from China to the Philippines and Vietnam because these two countries have lower labor costs. It is forecast that up to 2030 China will have a Plus 3 factor increase in labor costs compared to only factor Plus 2 for the Philippines and Vietnam.
Moreover, the Philippines has a big market of over 100 million Filipinos (the 12th largest in the world) and a rising middle class which now has a per-capita income of $3,344 or double the value in 2006. It is also a participant in the unfolding Asean economic integration involving 600 million people and a trade potential of $2.7 trillion. Of course, the Philippines is not far from China, which has a huge consumer base with at least over a billion potential buyers.
Except for skirmishes in Mindanao, there has been industrial peace in the past many years of the Aquino administration. No major debilitating strikes have been noted. If the new president in June will be of the same reformist mold as President Aquino, the Philippines has a good chance of accelerating its growth further.
The twin drawbacks could be the price of power and taxes (30 percent corporate tax), which are some of the highest in the region. Often, depending on the business, the cost of power ranges from 12 percent to 40 percent of total cost. For instance, electronic companies pay P12 per kilowatt-hour here.
This is confirmed by the comparative cost of electricity in Manila versus other Asian cities: Manila 25 ($) cents, Beijing 7 cents, Seoul, Hanoi 8 cents, Bangkok and Bangladore 11 cents, Kuala Lumpur 12 cents, Taipei 17 cents and Hong Kong 19 cents.
Aside from corruption (although diminishing rather than deteriorating), power and taxes could also be the reason the Philippines has attracted the least foreign direct investments in 2013 at only $900 million compared to Singapore ($64 billion), Indonesia ($19 billion), Malaysia ($12 billion) and Thailand ($7.4 billion).
But, in sum, the future of manufacturing in the Philippines has more positive factors than negative ones, particularly in the electronics and shipbuilding sectors. In shipbuilding, there is a backlog of 106.8 tons that still has to be completed by the four major shipbuilders hosted by the Philippines: Tsuneishi, Hanjin, Keppel, Herma and Colorado.
An Ayala Corp.-owned electronics company called Integrated Micro-Electronics Inc. (IMI) into electronic manufacturing services (MFS) and power semiconductor assembly and test services is the country’s biggest and has 15 manufacturing sites/offices in China, the Philippines, Singapore, Bulgaria, the Czech Republic, the US and Mexico. In many of these locations are highly skilled and motivated Filipino staff, according to IMI President and CEO Arthur Tan.
Industrial automation and robotics is surging forward and many industrialized nations have robots in factories like Japan (306,000), North America (232,000), China (182,000), South Korea ( 175,000) and Germany (170,000). It is in areas where labor costs are comparatively higher that robotics celebrate a practical appeal.
Innovation is in vogue and through the world-class engineering skills of IMI, the first fully automated cars will be manufactured out of their factories in China, Mexico and the Philippines, in that order. How that car model can, in the future, jell with an electric-powered car speaks volumes about the capability of some sectors of Philippine manufacturing to provide a rich future for the world at large.
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Bingo Dejaresco, former banker, is a financial consultant, media practitioner and political strategist. A Finex life member, his views here are personal and do not necessarily reflect those of Finex.dejarescobingo@yahoo.com.
1 comment
As long as company’s have to have Pinoy partners are pinoy board of directors that control the major part of the business, no company is safe from pinoy corruption