By Bernadette D. Nicolas & Elijah Felice E. Rosales
FINANCE Secretary Carlos G. Dominguez III on Tuesday expressed “concern” over the impact on government revenue of initial information that the total trade volume dropped to “a little over half” for the first 15 days of February compared to last year’s volume, amid the coronavirus disease 2019 (COVID-19) scare.
This, as Trade Secretary Ramon Lopez, in a separate event, told reporters he has been pressing manufacturers to shift to sourcing more inputs locally, as relying heavily on imports for their production puts them at risk of global economic disruptions like China’s factory closures due to COVID-19.
Lopez said the temporary shortage in inputs from China, mostly of electronic and automobile parts, should serve as a reminder for manufacturers to expand their sourcing. Local firms must purchase more from domestic suppliers to blunt the impact of global disruptions, he added.
Citing a preliminary report from the Bureau of Customs (BOC), Dominguez said on Tuesday they observed a year-on-year decline in the twenty foot equivalent units (TEUs) or the units of capacity of containers, with China accounting for a good fraction of the drop.
“In fact, I just got the figures: [for] the first 15 days of February, the total, as compared to the first 15 days of February last year, is [a] little over a half only of the TEUs, the containers coming in, so we are concerned but we believe that this lack will be taken up by other markets,” Dominguez told reporters at the sidelines of the Bureau of Internal Revenue’s National Tax Campaign Kickoff.
Temporary revenue dip?
While they have yet to know the full extent of the impact of the reduced total trade volume in terms of revenues, Dominguez said: “I am sure the revenues will be down for the BOC. But we hope this does not last too long.”
Nonetheless, Dominguez expressed confidence that this drop in sales and revenues is “just temporary until this coronavirus contagion is defeated.”
The BIR said earlier it expects to lose billions in revenues as large-taxpaying businesses from hotels to malls and even distributors and manufacturers of alcohol products are experiencing weak customer demand.
The BIR is targeting to collect P2.576 trillion this year while the BOC’s collection goal is P730 billion.
Tools at the ready
Still, Dominguez assured the public that the government is ready to continuously ramp up spending and use the necessary monetary tools to ease the economic impact of the coronavirus.
“Well, on fiscal policy, our contingency measures are to ramp up our spending and according to Lea, our National Treasurer, we are already up for the first one and a half months. We are already up 25 percent over last year. That’s pretty good,” he said.
“On the monetary side, we have been discussing with [Bangko Sentral ng Pilipinas Governor] Ben Diokno to prepare for a real…. I mean if this thing gets worse, the monetary side would be very prepared to handle it.”
Customs Assistant Commissioner Vincent Philip C. Maronilla confirmed that they have recorded a “very significant” drop in the total trade volume, including exports and imports.
Maronilla said the situation was aggravated by the coronavirus scare on top of the Chinese New Year holiday.
“Of course, China will contribute the largest decline but you have to understand that manufacturing all over the world does also get some of their parts from China so if China’s production slows down, it affects the entire global [production],” Maronilla said in a phone interview with the BusinessMirror.
Asked if they expect the total trade volume to decline further in the coming days or weeks, he said they are still trying to analyze the data and get feedback from their trade partners on the status of production and if work has already resumed in some factories in China.
“But of course, you have to also consider that [in] the Hubei province area, there are many factories and manufacturing, so we are still looking at that as something that would affect the entire trade,” he said, in a mix of English and Filipino.
Supply chain challenge
In pressing manufacturers to source more inputs locally, Lopez said on Monday night, “There will probably be challenges as to the supply chain, but just like people, companies cope. They can do a backup strategy, sourcing from alternative sites as well. That can still be in other parts of China or other parts of the world, including the Philippines.” He was replying to a question of whether or not vehicle assemblers are absorbing the impact from the situation in China.
“I think the point also, and the learning to many manufacturers, is not to put all eggs in one basket. I think that’s the learning, too, that it’s really important to diversify your sourcing so that when things like this happen, you’re not too much affected,” he added.
Carmakers in China are struggling to reopen all of their factories after temporarily closing them to protect their workers from possible infection of the novel coronavirus.
Toyota resumed operations for two of its plants on Monday, while Volkswagen AG, Ford Motor, Mercedes Benz and Geely partially commenced work last week. On the other hand, General Motors began production again over the weekend, while Nissan is eyeing to restart this week.
“To find local sources for any eventuality, not to rely on a single source, it’s like part of business continuity planning. We should diversify sources, as well as diversify the markets. Always try to have that balance and diversify the approach,” Lopez added.
More local content
Rommel R. Gutierrez, first vice president of Toyota Motor Philippines Corp. (TMP), said the firm has enough stocks of automobile parts as of latest inventory. As such, Toyota is not threatened by the production slowdown in China caused by the viral infection, he bared.
He added Toyota has been consistent in trying to increase the local content of its Vios as part of its commitments to the Comprehensive Automotive Resurgence Strategy (CARS) program of the government.
Under the CARS program, Toyota is provided with incentives for investing in the manufacture of Vios locally, as well as for buying parts from domestic suppliers. Two models are enrolled in the CARS program, one of which is the Toyota Vios.
“The efforts have always been there to strengthen the local parts supplier,” Gutierrez said in an interview with reporters on Monday night. He also said TMP is mostly sourcing its inputs from regional partners Indonesia, Thailand and Malaysia, and not from China. For instance, TMP is producing transmission gears for export to its regional counterparts, while it is buying engines from them.
Image credits: Roy Domingo