THIS is the worst time to be an exporter, even worse than in the 2008 financial crisis.
Just as China and the United States are beginning to settle their trade conflict, the coronavirus pandemic erupted this year to thwart all hopes of stabilizing the global economy. Governments had to order people to remain home to contain the spread of the virus, leaving factories shut down, their workers locked in homes, many without pay and at the mercy of government doles—if they come at all.
Shipments in the process were interrupted and supply chains were severed, as vessels arriving in docks were placed in quarantine and flights in almost every airport were canceled.
In the case of the Philippines, it is safe to say exports for the full year of 2020 will decline. The Department of Trade and Industry (DTI) is expecting shipments of goods and services to crash by more than a fifth on uncertainties fueled by the pandemic.
Senen M. Perlada, director at the DTI’s Export Marketing Bureau, said the worst-case scenario for exports is to plunge 21.37 percent to $74.1 billion, from $94.25 billion last year.
With the collapse, Perlada admitted it will now be challenging to reach the medium-term target set by the Duterte administration in its Philippine Export Development Plan (PEDP) 2018-2022. In the PEDP, the government stated its goal to bring exports of goods and services to at least $122 billion by 2022.
“[Before] Covid-19, we had a fighting chance of reaching the $122-billion total export target as early as December 2020, as a mere $28 billion is needed for us to produce,” Perlada explained, sighing at the lost opportunity to achieve an objective before its deadline.
The DTI assumption for this year is $38.1 billion for export of goods and $36 billion for services, that is, if the cycles of lockdowns persist and no stimulus package is legislated. Under the PEDP, shipments should breach $102 billion by the end of 2020.
BSP data
Records from the Bangko Sentral ng Pilipinas (BSP) indicate how much damage the health crisis is doing to the export sector.
According to BSP data, the last time exports fell nearly double digits was in 2009, just as the world was recovering from the global financial crisis the prior year. Shipments that year declined over 9 percent to $43.22 billion, from $47.73 billion in 2008.
Surely, there must be a messiah of some sort for Philippine exports, and that savior could just be the old reliable semiconductor industry.
Medical revolution
The industry is poised to gain from the medical revolution resulting from the pandemic, Perlada said. Economies will make health breakthroughs, develop new technologies and mass-produce hospital equipment to prevent a repeat of this health crisis, and this will boost the demand for electronic parts.
While there may be a surge in the market for medical electronics, this will just offset the slowdown in other categories, particularly automotive parts, according to the Semiconductor and Electronics Industries in the Philippines Foundation Inc. (Seipi).
Seipi President Danilo C. Lachica said the industry will likely suffer a reduction of 20 percent in exports this year. He added recovery will depend on the quarantine situation which is hindering a full resumption of work, especially in manufacturing.
“There was increase in medical electronics demand, [but] there was softening in other sectors, such as automotive electronics,” Lachica told the BusinessMirror.
Likewise, the Philippines is far from benefiting from the import upswing in medical equipment parts. Data from the Philippine Statistics Authority (PSA) showed exports of electronic products for health instruments slid roughly 9 percent to $53.44 billion in the first semester, from $58.47 billion during the same period last year.
And although automotive electronics grew double digits in the first half, market outlook for this category is flipping for the worse by the day.
According to the Asean Automotive Federation, production of motor vehicles in the region fell by about 41 percent to 1.23 million units, from 2.08 million units, in the first semester. Even vehicle manufacturing hubs Thailand and Indonesia endured steep declines, signaling an uphill battle for the automotive industry and mainly its suppliers.
Poor badly hit
For Maria Ella C. Oplas, economics professor at the De La Salle University, the poor will suffer most if the government misses out on its export goals, as this will drag down the country’s economic profile to the detriment of investment inflows and job generation.
“Missing our export goals would mean lesser firms [and] investor operations. These investors provide employment opportunities in the local labor market; without them, we experience high unemployment,” Oplas warned, adding “poverty incidence will worsen” in the event workers go jobless.
DTI’s Perlada disclosed that hundreds of export firms are now on the brink of either shutting down for good or relocating to another country.
In the heat of a pandemic, no country can afford losing any of its investors, more so the Philippines, a developing economy. In its April Labor Force Survey, the PSA reported there are now 7.25 million jobless Filipinos, of whom 5 million were unemployed by the health crisis—and this could just blow up if investors choose to pack up and leave.
Oplas said it may be wise for the government to reassess its export strategies in the aftermath of this pandemic, to look beyond Asia and its traditional trading partners in the continent, such as China.
“The key is to diversify,” she said. “If you look at the trade performance of the country, we still have not fully maximized economies in the European market.”
Under President Duterte, Manila’s renewed ties with Beijing expanded from the political to the economic, proof of which the country’s imports from China jumped nearly two-thirds to $25.59 billion in 2019, from $15.56 billion in 2016, according to PSA data.
This backfired, though, when Covid-19 broke out in China. With the closure of factories in the mainland, Philippine exporters were left scrambling for basic units and components, distorting their operations, draining their inventory and delaying their shipments.
Whether the Philippines is ready to reduce its purchases from China and expand its network of sources beyond Asia is a question only policymakers can answer.
Image credits: Roy Domingo