Modernizing the Philippines


Filipino workers of the Ford Manufacturing Plant in the Philippines, prior to its closure in 2011. Photo taken from Yahoo! News.

Filipino workers of the Ford Manufacturing Plant in the Philippines, prior to its closure in 2011.
Photo taken from Yahoo! News.

The Philippines has traditionally been a nation based on agriculture. It comes as no surprise that when Philippine exports are being discussed, the most familiar examples you would hear are pineapple, banana or coconut. A more complimentary response would be tourism, citing the dozens of world-class beach resorts in the country. While an example Filipinos would cringe hearing of is our manpower export, hoping to avoid discussions about Filipino caregivers or domestic helpers which are very common in developed countries.

One needs to know that these answers are products of statistical ignorance and disinformation. Why? Because data from 2012 reveal that agricultural exports only comprise 9.62% of the annual export value and make up only 11% of the country’s GDP. The idea that the country is reliant on overseas workers’ remittances from abroad is also far from the truth; while it is wrong to say that our OFWs do not contribute to the economy, it is a myth to say they are making the biggest impact. OFW remittances in 2012 only composed 8.5% of our GDP. This also debunks the claim that the Philippines is a nation dependent on their alleged ‘export of domestic helpers’.

While tourism does make up a huge part of our economy, it is only a component of the ‘services’ branch which does comprise the majority of our GDP at 57.1% in 2012. The business process outsourcing, or in layman terms the call center industry, is also a big contributor to this sector. This is not surprising, BPO job opportunities are evidently abundant these days in the Philippines. The good thing about vacancies in BPOs is that not only is the pay lucrative but it is a step forward from having a low-skilled job in the informal sector, as was the norm just a decade or two ago.

This is a testament to the Philippines taking the status of a ‘newly industrialized country’, being included in a list by economists to be among the fastest industrializing nations in the world. The list includes nine other states namely: South Africa, Thailand, China, India, Indonesia, Malaysia, Mexico, Brazil and Turkey. The country is also being dubbed as an emerging market. The NIC list cites countries which are rapidly shifting their economies from one based on agriculture to one based on industry, hence the name. The Philippines fits into this criteria explicitly well.

Sadly, this reality has not sunk in for the majority of Filipinos nor the foreigners observing the Philippines. The image of a rural-based, agronomy is still the general perception while the multi-billion dollar processing plants and our modern economic zones are unknown. How could we expect this image to change when it is easier to see a sign that says “Philippine Imported Bananas” in the supermarkets rather than to notice that your Nokia battery has a label which says ‘Made in the Philippines’? It is also a lot easier for a foreigner abroad to ask a nurse or a domestic helper where she is from than to read the inscriptions on their Toshiba laptop’s hard drive which says it was manufactured in the so-called primitive, agricultural country of the Philippines. And how often does one get to see the inside of a Boeing or Airbus aeroplane and realize that its’ parts were made from the country of nannies?

This is where my first contention comes in, people are too misinformed and uneducated to know the true composition of the Philippines exports. They are unlikely to know that Ford, Toyota, Mitsubishi, Volvo and BMW all have manufacturing plants in the country, be it to produce automobiles or spare parts. You can also bet on it that they are unaware that the Philippines is the fourth largest shipbuilding nation in the world, or the fact that the Philippines is the largest producer of DSP chips in the world.

The Texas Instruments Plant in the Philippines. Photo taken from Reuters news website.

The Texas Instruments Plant in the Philippines.
Photo taken from Reuters news website.

Take this for example, in 2012 the Philippines aerospace industry announced it expects to double its output to US$6B with the entry of new producers in the Philippine market. For most readers, the massive amount involved may not even be the most shocking part of this news story. Instead, they are more likely to be surprised that the Philippines has an aerospace industry to begin with. This is sad, considering that there are already 36 aerospace parts producers in the country with the biggest players in the industry, namely Boeing and Airbus, among their clients. A major plant is located in the Baguio Special Economic Zone while there are also locations such as the Clark Special Economic Zone and a plant owned by Lufthanza Technik which repair and maintain aircrafts from all over the world.

The automobile industry is also severely underestimated. In 2012, the Philippines recorded a net sale of 183,000 vehicles which is a record number for the country. There are numerous manufacturing plants based in the archipelago, unbeknownst to many, which provide thousands of well-paying jobs as well as good business for local industries. Anti-lock braking systems used in luxury cars such as BMW, Volvo and Mercedes Benz are all manufactured in the country. In fact, the Philippine plant for Mercedes Benz is the first outside Germany, built in 1955. Vehicle assembly is also being done by prominent names such as Toyota, Mitsubishi, Nissan, Honda and until last year, Ford, which shifted operations to Thailand. While we lost a high-end brand to our neighbors, it is heartening to note that premier manufacturers Toyota and Mitsubishi both expanded their operations in the country. As a proof of that, Toyota Philippines export sales hit US$1B early this year. In 2011, Chinese automotive firm Cherry inaugurated its’ manufacturing operations in the country which it aims to make its flagship and sales are expected to reach 1,000 in a few years.

Shipbuilding is also a major industry in the country, with the Philippines being the 4th largest shipbuilding nation in the world. South Korea’s Hanjin Corporation gave birth to the local industry in 2007 when it inaugurated its’ shipyard in Subic Bay, immediately starting work to complete an order from German and Greek companies. The same Subic plant employs almost 20,000 people.  Just two years ago in 2011, the same shipyard constructed a US$68M commercial ship for a Turkish-owned company which proves it is capable of producing world-class commercial vessels. Today, there are similar shipyards in operation in Batangas, Cebu and General Santos City and production has become more comprehensive as well, with the country now manufacturing passenger ferries, container ships and bulk carriers. The shipyard in General Santos is also used for ship-repairing and maintenance along with a shipyard in Navotas in Metro Manila, which has a capacity to repair 96 ships per year. There are also similar shipyards being constructed in Misamis Oriental and Cagayan province.

What about electronics? As mentioned earlier in this essay, the Philippines is the largest producer of digital signal processor chips in the world thanks to its’ Texas Instruments plant in Baguio. All Nokia phones and 80% of Sony Ericsson phones in the world contain these Philippine-produced chips. Until 2005, Toshiba laptops are all produced in the Philippines but during the 2008 Global Crisis it has shifted its’ manufacture to hard drives. It’s a downgrade but still flattering to know. A prominent computer printer producer named Lexmark also run factories in Mactan, Cebu. Semiconductors became a US$30B industry this year, and the Philippines captures around 10% of the market. While the country does not manufacture chips, it instead only does assembly yet the local industry is still worth millions of dollars. This is a growing industry which the Philippines has the potential to be a major player in, particularly since in 2010 the electronics sector made up 61% of the export sales. As a step in the right direction, the government invested Php350M in building a testing facility in Bicutan to save local producers US$9-18M in annual cost for testing their semiconductors overseas.

The industries mentioned: shipbuilding, aerospace, electronics and automotive are all growing in the right direction. There are cases when it takes a momentary step back, but with the right foundations put in place by the current and past administrations it is resilient enough to regain its’ momentum. Still this should not satisfy us, as experts point out these industries have the potential to grow faster and more consistently. The closure of the Ford plant in Santa Rosa, Laguna was a huge loss not only because Ford is a big brand but also because the plant was the only one that manufactured vehicles specifically for export in the country. But instead of regretting its’ loss, the government did the right thing in providing assistance to Toyota to expand and it paid them back dividends.

There is also a resurgence in the creation of new business parks and special economic zones, which is a positive reform. The process of acquiring a permit to set up business in the country also needs to be shortened, and of course red tape needs to be stamped out. As explained by the business community leaders in the past, the renaissance of investor confidence in the Philippines is mainly due to the President’s anti-corruption stance. This can be seen in his drive to reform the Customs department and by keeping a close eye on local government units. Yet, there are still big problems which need to be addressed such as the threat of rogue entities, putting the chaos of Zamboanga in mind as well as there is still some corruption left in the bureaucracy. Measures are in place, but they still need to be reinforced.

Maybe this is why foreigners do not realize the newly industrialized image of the Philippines, because its’ industries are still not potent enough to be boasted to the world. Indeed its’ heading in the right direction, but a lot can be done. Compare our automotive industry to Thailand and we look like a toystore. The amount of investment we pour on our aerospace industry compared to Malaysia is peanuts, this is actually one complaint of the Aerospace Industries Association of the Philippines. The reason why our industry is only producing spare parts and not assembling an entire plane like Malaysia is because the latter invested US$4.7B on their plants while the government is investing in the pesos. If we want to be competitive, this needs to be increased.

Same goes for the shipbuilding sector, despite the Philippines dwarfing its’ ASEAN neighbors in shipbuilding the potential for the industry to grow is immense. Just think about it, the country is surrounded by water and is placed in a strategic location in close proximity to Australia and is accessible by the United States and India. This is how it managed to grow into the world’s fourth largest shipbuilder in just six years. It is undeniably an industry the country can bank on, putting into perspective the millions of skilled workers abroad and in the country who will be able to find jobs in this growing sector. The industry exported US$640M in 2011, it has not even reached the billion dollar mark yet.

As economists have said, these are exciting times for the Philippines. The economy is healthy and posing robust growth rates, investor confidence is on a high and the Filipino is hopeful for its country once again. This is a good time for the government to aid its’ different sectors and make a more evident shift from agriculture to manufacture and assembly. It’s about time the Philippines became known for its’ microchips rather than it’s banana chips, there is now an opportunity to do this.

Sources

CIA World Factbook – Philippine Economy

Department of Trade and Industry 2012 Trade Report

http://m.inquirer.net/opinion/?id=62283

BSP – OFW remittances for 2012

NEDA – PHL exports 2012 best in Asia

Agriculture – NEDA hopes for sustained growth

Aerospace – Production Relocation

Aerospace – PHL a potential manufacturing hub

Aerospace – PHL eyes global market

Automobile – Ford’s Philippine Plant

Automobile – Philippine plants far from potential

Shipbuilding – Big ambitions for shipmakers

Shipbuilding – A new era begins in the PHL

Electronics – Laptops and chips

Electronics – Semi-conductors in the Philippines

Electronics – From coconut chips to microchips

Electronics – Chip companies eye PHL market

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