Supply chain concerns could derail PH recovery – survey

Published December 1, 2021, 1:49 PM

by Bernie Cahiles-Magkilat

German companies in the Philippines are optimistic about the country’s economic recovery, but raised serious concerns about persistent supply chain problems and travel restrictions that could hold back the potential.

This is the result of the survey conducted by the German-Philippine Chamber of Commerce and Industry (GPCCI – AHK Philippinen) in September-October 2021.

The survey also echoed the report of the DIHK (Association of German Chambers of Industry and Commerce) where about 3,200 respondents globally are saying that German companies doing business abroad are hit by severe problems in their supply chains or logistics, pushing them to diversify suppliers, shorten delivery routes, and also relocate their own production.

“The lesser numbers in the daily active cases of COVID-19 and the graduation of major areas to a more liberal alert level presents a promising outlook for our survey respondents,” said GPCCI Executive Director Christopher Zimmer. “We also welcome the recently adjusted travel-related quarantine measures for fully-vaccinated individuals. However, we still observe that key foreign nationals of both incoming and existing companies in the Philippines still experience problems coming in as entry measures and requirements remain rigorous, time-consuming, and burdensome.”

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The survey showed that the figures in the Fall 2021 survey showed an improvement from both Spring 2021 and Fall 2020 surveys. It also showed that 32 percent of the companies consider their situation as good.

However, satisfactory reports remain the same at 47 percent (from 50% in Spring 2021). More than a half (57%) of survey participants expect a better outlook in Fall 2021, higher as compared to both Spring 2021 (29%) and last year (47%) with a notable reduction of worse outlooks down to merely 3% (from 9% in Spring 2021). Furthermore, 34 percent of the participating companies say that the medium-term economic outlook will be better compared to the recent two surveys with a dramatic decline in worse projections at 12% in Fall 2021 (from 40% in Spring 2021).

The survey also reveals that a quarter (26%) of companies are looking at an increase in their local investments (from 14% in Spring 2021). However, the majority still say that it will remain the same. As for employment projections, 34 percent expect a higher likelihood of development in local employment over the next 12 months which numbers are more than twice in Spring 2021 (15%), and companies who intend to reduce their workforce also continues to decline at 15 percent from more than a quarter of participants in both Spring 2021 (29%) and Fall 2020 (35%).

In assessing the top 3 risks of the respondents, Lack of demand (55%) remains to be at the top risk in Fall 2021, despite the decrease from 64 percent in both Spring 2021 and Fall 2020. The country’s risks in the economic policy framework (51%) have come in second even with its continuous downward trend of -7 points from Fall 2020. The Fall 2021 survey, for the first time, also assessed the risk associated with rising prices of raw materials and was reported by the survey respondents to be one of their top 3 risks for the next 12 months at 49 percent.

When asked about the negative effects brought up by the pandemic, 85 percent of respondents said that travel restrictions pose as their greatest concern and has been consistently expressed by 4 out of 5 of the participating firms from the past surveys. Companies also say that they experience logistical and supply chain problems (55%) which have been constantly increasing since last year from 43%. Finally, cancelled or postponed investments (51%) still comprise more than half of the surveyed companies.

“An interesting amount of potential to ramp up the Philippine economy can be observed in the coming days as certain economic reform measures such as the Amendments to the Retail Trade Liberalization Act and Foreign Investments Act are seen to be signed into law,” says GPCCI President Stefan Schmitz. “Therefore, we ask that the Philippine government to immediately look at how we can resolve existing concerns of companies so they will be able to help the recovery of the country’s economy even before 2022.

For the companies that have indicated problems related to supply chain adjustments, Almost half (45%) stated that they will add new or look for new suppliers for their products, 40% decided not to diversify their supply chains, and 19% say that they are changing or shortening their supply routes.

There were 74 firm respondents in the GPCCI survey, comprising of 24 percent from the manufacturing and construction sector, 30 percent from trade, and 46 percent from services. Half of these firms have less than 100 workers, 20 percent have 100 to 1,000 employees, and 30 percent have more than 1,000 workers in their global workforce.

The AHK World Business Outlook (AHK WBO) is based on a regular DIHK survey among member companies of the German Chambers of Commerce Abroad, delegations, and representative offices (AHK). It encompasses the feedback from more than 3,700 German companies, branches, and subsidiaries worldwide.