GUEST COLUMNIST

By Dr. William S. Co

Happy Chinese New Year!

During the recently concluded Philippine Exporters Confederation, Inc. ((PHILEXPORT) general membership meeting and election of the its Board of Trustees.  Dr. Sergio ‘’Jun’’ R. Ortiz-Luis, Jr. president of PhilExport presented his President’s report.

Jun believes that optimism and resilience are inherently Filipino traits that we are bringing into this new year. Despite natural calamities, economic, political and other man-induced tensions that are brewing, we choose to look at the future with optimism especially because of the following developments:

• The Board of Investments (BOI) said it is eyeing around P1.3 trillion to P1.5 trillion worth of investment approvals this year that are expected to generate nearly 50,000 new jobs. Bulk of these investments is in renewable energy (RE) seen to help in our energy self-sufficiency, RE equipment manufacturing, and mineral processing. They have always said that investments are key to enhancing our export value added especially for raw materials, innovation and technology. 
   
• We appreciate that our new Agriculture Secretary Francisco Tiu Laurel Jr. is putting a major focus on export with farmers and fisherfolk in mind, as the agency prepares for the Philippine Agricultural Export Development Plan that is aligned with the Philippine Export Development Plan. Japan has been identified as among the priority markets, with the ASEAN-Japan Summit discussions centered on exports that include pineapple, bananas, avocado, mangoes, durian, mangosteen, and okra. You may know that agricultural exports also followed the general decline in our export performance, as growth tapered by 13.3 percent to $1.61 billion during the third quarter of 2023, with agriculture accounting for 8.2 percent of total exports.
   
• On the other hand, Trustee Robert M. Young from the textiles sector see modest growth for garments and textile exports this year despite the projected economic difficulties. The sectors are banking on new markets such as South America and the Middle East while strengthening their presence in existing markets like the United States, Canada, European Union and ASEAN.
   
• Meanwhile, inspired by the strong buyer presence at the October Manila FAME show, furniture Trustee Myrna C. Bituin projects a 20 percent increase in furniture exports this year. 
   
• We likewise expect costs to be tempered by the declining inflation rate that is likely to remain within the two percent to four percent target range by the Bangko Sentral ng Pilipinas (BSP) this year.
   
• As this is happening, jobs are being created, resulting in record-low unemployment in 18 years.  Still, PCCI, ECOP and PHILEXPORT, in collaboration with the SM Group of Companies, are pursuing the JOBS project that aims to not only help generate one million jobs, but more importantly push up-skilling and re-skilling.
   
• There are also consumer and business-friendly laws passed, including the Internet Transactions or RA 11967 and Ease of Paying Taxes Act or RA 11976, and ratification of the Philippine Salt Industry Development and Public-Private Partnership Acts. Meanwhile, we are hopeful that the current CREATE MORE bill when passed, will help reinvigorate the Philippine manufacturing and export industry. 

Jun pointed out as we celebrate these gains, we are seriously concerned about the “fledgling” recovery of Philippine exports that appeared to be even losing momentum as global headwinds continued to hurt demand from major trading partners, particularly in the US and China. Latest government data showed that exports sagged 13.7 percent to $6.13 billion in November 2023, much worse than the 4.1 percent contraction in October and 0.6 percent in September. Export earnings for the 11-month period amounted to $67.03 billion, an annual decline of 8.4 percent from the $73.18 billion in 2022 but much improved than the month-on-month decline in October, with shipments plummeted 17.5 percent.  We estimate though that exports will still growth five percent this year fueled by services led by travel and ITBPM. But with this as a background, exports need to grow 40 percent instead of the initial 10 percent target this year to be able to hit the $143.4-billion target set for 2024 in the Philippine Export Development Plan (PEDP) 2023-2028.

Part of the needed reforms to help boost exports includes making the country an attractive investment destination, which as we are experiencing, is not only a matter of passing laws. National scientist Raul V. Fabella has noted that “the share of manufacturing in Philippine gross domestic product has been losing out to services” and that this will continue because of structural weaknesses. Records will show that the growth of the manufacturing sector largely relies on foreign direct investments (FDI). Ours fell 29.6 percent in October last year to $6.5 billion, the third straight month of decline, and amounted to only $9.2 billion in 2022, behind Thailand ($10 billion), Malaysia ($15.1 billion), Vietnam ($17.9 billion), Indonesia ($21.7 billion) and Singapore ($140.8 billion). This was despite the passage of laws in 2021 liberalizing the Philippine economy, including the CREATE or Corporate Recovery and Tax Incentives for Enterprises Act, which cut the corporate income tax for domestic and foreign corporations to 25 percent from 30 percent and the Public Service Act which allowed full foreign ownership in domestic shipping, telecommunications, shipping, railways and subways, airlines, expressways and tollways, and airports.

He explained, as businessmen ourselves, we know that other factors are also critical. These include labor productivity and electricity costs which, in our current situation, can be anywhere from 20 percent to 60 percent of production cost. It is no secret that our power cost is the highest in ASEAN. Dr. Fabella recommended the exemption of the manufacturing industry from missionary, universal and stranded cost charges as one remedial measure. President Ferdinand R. Marcos, Jr. last year has already extended by another 15 years the contract for the Malampaya gas field which supplies 20 percent of Philippine total electricity requirements, allowing the operator to drill new wells. Amid the declining output of the gas field which is expected to run dry by 2027, President Marcos expressed willingness to resume joint energy exploration activities in the South China Sea. 

The declining quality of Philippine labor force also threatens the country’s manufacturing ambitions. Filipino students are still among the world’s weakest in math, reading and science, with the Philippines ranking 77th out of 81 countries and performing worse than the global average in all categories.

Further, decades-long governance issues such as corruption and red tape continues to hound the manufacturing sector. In fact, the stability of politics and ease of doing business in Vietnam have been cited as key factors behind its rise as the top choice for global manufacturers diversifying away from China. Vietnam’s merchandise exports in 2019 hit $300 million, compared with $70 million for the Philippines.

As we step up our efforts to save our export-oriented manufacturing sector, we likewise need to address our volatile exchange rate which hurts exporters and OFWs. The other reason is that a stronger export-focused manufacturing is critical to improve our dollar reserves to support the massive import requirements in infrastructure and agriculture. Obviously, this has not been enough to ensure a positive balance of trade for almost a decade. 

Despite a slower growth though, the World Bank expects Philippine economic growth to accelerate to 5.8 percent for 2024 and 2025, the highest in ASEAN which is also in a slowdown. This is up from an estimated growth of 5.6 percent in 2023. While we may be afloat, indicators are showing that this growth is below our own targets, including for GDP where we may manage about six percent to 6.5 percent against the original eight percent target. Other than what I already mentioned above, government spending and fund disbursement should be facilitated to help spur growth. 

Exporters should also continue to monitor and adopt market trends and requirements, particularly in the areas of sustainability, circularity, digitization and innovation. This, as we start preparations to mitigate the impacts of a projected El Nino this year, particularly for the agri-based sector. 

Dr. Sergio Ortiz-Luis, Jr. also talked about how PHILEXPORT as an organization fared last year. PHILEXPORT have about 2,032 active company-members out of about 3,524 members in our roster. There are direct National members, as well as those under 17 active provincial and regional chapters and 22 active industry associations, out of the 40 associations in our list. We are pleased to report as well that our chapters 4C or Cavite and Region 4B or MIMAROPA are now fully reactivated. Our work with the Chapter gets a big boost from our very close partnership with the Department of Trade and Industry in the regions. 

Meanwhile, their frontliners are busy with many day-to-day concerns and requirements of members. There were about 57 travel tax exemption applications processed last year for the participation of our members in trade fairs and exhibitions. This represents nearly P100,000 in travel tax savings. Of this, 43 applications were handled by the Export Facilitation and One-Stop Export Documentation Center for 30 companies. 

As part of their compliance with the Customs E2M system, 422 new and 1,859 exporters have renewed their Client Profile Registration System applications last year. On the other hand, for easy access to APEC member-countries, the same office has facilitated 43 applications for the APEC Business Travel Cards.

On the other hand, the One-Stop Export Documentation Center or OSEDC processed 41,710 export declarations and (delete: nearly) 16,274 government commodity clearances from the Bureaus of Animal Industry, Fisheries and Aquatic Resources, Plant Industry and Customs.

Meanwhile, PHILEXPORT appropriated P11.8 million for Regional and P9.631 million for the Sectoral Support Funds or RSF/SSF. The RSF provided 15 Chapters fund access for 55 projects. Nine industry associations from seven sectors implemented 36 projects out of their sectoral fund. About 26 percent of these or 24 projects were used for trade fair participation, followed by 18 percent share for strategic planning sessions and forum on advocacy issues. Both facilities are administered by our Project Development and Management Department.

He also acknowledged the fact that PHILEXPORT Common Customs Bonded Warehouse (CCBW) operations remain the Confederation’s bread and butter from which many of their expenses and members’ assistance are being paid for. It handled about 1,157 importations of raw materials that generated savings for members worth over P713 million in duties and taxes last year. 

Indeed, PHILEXPORT’s accomplishments are made more meaningful because of the millions of people who have been part of our journey.  We also pay tribute to our management and employees, our most important resource that helped position PHILEXPORT where it is now in the economic history of our country. The experience generated and the partnerships forged will continue to serve as our inspiration in the years to come. This, as we break barriers and realize our vision and goal of becoming a globally competitive exporting nation.

On a final note, PHILEXPORT reiterates and renews its commitment to be an advocate and facilitator of positive developments for the industry, the organization and the country.

(Dr. William S. Co is chairman of the Philippine Chamber of Commerce and Industry (PCCI) and director of the Agriculture and Fishery committee.)