The Philippines risks remaining a mere host for foreign-led artificial intelligence (AI) and semiconductor investments under the emerging United States (US)-led Pax Silica initiative unless it develops stronger domestic technological and industrial capabilities, according to the University of the Philippines School of Economics (UPSE).

In a discussion paper released this month, UPSE economist E. Annette Balaoing-Pelkmans said the long-term value of the US-led technology initiative would depend less on the volume of investments attracted and more on whether Filipino firms, workers, suppliers, and institutions could move into higher-value segments of the semiconductor and AI industries.

The proposed hub will form part of Luzon Economic Corridor (LEC) and is expected to support investments in semiconductors, AI, advanced manufacturing, critical minerals, and digital infrastructure.

Balaoing-Pelkmans warned that the country could repeat the shortcomings of earlier export-oriented industrialization if participation in Pax Silica is limited to hosting foreign facilities without developing domestic technological capabilities.

“A central risk, in this context, is that Philippine participation in Pax Silica could reproduce precisely the same pattern of enclave development that characterized earlier phases of export-manufacturing expansion,” the paper said.

The study noted that while electronics manufacturing has been one of the country's biggest export earners for decades, Philippine participation has largely been concentrated in assembly, testing, and other lower-value activities, with limited progress in areas such as product design, proprietary technology development, innovation systems, and supplier ecosystems.

However, the paper also argued that the Philippines already possesses more technological capability than commonly assumed.

Drawing from consultations conducted under the Tatak Pinoy Strategy (TPS), Balaoing-Pelkmans said local firms have gradually expanded into more sophisticated activities.

In the semiconductor and electronics sectors, these include engineering services, advanced manufacturing process development, equipment design and fabrication, medical-device manufacturing, and specialized technical services.

“The challenge is less the total absence of capability than the absence of sufficiently coherent institutional systems capable of financing, scaling, coordinating, connecting, and sustaining these emerging pockets of technological and industrial upgrading over long periods of time,” the paper said.

Among the key obstacles identified by stakeholders were fragmented government support programs, weak coordination among agencies, financing constraints, workforce mismatches, and disruptions in government-industry collaboration.

According to the study, semiconductor and AI industries require far more coordination than traditional export manufacturing because competitiveness increasingly depends on workforce systems, research capability, supplier development, financing, digital infrastructure, and collaboration among firms, universities, industry groups, and government agencies.

The paper highlighted workforce development as one of the country's biggest challenges.

Stakeholders consulted for the study said existing education and training programs remain geared largely toward low- and medium-skilled occupations even as industries increasingly require semiconductor engineers, cloud specialists, cybersecurity experts, AI professionals, software architects, and industrial automation specialists.

The study also flagged the growing problem of technical brain drain, noting that many highly skilled Filipino engineers and technology professionals continue to find more attractive opportunities overseas.

As a result, Balaoing-Pelkmans argued that industrial policy and workforce policy should be treated as inseparable.

“Expanding technical training capacity alone may not generate sustained domestic capability accumulation unless firms and industrial ecosystems are also prepared to absorb, retain, and continuously upgrade specialized talent,” the paper said.

The study likewise identified financing as a major constraint for technology-oriented firms seeking to scale operations.

Many higher-value semiconductor, engineering, and AI-related businesses continue to face limited access to patient capital, technology financing, and commercialization support, despite operating in sectors requiring long development periods and continuous technological adaptation.

To address these gaps, the paper urged the government to use public procurement more strategically by serving as an early customer for locally developed technologies.

The study cited examples of Philippine-developed medical devices that have already passed clinical testing but remain more expensive than imported alternatives because they have not yet achieved commercial scale. Government procurement, it argued, could help bridge the gap between successful prototypes and wider market adoption.

The paper also recommended that the Philippines negotiate capability-building provisions as Pax Silica's governance framework is still being finalized.

These could include technology-transfer arrangements, local engineering participation, research collaboration, supplier-development programs, and workforce-development commitments designed to ensure Filipino companies and workers capture a greater share of value creation over time.

Balaoing-Pelkmans said Pax Silica should ultimately be viewed not merely as an investment-attraction project, but as an opportunity to strengthen the country's semiconductor, AI, software, engineering, cybersecurity, cloud-computing, financing, and supplier-development capabilities.

“The answer will not be found in the investment commitments announced at summits, but in what Filipino engineers design, what Filipino companies build, what Filipino institutions sustain, and what Filipino communities ultimately come to trust and take pride in as their own,” the paper said.

“The aspiration is not to be host to a world-class technology ecosystem, but to be its co-creator—one shaped by Filipino talent, values, and ambition as much as by the capital and technology of international partners.”