Core
Business World, 25 March 2014

 

Philippine exports have been moribund since 2007. Arguably, one of the reasons why the economy is unable to absorb the swelling work force is a struggling exports sector. For a labor surplus economy, it is in the interest of policy makers to see a rebound of Philippine exports so that more decent jobs will be created. But is an exports recovery plan in place?

A comparison with other ASEAN-6 economies shows that Philippine exports have grown the least during the period 2010 to 2013 — from $51.5 billion to $54 billion, or by a measly 4.9%.

During the same period, exports by Singapore, the top exporting country among the ASEAN-6 countries, have grown by 17%. Thailand’s exports grew 17.7%, Malaysia’s by 15.1%, and Indonesia’s expanded by 15.7%.

Vietnam, the newest member of the ASEAN-6 bloc, has succeeded in expanding its exports by 83.4% from 2010 to 2013. Despite a depressed and slow recovering world economy, its exports grew from $72.2 billion in 2010 to $132.4 billion in 2013, or by an impressive 83.4%.

exports

What’s happening to Philippine exports? Before the recent and still ongoing global crisis, Philippine exports had relied heavily on exports of electronic products. That sector has shrunk from about two-thirds of Philippine exports then to about a third now.

It would be unreasonable to expect that electronics exports will return to the old glory days in the foreseeable future.

It would also be unreasonable to expect that agriculture exports would pick up in the near term. The agricultural sector has been the laggard of all three sectors. Public infrastructure in agriculture is lacking due to a failure to provide enough in the budget, and what little has been provided has been lost through corruption. The sector suffers from declining productivity and consequently is not competitive with its ASEAN counterparts.

The industries that hold a lot of promise as sources of growth are mining and manufacturing. But for the moment, forget about mining. The Aquino III administration has yet to resolve a lot of issues (for example, taxation and environmental concerns) in the sector, and an immediate turnaround is highly unlikely.

Manufacturing has a lot of potential. First, many foreign firms operating in China are looking for alternative production sites in the region. Second, the unresolved and continuing political crisis in Thailand is a major push for foreign firms in Thailand to relocate to other places in the region, including the Philippines.

But then again, many of these firms may not necessarily be attracted to locate in the Philippines because of its many negative factors. For one, its public infrastructure is crumbling while energy costs are extremely high.

In addition, potential foreign investors in manufacturing will face the high cost of doing business, an unattractive tax regime, and the lack of policy consistency. The latter includes the tendency of new political leaders not to honor contracts entered into by the outgoing ones.

Restoring Philippine exports growth faces formidable odds. But what makes the task even more challenging is that the window of opportunity for reducing the odds is closing fast.

Expectedly, many investors might choose to wait on the sidelines until the uncertainty as to who might be Mr. Aquino’s successor is resolved.

Foreign investors who are thinking of investing long-term capital into the country are expected to ask the following questions. Will the incoming political leaders honor contracts entered into by the outgoing administration? At what point in the future will the poor state of public infrastructure be addressed and how will the massive infrastructure spending be financed?