The Philippines and the Economy
The Philippines: General Economy
and Export Industry
The Philippine economy grew 7.2% in 2013, notching the second fastest increase in Asia after China. The growth is attributed to the expansion of investment and manufacturing as well as the strong performance of consumption and services which together helped offset the impact of a string of natural disasters throughout the year. Amid such robust performance, the Philippines has been hailed by many as the next economic tiger of Asia. It has enjoyed a string of upgrades in recent years from credit raters recognizing the country’s improving fundamentals. On 27 March 2013, Fitch Ratings upgraded the Philippines’ credit rating to BBB-, giving the country its first ever investment grade. This was followed by similar upgrades from Standard & Poor’s (S&P), Japan Credit Agency, and Moody’s Investor Service in the same year. S&P has since raised the country’s rating a notch higher to BBB, noting in May 2014 the ongoing reforms in the Philippines.
Consumer spending, Overseas Filipino Workers (OFW) remittances, and the offshoring and outsourcing sector have been consistently driving Philippine economic growth. In 2012, government spending accelerated and complemented consumer spending. Public investment rebounded and led the resurgence in capital formation.
Other sectors such as transport, trade, banking, and other services revved up alongside the growth of business process outsourcing (BPO). Finally, exports of commodities other than electronics and semiconductors improved.
The National Capital Region continues to be the leading growth area in terms of population, residential projects and commercial projects. Cebu in the Visayas also appears in the top three in all three lists. Negros Occidental in the Visayas and Cavite and Bulacan in Luzon complete the top five in population growth.
Cavite, Laguna and Rizal – all in Luzon – complete the top five in the residential projects list. Aklan in the Visayas, Pampanga in Luzon and Davao del Sur in Mindanao complete the top five in the commercial projects list.
Philippine merchandise exports hit a record high of USD53.98 billion in 2013. This turnaround contributed to the higher growth rate of the economy. The key markets for both exports and imports are Japan, China, USA, Singapore, and Korea.
Amid continued economic growth, the unemployment rate fell to 6.5% as of October 2013, slightly lower by 0.3 percentage point from the same period the year prior.
The latest figures from the Commission on Higher Education website show that accounting and business administration, education, engineering, and medical and allied courses consistently produce the highest number of graduates. The number of information and communications technology (ICT) professionals is increasing together with the growth of the ICT industry.Export Performance: Overview
The past three years witnessed the rebound of Philippine exports from a sharp fall in 2009 caused by the global financial crisis. This gives positive signs that the sector would sustain its growth momentum in at least the next two years, as the risk of another global economic downturn recedes and demand in traditional markets recovers.
In recent years, the gap between actual and target exports is driven entirely by goods. Services exports have exceeded their targets since 2011, but this was not enough to offset the weak performance of goods, which accounts for 72% of total exports.
By any measure, the Philippines has been lagging behind its neighbors in export performance. In 2012, the country’s export of goods and services is only a quarter of Thailand’s, 53% of Vietnam’s and nearly just a third of Indonesia’s. Between 2006 and 2012, Philippine exports grew more slowly at 5.2% annually, compared to the double-digit growth of Vietnam (18.5%), Indonesia (11.1%) and Thailand (10.3%). Moreover, Philippine exports contributed substantially less to national income (GDP) than exports of other ASEAN economies to their respective national incomes. The contribution of exports to GDP is about 57% in Malaysia, 43% in Thailand, and 41% in Vietnam, against only 19% in the Philippines.
A number of factors can explain the weaker performance of Philippine exports relative to exports of its neighbors. The trade competitiveness map of the Philippines reveals why growth has been constrained.
The global demand for more than a quarter of goods and services that the Philippine exported in 2013 has been growing slower than world trade; about half of exported goods and services have declining market demand. The products where the country has comparative advantage are concentrated in slow growing and declining markets. And in few products where market demand is growing fast, Philippine producers have not kept pace with their rivals. As a result, between 2006 and 2013, the Philippines conceded some of its market shares in 19 of 60 goods clusters and in 6 of 11 services groups.
The Philippine Development Plan (PDP) advocates intervention for sectors that contribute significantly to exports, have high growth potential, and where the country is competitive and has comparative advantage. It is however difficult to find sectors that meet all criteria as global market demand for many products where the country has comparative advantage is either stagnating or declining. Hence, most products that are exported in significant volumes have low growth potentials, while exports of products with high growth potentials are still nascent and relatively small. To provide for those that account large in total exports, while exploiting the opportunities of fast growing markets, intervention in the next three years is to be focused on two groups. The so-called key export sectors meet the high value and comparative advantage criteria, while the emerging sectors satisfy the high growth and competitiveness criteria.
As intervention is more effective when focused and comprehensive, the present plan provides each selected sector a package of support that addresses their vulnerabilities and strengthens their capacity in meeting the challenges of the global market. The package consists of business advice on sector-specific global value chain, investment and marketing promotion, business matching, training and capacity building, access to finance, and support for innovation, product development and design. More specific sector interventions are provided in the three-year rolling Philippine Export Development Plan (PEDP).
While each industry may have peculiar requirements, there are constraints to export growth that bind all, albeit perhaps in varying degrees. These common barriers to trade require new measures and policy reforms with broad scope and wide applications.
Key and Emerging Sectors
Emerging sectors consist of eight industries, namely: chemicals, control and instrumentation, marine and aquaculture, medical devices, organic and natural products, activated carbon, metal components and electrical equipment. Their common feature is their exports have grown faster than world demand even if they were not among past export winners. Consequently, the Philippines share in the world market for these products has increased, albeit still insignificant. The emerging sectors accounted for just about one-fifth of total exports (21.5%) in 2013, but with focused intervention, their contributions to total export are expected to grow more substantially in the coming years.
To attain such high growth performance, non-declining exports must grow annually at 1% above their seven-year (2006-2013) trend and declining exports must remain at 2013 levels. This is not an easy feat considering that the average annual growth of exports is just about 5% during the period and the growth pattern has always been rugged rather than smooth and continuous.
Combined merchandise exports for the first five months of 2015 registered a 5.0 percent decrease from $24.772 billion in 2014 to $23.526 billion in same period of 2015.
Commodities exported to ASEAN member countries comprised 14.7 percent of the total exports in May 2015 and was valued at $718.01 million. This registered a decrease of 21.3 percent from $912.16 million posted in same month a year ago.
Exports to European Union member countries, with 11.8 percent share to total merchandise exports amounted to $575.99 million. It dropped by 4.2 percent from $601.44 million recorded in May 2014 (Table 3a).
For the details, go to https://psa.gov.ph/content/merchandise-exports-performance-may-2015.
The graph below shows the annual export performance:
Foreign direct investment (FDI) in the Philippines increased 20% in 2013, a marked development for the Philippines, whose foreign investments had lagged behind other Asian countries. The growth in FDI is expected to continue, as a result of the Philippine economy’s upgrade into investment grade territory.
The agriculture sector posted 1.15% growth in 2013 as increases in output of livestock, poultry, and fisheries throughout the year helped offset damage caused by Typhoon Haiyan in the fourth quarter.
The Philippines at a Glance
Land area: 300,000 sq. km
Population: 107,668,231 (July 2014 est.)
Form of government: Constitutional Republic, Unitary presidential
Independence Day: June 12
Currency: Philippine Peso (PhP) 1 USD = 44.487 PhP; 1 Japanese Yen JPY = 0.434 PhP; 1 British Pound GBP = 74.711 PhP; 1 Chinese Yuan CNY = 7.147 PhP; 1 EUR = 61.441 PhP; 1 HKD = 5.737 PhP exchange rates as of 21 April 2014)*
GDP: USD454.3 billion (PPP, 2013)
OFW remittances: USD 25.1 (2013)
Cost of power (industrial): Distribution charge (per kw) PhP281.84 (USD6.82)
Source: Manila Electric Railroad and Light Company (Meralco) www.meralco.com.ph, February 2014
Cost of Telecommunication (Business):
International Calls - PLDT Rates: ASEAN/Hongkong/Japan/Macao/South Korea USD0.15/min.
Australia/New Zealand/USA/Canada/France Germany/Italy/Spain/U.K./China/India Kuwait / UAE / Bahrain / Saudi Arabia USD.040/min.
Source: Philippine Long Distance Telephone Company (PLDT) http://www.pldt.com.ph
Monthly cost of office rental (Makati Central Business District) for 2013:
Average Class A Net Rent - PhP915 per sq.m. (USD22.29)
Source: Global Office 2013 Outlook, Colliers International, 2013
Principal exports: semiconductors and electronic products, transport equipment, automobile parts, textiles and garments, wheat and animal feeds, coconut oil, copper products, petroleum products and fruits.
Principal imports: mineral fuels, lubricants, dairy products, iron, steel, organic and inorganic chemicals, telecommunications equipment and electrical machinery, electronic products, plastics, industrial machinery and equipment, raw and semi-processed materials for the manufacture of semiconductors, transport equipment, and cereals and cereal preparations
Source: SGV & Co. - http://www.sgv.ph/wp-content/uploads/2015/04/DBPhil-2014-English-A4.pdf
Upcoming EventsImport Documentation Seminar
A seminar on Import and Export Procedures on Customs Common Bonded Warehouse (CCBW).