The Philippines Export Development Plan: Addressing Obstacles to Trade
By: Dezan Shira & Associates
Editor: George Llewellyn-Jones
Seeking to maximize its position within ASEAN and make up for poor economic performance in recent quarters, the Philippines has implemented stimulus measures aimed at readjusting its export sector. The most significant actions that have been implemented or planned to date are outlined in the recently passed Philippine Export Development Plan (PEDP). For those currently considering the Philippines as a destination for foreign investment, the success of reforms will likely play a significant role in the island nation’s business landscape in the coming months.
Lagging Economic Growth as an Impetus for Reform
A significant catalyst behind the island nation’s drive for reform stems from lagging economic conditions found within the country. In addition to GDP growth slowing to 5.8 percent in 2015 – a far cry from the government’s 8 percent target – exports have also posted significant declines. January 2016 alone saw sales to overseas markets fall 3.9 percent compared to a year prior.
The slowdown in exports and its downstream impact on economic growth has largely come as a result of lagging international consumption and reduced demand on the part of China – the region’s main consumer. Recently however, concerns have also been raised by the Joint Foreign Chambers of the Philippines over exaggerated regulation of foreign investment. Both the Joint Foreign Chamber and PEDP highlight over-regulation as a critical impediment to achieving optimal export diversification.
With prevalent economic conditions set to continue for some time, the Philippines has increasingly found itself under pressure from its ASEAN counterparts – many of whom are making significant gains in comparable export sectors. To address this issue, the Philippine Export Development Plan (PEDP) has been touted as a solution that will fully integrate the Philippines into global production chains and assist in sectors that contribute significantly to exports, have high growth potential, or for which the country is competitive and has a comparative advantage.
Areas Slated for Improvement
The Export Development Council has identified a number of key domestic challenges for exports and set out objectives to improve the operating conditions of domestic and foreign investors alike. The first of these challenges concerns the lack of innovation within the Philippine economy. To resolve existing shortcomings, the PEDP aims to facilitate the diversification of accessible export markets, and promises to identify and develop export capabilities in products where global market demand is fast growing. The plans also highlights the importance of addressing bottlenecks that currently undermine the competitiveness of certain exports.
A secondary area of concern outlined under the PEDP is that of a disjointed effort to promote the Philippine economy as a destination for foreign investment. The lack of a coherent message to foreign investors is increasingly seen as a serious shortcoming in marketing. As a solution, the PEDP includes specific plans to create an export and investment promotion campaign to harmonize the country’s image as an attractive investment destination and stimulate FDI, and through this, boost growth.
Seen as key to this initiative, and economic growth at large, is enhancing the Philippines’ stature as a knowledge based economy. The PEDP outlines several objectives aimed at improving the flow of information between institutions in order to showcase the Philippines’ advantage in this field . In addition to creating a more cohesive national marketing campaign, any gains achieved are likely to have a positive impact on the research and technology development initiative through the cultivation of national innovation.
Additional challenges outlined under the PEDP include high corruption, low ease of doing business scores, and the controversial 60-40 constitutional law – limiting foreign ownership of businesses to 40 per cent.
Opportunities for Investment
Within the Philippines Export Development Plan, the following industries have been designated as integral to export growth and are likely to receive the lion’s share of governmental stimulus over the coming months:
- processed food and beverages,
- coconut oil,
- motor vehicle parts, and
- computer and information services and other business services including Information Technology Business Process Management (IT-BPM).
By far the largest industry targeted by the PEDP is electronics, which accounted for 41 per cent of total Philippine exports in 2013. Not only is the electronics industry a huge contributor to the Philippine economy, it has also endured global economic volatility well and continues to attract investment despite slowing regional growth. Recent entrants to the Philippine market include Seiko Epson, which invested $103 million to build a new inkjet printer plant in Batangas province, due to open in 2017. As a low cost alternative to increasingly expensive Chinese production, the prospects for the industry are likely to remain bright in the near to medium term.
To further differentiate itself from other ASEAN markets, Filipino officials intend to ease customs compliance for exporters such as Seiko Epson to ensure procedures are streamlined, transparent and efficient. Legislation has also been passed by the Bureau of Customs to allow for investments in upgrading IT systems and modernizing the handling of business transactions.
Digitization will ease the full implementation of the Cabotage law – which allows the co-loading of foreign cargoes by foreign vessels – and will likely further reducing shipping costs and enhance the competitiveness of international exporters. Ship owners and operators will also be able to reap the benefits of the liberalizations to the archipelago’s maritime industry.
With a large English-speaking population, strategic regional position and a relatively liberalized economy, the end goal of current reforms is to position the Philippines as a gateway for US and EU investors into the ASEAN Economic Community. While reforms signal a move in the right direction, challenges remain over the manner in which the Philippine Export Development Plan will be set into motion.
In its current form, the PEDP requires significant coordination between institutions to implement policy objectives and achieve its ambitious exports target of $100 billion in 2017. The effectiveness with which the Philippines can realize these goals will ultimately determine its ability to catch up with its ASEAN neighbors and tap into shifting production dynamics within the region. For those considering investment within the Philippines, the progress of reforms should be followed closely to ensure that investments can be maximized.
For up to date information on PEDP published by the Philippine Export Development Council Please Click here
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