Fourth of a series
Philippine trade officials were facing tough times when President Aquino assumed office in 2010.
They said wooing investors during roadshows, business seminars and trade talks held overseas at the start of the Aquino administration attracted only modest numbers of participants.
Sometimes foreign investors would raise doubts about the viability of the Philippines as a market and an investment destination.
But the economic and governance reforms implemented by the outgoing administration changed the perception of the global investing community about the Philippines, which has now become one of the most viable, attractive destinations in the Asean region.
Former Trade Secretary Gregory L. Domingo said earlier that good governance placed the Philippines in the economic map. Over the last five years, he said strides made in good governance increased the country’s investment grade level by two notches, as reported by credit rating agencies Fitch, Moody’s Standard & Poor’s.
This put the Philippines in a sweet spot that increased investments and boosted the country’s economic performance to record levels—a growth investors are hoping to be sustained over the long term.
These days, foreign investors are approaching trade officials, seeking to be part of the country’s economic success story—instead of the other way around back in 2010.
The Department of Trade and Industry (DTI) was believed to have played a key role in enabling the country to achieve its stellar status today.
Ease of doing business
The trade department eased and speeded up processing and cut the costs of doing business in the Philippines through various projects.
These included the Electronic Business Name Registration System, launched in October 2010; Philippine Business Registry or PBR, electronic payment scheme for business registration and collaborations and partnerships between the DTI and other government agencies to streamline processes, curb red tape and eliminate redundant filings.
“Streamlining the processes has always been a top priority of the government. We have been making significant progress in our commitment to reduce the process—from 16 steps and 29 days in 2015, to six steps and eight days early in 2016, and further to three steps and three days,” incumbent Trade Secretary Adrian S. Cristobal Jr. said in May this year.
“We are committed to support the micro, small and medium sized enterprises to make them globally competitive. An important first step is to make it easy for them to set up and comply with government requirements,” Cristobal also said.
These developments were reflected in the country’s rise in rankings in different global competitiveness indices, as monitored by the National Competitiveness Council (NCC).
The Philippines has jumped 45 notches in the International Finance Corp.’s Doing Business Report and The Heritage Foundation’s Economic Freedom Index since 2011; 39 places up in the Corruption Perception Index; and 38 places in the World Economic Forum’s Global Competitiveness Report.
Among the key areas where the country has seen “upgrades” involved resolving insurgency (+100 notches); dealing with construction permits (+57); getting electricity (+35 ); and getting credit (+19).
Also part of the initiatives of DTI and the NCC was to repeal, delist, consolidate or amend department issuances and regulations considered outdated, redundant or contradictory to help eliminate red tape and curb corruption.
Called Project Repeal, the initiative is eventually expected to reduce the cost of compliance for both businesses and consumers, generate significant savings for the economy, and further boost the competitiveness of local industries.
The NCC has already identified 17,300 department issuances by eight government agencies.
Manufacturing resurgence
The DTI also took steps to revitalize the country’s manufacturing industry, which has been lagging behind that of other countries in the region. One of the agency’s most notable achievements was the Comprehensive Automotive Resurgence Strategy (CARS) program, which dangles a total of P27 billion worth of incentives for automotive assemblers that can produce at least 200,000 units of a single model over a six-year period.
The idea was to provide a stimulus package that would make vehicle production here more economically feasible against established manufacturing hubs like Thailand. This scheme was also expected to benefit automotive parts makers and other related industries, thus giving the whole manufacturing that much needed boost to be competitive.
Trade Assistant Secretary Rafaelita M. Aldaba had pointed out that a car had over 30,000 parts and its construction was dependent on metal, chemical, plastic, textile, rubber, glass, steel, electrical and other manufacturing sub sectors.
Through inter-industry and supply chain linkages, auto manufacturing could have a large multiplier effect in an economy because any expansion in the automotive industry would drive growth in feeder industries, she explained.
Last week the Board of Investments approved the applications of Toyota Motor Philippines Corp. and Mitsubishi Motors Philippines Corp., which will collectively invest an initial P8 billion to improve their respective production lines.
The Board of Investments (BOI) said the planned investments would create some 14,000 new jobs and generate some P8 billion in salaries and wages. Automotive parts makers that would be working with the two companies could generate over P18 billion in fresh investments for the country.
The BOI expects total government revenues under the highly ambitious CARS Program to reach P408 billion in terms of import duties and taxes while direct purchases of raw materials for automotive parts making are seen to hit P63 billion.
At the root of the CARS program was another initiative DTI jumpstarted several years back. Through the roadmapping initiative, stakeholders and the government jointly identified different constraints each industry faced, as well as the proposed targets, and laid out a strategy plan on how the public and private sector could collaborate to boost the competitiveness of these industries. There are 40 existing roadmaps and more are being developed.
The government also set out to craft a Manufacturing Resurgence Program, which has a budget of P289 billion this year, and the Comprehensive National Industrial Strategy (CNIS).
The CNIS is a blueprint for the overall industrial development strategy that integrates the country’s agriculture, manufacturing and services sectors. It initially focused on manufacturing, infrastructure and logistics, tourism, information technology and business process management (IT-BPM), and agribusiness.
Proof of the government’s success in boosting manufacturing was the fact that it was growing faster than services.
Roberto F. Batungbacal of the American Chamber of Commerce and Industry’s manufacturing committee, said early this year that the Philippine manufacturing output had dramatically increased, growing 52 percent in the last five years, an annual average of 8.8 percent as of end 2015.
This, the fastest growth that the country had seen for this sector in decades, owed largely to the growing competitiveness of local enterprises, Batungbacal said.
Boracay agenda
With these developments, the Philippines is now positioning itself not only as a global services site, but also a manufacturing hub strategically located in one of the most promising growth regions.
The Philippines is also said to be well poised to cash in on different opportunities arising from regional trade agreements, as it has a young population, skilled and English speaking labor pool, and has preferential trade agreements via the generalized scheme of preferences (GSP) with the United States and the European Union (EU).
Hence, DTI wants to ensure that not only large corporations that will benefit from these developments but also micro, small and medium sized enterprises (MSMEs), which accounted for more than 99 percent of all registered business in the Philippines.
The goal is to enable MSMEs to become significant players in the international market and the global value and supply chains.
When the country hosted the Asia Pacific Economic Cooperation meetings last year, DTI expressed its intention to put the MSMEs at the front and center of all trade agenda, saying this sector would be the next critical growth drivers of global trade.
One of the most successful propositions was the Boracay Action Agenda to Globalize MSMEs, which was adopted by the leaders of Pacific Rim economies in November last year.
This agenda was an action-oriented initiative geared toward addressing the barriers faced by MSMEs in international trade. Priority areas for cooperation and action were identified as trade facilitation, e-commerce, financing and institutional support.
Domingo said it was all about “putting the human side of the equation at the forefront of the economic agenda.” He also said the “quality of economic growth is as important as the quantitative growth. [E]veryone matters whether it’s the poor, the youth, the underprivileged, the handicapped, the micro and small businesses.”
Free trade agreements
To further take advantage of opportunities in the global marketplace, DTI has also taken a more aggressive stance in pursuing bilateral trade agreements, the most successful of which was the signing of a free trade agreement (FTA) with the four member economies of the European Free Trade Association (Efta).
While Switzerland, Iceland, Liechtenstein and Norway are small in size, they are rich countries that can be sources of investments and technology for the Philippines.
The Philippines has also started negotiations for an FTA with the 28-member EU; has expressed interest in joining the Trans-Pacific Partnership Agreement (TPP), which has the US, one of the country’s biggest trade partners, as a member; and is currently in negotiations, as a member of the Asean, with six other economies for a separate ambitious agreement called the Regional Comprehensive Economic Partnership (RCEP).
Long list
But much more needs to be done if the long wish list of investors is to be granted.
While the Aquino administration enabled a huge economic transformation of the Philippines, several issues have to be addressed, sustained or resolved, particularly those concerning infrastructure, corruption, peace and order, and agriculture, among others.
For the local and foreign business communities, it is no longer about who will occupy that seat of power in Malacañang in the next six years. The biggest concern is how the next administration will be able to continue the economic reforms and sustain gains achieved under President Aquino.
What is at stake, for investors at least, is the continuity of the reforms to chart a more positive direction for the economy over the medium term.
Franz Jessen, ambassador of the European Union Delegation to the Philippines, said in May they were hoping the next administration would consider further opening up the Philippine economy to create a more level playing field between domestic economic players and European firms; ease foreign ownership restrictions; honor the sanctity of contracts; and ensure security of investors. Political stability is also an important consideration for many investors.
George T. Barcelon, president of the Philippine Chamber of Commerce and Industry, said earlier they hoped the next president would address the issues the group identified and which it dubbed as Giant Steps—acronym for good governance, infrastructure, agriculture, new era of manufacturing, tourism (Giant); and science, technology, education and people skills (Steps).