Can the Philippines become an ASEAN manufacturing hub?

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Is PEZA’s “envious” track record a sign of more manufacturing jobs to come?

A recent Investvine article on the Philippines as a manufacturing base actually brought back vivid Dickensian memories.

I knew from past discussions with key government officials and businessmen that the country’s adverse prospects for manufacturing is rooted in its high cost of power, perhaps the highest in ASEAN, and as every Filipino knows, actually self-inflicted. It is simply the cost of electrical power that is pricing us out of manufacturing.

Back in 2002, when I was then heading P&A/Ernst & Young’s Corporate Finance practice, my team was hired, together with CSFB to work on the privatisation of the TRANSCOS and the GENCOS on behalf of the Private Sector Asset & Liability Management Corp (PSALM).

You see, PSALM was formed by the 2001 Electric Power Industry Reform Act to be the state firm in charge of privatising government power assets, as well as in managing National Power Corp.’s (NPC) power plants and debt.

The idea was to sell the power generation and distribution assets for a hefty amount in order to help settle the humongous NPC debt that piled up from decades of neglect and abuse, debt that was clearly self-inflicted and alleged to have resulted from the endemic corruption and inefficiencies within NPC itself. In private hands, the assumption was that such assets would at least be run more efficiently. In public hands, the corruption-driven cost was merely passed on to the consumer, making the cost of electricity totally unfeasible for manufacturing.

But what shocked my eyes then was the level of debt already accumulated — a whopping P800 billion ($19Billion).

Table for Japanese advance party, please 

Sometime last December, I was having dinner in a Spanish restaurant in Makati’s CBD outskirts when I noticed something unusual. Perhaps, my training as a banker or a business consultant over the years have made me very perceptive of businesses, places and trends. I naturally spot when something is off, or when it’s hot, like a new fast food joint.

My family has this weekly ritual of having dinner every Sunday, which is often the slow night for non-Filipinos within the Makati CBD. Filipino families on the other hand skew dinner reservation lines on Sunday’s; it’s a very “pinoy thing” to see grandparents with grandkids eating out.

This night was unusually different. For the first time, the place was packed not by Filipino families, but by young Japanese office workers in business attire, mostly young men. One table is all Japanese when another group arrived and another, until as much as 5 tables all had varied numbers of Japanese office workers who didn’t know each other but were clearly working on weekends. So what’s my point?

From what I observed these guys were clearly the advance party, sent by HQ to conduct their feasibility studies, check locations and file a recommendation, all rushed perhaps since they were clearly working on a weekend. It’s not very different from my previous consulting job in E&Y Manila so just take my word for it when I say it’s an advance party doing rushed work that involved business in the Philippines in one form or the other. Pointedly, the Japanese don’t do any business here really except manufacturing.

What set me up to be most perceptive was the fact that just few weeks back, news of Japanese tourists getting beaten up or bullied on the streets of China over a few islands made headline news.

So for me, it is not entirely farfetched to assume that, over and above the cost of Chinese labour rising to be at par with Philippine labour costs (together with that inefficient power cost differential), violence over Senjaku Island is probably another big driver that caused Japanese manufacturing to redirect somehow to the Philippines. For in a few weeks after that Spanish dinner, Japan announced their plan to donate patrol boats to the Philippine government to help it counter Chinese aggression over Scarborough shoal.

Whether this thing about China and Japan is real or not, what is clear is that Japanese companies are making massive investments right now, expanding if not putting up new plants in economic zones. You actually can spot, if you are perceptive enough, Japanese salaried workers in bigger numbers today even in  Greenbelt mall on a weeknight.

Through the eyes of the Philippine economic zone Filipina

My thoughts here should be a lot more exciting than a few Japanese company men eating paella on a slow Sunday night. More exciting in fact, because of one person in particular, a Filipina lady who is probably the biggest hope for Philippine manufacturing.

Her name is  Lilia B. de Lima, who heads PEZA, the Philippine Economic Zone Authority. For you not in the know, it is the only place in the whole Philippines where corruption actually doesn’t exist. PEZA also employs a 24/7 one stop business office, a unique proposition in fun Philippines.

It is also the first and only government agency today that is rated ISO 9001:2008 QMS, a widely sought-after certification, being a global standard seal of good housekeeping. On top of these, De Lima also intends to get an ISO certification for “being green’ very soon. Now, how unusual is that in the Philippines. You have got to love the lady.

Lilia actually didn’t have a great start in PEZA. When she joined in 1995, she inherited what was then called the Export Processing Zone Authority (EPZA), an agency with a bloated 1,000 employee headcount. Lilia then did the unthinkable, she fired about half of the workforce despite rumblings from politicians, patrons and the well-connected. Today it employs 500 staff. Decades later, she has become irreplaceable and no sitting Philippine President ever made the mistake of relieving her from her post.

The track record of PEZA is also something to envy. From 16 economic zones with around 400 companies when she took over, De Lima has grown PEZA to 286 economic zones and counting, – strategically placed zones which are now housing more than 3,000 companies and over 800,000 skilled and semi-skilled workers. One major advantage in PEZA is you only deal with one entity, and you are free from being harassed by local politicians for business permits, etc as they have no say within  PEZA whatsoever.

The results have been phenomenal. Investment pledges and plans registered with the PEZA surged by 90% to Php74 Billion in the first months of 2013 alone, way up from Php39 Billion recorded last year. Many of PEZA’s big locators today are as varied as Sun Power Philippines which manufactures solar panels for the global market, SAMSUNG, NIDEC, various Japanese car assemblers and even Ford Philippines.

So in summarising, can Philippines really position itself as a future manufacturing hub in the ASEAN Region? My answer to that is perhaps a yes. But clearly, Lilia De Lima must stay in PEZA at all costs.

Actually, it probably wouldn’t hurt if PEZA just takes over half of the Philippines.

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Reading Time: 4 minutes

Is PEZA’s “envious” track record a sign of more manufacturing jobs to come?

A recent Investvine article on the Philippines as a manufacturing base actually brought back vivid Dickensian memories.

Reading Time: 4 minutes

bus4m
Is PEZA’s “envious” track record a sign of more manufacturing jobs to come?

A recent Investvine article on the Philippines as a manufacturing base actually brought back vivid Dickensian memories.

I knew from past discussions with key government officials and businessmen that the country’s adverse prospects for manufacturing is rooted in its high cost of power, perhaps the highest in ASEAN, and as every Filipino knows, actually self-inflicted. It is simply the cost of electrical power that is pricing us out of manufacturing.

Back in 2002, when I was then heading P&A/Ernst & Young’s Corporate Finance practice, my team was hired, together with CSFB to work on the privatisation of the TRANSCOS and the GENCOS on behalf of the Private Sector Asset & Liability Management Corp (PSALM).

You see, PSALM was formed by the 2001 Electric Power Industry Reform Act to be the state firm in charge of privatising government power assets, as well as in managing National Power Corp.’s (NPC) power plants and debt.

The idea was to sell the power generation and distribution assets for a hefty amount in order to help settle the humongous NPC debt that piled up from decades of neglect and abuse, debt that was clearly self-inflicted and alleged to have resulted from the endemic corruption and inefficiencies within NPC itself. In private hands, the assumption was that such assets would at least be run more efficiently. In public hands, the corruption-driven cost was merely passed on to the consumer, making the cost of electricity totally unfeasible for manufacturing.

But what shocked my eyes then was the level of debt already accumulated — a whopping P800 billion ($19Billion).

Table for Japanese advance party, please 

Sometime last December, I was having dinner in a Spanish restaurant in Makati’s CBD outskirts when I noticed something unusual. Perhaps, my training as a banker or a business consultant over the years have made me very perceptive of businesses, places and trends. I naturally spot when something is off, or when it’s hot, like a new fast food joint.

My family has this weekly ritual of having dinner every Sunday, which is often the slow night for non-Filipinos within the Makati CBD. Filipino families on the other hand skew dinner reservation lines on Sunday’s; it’s a very “pinoy thing” to see grandparents with grandkids eating out.

This night was unusually different. For the first time, the place was packed not by Filipino families, but by young Japanese office workers in business attire, mostly young men. One table is all Japanese when another group arrived and another, until as much as 5 tables all had varied numbers of Japanese office workers who didn’t know each other but were clearly working on weekends. So what’s my point?

From what I observed these guys were clearly the advance party, sent by HQ to conduct their feasibility studies, check locations and file a recommendation, all rushed perhaps since they were clearly working on a weekend. It’s not very different from my previous consulting job in E&Y Manila so just take my word for it when I say it’s an advance party doing rushed work that involved business in the Philippines in one form or the other. Pointedly, the Japanese don’t do any business here really except manufacturing.

What set me up to be most perceptive was the fact that just few weeks back, news of Japanese tourists getting beaten up or bullied on the streets of China over a few islands made headline news.

So for me, it is not entirely farfetched to assume that, over and above the cost of Chinese labour rising to be at par with Philippine labour costs (together with that inefficient power cost differential), violence over Senjaku Island is probably another big driver that caused Japanese manufacturing to redirect somehow to the Philippines. For in a few weeks after that Spanish dinner, Japan announced their plan to donate patrol boats to the Philippine government to help it counter Chinese aggression over Scarborough shoal.

Whether this thing about China and Japan is real or not, what is clear is that Japanese companies are making massive investments right now, expanding if not putting up new plants in economic zones. You actually can spot, if you are perceptive enough, Japanese salaried workers in bigger numbers today even in  Greenbelt mall on a weeknight.

Through the eyes of the Philippine economic zone Filipina

My thoughts here should be a lot more exciting than a few Japanese company men eating paella on a slow Sunday night. More exciting in fact, because of one person in particular, a Filipina lady who is probably the biggest hope for Philippine manufacturing.

Her name is  Lilia B. de Lima, who heads PEZA, the Philippine Economic Zone Authority. For you not in the know, it is the only place in the whole Philippines where corruption actually doesn’t exist. PEZA also employs a 24/7 one stop business office, a unique proposition in fun Philippines.

It is also the first and only government agency today that is rated ISO 9001:2008 QMS, a widely sought-after certification, being a global standard seal of good housekeeping. On top of these, De Lima also intends to get an ISO certification for “being green’ very soon. Now, how unusual is that in the Philippines. You have got to love the lady.

Lilia actually didn’t have a great start in PEZA. When she joined in 1995, she inherited what was then called the Export Processing Zone Authority (EPZA), an agency with a bloated 1,000 employee headcount. Lilia then did the unthinkable, she fired about half of the workforce despite rumblings from politicians, patrons and the well-connected. Today it employs 500 staff. Decades later, she has become irreplaceable and no sitting Philippine President ever made the mistake of relieving her from her post.

The track record of PEZA is also something to envy. From 16 economic zones with around 400 companies when she took over, De Lima has grown PEZA to 286 economic zones and counting, – strategically placed zones which are now housing more than 3,000 companies and over 800,000 skilled and semi-skilled workers. One major advantage in PEZA is you only deal with one entity, and you are free from being harassed by local politicians for business permits, etc as they have no say within  PEZA whatsoever.

The results have been phenomenal. Investment pledges and plans registered with the PEZA surged by 90% to Php74 Billion in the first months of 2013 alone, way up from Php39 Billion recorded last year. Many of PEZA’s big locators today are as varied as Sun Power Philippines which manufactures solar panels for the global market, SAMSUNG, NIDEC, various Japanese car assemblers and even Ford Philippines.

So in summarising, can Philippines really position itself as a future manufacturing hub in the ASEAN Region? My answer to that is perhaps a yes. But clearly, Lilia De Lima must stay in PEZA at all costs.

Actually, it probably wouldn’t hurt if PEZA just takes over half of the Philippines.

Do you like this post?
  • Fascinated
  • Happy
  • Sad
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