Sustained Philippine GDP boom dependent on manufacturing

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timthumb.phpAs Philippine President Benigno Aquino III preps for his mid-term State of the Nation Address, the grand majority of the archipelagic country, despite breakneck 7.8 per cent Q1 GDP growth, is likely to be more stuck stewing over the jobless situation.

The Philippines has, in an affront to the conventional developmental model, established a modern services sector before a manufacturing belt, skipping past the exponentially more labour-intensive jobs born of industry for a narrowed selection of outsourced office work. But without a galvanised manufacturing industry, the longevity of the Philippines’ economic success is being put into question.

“The growth here might not be sustainable if you don’t have a manufacturing industry,” President Dr Dan Lachica of the Semiconductor and Electronics Industries in the Philippines, Inc (SEIPI) told Inside Investor on July 19.

A current conspicuous trend poses the first hurdle for the country. The unemployment rate in the Philippines worsened in April, rising to 7.5 per cent, higher than the 7.1 per cent registered in January and 6.9 per cent in April 2012, according to national statistics.

The tackle the growing jobless rate, Aquino’s administration will have to come down from its pedestal to seek out ways to lighten woefully high electricity rates imposed on its manufacturing industry. The cost of power in the Philippines, the only ASEAN nation with energy subsidies, is higher than Singapore and Japan.

But there are not fast solutions on this front. As the Philippines’ booms, it ironically hinders its own industry, pushing up demand for energy in a country where the supply is inadequate, thus making electricity more expensive.

“We need new power plants to reach adequate supply and this is at least three years down the road,” Lachica warned.

The current law of the land isn’t helping much either.

“Big utilities companies buy from retail electricity suppliers and guarantee demand for a certain number of years. So instead of retail competition, you could have virtual monopoly. The market allows this, so they aren’t doing anything illegal,” Lachica said.

The toll of energy costs on the manufacturing industry has been palpable, with a number of prospective investors turning their head on the Philippines because of this reason, SEIPI has noted.

“The manufacturing sector has been challenged. Three years ago, we were at $31 billion in investment; last year that was $22.6 billon,” Lachica observed.

Roads around the energy challenge have been devised. Special economic zones that offer discounted electricity projects are already well up and running, housing major Japanese firms from Cannon to Mitsumi, the largest manufacturing employer in the Philippines, with 7,000 workers.

Government agencies have established programmes to gear up competitiveness but adding value to the sector through increased R&D, offering subsidies for special training of workers. SEIPI also is battling down this down, contacting top academies to ensure that relevant training starts in the halls of university and not after graduation.

The ambitions are grand, but it could all be too little too late to maintain the Philippines’ captivating new economic status as the region’s top grower.

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Reading Time: 2 minutes

As Philippine President Benigno Aquino III preps for his mid-term State of the Nation Address, the grand majority of the archipelagic country, despite breakneck 7.8 per cent Q1 GDP growth, is likely to be more stuck stewing over the jobless situation.

Reading Time: 2 minutes

timthumb.phpAs Philippine President Benigno Aquino III preps for his mid-term State of the Nation Address, the grand majority of the archipelagic country, despite breakneck 7.8 per cent Q1 GDP growth, is likely to be more stuck stewing over the jobless situation.

The Philippines has, in an affront to the conventional developmental model, established a modern services sector before a manufacturing belt, skipping past the exponentially more labour-intensive jobs born of industry for a narrowed selection of outsourced office work. But without a galvanised manufacturing industry, the longevity of the Philippines’ economic success is being put into question.

“The growth here might not be sustainable if you don’t have a manufacturing industry,” President Dr Dan Lachica of the Semiconductor and Electronics Industries in the Philippines, Inc (SEIPI) told Inside Investor on July 19.

A current conspicuous trend poses the first hurdle for the country. The unemployment rate in the Philippines worsened in April, rising to 7.5 per cent, higher than the 7.1 per cent registered in January and 6.9 per cent in April 2012, according to national statistics.

The tackle the growing jobless rate, Aquino’s administration will have to come down from its pedestal to seek out ways to lighten woefully high electricity rates imposed on its manufacturing industry. The cost of power in the Philippines, the only ASEAN nation with energy subsidies, is higher than Singapore and Japan.

But there are not fast solutions on this front. As the Philippines’ booms, it ironically hinders its own industry, pushing up demand for energy in a country where the supply is inadequate, thus making electricity more expensive.

“We need new power plants to reach adequate supply and this is at least three years down the road,” Lachica warned.

The current law of the land isn’t helping much either.

“Big utilities companies buy from retail electricity suppliers and guarantee demand for a certain number of years. So instead of retail competition, you could have virtual monopoly. The market allows this, so they aren’t doing anything illegal,” Lachica said.

The toll of energy costs on the manufacturing industry has been palpable, with a number of prospective investors turning their head on the Philippines because of this reason, SEIPI has noted.

“The manufacturing sector has been challenged. Three years ago, we were at $31 billion in investment; last year that was $22.6 billon,” Lachica observed.

Roads around the energy challenge have been devised. Special economic zones that offer discounted electricity projects are already well up and running, housing major Japanese firms from Cannon to Mitsumi, the largest manufacturing employer in the Philippines, with 7,000 workers.

Government agencies have established programmes to gear up competitiveness but adding value to the sector through increased R&D, offering subsidies for special training of workers. SEIPI also is battling down this down, contacting top academies to ensure that relevant training starts in the halls of university and not after graduation.

The ambitions are grand, but it could all be too little too late to maintain the Philippines’ captivating new economic status as the region’s top grower.

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