Charged Up Exports

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The Semiconductor and Electronics Industries in the Philippines, Inc (SEIPI) stated on October 9 that it expects to earn $32bn this year, up from last year's total of $29.6bn. While this is not as high as originally anticipated, global demand has been strong and appears set to continue.

Originally SEIPI had anticipated growth of 10% for the year but due to power costs and the rising value of the peso, the projection target was revised to 5% to 8%.

"Global growth is at 1.8% to 5%, 6% maximum for the year. In the Philippines, we narrowed the band. However, demand is there," SEIPI Chairman Arthur J Young told local media.

SEIPI President Ernesto B Santiago agreed, "There's still strong demand for these segments. We just adjusted the targets to be more realistic. But 8% is attainable."

Young added that growth would be motivated by a global demand for consumer electronics, specifically for the personal computer market.

Worldwide PC shipments hit 61.1m units during the second quarter of 2007, an 11.7% increase from the same period last year, according to industry analysts.

The National Statistics Office reported that total exports for the Philippines from January to August this year were $32.3bn, up 4.8% from the same period last year. Electronic products represented over 62% of that total, earning $20.5bn. Semiconductors are clearly the most important output of the country's electronics industry, accounting for about three quarters of this sector's export value. For the January to August time period semi-conductor exports were up 6.8%.

While the numbers seem to be going in the right direction, there is much concern over the sustainability of this trend. Industry experts predict that $150m of additional investments per year within the semiconductor industry will be lost if the Japan-Philippines Economic Partnership Agreement (JPEPA) is not ratified. Although the president is in support of the agreement there has been much opposition from the senate, which is poised to block its progress.

Senators, including, Miriam Santiago are still unclear as to the benefits of the JPEPA.

"Our economic relations with Japan are already proceeding on an even field, what will JPEPA add to the present economic relationship, considering all the concessions that we are making for Japan?" Santiago told local media.

Supporters of the partnership agreement sent a joint manifesto earlier this week to the senate in order to sway a few more votes in their direction. It was signed by various members of the business, labour and private sectors as well as association leaders, including SEIPI's Santiago.

"If the Philippines is not part of the bilateral trade agreement, we will not be on the radar screens of these companies and we will not be an investment destination," he said.

Sergio R Ortiz-Luis Jr, president of the Philippine Exporters Confederation, said that without JPEPA, Japan could impose higher duties on products from the Philippines than it does for other countries that have economic partnership agreements with Japan.

Currently, Indonesia, Malaysia and Singapore have such agreements with Japan while Thailand is scheduled to sign one next month.

Ortiz-Luis added that some Japanese companies have already opted not to settle in the Philippines and have located elsewhere as a result of the uncertainty regarding the agreement.

Alberto A Lim, executive director of the Makati Business Club, one of the signatories of the manifesto, told OBG, "We have to be a part of this process. We cannot leave ourselves out of this co-operation. We will lose a lot of benefits to be gained in this agreement."

Currently, Japan is the second-largest export market for the Philippines at 14%. The US is first at 18%.

The JPEPA is seen as a countermeasure to another developing challenge faced by the export market. The appreciation of the peso has also made it very difficult for exporters who price their goods in dollars as a strong peso diminishes their earnings. On January 1 the peso was trading at 49.146 against the dollar and is now at 44.367.

Exporters have been asking the central bank to intervene and slow the rise of the peso. The bank has publicly maintained its policy of allowing market forces to dictate the level of the exchange rate and instead has urged exporters to hedge against volatility by tapping forward contracts.

Despite the uncertainty of the JPEPA and a rising peso, over $1bn will be invested this year in the electronics industry. A large slice of the investment inflow will come from US-based Texas Instruments, which will contribute $400m as it expands its assembly and test operations in the country.

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