Export growth continues on a strong trajectory in the Philippines

Led by strong domestic demand and growth in export markets, the Philippines’ industrial sector is slowly but surely establishing itself as a rising player in the regional manufacturing arena. The country’s large and skilled workforce and 100m-strong domestic market continue to draw both foreign and domestic firms to set up shop, while trade agreements and the Philippines’ geographical position – near many of the region’s rising and established economic powers – provides ample opportunity for exportation.

Capitalising on these strengths, the industrial sector, which includes manufacturing, mining and quarrying, electricity and water utilities, and construction, contributed 33.5% to the country’s total GDP at constant prices in 2015, up from 32.9% in 2013, according to data released by the central bank, Bangko Sentral ng Philipinas (BSP). The manufacturing sub-sector continues to drive growth, with a contribution of 23.2% of GDP in 2015, up from 22.8% two years before. Manufacturing easily outweighs all of the service sector segments, with the contribution of trade and repair of motor vehicles, motorcycles, and personal and household goods in second place at 16.7% of GDP, alongside real estate, renting and business activities (11.4%), other services (10.2%) and agriculture, hunting, forestry and fishing (9.5%).

Sector Growth

The manufacturing sector grew by around 8% in 2014, on the back of the continued expansion of the top-five performing subsectors. According to BSP’s most recent annual report, the strongest growth was tallied by the beverage industry, which posted an impressive 25.1% expansion in 2014, with furniture and fixture producers ranking a close second with 24.8% growth. Further behind was food manufacturing, which grew by 6.8%, followed by radio, television and communication equipment and apparatus manufacturers (5.3%), and chemical and chemical products (3.3%). All of these top performers are geared mainly to supplying domestic markets, with only the electronics subsector present as a major export commodity. This reflects a long-standing trend for the majority of manufacturing to be geared towards serving the domestic population, which is the second-most populous in South-east Asia, with only a few specialised industries focusing on export markets. This is due, in large part, to higher production and logistics costs relative to other regional competitors. However, despite putting in a strong performance in 2014, manufacturing growth rates contracted in 2015, recording 5.7% for the year, according to the Philippine Statistics Authority (PSA).

Overall, food manufacturing is by far the strongest manufacturing subset in terms of value-added. The subsector accounts for approximately one half of all value-added manufacturing activity in the country – a total of P1.8trn ($40bn) – posting P790.8bn ($17.5bn) gross value-added (GVA) at current prices in the first three quarters of 2015. Radio, television and communication equipment and apparatus ranked a distant second with P232.88bn ($5.2bn) in GVA. These segments were followed by chemicals and chemical products at P197.15bn ($4.4bn), petroleum and other fuel products at P93.11bn ($2.1bn), and beverage industries at P77.04bn ($1.7bn). As a whole, the manufacturing industry produced P1.67trn ($37.1bn), at constant 2000 prices, in gross national income (GNI) for 2014, according to the BSP, exhibiting stable ongoing growth trends and building upon the P1.54trn ($34.2bn) of GNI recorded in 2013 and P1.40trn ($31.1bn) the previous year.


Unlike many of the naturally resource-rich nations in South-east Asia, the Philippines remains highly dependent upon its manufacturing industry for the majority of its foreign exports, with manufactured products accounting for eight of the top-ten export categories in the first half of 2015. In 2014 manufacturers shipped out $52.49bn worth of goods, well above the next closest sector, mineral products, which exported $4.04bn worth of commodities. The industry continues to exhibit strong export growth, with shipments increasing 11% over the $47.82bn recorded in 2013 and 42% higher than the $36.95bn worth of manufactured goods exported in 2005. In 2015 producers were on roughly the same pace with 2014 output, with manufacturers shipping $25.02bn worth of goods in the first half of 2015 compared to $25.29bn in the same period of the previous year.

Although not as dominant, the electronics segment continues to make up the bulk of manufactured exports, accounting for roughly half of the total, with $26.29bn in 2014, according to the BSP. Machinery and transport equipment came second with $5.36bn, followed by other electronics $2.97bn, wood products $2.96bn and chemicals $2.77bn. The composition of the export market remained consistent in the first half of 2015, with electronic products accounting for 46.6% of exports, worth $13.47bn in the first half of 2015, up 5% over the same period in 2014.

Pacific Rim nations continue to dominate as trade partners for the Philippines, with the top-five export destinations all located in this region. The largest destination market for Philippine goods in 2015 was Japan, with $6.17bn worth of products purchased in the first half of the year. The US ranked second, with $4.43bn of Philippine exports, followed by China ($3.07bn), Hong Kong ($2.91bn) and Singapore ($1.76bn). For each of these countries, electronics products were easily the largest category.


As evidenced by the dominant position that electronics hold in the Philippines’ export market, the industry remains one of the most important manufacturing subsectors in the country. Although the electronics segment has diversified into a variety of new products and markets in recent years, exports remain heavily weighted towards semiconductors, which accounted for 71.9% of all electronics exports in the first five months of 2015, according to data from the Semiconductor Electronics Industry of the Philippines (SEIPI). Semiconductor exports from January to May of 2015 were up 7% from the same time period the previous year, increasing from $7.33bn to $7.84bn. These gains were offset somewhat by declines in the non-semiconductor electronics segment, as exports tailed off by 6.3% from $3.28bn to $3.07bn. The next largest electronics segment is electronic data processing, which represents an 18.6% slice of the electronics export market, followed by control and instrument components (2.7% of the market), office equipment (2.5%), telecommunications equipment (1.2%) and consumer electronics (1.1%), with other subsectors holding 1% or less of the export market.

Micro Products

One of the most successful home-grown ventures within the industry is Integrated Micro-Electronics (IMI), which manufactures a range of electronic components and is one of the world’s largest producers by volume of semiconductors. Since its inception in 1980 as a joint venture between Ayala Corporation and Resins Inc, the company has grown its domestic operations to include five production centres in the Philippines in addition to a number of plants located overseas, which have been established to better service North America, Europe and China. The company has expanded over the years, with half of its revenues now coming from Europe, followed by North America (25%), Japan (8%) and other Asian countries (17%).

While much of IMI’s business is now linked to overseas operations, the company still sees substantial advantages in operating significant manufacturing and research facilities in the Philippines, most notably because of its strategic geographic location and skilled labour force. “Labour may not be the cheapest, but the quality of workers is higher and there is very little labour unrest,” Frederick Blancas, head of strategic planning and marketing for IMI, told OBG. “Many of the workers have attended college, which means they have very high literacy levels and speak English, in addition to being easy to train and hard working. This makes the Philippines ideal for making products that require a high degree of quality and reliability.” These sentiments were echoed by SEIPI’s president, Dan Lachica. “The biggest edge in manufacturing in the Philippines is labour, in terms of both low cost and high productivity,” he told OBG. “The strong focus and work ethic of Filipino workers account for as much as a 20% increase in productivity compared to other countries in the region. In addition there is a lower turnover rate here of around 12% a year, which is much less than in other markets.”

Rapid global growth in specialised applications has occurred across a wide variety of sectors, as products become increasingly computerised and interconnected. This trend is fuelling much of the recent expansion at IMI, along with the electronics industry as a whole. The automotive sector, for instance, accounted for 38% of IMI’s revenue in 2014, followed by the telecommunications sector with 21%, industrial and consumer electronics (12% each), computing (6%) and medical (3%), with the remaining income spread around other smaller segments.

Specialisation into the automotive and industrial electronics segments represents a key niche in the global market. New car designs now include increasing numbers of sophisticated electrical components, such as advanced driver systems (ADS), safety measures, cameras, entertainment systems and other interactive features, leaving Philippine-based manufacturers well placed to supply regional assembly hubs with inputs. With new automobiles deriving upwards of 40% of their value from their electronic components, Philippine companies are able to take advantage of the country’s strong labour market, trade ties and geographic proximity to Asian markets to tap into this growing potential. As 90% of ASEAN tariffs are already down as a result of free trade agreements, a number of international companies are also able to employ the Philippines as a gateway to access other member markets.

In terms of car manufacturing in the Philippines, a number of barriers exist to deter its development which are, in the main, related to infrastructure and logistics. However, according to Ginia Roxas Domingo, president of Columbian Autocar Corporation, there is potential one the retail side and in developing production in the country on a small scale. “Automotive manufacturing does face some infrastructure and logistics challenges in the Philippines. Our road and traffic infrastructure, for example, will need to develop in parallel if we are to encourage volume growth. Additionally, our power cost continues to be the highest in Asia,” she told OBG. “However, we continue to believe local manufacturing can be viable – we have significant domestic retail volume upside, and with the proper government support for and partnership with the industry, we could just as easily present ourselves as a viable alternative as a regional manufacturing centre.”


In spite of all the advantages available to the manufacturing industry in the Philippines, including the large, skilled labour force, geographic proximity to major markets, beneficial trade agreements and economic incentives, a number of obstacles still remain for potential investors in the country.

One of the most common grievances aired by a wide range of industries is the superfluous production costs incurred as a result of inadequate infrastructure. These costs are related to both the transportation network, which is currently insufficient in terms of land, sea and air connectivity, as well as the electricity sector, which is likewise lacking in terms of both availability and price. Due to the limited number of modern ports and supporting infrastructure, alongside delays and fees incurred as a result of congestion, companies are compelled to pass on these additional costs to their customers.

“The main competitor in the production of chemicals for the cosmetics industry for the Philippines is Thailand, where there is also fast growth of demand for some natural products. Similar to Thailand, the Philippines has to import other raw materials or chemicals used in its product formulations,” Esmeraldo Tepace, COO and GM of chemical distributor SBS Philippines, told OBG. “However, import-export operations in the Philippines have been subjected to an ever increasing variety of shipping surcharges and fees due to a lack of government oversight on such fee charging practices. This is unlike in Thailand, where the Thai government was able to take action and curb unreasonable adjustments through closer scrutiny and regulation. Such unabated increases in surcharges and fees have significantly raised the costs of imported inputs and manufactured exports and, in the process, have unduly affected the competitiveness of Philippine-produced products.”

Stepping Up

Bureaucracy and patchy enforcement of laws is also a concern for manufacturers, along with what is sometimes viewed by the private sector as excessive or arbitrary regulations and permitting processes. While these factors are a constant source of discontent within the business community, and for manufacturers in particular, the country has made noticeable improvements in the last decade in a number of areas. The Philippines has been the single-most-improved country within ASEAN since 2007, as measured by the Word Economic Forum’s “Global Competitiveness Report 2015-16.” Leapfrogging 17 places between 2007 and 2015, the Philippines is now ranked in 47th place, out of 144 markets, in the Global Competitiveness Index, up from 52 the previous year.

Industry concerns about infrastructure and market efficiency were reflected in the report’s findings. Infrastructure received the lowest ranking of any of the 12 measured criteria for the country, placing the Philippines in the bottom half of all the countries ranked under this category, coming 90th out of 144. Several categories relating to the regulatory environment and bureaucratic procedures also fared poorly, including the burden of government regulation (101st), number of procedures to start a business (139th), number of days to start a business (119th) and burden of Customs procedures (107th). Respondents also indicated these issues as being the most problematic for doing business, with inefficient bureaucracy highlighted as the greatest barrier.


Over the past three years, substantial increases in government infrastructure budgets for the construction of big-ticket projects, along with sustained economic growth, have continued to drive growth in the Philippine construction materials market, fuelling a new wave of investment in the country’s steel fabrication industry. Although the country imports virtually all the raw materials necessary to supply the construction sector with steel bars, rods, beams, wire and other products, robust local demand along with strict material tolerance regulations have created a lucrative market for steel processors in the Philippines. Crude steel output has nearly tripled over the past decade, increasing from 470,000 tonnes in 2005 to 1.2m tonnes by 2014, according to data from the World Steel Association. This business is spread among some 12 different companies operating in the country, the largest by far being SteelAsia, which holds nearly 50% of the domestic steel rebar market. “Two new mills started up last year, and we are ramping up production faster than we expected because our growth estimates for the market were too conservative,” Rafael Hidalgo, vice-president for corporate development at SteelAsia, told OBG. “Even with these two huge additional plants, all our mills are running at full capacity to keep our market share.”

SteelAsia’s new acquisitions, the Cagayan De Oro and Davao works – the only rebar manufacturing operations in the Mindanao region – added 200,000 tonnes per annum (tpa) and 500,000 tpa, respectively, to SteelAsia’s total capacity in 2014, increasing the number of plants owned by the company to five, with a combined total capacity of 2m tpa. Furthermore, the company expects to double its capacity yet again – to 4m tpa by 2017 – when it commissions two new steel manufacturing plants: the Plaridel works, with a 1.2m tpa capacity, is set to open in 2016 and the Cebu works, with a 800,000-tpa capacity, is scheduled to come on-line in 2017.

Large-scale expansions such as this one can be attributed to the substantial construction pipeline, which could be decades long and is set to be rolled out across several sectors in both the greater Metro Manila area and other regional capitals around the country. In addition to a sustained growth in demand, domestic steel manufacturers also benefit from current non-tariff trade barriers, which result from higher mandatory steel-quality requirements for construction materials compared to other nations in the region. As a result of the Philippines’ history of natural disasters – earthquakes, typhoons and flooding – structures are required to use “disaster-quality” materials, which differ from cheaper mass-produced materials coming out of factories in China or India. These requirements mandate not only higher tolerance standards for steel products but also greater scrutinisation of materials, with each individual piece being tested as opposed to one out of an entire batch. Additionally, companies are required to obtain a licence for each size and grade of product, rather than one licence to manufacture a range of products.


Despite rich potential in terms of domestic reserves, the mining industry’s overall contribution to the economy has remained limited, with a contribution to GDP of under 1% in recent years, due to legislative uncertainty regarding future taxation, environmental restrictions, permitting and other issues. Sustained low levels of investment continue to adversely affect productivity in the sector. In 2012 nickel was one of the most valuable mineral commodities produced in the Philippines, according to a report by the US geological survey, while other significant mineral commodities included cement, chromium, copper, gold, marine salt and silver. The contribution of the mining sector is unlikely to rebound substantially in the short term until regulatory issues are resolved and companies can resume exploration and development activities, although a definitive decision on the matter by a new government in 2016 would go a long way to getting the industry back on track.


Industry will continue to play a key role in the economy, with the manufacturing segment expected to strengthen its position in the export market as the business environment improves. In the important electronics manufacturing segment, the decline in sales for some consumer products in 2015, as a result of slower global economic growth, should be offset by robust expansion trends in niche sectors in which Philippine manufacturers are active, such as automotive components and medical electronics. Increases in infrastructure expenditures in recent budgets should also support industrial operations.


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The Report: The Philippines 2016

Industry & Retail chapter from The Report: The Philippines 2016

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