The often overlooked industrial sector continues to largely impress investors, as manufacturing is currently one the best-performing segments not only in the Philippines, but in South-east Asia as a whole. Apart from its favourable location in a rapidly growing region, the Philippines has a distinct advantage thanks to its large, relatively low-cost yet highly educated labour force.

In Numbers

Although starting from a comparatively low base, the value of the industrial sector – which includes the subsectors of manufacturing, mining and quarrying, construction, and electricity, gas and water – has expanded rapidly in recent years from P1.23bn ($26m) in 2000 to P4.1bn ($86.7m) in 2015, according to data from the Philippine Statistics Authority (PSA). In 2016 industry grew by 9% in the first quarter, 7.1% in the second and 8.6% in the third quarter. This was due mainly to the expansion in manufacturing, which employed 47.4% of all industry workers as of October 2016.

Accounting for roughly one-fifth of the country’s GDP, the manufacturing segment has been slowly losing ground to the more rapidly expanding services sector, with manufacturing accounting for 18.8% of the Philippines’ GDP in the first half of 2016 compared to a 20.4% contribution in 2013. This is primarily a reflection of the success of the economy as a whole, and the services sector, driven by business process outsourcing (BPO), in particular, rather than any decline in the industrial segment.

Climbing Up The Value Chain

Indicators of both the value and volume of manufacturing production have exhibited strong growth over the past decade and a half. The value of production index (VaPI) climbed from a base level of 100 in 2000 to 238.2 by the end of 2016, with manufacturing volume peaking at 176.2 at end-2016 after experiencing a significant lull, as many countries in the region did, in the wake of the 2008 global financial crisis. “Manufacturing growth continues to be strong,” Roberto Batungbacal, country director for Dow Chemical Pacific and chairman of the American Chamber of Commerce’s manufacturing committee, told OBG. “A lot of this has to do with investments already in place and new ones starting up. We do have some good momentum now, so with continued economic growth and strong demographics we have a robust market primed for future expansion.”

The total manufacturing VaPI has posted impressive gains over the past 16 years, and a handful of star performers within the sector are responsible for a substantial amount of this forward momentum. The majority of these are focused on satisfying growing demand for basic goods. The food and beverage segment posted strong gains over the period with VaPI levels of 399 for food manufacturing and 299 for beverages as of December 2016. Chemical products manufacturing increased its VaPI to 827 over the same period on the back of heavy recent investments, followed by printing at 440, basic metals with 264.1 and fabricated metal products at 410.

At the same time, the ongoing liberalisation of trade policies, particularly through regional pacts such as ASEAN, have had the opposite effect on a number of high-volume, low-value-added manufacturing segments, as nations with lower labour and production costs have been able to make inroads into the Philippine market.

Some of the hardest-hit segments have been tobacco manufacturing, which saw its VaPI decline to 17 by end-2016, along with the textile subsector, Although starting from a relatively low base, the value of the industrial sector has expanded rapidly in recent years, from $26m in 2000 to $86.7m in 2015 which fell to 64, along with, furniture and fixtures (69.3), wood and wood products (68.4), and non-electrical machinery (52.4).

Squeezing The Middle

These growth trends have resulted in the current unbalanced distribution within the manufacturing sector, in which the lower-tech sectors – dominated by the food and beverage industry – and new, high-tech industries are succeeding at the expense of the middle range. Low-tech manufacturing of basic goods such as food and beverages, textiles, clothing, furniture, paper and others continues to account for more than half of the manufacturing sector’s gross value added (GVA), although this is primarily due to the strong performance of the food and beverage segment propping up the segment, accounting for a combined 40% of manufacturing value in 2015.

On other end of the spectrum, rapidly growing companies in fields such as chemicals and electronics have been making significant gains, with these two categories alone accounting for roughly 13% and 17% of manufacturing GVA, respectively.

Supported by government efforts, this two-pronged expansion of traditional low-tech industries and rapidly growing high-tech segments has resulted in a gap in the mid-range industries, such as refined petroleum products, rubber and plastics, basic metals, fabricated metals and others, each of which account for no more 3% of GVA within the manufacturing sector. “The challenge for policymakers is to develop a more balanced manufacturing industry, which is not just a matter of moving up the value chain, but also of diversifying mid-value industries,” Batungbacal told OBG. “We actively participate in both low-tech and hi-tech sectors, but we need to increase the middle-tech areas, which are currently being squeezed.”

Investment Flow

The manufacturing sector is still proving to be one of the most attractive in the country in terms of investment from both foreign and domestic sources. Manufacturing accounted for 58.6% of total approved foreign investment in the country in 2014, worth a combined P109.5bn ($2.3bn) for the year. This was followed up by another P134.6bn ($2.9bn) in 2015 – 54.9% of the total – and continued into the first quarter in 2016 when manufacturing again bested all other segments with P9.8bn ($207.3m) in foreign funding, up 5% over the same quarter in 2015. In the second quarter of 2016, however, foreign investment in manufacturing saw a decrease of 34.7% compared to the same period in 2015. When investments from Philippine nationals are included, the amount invested in the manufacturing sector totalled P170.9bn ($3.6bn) in 2015, accounting for 24.8% of all investment. In the fourth quarter of 2016 manufacturing received the most investment of any sector, at P92.5bn ($2bn), or 33.7% of all foreign and domestic investments.

Uncertainty In The Air

While the attractive financial environment in the country continues to attract foreign investment to the industrial sector, there has been an atmosphere of uncertainty since the election and inauguration of President Rodrigo Duterte. Controversial comments made by the new president towards the governments of the two largest blocks of investors in the Philippines – the US and Europe – are signalling that tensions may have effects beyond those in the political arena, as companies await how these public remarks will translate into policy decisions.

John Forbes, senior advisor at the American Chamber of Commerce of the Philippines, told local media in October 2016 that against the backdrop of uncertainty, a handful of trade and investment opportunities planned were delayed or cancelled. That same month credit ratings agency Moody’s issued a report reflecting this sentiment, stating that the political risks had become less predictable; although, it was noted that the country’s fiscal and economic fundamentals remained largely sound.

On The Right Path

In addition to continued economic prosperity and demographic factors, the Philippines has managed to position itself as a preferred investment destination in part through concerted government efforts to foster business activity in the country, and in part due to a credit rating upgrade from Standard & Poor’s to “BBB” with a stable long-term outlook in April 2015. Moody’s and Fitch followed suit later in the year by upgrading the country’s credit rating to “Baa2” with a stable outlook and “BBB-” with a positive outlook, respectively. These upgrades came in response to moves made by the Department of Trade and Industry (DTI) in collaboration with other entities to streamline business practices and foster an environment more conducive to investment and economic growth.

Just within the DTI, for instance, numerous changes have been enacted in recent years to cut red tape and eliminate redundancy. Efforts include the electronic Business Name Registration system launched in October 2010 and the Philippine Business Registry electronic payment scheme, which streamlines business registration largely through collaboration and partnerships between the DTI and other government agencies.

Other programmes have specifically targeted the resurgent manufacturing sector, such as the Comprehensive Automotive Resurgence Strategy, which is attracting hundreds of millions of dollars of new investment (see analysis).

New long-term development strategies for attracting additional investment and development in the industrial sector are also being carried out through the formulation of the Manufacturing Resurgence Programme, which had a budget allocation of P289bn ($6.1bn) in 2016, and the Comprehensive National Industrial Strategy.

These gains are reflected in global indices such as the World Economic Forum’s global competitiveness index, in which the Philippines has improved steadily each year from ranking of 67th out of 144 countries in 2012/13 with a score of 4.2 out of 7, to a ranking of 47th and a score of 4.4 in the most recent 2016/17 report. The country made a similar climb in the rankings in the World Bank’s ease of doing business index, in which the Philippines moved from 136th place out of 183 economies in 2012, to 99th of 190 countries by 2017.


One of the direct beneficiaries of the Philippines’ continued robust economic growth has been the domestic chemicals and petrochemicals industry, which supplies the country with a wide range of goods, from the basic inputs for plastics used in packaging, to latex used in paint for the surging construction sector.

Local players maintain a strong presence in the market led by market leader JG Summit, which built and operates the country’s only naphtha cracker. There is also a presence of diversified international players, such as US-based Dow Chemicals and DuPont Chemicals, along with German companies BASF and Bayer. Although these leading foreign chemicals producers all maintain sales offices in the Philippines, these firms for the most part do not manufacture significant volumes of products domestically, and there is currently only one export-oriented, semi-diversified firm based in the country – Chemrez Technologies.

The chemicals industry has expanded greatly through the first half of the decade, with the chemicals and chemical products segment’s GVA increasing at an average annual rate of 38% from 2010 to 2015. Much of this was due to the substantial investments made in capital-intensive projects and developments – specifically the new naphtha cracker. The $800m facility came on-line in 2014 and provides a new domestic source of ethylene and propylene inputs, which previously had to be imported from overseas at considerable expense.

The 320,000 tonnes of ethylene and 190,000 tonnes of propylene produced annually by the naphtha cracker are now employed as feedstock for partner JG Summit Petrochemical to produce basic raw materials for a variety of plastics.

Products produced at the Batangas-based site include 160,000 tonnes per year of high-density polyethylene, 160,000 tonnes per year of linear low-density polypropylene and 190,000 tonnes per year of polypropylene. The addition of this new output had a substantial impact on the industry as a whole in boosting the VaPI for chemical manufacturing from 194 in 2012 to 827 by end-2016.

In terms of production, these increases have yielded total domestic petrochemical capacity of 419,000 tonnes of polyethylene per year, 335,000 tonnes of polypropylene per year and 200,000 tonnes of PVC per year. Out of this total, only local companies JG Summit Petrochemical and Petron operate cracking facilities, producing primarily olefins (ethylene and propylene) and aromatics (benzene and toluene). A third local outfit, Chemrez Technologies, produces polystyrene, polymer emulsions and unsaturated polyester. It operates as the sole export-oriented petrochemicals producer in the country for the time being.

Other companies operating include Iranian polyethylene producer NPC Alliance, local player Philippine Polypropylene and two Japanese participants — Philippine Resins Industry and Tosoh Polyvin Corporation — that produce PVC resins and compounds.

Continued Growth

With domestic and regional demand for chemical products continuing to increase in line with protracted economic growth, JG Summit Petrochemical has announced plans for a further expansion of its integrated petrochemicals complex in Batangas, roughly 120 km south of Manila. The company said in September 2016 that it was pursuing a $500m-600m expansion over the next three years of both upstream and downstream capacities at the site. Upon completion, the cracker’s yearly ethylene capacity will be increased to 480,000 tonnes, while propylene capacity should rise to 240,000 tonnes. This additional feedstock will be moved into an expanded downstream plant with an annual capacity to produce 160,000-170,000 tonnes of combined benzene, toluene and xylene, along with 80,000-90,000 tonnes of butadiene – the majority of which will be exported. Due to high utilisation levels of the plant, the group’s targeted revenue growth for 2016 was projected at 10-15%, with 20% estimated for 2017.

Strategic Importance

Although President Duterte’s mandate to improve the country’s industrial capacity will likely have an effect on a broad range of sectors, the steel sector in particular has been singled out for special attention, with the new administration classifying the industry as a national strategic asset. As such, the goal of self-sufficiency in all aspects of the steel production value chain could become a reality in the Philippines in the near future. Boosting the sector to the level of full integration from raw materials to end user will be a challenging order in the near term.

Historically, the Philippines has lagged behind other economies in the region in terms of steel demand, production and fabrication, having only recently begun a campaign of ramping up limited domestic capacity in response to a new emphasis on addressing the substantial backlog of major infrastructure and residential real estate projects. Currently, the industry produces only rebar domestically, and is dependent on the importation of raw steel billets from China for inputs.

Production of rebar has been rapidly increasing in recent years, led largely by market leader SteelAsia Manufacturing, which produces the bulk of these products and is on pace to manufacture 4m tonnes of the material by 2019. This represents about three-quarters of the country’s projected annual consumption level at that time of more than 6m tonnes, with other companies such as Capitol Steel and Pag-Asa Steel Works filling in the gaps. Rebar demand in 2015 was estimated at approximately 4.5m tonnes and was slated to expand to 5m tonnes in 2016. Total rebar demand is forecast to grow to 6.5m tonnes by 2022. Rebar accounted for roughly half of the country’s total steel consumption in 2015, which increased to a new high of 8.8m tonnes, 72% greater than the 5.1m tonnes consumed in 2011. That being said, there remains significant room for growth in the sector moving forward as the Philippines still only utilises steel at a rate of 63 kg per capita, compared to the world average of 225 kg per capita.

SteelAsia Manufacturing, which controlled 42% of the country’s rebar market in 2015, is hoping to tap into growing demand by further expanding its production facilities across the country. After commissioning two new rebar plants in Mindanao in 2014, with a combined capacity of 750,000 tonnes per year, the company is set to more than double its current capacity by adding four new steel mills from 2017 to 2019, which will bring another 3.1m tonnes of capacity on-line in Luzon and Visayas.

Not content to supply just rebar, the company has recently turned its attention to greater import substitution, with the development of nearly 1m tonnes of new diversified capacity. This includes a wire rods plant, the output of which can be used to manufacture a wide variety of products ranging from nuts and bolts, to steel cables and tools. In addition to this, the company is building factories to produce a variety of H-beams and plate steel by 2020. “100% of these products are imported now, so it makes sense to develop these capacities as all our neighbouring countries are already self-sufficient,” Rafael Hidalgo, vice-president of corporate development for SteelAsia Manufacturing, told OBG. “We can do this as long as we do not have to compete against subsidised products; imported products need to be held accountable to the same safety standards we are and accept the higher costs of these extra tests,” he added.

Although downstream product diversification has already started, supplying raw steel inputs to factories could prove a steeper challenge. As of late 2016 there was no domestic capacity to produce the raw steel billets needed for manufacturing as all scrap metal and iron ore was exported abroad for processing. In order to reverse this trend, companies would need not only to invest in steel plants, but also to secure sufficient supplies of scrap steel and iron as feedstock. Given the current stance of the administration regarding mining and environmental policies, securing necessary environmental compliance permits for either iron ore mining or processing activities could prove problematic (see analysis).

Conversely, the move to increase domestic steel offerings comes at a fortuitous time for Philippine manufactures, as slowdowns in other Asian countries, such as China, have reduced demand for raw steel, resulting in oversupply and a decrease in prices for steel billets. As a result, the short-term implications remain positive for the downstream steel sector regardless of governmental policy as a steady and relatively inexpensive supply of inputs should remain largely available.


The steady growth of the industrial sector should continue, and more than likely accelerate, as ongoing economic growth and increased spending on major infrastructure projects drive up domestic demand for raw and finished goods. Significant opportunities abound for import replacement across a number of subsectors, which should become more attractive for companies to produce locally as newly completed infrastructure projects in the electricity, water and transportation sectors push down production costs. The local sourcing of necessary inputs across the value chain should also drive the development of new middle- and high-value-added industry, fulfilling domestic demand while laying the foundation for further export expansion.