THE country’s manufacturing sector has “languished” and has not progressed from producing low value-added goods, according to a report released by the United Nations (UN).
The report also found that for the past 20 years, the country’s competitiveness advantage has diminished to just 14 percent in 2018 from 20 percent in 1995.
These were part of the findings of a Policy Brief titled, “Diversification, Jobs and the Covid-19 Recovery,” which was done through a joint research
project of the International Labor Organization (ILO), United Nations Development Program
(UNDP), and the United Nations Industrial Development Organization (UNIDO).
“The Philippines has also become more of a market of consumer goods rather than a hub of manufacturing exports due to the combination of a liberal trading regime and a large domestic market with increasing purchasing power boosted by the robust flow of remittances,” the UN said.
The report observed that the unit values of the country’s top exports such as semiconductors and electronics remained “low and largely unchanged” between 1991 and 2012.
Differences in average unit values between partner firms are consistent with the pattern of specialization where the Philippines demonstrates a comparative advantage in labor-intensive, and thus lower-value export goods, and a comparative disadvantage in higher-value, capital-intensive imports.
The report also noted that this has also caused the number of exporting firms to shrink. The survival rate of manufacturing exporters trended down since 2001.
Further, the UN report said, the rates of new entry fell to just 24 percent in 2012 from a high of 88 percent in 1999.
Based on data obtained by the UN, the number of exporters in the country was at 8,265 in 2019, only a 24.8-percent growth from the 6,621 firms in 1991.
The highest number of exporters in the country was 12,212 in 2005. That was the only time the country saw the number of exporters breach the 12,000 level.
The UN said the number of importers have been larger compared to exporters between 1991 and 2019. In 2019, there were 16,488 importers in the country, a 33.21-percent growth from the 12,377 firms in 1991.
The highest number of importers between 1991 and 2019 was 1997 when there were a total of 22,903 importers. This is also the only time the country breached the 22,000 level during the 28-year period.
“For Filipino firms, this entails behaving like exporters who must compete with foreign businesses to survive in the domestic market,” the report said.
Diversification hard
Meanwhile, the report noted that diversification is also becoming increasingly difficult for firms.
The country did diversify its products between 2003 and 2018, the UN noted, but these efforts only translated to 3 percent of export revenues, contributing only $33 to the country’s income per capita in 2018.
In contrast, another Asean country Vietnam added 48 new products, composed mostly of electronics during the period. This added $1,015 to its per capita income and 35 percent to its total exports during the 15-year period.
The report noted that in 1995, there were more complex products compared to 2018. This meant that difficulties in catching up have piled up through the years.
“While the Philippines has diversified, the volume of its new products was not big enough to substantially contribute to overall growth. The diversification space for the Philippines has also significantly narrowed,” the report stated.
Last month, the country’s economic managers upgraded the growth projections for goods exports this year and for services exports in 2022 while affirming the assumptions on the country’s GDP growth for this year until 2024.
Goods exports are now seen by the Cabinet-level Development Budget Coordination Committee (DBCC) to rise by 10 percent this year from its previous projection of 8 percent, “following an expected recovery in external demand.”
Meanwhile, the growth of service exports in 2022 was revised upward to 7 percent from its old projection of 6 percent as it expects travel and BPO receipts to improve with the gradual reopening of the economy.
As Covid-19 cases in the country are declining since the peak in April this year and the economy is in gradual reopening mode with more targeted granular lockdowns, the DBCC kept unchanged its growth targets of 6 to 7 percent this year, 7 to 9 percent in 2022, and 6 to 7 percent in 2023 and 2024.