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On The Crest: Philippines Rides Global Manufacturing Growth Wave

On The Crest: Philippines Rides Global Manufacturing Growth Wave

With Asia well-poised for future economic success, the Philippines is slated to be one of the region’s growth leaders, so long as a few hurdles are overcome along the way. By Michael E Neumann

As long as Philippines strives to invest public monies to build key infrastructure and solve its electric generation and transmission issues, the country is well-positioned to be one of the fastest-growing economies in the region. This is according to “Competitiveness: Catching the next wave: The Philippines”, a report released by Deloitte Global.

Manufacturing A Strong Growth Driver

The report also projected the key industries that will likely drive Philippines’ growth over the next two decades. They include manufacturing, business process outsourcing (BPO), construction, as well as transportation and logistics.

Steps that the government can take to make the region more attractive to business were also highlighted, including increasing corporate governance and reducing corruption.

“The strong growth in global manufacturing to 2033 will drive world growth, and this presents the Philippines with great potential to integrate into the global supply chain of high-value manufacturing,” said Gary Coleman, managing director, global clients and industries, Deloitte Global. “If the government makes smart investments in infrastructure—including roads and harbours—that would help to boost the construction and transportation sectors and lead to higher productivity growth in the coming years as well.”

Growth Highlights

The report noted that the BPO industry will be a source of employment for new graduates. However it also cautioned that in order to achieve long-term growth, the Philippines must reduce unemployment and the government must implement policies to improve the business climate. Reform measures aimed at reducing corruption in the procurement process, civil servant training and wages, and instituting reporting and enforcement mechanisms were also recommended.

Additional industry driving growth highlights include:

  • Manufacturing: To help boost manufacturing initiatives, the government should introduce a number of special industrial zones that benefit from a combination of supportive government policies. The Philippines should also begin to specialise in higher-value manufacturing.
  • Construction: Construction of roads, harbours, and other public infrastructure can boost the nation’s employment, productivity, and economic output. Reconstruction efforts following the devastation of Typhoon Haiyan and upgrades to existing infrastructure should contribute to a growth rate of 5.2 percent per year from 2014 to 2033.
  • Transportation and logistics: The poor quality of the transportation infrastructure has held back the economic development of the Philippines for many years. With policies designed to address ongoing transportation infrastructure issues, a baseline forecast of 4.9 percent growth in sector between now and 2033 can be expected.

“Relaxing limits on foreign ownership could boost foreign direct investment, increase efficiency and prompt higher levels of competition,” said Chaly Mah, chief executive officer, Deloitte Asia Pacific. “Additionally the government should look to public-private partnerships to help speed investment spending on infrastructure, reduce bottlenecks, and implement policies that promote inclusive economic growth.”

 

Leading Growth In ASEAN

The report also projected that the Philippines will grow faster than Southeast Asia as a whole over the next two decades, with overall GDP expanding by 4.8 percent per year up to the forecasted period of 2033.

“Compared to other regions that have experienced slower economics, the Philippines story is quite remarkable, said Mr Mah. “There are great opportunities—if the Philippine government can seize them—to fuel growth and become one of the most competitive nations in the region.”

Philippine 2017 GDP Up 6.7%

A recovered agriculture sector, strong government consumption, as well as better exports and imports made it possible for the Philippine economy to grow above six percent for the 6th straight year in 2017, according to Philippines national statistician Lisa Grace Bersales.

Ms Bersales recently announced that the gross domestic product (GDP) grew 6.7 percent in 2017, slightly below the 6.9 percent growth recorded in 2016. This still saw the Philippines being ranked among the fastest-growing economies in Asia, after China’s 6.9 percent and Vietnam’s 6.8 percent.

Socioeconomic Planning Secretary Ernesto Pernia added that GDP growth in the last quarter of 2017 was backed by growth of 14.3 percent in government consumption, a substantial increase from 4.5 percent in the same period in the previous year.

Industry Shows Biggest Growth

Industry was the fastest grower among the major sectors, expanding by 7.3 percent. Services followed at 6.8 percent. However, this was a decrease from 7.9 percent and 7.2 percent recorded respectively in the same period in 2016.

The Philippines’ BPO industry also expects annual growth to slow down to nine percent until 2022, due to factors such as a larger scale, sluggish global industry growth, and security headwinds in the country.

Construction On Decline

The construction industry also saw a reduced rate of slowdown, at 2.8 percent compared from 10.7 percent recorded in the same period a year ago.

“We also recorded stronger public construction spending at 25.1 percent that offset the 2.9 percent contraction in private construction,” Mr Pernia said. He linked the decline in private construction spending, which accounts for 74.9 percent of total construction investments, to the onset of the holiday season.

The country’s economy had started 2017 sluggishly due to the slow implementation of big-ticket infrastructure projects, which gradually began to pick up in the 2nd quarter.

High Rates Of Forecasted Growth

The effect of more government spending as well as a recovering agriculture sector also contributed to better-than-expected third quarter growth, which was recently revised upwards to seven percent.

World Bank and the Asian Development Bank both expect the Philippines to remain as one of the fastest-growing economies in the region in 2018, with forecasts of 6.7 percent and 6.8 percent growth, respectively.

Rolling Along Smoothly: Thailand’s Path For Economic Growth

Rolling Along Smoothly: Thailand’s Path For Economic Growth

Not content with being the world’s 13th largest automotive producer, Thailand’s development of Special Economic Zones set in motion its ambitions to transform into a knowledge-based economy. By Jonathan Chou

The second-largest economy in ASEAN after Indonesia, Thailand’s economy is expected to grow 3.2 percent in 2017 according to the 2016 Thailand Economic Monitor released by the World Bank. The country has numerous free trade agreements, including those with in ASEAN, Australia, New Zealand, China, Korea and Japan.

According to the Thailand Board of Investment (BOI), foreign investments totalling US$4.3 billion were approved in the first seven months of 2016. Japan was the largest foreign direct investment (FDI) source, followed by China, Australia, Singapore and Indonesia.

An Export Hub

The country has active industrial sectors that are dependent on the machinery and metalworking industries to meet growing demand. Subsequently, machinery and parts are one of the country’s largest import categories, ranking second in terms of highest import value, according to the Thai Ministry of Commerce.

Due to ongoing regional economic expansion, Thailand is also a growing export hub for machinery and parts in Southeast Asia, with exports increasing over 200 percent since 2004, according to the BOI. The country’s top export in 2016 was automotive parts and accessories, while machinery and parts were in sixth place, followed by iron, steel and products in tenth.

Rolling Along

The automotive manufacturing industry is a robust sector in Thailand. Being the world’s 13th largest automotive manufacturer in the world, the country is Southeast Asia’s largest vehicle producer and the world’s largest manufacturer of one-ton pickup trucks, according to the Royal Thai Embassy to Washington, USA.

Thai-made vehicles are produced and licensed by Japanese, European and American automotive producers, such as Toyota, Honda, BMW, Ford and General Motors. In fact , Japanese Original Equipment Manufacturers (OEMs) have an 85 percent market share while the remaining 15 percent goes to European and American OEMs, according to a report by ASEAN Briefing.

Thailand’s automotive cluster has around 700 Tier 1 companies and 1,700 Tier 2 and 3 companies, employing over 500,000 (almost 80 percent) of the country’s total automotive workforce.

While a sizeable portion of vehicles are for domestic sales, the majority are exported throughout the region through the ASEAN Free Trade Area agreement. A total of 178,798 vehicles were produced in March this year, of which 84,801 were sold domestically. The remaining were then exported, according to the Thai Automotive Industry Association.

With almost 85 percent of assembled parts and components in the country produced domestically, machinery and metalworking needed to support automotive manufacturing in Thailand are seeing strong demand.

Looking Skywards

Thailand’s construction market is also seeing growth. In 2015, the sector grew by 15.8 percent, a significant improvement over 0.1 percent in 2013 and 3.7 percent in 2014, and the industry contributed 2.8 percent to the country’s GDP, according to research firm Oxford Business Group.

The industry reached US$41.4 billion in 2016 with about US$17.9 billion coming from private investments and US$23.4 billion from the public sector, including infrastructure, according to Solidiance. The consulting firm also elaborated on current trends and the future outlook in Thailand’s construction sector:

  • Residential market shift

With public transportation lines under construction, the city centre is gradually expanding to different vicinities outside of Bangkok. Residential condominiums are seeing especially strong growth.

  • Regional shopping hub

The growth of commercial building market is driven by a higher demand for shopping malls to accommodate the rising amount of tourists from China and ASEAN. Thai shopping mall developers plan to invest more than US$2.83 billion over the next three years to expand and open new stores.

  • New industrial zones for growth

Industrial construction developments are mostly observed in Special Economic Zones, where high value-added industries (such as aviation, robotics and medical) are given BOI privileges and incentive schemes.

The Thai government has also approved the development of the Eastern Economic Corridor, a five-year plan which concentrates on construction of transport infrastructure, sea, and rail. This move is aimed to position Thailand as a major economic zone in the region.

Thailand 4.0

While its industrial sectors are continuing to grow, the country is aiming to make a transition to a knowledge-based economy by announcing “Thailand 4.0”.

The first three economic models were focussed on agriculture, light industry and heavy industry respectively for growth. Thai Prime Minister General Prayut Chan-o-cha said that the fourth economic model would aim to develop the country as a knowledge-based economy, with an emphasis on research and development, science and technology, creative thinking, and innovation.

He added that “Thailand 4.0” will also focus on sustainable economic growth and development with emphasis on protecting the environment.

Super Clusters

Efforts to move the country into the new economic model can be seen with the launch of the 2015-2021 Investment Promotion Strategy by the BOI.

The aim of this initiative is to promote high value-added industries, investment clusters, development in the southern provinces, and establish Special Economic Zones in border areas.

Priority is given to investments in high-tech and creative industries, service industries that support the development of a digital economy and industries that utilise local resources. Under the new strategy, tax incentives and non-tax incentives (such as guarantees or protection measures) are granted to investors who fit the relevant criteria.

Prime Positioning

As part of the economically developing Southeast Asian region and close proximity to emerging global economic powers (China and India), Thailand’s export-focussed automotive sector and developments in the SEZs and East Economic Corridor show signs of growing demand for machinery and metalworking.

The government’s focus to develop its country’s high value-added industries could also mean a higher demand for more sophisticated machinery in future.

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