A country’s manufacturing sector is a good indicator of
its degree of industrialization and prosperity. The sector provides most of the
basic needs of the people, from consumer items like bread, shoes, mobile
phones, and cars, to capital goods like tractors and bulldozers.
Aware of the sector’s important function, the Department
of Trade and Industry (DTI), Board of Investments (BoI), with funding
assistance from USAID and JICA, organized a big, two-day “Manufacturing Summit”
last Nov. 28-29, at Shangri-La Makati.
Besides DTI Secretary Ramon Lopez, high profile speakers
included Diosdado Banatao of Tallwood Venture Capital, Jaime Zobel de Ayala of
Ayala Corp. and IMI, Roberto Batungbacal of Dow Chemical Pacific, Alpesh Patel
of McKinsey, Lawrence Qua of Ionics EMS, and many more.
Currently, different sectors and groups conduct their own
study of the degree of modernization and competitiveness of the Philippine
manufacturing sector. But sometimes, these studies have conflicting results.
One study is made by Japan External Trade Organization
(JETRO) in 2015, showing that the Philippines has one of the more affordable,
more competitive markets to do manufacturing business.
Recent macroeconomic figures also show that the
Philippines has one of the most dynamic, fast-growing economies in Asia and the
rest of the world. And in industrial production, the country managed to have
modest growth, not as high as those of Vietnam and China but not low or
negative as experienced by Hong Kong and South Korea (see Table 1).
Among the important activities of the Manufacturing
Summit was the breakout sessions into seven simultaneous workshops. I have
attended two pre-summit consultations by the DTI in early November, on
International trade policy and Free Trade Agreements (FDAs), and Competitive and
Innovation industries. So during the breakout sessions, I attended the workshop
on Physical infrastructure.
The focus of discussions were on streamlining and
modernizing the roll-on roll-off (RORO) system that allows buses, trucks, and
other vehicles to transport goods and people from Luzon to Visayas and Mindanao
and vice versa, and solving the heavy traffic congestion in Metro Manila and
other big cities in the country.
The subject of the Philippines’ high cost of energy and
unstable power supply was brought up by the representative from the garments
and textiles industry, saying that we have the second highest electricity rates
in Asia making our manufacturing sector less competitive.
I followed this up and I said that aside from the
distortions in energy taxation/royalties and bureaucratic processes that make
power plants construction more lengthy and costly, subsidies to renewables will
further exacerbate the high energy cost.
While the EPIRA (Electric Power Industry Reform Act) of
2001 promised cheaper energy because it allowed competition among more players
in power generation, the RE (Renewable Energy) Act of 2008 promised expensive
energy because of various subsidies to renewable firms, especially the feed in
tariff (FIT) system.
Arangkada Philippines, a project of the Joint Foreign
Chambers of the Philippines, also distributed its latest policy note on
Manufacturing during the summit and proposed measures to improve the
Philippines’ manufacturing competitiveness. No. 1 in their 10 recommendations
is to “Address high cost of power through tax credits and discounts.”
Here is possibly the latest available data for
comparative electricity prices in Asia. Meralco contracted the International
Energy Consultants (IEC) to conduct the study (see Table 2).
Based on IEC data, the Philippines has the 3rd highest
electricity prices among developed and emerging economies in Asia.
This isn’t really good news but it is somehow an
improvement from “2nd highest” ranking we had a few years ago.
Consider that (a) the governments of Indonesia, Malaysia,
Thailand, South Korea and Taiwan subsidize their energy sector while the
Philippines along with Japan (Kansai), Hong Kong and Singapore do not have such
arrangements. And (b) Meralco tariff rate decline from 2012 to 2016 was a
significant 28%.
The huge price cut in Singapore is worth noting and the
Philippines should learn from it.
Aside from low global oil prices from 2015 to 2016,
Singapore: (a) has high dependence on cheaper fossil fuel (natural gas, 92% of
total electricity output in 2013) and almost zero wind-solar that are
expensive, (b) does not seem to have energy tax for its natural gas
consumption, whereas the Philippines imposes a high royalty (an energy tax) on
its domestic natural gas production from Malampaya, and (c) market-oriented
operator, the National Electricity Market of Singapore (NEMS) that is 100%
independent of government and hence, relatively free from political pressures
and interventions.
All manufacturing and financial powerhouses in Asia have
huge power generation capacities, four to twenty times per capita electricity
consumption of the Philippines.
Having a dynamic manufacturing sector is a must for the
country to provide more jobs, more locally produced, and assembled consumer and
capital goods. So having cheaper electricity and huge generation capacity from
baseload and stable power plants, not intermittent sources, will help the
Philippines achieve its manufacturing and industrialization goals.
Bienvenido S. Oplas, Jr. is President of Minimal
Government Thinkers and a Fellow of SEANET and Stratbase-ADRi.
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See also:
BWorld 92, Climate action and Asian energy realities, November 19, 2016
BWorld 93, ASEAN multinationals, December 02, 2016
BWorld 94, Economic freedom, taxes and tariffs in Asia, December 17, 2016
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