When B/E Aerospace, the US-based maker of aircraft cabin interior parts, was looking to build its first factory outside its home market or Europe it did not look a lot further than the Philippines.
The decision hinged largely on the quality of the Filipino labour force but also, the company discovered, the move gave them access to a budding domestic industry of potential parts suppliers.
“Fifty-six per cent of our employees have engineering degrees,” Carl Backlund, vice-president and general manager, said of the company’s 2.7-hectare facility south of Manila. “One of the big things we came here for is that English is a second language. There’s no need to translate instructions.”
The company’s new $100m factory is part of a recent wave of manufacturing investments that underpin rising growth in the economy. Data on Thursday revealed that the Philippines is now the fastest growing economy in Asia and that a rejuvenated manufacturing sector – which grew 9.7 per cent in the first quarter on the back of rising investments in production facilities – is one of the prime reasons.
Last year, foreign direct investment into the manufacturing sector surged to $1.03bn, from just $119.4m in 2011 and a net outflow of $1.3bn in 2010 even as overall FDI numbers remain pitifully low.
“For the first time, private sector investments contributed more to growth than household consumption,” said Arsenio Balisacan, the economic planning secretary explaining the surge in the manufacturing growth.
A 7.8 per cent year-on-year rise in gross domestic product in the first three months of 2013 is faster than China’s – which grew 7.7 per cent in the first quarter – and outstrips other export driven economies in the region such as Thailand, Vietnam and South Korea, which have been hit by the sluggish global recovery.
Alongside B/E Aerospace other companies are also setting up or expanding factories in the Philippines. The First Philippine Industrial Park, where B/E Aerospace is located, is adding at least 200 hectares to its existing 350 hectares in anticipation of more manufacturers expanding or building new facilities, said Edwin Coseteng, the industrial estate’s manager. It is the first time since the early 2000s that the industrial zone, a joint venture between the local conglomerate First Philippine Holdings Corp and Japan’s Sumitomo Corp, is expanding.
With a strong first-quarter growth, the Philippines is poised to hit the upper range of the government’s 6-7 per cent GDP growth target this year after expanding 6.8 per cent last year, according to analysts.
Historically, Philippine economic growth has lagged behind other big southeast Asian countries, averaging just 5 per cent in the past decade, while the number of those living below the poverty line has barely budged – remaining at about 28 per cent of the population in the past six years. Unemployment remains at close to 7 per cent, one of the highest among countries in the Association of Southeast Asian Nations.
We are getting back on the industrialisation boat that we missed in decades past – and with that would hopefully come more inclusive growth
– Cielito Habito, former chief economic planner
Many economists now partly fault the Philippines’ failure to develop its industrial base for keeping economic growth low. Most manufacturing is low value-added assembly of semiconductor devices and automobile components, and food processing. In recent years, economic growth has been driven largely by a rapid expansion in the services sector, which now accounts for almost 60 per cent of GDP.
“Our failure to attain wider and deeper industrialisation at the time appears to have taken a toll not only on our overall economic growth rates, but also on the inclusiveness of that growth,” wrote Cielito Habito, the country’s former chief economic planner, in a recent commentary.
The industry share of Philippine GDP hovered mostly between 31 and 33 per cent compared with over 40 per cent in Thailand, Malaysia, Indonesia and Vietnam over the past three decades, he said.
The recent surge in investments in manufacturing, which is being partly driven by companies shifting production to avoid rising wage costs in China and other countries in the region, has revived hopes that the Philippines might have another chance at remaking its economy and boosting its industrial growth.
Luz Lorenzo, economist at Maybank ATR Kim Eng, said that apart from exports, domestic demand – built on housing starts and the government’s infrastructure drive – is also fuelling manufacturing investments. Recently, Holcim announced plans to build a new 2.5m tonne cement plant while San Miguel Corp is investing in a cement company to help it build additional capacity.
“I think these are the first major additions to cement production capacity since the [1997-98] Asian financial crisis,” said Ms Lorenzo.
But having attracted new investment the next challenge for the Philippines could be keeping it: the country desperately needs infrastructure investment to sustain manufacturing growth.
Mr Coseteng, whose tenants sometimes take more than three hours to transport products to the Manila port just 61km away, says: “We need to have supporting infrastructure, decongest the ports and make sure the airport throughput is more reliable.
“[Customers] are part of a global supply chain. You can produce the best product but if it’s just sitting at the docks, it doesn’t help anyone.”
Source: Roel Landing, Financial Times, 30 May 2013
Comment here