FRESH OPPORTUNITIES are expected to open for the Philippines after a survey showed that Japanese businesses were keen to import more raw materials and relocate overseas in a bid to cope with the effects of a strong yen.
A survey on the impact of a strong yen, whose results were released last Sept. 1, was conducted by Japan’s Ministry of Economy, Trade and Industry (METI) from Aug. 22-26 among 61 large manufacturers, 83 small and medium manufacturers, and 10 small and medium non-manufacturers.
A Philippine export industry official said, however, that while the survey showed opportunities opening for the country, the government should move faster to improve the local business climate in order to compete better against peers in Southeast Asia.
“At an exchange rate of ¥76 to a dollar, 15% of enterprises will suffer a significant profit decline…of 20% or more compared to the previous year,” METI reported in its survey of large manufacturers.
“Assuming that the above exchange rate continues for half a year or longer, 32% of enterprises will suffer a significant profit decline.”
The ministry added that an exchange rate of ¥110 to the euro would lead to 9% of large enterprises posting a 20% year-on-year decline in profits.
Assuming the yen maintains this strength against euro for at least six months, 12% foresee “significant profit decline.”
The yen was ¥76.65 to the US dollar and ¥105.42 to the euro on Thursday.
“Assuming that the exchange rate of ¥76 to the dollar continues for half a year or longer, more than 50% responded that they will increase procurement volumes of raw materials and parts from overseas and 46% responded that they will ‘transfer production plants and R&D (research and development) centers overseas’,” the survey report read.
“Assuming that the exchange rate of ¥110 to the euro continues for half a year or longer, over 40% responded that they will increase procurement volumes of raw materials and parts from overseas and 31% responded that they will ‘transfer production plants and R&D centers overseas’,” it added.
“As for the invitation from foreign countries for overseas operation, 18% of enterprises responded that they have ‘received invitations’.”
Philippine officials cited opportunities the survey raised.
“We can actually see this happening…not necessarily for new businesses, but for contractors who are already here in the country,” Senen M. Perlada, Bureau of Export Trade Promotion director and Export Development Council (EDC) executive director, said in a recent phone interview.
“Some of them are bringing their subcontractors to the Philippines or they are influencing them to do so, and this is where the government can step in and talk to Japanese businesses here to transfer some of their supply nodes,” he explained.
Asked which industries could take advantage of such relocation, Mr. Perlada cited automotive, electronics and construction materials.
Sought for comment, Sergio R. Ortiz-Luis, Jr., Philippine Exporters Confederation, Inc. president and EDC vice-chairman, however, was more cautious.
“The government has to know that many [Japanese businesses] won’t probably move here if they have better options elsewhere in China and the ASEAN (Association of Southeast Asian Nations),” Mr. Ortiz-Luis said in a separate telephone interview.
“Having PEZA (Philippine Economic Zone Authority) is not enough even if Japanese manufacturers often locate themselves in these zones, because our local economy has a lot of problems to deal with like our high labor and power costs, which are made worse by the strengthening peso.”
Mr. Ortiz-Luis also noted that the Philippines has some of the lowest foreign direct investments (FDIs) in Southeast Asia. Latest central bank data show FDIs dropped 16.6% annually to $471 million in the first quarter.
“Let’s take advantage of this to become competitive in exports. But this can only be done if we can implement aggressively the necessary policy reforms and investment promotion programs,” Mr. Ortiz-Luis said.
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By: Eliza J. Diaz
Source: Business World, Sept. 15, 2011
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