Ladies and gentlemen, a good morning to all of you.

We’d like to thank Security Bank, in particular President and Chief Executive Officer (CEO) Sanjiv Vohra, for inviting us to speak before you here at the 2021 Economic Forum. We hope that everyone here is well and keeping healthy and safe from COVID-19.

Today, we wish to talk to you about the strong and present growth potential of Philippine manufacturing that will help our country recover—not only from the recent economic challenges, but also prepare us for the future.

With the rest of the world, the Philippines suffered economically due to the pandemic as our 2020 GDP hit -9.5%. However, we’ve seen signs of recovery with the mitigation of quarter-on-quarter GDP declines in the second half of last year and into this year. While we had to implement additional community quarantine lockdowns in March and April of this year that affected our First GDP, we are still on track for a V-shaped recovery of our economy. This is supported by the worldwide rollout of vaccines and the strategic reopening of economies around the world.

Likewise, other macroeconomic indices are also pointing towards an overall improved Philippine investment climate for 2021 with the following:

• Unemployment rates dropped from 17.7% April last year, down to 7.1% and slowly returning to pre-pandemic levels of around 5% as we reopen the economy;
• The Philippine Manufacturing Purchasing Managers’ Index (PMI) indices ranging from 49.0 to 52.5 this year from a record low of 31.6 in April 2020;
• With easing of quarantine restrictions, factory operations are resuming and demand is picking up, fueled by increase of domestic and international orders;
• Improved vaccination rollout and recent decline of cases are easing restrictions, leading to businesses resuming operations;
• Softening of contraction of PMI New Export Orders Index in April signals improving overseas demand for Philippine products;
• Exports up 31.6% year-on-year (YoY), the fastest expansion we’ve seen in more than 10 years due to strong demand from major trading partners; The growth is not only due to the low base last year, but even vs the pre pandemic level in 2019. 
• FDI Jan-Feb amounting to US$1.57B and noting a 20.6% increase year-to-date (YTD); and,
• 145.86% growth in FDI in the manufacturing sector points towards more sustainable and long-term growth of the sector.

Meanwhile, approved investments registered by our Board of Investments (or BOI) showed sustained growth of 156.02% year-on-year in the first two months of this year, reaching Php121.93B or US$2.5B. Last year, despite the pandemic, BOI investment approvals hit Php1.02T or US$20.6B, the 2^nd highest mark in the agency’s history from Php1.14T or US$23.4B in 2019.

Amidst the pandemic, we need to stay on course when it comes to economic strategies and reforms. That is why we have been implementing the “Revitalizing Businesses, Investments, Livelihoods, and Domestic Demand” (or REBUILD) PH Strategy since last year so that our country can bounce back. This is our economic recovery plan anchored on a vision of President Rodrigo Roa Duterte to create a modern, dynamic, and responsible Philippine industry.

The goals of REBUILD PH are the following: (1) Reduce trade deficit; (2) Increase value creation; (3) Increase backward and forward linkages; and (4) Modernize Philippine industries.

To achieve these goals, our broad strategies include: revitalizing consumption to boost demand; and, empowering production capacities to meet the recovery in demand, which will encourage further increase in production, leading into a virtuous cycle.

On the demand side, we have government support via economic stimulus to save thousands of companies to keep jobs. These include legislation like the BAYANIHAN 1 and BAYANIHAN 2, and there also is a discussion now for BAYANIHAN 3. This support will restimulate purchasing power and demand to attract more production activities and create a better business environment for investments.

On the supply side, we should enhance production capacities in agriculture, industry, and services to help build our export competitiveness and manage imports. This creates a dynamic cycle of sustained and growing economic activity with strong domestic linkages.

As part of REBUILD, the Philippines has the following strategies:

• Accelerate FDIs in sectors or areas that will provide for basic necessities such as food, health, and hygiene products;
• Support and accelerate the 4^th Industrial Revolution (or 4IR) in the country, which includes the adoption of smart manufacturing, digital technologies, and the manufacturing of components and devices that support this technological transformation;
• Address the supply chain gaps to build stronger industrial baselines in the country, particularly for iron, steel, and chemicals;
• Help to develop a more modern Philippines, in terms of both digital and physical infrastructure, and supporting the growth of transport mobility solutions; and,
• Generate high value and greater number of jobs for our people.

For each strategy or intervention, there are corresponding priority areas or sectors. These include:

• Providing basic necessities – Agri-business, food manufacturing, health products, online education, and health services;
• Supporting 4IR – Electrical and electronics industry, as well as innovation and R&D activities.
• Address supply chain gaps – tool & die, iron & steel, and chemicals;
• Developing a more modern Philippines, these include: cold-chain warehousing; auto & auto parts; smart cities and mobility solutions; and digital trade, among others; and,
• Generate high-value job creation – design-oriented furniture and garments, automotive, aerospace parts, tourism, creative content and services, and IT-BPM.

The recent performance of the manufacturing PMI—fueled by the increase in domestic demand—reinforces the importance of REBUILD. We must continue to build consumer confidence, revitalize domestic demand, and empower manufacturing firms in the country to seize that demand.

As such, the Department of Trade and Industry (DTI) launched the “Make It Happen in the Philippines” international investment promotion campaign to generate investment leads. Under this campaign, we’ve been focusing on promoting key industries that have the most potential for foreign investment: IT-BPM, Electronics, Automotive, Aerospace, and Copper/ Nickel.

Our IT-BPM industry is the biggest job generator in the Philippines, contributing 1.23M direct jobs and 4.08M indirect jobs. Given that we’re the second most English-proficient country in Asia with a 98% literacy rate, the ITB-BPM industry is thriving in our country thanks to the following advantages we have to offer. This includes 700,000 higher education graduates, 7,000 CPA Board Passers, and 2M graduates of technical and vocational courses annually.

We would like to point out that our BPOs have proven their adaptability and resilience in the wake of COVID-19 through the following:

• Quickly utilizing Work-From-Home (WFH) arrangements with 90% of its professionals adopting these measures;
• Providing shuttles and accommodation for employees;
• The sector growing 1.8% in headcount and 1.4% in revenue; and,
• The industry has a 5% to 5.5% growth outlook for 2021.

Thanks to their large contribution in export revenues—amounting close to US$30B a year—the BPO industry is now officially part of the A4 priority group of our COVID-19 vaccine deployment plan as part of our economic frontliners. We’re trying to expand the definition of economic frontliners to include all workers who have to go to their offices riding the public transport system, as well as dealing with other people in their workplace. This was after the Inter-Agency Task Force on Emerging Infectious Diseases (IATF-EID) approved of DTI’s endorsement.

Moving forward, we believe artificial intelligence (or AI) is the next higher value, higher paying service-winner after the BPO industry, which is why we hope to establish the Philippines as an “AI Center for Excellence” in the region. Guided by our National AI Roadmap, we will establish the private sector-led National Center for AI Research (or N-CAIR) as the country’s shared hub for AI research and home to full-time research scientists and research engineers. And backed by our rich local talent pool and vibrant innovation and entrepreneurship ecosystem, we can serve as a big data processing hub providing high-value data analytics and AI services to the world.

Meanwhile, the Electronics and Semiconductor Industry remains the top contributor to our total exports, accounting around 62% or US$39.67B in 2020. As of this March, electronic exports were among the country’s top exports with total earnings of U$3.60B, accounting for 53.8% of the total exports for the period. Year-on-year, electronic exports grew 25% as compared to March 2020.¹

The Automotive Industry covers a wide range, from assembly, importation and distribution, rebuilding of motor vehicles, and the manufacture of automotive parts and components. Employing around 90,000 of our countrymen, the industry has 6 Major Assemblers, including global names like Toyota and Mitsubishi, and 6 Major Parts Manufacturers.

In relation to this, we have a developing Electric Vehicle Industry, which has an industry production registered capacity of 150,000 units in a year. With 45 industry players, it employs 14,840 Filipinos in EV manufacturing, parts manufacturing, as well as importers, dealers, traders, and service providers.

In terms of the country’s Aerospace Industry, the Philippines continues to be recognized in the global aerospace industry as a developing player in the industry value chain. Employing around 6,000 Filipinos, the industry has capabilities in aerospace parts manufacturing, aircraft maintenance and repair (MRO), and aviation/ aerospace/ engineering trainings.

With regard to the country’s Copper Industry, the Philippines is home to an estimated 1.14B MT of copper reserves, reputed to be among the highest in the world and fuels the global copper industry. The industry also employs 14,000 Filipinos and has an estimated value of more than US$2B of annual copper exports.

But more than just exporting, we want to establish a downstream copper industry in the Philippines. We envision a fully integrated Philippine copper industry through the development of a wire rod casting facility and higher value copper products. Hence, we launched the Master Development Plan for the Leyte Ecological Industrial Zone (or LEIZ) last year to achieve this goal.

On a side note, we would like to point out that the prices of copper in the global market have been hitting record-highs of US$10,000 a ton this month. This is due to the demand being boosted by copper’s role in rapidly growing industrial sectors—like electric vehicle batteries and semiconductor wiring—as well as broader economic recovery efforts³.

In relation to this, the Philippines has nickel reserves amounting to 2.05B and the country’s Nickel Industry employs 9,905 Filipinos in nickel mines and processing plants. The industry’s GVA in mining of nickel ores amounted to Php4.18B—or 11.8% of the total first quarter of 2021 GVA in mining and quarrying.

To further prepare Philippine manufacturing for the future, DTI is pushing for smart manufacturing and digitalization. We need to ride the wave of digital transformation. Advanced manufacturing, which incorporates cutting-edge technological innovations to transform production and drive innovation, is at the heart of 4IR. To this end, we have initiatives supporting Industry 4.0 transformation, prominent being our Inclusive Innovation Industrial Strategy (i³S) to grow innovative and globally competitive manufacturing, agriculture, and services.

One example of this thrust is our scaling up the Smart Industry Readiness Index (SIRI) Initiative among manufacturing firms in partnership with Siemens. Likewise, we are planning to establish an Industry 4.0 Pilot Factory to facilitate the adoption of Industry 4.0 technologies in production operations of business, especially MSMEs. We are also developing the Smart Manufacturing Transformation Support Program to provide support to manufacturers to sustain their Industry 4.0 adoption.

To protect our industries, we are supporting the establishment of manufacturing standards, as well as implementing safeguards measures to protect local manufacturing against cheap imports. Concerning manufacturing standards, we are ensuring particular products like automotive products undergo the Mandatory Certification Scheme under the Bureau of Philippine Standards (BPS). This requires product audit and inspection, as well as testing before they are distributed or sold in the Philippine market. To date, BPS has certified around 2000 local and foreign manufacturing companies under the Philippine Standards (PS) Licensing Scheme. They are also continuously developing and updating the Standards for use in the crafting of technical regulations to ensure safe and quality products.

With safeguard measures, these are “emergency” trade remedy measures against large quantities of cheaper imported products to protect domestic industries that produce like or directly competitive products. These imported products shall have Safeguard Import Duties added to them for a short corrective period to give local manufacturers space to improve their competitiveness. Of the collected duties, 50% will be given to affected industries as a Competitiveness Enhancement Measures Fund (CEMF) to help them implement adjustment plans to make local products more competitive.

With the full potential of these industries powering our post-pandemic economy, we aren’t the only ones confident of our country’s recovery. The World Bank projected the Philippines to rebound with a 5.5% growth for 2021 and 6.3% in 2022. What’s more, CEO Magazine identified the Philippines as one of the ten best countries to invest in post-COVID, dubbing the country as “the tech hub of Asia.”

In the post-pandemic days ahead, we are confident that we can continue our country’s strong economic growth story once more. Rebuilding the robust growth of Philippines will start from the strategies outlined under the REBUILD initiative. This will hinge on key drivers that have enabled the Philippine economy to thrive in previous years.

We would like to point out that before the pandemic, the Philippines boasted very robust economic fundamentals, growing at an average of 6.6% from 2016 to 2019 and becoming the 3rd fastest growing economy in Asia. This solid growth was supported by the resurgence in the manufacturing sector, which nearly accounted for 20% of our economy. The Philippines was also on track to breach the US$4,000-mark to become an upper middle-income country by 2020, if COVID-19 did not happen. 

The Philippine economy’s resilience may be attributed to one of the country’s key advantages—its people. With 49M highly-skilled, educated, dedicated, and cost-efficient workforce with very low attrition rate, the country sits on a demographic sweet spot. Furthermore, our people are well known across the world as highly capable, hardworking, highly trainable, fluent in English, and with cost-competitive talent. We would also like to point out that the Philippines has had a lower number of strikes and lockouts as compared to other countries around us.

The country’s young and dynamic population not only boosts our domestic consumption and local demand, it also continues to use innovation as an engine for growth. In 2020, the Philippines placed 50th in the Global Innovation Index (GII), its best rank ever.

Additionally, the Philippines has preferential access in major markets through our Free Trade Agreements (FTAs. We also continue to benefit from the European Union’s (EU) Generalised Scheme of Preferences Plus (or GSP+), the only nation in the ASEAN to do so. Likewise, we are currently working to push for more products to be included in the talks for the US Generalized System of Preferences (or GSP), which is under discussion for renewal. These add to the value of making the Philippines as a manufacturing location for foreign investors.

The Philippines is also part of the Regional Comprehensive Economic Partnership (or RCEP) Agreement, which is intended to create in the region a more business-friendly environment. RCEP will likewise encourage closer integration of economies and provide a more stable and predictable rules-based system of trade. And amidst the pandemic, the Philippines has also been proactive in enhancing strategic bilateral and regional relations with other trade partners, like the continuation of the Philippine-EU FTA negotiations.

As our economy recovers, we are confident of achieving our pre-pandemic growth. To this end, we are facilitating greater trade and investment in the country by continuously pursuing reforms to foster a better business environment. That’s why we have realized the game-changing Corporate Recovery and Tax Incentives for Enterprises (or CREATE) Act.

Making the investment climate in the Philippines significantly more attractive, the CREATE Act will rationalize, modernize, and offer more relevant incentives to investors. At first, this will reduce the Corporate Income Tax (or CIT) rate from 30% to 25% for large corporations and down to 20% for Micro, Small, and Medium Enterprises (MSMEs). This reduction will be crucial for businesses that wrestle with the disruption in supply chains, and reduce the negative economic impact of the pandemic.

Qualified activities or projects can also enjoy an incentives package for a maximum of 17 years. These include 4 to 7 years of Income Tax Holiday (or ITH), a 5% Special CIT (or SCIT) rate of 5 years for domestic market enterprises and 10 years for export-oriented enterprises. More important is the removal of export and nationality bias, which opens these incentives even to foreign investors that will target the domestic market, as long as the business activity is in our Strategic Investment Priorities Plan (or SIPP).

Currently being drafted by the BOI, the SIPP is a list of activities that the Philippines want to incentivize or promote since these activities provides benefits that can lead us to a more holistic growth as a nation.  In the transition, the Fiscal Incentive Review Board (FIRB) has agreed to adopt the 2020 IPP of the BOI as the Interim SIPP for this year, while the SIPP is being developed.   

Specific activities that are strategic for the country to produce may be included in the SIPP and avail of the incentives provided such as the ITH, SCIT, and Enhanced Deductions. An example of the latter under CREATE is the additional 50% deduction on power cost, direct labor used and domestic input expense, which encourages companies to prefer locally manufactured goods and local service providers that can boost MSMEs growth.

CREATE will serve as an important enabler in rebuilding and further strengthening our local industries. In particular, CREATE incentives aim to improve the overall investment environment with the reduction of CIT. This will also address binding constraints to industry development, encourage innovation as well as sustained and inclusive manufacturing growth, develop human capital, and generate more jobs.

We also remain committed in supporting liberalization to enhance our country’s competitiveness. This means amending laws like the Retail Trade Liberalization Act (RTLA), the Foreign Investments Act (FIA), and the Public Services Act (PSA), which have been certified urgent by the President and we see the Congress and Senate now working hard to amend these bills Together with CREATE, these reforms—and the review of other economic restrictions being conducted by Congress with the intention of removing barriers for entry—will attract more investments and create more jobs in the Philippines.

To conclude, while the future of Philippine manufacturing appears bright and encouraging, we should remember that our efforts to strengthen our industries and attract more investments means the creation of more jobs and employment for our people. This is the true and ultimate goal of the Duterte administration: to give the Filipino a more comfortable and greater quality of life.Maraming salamat po at mabuhay tayong lahat. ♦

Date of Release: 27 May 2021