Thank you to Philippine Exporters Confederation President Sergio Ortiz-Luis, Jr. for inviting me to speak at this General Membership meeting.
To our distinguished guests and the PHILEXPORT members here—a pleasant afternoon.
As the Philippines endeavors to achieve economic transformation, we aspire shared prosperity for all. Such vision will enable our country to mark a solid macro fundamentals that will support inclusive growth; and with trade and industry that is competitive, robust, inclusive, and sustainable.
Vital in such work are your contributions—as exporters, including micro, small, and medium enterprises. Many times, these two categories may overlap, exporters and MSMEs. More importantly, we recognize that exports increased from US$65 billion in 2020 to more than US$74 billion in 2021, which accounted for almost 40% of the country’s total trade. US, China, Japan, Hong Kong, and Singapore remain our top export markets.
In 2021 up to the first half of this year, the following commodity groups presented strong growth: electronics, other manufacturers, mineral products, cathodes, refined copper, chemicals, and coconut oil, among others. Building on these initial gains, we are drafting a Philippine Export Development Plan for 2023-2028.
For this new Philippine Export Development Plan, we are pursuing to transform our country from an exporter of commodities and intermediate goods to an exporter of high-value products and services. Our new directions are headed toward complete data analytics, stronger and wider stakeholder engagement, product and market matching, and a proactive legislative agenda.
In this regard, the DTI will support industry development through priority clusters, namely, Industrial, Manufacturing, and Transport (IMT); Technology, Media, and Telecommunication (TMT); Health and Life Sciences (HLS); and resource-based.
The first cluster, Industrial, Manufacturing, and Transport (IMT), provides the country with upgrading opportunities in aerospace, automotive, and semiconductors.
The Philippines hosts the number one aircraft interiors company in the world (Collins Aerospace) and the world’s leading aircraft maintenance, repair, and overhaul or MRO company (Lufthansa Technik). More than a week ago, we joined the inauguration of Lufthansa’s Hangar 1A expansion.
Further, we are building two massive airport complexes north of Manila—Clark International Airport and New Manila (Bulacan) International Airport. These developments have the space to host MRO clusters. We hope foreign investors will find promise in the local industry’s capabilities in tier-1 and tier-2 aerospace parts MRO. That is the beauty with having lead entities already here to attract investors.
In the automotive global value chain, an anticipated change is a switch from combustion engine to electric vehicles or EVs. As automotive companies shift to all- EV manufacturing, DTI is keen on opportunities for the country to enter the EV global value chain. We aim to adopt relevant technologies for developing pollution reduction, green vehicles, IT in vehicles, and precision metal components.
The semiconductor industry remains one of our largest export industries. For the first half of 2022, semiconductor devices manufactured from materials on a consignment basis belong to our top export products. The industry can benefit from increasing skills in R&D, helping improve business for firms in the Outsourced Semiconductor Assembly and Testing.
The common thread among all the three IMT subsectors is the electronics and electrical parts and components are global value chains. We aim to attract foreign direct investments to design capacity so that more value-added is captured and manufacturing is expanded in the country. Manufacturing is the country’s guarantee of sustainable and inclusive growth, providing more stable and higher-paying jobs. We hope that after we have built the base of the large industries are MSMEs can participate in the supply chains of these large companies.
The second cluster, Technology, Media, and Telecommunication (TMT), will provide the Philippines with opportunities to digitalize services.
In the BPO sector, the next decade will witness the BPO segment as a cross-cutting contributor to the competitiveness and efficiency of the other global value chains it supports. From cost saving, it will shift to value addition. That 82% of BPOs and shared services centers in the Philippines serve global markets is a positive attribute that can be leveraged. And this will be toward increasing our participation in the TMT global value chain.
With the pandemic, interest in data centers has also increased globally. Our country’s strong record in BPO, future of work programs, and hyperscale roadmap are drawing the attention of hyperscalers, these are the large IT or digital companies like Microsoft, Amazon, seeking to expand geographically globally. We prioritize data centers and hyperscalers in our investment promotion campaign, “Make It Happen in the Philippines.” It is country’s branding that we are now proposing and promoting, this was developed by the assistance of the UK government and this has been tested by the market researchers globally. We have heard of “It’s More Fun in the Philippines,” for tourism but for investors and for our export we will say “Make It Happen in the Philippines.” And we consider hyperscalers as the next engine of growth for the country.
Back in July, we launched the PLDT Jupiter Cable System. This subsea cable system will serve as an added superhighway for digital data and attract hyperscalers into the country.
Also, under the TMT cluster are the creative industries. The country has recently passed the Creative Industries Law. And DTI is committed to implementing this law to bring the creative industries in the Philippines to the global stage.
Further, DTI has been implementing the Creative Economy Strategy of the Philippines, or CREST PH, as we help build a supportive environment for the creative industries and integrate them as they develop.
We cannot ignore that with the COVID-19 pandemic at the root of the current global economic distress, the third cluster, Health and Life Science (HLS), plays a strategic role. Our goal is to make the Philippines self-sufficient in pharmaceuticals, as well as relevant and related areas such as medical devices, healthcare services, and therapeutic systems.
Over the next decade, manufacturing medicines faster and cheaper will continue to be the goal of multinational companies. The sector will also witness smaller, more agile pharmaceutical companies taking a more critical role in bringing medicines, including generics, to the market. As pharmaceuticals, medical devices, and healthcare services become more integrated, this facilitates the emergence of an HLS cluster in the Philippines.
Let me add a bit on the Philippines’ traditional mineral exports, an area quite apart from three industry clusters.
DTI will also promote resource-based industries, particularly ore processing. The Philippines has 2 billion MT nickel, 1.1 billion MT copper, and 260,000 MT cobalt reserves. These resources can be used for downstream industries such as EV batteries, hyperscaler data centers, and renewable energy. Exporters can be partners as the country pursues to be a producer of semi-finished and finished products like batteries. Last Saturday, I met with the coordinating minister of Indonesia for investments among others and he described to what they have done from an earning of one dollar per unit of nickel ore, they are now earning 10 times the value.
In addition to the challenge of renewable energy, one challenge that we have to face is the issue of food security. To help address the food security challenges, DTI will collaborate with the Department of Agriculture to improve the food value chains through upgraded transport and logistics facilities, including cold storage and cold chain facilities.
Moreover, DTI will increase community-level value-adding and pursue effective local government-enabled market matching mechanisms for food waste reduction. DTI will promote digital technology to assist in streamlining agricultural supply chains to link producers directly to the markets and possibly eliminate rent-seeking intermediaries through technology-led systems. DTI will transform agriculture and agribusiness by adopting new technologies and innovations. We also plan to develop industry cluster, this will involve MSMEs. Like the Bamboo industry cluster, very big potential but very little development going on now. Although a lot research and studies have been done on bamboo. Coffee is the other one, we need to develop coffee grower clusters and processors. We still import 80% of our domestic coffee requirement, that is a big local demand the can be filled. Cacao also, is another important agricultural cluster that we can develop and for which there are already very successful downstream processors, like Auro and Malagos the makers of chocolates.
When you pursue export activities, for example, in these priority industry clusters, DTI aims to enable and support you.
Export activities are Industry Tier I activities and are fundamental to our country’s development. Export activities hold a high potential to create jobs. They optimize value creation and provide essential support to sectors that drive industrial development. In fact, the industries we are attracting in the Philippines are all export-oriented industries.
Working toward a competitive economy, we are paving the way for our country’s industrial transformation. This transformation is driven by science, technology, and innovation, or STI, as well as digital technologies. We look forward to working with you, our exporters, in building dynamic industry ecosystems as our foundation.
In trade, DTI continues to harness opportunities offered by the country’s free trade agreements. We further aim to expand our FTAs to help diversify the country’s exports, first in terms of products and services and second in terms of country destinations.
DTI also continues to push for the Senate’s ratification of the Regional Comprehensive Economic Partnership or RCEP. If we succeed, we can take advantage of trade and investment opportunities through partnerships between the ASEAN nations plus China, Japan, Australia, New Zealand, and South Korea.
The Philippine Economic Zone Authority, or PEZA, as the chief implementer of the ecozone program, hopes to attract more FDI from the RCEP member economies, especially from non-traditional trading and investment country sources. Our work on the FTAs and RCEP will help enable you to participate more fully in trade with other countries
As we build on reforms that enhance trade, DTI helps ensure that investments will be preferred and incentivized. The past administration has very important laws that are now helping attract foreign investors, like the amendment to Public Service Act, Foreign Investment Act, and Retail Trade Liberalization Act. CREATE law also harmonizes investments across the board.
Those export-oriented and BOI-registered businesses whose activities are included in the SIPP may be entitled to incentives. SIPP lists these specific export activities as production and manufacture of export products, services exports, and activities in support of exporters.
Fiscal incentives for export-oriented registered business enterprises include income tax holidays; special corporate income tax or enhanced deductions; duty exemption on importation of raw materials and capital equipment, among others; VAT exemption on importation; and VAT zero-rating on local purchases.
As many of you may know, for ecozone locators under PEZA, we grant as well the following:
- Tax-and duty-free importation of capital equipment and other required inputs;
- Domestic sales allowance;
- VAT exemption on importation and VAT zero-rating on local purchases.
Having covered these initiatives to integrate small businesses into the value chains of exporting companies, let me now turn your attention to DTI’s strategic priority to upgrade, upskill, and upsize MSMEs.
MSMEs are the backbone of our economy. They comprise 99.5% of about a million registered businesses in the Philippines. As MSMEs bring about a virtuous cycle of livelihood, they help make communities more prosperous and inclusive. We recognize these characteristic abilities of MSMEs to spur growth that we seek for them to be able to scale—from micro to small, small to medium, medium to large.
For MSMEs to continue to scale, we need to address their constraints to access finance, technology, and the market. DTI further seeks opportunities for MSMEs in the Philippines to integrate into domestic value chains and to penetrate multinational companies’ global value chains. My view of this is that the MSMEs, there is a lot of demand in our country for consumer goods especially processed food. If you noticed if you go to the supermarkets, also the packaged food being sold imports. It’s the Thailand MSMEs that are filling the demand in the Philippines for food products. I think the local companies can start targeting that as substitute for the imported ones. Some sort of import substitutions but the idea is to grow the business by first catering to the local market and as you grow, you can target the export market.
DTI, in collaboration with DICT, will also promote digitalization and digital transformation programs for MSMEs.
Digital systems can help connect, for example, sari-sari stores to manufacturers and financing firms. Because of the digitize data it is now possible for digital platform provider to do a credit scoring of the small businesses ono the platform. There is one now bank providing financing of enterprise on e-commerce platform and we are partnering with them so that DTI can act as an incubator for micro and small industries as we train and encourage them to participate in e-commerce platforms. Eventually, that will be the basis also for them getting access to finance and technology.
By embracing digital transformation, MSMEs can also operate efficiently, reduce costs, and earn profits while manufacturing more affordable products. Digital transformation further enables MSMEs to adapt and become sustainable businesses, for example, by being able to provide services and goods even amid disruptive events.
DTI will further implement programs that align with its broader direction to tap science, technology, and innovation. With STI-driven strategies and programs, and in collaboration with the Department of Science and Technology, we will assist MSMEs to be better positioned to grow, upscale, and meet changing market demands. Yesterday we had a cabinet meeting and the Secretary of DOST made a presentation. One of his conclusions is there are a lot of commercializable inventions in UST but there are no takers. Because many of them are developed without really doing it in partnership with the private sector. I told them we are in touch with the private sector, we will help to get these products and services that they developed to the business community so they can be commercialized.
DTI recognizes the need to encourage more MSMEs to digitalize their operations and bring their businesses online. We are going to have some sort of an incubator for participating in e-commerce platform. To give them confidence, we will start them off with our e-commerce platform which we will develop in partnership with the private sector, no cost to the government.
To further expand the use of e-commerce, DTI is working closely with the Department of Information and Communications Technology, or DICT, to develop an incubator platform with partnership with two private entities. One unique characteristic that we will offer in the platform is availability of financing through the platform.
Still aligned with DTI’s STI-driven thrust, we are establishing the Center for Artificial Intelligence Research and the Industry 4.0 Pilot Factory. These two centers can drive the development of innovative products and services using the latest technologies like AI. They can help solve problems and issues that affect the operations and competitiveness of growing enterprises, including MSMEs.
We are implementing our Artificial Intelligence Roadmap through this center for AI research. AI adoption can enable the country to tap vast opportunities to help maintain the regional and global competitiveness of industries, prepare for the jobs of the future, and attract the AI R&D of multinational tech companies to locate in the Philippines.
The Center, which will come up within this year, will be a public-private partnership. It will serve as a hub for data scientists and researchers to perform collaborative AI R&D, and create AI tech products. The Center’s focus will be on utilizing AI, for example, in precision farming to help improve farmers’ productivity and incomes; health services; smart manufacturing; and resilient technologies.
We are also building another center, the Industry 4.0 Pilot Factory. This will serve as a platform for collaborative learning in Industry 4.0 management and production technology. And it can focus on specific areas such as automation, robots, Internet of Things, and smart factory. MSMEs, researchers, and universities can be co-makers and co-work at the Center for R&D and prototyping activities.
As the Pilot Factory serves as a demonstration and training hub for pilot Industry 4.0 technologies and solutions
This early September, we will inaugurate the innovation center that will host the Center and Pilot Factory. The initiative is sponsored by one of the major business groups, and our partners here are also large business groups in the country. We are also partnering with the Asian Institute of Management which is already the beginning of an AI research laboratory.
We hope that these strategic directions and concrete developments will help build your confidence as exporters or as leaders of MSMEs. Our focus on industry clusters, our suite of preferences and incentives that are well-integrated in policy reforms, our record in supporting MSMEs to integrate in exporting companies’ value chains, and our priority to grow and scale MSMEs all encourage you to do more—to produce more, to sell more, to export more.
Thank you very much at mabuhay tayong lahat. ♦
Date of Release: 1 September 2022