9 December 2020 via Virtual Platform
[Acknowledgments]
Ladies and gentlemen, magandang hapon po sa inyong lahat.
We are pleased to address all of you once again to talk about the state of our country’s manufacturing industry. More importantly, as our country addresses the COVID-19 pandemic, we will also discuss how the Philippines can move forward to achieve our shared aspiration to be among the world’s industrialized nations.
As the year 2020 is about to end, we need to prepare ourselves for the upcoming year that would be critical for our economic recovery and resilience in the future.
Recent Performance of PH Manufacturing
While we are experiencing the worst contraction in our economy this year since the 1998 Asian financial crisis, let us remember the sustained strong macroeconomic performance of the Philippine economy in recent years.
We were averaging an annual GDP growth rate above 6% from 2010 to 2019, which was the highest in the region except for China and Vietnam. As a result, we have been enjoying very favorable credit ratings from sovereign ratings agencies even until this year.
Our manufacturing sector has grown to be a major driver of our economy, almost doubling its average growth rate to 5.8% in the 2013 to 2019 period, compared to around 3% in the previous decade. Manufacturing now accounts for almost 20% of our GDP.
Unfortunately, due to the pandemic, manufacturing contracted by 11.4% in the first three quarters of 2020.
But while the sector contracted by 12.3% in the first half of the year, this has softened to 9.7% in the 3rd quarter as we allowed the increased capacity of more businesses and more industries to reopen.
Manufacturing is showing signs of recovery. Data on the auto industry, for instance, indicate that auto production has started to pick-up. From hitting zero production in April, it has recorded more than 7,000 units in production as of September. We can also see the same trend in our electrical and electronics exports, which have been climbing up to a growth of 6.3% in September from a low of -44.9% in April.
The production indicators from January to November show that while there were significant declines during the first half of the year, we are seeing some the recovery in the values and volumes of production indices.
We can also observe that practically all the manufacturing sub-sectors are making up for the slowdown they experienced in the second quarter of the year. We are optimistic that this trend will continue in the coming months, as we continue to adapt to our new normal while observing public health guidelines.
In terms of investments, we are still seeing significant inflows despite the challenges during the pandemic. Investment approvals have already reached US$15B so far this year and we expect more than a Php 1T (or over US$20B) by 2021 with potentially over 34,000 jobs generated.
INNOVATION: Key in the New Normal
We continue to affirm that innovation in our industries will be key to sustained competitiveness and development in the “New Normal” to create a “Better Normal” in the future.
In the Fourth Industrial Revolution, new technologies—such as 3D printing, additive manufacturing, and advanced robotics, among many others—will be essential to increase the productivity of enterprises and add more value to products and services. In addition to production, these technologies will also be valuable in ensuring the robustness of supply chains.
A survey conducted by IBM reveals that supply-chain resiliency is gaining importance, with 40% of business executives saying that they need to build capacity to respond to future crises and become more competitive in the long term.
Locally, when we conducted a survey on the technology utilization of manufacturing enterprises in 2019, we found out that there remained low technology utilization in the manufacturing sector. Most are still making the transition from Industry 2.0 to 3.0.
Among the key findings were: 44% had no maintenance system; 35% collect and manage data through paper documents; 46% have no established cybersecurity; and more than 50% had no manufacturing equipment connected to a network.
However, the pandemic’s disruption of business and the use of digital tools have pushed the emergence of significant innovation among Philippine enterprises.
A Microsoft-IDC study points out that 88% of business decision-makers in the country now say that innovation is a ‘must.’ Furthermore, while significantly more organizations in the Philippines found innovation to be hard (or 77%) before COVID-19, they have since changed perceptions with significantly less organizations (or 44%) having this sentiment at present.
The payoff from digitalization is expected to be significant. The 2020 Asia-Pacific Small and Medium Business Digital Maturity Study commissioned by Cisco Systems reveals that we can increase our annual domestic output by at least US$26B to US$28B by 2024. This can be achieved through the digitalization of our small and medium enterprises.
Currently, our SMEs are prioritizing customer experience, service delivery, and marketing and sales in their digitalization journey. They are mostly employing artificial intelligence, analytics, and cloud technologies for improving these business operations.
DTI Initiatives for Smarter and Resilient Manufacturing
To further accelerate the digital transformation of our industries, the Department of Trade and Industry (DTI) is continuing the implementation of our Inclusive Innovation Industrial Strategy (i³S).
The aim of strategy is to grow globally innovative and competitive manufacturing, agribusiness, and services industries. Our industrial strategy relies on the strong collaboration between and among government, industry, and the academe at the national and regional levels.
Our priority industries for domestic and export markets are among the country’s competitive advantages, with high potential for job generation and investment attraction. We continue to push our firms to move up their industry value chains for higher-value production. We’ve also noted the emerging industries with high potential after COVID-19.
Likewise, we’ve targeted the specific activities that we want to pursue for the priority industries for their growth.
To better enable our MSMEs for the Fourth Industrial Revolution, we are working on various Industry 4.0 initiatives. In partnership with the United Nations Industrial Development Organization (UNIDO), we are updating our industry roadmaps for agribusiness, aerospace, automotive, and electronics industries to incorporate Industry 4.0 adoption and utilization.
We are also conducting a feasibility study for the establishment of an Industry 4.0 Pilot Factory in the country to serve as a venue to demonstrate various 4IR technologies. An Industry 4.0 SME Academy will also complement the pilot factory by providing relevant training and capacity-building activities.
Together with Siemens, we will carry out a firm-level assessment using the Smart Industry Readiness Index (SIRI) to assess the digital readiness of enterprises, as well as develop a digital transformation roadmap for selected firms.
We will also be implementing the Strategic MSMLE and Startup Link (or SMART Link) project, which aims to match startups with commerciable products to Micro, Small, Medium, and Large Enterprises (MSMLEs).
We are in the process of developing our own Philippine Skills Framework to reskill and upskill our workers for Industry 4.0 technologies in cooperation with SkillsFuture Singapore (SSG).
We will also be launching next year an Artificial Intelligence (AI) Roadmap for Industry, covering the agribusiness, manufacturing, and services industries.
To prepare for the future of mobility, we are proposing an Electric Vehicle Incentive Strategy (EVIS) that aims to provide comprehensive fiscal and non-fiscal support to enable the traditional motor vehicle industry to shift to EV. It will also jumpstart the development of the country’s EV manufacturing industry.
Aside from our Industry 4.0 initiatives, we have also embarked on projects together with our partners from the private sector to foster their resiliency.
With the COVID-19 pandemic creating a surge in demand for personal protective equipment (PPE), DTI and the Board of Investments (BOI) coordinated the pivoting of manufacturing firms towards the production of high value and essential products. This helped our healthcare workers to combat the pandemic.
Likewise, together with the United Nations Development Programme (UNDP) in the Philippines, we developed an online platform to facilitate the matching of suppliers, manufacturers, and consumers of PPEs and other medical equipment.
We also intend to nurture Industry 4.0 readiness and resiliency of our MSMEs in our regions to boost our capacity for innovation by building Regional Inclusive Innovation Centers (RIICs) across the country.
New Opportunities for PH Manufacturing
As we enter a new year, there are two major developments that we should consider as new opportunities for our manufacturing enterprises: CREATE and RCEP.
The first is the Corporate Recovery and Tax Incentives for Enterprises (or CREATE bill), which is expected to be signed into law by President Rodrigo Roa Duterte anytime soon.
Our MSMEs will benefit the most from CREATE, as it provides for an immediate 10% reduction in the CIT rate, bringing it down to 20% from 30% at present. For domestic corporations with a net taxable income of more than Php5M, foreign corporations and non-resident foreign corporations will still benefit from the outright 5% reduction in the CIT rate beginning July 2020. In view of the ongoing health crisis, the coverage of VAT-exempt transactions under CREATE has been expanded to cover drugs and medicines for cancer, mental illness, tuberculosis, and kidney diseases beginning January 1, 2021.
In addition, under CREATE, export enterprises and domestic enterprises engaged in activities classified as critical industries will enjoy an Income Tax Holiday for 4 to 7 years. There will also be a 5% Special Corporate Income Tax Rate (SCIT) based on Gross Income Earned, in lieu of all national and local taxes for 10 years.
BOI will formulate the Strategic Investment Priorities Plan (SIPP), which will define the coverage of the sectoral tiers and provide the conditions for qualifying economic activities. This will give premium to projects or activities that have substantial amounts of investments, considerable job generation capacity, and modern technology.
Aside from CREATE, the signing of the Regional Comprehensive Economic Partnership (or RCEP) among ASEAN member states, Australia, New Zealand, Japan, Korea, and China will offer trade and investment opportunities for our manufacturing sector.
Specifically, RCEP will benefit the Philippines in four (4) key areas: Cheaper Costs, Convenience, Competitiveness, and Complementation.
- With regard to Cheaper Cost, it is expected that the RCEP will increase the movement of goods throughout the region.
- With regard to Convenience, our MSMEs and exporters can engage in seamless transactions through RCEP for all Free Trade Agreement (FTA) partners.
- With regard to Competitiveness, RCEP presents a more stable and predictable business environment that is expected to attract more investments in the Philippines.
- With regard to Complementation, RCEP supports MSME development and participation in global value chains.
Just to illustrate RCEP’s benefits, specifically in terms of enhanced market access for goods, many of our local products will enjoy significant tariff concessions to enter China, Japan, and Korea. For instance, within the next 10 to 20 years or less, depending on the product, preserved pineapple and car head lights will enter China at 0% tariff; chocolate products and canned fruit juice can be exported to Japan also at 0%; and fresh papaya, beer, and bicycle products can enter Korea at 0%.
We look forward to maximizing the opportunities presented by CREATE and RCEP in the years ahead.
Final Words
As 2021 approaches, let us renew our commitment to work together and develop a smarter and resilient manufacturing industry. However, our efforts must also involve the digital transformation of our industries. To be resilient, Philippine manufacturing must evolve faster, better, and smarter.
Ultimately, our goal is to provide more jobs and livelihood for our people, while also protecting and securing their source of income in the Fourth Industrial Revolution. In doing so, we will create a modern, dynamic, and responsible Philippines wherein our people can enjoy a better and more comfortable quality of life as promised by President Rodrigo Roa Duterte.
Maraming salamat po at mabuhay tayong lahat. ♦
Date of Release: 09 December 2020