Export opportunities and obstacles

BusinessWorld Insights probes into what lies ahead for Philippine trade

By Chelsey Keith P. Ignacio, Special Features and Content Senior Writer

Various opportunities are perceived to boost and diversify the exports from the country, but taking advantage of these is hampered by challenges concerning regulations and costs. These are the observations noted during the BusinessWorld Insights online forum on “The Philippines’ Trade Opportunities in 2023” last March 29.

Exports can be an impetus for economic activity and growth. But in the past years, the country’s imports have been surpassing exports, with the trade deficit broadening. The trade deficit widened by 38% to $58.24 billion in 2022, according to data released by the Philippine Statistics Authority this April.

“Despite the efforts to improve trade, the Philippines’ monthly trade deficit has been increasing at average between $3-6 billion since 2021. The main themes include stagnating exports due to the lack of a robust manufacturing sector and continued reliance again and again on imports,” Union Bank of the Philippines, Inc. Chief Economist Ruben Carlo O. Asuncion said.

But the previous year is “not all dark and gloomy” as exports and imports both registered a double-digit growth of 10.7% and 13.1%, respectively.

“We look to different issues, probably regulatory issues, supply chain disruptions, and infrastructure challenges remain to be the barriers in boosting trade in the country,” Mr. Asuncion said.

This year, amid the global recessionary environment, Mr. Asuncion projected a softer, single-digit growth for exports and imports.

Looking as far back as 2013, Senen M. Perlada, executive vice-president and chief operating officer of the Philippine Exporters Confederation, Inc. (PHILEXPORT), observed that the country’s trade performance did not improve from then to 2022, with the broadening trade deficit for the past 10 years.

Citing the International Trade Centre, Mr. Perlada shared the country has an unrealized export potential of $49 billion. He added that there are opportunities for the country to provide more complex products. However, he noted that the composition of the country’s top 10 export markets has barely changed in the past decade.

“So, what ails Philippine trade, particularly export trade? Do we really lack the opportunities that we need to propel our exports? I argue that no, we do not lack opportunities. In fact, we are very rich in trade opportunities. What we really need to address are the challenges behind our borders,” he said.

Barriers behind the border

Regulation and the cost of doing business are seen to be the challenges in the country.

“A lot of the constraints and challenges we have are actually behind the border, not market access obstacles,” Mr. Perlada further stressed.

He addressed the continuing regulatory burden on imports and inputs for export products.

“The government wants to monitor each and every container that is moving in our streets, whether it’s import or export, not realizing that is not really the container that you need to monitor but what’s inside the container. We have to have a better system in order for us to be able to do this,” he said.

Additionally, if the value-added tax on supplies to exporters would push through, Mr. Perlada considered that would make the country’s exports uncompetitive. “Which country in the world will in effect penalize the exporters by sourcing for products that are actually sourced locally?” he expressed.

“There’s already a bias against our exports because we are in effect penalizing our local suppliers from supplying our exporters,” he added. “And, guess what, it’s a lot easier to import our inputs to supply to our exporters.”

Such challenge being unable to supply to exporters could be seen during the trade war between the United States and China, and how many manufacturing firms were expected to move into different countries in the ASEAN (Association of Southeast Asian Nations), said UnionBank’s Mr. Asuncion. And it was Vietnam that was able to get the large share of these firms.

“They would rather go to countries or spaces where, when they go there, the suppliers are already there. And they’re just basically going to do what they need to do… Unfortunately, we have not been able to demonstrate that,” he said.

Opportunities, diversification

The Philippines has several opportunities that it could leverage for exports, and much of these are seen in agriculture.

“When it comes to exports, producing and exporting products that have higher local content really provides us with a lot of opportunities. And these are agri-based,” Mr. Perlada said.

The country’s purple yam and chocolate, for instance, could be opportunities, though considering a problem in production capacity to serve large orders required by the market.

There is also a potential in furniture, but this is also faced with regulation. He noted that exporting wooden furniture stipulates a CITES (Convention on International Trade in Endangered Species) certificate from the Department of Environment and Natural Resources (DENR) and a fee of 3% of the FOB (Free On Board) value that exporters have to pay. “To me, that sounds more like a tax,” he commented. “What reason will you have to charge that amount?”

Mr. Perlada also mentioned later on that the country, in theory, should be able to leverage digital trade, since the Philippines has one of the highest average daily time spent on using the Internet.

“I have to mention e-commerce and digital trade because this is going to be the wave of the future. And this is where I think the Philippines will be able to have this opportunity to address this sort of imbalance against export trade coming from the Philippines,” he said.

Diversification and innovation of products are also important, Mr. Perlada considered. “We have commodities that can actually go into the higher and more complex products,” he said, which the country was able to do with coconut, but has yet to do the same for others such as bananas.

“Basically anything food and agri-marine would be good opportunities for us. It will kind of really help us address a lot of the trade deficit and all of that,” he added.

Echoing Mr. Perlada, UnionBank’s Mr. Asuncion similarly saw potential in agriculture, noting that technology and innovation could come in and both expand production so the country could export, especially products that are unique to the Philippines, as well as support food security.

A space for exporters

Being in the industrial estate business, Clifford Academia, vice-president for operations at Aboitiz InfraCapital Economic Estates, talked about their role of providing real estate solutions to exporters that want to locate in the Philippines.

“Naturally, we have a direct role in the expansion of these companies; and, therefore, we have a direct impact on the increase of exports because Special Economic Zones are our locations for export-oriented companies,” he said.

“Industrial parks and industrial estates play a big role in making these opportunities a reality for foreign companies that want to do manufacturing export here,” he added.

For the part of Aboitiz InfraCapital, Mr. Academia said their business has been to transform industrial estates into “future-ready and smart economic centers” for the past three decades.

“We are also committed to putting sustainability, resilience, and smart technology adoption at the forefront of everything that we do. Doing so will ensure our economic estates adhere to the requirements of an increasingly sophisticated and discerning market and help establish the Philippines as a preferred investment destination in the region,” he added.

Meanwhile, although he asserted that the country was able to benefit from the US-China trade war in terms of investments, Mr. Academia also agreed with Mr. Perlada that the country should work on the regulation, making it easier to open a business here, and the cost of doing business, among others.

“We in the industrial park business believe that we have what it takes. We just really need to find our way through the headwinds,” he said.

This session of BusinessWorld Insights was in partnership with Aboitiz InfraCapital and supported by the Asia Society-Philippines, British Chamber of Commerce of the Philippines, Bank Marketing Association of the Philippines, French Chamber of Commerce and Industry in the Philippines, Management Association of the Philippines, Philippine Franchise Association, Philippine Retailers Association, and The Philippine STAR.