The Philippine

Export Development Plan

2015-2017
EXECUTIVE SUMMARY
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Executive Summary

After a sharp fall in 2009 instigated by the global financial crisis,

Philippine exports have made a significant recovery in the past four
years. With the threat of another global recession receding and
demand in traditional markets increasing, there is optimism that the
growth momentum could be carried forward. However, such
optimism is guarded in light of concerns of possible economic
slowdown in China and slower than expected recovery in the United
States, compounded by domestic supply bottlenecks.

Like many others caught in the middle-income trap, exports would

need more than a few years of sterling performance in order to have
real impact. Economic growth stimulated by trade should be robust
and sustained over an extended period to have a perceptible
contribution in creating high quality jobs and reducing poverty. But
the challenges of catapulting exports on a stable growth path remain
formidable.

This document lays out a three-year plan of providing a business

environment supportive of trade, growth and innovation that would
enable domestic industries to establish their niches in regional and
global markets, in turn, raising the status of the Philippines in the
global value chain.

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Export Performance

Exports of goods and services recorded an 8.6% increase in 2014,

reaching US$86.9 billion. This is the third consecutive year of
positive growth. Goods constituted nearly four-fifths of total
revenues, although it was the growth in services that kept the sector
buoyed amid volatilities in global demand.

Manufactures dominated goods exports having a share of 83%.

Increasing export of minerals has fairly reduced this share from 93%
in 2000. But the real dent in the share of manufacturing was caused
by the slump in electronics. Since the 1980s, electronics constituted
the bulk of manufactured exports and dictated the performance of
the export sector. In recent years, however, demand for electronics
in the global market has been faltering and dragging the overall
growth of exports. To be sure, there are significant improvements in
exports of chemical products, wood manufactures and processed
food and beverages, but these are largely overshadowed by the
decline in revenues from electronics.

In contrast, the phenomenal growth of IT-BPM (Information

Technology-Business Process Management) that began in early 2000
has yet to be matched by other services sectors. In 2014, exports of
computer and information services and other business services –
technical and trade-related, collectively labelled here as IT-BPM,
amounted to US$17.3 billion or 70% of total services exports. The
only other services with substantial shares are travel (19%) and
transport (7%). Export revenues from telecommunication services
have been fluctuating but generally declining due to new technolo-
gies and market liberalization.

By most measures, the Philippines lags behind its neighbors in ex-

port performance. In 2013, the country’s export volume is just
over a quarter of Thailand’s, half of Vietnam’s and a third of Indone-
sia’s. Between 2006 and 2013, Philippine exports grew slower than
its neighbors at 4.6% annually, compared to 17.9% of Vietnam, 9%
of Indonesia and 9.2% of Thailand. Moreover, Philippine exports
contributed much less to national income than exports of other
ASEAN economies to their respective national incomes.
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Table I.1 Philippine Exports of Merchandise and Services
(in billion US dollars; percent)

CAGR

2011 2012 2013 2014 2006-14 2010-14

Goods 48.04 52.99 56.70 62.10 3.4 4.8
Services 18.88 20.44 23.33 24.84 10.6 8.7
Total 66.92 72.43 80.03 86.94 5.1 5.8

Source of basic data: Philippine Statistical Authority (PSA) and Bangko Sentral ng Pilipi-
nas (BSP)

Table I.9 Philippine Exports Compared to Selected ASEAN Countries

(in billion US dollars; percent
PHL IDN MYS THA VNM
Exports, 2013
Goods 56.7 182.6 228.3 228.5 132.0
Services 23.3 22.3 39.9 59.0 10.5
Total 80.0 204.9 268.2 287.5 142.5
CAGR, 2006-13
Goods 2.6 8.9 5.1 8.3 18.7
Services 11.2 9.9 9.1 13.3 10.9
Total 4.6 9.0 5.7 9.2 17.9
source: COMTRADE

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Constraints to Export Growth

Several factors account for the weaker performance of Philippine

exports. One factor is the concentration of revenues in few goods
and services, which exposes the sector to shocks in demand and
supply of these products. More than two-thirds of goods exports are
accounted for by the top 10 products which include semiconductor,
electronic data processing, machinery and transport equipment,
woodcrafts and furniture and chemicals. Yet this is already an
improvement from 2006 when the top 10 represented 77% of
revenues. There is even more lack of diversification in
services exports. The share of IT-BPM has been steadily
increasing from 51% in 2006 to 70% in 2014 as revenues from this
industry more than tripled from US$5.7 to US$17 billion in the same
period.

The sector is also dependent on a few markets. The top five

destinations of Philippine exports, namely Japan, U.S., China, Hong
Kong and Singapore delivered nearly half of the export revenues in
2014. Trading with other ASEAN economies, except Thailand and
Malaysia, is still limited despite growing regional integration.

Apart from limited diversification in products and markets, the

growth of exports is also hampered by competitiveness issues. A
trade competitiveness mapping of 2014 exports reveals that the
global demand for two-thirds of Philippine goods has either grown
slower than overall world trade or contracted. The products for
which the country has comparative advantage are among those
with slow growing or declining demand in the global market. In the
few products where global market demand is growing fast,
Philippine producers have not kept pace with other producers and
as result, lost some of their market share. The problems of weak
demand and loss of competitiveness afflict almost half of total
Philippine exports.

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The loss of competitiveness can be traced to a host of domestic
problems, including unnecessary and trade-impeding domestic
regulations and government policies; high costs and deficient
infrastructure; limited export financing especially for small and
medium-scaled exporters; unstable supply of raw materials; shortage
of domestic skills that match industry requirements; weak system of
innovation in products and processes; and fragmented and poorly
funded domestic institutions that regulate product quality and
industry standards. These problems stifle the ability of local
producers to link up with the global value chain.

Table II.1 Top 10 Philippine Goods Export, 2006 and 2014

(US$ million)

2006 2014
Rank Country Value Rank Country Value

1 Semiconductors 22,318 1 Semiconductors 18,587

2 Electronic data 5,745 2 Electronic data 5,805

processing processing
3 Articles of 1,770 3 Mach & transport 3,978
apparel eqpt
4 Mach & transport 1,231 4 Woodcrafts and f 3,334
eqpt urniture
5 Copper cathodes 962 5 Chemicals 2,603

6 Woodcrafts and 926 6 Ignition wiring sets 2,050

furniture
7 Petroleum prod- 918 7 Articles of apparel 1,833
ucts
8 Garments 877 8 Metal components 1,377

9 Ignition wiring 788 9 Coconut oil 1,203

sets
10 Chemicals 635 10 Bananas (fresh) 1,130
Share of top 10 to 77.04 Share of top 10 to 67.47
total total
Source: PSA

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Strategies for Growth and Development

To address the current woes of the export sector, a development

plan should direct the sector towards: (1) diversifying into new
markets and products; (ii) identifying and developing export
capabilities in products where global market demand is fast
growing; (iii) addressing bottlenecks that undermine the
competitiveness of exports; and (iv) harnessing the potential of
goods and services where the Philippines can be competitive but
have yet to attain comparative advantage.

The long-term vision of this plan is to fully integrate the Philippine

economy into the global production network. It is recognized that
the essential role of the government with regard to this goal is the
provision of a domestic business environment that facilitates trade,
promotes competition, delivers on social infrastructures, opens
up access to public goods, and promotes innovation. With a
supportive market environment in the background, domestic
producers could thrive, find their niche, and take advantage of scale
and scope economies in the global value chain. Small and medium
enterprises (SMEs) may need special attention, not only because
they require more support, but also because their progress
directly contributes to the attainment of inclusive growth.

To achieve export competitiveness, intervention has to be at two

fronts – sectoral and macro. The first provides comprehensive
support to selected sectors, while the latter works on lowering the
common hurdles and costs faced by all producers.

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Sector-focused Intervention

The Philippine Development Plan (PDP) advocates intervention for

sectors that contribute significantly to exports, have high growth
potential, and for which the country is competitive and has
comparative advantage. It is difficult to find such sectors meeting all
these characteristics, especially since the global demand for many
products where the country has comparative advantage is either
weak or stagnant. Hence, many products exported in significant
volumes have low growth potential, while exports of products with
high growth potentials are still nascent and therefore relatively
small.

To align PEDP with the PDP, some sectors have been selected to
leverage on the country’s comparative advantage, while others are
chosen to exploit the opportunities presented by fast growing
markets. Thus, the intervention in the next three years would
be focused on two groups: key sectors or those which the
Philippines has comparative advantage and thus exports in significant
volume, and emerging sectors or those that have high growth
potential, the demand for which the country could supply
competitively in the global market.

Six are designated key exports, namely: electronics, processed food

and beverage, coconut oil, motor vehicle parts, and computer and
information services and other business services – technical and
trade-related (both are under IT-BPM), while exports of activated
carbon, chemicals, metal components, and fresh and preserved
fish are considered emerging.

Since intervention has been proven more effective when focused and
comprehensive, the first strategy under the present plan provides for
a package of comprehensive support to each of the key and emerging
sectors. Such package consists of thorough and in-depth analysis of
sector-specific global value chain, investment and marketing promo-
tion, business matching, training and capacity building, financing
options, and support for innovation, product development and
design.

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Learning from the lessons of past PEDP cycles, the interventions for
the selected sectors must be accompanied by an organized system
of monitoring and evaluation. Activities and support provided
to these sectors will be monitored, periodically assessed, and if
necessary, continually adjusted for effectiveness. The Depart-
ment of Trade and Industry shall take the lead in this initiative.

Next, attention would be given to removing domestic regulations

that unnecessarily raise the costs of production and market
delivery. The measures include: (i) accelerating and completing
reforms and modernization in the Bureau of Customs by urgently
passing the proposed Customs Modernization and Tariff Act, and
automating Customs procedures; (ii) full implementation of the new
Cabotage Law allowing co-loading of foreign cargoes by foreign
vessels; (iii) streamlining compliance procedures and regulatory
requirements imposed by various agencies on traded goods; and
(iii) coordination and harmonization of public policies particularly
those that have significant impact on traded goods.

Third, uncompetitive cost and quality of services (energy, transport,

communications and logistics) and inflexibilities in the labor market
will be addressed by the following measures: (i) regulatory reform
and promotion of market competition; (ii) tightening the link
between pay and productivity through enterprise-based wage
setting and implementation of productivity-based pay schemes; and
(iii) promoting flexible yet legitimate work arrangements, such as
flexible work schedules, telecommuting, job sharing and subcon-
tracting.

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Fourth, the quality of export goods and services will be continuously
upgraded so as to deepen penetration in existing markets and
diversify into new ones. Critical to this endeavor is promoting quality
consciousness among local producers and establishing a strong
national quality infrastructure (NQI). This would require, among
others: increasing the resources of regulatory agencies for standards
writing; setting up systems for voluntary labeling and certification;
encouraging private sector to support NQI institutions and policies;
and, delegating conformity assessment and voluntary standardization
to independent and recognized institutions. Product quality would be
promoted also by: (i) institutionalizing a supply chain group that
would focus on key and emerging export sectors to accelerate export
development; (ii) strengthening government training centers to
ensure matching of available skills and industry requirements; (iii)
encouraging the private sector to establish industry-led testing
centers and skills development/training centers that will cater to the
operational requirements of export-oriented firms; and (iv)
broadening access of domestic producers to technologies and
innovations, particularly those emerging from government programs
and initiatives such as those of the Department of Science and
Technology.

Fifth, exporters should be given more access to finance for market

prospection, product development and market diversification. A
quick fix to the long-standing problem of export financing is the full
implementation of the Magna Carta for MSMEs, specifically the
mandatory allocation of credit resources to the target beneficiaries
of the law. Government institutions tasked to assist exporters in
their financing requirements should step up in extending credit guar-
antees. In addition, new sources of credit should be explored such as
tapping Aid-for-Trade for this purpose.

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Sixth, to address the concentration of exports on few products and
markets, the different government agencies and private sector
should act in concert to exploit the opportunities offered by the
ASEAN economic integration and other preferential trading
arrangements. The government should engage more actively in
information gathering and dissemination (including market
intelligence), and capacity building of exporters. Through
diplomatic efforts, the Philippine image as gateway of the US and
EU to the ASEAN Economic Community should be bolstered.
Simultaneously, the government should identify and assess the
gains that the country may realistically obtain from its participation
in various trading arrangements. It should also earnestly work on
concluding mutual recognition arrangements (MRAs) on
certification-enabled products, particularly Halal and organic
products. Past initiatives to develop the country’s export services
capability, e.g., health information management, software
development, medical tourism, retirement and education
services, must be reviewed and revived when viable.

Seventh, a well-coordinated and sufficiently funded export and

investment promotion campaign is needed to exploit the nexus of
foreign direct investment (FDI) and export activity. Hitherto
export and investment promotion have been managed as
separate initiatives. A joint campaign entails aggressive
build-up of the country’s image as an attractive site for
production and investment, as well as rationalizing and linking
investment and export incentives. The Philippines should also be
able to match, if not surpass, the visibility of other ASEAN
countries in trade fairs and significantly increase the frequency of
exporters’ and importers’ business missions. For this,
alternative sources of funding would have to be tapped to augment
traditional sources and sustain the campaign.

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Finally, sufficient attention will be given to nurturing and harnessing a
national innovation system to enhance the innovative capacity of
domestic producers. Concretely, this will involve unlocking the flow
of knowledge and information among industries, universities and
public research institutions; addressing systemic failures that
undermine the capacity of industries to innovate; resolving mis-
matches between basic research in the public sector and academia
and more applied research in the industry; raising the effectiveness
of technology transfer institutions; and providing incentives
for collaborative research and technology development among firms
and with public research institutions.

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Towards an Inclusive Export Growth

Successful implementation of the strategies laid out in this plan

would help exports shrug off its uneven performance in past years,
move towards a stable growth path, and attain the elusive
US$100-billion target by the end of the cycle. These could be
achieved if exports would grow between 6.6 and 8.8 percent in 2016,
and between 7.7 and 10.6 percent in 2017, to offset the projected
contraction of about 1.2 percent in 2015. The growth targets trans-
late to additional export revenues of US$5.2 to US$8.8 billion in 2016
and US$8.5 to US$15.5 billion in 2017.

A robust and sustained increase in exports would spur economic

growth, create employment, and draw majority of the population
into the social and economic mainstream. Ultimately, export-driven
growth has the potential to help reduce poverty. Concretely, the
export sector may be able to deliver between 800,000 and 1.4 million
job opportunities in 2016, and between 1.2 and 2.3 million in 2017,
to compensate for job losses in 2015 as a result of projected export
decline. In all, the projected additional employment opportunities
over the life of the plan, is between 500,000 and 2.8 million. This
should help the country catch up with its neighbors and the rest of
the world in trade and economic development.

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Table IV.2 Target Export Revenues, 2015-17
2015a/ 2016b/ 2017
LOW HIGH LOW HIGH LOW HIGH

(in US$ million)

Goods
57,531 59,081 62,297 63,836 66,452 70,206
Services
26,729 27,415 29,894 30,232 32,868 33,861
Total Export
84,261 86,496 92,191 94,068 99,320 104,067

YoY Growth rate

Goods (7.4) (4.9) 5.4 8.0 6.7 10.0
Services
4.9 7.6 9.0 10.3 9.9 12.0
Total Exports
(3.8) (1.2) 6.6 8.8 7.7 10.6

a/
Based on actual exports of goods from January to November and of services from January to
September.
b/
Calculated using the high estimate of 2015 exports as base.

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We inspire each other

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