Download Import Liberalization Program 80`s and 90`s

ECONOMIC INTEGRATION:
WHAT IS IN IT FOR THE PHILIPPINES?
A Country Paper
Parts:
Executive Summary
I - Country Profile
II - History of Trade Policies in the Philippines
III - Participation in Multilateral and Bilateral Fora
IV - Challenges
V - Gains and Opportunities
VI - Recommendation
Executive Summary
In the experience of the Philippines, adopting a protectionist trade
regime has been more economically costly than beneficial. Thus,
various trade reforms were implemented and regional/bilateral relations
were forged with other countries. Opening up its doors to ASEAN and
other countries has been met with difficulties but the numerous benefits
achieved cannot be underestimated.
Today, the Philippines strongly pursues the adoption of an outward
economic outlook believing in the principles of competitiveness and
cooperation as vehicles to growth. The country, however, can still do
more to make the most out of the potentials economic integration can
bring.
I. Country Profile
Statistics
Population (2007)
Population Growth Rate (2000-2007)
GDP Growth (2007):
GNP Growth (2007)
Poverty Incidence of families (2006)
Poverty Incidence of Population (2006)
Headline inflation rate (June 2008)
Unemployment Rate (June 2008)
Underemployment Rate (June 2008)
Average Annual Family Income (2006)
Balance of Trade (April 2008)
Exports (April 2008)
Imports (April 2008)
Number of Regions
Number of Provinces
Number of cities
Seasons
Data
88.57 million
2.04%
7.2%
7.8%
26.9%
32.9%
11.4
8.0%
19.8%
P173,000 ($3,760)
$US -531 M
$US 4.325 B
$US 4.856
17
81
136
Dry and wet
II. History of Trade Policies in the Philippines
A. Protectionism in the 40’s to 60’s
When Philippines gained political independence in 1946, it embarked
upon industrialization as a priority thrust. Import substitution was adopted as
the major strategy. The peso exchange rate was fixed and overvalued to
reduce the cost of imports on raw materials and capital equipment. This
protection encouraged the establishment of a few heavy industries in the
country that produced import-substituting goods.
However, due to the inability of import substituting industries to
compete with imports, government put up high tariff rates and import
restrictions. This led to a widely dispersed tariff structure in the economy. The
exports sector was heavily penalized. Since at that time the major exports
sector was agricultural and the country was then predominantly agricultural,
the largest sector of the economy was the one penalized. Hence, balance of
payments problem prevailed despite the higher revenues from import duties.
The most disappointing things was that the import substituting industries
depended on the protection given to them and failed to attain efficiency.
Smuggling became rampant. The industrial manufacturing sector stagnated
and failed to generate the needed jobs. Employment share of manufacturing
hovered around 10% to 12% for quite some time.
B. National Policies Toward Economic Integration (80’s to present)
Learning from the lessons of the early decades, policy makers started
thinking about instituting trade reforms to lower tariffs and work toward
achieving a uniform tariff rate among the sectors of the economy.
Transparency in the policies was also desired.
Major reforms were evident in the following programs and issuances:
a)
b)
c)
d)
e)
f)
g)
Tariff Reform Program (1981-1985)
Import Liberalization Program (80’s to 90’s)
Tax Reforms (1986)
EO 470 (1991)
EO 8 (1992)
Foreign Exchange Liberalization (1992)
Medium Term Philippine Development Plans (80's to present)
Tariff Reform Program (TRP)
The Tariff Reform Program (TRP) was implemented starting 1981 and
ended in 1985. It consisted of various reforms in the Philippine tariff system.
Specifically, it attempted to make the levels of protection uniform across and
within sectors by reducing or phasing out tariff protection which were deemed
excessive, obsolete, or which the burden of protection outweighed the returns.
Toward this end, attempts were made to narrow the range of tariffs from a
peak of 100 percent down to 50 percent and a minimum of 10%.
2
Tariffs were reduced gradually particularly on fourteen sectors i.e., food
processing, textiles and garments, leather and leather products, pulp and
paper, cement, iron and steel, automotive, wood and wood products,
motorcycles and bicycles, glass and ceramics, furniture, domestic appliances,
machineries and other capital equipment and electrical and electronic
industries.
As a result of the TRP, the average nominal protection rate (NPR) was
reduced from 34.6 percent in 1981 to 27.9 percent in 1985. TRP also reduced
the dispersal of rates among sectors. However, studies indicated that the
structure of protection remained biased against the exports and the
agriculture sector.
Import Liberalization Program 80’s and 90’s
The Import Liberalization Program (ILP) complemented the TRP. The
ILP was seen as a tool to hasten economic recovery. It gained implementation
momentum starting 1986.
The first phase of the ILP, January 1981 to 1988, lifted quantitative
restrictions (QRs) on a total of 2,329 PSCC lines. However, the greatest gains
were made between 1986 and 1988. Many factors favored the ILP during this
period, to wit: a) initial strong political will of the new government; b)
consumption-led recovery between 1986 and 1988; c) drop in crude oil prices
dropped and recovery of coconut world prices in 1987; and d) very low
inflation rate during this period (0.75 percent in 1986, 3.79 percent in 1987
and 8.76 percent in 1988).
ILP implementation slowed down in 1990. During this year, the QR of
only one commodity was lifted, i.e., for power generating machinery. In 1991,
QRs on a total of 16 commodities were lifted, mostly telecommunications
equipment.
In 1992, the ILP gained momentum once more as QRs on 173
commodities were lifted such as those of processed food products (65 lines);
motor vehicles (17 lines); medicinal and pharmaceutical products (21 lines).
As of December 1992, QR.s remained for 275 commodities. By June 1993,
however, most of the gains in 1992 were practically reversed because QRs on
81 items were reimposed by M.O. 95. QRs on 356 commodities remained as
of June 1993. These include cars, trucks and diesel engine, motorcycles,
chemicals, fertilizers, coffee, used tires, potatoes, onions and cabbage.
Tax Reforms 1983 to 1986
On top of tariffs, indirect taxes had an additional protective effect in
1983 and 1985 because sales taxes on imports were paid in advance and the
tax base included a mark-up rate ranging from 25 to 100 percent. By 1985, the
mark-up rate was reduced to a uniform of 25 percent on semi-essential and
essential goods.
3
In 1986, mark-up rates were abolished and sales taxes on imports and
local substitutes were unified removing the additional protection from the
differentiated sales tax rates. From 1986 onwards, the Effective Protection
Rate did not have to include the additional protective effect of indirect taxes.
The combined effect of the TR.P of 1981 and the indirect tax reform brought
down the average EPR for the economy from 50 percent in 1983 to 37
percent in 1986.
As for the export sector, strict implementation of duty drawbacks
rebated the import levies paid on inputs used to produce exportable goods.
However, export taxes continued to penalize the exportable sector by 4
percent in 1983 and 4.5 percent in 1985. The penalty rate increased in 1985
because export taxes on coconut and its by-products were raised by 5 to 7
percent, and on animal feeds by 6 percent. The penalty rate dropped to 1.4
percent in 1986 and 1988 because all export taxes except those on logs were
abolished in 1986; the export tax on logs stood at 20 percent.
EO 470 in 1991
Executive Order 470 issued on July 20, 1991 forms part of a wide
spectrum of tariff reform measures implemented by the country. However, this
was by far the second most significant tariff reform initiative in the country,
which provided for further tariff changes since the completion of the TRP in
1985.
EO 470 moved toward a more
neutral tariff policy by a combination
of
reducing
the
number
of
commodity lines with high tariffs and
increasing the number of commodity
lines with low tariff.

Under the 40 percent tariff level,
480 lines in 1991 were to be
reduced to 0 by 1995

For commodities with 50 percent
rates, 1,177 lines in 1991 were to
be trimmed to 208 by 1995.

In the 10 percent tariff level, the
number of lines will be increased
from 1,590 in 1991 to 1,958 by
1995;
Distribution of Tariff under EO 470:
Tariff Rate
0
3
5
10
15
20
25
30
35
40
45
50
1991
45
277
11
1590
3
972
30
973
480
1,177
1995
43
285
16
1,958
26
1041
19
1,962
208
Source: Tariff and Customs Code 1991

In the 20 percent level, from 972 lines to 1,041

In the 30 percent level, from 973 lines to 1,962.
4
EO 8
Executive Order #8 issued on July 1992 replaced QRs with tariffs. The
rationale for this policy were as follows:

It makes trade policy more transparent and transfers private rents to
government as revenues

It links domestic prices with world prices such that changes in the latter
can be transmitted to the domestic economy

This makes local producers sensitive to and conscious of price
competitiveness.
Said EO raised the tariff rates of liberalized commodities by 100
percent of their pre-EO 8 levels subject to a five-year phase-down schedule.
However, the tariffication of certain sensitive agricultural products did not push
through due to the passage of a law regulating the importation of agricultural
products.
Almost all the commodities received a tariff adjustment equivalent to
twice their existing rates in 1992 as provided for by E.O. 470. Below illustrates
this situation.
Tariff Rates Under EO 8:
Commodity Groups
Specialized industrial machinery and
equipment
Electric machinery and apparatus
Processed meat products,
31 lines; fish, live or frozen, 28 lines; public
transport vehicles and
trucks and its parts, 16lines
corn,
sugar and cereal grains
duck meat, washing machines
and electrical machinery, and equipment and
parts
68 lines including chicken, smoked and dried
meat
(13 items); dried fish, crustaceans, mollusks
(31 items); meat, fish and
crustacean preparotions (11 items); and
electrical fans, air
conditioners, refrigerators, sewing machines
and beverage coolers (10
items).
Ave tariff rates under EO 8
100 (45% under EO 470)
91 (43% under EO 470)
60%
75%
80%
100%
;
5
E.O. 8 breached the 50 percent ceiling rate under TRP and EO 470
and granted rates from 60 percent to a maximum of 100 percent time-bound
for five years starting August 1992.
EO 8 in effect continued to confer greater protection to importcompeting rather than export-producing activities. This was so because tariffs
and QRs are instruments contrived to protect import-substituting activities. As
long as tariffs are greater than zero, the export bias will continue, unless
subsidies to exports exist.
Despite the above limitation, E.O. 8 had a significant impact toward
economic integration as it provided for policy commitment, credibility, and
continuity. Its more salient effect is obviously to create a greater dispersal of
rates, both implicit tariff and EPRs, among sectors.
Liberalization of Foreign Exchange
Foreign exchange controls have been used as a policy instrument of
industrialization even until the 80’s when various trade reforms were being
implemented. It was only in 1992 when exchange control was lifted. No
Central Bank permit was needed for banks to sell foreign exchange except
when the item to be imported was still restricted. The most significant moves
were to allow 100 percent retention and the complete free use of export
proceeds. However, while there were no limits to capital inflows, there was to
outflows, and there were purchase limits but no selling limits.
The Medium Term Philippine Development Plan (MTPDP)
The Medium Term Philippine Development Plan (MTPDP) defines the
economic framework and direction of the country in the medium term (6
years) to coincide with the term of the President of the Philippines.
The MTPDP of 1987-1992 adopted a policy of further trade
liberalization to raise industrial competitiveness. The trade reform package
included the rationalization of the tariff structure, making it the principal
instrument of protection, the elimination of the remaining quantitative
restrictions and licensing requirements, and strengthening of safeguard
measures against unfair trade practices. A more uniform rate of protection
rate across sectors was targeted. The removal of import licensing
requirements was resumed in 1986. As of 31 December 1989 some 2,427
items were liberalized. Among the items where import licensing requirements
were removed, included fresh fruits, iron and steel products, canned sardines
and mackerel, fabrics and textiles, synthetic resins, pulp and paper and
cement.
Mid-way in the 1990s, the government undertook a comprehensive
tariff Review. By mid-1994, a series of major trade reforms were adopted.
EO 189 issued in July 1994 provided for a multi-year tariff reduction
program from 1994-2000 for capital equipment and machinery.
6
EO 204 in September 1994 reduced duties on textiles, garments, and
chemical inputs.
EO 264 issued in July 1995 reduced tariffs on industrial products
EO 288 in December 1995 lowered tariffs on non-sensitive agricultural
products. The restructuring of the tariffs under the latter two EOs aimed at
establishing a fourtier tariff schedule: 3%, 10%, 20% and 30%.
Import licensing requirements on new motor vehicles were removed in
October 1995. Import restrictions on certain sensitive agricultural products were
lifted and consequently tariffied. Liberalization and deregulation policies in the
areas of investments, foreign exchange and services complemented the tariff
reforms.
The Agricultural and Fisheries Modernization Act (AFMA) and the
Fisheries Code allowed the duty-free importation of capital equipment and raw
material inputs for a period of five-years.
In line with the Philippine commitment under the Information Technology
Agreement, the duties on certain information technology products were reduced
to zero.
The MTPDP 2001-2004 spelled out government policy on free enterprise
and market reliance and ensuring market friendly regulations by simplifying
bureaucratic procedures and promoting market-friendly regulations to reduce cost
of doing business and protect the interest of the consumers and sectors
vulnerable to global integration.
In line with this policy, a four-year tariff program was implemented in 2001
with the objective of achieving a 0-5 percent tariffs on industrial and non-sensitive
agricultural products by 2004.
Despite certain difficulties, the Philippine government in line with her
commitment in the ASEAN, reduced duties to zero on 60% of its products in the
Inclusion List of the Common Effective Preferential Tariff scheme of the ASEAN
Free Trade Area (FTA).
The present MTPDP 2004-2010 vows to respond to the following global
and regional realities:




The United States, China and Japan are the determining influence of
East Asia.
Philippine foreign policy decisions have to be made in the context of
ASEAN.
The international Islamic community will become more important to the
Philippines
The role of multilateral and inter-regional organizations is important in
promoting common interests.
7



The country’s economic growth will continue to require direct foreign
investment and trade promotion.
The Philippines can benefit most quickly from international tourism.
Overseas Filipinos will continue to play a critical role in the country’s
economic and social stability
III. Participation in Multilateral and Bilateral Fora
The Philippines currently embraces an outward-oriented trade outlook.
The country considers competitiveness and cooperation as important vehicles
toward higher productivity and economic growth. Thus, it has been an active
participant in multilateral and bilateral fora that advance these principles.
Among the country’s motivations in participating in multilateral and
bilateral cooperation are the following expectations:






Stronger market access for exports
Higher productivity and quality of production
Greater economic efficiency
Lower costs of critical manufacturing and other production inputs
Increase in investments
Employment opportunities for the people
The Philippines is currently a member of several regional economic
organizations and continues to forge mutually beneficial agreements with
other countries especially with major trading partners. Below are among them:
WTO
The Philippines is an original member of the World Trade Organization
(WTO). It has participated in negotiations in basic telecommunications and
financial services, was involved in dispute cases and was a proponent for the
elimination of trade distorting trade-distorting subsidies in agriculture and
those that contributed to fisheries overcapacity, and advocated special and
differential treatment for developing countries in agricultural trade. The
Philippines grants MFN treatments to all trading partners.
APEC
The Philippines is a founding member of the Asia Pacific Economic
Cooperation (APEC). It sees APEC as an important forum for promoting trade
in goods and services, investment, and the transfer of technology and
professional skills. Philippines has not made a definite commitment to reduce
tariffs across-the-board to zero by 2020. However, non-tariff barriers (NTBs)
are to be eliminated progressively. The Philippines enhances tariff
transparency by participating in the APEC Tariff Database. On competition
policy, the MTPDP for 2004-2010 advocates the passage of a competition
law. It continues to intensify efforts to liberalize the mobility of business people
within APEC, and participates in the APEC Business Travel Card Scheme.
8
ASEAN
The Philippines is a founding member of the Association of South-East
Asian Nations (ASEAN), established in 1967
The ASEAN Free Trade Area (AFTA) works towards lowering intraASEAN tariff within a 0-5% band by 2008, elimination of non-tariff barriers,
developing common certification standards, harmonizing customs procedures
and valuation and liberalization of investments within ASEAN by 2020. Under
the AFTA, the Philippines spearheaded the formulation of the electronics
roadmap, and has committed to fast-track tariff elimination for more than
1,000 electronics and ICT products, such as semiconductors and electronic
data processing.
The ASEAN Framework Agreement on Services (AFAS), signed in
1995, aims at eliminating restrictions to trade in services and enhance intraASEAN cooperation in services. The Philippines was an active participant in
the negotiations with offers on business services, construction,
telecommunications, and tourism. The ASEAN Investment Area (AIA), signed
in 1998, envisages liberalizing investment within ASEAN by 2020. It covers
direct investment in areas such as agriculture, fisheries, forestry,
manufacturing, mining and quarrying.
Bilateral Relations
The Philippines has bilateral ties with its major trading partners such as
USA, Japan, China, Singapore, Hongkong, Taiwan, Korea, Malaysia,
Netherlands and Thailand.
The U.S. – Philippines bilateral Trade and Investment Framework
Agreement (TIFA) was signed in 1989 and provides the two sides with a
forum to identify, raise and resolve matters that might otherwise hinder the
development of bilateral trade and investment ties.
In 2004, the Philippines and Japan commenced negotiations on a
Japan-Philippines Economic Partnership Agreement (JPEPA), aimed at
promoting freer transborder flows of goods, persons, services, and capital.
On 14 June 1999, Philippines-Thailand diplomatic relations marked its
anniversary. Philippine-Thai relations are among the oldest and most
fruitful in Philippine history. For the past half-century, relations have been
characterized by cordiality, harmony and dynamism.
50th
The Philippines has agreements with People’s Republic of China in the
following areas: a) trade, investments and finance; b) agriculture, c)
infrastructure, d) scientific and technical; d) maritime; e) political, defense and
many other matters of interest. In the area of investments, the Trade
Agreement between the Government of the Republic of the Philippines and
9
the Government of the People's Republic of China was signed in Beijing on
09 June 1975 and the Agreement on Long-Term Trade between the
Government of the Republic of the Philippines and the Government of the
People’s Republic of China was signed in Beijing on 08 July 1979.
IV. Challenges
As a developing country, the implementation of open trade policies had
significant adjustment costs.
Business Closure
There was much economic difficulty in the initial stages of economic
integration. The implementation of GATT-Uruguay Round was a shock to
domestic producers of import substituting goods. Small and medium
industries were the most affected. This resulted in the closure of several
businesses instead of making them competitive. Several jobs were lost.
Trade Imbalance
Trade balance continued to tip off despite the tariff reduction in
developed countries. The Philippines found it difficult to penetrate these
countries due to non-tariff measures like health and sanitary and
phytosanitary regulations, internal taxes, import restriction, licensing, entry
control). Moreover, the Philippines experienced bias against the entry of its
processed products whether to Japan, US or EEC. Typically, processed
products have higher value added to the domestic economy than raw material
inputs exported.
Fiscal Problem
The removal of import duties caused a major loss in revenue to the
Philippines. Due to the country's high debt burden, fiscal problems were
experienced. Balancing the budget is still a major challenge up to this day
although more manageable now than in the past.
Periods of Difficulty for Agriculture
The opening of global trade opportunities caused difficulties for
agricultural products like rice, corn, sugar, livestock, poultry and vegetables.
There was a drop in overall agricultural employment but compensated by new
jobs created in the industrial and services sector. This is one reason why the
Philippines continue to impose quota restriction on rice imports. Likewise, it
adopts minimum access volume (MAV) on the imports of sensitive agricultural
products such as pork and poultry, fresh, chilled and frozen beef,
Widened Income Inequality
Structural shift of the economy toward services and industry created
jobs in urban areas. But it was not so in the rural sector. Hence, poverty
10
incidence increased in rural areas while squatting problem was experienced in
urban areas as rural folks, not fully equipped with skills to compete in the jobs
market, flocked to urban areas to find better opportunities there.
The proportion of poor families in year 2000 was estimated at 27.5% of
total families. This reduced to 24.4% in 2003 but increased to 26.9% in 2006.
From the figures below, it can be seen that poverty was high in predominantly
rural regions compared to highly urbanized areas. This means that rural areas
have not been competitive in the global scene.
.
Poverty Incidence in the Philippines 2006 by Region
Region
Philippines
% poor
families
26.9
NCR
Region I
Region II
Region III
7.1
26.2
20.5
16.8
Region IV-A
Region IV-B
Region V
Region VI
16.7
43.7
41.8
31.1
Region VII
Region VIII
Region IX
Region X
Region XI
Region XII
CAR
ARMM
CARAGA
Remarks
The national capital of the
country. Includes Metro Manila,
the most progressive city of the
country.
Near Metro Manila.
Near Metro Manila
Near Metro Manila
Has one of the most progressive
export processing zones of the
country
Includes Cebu, a highly
progressive and urbanized city.
30.3 Has big export processing zones.
40.7
40.2
36.1
30.6
33.8
28.8
55.3
45.5
Includes Davao, another big city
of the country
11
V. Gains and Opportunities
Despite the difficulties of economic integration, several benefits were
gained and new opportunities were opened. These include:
Robust Growth in Exports and Imports
Volume and value
of foreign trade have been
growing through the years
due to newly opened
markets for Philippine
products. An increase in
the share of trade was
experienced with ASEAN
and APEC partners. .
Philippine Exports and Imports, 2000 - 2007
(In $US Million)
Year
Exports
Imports
2007
50,240.34
55,296.56
2006
47,410.12
51,773.68
2005
41,254.68
47,418.18
2004
39,680.52
44,039.21
2003
36,231.21
40,470.51
2002
35,208.16
39,236.51
2001
32,150.20
33,057.16
2000
38,078.25
34,490.87
Total external trade
in goods with ASEAN
member-countries for 2007 amounted to $20.907 billion or 19.7 percent of the
country's entire trade. Total external trade with APEC member-countries for
2007 amounted to $83.188 billion or 78.5 percent of the entire trade.
Exports to ASEAN member-countries were valued at $8.032 billion
while imports were worth $12.875 billion. Singapore emerged as the
country's top trading partner among the ASEAN member-countries with a total
trade accounting for $9.358 billion or 44.8 percent share of the ASEAN total
trade.
Leading exports for the ASEAN member-countries were Electronic
Products, Petroleum Products, Cathodes and Sections of Cathodes of
Refined Copper, Metal Components, Fertilizers Manufactured. Top imports
from the ASEAN member-countries were Electronic Products, Mineral Fuels,
Lubricants and Related Materials, Transport Equipment, Cereals and Cereal
Preparations, Industrial Machinery and Equipment.
Total external trade with APEC member-countries for 2007 amounted
to $83.188 billion or 78.5 percent of the entire trade. Export receipts from
APEC countries totaled to $40.366 billion or 80.0 percent of the total exports
while import payments summed up to $42.822 billion or a 77.1 percent share
of the total imports. Topping the list were USA, Japan, People's Republic of
China, and Singapore. Electronic Products were still the major export to
APEC member-countries with receipts valued at $24.513 billion or 60.7
percent share of the total APEC exports.
Higher Domestic Production
Higher overall production was experienced due to substitution and
scale effects of tariff reduction. The rise in aggregate agricultural production
especially in the livestock and poultry, fruits and nuts sector were
12
experienced. There was also a reallocation of production in favor of non-food
manufacturing. The economic structure has therefore shifted from an
agricultural to service and industry.
Domestic Employment
Higher wages, higher return to capital and lower unemployment was
experienced in urban areas due to higher production, improvement in
technology and entry of foreign investments.
Higher Overseas Employment
The country's economic ties with various countries of the world opened
up doors for employment opportunities abroad. Remittances of Filipino
overseas workers make a significant contribution to the Philippine economy.
OFW remittances account for 10 percent of the gross domestic product, and
their impact is felt in the growth of family income. Remittances are a
significant source of capital. Based on 2007 data from the Remittances Fact
Book of the World Bank, the Philippines is the fourth- largest recipient of
migrant workers’ remittances in the world, with $17 billion entering the country
this year. Remittances are also a major source of foreign exchange.
Percent Distribution of OFWs by Place of Work, April-September 2006
Source: National Statistics Office
Remittances reduce the level of poverty among migrant families and
have multiplier effects on the economies of developing countries. As of 2006,
the poverty incidence of the Philippines rose to 26.9 percent in 2006 from 24.4
percent in 2003, with an additional base of three million poorer Filipinos.
Without OFW remittances, however, the Philippines would have more than
26.5 million poor, rather than the lower figure posted in 2006, 24 million.
Regions with significant number of migrants have fewer poor households due
to remittances.
Improved market access
As a member of the WTO, the Philippines has obtained both direct and
indirect trade concessions from member nations such as the US, the
European Economic Community (EEC), Canada, Finland, Norway. As a
13
result, the country's trade volume has also been growing significantly through
the years.
Major Trading Partners of the Philippines: 2007
Advent of information technology
Imports liberalization and agreements on information technology has
resulted in the modernization of telecommunication facilities. The increased
competition among providers had marked improvement in Interconnectivity.
The Philippines is currently gaining popularity as a provider for business
process outsourcing (BPO) services such as call centers, animation and
software development. This sector is currently a fast growing sector providing
employment to thousands of graduates each year. The only limitation is that
the available people with adequate skills are not enough to meet the fast
growing need for manpower in this industry.
Better Quality of Consumer Goods
Due to competition, a wider range and better quality of consumer
goods have became available to the public. Domestic producers adopted
modern technology to improve quality of products, attain efficiency in
production and to reduce consumer prices.
14
IV. Recommendation
Economic integration has advantages and disadvantages. Adoption of
strategic interventions can make gains out-weight the cost. To achieve this, a
developing country like the Philippines may consider the following:
Explore Untapped & Niche Markets through Collaboration
Foreign
trade
statistics show that the
Philippines has trade deficit
with four out of its top ten
trading partners. These
include Singapore, Taiwan,
Korea and Thailand.
Philippine Trade Balance with Top Ten Trading
Partners: 2007
Country
Trade Balance
USA
Japan
China
Singapore
Hongkong
Taiwan
Korea
Malaysia
Netherlands
Thailand
USA
758.39
462.61
1748.63
(3080.18)
3584.86
(2088.08)
(1494.49)
223.49
3665.36
(874.32)
758.39
The Philippines need
to study how to penetrate
these potential markets.
What are their top imports?
What are their future needs?
What elements are missing
that need to be in place in
order to supply these needs? What are the potential niche markets?
Collaboration with trading partners concerned can help answer these crucial
questions.
Harness Human Resource
There are new job openings in the urban areas whose skills
requirements do not match that of the people. New graduates especially from
rural areas do not qualify for these jobs. Human capital need to be harnessed.
Curricular offerings must be dynamic taking into consideration the needs of
industries through time.
Decentralization of Testing and Packaging Facilities
As mentioned earlier, the Philippines has difficulty penetrating certain
markets due to inability of meet the quality requirements such as sanitary and
phytochemical tests and attractive packaging. These facilities are usually
found in Metro Manila, hence, quite expensive to avail of for rural producers
especially the start-ups. These facilities must be available in each region.
Develop Rural Infrastructure
Productivity in the rural areas is low due to lack of much needed
infrastructure like stable and affordable power, farm-to-market roads, irrigation
and modern seaports and airports. Protecting the agriculture sector through
import restrictions will provide only short-term solutions which are
unsustainable. Long-term solutions must be given focus instead.
15
Eastern Visayas Regional Development Report 2012
(Excerpt)
Chapter 1. Inclusive Growth and Poverty Reduction
Inclusive growth, as defined in the Philippine Development Plan
2011-2016, means “growth that is rapid enough to matter… It is sustained
growth that creates jobs, draws the majority into the economic and social
mainstream and continuously reduces mass poverty”. This is a national
ideal which Region VIII also shares.
Based on major economic
indicators such as the gross
regional domestic product (GRDP),
poverty statistics and employment
indicators, performance of the
region from 2004 to present was
short of this ideal.
Slow Economic Growth
GRDP growth target vs actual 2004-2011
Actual
Year
RDP
Base
Base
Target
Year
year
1985
2000
2004
5.56
5.3
2005
5.8
3.1
2006
6.4
4.9
2007
6.7
3.1
2008
5.9
3.4
2009
6.2
1.8
2010
6.8
2.0
2011 *
5.1
1.8
*Based on RDP 2011-2016
For the Plan period 20042010, the region aimed to achieve
an economic growth of 5.56%
annually or higher. The highest
growth rate attained in terms of GRDP was 5.3% in 2004 and this was not
sustained in succeeding years.
The years 2008 and 2009 were challenging periods for the
agriculture sector. In 2008, the palay sector reached its peak production
recording over one million tons which pushed self-sufficiency index to
119%. Ironically, in this year, nationwide speculations about a rice crisis
turned it into real price increases. Also in 2008, about 2,000 hectares of
coconut land was affected by brontispa disease and about 10,000
hectares of abaca farms in Leyte Island were infested with virus. The fuel
price hikes that accompanied the global financial crisis had negative effect
on commercial fishing operations. In 2009, continuous heavy rains
resulted in the flooding of rice fields and compounded with rice black bug
and tungro, rice production in 2009 was 7.4% below plan target. From an
average annual growth rate of 4.58% from 2004 to 2008, gross value
added in agriculture declined by 1.6% in 2009 and this was equivalent to a
reduction of P163 million pesos in value added based on 1985 prices.
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The industry sector, especially the manufacturing sector, did well in
2008 and 2009. In 2008, an Ethanol Plant was established in Ormoc City.
The chemicals industry also experienced an enhanced performance. The
major roads and bridges constructed/rehabilitated such as Agas-Agas and
Samar Island Roads gave a boost to construction. In total, the industry
sector grew by 2.2% in 2008 and 4.8% in 2009. The 2009 growth in value
added was equivalent to P417 million.
The service sector expanded in 2008 (3.0%) and 2009 (2.6%) but at
a slower rate compared to growth rates from 2004 to 2007 which averaged
4.6%. In 2009, the services sector expanded by P287 million in gross
value added at 1985 prices.
For the plan period 2011-2016, economic growth performance for the
first year of implementation was below target. The Regional Development
Plan 2011-2016 aimed to expand the economy by 5.26% in 2011. The
economy, as measured by GRDP, grew by only 1.8% in 2011.
GVA for agriculture was targeted to grow by 5.10% in 2011 but actual
growth in real terms (constant prices) was only 0.7% due to production
set-backs in major crops, livestock, poultry and fishery caused by fuel
price hikes and weather-related factors. The industry sector aimed to
expand by 5.36% in the said year, but it increased by only 0.4% due to
substantial decline in the performance of construction and electricity, gas
and water subsectors. The services sector was the best performer among
the sectors which grew by 4.1%, close to the plan target of 5.32%.
In terms of contribution to the economy, the industry sector dominated
the other sectors in 2011 with a contribution of Php 66.7 billion in gross
value added at constant prices or 43.9 percent of total GRDP. Among its
subsectors, the manufacturing sector remained as the region’s highest
contributor at almost Php 40 billion in gross value added with a growth rate
of 4.5% in 2011. In fact, more than a quarter (26.3%) of the GRDP comes
from this subsector.
The entry of three new locators at the LIDE since 2007, in addition to
PASAR and PHILPHOS, contributed to the high performance of the
manufacturing sub-sector. These are McMAI, an aluminium sulphate
plant, Century Huang Guang, a nickel smelting plant, and Clean Way
Waste Treatment Plant. The recent establishment of agri-based medium
industries also helped boost manufacturing performance. These include
coconut oil mills and decorticating plants in various parts of the region, the
banana processing plant and abaca pulp processing establishments in
Northwest Leyte. Marine-based medium industries processing
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carrageenan, milk fish, mussels, oysters and squid also generated GVA
for the sub-sector.
High Undermeployment
Table _.
Unemployment & Underemployment Rates
Location/Indicator
20062011
2010
(ave.)
PHILIPPINES
Unemployment Rate
7.7
7.0
Underemployment
20.1 19.3
Rate
Average unemployment
rate in the region has
consistently been lower than
the national average from 2006
to 2011. For the plan period
2011 to 2016, the national
government targeted to reduce
average unemployment rate in
REGION VIII
the country to as low as 6.8%
Unemployment Rate
5.0
5.2
by 2016 from the 2010 average
Underemployment
27.0 24.1
of
7.3%.
Region
VIII
Rate
unemployment has satisfied this requirement
Source: NSO with unemployment rate of
5.2% in 2011.
However, the rate of underemployment in the region has
persistently been higher than the national average. The 2011
underemployment rate eased up a bit in 2011 from an average of 27.0 for
the period 2006 to 2010 down to 24.1% in 2011. However, this was far
higher than the national average which stood at 19.3% in 2011.
High underemployment rate is a big challenge for the region. It
matters a lot since it translates into low income, poverty and hunger. High
underemployment is primarily due to seasonality of agricultural crop
production which happens to be the dominant source of jobs of the
region’s work force.
Poverty and Hunger
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SELECTED POVERTY STATISTICS *
As can be expected from
Indicator
2003
2006
2009
the preceding indicators, the
PHILIPPINES
poverty situation worsened
Poverty incidence
20.0
21.1
20.9
in recent years. The region
among families
aimed to bring down poverty
(%)
incidence to 21.6% by 2016.
Magnitude of poor 3,293,096 3,670,791 3,855,730
In actual, Region VIII was
families (no.)
one of the eight regions
REGION VIII
which exhibited increasing
poverty in the past few
Poverty incidence
30.2
31.1
33.2
years. As of 2009, one in
among families
three families could not meet
(%)
their basic food and nonSubsistence
11.1
13.5
14.4
food needs. In total, there
Incidence among
were
287,156 families or
familes (%)
1,731,61 individuals who
Magnitude of poor
27,458
253,347
287,156
were in this situation. The
families (no.)
share of the region to the
Magnitude of
83,573
110,071
124,547
total number of poor families
subsistence (no.)
in the country has also risen, * Based on Refined Poverty Estimation Methodology
from 6.9% in 2003 and 2006 to 7.4% in 2009. Region VIII ranked fourth
among the regions with the highest shares to the country’s number of
impoverished families, the top being Regions VII and V.
Region VIII has a lot of catching up to do if it is to achieve its
poverty target. Based on the time-distance measure presented by
Secretary General Romulo Virona of the National Statistical Coordination
Board (NSCB) during the official release of the 2009 Poverty Statistics, the
Philippines is eight years behind target on poverty reduction for 2016.
Among the regions, only four regions in the country are ahead of their
targets. These are NCR, CAR, Regions II and 4A. Region VIII is 14 years
behind target. Region IX, Caraga, and ARMM are 27, 21, and 81 years
behind the target in 2009.
The number of families experiencing hunger has also been
increasing through the years. From 83,573 in 2003, this has risen to
124,547 in 2009. This can be expected considering that the increase in
average per capita AVERAGE PER CAPITA INCOME & FOOD
income was slower PRICES
than the increase in Philippines and Region VIII, 2006 and 2009
the prices of food. For
Indicator
2006
2009
%
the period 2006 to
change
2009, the nominal
PHILIPPINES
average per capita
Average per
35788
43,538
21.7
income increased by
capita income
32.4% but the prices of
(pesos)
food increased by
CPI for food
130.7
162.4
24.3
33.5%
during
the
(index)
same period. A similar
REGION VIII
trend was experienced
in 11 other regions as
Average per
25,042
33,157
32.4
well and the country as
capita income
CPI for food
132
176.2
33.5
Source: NSO
Soru
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a whole. The rice price crisis of 2008 contributed largely to the food prices
escalation whereby the price of ordinary rice rose by 44% from 2006 to
2009.
Thus, the country aims at low and stable prices of food
commodities being the item that directly hits the low income groups. This,
of course, is affected by production levels and consumer demands. For the
period 2011 to 2016, the goal was to peg it in the range of 3% to 5%. As
far as Region VIII is concerned, price increases of food items in 2011
overshoot the national target with inflation rate for food and non-alcoholic
beverages group showing 5.9%. This was an offoshoot of the successive
fuel price hikes and flooding of farms due to heavy rains in the early part of
2011. For the total consumer basket (all items), Region VIII inflation rate
stood at 4.5% in 2011.
Chapter 2 – Status of the Information and Communications Technology
(ICT) Industry
The presence of ICT Parks is an important ingredient for any area that
wants to be a leader in this industry. It is a come-on to locators due to the
benefits provided by the Philippine Economic Zone Authority (PEZA) such as
tax holidays. In the Plan period 2004-2010, the region targeted to have an ICT
Park. This was realized with the approval by PEZA of the Leyte ICT Park in
2005. A building facility, the Leyte Academic Center, was established
afterwards.
Attracting locators and ICT enterprises into the 6.8-hectare Leyte ICT
Park then became on top of the agenda. In 2006 and 2007, the province of
Leyte and other members of the Regional Information Technology and ECommerce Committee (RITECC) conducted selling missions and participated
in national ICT events in order to give exposure for the region to potential
investors. This paved the way for the entry of APAC Customer Services, Inc.
in 2009 which employed about 900 people. The Plan targeted to have two big
company locators in the ecozone and this was accomplished with the entry of
Accudata, a non-voice business process outsourcing (BPO) company which
up to now operates in the said location with about 2,000 employees.
For the Plan period 2011-2016, the region targeted the expansion of
the Leyte ICT Park and the establishment of an ICT Park in Northern Samar.
What has been realized to date was the expansion of the building facility of
APAC at the Leyte ICT Park and the establishment of the 22-hectare Uykim
Eco-zone which is located just across it. Investment promotion continued to
be pursued in recent years. The province of Leyte continued to conduct
selling missions to companies in Manila and Cebu and invited potential
locators to come to Region VIII during the annual Industry Forum.
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The Plan 2004-2010 also aimed to have five (5) Information and
Technology Enterprises at the Leyte ICT Park. This was partly satisfied with
the entry of start-up companies assisted by Leyte Province and the
Department of Science and Technology (DOST) through the Technology
Business Incubator (TBI) Program for ICT. These include the following: a) the
Asian Data Internet Solutions; b) E-Systems Software; c) zurcSoft, Inc. and d)
Leyte ICOT-P on IT Laboratories. The AMA University also established itself
in the said facility.
The three (3) start-up private businesses under the TBI program were
not able to take-off after the incubation period while the “Leyte ICOT-P on IT
Laboratories” continued to operate up to now and had very promising results
which can be considered a best practice in talent development for ICT. The
program undertakes training of economically poor, but bright high school
students and graduates from the various municipalities to become computer
programmers. Some of its graduates are already gainfully employed in
Singapore and Manila. Given enough number of skilled programmers, a
software company would be interested to locate in the region. The 2011-2016
plan targeted to continue with the TBI program for ICT but with modifications
based on past experience.
Table 3. Number of Graduates in
Matching human resource capability with
IT-related diploma in TESDA
industry requirements has been a priority
Accredited Institutions
concern from the previous plan period up to the
present. This involves, first, offering the required
School Year
Region
ICT-related courses in private schools and
2007
12,141
universities and second, upgrading the skills of
2008
13, 415
2009
9,351
graduates in the various fields of study to meet
Source: TESDA
the qualification requirements set by business
process outsourcing (BPO) companies. Communication skills, critical thinking
skills and softskills are among the skills that need to be harnessed.
Over the past few years, several Call Center companies have come to
the region and conducted Job Fairs in order to recruit workers with the
possibility of putting up a branch in the region. These companies include
Teletech, Conversygs and People Support. The graduates performed well in
the technical side but were short on the communication side. Due to low hiring
rate among local graduates (1% to 3%), potential locators just employed the
few recruits in their Manila or Cebu branches.
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To address the above
Table _. Number of Graduates by Field of Study
issues, an alliance among
Eastern Visayas, SY 2006-2007 & SY 2010-2011
2006
Share 2010 to Share
industry
and
academe
Course/Program
to
%
2011
%
stakeholders was forged to
2007
make the academe more
Math & Computer
Science
7.0
10.5
1,037
1,579
responsive to the demands of
Business & related
industry. As of 2009, a total of
courses
23.2
19.6
3,436
2,946
52
higher
education
Engineering &
Technology
15.4
16.7
2,277
2,504
institutions were reported to
Communications
0.4
1.0
61
154
be
offering
ICT-related
Laws & Jurisdiction
0.8
0.8
126
117
courses compared to only 43
Medical
7.5
10.2
1,115
1,529
Others
45.7
41.1
6,780
6,169
in 2005 which explains the
TOTAL
14,832
14,998
increase in share of graduates
Source: CHED
in the Math and Computer
Science courses from 7% in
SY 2006-2007 to 10.5% in SY
2010-2011. Also, some 75 Technical Education and Skills Authority (TESDA)
registered training centers regionwide offered finishing courses not only for
call center agents but also for computer programmers, hardware servicing
and other ICT niches. The TESDA also provided scholarship programs for
short training courses (finishing courses) particularly for call center near-hires
and medical transcriptionists. In the present plan, tie-up between schools and
ICT companies is encouraged to make the skills of graduates at par with
industry standards domestically and globally.
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