With the Philippines having the lowest subsidy response to recovery efforts from the new coronavirus disease 2019 in Asean, the exclusion of manufacturing and construction in a proposed stimulus package is feared to have a far-reaching effect on the economy.
In a letter to House deputy speaker Rep. Raneo Abu, Secretary Ramon Lopez of the Department of Trade and Industry (DTI) noted how these sectors, the worst hit by the pandemic, were left out by the proposed Bayanihan to Recover as One Act at a time when the Philippines’
Asean competitors are giving generous stimulus and subsidy/incentive packages to these industries.
Lopez has proposed policy interventions including the grant of incentives, domestic preferences as well as tariff amendments to ensure the fast recovery of manufacturing and construction sectors.
Citing data, the DTI said the Philippines has allotted 2.93 as a percentage to GDP for its stimulus package in the form of waiver of taxes and duties. But this was limited to manufacturers and importers of COVID – related products such as personal protective equipment (PPEs) and their raw materials from March to June.
This share is eclipsed by Malaysia’s 18.57 percent; Thailand, 11.13 percent; Vietnam, 4.37 percent and Indonesia, 3.86 percent.
Lopez said nearly 40 percent of the 16.5 percent decline in GDP in the second is attributed to the declines in manufacturing and construction at 21.3 percent and 33.5 percent, respectively.
These sectors account for 95.4 percent of the almost six million formal employment in the Industrial sector.
According to Lopez, manufacturing not only experienced the largest decline but is besieged on all sides: decline in demand, decline in workforce productivity and cost escalations due to quarantine protocols and lockdowns.
He said the sector also faces intense competition from imports, as manufactured goods are freely imported at low/zero-duty from most of the country’s trading partners including China and Asean.
“As our neighbors-competitors still do experience depressed demand, their heavily subsidized manufactured and tradable products will look for markets elsewhere and the Philippines’ large population base, continuous government spending, and zero-duty for imported products, is an important target market,” Lopez said.
In addition to policy interventions, Lopez also offered proposals for maximizing employment potential of sectors such as the business process outsourcing industry, possibly absorbing displaced OFWs and teachers.
The DTI’s policy proposals include:
– domestic preference for government purchases for PPEs and other health-related products; Build, Build, Build and other infrastructure projects; modernization of public utility vehicles and making them COVID-ready; modernizing and expanding telecommunication infrastructure to better support blended learning and work-from-home (WFH)arrangements;
– incentives for those deepening the domestic value chain, including development of agri-industry and large corporation-micro, small and medium enterprise (MSME) supply-network linkages; and adoption of inclusive business models;
-unleash the employment generation potential of BPOs under WFH arrangements, including for returning OFWs and displaced teachers by temporarily removing locational restrictions; and facilitating availment of business premises to be vacated or reportedly being vacated by Philippine online gaming operators;
-subject to a specific time-frame coinciding with the pandemic period and its effects: enhance incentives for businesses locating or relocating to areas outside of the National Capital Region; facilitate land conversion and liberalize requirements for export zone proclamations for industrial and service facilities; liberalize the use of satellite services ;
-provide time-bound (one-year) and performance-based (no lay-off or retention of 90 percent of workers) fiscal incentives for all companies.
The DTI is also seeking P50 million budget to support the establishment of testing laboratory for PPE, subsidy for MSME construction companies and investors’ testing.
Meanwhile, the Semiconductor and Electronics Industries of the Philippines Inc. (SEIPI) in a letter to Senate President Vicente Sotto III expressed support to Lopez’s appeal to provide assistance to the manufacturing sector, including exporters and its supply chain, which were excluded in the proposed Bayanihan 2.
The industry accounted for $43.32 billion or 61.6 percent of the country’s total exports and employing over 3 million direct and indirect workers in 2019 but was significantly crippled by the COVID-19 pandemic due to global and local supply chain disruptions, reduced manpower.
Exports fell 20 percent $43.3 billion export level in 2019 and may get worse “if we don’t arrest the infection rate,” SEIPI said.