Electronics slipping as top export

ELECTRONICS remain the country’s top export product, binding national export performance to demand by foreign buyers.

As 2013 demonstrated, low demand by importers in developing countries, which continued to grapple with the aftereffects of the 2008 crisis, pushed down export growth to 3.6% from 7.6% in the year before.

But perhaps obscured by the statistics is the fact that the proportion of electronics to total exports has actually fallen.

With the country’s other products gaining more prominence, will electronics regain their ascendancy?

Top earner

The country started to export electronics in the 1970s (Philippine Electronics Industry Profile, 2011). At the time, foreign manufacturers relocated facilities to developing countries to save on production costs. The Philippines proved to be an ideal site due to its English-speaking workers, cost competitiveness and geographic location. The government also provided incentives to entice these manufacturers.

“The conditions that encouraged foreign electronic companies to turn to the Philippines have remained and have been further enhanced by the country’s political transition to popular democracy in 1986,” read the Philippine Electronics Industry Profile prepared by the Trade department and its investment promotion arm, the Board of Investments.

“Since then, the industry has grown rapidly and overtook agriculture as the leading export earning industry in 1996.”

Electronic exports drive imports. Electronics purchased from abroad undergo simple processing before they are shipped out.

The value of electronic shipments reached $31.44 billion in 2010, equivalent to 61% of the total exports. This declined to 49% in 2011, 44% in 2012 and to 40% in 2013.

Data released on March 11 by the Philippine Statistics Authority (PSA) showed electronics comprising around 41% of outbound shipments in January.

Nicholas Antonio T. Mapa, economist at the Bank of the Philippine Islands (BPI), attributed the decline in electronics — in terms of share to total exports — to low global demand as well as the peso’s appreciation against the US dollar.

“The global economic slowdown has led to lower demand for world exports. This undoubtedly dragged down our entire export sector given that electronics comprise bulk of the goods we ship out,” he said in an email.

“The peso, meanwhile, became less competitive” [it] appreciated faster than those of our major competitors in the region. When the peso strengthens, our exports become more expensive in the world market as their dollar price increases,” he added.

“For example, if both the Philippines and Thailand are selling electronics to the US, a stronger peso may convince US companies to source their electronics from Thailand. If the peso appreciates by 10% while the Thai baht appreciates by 1%, every dollar is able to buy more products in Thailand compared to the Philippines,” he continued.

Central bank data showed that the peso averaged P45.1097 per dollar in 2010. It appreciated to P43.3131 per dollar in 2011 and to P42.2288 per dollar in 2012.

Although the peso depreciated to P42.4462 per dollar in 2013, it was still stronger compared to 2010.

Other manufactures

As the share of electronics to total exports shrank, that of non-tech manufactured products — or “other” manufactures in the PSA’s parlance — particularly woodcraft and furniture increased.

Other manufactures comprised 9% of total exports in 2013, up from 8% in 2012 while woodcraft and furniture rose to 6% from 4% during the same years.

“The share of other manufactures and furniture increased as global markets became more aware of our world class goods,” Mr. Mapa said.

“The prominence of Kenneth Cobonpue has undoubtedly helped the [furniture] industry,” he added.

Mr. Cobonpue, a multi-awarded furniture designer and manufacturer, uses locally-sourced materials to produce innovative handmade furniture. His products are famous among Hollywood celebrities like Brad Pitt and members of the royalty.

“One good thing that is coming out from the higher prominence of furniture and other manufactures is that they use less imported materialsÖ Furniture makes use of mostly indigenous materials and Filipino labor, which utilize both forward and backward linkages in the Philippines,” the BPI economist noted.

Unlike other manufactures and furniture, electronic exports “are mostly imports that undergo simple assembly and are shipped out, with very little value added,” he added.

Continued dependence

The country’s ability to export other products is a welcome development “as it improves our ability to weather sharp swings in global demand,” Mr. Mapa said.

He, however, emphasized that “we are still heavily reliant on electronics for overall growth and we have a long way to go before we attain a sustainable mix of export products.”

Donald G. Dee, vice-chairman of the Philippine Chamber of Commerce and Industry, was realistic about the country’s reliance on electronics for export growth.

“Bad economic conditions in the US and the euro zone accounted for much of the decline in the percentage share of electronics to total exports,” he said in an email.

“But with the improving situation there, we are definitely hopeful that the industry will recover and increase its share.” — Kayzee Lynn C. Santiago, Businessworld