DSpace at VNU: The Philippines in the AEC Trade and Investment Opportunities, Challenges and Preparation Myrna S. Austri...
The Philippines in the AEC Trade and Investment Opportunities, Challenges and Preparation Myrna S Austria, Ph.D Full Professor, School of Economics De La Salle University Objectives Analyse initiatives and milestones of the Philippines towards full integration in AEC Identify opportunities for the country arising from AEC as well as the opportunities the country can offer to the other ASEAN members Identify issues and challenges that should be addressed to enable the country participate actively in the AEC and reap the expected benefits from the regional integration Outline of Presentation Objectives Initiatives and milestones towards full integration into AEC State of the economy: Is the Philippines prepared for AEC? Opportunities from AEC The road ahead: issues and challenges Concluding remarks The Philippines in the AEC: Background Overall arching goal of increasing competitiveness through market-oriented reforms covering liberalization, privatization & deregulation Despite policy reforms, Philippines experienced boom-bust cycle of economic growth, with the country lagging behind its neighbors in the region (Aldaba, 2013) Philippine experience shows market-oriented reforms did not produce expected benefits because of lack of efficient institutions, absence of good governance and poor infrastructure Philippine commitment to AEC and AEC Blueprint integral to addressing remaining constraints to being globally competitive Initiatives and milestones towards integration into AEC Trade liberalization EO 850, passed in December 2009, lowered tariffs on imports from ASEAN to 0% in 2010 Sensitive list - swine, poultry, cassava, sweet potatoes, corn, sorghum, sugar & rice Remaining quantitative restrictions mainly on weapons & arms, rice and sugar NTMs imposed for health and safety reasons Trade Facilitation Customs reform and modernization program (1994-2005) Electronic to mobile (e2m) customs project (2005) One-stop shop export documentation center (OSEDC) Automation in the export processing zones Philippine National Single Window Phase launched 2010 and now completed Being implemented in major seaports and airports and targets 100% completion by 2015; 38 government agencies currently connected to NSW portal; and 50 by 2015; covers 95% of imports, 25% of exports and 75% of enterprises (Medalla, 2013) Philippine Scorecard: 82% Still not able to exchange data with another ASEAN member FDI Liberalization RA 7042, Foreign Investment Act (June 1991) – 100% foreign equity in all areas, except those specified in the negative lists A, B and C RA 8179 (March1996) – abolished Negative List C; RA 7721(1994) - Foreign bank liberalization RA 879 (2000) – General Banking Law allowing foreign banks to own 100% of one locally-incorporated commercial or thrift bank RA 8762 (March 2000) – Retail trade liberalization law allowing 100% foreign equity with minimum US$7.5 million equity Remaining FDI barriers EO 858 (Feb 2010) – foreign equity restriction a Mass media – no foreign equity b Land ownership – 40% c Natural resources – 40% d Public utilities – 40% e BOT – 40% Investment promotion and facilitation Promotion through fiscal and non-fiscal incentives Facilitation BOI – National Econ Research and Business Action Center PEZA – one-stop and non-stop shop operating 24/7 CDC – One Stop Action Center Philippine Business Registry (PBR) Philippine Scorecard: 71% State of the economy: Is the Philippines ready for AEC? Table Top Philippine imported products from ASEAN, by country, 2010 & 2012 2010 Country HS Code Product '2710 Petroleum oils, not crude Thailand '8542 Electronic integrated circuits and microassemblies '8473 Parts&acces of computers & office machines 2012 % HS Share Code Product 28.70 '8542 Electronic integrated circuits and microassemblies 25.38 '2710 Petroleum oils, not crude % Share 21.05 17.58 8.43 '8473 Parts&acces of computers & office machines 9.80 '2709 Crude petroleum oils 3.91 '8525 Television camera, transmissn app for radio-telephony 3.45 Machines&mech appl having '8479 indiv functions, nes Bitumen & asphalt, natural; 2.29 '2714 shale & tar sands; asphaltites & asphaltic Total 68.71 Total 3.36 55.24 Table Top Philippine imported products from ASEAN, by country, 2010 & 2012 2010 Country HS Product Code '1006 Rice Parts & acces of computers & office '8473 machines 2012 % HS Share Code 69.34 '1006 Rice Product 2.85 '0901 Coffee Parts&acces of Copper ores and computers & office Vietnam '2603 concentrates 2.82 '8473 machines '0901 Coffee 1.90 '8507 Electric accumulator Television camera, Mixtures of nitrogen, transmissn app for radiophosphorous or '8525 telephony 1.61 '3105 potassium fertilizers Total 78.52 Total % Share 33.90 4.73 3.95 3.66 3.04 49.28 Table_GDP growth rate, by demand, Philippines, Table Trade facilitation indicators, ASEAN 2010-2011 & 2011-2012 (%) & North-East Asia, 2008 & 2012 Time for completing trade Type of expenditure Procedures(days) 2008 2012 % Change South East Asia 18 -21.1 Household final22consumption Brunei Darussalam 23 17 Cambodia 41 24 -41.5 Government final consumption Indonesia 23 20 -11.1 Lao PDR 38 26 -31.6 Capital formation Malaysia 12 10 -17.1 Myanmar Construction 18 Philippines 15 -17.1 Singapore 5 0.0 Durable equipment Thailand 16 14 -12.9 Breeding stock, etc Vietnam 24 21 -10.6 IPR North-East Asia Exports China Hong Kong, China Imports Republic of Korea Source: NSCB Source: APTIR 2012 23 11 23 0.0 -9.1 -33.3 Cost of completing trade procedures 2010-2011 2011-2012 (2000 constant United States dollar) 2008 2012 656 619 562 653 515 1683 337 5.7 685 2.1 535 1601 2.0 356 -8.4 667 341 2.7 610 -0.3 459 491 353 527 477 648 472 450 537 11.8 -2.8 357 457 -1.0 % Change 6.6 -5.5 -4.7 12.2 -3.9 5.1 -3.2 -5.1 15.1-27.4 8.0 3.7 -13.6 1.4 4.1 18.0 8.9 32.1 5.3 -1.5 -17.2 Table_GDP rate, by demand, Philippines, Tablegrowth 10 Logistic Performance Index Ranking, ASEAN Countries, China, South Korea and India, 2010 & 2012 2010-2011 & 2011-2012 (%) 2010 2012 Countries Rank % of Rank % of highest Type of expenditure 2010-2011 2011-2012 highest performer performer Brunei Household final consumption 5.7 6.6 Cambodia 129 44.0 101 50 Indonesia 75 56.5 59 62.2 Government final consumption 12.2 48 Lao PDR 118 47 2.1 109 Malaysia 29 78.4 29 79.8 Myanmar 133 42.7 2.0 129 Capital formation -3.2 43.8 Philippines 44 68.8 52 64.8 Construction 15.1100.0 Singapore 99.2 -8.4 Thailand 35 73.6 38 69.6 DurableVietnam equipment 53 2.7 8.0 63.1 53 64.1 LPI shows Philippines needs catching up with Malaysia, Thailand & Breeding stock, etc Singapore China IPR Exports Imports Source: NSCB South Korea India 23 47 -0.3 84.711.8 67.9 -2.8 -1.0 Note: Rank out of 155 countries Source: Trade Logistics in the Global Economy 2012 26 21 46 1.4 18.0 8.9 5.3 80.5 86.2 66.4 Table 11 Inward foreign direct investment flows, 2008-2012 Y EAR Amount (US$ Million)' Brunei Darussalam Cambodia Indonesia Lao People's Dem Rep Malaysia Myanmar Philippines Singapore T hailand Viet Nam Total ASEAN % Distribution Brunei Darussalam Cambodia Indonesia Lao People's Dem Rep Malaysia Myanmar Philippines Singapore T hailand Viet Nam Source:UNCTAD, UNCTADstat 2008 330.1 815.2 9,318.0 227.7 7,172.0 863.0 1,544.0 12,200.0 8,454.7 9,579.0 50,503.6 0.65 1.61 18.45 0.45 14.20 1.71 3.06 24.16 16.74 18.97 2009 371.4 539.1 4,877.4 189.5 1,453.0 972.5 1,963.0 24,939.3 4,854.4 7,600.0 47,759.6 0.78 1.13 10.21 0.40 3.04 2.04 4.11 52.22 10.16 15.91 2010 625.7 782.6 13,770.6 278.8 9,060.0 1,284.6 1,298.0 53,622.7 9,146.8 8,000.0 97,869.8 0.64 0.80 14.07 0.28 9.26 1.31 1.33 54.79 9.35 8.17 2011 1,208.3 901.7 19,241.3 300.8 12,197.6 2,200.0 1,816.0 55,922.7 7,778.7 7,430.0 108,996.9 1.11 0.83 17.65 0.28 11.19 2.02 1.67 51.31 7.14 6.82 2012 850.0 1,557.1 19,852.6 294.4 10,073.9 2,243.0 2,797.0 56,650.9 8,607.5 8,368.0 111,294.3 0.76 1.40 17.84 0.26 9.05 2.02 2.51 50.90 7.73 7.52 Table 12 Foreign Direct Investment, by IT-BPO Category, 2005-2011 Category Amount (US$ million) Contact Center 2005 2006 2007 2008 2009 2010 2011 213 259 585 1,309 1,330 2,421 3,007 Transcription 13 13 30 46 Animation 18 23 23 40 73 75 Software Development 34 96 320 632 849 1,211 Other BPOs 107 64 109 161 361 916 1,016 TOTAL INDUSTRY 329 376 821 1,825 2,376 4,288 5,355 Growth rate (%) Contact Center Transcription Animation Software Development Other BPOs TOTAL INDUSTRY 21.7 176.2 303.8 656.6 (40.3) 14.3 126.1 430.3 31.4 179.8 71.2 118.5 123.7 55.1 1.1 233.2 47.5 122.2 1.6 4.4 69.1 97.6 124.5 30.1 82.0 125.6 83.8 34.3 153.9 80.5 24.2 53.9 3.3 42.7 10.8 24.9 Figure 10 Distribution of FDI, IT BPO,2005-2011 (%) Contact Center Transcription Animation (63.58) (0.63) (2.13) Software Development Other BPOs (15.53) (18.13) Table 13 Revenue, by IT-BPO Category, 2004-2011 IT-BPO Category Levels (in US$ million) 2004 2005 2006 2007 2008 2009 2010 2011 Sales revenue (US$ million) Contact Center Transcription Animation 587 12 986 17 1,455 20 26 2,051 33 29 2,839 34 36 4,207 57 52 5,260 84 63 6,817 122 72 Software Development 279 399 707 1,098 1,413 1,672 2,198 2,469 Other BPOs 441 585 697 1,157 2,004 2,270 2,452 2,594 1,324 1,996 2,906 4,368 6,325 8,258 TOTAL INDUSTRY 10,058 12,074 Growth Rates (%) Contact Center Transcription Animation 67.9 100.4 37.6 47.7 140.0 52.6 40.9 60.6 11.2 38.4 4.1 25.5 48.2 66.8 44.2 25.0 48.8 20.6 29.6 44.3 14.0 Software Development 43.2 77.1 55.4 28.6 18.4 31.4 12.3 Other BPOs TOTAL INDUSTRY 32.8 50.8 19.1 45.6 66.0 50.3 73.2 44.8 13.3 30.6 8.0 21.8 5.8 20.1 Figure 11 Distribution of Revenue, IT-BPO, 2004-2011 (%) Table 14 Export-to-Revenue Ratio, by IT-BPO Category, 2004-2011 Category Contact Center 2004 2005 2006 2007 2008 2009 2010 2011 95.6 96.3 91.4 84.5 87.7 93.6 97.4 90.4 Transcription 100.0 99.5 92.9 77.1 70.5 96.1 89.0 100.0 Animation 62.4 66.4 87.3 Software Development 35.3 40.1 64.3 91.9 95.8 87.1 85.0 83.1 77.5 81.3 92.9 87.7 96.4 Other BPOs 49.1 44.2 66.2 73.9 79.4 93.7 93.3 93.7 TOTAL INDUSTRY 67.1 69.5 78.7 79.9 83.6 93.4 94.2 92.4 Source: BSP Investment-grade ratings Upgrade due to strong economic growth, robust external balances, improving fiscal position & continued FDI inflow March 2013: Fitch Ratings upgrade from BBBto BBB+ May 2013: Standard & Poor’s Ratings Services upgrade to BBB October 2013: Moody’s Investor Service upgrade from Ba1 to Baa3 Opportunities from AEC AEC and AEC Blueprint pushed the Philippines to remain in the reform agenda, addressing constraints that have prevented the country to reap benefits provided by greater openness AEC would bring benefits for the country in terms of attracting investments, promoting competition, and enhancing SME participation in global supply chain Strong growth prospects and credit upgrades make the country more attractive to potential investors Entry of Philippine industries in the ASEAN value chain Expanded market for exports Ten opportunity sectors covering: agro-industry, food processing, electronics & chip manufacturing, business process outsourcing & IT, energy, mining, logistics, aviation, shipbuilding and tourism The Road Ahead: Issues and Challenges Increase in global competitiveness Goal is to move up into the top third of global rankings by 2016 (Luz, 2013) Strengthening customs efficient risk management system Unify and centralize investment promotion and facilitation under one agency Harmonization of investment incentives Alignment of domestic policies with AEC commitments Reduce cost of doing business through modern and efficient infrastructures and logistics support Improved governance – fight against corruption an absolute priority Concluding Remarks As competition becomes pierce, the Philippine government should ensure the quality of its policy environment and the associated regulatory reforms to increase trade and attract investment Only an enabling environment that addresses the supply-side capacity constraints (institutions, infrastructures, logistics, regulatory environment, governance, etc.) will take the country towards participating in the opportunities provided by full integration in AEC by 2015 Thank You ... commitment to AEC and AEC Blueprint integral to addressing remaining constraints to being globally competitive Initiatives and milestones towards integration into AEC Trade liberalization EO... Outline of Presentation Objectives Initiatives and milestones towards full integration into AEC State of the economy: Is the Philippines prepared for AEC? Opportunities from AEC The. .. initiatives and milestones of the Philippines towards full integration in AEC Identify opportunities for the country arising from AEC as well as the opportunities the country can offer to the