The cost to Filipinos of commodities and imports

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MIKE WOOTTON

MIKE WOOTTON

The price of coal has fallen from a peak of nearly $200/ton in 2008/9 to about $50 to $60 now. The price of oil has dropped from a peak of $110/bbl eighteen months ago to an 11-year low of $34, and the price of steel has slumped 57 percent over the last 12 months from $490/MT in December 2014, having hit its peak of $1265/MT in mid-2008.

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Commodities and basic raw materials have experienced dramatic price reductions over the past few years. The future for coal and oil prices not only in an already oversupplied market and following recent international agreements on carbon emission reductions at the Paris conference doesn’t look as if they are going to bounce back anytime soon.

These are dramatic cost reductions over a seven-year period. The Philippine peso/US$ exchange rate on this day in 2008 was almost exactly the same as is quoted today, just over P47 to 1 US$.

Although the pump price of gasoline has declined in the period from mid-2014 to the present by about 40 percent to 50 percent, compared with the reduction in the cost of crude oil over the same period of nearly 70 percent, overall it is difficult for the consumer to feel these dramatic cuts in commodity prices. The cost of living doesn’t seem to be easing as significantly as the fall in commodity costs would have you believe.

The cost of electricity is certainly not dropping to any significant degree in the main grid areas, albeit the cost of the national subsidization of off-grid electricity has been going down a lot. In 2008, the Philippines’ annual inflation stood at over 9 percent, and now it’s running at about 4 percent.

The Filipino consumer is, thus, not getting his fair share of the fall in world market prices of commodities. This is largely attributable to the fact that the Philippines is a nation which imports most of its manufactured and consumer items, as well as important basic commodities.

As I have previously opined, the Philippines leapfrogged the industrialization phase of national development to move from an agrarian economy to a consumer/service-based economy and, thus, missed out on establishing a significant manufacturing industry. The Philippines is simply not industrialized.

This lack of national industrialization makes the Philippines, particularly for hard infrastructural development (roads, ports, airports, power generation), beholden to international markets and foreign manufacturing costs and the attendant trading and transportation costs.

The Philippines imports about 80 percent of its steel requirement, and thus, if serious infrastructural development were to go ahead, the import bill would be a lot bigger. The country imports about 80 percent of its coal needs, which will certainly grow much bigger with the current anti-carbon emission reduction policy of development of coal-fired power plants. At the same time it buys from overseas about 90 percent of its oil supply, while the number of imported vehicles on already overcrowded roads keeps rising – regarded by some as an important indicator of economic progress.

The country is, thus, heavily dependant on volatile international commodity markets, as well as markets for manufactured goods, which themselves are prone to all sorts of gaming activities, as well as the potential for unreliability.

The Philippines has no decent local source of coal, and is seeking coal for its power development policy, but coal mines are being closed down all around the world due to a lack of demand. Even China is cutting coal utilization substantially. Thus, the remaining coal producers must be seeing the Philippines, along with India, as their upcoming bright spots.

Ignoring the industrialization phase in the national development cycle is a costly mistake for an economy to make. With the way the Philippine economy is developing, foreigners who are constitutionally discouraged from making direct investment here are likely to be just replaced by other foreigners who have been dependably providing the country with the manufactured goods and basic commodities the country needs to meet its ever growing demand and consumption.

Mike can be contacted at mawootton@gmail.com.

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