Even if there are many expats who have high praises for the Philippines, there are those who believe more has to be done to make the country more attractive to foreign investments and tourists.
And there are those belonging to that group that cannot be labelled as skeptics, because their views are constructive or even very valid, and should be taken seriously by the government. Those who have stayed in the Philippines as top officials of large multinational companies that are into complex activities like vehicle manufacturing can also have in-depth views on how to make the country the next economic super star in the region.
One such expat is Takashi Tomita, currently the executive vice president of Isuzu Philippines Corporation (IPC), one of the few vehicle companies in the Philippines that are still into large-scale manufacturing. His prior posting was deputy general manager of Market Research and Development Office, Isuzu Business Division, Mitsubishi Corporation in Tokyo, Japan, from 2009.
It was in May 2011 that Tomita was assigned to IPC, which allowed him to gain a lot of knowledge about the country, its business climate and economy, and its people.
Tomita sees the Philippine economy as “a little bit special” because of remittances from overseas Filipino workers (OFWs).
“Among Asean [Association of Southeast Asian Nations] countries, the Philippines is a little bit special. For example, in the case of Thailand or Indonesia, their GDP [gross domestic product]is supported by export business, natural resources. But in the case of the Philippines, 70 percent of GDP is supported by domestic demand,” he said.
“The economy is also supported by remittances from OFWs, not by exporting goods,” Tomita added.
The remittances from OFWs obviously play a big part in fueling the growth of the domestic vehicle market, which is a view not only shared by Tomita. Last year, a total of 288,609 vehicles were sold, according to a joint report from the Chamber of Automotive Manufacturers of the Philippines Inc. and the Truck Manufacturers Association. That is a 23-percent growth compared to the 234,747 units sold in 2014.
Besides the remittances from OFWs, the country’s improving per capita GDP is fueling the domestic vehicle market’s growth. According to the World Bank, the country’s per capita GDP from 2011 to 2015 was $2,872.50. According to experts in the vehicle industry, motorization takes root when per capita GDP hits $3,000.
“When GDP per capita is $3,000, the motorization starts,” Tomita said.
In the case of the Philippines, however, its per capita GDP has yet to reach $3,000 although vehicle sales over the past three years have been on a dramatic upswing. This means OFW remittances are definitely helping fuel higher vehicle sales.
“In the case of Philippines, it’s a little bit different because much of the income are coming from the outside, they [OFWs] send the money to their children or their wife, and they use it to buy vehicles,” Tomita said.
However, even if the local vehicle market is growing by leaps and bounds, Tomita is worried the number of vehicles manufactured in the Philippines has been decreasing. He also said the country does not have a conducive environment to attract investments for large-scale manufacturing even if the Aquino administration can be lauded for its anti-corruption drive.
Views on local manufacturing
According to an official of the Philippine Parts Makers Association Inc., about 80 percent of vehicles sold in the Philippines before the Asian Financial Crisis were locally assembled. This has gone down to about 20 percent today, which means about 80 percent of vehicles sold in the domestic market are imported.
“The investment for the real estate, stock market is there. But for, example, industrialization, who has invested?” Tomita said.
“Of course, the current presidency is very good because of the decrease in corruption, we can say better than before. But the macroeconomic [fundamentals of the Philippines], as I said, is different. If the current conditions continue, domestic industries like manufacturing will not grow,” he added, obviously referring to the local assembly of vehicles in the Philippines.
Tomita explained that assembling a vehicle in the Philippines is not easy because of the shortage of car parts suppliers.
“For example, to make a vehicle here, more than 20,000 parts are necessary but most of parts should be imported because there are not so many parts suppliers here,” he said.
With the shortage of car part suppliers, Tomita said a vehicle assembler or manufacturer has to buy the parts abroad that eventually result to higher costs because of freight expenses.
Almost all top officials of car companies agree that when it comes to success stories on the vehicle industry within Southeast Asia, the cases of Thailand and Indonesia are the best examples. Tomita said Thailand put in place the right policies that resulted to the growth of vehicle assembly and manufacturing in the country.
“For example, Thailand prepared very well, they protected very much the car industry. Because of that, most of the car manufacturers there had to manufacture inside Thailand, and that grew the car industry as well during the protection period. Nothing [like that]was done here,” he said.
“And during the development of the AFTA [Asean Free Trade Agreement], Thailand and Indonesia already established their superior position [in vehicle manufacturing]. That means they already got the [economies of]scale. That means having parts suppliers, huge investment were done for that [in both countries],” Tomita added.
AFTA reduced the tariffs of certain products traded within Southeast Asian countries, including for vehicles and car parts.
Views on cars program
Although IPC and its sister-company Honda Cars Philippines Inc. (HCPI) remain one of the few car firms that are into local assembly, Tomita fears car manufacturing does not have a bright future in the country. This despite the government’s putting in place the Comprehensive Automotive Resurgence Strategy (CARS) Program on May 29, 2015. Under the program, the assembly of three car models will be given incentives amounting to P7 billion each over six years provided each car model has a total production of 200,000 units over the same period.
“But in Philippines, there is only one vehicle model which reaches such level [of volume production required by the CARS Program], only the [Toyota] Vios. Other vehicles cannot get such kind of incentives. For example, in our [IPC] case, total yearly production volume is 10,000 units or something. In Honda’s [HCPI] case, it’s the same,” Tomita said.
Although the government is urging the export of vehicles so car makers can reach the volume requirement to qualify for the CARS Program and to achieve economies of scale, he emphasized that it is the taxpayers who will pay for the incentives that will be granted to participants of the program. This means vehicles exported under the CARS Programs will have a portion of its production cost shouldered by Filipino taxpayers.
What the government should put into place, Tomita added, are incentives that will encourage more vehicle assembly in the Philippines and benefit the industry in general.
“Government should provide some incentive support for assembling vehicles that will equally support any make,” Tomita added.