Philippines can become Southeast Asia's production hub – report

MANILA, Philippines - Known for its vibrant services sector, the Philippines has what it takes to become Southeast Asia’s production hub once the regional integration kicks in by the end of the year, a new report said.

“Investors can view the Philippines as a gateway to the rest of the region as well as to Asean’s six free trade partners in East Asia,” the report titled “Moving Across Borders: The Philippines and the Asean Economic Community” said.

The 78-page report, released yesterday by auditing firm KPMG R.G. Manabat & Co., discussed the country’s prospects on the looming integration of the 10-member Association of Southeast Asian Nations (Asean).

On the positive side, the country’s young demographics could work on its favor as it lures back factories that will leave China and go to Asean for opportunities.

Filipinos are among the youngest in the Asean, the report said, pointing out that productivity is highly determined by the presence of a large working force to man factories.

“The English proficiency of Filipino workers is another advantage of the Philippines in the region,” it said.

On the other hand, while the country has the second highest labor cost in Asean, next to Malaysia, KPMG said this is hardly a problem if coupled with high productivity.

Cheap credit is also a factor, with the report taking note of the Philippines’ credit upgrades in recent years. “Such rating signals a good financial reputation to potential foreign investors,” it said.

Location-wise, the Philippines also has “competitive” property prices – ranking fourth lowest in the region – as against other Asean members.

According to the report, the average property price per square meter in the Philippines stood at $3,156 – lower than Thailand’s $3,638 and Singapore’s $15,251. It is, however, higher than Cambodia ($2,913), Malaysia ($2,873) and Indonesia ($2,692).

Foreign manufacturing investments to Asean totaled $41 billion in 2013, up 127.7 percent from $18 billion the previous year. In the Philippines, foreign direct investments (FDI) rose by a fifth to $4 billion during the period.

By sector, the country cornered the bulk of manufacturing FDI in the “lower quality, lower cost” auto equipment and components as well as food, beverage and tobacco.

“The challenge now is to move up to the higher quality and lower cost category,” the report said.

Other challenges also persist. In a forum marking the report’s launch, corporate officials highlighted avenues for improvement for the Philippines.

Cornelio Mapa Jr., executive vice-president of Universal Robina Corp. said a favorable demographics is useless without the necessary skills set. Maria Carolina Dominguez, president of John Clements Consultants Inc., agreed.

“We need to challenge information because we need to take decisions very quickly because information is everywhere and we need to be able to use them,” Dominguez said.

For his part, George Manzano of the University of Asia and the Pacific said government support will need to be channeled toward better infrastructure and uniform regulations.

“We need both soft connectivity and hard connectivity. On one hand, we need to have good regulations, that’s soft connectivity. On the other, we need hard connectivity which are the ports, airports and railways to connect to the system,” Manzano said.