Phl should focus on semiconductor manufacturing

The Philippines should focus more on semiconductor manufacturing if it wants to attract foreign investment and improve its economy more quickly amid the current AI boom, instead of focusing on data centers that would take longer to put up because of their numerous requirements, which include power reliability, network connectivity and geographic stability.

This was my main takeaway from HSBC Philippines’ third annual business summit titled “Philippines Forward: Building the Future, Accelerating Growth,” which was held Tuesday, Aug. 18 at the Grand Ballroom of Shangri-La at the Fort BGC.

The business summit brought together around 500 clients, partners, public sector officials, media and other stakeholders to discuss the country’s next growth moves and identify investment opportunities that can move forward over the next six to 12 months.

HSBC Philippines CEO Sandeep Uppal, who has a long history with the Philippines, having been twice assigned to the country — first in the 1990s and in his current position since 2022 — clearly has a better grasp of what our country already has in built-up assets and infrastructure.

During an open forum discussion, Uppal stressed that fact even as investment talks focus on building data centers due to the increasing demand for cloud storage. The Philippines’ strength already lies in manufacturing — specifically semiconductors — with the required infrastructure of roads, seaports and airports in place, as well as the existence of the Clark Freeport Zone, which is also part of the Luzon Economic Corridor where the ambitious Pax Silica initiative will be located.

In a press briefing after the summit, Uppal elaborated on his view of the Philippine economy and what the government needs to do immediately.

According to the HSBC executive, “the core of the Philippine economy is still intact, even though the growth rates may have come off, but fundamentally, there’s nothing wrong with the government. It’s gone through a stress test in the last six months. So that aspect, I think, is very important for everyone to grasp.”

The second thing he emphasized is “the need of the hour is execution. Not new ideas, because we need growth in the next six months, and we are not talking about six years. While six years is important, what we have today, we just got to finish it. What we started, just finish it quickly.”

Uppal was referring to the public-private partnership program the government has started, some of which have not been completed. He pointed out, “we do have extensive PPP programs... but some have been there for so long that we forget they are PPPs. So, for example, if you take all the utilities, electricity, water, it is a PPP because it’s a public service which private sector provides on the back of government policies. Now, the best example I thought was NAIA. So NAIA was a good.. so we are saying, look, it can be done, it can be done effectively. It’s a win-win for everyone.”

Likewise, he cited, “we have a series which are works in progress. And the biggest is the North-South Commuter Railway, which is a PPP... Cavite, Bataan is a PPP. In a way, even the New Clark City is a PPP as a concept. So key is, how quickly we can execute on that?”

New Clark City, Uppal stressed, already has the infrastructure for manufacturing. “As I said, I think that part is important for people to understand — that what we need is more of semiconductor manufacturing, more of the supply chain. We have it. It not that we started from zero. So I think our exports are only $20 billion, but Malaysia is five times more.”

And indeed, Malaysia’s semiconductor industry employs almost 260,000 workers and generates some $95.6 billion in exports per year. According to an Aug. 3 article in Malaysia’s Business Times, the country is attracting as much as $28.4 billion in investment into its semiconductor manufacturing sector, more so following the US-Iran conflict.

The foreign investment inflow into Malaysia has effectively made it a growth standout in Asia.

Uppal has seen for himself the manufacturing ecosystem Malaysia has built over the years in Penang. “I’ve been to Penang before, I’ve been to Penang now. It is completely transformed through the semiconductor manufacturing supply chain. In Clark, we have an opportunity. The key is to execute on it.”

Furthermore, Uppal added that even if electricity costs in the Philippines may be a bit more expensive...”you’ve got Clark airport there, which means, let’s for sake of argument, assume that your electricity is more expensive than other countries. But then compared to the other countries, your cost of logistics is lower because you are five kilometers away from the airport. That makes it up. Subic is close by as a seaport. So, that’s the way I think.. you balance it out. So, I don’t think one has to be efficient in every part of the input, but collectively, it has to make sense.”

The competition for attracting more data centers to be built in the Philippines can come at a later date, he said.

HSBC chief Asia economist and co-head of global research Asia Frederic Neumann agreed that the Philippines’ Information Technology and Business Process Outsourcing sector is still doing well even as AI begins to alter the landscape. “Our sense is that actually, the BPO industry is holding up very, very well in the face of AI. And there were concerns at some point, ‘Is AI going to reduce demand from BPO?’ That doesn’t seem to have happened. In fact, if anything, the BPO industry is reinventing itself. And so, BPOs have actually been quite a bright spot, this year, in terms of generating jobs and income for the Philippines. And we see that actually continuing. And AI might actually offer opportunities there to grow faster. And so we see AI as an opportunity, even for the Philippine economy in the coming years.”