30 September 2020, Metro Manila via Zoom
Ladies and gentlemen, magandang hapon po sa inyong lahat!
I am honoured to speak before our friends in the YPO Group on the country’s recovery plans post-COVID-19, what we can expect ahead of us, and how businesses can adapt.
Despite the COVID-19 pandemic, the Philippines still remains to us a conducive place to do business and is considered one of the top emerging economies and countries for investments. Even during the pandemic, we saw these articles from The Economist business magazine citing Philippines as sixth among the emerging economies with a high-level financial strength, fiscal management. Meanwhile, CEOWorld considered the Philippines as one of the top 10 countries for investments in the post-COVID era.
In view of these recognitions, the government has been working on mitigating the impact of COVID-19 on our country, especially with businesses. And as we adapt to the “New Normal,” or I would say a “Better Normal,” we are offering better support to the business community for the post-pandemic period.
To this end, the Department of Trade and Industry (or DTI) is focusing on “REBUILD” to address the economic challenges brought about by the present pandemic. “REBUILD” stands for Revitalizing Businesses, Investments, Livelihoods, and Domestic Demand as we Balance Health and Economy.
We would like to reiterate that as we address the health and economic challenges of the pandemic, the government has been seeking to achieve a balance between health and economy. We’ve also been guiding our people to be disciplined in following health protocols.
But even with COVID-19 affecting the world economy, the government is confident in overcoming this challenge. This is because our country has strong economic fundamentals that prepared itself to address the pandemic, enabling the government to respond swiftly to save lives.
Our economy expanded 5.3x since the year 2000 and 1.4x since 2015. This further continued into 2019 where our economy grew to Php 19.5T with a GDP per capita of US$3,464.
These strong fundamentals were enough to convince international credit rating agencies to give exceptionally favorable ratings for the Philippines that set the stage for more reasonable borrowing rates during the pandemic. Moody’s, Fitch, and S&P affirmed their investment grade ratings for the Philippines even during the pandemic.
Entering the year 2020, our economy continued to ride on the strong growth momentum, ranging from 6% to 7.5% for more than 15 quarters. We painstakingly built this with game-changing structural, economic, and financial reforms—as well as an aggressive infrastructure development program, or “Build, Build, Build,” that accelerated economic output to over 6% in 2019.
During that same year, our unemployment was at a record-low of 4.5%, while our underemployment rate at 13.0%.
It also helped that we have had low and stable inflation rate averaging 3.0% and over below 3.0% in recent months.
Meanwhile, the Board of Investments (BOI) breached its annual target of Php1.14T in investment approvals last year. This was the highest ever in BOI’s 52-year history and higher than their previous records of Php618B in 2017 and Php915B in 2018.
With the global pandemic, the Philippine government had to declare an Enhanced Community Quarantine (or ECQ) on March 16 to guarantee the health and safety of our people by pushing more aggressive TITT – trace, isolate, test, and treat. We can isolate those who become positive for the virus. This is now the strategy for enforcement after living with the virus over six months from ECQ, MECQ and GCQ.
We’re applying these even under the GCQ. In enforcement with respect to tracing, isolating, testing, and treatment we can isolate those who tested positive for the virus as this will allow those who are healthy to go back to work and restart the economy. That has been our mantra in recent policies in the IATF. Our objective is to bring back jobs and income opportunities. This is the only way to restore consumer confidence if we are able to bring back the workers to their job and income opportunities.
Several months later and with the lifting of ECQ, we are now safely and gradually reopening the economy. We’ve shifted instead of a stricter lockdown focusing the stricter lockdown to a granular level like by room, by section, by floor, building or street or even barangay. We’ve put this in the workplace protocol on how we institute a lockdown as people get back to work.
Our manufacturing PMI climbed back closer to 50, at 49.7 in June from its record-low 31.6 in April. This showed an ongoing recovery in the manufacturing sector as the lockdown via the community quarantine eased in several regions across the country.
Our Overall Manufacturing Capacity Utilization has increased from 71.8% last April to 75.8% last June. Further, our Output Index has been climbing from 10.2 last April to 51.1 last June.
Meanwhile, our exports’ slowdown this year started to ease in June, from -49% in April to -9.6% in July.
The July labor force data also indicated an improvement from the worst level of 17.7% in April to 10% in July, as the economy is reopening.
These data points show that even with the rest of the world affected by the pandemic, the Philippines was also affected—but is now recovering. More importantly, our country is poised to bounce back better.
With the institution of health protocols and guidelines to keep our people safe and healthy, we now need to move forward. To do this, we will focus on REBUILD.
The vision of REBUILD PH is to create a better future for Filipinos in a modern, dynamic, and responsible Philippines.
The objectives include: (1) having a modernized and integrated industrial capacity; (2) integrating Philippine high-value products and services in global value chains; and (3) contributing to socio-economic development, in particular with infrastructure, health, poverty-alleviation, employment, and environment.
The goals of REBUILD PH are the following: (1) reducing trade deficit; (2) increasing value creation; (3) increasing backward and forward linkages; and (4) modernizing our local industries.
To achieve these goals, our broad strategies include revitalizing consumption to boost demand, as well as empowering production capacities to power supply that can capture demand. It is essential that we support the economy post-COVID-19 by keeping jobs so that people will have income that will bring back demand. This will entice companies to produce more supply. With that greater supply and greater employment, investments hopefully will start again the virtuous cycle. Hiring more, creating more jobs, more income, etc.
One way to do this is to help our businesses, especially our Micro SMEs who make up 99.6% of total number of enterprises, and in term of jobs, contribute 65% to total employment. To this end, the Small Businesses Corp (SBCorp.), the attached agency of the Department of Trade and Industry, initially launched a Php 1B program. Of course, that was not enough and immediately, the demand was about over Php 3.5B in borrowings.
Under Bayanihan II we were able to get Php 10B-microfinancing program for MSMEs called the P3 COVID-19 Assistance to Restart Enterprises (or CARES) program.
There is also the Php200M-Negosyo Serbisyo sa Barangay (or NSB) livelihood package for those wanting to start a business at the barangay level. Part of the funding of the SB Corp. we are reserving for medium-sized entrepreneurs. For medium to large sized borrowings industry sector, aside from private banks, they can go to Landbank and DBP, and also Philippine Guarantee Corporation that can provide guarantee for loans.
Meanwhile, there is Php165.5B allocated by the “Bayanihan to Recover as One” Act (or BAYANIHAN 2) to support businesses affected. This includes all sectors—tourism, agriculture, transport sector, micro SMEs, cooperatives, and OFWs.
For non-financial support, DTI offers entrepreneurship training and counselling, as well as programs on transforming business models, e-commerce, financial advisory, and innovation. We try to conduct mini strategic planning to guide them how to put back their business and when they’re ready, to put them on e-commerce, to digitalize their businesses that will expand their reach to a larger market. Doing some financial advisory and innovation—this is where we invite the YPO members to be speakers on webinar. I’m sure you’ll be able to find meaning in life and satisfaction as you are able to help the micro SMEs.
Our demand-side strategy to revitalize consumption relies on several factors: consumer expenditure (C), investments (I), government expenditure (G), exports (X), and imports (M).
With regard to consumer expenditure (C), we are pushing for economic stimulus to save jobs and income. In the Bayanihan II, some funds to save companies that will save jobs and to restart the economy save jobs that will create income, to stimulate demand and stimulate production.
Also, we have “Buy Local! Go Lokal!” campaign to increase awareness of Filipinos to patronize MSME products, as well as locally manufactured products. We were trying to put this into policies just like in the current Bayanihan II. We’re happy to know that in the insertion of certain provisions like government procurement, there is a domestic preference now included therein. Wherein the price of local manufactures up to 15% margin higher than the imported can still win the bid. In other words, some kind of pricing preference for locally manufactured products. This is our way to support our local manufacturers that will create more jobs.
To help our MSMEs, we will increase their accessibility in helping them to be on board on online platforms like Shopee, Lazada, Facebook. Teaching them how to do those tricks, connecting them with e-payment system, as well as logistics and services. We also strengthen consumer protection to increase consumer confidence by ensuring standard compliance. Adding more products that is subjected to standard compliance is our way to protect local manufacturers, making sure that any imported products coming to the market are standard compliant. Therefore, we level the playing field by subjecting local manufacturers to a fair-trade competition by not having any substandard products here. Other objective being met there is gaining consumer confidence and safety for the consumers who will be using those products. We also ensure their safety by COVID proofing businesses to reduce fear.
With the matter of investments (I), we will improve our country’s investment climate. We were now passing the Corporate Recovery and Tax Incentives for Enterprises (or CREATE) Act in Senate which in fully support with a bit of amendments on some provisions. We’re working on Retail Trade Act revision and revision of the Public Service Act that will attract more foreign investments into the sectors; and additional review of the Foreign Investment Negative List (or FINL). We also for push intellectual property (IP) generation and commercialization, as well as incentives for investments outside metropolitan areas.
On government expenditure (G), we’re pushing for “Build, Build, Build”. This is also including job generating infrastructure program. Aside from developing the necessary economic infrastructure as one of the factors we consider also by our investors. This is an aggressive program accounting for 5 to 7% of GDP. A strong program being implemented since the start of Duterte administration. We will also ensure strategic stockpiling of critical medical products as we’ve learned in this pandemic. There is a bill filed by Senator Gordon through the Philippine International Trade Corporation. It will empower the PITC some budget to stockpile the critical medical products. At any given time in the future when there’s a new pandemic, we have a good stock of medical like mask, PPE coveralls, testing devices.
In the start of the pandemic last March we realized that we did not have enough stock. Practically zero local production of all these. We try to repurpose some of our manufacturers and encourage them to go into these products to produce these. From zero capacity of PPE coveralls, we are now able to produce 2 million pieces a month and also about 2 million per month of surgical mask. We are now able to produce about 56 million pieces of face mask per month. Even the intermediate raw material of PPE coveralls is also produced locally. Capacity is being expanded.
On exports (X), we will maximize the utilization of our Free Trade Agreements (FTAs), the Generalized System of Preferences (GSP) of the US, and the Generalized Scheme of Preferences Plus (GSP+) of the EU. In the EU, we have about 6,274 product lines that are given zero duty when they enter the market. It’s a good preference given to our products. For US about 3500 products at zero duty. These privileges attract locators locally, investors and manufacturers to settle here in the Philippine where they can avail these privileges. We will continue to strengthen trade promotion and deepen integration in global value chains.
On imports (M), we will enforce standards to ensure high quality of products offered in the market while using appropriate trade remedy measures where necessary. Import safeguard duties because of the surge in imports, especially if you look into 2018 2019 figures, some products were subjected to this. There are some pending right now that are being reviewed for safeguards like imported coffee. This is also one way to protect local manufacturers.
On supply-side, strategy will focus on empowering production capacities to capture demand. First, we need to accelerate investments in sectors and areas. We cited 5 areas for basic necessity, food health education, 4th industrial revolution, smart manufacturing, new technology, addressing supply chain gaps.
For example, there is a gap in the steel industry. We don’t have an integrated iron steel, we just import the billets or hot coils to produce the downstream steel products so we are trying to fill up the gap there on the upstream for steel industry. Develop more modern Philippines through infrastructure, telecom, etc. Develop innovative start-ups. Generate high value job creation. This is basically promoting the creative industry or adding design capability like aerospace products where we do more of the design now rather than just low value manufacturing.
Second, intensify the implementation or widen the coverage of supplier. Development programs for agri-industry businesses. Linking farmers to manufacturers. Micro SME linkage with big businesses, which is what we referred usually as having an inclusive business model in huge business operations.
Third, developing a PPE ecosystem, including the establishment of testing laboratories for these PPE. PPE products that are being imported can at least tested to ensure that they are above or same quality standards with local manufacturers.
Fourth, encourage the digital transformation of our Micro SMEs.
Fifth, develop innovative start-ups to take advantage of disruptive business models.
Sixth, we support businesses providing necessities in the “New Normal,” like new delivery models and food modernization. These are the e-commerce type that became abundant. Our 1,700 registered online businesses had really jumped to 80,000 as of August.
Seventh, we will retool and rescale our labor and talent to complement the requirement of our sectors. We will also improve market access and key market. For example, for the FTAs and GSPs, we try to address non-tariff barriers that continue to exist in some markets, even those countries that are part of regional FTAs like ASEAN.
Moreover, we’ll negotiate new FTAs like what we are doing in Korea. We want to start something, an FTA discussion possibly in Canada with US and EU to graduate to EU GSP level to an FTA kind of arrangement that would be more stable.
Ninth, we will promote high value exports of products and services, as well as address smuggling and perennial issue and fair-trade practices. We will redirect businesses and workers from highly affected sectors like tourism and transport. Not totally directing them, but now there are some slowdown on sector to where it is needed like in healthcare and manufacturing. We will promote the greening of industries as well as waste management.
Lastly, we integrate anti-COVID measures in operations of commercial establishments, offices, and industrial facilities.
For each strategy or intervention, there are corresponding priority areas or sectors. For example, in supporting the 4th industrial revolution, this will include the electrical and electronics industry, as well as innovation and R&D.
We also hope to generate high-value job, creation more design-oriented outputs like furniture and textile-garments, aerospace parts. Local engineers are being hired now more of them also doing design work for aerospace companies to add value. We export a lot of these products now. Tourism, one sector that hit by the pandemic slowly try to recover now. Creative content and services sector which is the least promoted or supported. We are trying to put more budget here and give support these include software development, gaming, animation, film and other creative content, graphic design and many more.
To conclude, we are hopeful that the reported recovery momentum that we’ve started to see based on recent numbers on employment, hopefully the GDP as well, will lead our country towards full recovery by early next year. But instead of just adjusting to the “New Normal,” we should aim to create a “Better Normal.”
That’s why I hope our friends at YPO Group will work with us in shaping a safer, more inclusive Philippines in the post-COVID-19 future. As we rebuild our nation, we will give a better quality of life for our countrymen as promised by President Rodrigo Roa Duterte, making lives of Filipinos more comfortably.
TOGETHER, LET US HEAL AS ONE. TOGETHER, LET US RECOVER AS ONE.
Magandang hapon po sa inyong lahat at mabuhay tayong lahat.♦
Date of Release: 7 October 2020