Global Recession, RP Eco

The Global Recession and the
Philippines Economy: Impact

and Policy Responses
By The Center for Research and Communication Foundation, Inc.
March 2010
Submitted to USAID/Philippines by the Local Implementation of National Competitiveness for

Economic Growth (LINC-EG) Project implemented by Nathan Associates on behalf of DNG Groug
under Contract No. EEM-I-00-07-00009-00, Task Order 6. Its contents are the sole responsibility of
the authors and do not recessarily reflect the views of USAID, nor of LINC-EG, or its implementing
organizations.
The Global Recession and the Philippine Economy
Impact and Policy Responses
Center for Research and Communication Foundation Inc.

August 2009
TABLE OF CONTENTS
1 INTRODUCTION ................................................................................................................... 1
1.1 EFFECTS ON THE PHILIPPINE MACROECONOMY ................................................................ 1
1.2 MAJOR FINDINGS ON KEY SECTORS.................................................................................... 5
1.3 ACTIONABLE RECOMMENDATIONS ................................................................................... 16
2. THE GLOBAL MELTDOWN: MACROECONOMIC IMPLICATIONS ON THE

PHILIPPINES.............................................................................................................................. 29
2.1 EXAMINING THE MECHANICS ............................................................................................. 29
2.2 EXTERNAL TRANSACTIONS ................................................................................................ 31
2.3 STATE OF THE NATION’S FINANCIAL HEALTH ................................................................. 34
2.4 WILL SPENDING SPIN OUT OF CONTROL?........................................................................ 45
2.5 SUMMARY ............................................................................................................................ 50
2.6 IMPLICATIONS ON POLICY FORMULATION ...................................................................... 51
3 VULNERABILITY OF PHILIPPINE AGRICULTURE.................................................. 54

3.1 IMPORTANCE OF AGRICULTURE ........................................................................................ 54
3.2 INTERNATIONAL BENCHMARKING ..................................................................................... 55
3.3 INDUSTRY ANALYSES .......................................................................................................... 58
3.4 IS PHILIPPINE AGRICULTURE VULNERABLE?................................................................... 70
3.5 OVERALL ............................................................................................................................. 79
3.6 MOVING FORWARD ............................................................................................................. 80
4 IMPACT ON THE PHILIPPINE BUSINESS PROCESS OUTSOURCING

SECTOR ....................................................................................................................................... 86
4.1 CURRENT INDUSTRY STATUS ............................................................................................. 86
4.2 IMPACT OF THE CRISIS ON THE SECTOR ........................................................................... 95
4.3 SPECIFIC RECOMMENDATIONS ........................................................................................ 104
5 THE PHILIPPINE ELECTRONICS INDUSTRY IN A GLOBAL RECESSION ....... 117

5.1 GLOBAL ELECTRONICS INDUSTRY AND THE PHILIPPINES ............................................. 118
5.2 IMPACT OF GLOBAL ELECTRONICS SLOWDOWN ........................................................... 120
5.3 COMPETITIVENESS ISSUES ............................................................................................... 124
5.4 ACTIONABLE MEASURES TO MITIGATE THE IMPACT OF THE GLOBAL CRISIS ........... 124
6 THE GLOBAL CRISIS AND PHILIPPINE TOURISM ................................................ 126

6.1 IMPACT OF THE CRISIS ON PHILIPPINE TOURISM .......................................................... 128
6.2 INDUSTRY AND GOVERNMENT RESPONSE ....................................................................... 146
6.3 COMPETITIVENESS ISSUES AND STRATEGIC RESPONSE................................................. 150
7. THE PHILIPPINE AUTOMOTIVE INDUSTRY AND THE GLOBAL FINANCIAL

CRISIS ........................................................................................................................................ 160
7.1 CURRENT INDUSTRY STATUS ............................................................................................ 160
7.2 IMPACT OF THE CRISIS ON THE AUTO INDUSTRY ........................................................... 166
7.3 RECOMMENDATIONS......................................................................................................... 175
8. ASSESSING THE IMPACT OF GLOBAL ECONOMIC SLOWDOWN ON

PHILIPPINE REGIONS AND THE SUBIC-CLARK-BATANGAS CORRIDOR ............ 179
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8.1 DECLINE IN GLOBAL OUTPUT, TRADE AND TRANSPORT ............................................... 180
8.2 IMPACT ON THE PHILIPPINE REGIONS ............................................................................ 181
8.3 INFRASTRUCTURE DEVELOPMENT AS A KEY TO MITIGATING THE IMPACT OF THE
CRISIS .......................................................................................................................................... 186
8.4 FROM INTER-ISLAND CONNECTIVITY TO REGIONAL CONNECTIVITY.......................... 188
8.5 PROPOSED REGIONAL RO-RO FRAMEWORK FOR SOUTH ASIA ................................... 192
8.6 SUBIC-CLARK-BATANGAS CORRIDOR ............................................................................. 193
8.7 NEXT STEPS ....................................................................................................................... 196
9. REVITALIZING THE PHILIPPINE METALLIC MINING INDUSTRY..................... 198

9.1 DRIVERS OF THE DEVELOPMENT IN THE MINING INDUSTRY........................................ 200
9.2 STRUCTURE OF THE PHILIPPINE METALLIC MINING INDUSTRY .................................. 206
9.3 IMPACT OF MINING ACTIVITIES ...................................................................................... 223
9.4 OBSTACLES TO MINING ACTIVITIES ............................................................................... 224
9.5 ACTION PROGRAMS FOR OVERCOMING OBSTACLES IN MINING.................................. 228
CRC Foundation Inc. -iii-

1 Introduction
This report was prepared by the Center for Research and Communication
(CRC) for the Department of Trade and Industry (DTI) and the Department of Interior
Local Government (DILG), in their respective capacities as co-Chair Departments of
the Growth and Investment Climate (GIC) Working Group and of the
Decentralization Working Group of the Philippine Development Forum (PDF). These
two working groups have agreed to convene an action-oriented conference involving
industry, local government authorities and selected national government agencies to
discuss, recommend and suggest possible interventions to mitigate the possible
adverse effects of the slowdown of the world economy and seize the opportunity to
prepare for the expected global economic recovery. The DTI Undersecretary Zenaida
Maglaya, in her capacity as the chairperson of the GIC and DILG Undersecretary
Austere Panadero in his similar capacity for the Working Group on Decentralization,
requested the Local Implementation of National Competitiveness for Economic
Growth (LINC-EG) and the United States Agency for International Development
(USAID) to provide technical and related support for this joint working group (JWG)
initiative. To prepare for the conference, the CRC team conducted research, key
informants interviews (private and government stakeholders) and focus group
discussions/consultations with the associations. The CRC also presented its findings
during the inter-agency meetings convened by the DTI in March and April prior to the
Global Crisis Forum that was held in April 23, 2009.
The report is organized as follows. Chapter 2 examines the effects of the

global crisis on the Philippine macroeconomy. Chapters 3 to 9 provide an assessment
of the impact of the crisis on six sectors namely agriculture, business process
outsourcing, tourism, automotive, electronics, mining and on the regions, specifically
the Subic-Clark logistics corridor. The main findings of the report are presented in
the following sections.
1.1 Effects on the Philippine Macroeconomy
The global economic turmoil would have direct and indirect effects on the
Philippine economy. The direct effects would come from the exposure of the
Philippine financial system to the toxic assets that are at the roots of the global
meltdown. This is not expected to be significant given the limited exposure of
Philippine financial institutions on these assets. What could be more worrying would
be the indirect effects which could result from the drying up of the financial flows
from the big economies as well as the weakening of the demand for goods and
services that the Philippine sell to these big economies.
Threats to Sources of Income There are three sources of income that will be
threatened by the slowdown in production activities in big economies: export
revenues, OFW remittances and revenues from BPO services. There are signs that
two of these will remain strong.
a. The BPO industry is just at the initial phase of its rapid growth and the
potential activities that firms in the US can outsource is still large.
CRC Foundation Inc. - 1-

b. OFWs are also geographically dispersed. Thus, the impact of the slowdown in
big economies can be mitigated by the continued growth in the others.
The one that seems to have been severely affected are export revenues which showed
dramatic drops starting December of last year. Fortunately (or perhaps
unfortunately), the contribution of exports to the nation’s total income has been
declining. In gross terms, the share of exports to the nation’s income down to about
30%. Netting out the imported raw materials that the economy uses, this goes down
further to around 10%. In terms of net revenues, therefore, OFWs contribute even
more that the exports of goods. Furthermore, the slowdown in export earnings is
probably more a problem of lack of competitiveness rather than a result of the
slowdown in our big market. The Philippines is a small player in this big market.
Thus, as long as it can sell what it produces at the prevailing dollar price and at the
quality required by the market, it should be able to sell all that it produces.
Will expenditures balloon? If the global crisis will not cause severe problems in the
income side, will it trigger pressures on the spending side? This does not seem to be
the case either. Even before the onset of the global crisis, the nation’s spending as a
proportion of the nation income has been on the decline. Most notable are the
declines in the shares of personal and government consumption expenditures. Result:
Gross savings rates have moved up. Consequently, interest rates have moved down.
These trends have not been reversed. What is in fact worrisome is that despite the
increased availability and lower cost of funds, the proportion of the nation’s income
spent on investment goods by the private sector has been on the decline. The only
one that has slightly recovered is the proportion of the nation’s income that is invested
by the government on public construction. Nevertheless, even this is still below what
we have posted in previous years.
Given these trends severe imbalances between income and spending seem unlikely to
result from the ongoing crisis. This gets even reinforced when one considers the two
key accounts that make up the nation: private and public sectors. The private sector
seems to have sufficient elbow room in keeping a healthy surplus in its financial
records. The public sector could face some challenges. Since the growth in the
nation’s income seems to be originating from the sectors that enjoy some tax breaks
(OFWs and BPOs), the proportion of income that would go to the government coffers
is likely to be threatened. The collections of BIR during the first two months of this
year are highly suggestive of this emerging problem: the agency’s collections during
the year would likely be fall short of what could have been expected from the
underlying trends. Do these mean that the public sector’s deficits would balloon to
unsustainable levels? Not necessarily. This administration has established a
sufficiently long track record of prudent fiscal management and there seems to be no
reason to break that trend in the next two years.
Will we have access to foreign funds? With the expected strength of the nation’s
income-spending position, the anticipated drying up of funds from foreign investors
and lenders would unlikely pose a big problem to the nation. Again, the nation’s
track records during the past six years are instructive. We have lived with severely
limited inflows of funds from foreigners because we have learned to manage our
finances better. In fact, it is even possible that we could face a better situation for the
next two years. Given the troubles that Thailand, India and Vietnam are going

through, more foreign funds might find their way to the Philippines for the lack of
better alternatives for investors and lenders on where to place their money.
In summary, the Philippine economy is in a better financial position to face the

global financial slowdown compared to the previous three crises that it faced from the
eighties to the present. This relatively healthy financial position is not likely to be
seriously undermined by the ongoing difficulties in the world economy.
a. Among the vulnerable income drivers (i.e. exports, OFW remittances and
BPO earnings), only exports have exhibited dramatic drops. Furthermore,
even these drops in export earnings are not probably due to the slowdown
in these markets. The slowdown in our exports started way before the
onset of the global crisis suggesting that competitiveness is our problem
not lack of demand. Furthermore, the net contribution of exports to the
nation’s income is smaller compared to other countries.
b. The nation’s spending behavior is also likely to remain prudent given the
track records posted in the past years both of the private and public sectors.
Furthermore, even if the income and spending balance gets reversed, there
is some elbow room provided by the relatively healthy cash position of the
nation.
c. With these, the prospects for access to foreign loans and investments could
even be better compared to the past crises we have gone through
considering the diminished attractiveness of the alternative destination of
these funds due to the political and economic problems these countries are
going through.
Implications on Policy Responses All these are important to keep in mind in crafting
the policy responses to the ongoing global slowdown:
a. Lack of demand in the global market does not seem to our problem. Thus,
offsetting the drop in export revenues by stimulating domestic demand
through the traditional Keynesian approach does not seem to be the best
way to cope with the crisis.
b. In fact, deliberate increases in the fiscal deficits could potentially spark
imbalances in the nation’s finances if these stimulate more the demand for
imported goods rather than domestically produced goods. True, the
present financial conditions allow some elbow room for this strategy.
Nevertheless, if not properly calibrated and directed to productive uses, the
strategy could eventually undermine the financial muscle that has been
built up through the years.
c. The following bottlenecks appear to require more policy interventions:
i. The apparent lack of confidence in the private sector to bet on the
nation’s economic future. This can be gleaned from the declining
proportion of the nation’s income spent by the private sector on
investment goods. This despite the greater availability of funds
due to the increased savings rate and the drop in interest rates due
to this improved conditions in the funds market.
ii. The deteriorating competitiveness of in the export sector. This is
indicated by the sluggish growth of our export revenues in
comparison with the records of our neighbors. Two key indicators
are worth examining to trace the reasons for this trend: (a) Peso

prices of exports have been declining thereby squeezing the profit
margins of exporters; and (b) the drop in the peso prices not only of
the US dollars but of the other foreign currencies.
iii. The relatively slow pace of job creation that has accompanied
growth in the recent years. The growth of employment in
agriculture and industry has decelerated. Unfortunately, the growth
in services, though fast, has not completely offset the slowdown in
growth of the other sectors.
The government’s resiliency plan The term resiliency plan seems a more appropriate
label than a calling the program as a stimulus package. This may sound like an issue
of semantics but in truth, a stimulus package may give the impression that the
response is inspired by Keynesian economics. The resiliency plan does not seem to
be one. From a Keynesian perspective, as stimulus is essentially the deliberate
posting of a fiscal deficit in order to offset the shortfall in private demand.
To a developed economy whose currency is acceptable for international transactions,

the impact of such stimulus could be predominantly positive. This is what Keynesian
economics posits. A fiscal deficit means additional demand which will stimulate
additional production. As long as the economy has spare capacity (or it is not at full
employment), the stimulus would result in more production and, therefore, more
income.
To a small open economy like the Philippines, however, a public sector deficit
could have a bad side effect. Excess of spending over income of the public sector if
not offset by a surplus in the private sector, would translate to a deficit for the nation
as a whole. The problem: the nation’s deficit gets reflected as a current account
deficit (i.e. an excess of nation’s dollar expenses over its dollar income). Obviously,
this deficit will have to be financed with foreign currencies. If these foreign
currencies cannot be drawn from the reserves or supplied by a surplus in the capital
account, tightness in the foreign exchange market would ensue and put pressures on
the exchange rate.
Can the government afford to post a deficit now without leading to these bad
effects? It seems it can but only to a limited extent. The following indicators suggest
that there is a room for some amount of stimulation:
a. We have a relatively comfortable level of international reserves.
b. The private sector is in surplus.
Nevertheless, the elbow room seems tight. The levels of our gross and net
international reserves are higher than our historical records but they are not
extraordinary compared to what our Asian neighbors have. Also, the nation is only in
surplus because the remittances of OFWs have, so far, been sufficient to offset the
deficit in our trade. The slowdown in the world economy has thus far shrunk our
current account balance because our trade deficit has widened and OFW remittances
are no longer growing as fast as before.
Thus, ERP should not be looked at from a Keynesian perspective. The ERP is
designed not in terms of the deficit the government is going to incur. Rather, the
program is presented as one that is primarily meant to make sure that

a. the amounts budgeted are actually spent,
b. that the expenditures are on items that would have high impact on growth of
output and jobs and on poor families and
c. that resources tapped are optimized by augmenting them through private-
public sector partnerships.
Thus, ERP speaks of a budget (not a fiscal deficit) of P330 billion that would
come from three sources:
a. Increase in the 2009 budget: This amounts to P160 B
b. Tax cuts for low and middle income earner: This amounts to P40 B
c. Financing of large infrastructure projects in joint effort with the private sector.
This will amount to P 100 B
d. Additional benefits to members by social security institutions. This is valued
at P30 B
Viewed from this perspective, it is difficult to find fault in the approach taken
to stimulate the economy. In essence, the focus of the program is simply the make
sure that resources are tapped to the fullest, that they are actually spent, and that they
go to the proper items. With or without the crisis, this is something that the
government should be doing. To the extent that the government has been provoked to
do this by the crisis, this is still something that would be worth pursuing.
There is a wide gap between intentions and actual actions. There is a nagging
fear that ERP has been formulated with an eye for the 2010 elections. This is a valid
concern but this does not diminish the significance of the general directions adopted
in the program.
1.2 Major Findings on Key Sectors
The impact of the crisis on the six sectors covered in this study differs in terms
of depth and magnitude depending on their reliance on the global market for their
products, inputs and financing. Among the six sectors covered in the study, the most
vulnerable to the crisis are electronics and international tourism (particularly
international aviation services) due to their heavy reliance on the export markets.
Apart from the international airline sector, other suppliers like hotels in Metro Manila
and key destinations and travel agencies are more dependent on the foreign travellers
and Balikbayans and therefore vulnerable to the crisis. The BPO industry, while
export-oriented, is still at the initial phase of its rapid growth and will not significantly
experience slowdown in the potential activities that firms in the US can outsource to
the Philippines. Those heavily dependent on the domestic market are less exposed to
the global crisis. The Philippine automotive industry is domestic-oriented and is less
exposed to the depressed global demand. There are specific companies though which
are more reliant on exports, for instance those which use the Philippines as hub for
regional production under the ASEAN Industrial Cooperation (AICO) scheme. The
agriculture and mining sectors are partly vulnerable since commodity and mineral
exports are always buffeted by global price cycles. The recent softening of world
prices has stolen some of the glitter from mining prospects.

(a) Electronics
The local electronics industry accounts for almost 60% of total Philippine
exports. Without this sector, Philippine GDP would contract by an estimated 38.6%.
Semiconductor manufacturing makes up 74% of manufacturing activity in the sector.
Firms in the electronics industry are regionally dispersed, generating a significant
number of jobs in the countryside. There are total of 926 firms in the industry
employing an estimate 460,000 workers (2008). Only a small number of these firms
are located in the National Capital Region (NCR); most are in regions III, IV and VII.
Simulations show that a 10% increase in global electronics output was followed by a
corresponding 4.66% increase in Philippine electronics exports and a 2.6% increase in
employment in the industry. It is logical to assume then that decreases in global
output will result in corresponding dips in export output and employment. For the first
time, Philippine exports of electronics will experience at least two to three
consecutive years of decline. Significant job losses is expected this year and the next
if the global environment of electronics does not improve.
With more electronics factories located in the countryside, the adverse

economic effects of the slowdown in electronics exports will be felt more keenly
outside NCR. About 90% of the industry’s workforce are women, so they will bear
the brunt of job displacement caused by the crisis. No doubt the economic effects of
the slowdown in electronics exports will be felt in other sectors as well. The
electronics exports slowdown will have a direct impact on jobs, household incomes,
national output and even on taxes.
A weaker electronics industry also means drastically reduced opportunities for

knowledge and skills development. The industry is estimated provide 13 million hours
of training per year or an average of 40 hours per employee. Training modules are
usually diverse, ranging from process, product and equipment engineering knowledge
and skills upgrading to IT-training and interpersonal skills development. Spending on
training can range from P60,000–100,000. Others firms also provide scholarships,
research support and in-house degree granting programs to their employees.
Like mining, the global crisis has also magnified the competitive issues of the
industry. The following are these issues confronting the electronics industry:
Low value-added manufacturing operations. The concentration of the activities of the

Philippine electronics industry is on assembly, testing, cleaning and packaging. R&D
and design capabilities of the industry are very limited.
Credit is tight for the sector. Local financial institutions are believed to have tightened
credit to the industry due to the global crisis. Unlike in other countries, there are
limited government-guarantees to loans extended to vulnerable sectors like electronics
in the Philippines.
Limited pool of managerial knowledge and skills in production. The industry still
considers the senior managerial skills and knowledge of Filipino production managers
as limited. There is a lack of culture on productivity enhancement and practices
among the ranks and managers in the production line.

Lack of incubation centers. The Philippines do have any incubation center to test and
model their projects. The link between the academe and the industry remains weak.
Some companies even complain about the bureaucracy involved if they decide to
donate their equipment to educational institutions.
Lack of Policy Consistency at the Local Level. SEZs, Ecozones and even LGUs tend
to undercut each other in order to attract or retain investments or locators in their
locality. This leads to inconsistency in the application or implementation and even
unpredictability of policies.
(b) Tourism
In 2008, global tourism’s growth slowed down to 1.8 percent, from 6.9 percent
in 2007. In February 2009, the World Tourism Organization (WTO) projected that
growth will range from -2 percent to 0 percent by the end of the year. In May, the
WTO reported that the results for the first two months of 2009 demonstrated the
lingering effects of the crisis when world tourism volume dipped by 8 percent from
its year-ago level. It expected global tourism to decline by 2 percent to 3 percent in
2009. Recovery is projected to require a longer period due to the threat of the
Influenza A(H1N1) virus scare that started in April of this year.
Tourism’s power to reduce poverty is threatened by the global financial crisis

and the correct policy responses to mitigate the negative effects of the crisis are
deemed to make tourism play a key role in global recovery. In terms of negative
impacts, on the demand-side, the volume of international arrivals (3.145 million)
grew by only 1.5 percent in 2008 after posting relatively high growth from 2005 to
2007. Receipts dipped to US$4.4 billion (bn) in 2008, 11.1% lower than the earnings
in 2007. The slower growth in 2008 was due to the decline of 77,387 visitors from
Korea and Japan. These two origin markets alone accounted for 31 percent of
arrivals per year.
Among the providers, the most vulnerable to the global tourism slowdown is
the international airline sector which carries 98% of international arrivals to the
Philippines. About half of international inbound passengers are tourists and the rest
are returning Philippine residents (e.g. tourists and Overseas Filipino Workers). In
March 2009, the International Air Transport Association (IATA) revised (downward)
its forecasts for passenger and cargo services and airline revenues for the global
airline industry. In the Philippines, these vulnerabilities have been evident in the
reduction of flights (with the exemption of Middle East carriers), decline in passenger
volumes and most importantly in falling yields. Overall, the gross value-added of the
sector slowed down in 2008, a result of the heavy profit-squeezing in the industry, as
evidenced by the significant drops in yields.
The growth of the gross value-added of the hotel and restaurant sector also
slowed down in 2008. The occupancy rates of hotels in Metro Manila already
declined from 73.8 percent in 2007 to 69.8 percent in 2008 (or a decline by 4.5
percent). The year-end figure was still above the average of 65 percent over a 20-year
period. Hardest hit were the bay area, Makati/Mandaluyong/Pasig and Alabang hotels.
Category-wise, the de luxe and first class hotels registered the most significant drop in

occupancy. The share of foreign guests varies – 30% to 50% - among hotels.
Minimal displacement of tourism workers has been noted. Based on the data from
DOLE, only 147 workers (at least 60% from the lodging and restaurant sector) have
been displaced from October 2008 to April 2009. Those handling inbound tourists,
especially from Korea, Japan, and China have experienced sharp reductions, as high
as 35 to 50%, in their bookings. Airlines have reduced their commission rates for
these agencies, particularly in the business and first class seats. The industry is very
competitive and switching costs are lower, forcing agencies to reduce their mark ups
on economy class seats. The convention industry is one of the less vulnerable among
all the tourism providers. MICE foreign arrivals constitute only 1.16% of total
foreign visitor arrivals to the country. Any decrease will have minimal impact on
overall visitor traffic. To date, the domestic market, especially association events
continue to provide good source of business for this industry. Nevertheless,
contraction in corporate events and product launches has been noted as local and
foreign companies implement cost-cutting measures. Some association conferences
and trade exhibitions are being postponed.
In 2008, the about a thousand workers in the passenger transport and tour and
travel agency industries were displaced. The hotel and restaurant industries managed
to increase its workforce overall. But it also had to displace some workers due to the
slower tourism business, particularly from the international markets. From October
2008 to April 2009, the DOLE reported that about 147 workers (50-50 male/female)
working in hotels and resorts nationwide were displaced, mostly food attendants and
kitchen related service workers. The hotel and restaurant industries employ a
significant number of women, about 40 percent in all medium to large establishments
(those with 20 or more employees).
On a positive note, the crisis has highlighted the vital role that domestic
tourism plays amidst the vulnerability of international tourism to external shocks. The
Philippines has greater potentials of surviving the crisis because of the dependency of
most providers on the local market. The local tour operators have produced more
competitive packages to a number of destinations in the country, contributing to the
stimulation of domestic travel, development of more destinations and generation of
income sources to local communities, especially those from impoverished areas.
The current crisis has further highlighted that the Philippines is still a very
small player in the global market and relative to the potentials for revenue and job
generation and in pursuing sustainability. The Philippines will continue to be the same
small player even after the crisis in the absence of timely and relevant response
actions to mitigate the negative impact and strategic responses to address the areas
that have persistently contributed to the low competitiveness in tourism. One major
opportunity is to support the survival, recovery and long term competitiveness of the
industry by identifying areas where stimulus measures can be pursued in exchange for
the long-term benefits and where growth and investment climate can be enhanced.
This is true especially in the case of tourism suppliers such as airlines whose
vulnerabilities are rooted in the unfavourable business and investment climate in the
country. Now is the time to remove the obstacles to mobility and to competitiveness.
The objective is to make it more difficult for existing investors to leave and for new
investors to ignore the Philippines.

Based on global competitiveness reports (by the World Economic Forum), the
areas which contribute to the lack of tourism competitiveness include: transport and
tourism infrastructure, investment rules, regulatory environment and health and
hygiene. Local connectivity can also be improved with the completion of mass
transport projects (e.g. rail system) within the metropolis and between the metropolis
and its environs. Connectivity can also be improved with the development of port
facilities to support domestic travel via the RORO. New products such as cruise
tourism can be designed and promoted with the right port infrastructure. Tourism has
been identified as a globally competitive and sunrise industry by the government.
Hence, government should seek to reduce transaction costs. In the case of the airline
industry, the lingering issues on the impact of airport-related charges such as overtime
fees, meals and allowances paid to the personnel of customs, immigration and
overtime and the gross taxation (taxing global sales of airlines operating in the
Philippines) regime imposed on foreign airlines have yet to be addressed despite the
calls of the private sector for government to enable the improvement of the business
climate. Other costs associated with the implementation of policies (e.g. travel tax)
and regulations in all tourism-related services should be included in the agenda.
Another strategic response is to streamline procedures and processes (e.g. registration,
access to information, licensing, etc) at the LGUs through one-stop shop tourism
investment centers (including website).
(c) Business Process Outsourcing
Global outsourcing & off-shoring (O&O) of services, commonly referred to as

business process outsourcing (BPO), has been a recent but rapidly growing
phenomenon. Its growth can be attributed to two main drivers. From the demand side,
as the global market became more competitive due to the lowering of barriers to trade,
companies had to be more competitive in terms of lower costs and better services.
From the supply-side, rapid developments in information and communication
technology (ICT) have made it technically possible to digitize service activities and
transmit them via the internet in a cost-effective and timely manner.
In 2007, prior to the global crisis, the industry developed the Offshoring &
Outsourcing Philippines Roadmap 2010. It targeted to grow the country’s share of the
global market from the approximately 5%-6% in 2006, to about 10% by 2010. This
means that revenues should increase to about US$13B by 2010, supported by about
900,000 full-time employees (FTE). With the global crisis, the 2010 targets are not
expected to be met. However, the industry will continue to enjoy strong growth—
revenues will increase by between 20% to 30%; while employment will grow at a
slightly lower rate since (a) productivity in the sector has been increasing (i.e. less
employees are needed to support the revenue targets) and (b) more value-adding BPO
services are being established. Thus, by 2010, revenues will most likely grow to about
US$9.5B; and full-time employees will number at least 580,000.
Given the global orientation of the BPO sector, its performance should be
positively correlated with that of the global economy—especially of the main BPO
markets, e.g. the United States. However, a confluence of factors provides the
Philippine BPO industry with a unique opportunity to consolidate its position as a
preferred location for BPO services in the context of the slowdown.

The impact of the crisis on the industry can be examined from the market
demand side and from the supply side. From the demand side, in terms of positive
impacts the continued relative stability of the country’s economy, coming at a time
when India is suffering from negative perceptions due to the terrorist attacks in
Mumbai and financial governance scandal at Satyam, has highlighted the Philippines’
attractiveness as a BPO location. In addition, the global crisis and the resulting
corporate bankruptcies have pushed companies to seek ways by which they can
enhance their cost competitiveness and improve service quality—key value
propositions of BPOs. And, provided that the crisis will result in a stable and
predictable depreciation of the Philippine Peso, this may also have a positive impact
on foreign exchange-earning sectors, including BPOs. In terms of negative impacts,
the financial crisis resulted in a decline in business transactions supported by BPO
companies. However, two important trends must be highlighted. First, even with the
general slowdown, certain types of transactions were observed to have increased (e.g.
outbound calls for credit collection); and, second, there is continued strong interest in
the Philippines as a BPO location, with potential projects already in the pipeline.
However, it is expected that the negotiation process for contracts will be harder, as
clients adopt a certain level of wait-and-see posturing, exhibit greater risk aversion,
and express greater interest in fee reductions. Moreover, since client companies are
also in the midst of financial and organizational restructuring themselves, negotiation
cycles become longer.
From the supply side, in terms of positive impacts, the most critical cost items
for BPOs are: salaries and wages, rent, telecoms expenses, and utilities. Slower
economic growth is expected to lessen inflationary pressure on these cost items,
thereby positively affecting BPO operations and profitability. More importantly,
however, the financial crisis can be a unique opportunity for the country to address a
major competitiveness challenge—the sustainability of the supply of BPO
professionals. This can best be analyzed by looking at the different stages in the supply
pipeline: from the pool of graduating college students, to those actually applying in
BPOs, to those successfully accepted, and eventually, to those who choose to remain in
the BPO industry.
In summary, the global crisis is expected to enhance the attractiveness of

BPOs as employers of new graduates, industry shifters, retrenched workers and
returning OFWs—provided that they possess the required skill-sets or can be re-trained
to acquire these BPO-related skills. The crisis presents an opportunity for the industry
to surmount negative perceptions about the nature of BPO work (e.g. it is monotonous)
and perception on the poor quality of life among BPO professionals. As the crisis can
cause a deterioration in the cohort survival rate among students, BPOs can assist
students fund their studies and at the same time introduce them to BPO (part-time)
employment. The industry should also resist the temptation to take advantage of the
weak labor market to unjustly squeeze current and incoming BPO professionals. In the
long-run, BPOs must develop strategies that will highlight the benefits of being
employed in BPOs, e.g. globally-oriented career path, and must fundamentally re-think
industry current human resource recruitment and retention models.
CRC Foundation Inc. -10-

(d) Automotive
Trade represents a considerable part of the Philippine economy—with the

absolute share of exports to GDP at 43%, and imports at 42%. However, it is still a
domestic-oriented economy, with domestic private consumption accounting for close
to 70% of total GDP. In contrast, in neighboring countries such as Thailand and
Malaysia, private consumption expenditures account for only about 50% of GDP.
During periods of high global growth, the Philippines’ relatively lower share
of exports to GDP (compared with Thailand’s 73% and Malaysia’s 110%) prevents it
from experiencing greater economic expansion. However, during times of global
contraction, a large domestic-oriented market provides a higher level of resiliency to
the country.
The Philippine automotive industry is domestic-oriented and is less exposed to

the depressed global demand. There are specific companies though which are more
reliant on exports, for instance those which use the Philippines as hub for regional
production under the ASEAN Industrial Cooperation (AICO) scheme.
Previous growth in domestic demand has been driven by availability (i.e. ease
of availment and low interest cost) of financing and buoyant demand from OFWs and
their families. Based on interviews, as well as business news reports, about 70% of
brand-new car buyers rely on bank loans; while OFWs account for about 25% of the
market for vehicles.
Despite the global financial crisis, the financing environment has been
relatively conducive to the growth of the auto industry. Average loan rates in the
country had been relatively stable over the past decade, resulting in higher auto loan
availments. Equally important, the crisis does not seem to have led to a substantial
deterioration in auto loan payments—which, if it materializes, could lead banks to be
more conservative in lending to car buyers (e.g. by increasing loan rates, increasing
downpayment levels, shortening loan repayment terms, adopting stricter applicant
screening procedures, etc.). In the first three quarters of 2008, auto loans (ALs) have
been relatively stable; and there was no significant increase in non-performing loans
(NPLs). In terms of OFW remittances, the inflow of remittances has surprisingly been
robust even in the face of the global crisis. OFW remittances account for roughly 9%
of total GNP (2008). Vehicles are popular among OFWs not only for their personal
use but also for pursuing possible business opportunities, e.g. for the logistics needs of
their small businesses or for shuttle services. In 2008, even with the crisis, OFW
remittance increased by 14% in dollar terms. For the first quarter of 2009, remittances
managed to grow by 3%. Another important factor that affects sales of motor vehicles
is the price of fuel. This may however have a counter-intuitive effect as higher fuel
prices may actually attract car owners to buy smaller, more fuel efficient vehicles or
shift from gas-powered engines to diesel or even hybrid fuel—thereby, at least
initially, increasing vehicle sales. It is noteworthy that sales of vehicles even increased
in early 2008 at the height of fuel price increases.
The global crisis has however eased the upward pressure on fuel prices. From a high
of almost Php60 per liter of unleaded fuel in July 2008 (Metro Manila), fuel price had

consistently gone down to reach a low of about Php31 in February 2009. In general,
this has made it more affordable to own and use a vehicle.
Fuel prices have started to again increase with signs of impending global economic
recovery. While the sales of brand-new vehicles in the country have not yet even
returned to its pre-1997 level, the industry was at least able to grow, albeit at a slower
pace in 2008. In fact, even in the first quarter of 2009, the industry still managed to
grow slightly by 2.6%. This is in sharp contrast to the more than 50% contraction
being reported in the North America (which includes the United States).
The Philippines, thus is relatively still in a better situation than most other countries.
Its domestic orientation has been sustaining the industry. The industry is expected to
register flat growth this year—as long as the following are sustained: stable interest
rates on auto loans, inflow of OFW remittances, and stable (and low) fuel prices.
(e) Agriculture
The agriculture sector is partly vulnerable to the crisis. World commodity

prices have declined since their peak in 2008. These have dual effects: reduce output
prices for some exportables, principally coconut, and reduce input prices. Lower
fertilizer and fuel prices in 2009 will have positive effects on farm bottom lines. On
the policy front, peso depreciation has positive effects on many products, principally
for exportables like coconut and banana.
But, the sector’s coping mechanisms could have been far better if the country
had long invested in sector competitiveness. Adequate investments would have
generated higher productivity.
The AFTA 2010 looms. Corn, sugar, feeds, chicken and pork will face
competition. Feeds and meats will enter the country duty-free and this will, in turn,
reduce the demand for corn. The industries were given lead time, but preparations
appear to be taking unnecessarily longer. On a regional basis, the most impacted
regions will be the coconut areas of Mindanao, Bicol, Eastern and Central Visayas,
and Southern Tagalog (mainly Quezon).
The latest rice crisis created serious concern. World prices accelerated in
March 2008 and peaked in April. Misguided concern for domestic supply led India
and Vietnam (key exporters) to curb exports. In the process, world rice prices started
to spike. Also, the National Food Authority reacted by taking large orders at abnormal
prices. Certain sectors in government believe that the rice crisis makes 100% self-
sufficiency a more strategic option than ever without reference to cost-benefit
analysis.
Corn accounts for 6.4% of agriculture GDP. It has the third largest farm area
(1.35 M ha) and number of farmers (0.7 M) after coconut and rice. Over 80% of corn
is used as feed ingredients for poultry and swine. The key production zones are in
Cagayan Valley (particularly Isabela), Ilocos (mainly Pangasinan), and Mindanao.
Corn is an upland crop where access to marketing infrastructure is more limited than
lowland crops like rice.

Compared to competitor countries, corn yield is only 54% of global average
and is lower than China’s or Thailand’s. Hybrid seed use is reportedly one factor.
However, the good news is that it posted the highest growth in farm yield among
Asian peers since 1990. The private seed companies as well as the input suppliers
have played a key role in expanding hybrid seed use. The dramatic fall in world prices
in 2009 will cut farm profits. Only a large peso depreciation can help reverse the
income shrinkage.
Coconut is the largest agriculture industry. Its farm land (3.3 M ha) is 34%
larger than rice; and its number of farms (1.4 M) slightly higher. But it contributes
only 3.4 % to agriculture GDP, principally because of dismally low farm productivity.
The industry suffers from decades of neglect. It does not receive the resources it
deserves. It gets not even one-twentieth of the rice budget. The existing tree stocks
are of poor genetics. Severe under-investment has led to senile trees, while the lack of
fertilizers causes low productivity. The senile trees need replanting as more than 95%
of tree stocks are from poor clones. There is also need for intercropping to
supplement low farm incomes. Today, only one million ha are intercropped with
varying degrees of management. The main coconut regions are Mindanao, Bicol, East
Visayas, and Southern Tagalog (principally Quezon). Concidentaly, they happen to
have the highest concentration of rural poor and insurgency. Benchmarking the
industry shows that the Philippines has the lowest farm yield among competition.
Indonesian yield is 30% higher, not to mention Brazil and PNG at more than double.
Philippines yield growth has been above average for unexplained reasons as
fertilization had been minimal. The Philippines lost its top spot in production to
Indonesia in the 1990s due to the latter’s more organized development program.
Meanwhile, palm kernel oil from Indonesia and Malaysia has been making inroads in
the global market.
(f) Mining
There are two levels in which mining activities affected by the global
slowdown will economically impact the Philippines – at the national and local levels.
The channels in which the impact will be felt are through investments, exports, jobs
and taxes. During its peak in the 1980s, it contributed a 2.10% to current gdp, 25% to
total exports, and about 13% to government taxes. It also employed an average of
134,000 workers or less than half a percent of the country’s employed labor force of
32.5-million. Furthermore, it contributes to national development through the
development of its host communities by providing roads, churches, markets, schools,
housing, utilities (electricity and water) and hospitals. In fact, mining has spurred the
growth and development of towns and cities like Baguio, Sipalay and Toledo
(Manuzo, 2002)
The favorable policy environment coupled with attractive global prices and
heightened promotional efforts have rekindled once again the importance of mining
activities. In 2007, mining activities account for 1.4% of current GDP, 5.4% of total
exports, and about 153,000 or about .4% of total employment. Mining recorded its
highest employment level in 1989, with about 168,000 workers—about 0.77% of the
total work force then. The employment figures include operations from mining and
quarrying activities and thus grossly overestimate the total employment contribution
of large scale metallic mining companies. It is estimated that current employment

generated by large scale mining companies is about 10,000 to 15,000 persons. The
current majority of those employed in the industry belong to small-scale mines.
Mining activities contribute to the government coffers in four ways – fees and
royalties charged by the MGB-DENR, excise taxes, taxes collected by the national
government and taxes collected by the local government unit that has jurisdiction over
the mining site. In 2006, the government collected from the mining activities close to
P3.1-billion in taxes – up by more than two folds from the P1.4-billion collected in
2002. Recently, the government is able to generate over P10.4-billion in taxes and
royalties in 2007 – up more than two folds from P3.5-billion collected in 2004.
A total of 62 mining projects at various stages of development identified by

government as priority have infused a total of US$1.85-billion in investments during
the period 2004 and the third quarter of 2008. Bulk of these investments went into
construction and development stage of 8 companies infusing in the same period about
US$835-million and another 12 companies at the operating and expansion stage
injecting US$789-million.
From the last quarter of 2008 to 2013, the government projects an additional
infusion of US$11.4-billion in investments from mining projects at various stages of
development. All these investments are dispersed throughout the countryside where
oftentimes poverty levels are high.
Government projections did not provide estimates of additional taxes as well

as the exports these new mining projects will generate. However, if all these mining
investments push through as projected especially those 8 mines at the
development/commercialization and the 12 others at the expansion/operating stages,
mineral export levels and taxes will substantially increase from mineral extraction,
processing and sales.
Only during the commercial operation of a mine will the national as well as
local government and communities fully enjoy the benefits of the mining activities. At
the national level, the economic benefits derived from commercial operations are as
follows:
-For MPSA: Excise tax on minerals of 2% of market value; 5% if in mineral
reserve
-Corporate income tax of 5% or 3% of sales
-For FTAA: Net mining revenue option of 50% of gross output net of
deductible expenses or profit-based option of 25% of excess profits (net
profit after tax less 40% of gross output)/(1-income tax rate)
-Environmental management fee of 1% of capex during construction
-Mine wastes fee of P.05/MT and tailings fee of P.10/MT
For the LGUs that have jurisdiction over the claims, in addition to realty and
business taxes and license permits, their sharing on the 40% excise taxes from a fully
operating mine are as follows:
- 20% to the province
- 35% to the municipality
- 45% to the barangay

Other stakeholders can partake from the commercial operations of a mine are as
follows:
- Social investment of 1% of direct milling cost of which 90% must be spent
on SDMP which directly benefits the communities within and around the
mining site and the remaining 10% must be spent on mining technology &
geosciences
- If present within the site, indigenous communities get a royalty fee of 1% of
gross output
The factors external to the Philippines that discourage investments in exploration

and mine development and commercialization are the credit crisis and the softening of
world prices and the presence of international anti-mining lobby groups against any
form of mining activities. These factors are well-beyond the control of the
Philippines.
Credit Crisis and Falling World Prices. In a 2008/2009 annual survey conducted by
the Fraser Institute of 658 exploration and other mining-related companies around the
world, more than 4 out of 5 believe that at least 30% of exploration companies will be
forced out of business in the current economic downturn. The same survey indicated
that over 90% of the respondents believe the exploration and development activities
of exploration companies will be curtailed with 57% saying that the activity will
decline a “great deal,” and 85% say that the activities of production companies will be
curtailed.
The implications can be adverse to the Philippine mining sector as most of the
projects are still at the exploration and feasibility/financing stages. Postponements or
outright cancellations of exploration activities can eliminate in the long term all
prospects of the Philippines benefiting from mining activities.
The postponement of exploration and commercialization activities can lead to

commodity shortages when the economy recovers. According to the same report, “the
world may face a shortage of raw materials and sky rocketing commodity prices as
the world economy moves past the recession and into renewed growth”.
The report further states “the curtailment of development activity will hit in
the short-term, likely during the opening phase of the recovery period. The gap
between exploration and production typically span five years to ten years. This means
that the negative impact from the lack of exploration on commodity supplies will
begin to hit as the recovery matures.” While it may augur well for existing mining
operations, the report observed that “these problems could weaken the recovery and
spark inflation fears”
Anti-mining lobby. The spotlight focused on Philippine mining has also rekindled
fierce opposition from international and local environmental groups and other non
government organizations who are seriously concerned about non-economic issues
like the adverse impact on the environment and the violations of rights of indigenous
people. The local networks and well-funded machinery against mining has already
gained roots in the Philippines and have impeded a number of mining projects.

(g) Regions and Transportation Infrastructure
The global economy is going through a “perfect storm,” with the global
recession. Major economies like US, Japan, and EU are in simultaneous recession,
with their economic output declining. The collapse of the investment banking and the
resulting credit crunch led to the sharp decline in industrial production, commercial
operations, and capital spending across the world. The World Bank (2009) has
forecasted a 6.1% reduction in the volume of world trade in goods and services. The
estimated growth for East Asia and the Pacific will ease at 5.3% in 2009, mainly
because of weaker export demand. Roughly 6% of total containership fleet capacity
has been laid up as of February 2009.
While the Philippine economy is not as badly affected by the crisis, some
sectors have manifested certain levels of vulnerabilities. These sectors (automotive,
electronics, tourism, mining, BPO) mostly operate in NCR, Regions III, IV-A, VI and
VII. Since the exports of electronics products account for more than half of
Philippine exports, the slowdown in production is manifested in lower growth
projections for the same regions where the electronics manufactures operate. The
impact of the global crisis on some of the special economic zones and freeport/s is as
follows. In Subic, 5,000 jobs lost in 2 electronics firms. There have been
cancellations of ship orders. On the positive side, ship lay-ups (more than 20
international ships are currently laid up in Subic bay. The government is also
developing a lay up facility in Malalag, Davao.
In Clark, about 2,000 jobs were lost. The electronics exporter operating at
30% capacity today; no lay-offs but shorter working days. Call center operations
shrunk by 40%, but BPO presents opportunities (buying US companies, labor
arbitrage). In Calaba, about 10,000 jobs lost in various industrial estates/special
economic zone s in Southern Tagalog according to PEZA.
1.3 Actionable Recommendations
The actionable recommendations proposed in this report are presented in

Table 1.1.

Table 1.1 Key Findings and Actionable Recommendations
Impact of the Crisis Actionable Recommendations
A 21% change in global output will lead to a 10% Ensure credit availability to electronics firms operating and expanding in the
Electronics decline in Philippine exports. Philippines. The industry proposes that government can allocate part of its
stimulus package by extending a credit guarantee to existing electronics and
Assuming that the exports of the electronics industry semiconductor firms expanding and/or investing in the Philippines.
contracts 10% and 8% in 2009 and 2010, respectively,
there will be substantial reductions in household Move up the value chain of the electronics industry. The Philippines cannot
incomes, taxes and trimming of current GDP levels and remain in the same level of skills and capabilities. It must move up the value
thus GDP growth. chain. Some of the concrete steps include (a) establishing R&D and incubation
centers funded and/or supported by the government, the industry and the
academic institutions; (b) eliminate donors taxes and accelerate processing of
documents for equipment donated by the industry to the academe; (c) promote
the development of the upstream component of the electronics industry (i.e.,
wafer fabs) in order to preserve testing and assembly operations in the
Philippines and (d) promote a stronger partnership between the academe, the
industry and other stakeholders to meet the manpower and other needs of the
electronics and semiconductor industry to remain competitive.
Encourage consolidation of global operations in the Philippines. The global

crisis has forced companies to consolidate their global operations into a select
few of geographical locations where their competitiveness are sustained or
enhanced. Thus government must conduct investment promotion activities
directed at parent companies that have manufacturing operations in the
Philippines and to harmonize investment-related incentives of LGUs, Ecozones
and SEZ’s.
A 10% decline in Philippine exports, as a result of Improve efficiency of business operations to sustain cost competitiveness. To
decline in global output, will translate to job losses of at improve the industry’s state of competitiveness, the industry must in
least 8,000. coordination with government provide continuous training of production
managers to improve manufacturing knowledge and skills; improve the quality
A weaker electronics industry also means drastically and reliability of power supply and reduce the cost of doing business in the
reduced opportunities for knowledge and skills country.
CRC Foundation Inc. - - 18

development. The industry is estimated to provide 13
million hours of training per year or an average of 40
hours per employee. Training modules are usually
diverse, ranging from process, product and equipment
engineering knowledge and skills upgrading to IT-
training and interpersonal skills development. Spending
on training can range from P60,000–100,000. Others
firms also provide scholarships, research support and in-
house degree granting programs to their employees.
The crisis does not seem to have led to a substantial Financial institutions should further come up with more attractive auto loan
Automotive deterioration in auto loan payments—which, if it rates
materializes, could lead banks to be more conservative
in lending to car buyers (e.g. by increasing loan rates, The government can also come up with its own auto loan system that can
increasing downpayment levels, shortening loan encourage consumers to buy cars
repayment terms, adopting stricter applicant screening
procedures, etc.). In the first three quarters of 2008, auto
loans (ALs) have been relatively stable; and there was
no significant increase in non-performing loans (NPLs).
Unlike other markets, it seems that the local financial

institutions remain to be healthy and have actually kept
the local automotive industry buoyant in the midst of the
global recession.
In 2008, even with the crisis, OFW remittance increased The government should continue to look for fresh job opportunities abroad to
by 14% in dollar terms. For the first quarter of 2009, sustain growth in remittances
remittances managed to grow by 3%.
Encourage competition among banks offering transfer of remittances services to
bring down transfer fees
The government and oil companies must have a concerted effort to make sure
The global crisis has however eased the upward pressure that domestic prices really reflect the movements of oil prices in the world

on fuel prices. From a high of almost Php60 per liter of market
unleaded fuel in July 2008 (Metro Manila), fuel price
had consistently gone down to reach a low of about
Php31 in February 2009. In general, this has made it
more affordable to own and use a vehicle.
Implement more effectively EO 156
The Philippines, thus is relatively still in a better
situation than most other countries. Its domestic
orientation has been sustaining the industry. The
industry is expected to register flat growth this year—as
long as the following are sustained: stable interest rates
on auto loans, inflow of OFW remittances, and stable
(and low) fuel prices.
Volume of Arrivals
Tourism The early impact of the global crisis was evidenced in Per recommendation during the April 23 forum, more innovative packages
the slower growth of international arrivals in 2008. A should be developed for markets other than the US or Balikbayans.
total of 3,139,422 visitors arrived in the Philippines last
year, 1.5 percent higher than the volume in 2007 but the Development or improvement of marketing channels such as websites and
slowest in the past five-years. booking channels especially at the LGU levels
Tourism Receipts Review of fees charged by tourism suppliers and LGUs to tourists, especially to
For the whole year of 2008, receipts dipped to $4.4 B in high value market segments such as divers in line with sustainable tourism
2008, 11.1 percent lower than the earnings in 2007. The revenue (and taxation) generation mechanisms
1st quarter results revealed that revenue flows declined
from $1,155 M to $744 M (35.6 percent). LGUs can help mobilize their local communities to make the tourism
experience of current and new market segments truly worthwhile through more
efficient transport management systems, clean and safe (and secure) tourist
environment – ports, airports, bus terminals, tourist sites. For these new
markets, their good experience in the Philippines will have a positive effect on
the destination through word of mouth advertising. Funding support by
international agencies in tourism can be directed towards these types of

projects.
Air Transport The Board of Airline Representatives requested for discounts on airport
The vulnerabilities have been evident in the reduction of charges. In May, the MIAA granted 10 percent discount on airport related
flights (with the exemption of Middle East carriers), charges for all commercial flights and 15 percent for all extra section flights for
decline in passenger volumes and most importantly in a period of six months or until the end of 2009. Requests submitted to the
yields (about 35 to 50 percent). Mactan Airport Authority and Civil Aviation Authority of the Philippines have
been denied because airport authorities have not increased their rates in
Gross Value Added (GVA) The effects of the crisis on previous years.
the local airlines are evident on the slower growth of the
gross value-added (GVA) in 2008 and in the 1st quarter Pro-active dialogue between the DOTC and the airlines for them to make a case
of 2009. for the stimulus package or extension beyond December 2009. The long-term
benefits of the package should outweigh the foregone revenues of the airport
Tours and Travel Agencies authorities or the DOTC for a fiscal year or two.
Those handling inbound tourists, especially from Korea,
Japan, and China have experienced sharp reductions, as Review of investment incentives for SMEs in tourism. Most of the tour
high as 35 to 50 percent, in their bookings. Airlines have operators are SMEs that cannot meet the minimum fleet requirements for buses
reduced their commission rates for these agencies, by the government.
particularly in the business and first class seats.
Accommodation
The occupancy rates of hotels in Metro Manila already
declined from 73.8 percent in 2007 to 69.8 percent in
2008 (or a decline by 4.5 percent). The GVA growth of
the hotel and restaurant sector slowed down in 2008
after an impressive record in 2007, when it grew faster
than the growth in GDP.
From October 2008 to April 2009, the DOLE reported International agencies/chambers of commerce can extend support to the DOT
that about 147 workers (50-50 male/female) working in through the GREET program in order to expand the pool of funds for the SMEs

hotels and resorts nationwide were displaced, mostly and microfinance projects proposed by local communities and enterprises.
food attendants and kitchen related service workers. These projects can support the women entrepreneurs.
The hotel and restaurant industries employ a significant
number of women, about 40 percent in all medium to Link-up projects for women in tourism with private sector initiatives such as the
large establishments (those with 20 or more employees). 10,000 women project of the Goldman Sachs and the University of Asia and the
Pacific.
Provide training programs, develop service manuals to prepare the industry for
the rebound. Some proposals from the 2006 Manpower Summit include:
encourage more training providers in the sector and possible expansion of the
capacity of the existing TVET providers; encourage active participation of
private sector in dual training system, apprenticeship program, enterprise-based
training, and more on-the-job training (OJT); and promote assessment and
certification especially in food and beverages and particularly on standards of
safety on food and beverage handling. They can be done through one of these
channels - school-based, center-based, community-based and enterprise-based
programs - depending on the partner of potential international donor agencies
that seek to support local tourism training programs and the local partner.
Support through discounts or rebates can be given especially to SMEs

participating in training programs
Investments- The DOT already endorsed five
Development projects worth P6.323 Billion in 1st quarter The Implementing Rules and Regulations of the Tourism Act of 2009 (Republic
of the year. These projects are projected to create 6,340 Act 9593) need to be drafted and promulgated by second week of November.
jobs for local residents. The preliminary figures from
the BSP already revealed that tourism continues to Other salient points of the Act with implications on LGUs include:
attract interest from the international community and masterplanning, identification of lands for tourism development,
that the industry will not surely post zero investment implementation of standards for accreditation, development of one-stop shops
despite the crisis for investments and businesses to reduce time and financial costs (particularly
in licensing and registration, land titling – including verification and

authentication). Projects of international donor agencies can focus on these
areas to help LGUs mobilize tourism investments in light of the Tourism Act
of 2009
The crisis magnified the burden of costs on the tourism Review of the rationale for the collection of these charges and the taxation
suppliers. Certain transaction costs tend to raise the regime for foreign airlines, and make amendments to the rules and regulations
costs of doing business in the country and make it easier that govern such practices in light of global practices and the long-term
for investors to shift operations to more competitive international connectivity and competitiveness of Philippine tourism. It is
tourism destinations. Specifically, in the airline sector: important to identify the remedies needed – administrative, legislative,
gross receipts taxation (global sales and not just the executive, judiciary and the lead agencies to enable the reform process.
business turnover in the Philippines) imposed on foreign
airlines, costs of overtime payments (overtime rate per To develop competitive and sustainable tourism taxation in the country, the
hour, meals and transportation allowances) to customs, pertinent laws and regulations on taxes and charges being applied to the entire
immigration and quarantine personnel (CIQ), and tourism value chain (airlines, hotels, travel agencies, tour operators, facilities)
impact of travel tax procedures need to be reviewed with a wholistic perspective – long term development of
tourism. International agencies can support projects to assess the impact of the
current tourism taxation regime on the value chain and propose ways to
generate more innovative, competitive and sustainable sources of taxation
revenues
The Philippines’ ranking has not improved based on In general, infrastructure to improve farm to market access in the countryside
international surveys and in the metropolis will benefit tourism as evidenced in the case of Thailand.
The DPWH, DOT, DOTC already have a list of these projects. The airports and
Government has decided to channel some funds to ports should be a priority in relation to improving processes and ensuring safety
infrastructure development, including tourism, in order of travellers. There has been underinvestment in airport facilities and process
to generate jobs improvements in the past decades.
Local connectivity can also be improved with the completion of mass transport
projects (e.g. rail system) within the metropolis and between the metropolis and
its environs. Connectivity can also be improved with the development of port
facilities to support domestic travel via the RORO.
• Possibly, some students may drop-out of college, More students choosing to study in their localities may encourage dispersion of
Business leading to deterioration in cohort rates. But in the BPOs away from NCR (and Metro Cebu). Currently, BPOs in NCR generate

Process short-term (within a one-year period), the impact on about 78% of total industry employment though the rest of the country accounts
Outsourcing number of graduates may not be as significantly felt. for around 75% of total college graduates—especially Regions IV-A, VI, VII
• Possibly, greater number of students will choose to and III.
study in their home localities rather (or in regional
education hubs) than go to the NCR. Ensure BPO readiness and friendliness of localities which serve as regional
education hubs.
Provide opportunities for part-time BPO employment to college students, as a

way of funding their studies; or developing other mechanisms for financing
their studies, e.g. thru loans and scholarships.
• Other industries’ slower growth can make employment Job assistance programs jointly organized by BPA/P, industry associations
in BPOs more attractive for newly graduates and representing sectors negatively affected by the crisis, and relevant national and
industry shifters. local government agencies.
• Retrenched workers from other industries and
returning OFWs can be potential BPO applicants— Job assistance programs for returning OFWs jointly organized by BPA/P and
provided they possess the required skill-sets or can be the appropriate national and local government agencies.
re-trained to acquire BPO-related skills.
• Specific country-knowledge of returning OFWs can Partnerships between BPA/P and academic institutions to provide students with
provide opportunity to penetrate additional country- a broader, more realistic understanding of the BPO sector and the career
markets opportunities in this industry.
Enhancing employer branding of BPOs.

• Better-qualified applicants may consider BPO Partnerships between BPA/P and academic institutions in offering courses that
employment, e.g. graduates of “first-tier” schools will develop BPO-related skills (including English language proficiency) and in
(however they may be defined), graduates of courses exploring internship opportunities in BPOs; harnessing greater involvement of
more appropriate for BPO jobs, laid-off managers the Commission on Higher Education (CHED) in these initiatives.
from other industries, etc.
• Academic institutions, given brighter prospects in the Providing remedial training for “near-hires”.
BPO sector, may embed BPO-related courses in
college curricula and may actively encourage students Reviewing Philippine basic educational system and benchmarking it with
to pursue BPO-related careers. international practice, possibly towards (a) lengthening current 10-year basic

education program and (b) developing courses more relevant for current shift
towards technology-intensive, service-based economies.
• Given slower growth in other industries, BPO Improving quality of life of BPO workers, in the context of nature of work and
professionals may be encouraged to stay longer with of work schedule.
BPO companies.
• Promoting work-life balance within the industry.
Developing career paths within the industry, including possibilities of overseas

posting as part of business development teams in new markets (e.g. China).
Improving leadership and supervisory skills of front-line BPO managers—who

are typically young, newly-promoted BPO agents with limited work experience
but tasked with handling large team(s) of agents.
Consider developing new HR recruitment and employee retention models based

on realities of the industry (i.e. of being considered as stepping stone towards
career in other industries).
Consider enhancing direct and indirect economic benefits (e.g. pay increases,
training, benefits which are linked to tenure, e.g. car, housing & education
plans, etc.) of BPO professionals, considering direct and indirect costs of
attrition (e.g. cost of recruiting replacement—given low applicant’s success
rate—for each worker that voluntarily leaves the BPO industry); possibly using
as model the other industries which previously experienced pronounced talent
recruitment needs and retention problems.
Mining • In a 2008/2009 annual survey conducted by the Fraser Enhance the economic and non-economic impact of a mine operation. An
Institute of 658 exploration and mining-related organization must be in place, preferably devolved at the local level with
companies around the world, more than 4 out of 5 adequate representation from appropriate agencies and local communities
believe that at least 30% of exploration companies will (perhaps the same organization or group being proposed in the minerals
be forced out of business in the current economic protocol above), to strictly monitor mineral production and exports, and help

downturn. The same survey indicated that over 90% of assist stakeholders draft programs for spending or allocation of their share in
respondents believe exploration and development mining operations. Another way to fully optimize the impact of a mine
activities will be curtailed, with 57% saying activity operation is to encourage other sectors to invest in downstream operations like
will decline a “great deal” and 85% saying that mineral processing plants.
activities of production companies will be curtailed.
• The implications can be adverse to the Philippine Tap local financial markets to fund mining projects. There is a need to educate
mining sector as most projects in the country are still local financial institutions about mining operations to encourage these to fund
at the exploration and feasibility/financing stages. mining projects. There are on-going proposals to offer a Mining 101 course in
Postponements or outright cancellations of exploration UP to other interested parties like lawyers, accountants, government officials,
activities can eliminate the Philippines’ long term etc.
prospects in mining.
• The postponement of exploration and The participation of local financial institutions can lead to the mobilization of
commercialization activities can lead to commodity excess liquidity and to give a positive signal to investors about local
shortages when the economy recovers. According to commitment and confidence on mining prospects in the country. Lately,
the same report, “the world may face a shortage of raw negotiations are on-going with the Philexim bank to extend credit guarantees on
materials and sky rocketing commodity prices as the loans provided to mining projects.
world economy moves past the recession and into
renewed growth.”
• The report further states “the curtailment of
development activity will hit in the short-term, likely
during the opening phase of the recovery period. The
gap between exploration and production typically span
five years to ten years. This means that the negative
impact from the lack of exploration on commodity
supplies will begin to hit as the recovery matures.”
While it may augur well for existing mining
operations, the report observed that “these problems
could weaken the recovery and spark inflation fears.”
Philippine rice is not competitive with imports without The national government (NG) and local government units (LGUs) must
Agriculture tariff protection (now at 50% in-quota). Exporting rice support the mayors and governors as the agriculture champions in their
is also a losing proposition. The lower world fertilizer respective localities. Cluster farmers are convergence points for interventions

and fuel prices in 2009 will help enhance farmers’ in:
profits. o irrigation systems restoration
o certified and hybrid seeds use
Low fertilizer usage, increasing soil acidity, improving o extension services
but still limited use of good seeds, as well as poor state o soil analysis and organic fertilizer development
of irrigation maintenance are among the causes of low
yield. Extension services have also suffered since the The private sector, given favorable business climate, can expand hybrid seed
advent of the Local Government Code in 1991. supply, and modernize the rice mills.
On the other hand, the drive for 100% self–sufficiency

makes rice a disproportionate recipient (70 to 80%) of
the DA budget. This has caused reduction of resources
flowing to equally or more deserving sectors.
Corn is not yet competitive in export, but it will gain The tasks for the NG and LGUs are to:
competitiveness with improvements in yield and farm • construct, rehabilitate and maintain farm-to-market roads
and post-harvest infrastructure. • build village level post harvest facilities
• prepare for AFTA 2010.
On the part of the private sector:

• expand hybrid seed supply
• invest in large post-harvest facilities (PHFs) (for corn cobs)
prepare for AFTA 2010
The dramatic fall in world prices in 2009 will cut farm The NG through the Philippine Coconut Authority (PCA) and LGUs must
profits. Only large peso depreciation can help reverse consider fertilization of strategic areas. There are reports that yield can increase
the income shrinkage. by 50% in 24-36 months.
Low farm productivity and limited intercropping are the
main causes of high poverty in coconut areas. As 95% of trees are of poor genetics, there is need for replanting with good
clones. In poverty areas such as coconut lands, intercrop for food and cash can
have large spillover effects. Quick access to the levy money can help fund
these projects. Meanwhile, depreciating the peso will mitigate the collapse of
farm incomes in the coconut areas.

The private sector should consider seed nuts multiplication as potential project.
Sugar is not competitive without the AFTA tariff of The NG together with LGUs can consider the following:
38%. Export is not a viable option, except in the high- o improving key farm-mill roads, and
priced US quota market. Lower fertilizer and fuel prices o expanding irrigation access to sugar lands.
in 2009 will support higher farm profits. The
depreciation of the peso will help farm margins. The private sector needs to:
o sustain R&D by the Philsurin in cooperation with the Sugar
The main challenge for the sugar industry is to attain Regulatory Administration;
global competitiveness. This involves addressing the o improve mechanization rate; and
supply chain gaps: input costs, cane yield, logistics to o hone extension services through the mill district development
mill, mill efficiency. The advent of the agrarian reform council.
program in 1988 and extended to 2008 has severely
curtailed land transactions that could have given land to
the efficient managers. Thus, economies of scale in
plowing, irrigation and harvesting have been
constrained.
The industry is globally competitive. It is expanding The Government can provide the enabling environment by:
market share and is a dominant supplier in Asia. Lower o improving road networks to plantations and potential areas;
world fertilizer prices will enhance farm profits; peso o restoring peace in Mindanao; and
depreciation will boost peso earnings. o lobbying for entry of bananas to Australia.
Mindanao has the potential for expansion given the The role of the private sector: there is need to replicate the financing schemes of
growth of the banana market in Asia and the Middle OneNetworkBank, Tagum Rural Bank and PenBank to individual small farmers
East. Expansion into new areas will entail several with BPPA contracts with big buyers. The Bangko Sentral ng Pilipinas and
activities: Land Bank’s 5-7 year rediscounting plus technical assistance to bank’s
o building access roads to farm areas; production technicians could be the key component.
o stable policy environment; and
o securing peace.

2. The Global Meltdown: Macroeconomic Implications On The
Philippines
Emilio T. Antonio, Jr., Ph.D. 1
The US and the other major economies are suffering from a credit crunch originating
from a severe loss of confidence among the players in the financial system. With the
drying of credit, a slowdown in economic activities is expected. History shows that
the downturn after a banking crisis usually lasts for four years.
Conventional wisdom says that when the US sneezes, the Philippine economy catches
cold. Now that it is down with flu, therefore, the nagging question is: Will the
Philippines catch pneumonia? Before accepting the wisdom of such conventional
saying, it is important to examine the logic and facts behind such conclusion.
2.1 Examining the mechanics
How will the Philippines be affected by these developments? There can be direct and
indirect effects. The direct effects would be felt by those financial institutions that
bought the toxic loans that the US peddled to economies world wide. The indirect
effects, on the other hand, would be felt through the possible slowdown in the
business transactions between the US and the Philippines as a result of the recession
expected to result from the financial meltdown in the US.
The direct effects are likely to be minimal. True, there were several banks that got
themselves entangled with the financial instruments that were peddled by the US
financial agents. However, given the lack of familiarity of the Philippine financial
players with these ‘innovative’ financial instruments, the bets they placed on these
investment tools were quite limited. The impact of the bottom lines of those banks
exposed to these toxic financial papers have been recognized and for some, these have
been significant. Nevertheless, they are not likely to place these banks on the brink of
possible collapse.
The greater risk of contamination therefore lies on the possible effects of the
imminent recession in the US and other big economies to the Philippine economy.
There are two questions that we need to examine to help us guess how these
developments will affect us.
a. First: Is the Philippine economy healthy enough to absorb the impact of the
impending shocks?
b. Second: How is the Philippine economy linked to the US and other major
economies and to what would be likely extent of the damage these
developments can inflict on the economy?
1
Associate Professor, University of Asia and the Pacific

How do we assess a nation’s financial strength?
An analogy with how the financial strength of a household can be helpful. There are
three key indicators that we watch to be able to judge whether a household is
financially stable:
a. How much cash it has

b. The state of balance between what it earns and what it spends
c. Its access to other people’s money
Why are these indicators important?
a. The amount of cash it has would be an important indicator of whether it has

the capability to survive a sudden drying up of its income sources. Thus,
households are usually advised to set aside what it would need for survival just
in case the head of the household loses his job. The usual rule of thumb is the
amount of cash needed for the family’s sustenance for six months which is the
usual amount of time needed to find a new job.
b. The state of balance between what it earns and what it spends indicate whether
it has the habit of living within its means. Once a household incurs a deficit, it
will have to dip on its cash reserve. If it has none, somebody else has to
finance it.
c. Finally, the ease of its access to other people’s money is another indicator if it
can weather a situation when its sources of income temporarily dry up.
Using these three indicators, we can easily spot a household in severe financial
trouble when we see the following signals: it has run out of cash at a time when its
expenses exceed its income and the other sources of funds dry up. Under these
circumstances, it would become extremely difficult for the household even to think of
how to earn more.
Using the Paradigm for the Nation
A nation can be looked at in a similar manner. Consider the following:
a. When a nation spends more than what it earns, the deficit will be reflected as
the excess of spends on imported goods and services and what it earns from
what it exports. This is not a theory; it is an accounting truth.
b. The problem with imports and exports is that they are transactions with the
rest of the world. For these transactions, the peso is useless. Thus, when there
is a deficit, we would need foreign currencies to finance it.
c. Where do we get the foreign currencies to fill up the gap? We can draw from
our reserves, attract foreign investors, borrow from financial institutions or at
the extreme case, run to IMF.
d. If the gap between income and spending cannot be financed by all of these
sources combined, a shortage of foreign currencies will ensue. Once the
shortage becomes evident, upward pressures on the price of foreign currencies
(i.e. the peso-dollar rate) would develop. This would in turn cause interest
rates to go up, inflation rates to rise which would eventually push the workers

to clamor for higher wages. The result would be an atmosphere of uncertainty
where practically every one would be trying to outguess each other on the
peso-dollar rate or on any other prices. Consequently, bets on the future (real
investments) would suffer and production activities slow down.
The critical indicators to watch therefore are the nation’s dollar resources and
transactions. The similarities with the key indicators of a household financial health
are summarized in the table below.
Household Nation
Gross and Net International Reserves
Cash Position: (GIR and NIR)
how many months can the cash last if How many months of imports can the
income flows stop stock of dollars in the vaults of the central
bank finance?
Balance between the dollar income and
Balance between income and spending dollar expenses
(Current Account Balance)
Balance between the inflows and
Access to other people’s money outflows of capital in the form of dollars
(Capital Account Balance)
Among these three, the most important is the balance between income and spending.
A surplus here means that the cash position is being built. A good cash position
improves the capability of the household to tap other people’s money. In the same
way, a nation with good levels of international reserves becomes attractive to foreign
lenders and investors.
2.2 External Transactions
How are we faring in this aspect? Actually we have not completely shed off some
bad habits. Our earnings from our exports still fall short of our expenditures on
imports and the gap between the two has been widening. Our saving grace:
remittances from our overseas workers. The amount of dollars remitted by Filipinos
working abroad have so significantly increased that in the recent years, these have
completely offset the deficits in our trade account.

Figure 2.1
Balance of Trade and OFW Remittances
20
Exports - Imports OFW remittances
15
10
in billion dollars
0
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08
-5
-10
-15
Source: Bangko Sentral ng Pilipinas (BSP)
These recent developments actually contrast sharply from our past records. Until
around 2000, the deficit in our trade account could not be filled up by the remittances
of our workers. What kept the overall balances of dollar inflows with outflows were
the surpluses in the amount of dollars that came in and out of the country in the form
of capital. For the past eight years, however, we have been posting surpluses in our
current account balance – a welcome phenomenon because our capital account has
been extremely volatile.
Figure 2.2
Current and Capital Account Balances
12
Current Capital
10
8
in billion dollars
0
80 85 90 95 00 05
-2
-4
-6
Source: BSP

Within the perspective of these developments, the improvements in the nation’s cash
position can be better appreciated. We can compare and contrast three periods.
a. In the eighties, we were having difficulties in keeping the level of our gross
international reserves at levels sufficient to finance three months worth of our
imports. Even worse, our net international reserves (i.e. our gross reserves
less the amount of our debt obligations which are due within the year) have
always been in the negative zone. In other words, the amount of dollars we
have in the vaults of the central bank would not even be enough to meet our
short term obligations!
b. In the nineties, our cash position improved. Both the gross and net eventually
reached levels equivalent to about 4 – 5 months of our import requirements.
It is important to note, however, that during this period, we were continuously
posting deficits in our current account – i.e. the dollars that we earned were
perennially short of the dollars that we spent. Fortunately, foreign
investments came in and more than offset the deficits in our current account
allowing us to even improve our cash balances.
c. For most of the years during the present decade, our current account finally
posted sustained surplus. This came at an opportune time when our political
troubles have scared off foreign funds. In short, the recent improvement in
our cash position has been built on more solid grounds. These have resulted
from a reform in our income-spending habits rather than from a heavy
reliance on other people’s money.
Figure 2.3
Current Account Balances in Three Crisis Periods
8
6 Asian
Aquino Crisis
4 Crisis
in billion dollars
0
80 85 90 95 00 05
-2
-4 Marcos
Crisis
-6
Source: BSP

Figure 2.4
Gross and Net International Reserves in Three Crisis Periods
8 Gross Net
6
in months of imports
4
2 Asian
Crisis
0
82 87 92 97 02 07
-2
Aquino
-4 Crisis
Marcos
-6 Crisis
Source of data: BSP
2.3 State of the Nation’s Financial Health
The indicators of the nation’s financial health therefore clearly suggest that we are in
a far better position at present than when the Asian financial crisis took place. The
nation’s income is in excess of its spending which allowed us to improve our cash
position. The combination of these two developments should have made us more
attractive to foreign investors. Unfortunately, the crisis gripping them at the moment
has dampened their enthusiasm to invest in their economies much less to other
countries. Nevertheless, as long as no dramatic reversals of the trends in the income-
spending balances of the nation take place, the drying up of foreign currencies from
foreign lenders and investors is unlikely to cause a foreign exchange crisis in the
Philippines.
Financial health vs. Macroeconomic performance
Are the improvements in these indicators of financial health mirrored in the key
indicators of the nation’s macroeconomic performance?
From a macroeconomic standpoint, two indicators are critical:
a. The relative stability of the prices of goods (inflation rate), funds (interest rate)
and foreign currencies (peso-dollar rate); and
b. The growth of the nation’s real income.
The improvements in the nation’s financial health are expected to be directly felt in
the stabilization of the movements of the prices of goods, funds and foreign
currencies. In turn, these improvements in the relatively predictability of prices create
the conditions where businesses and consumers can think in terms of longer-time

horizon, and would therefore be conducive to the improvement of the growth of
nation’s real income.
From these perspectives, therefore, the macroeconomic gains that resulted from the
improved financial health of the nation can be better appreciated if we examine the
longer term performance of the Philippine economy in terms of these sets of
indicators. Clearly, the present price environment is far more stable than our
turbulent past and the growth in real income (measured by the growth of the gross
national product in peso terms minus the growth in consumer prices) has definitely
improved in the more recent years.
Table 2.1
Indicators of Price Changes under Five Presidents
Average Annual Rates (in %) across Historical Periods
Marcos Aquino Ramos Estrada Arroyo
Inflation rate 14.3 9.8 8.2 6.6 5.5
Interest rate 14.4 19.3 12.6 10.8 7.2
% change in
11.1 4.8 9.1 9.9 0.4
P/$ rate
Sources of Data: BSP, National Statistics Office (NSO)
Table 2.2
Indicators of Growth of Nation’s Buying Power under Five Presidents
Average Annual Rates (in %) across Historical Periods
Marcos Aquino Ramos Estrada Arroyo
% change in
17.7 14.0 12.0 11.4 11.4
nominal GNP
Inflation rate 14.3 9.6 8.2 6.9 5.5
% change in
3.2 4.1 3.9 4.3 5.6
buying power
Sources of Data: National Statistical Coordinating Board (NSCB)
The same picture can be gleaned from the records of our income per person both in
terms of 1985 pesos and in current prices converted into dollars. The picture that
emerges sharply highlights the importance of the three indicators of financial health
(i.e. cash position, income and spending balance and access to other people’s money).
The severe financial crisis during the closing years of the Marcos regime threw back
the level of the nation’s income per person to its level 14 years prior to that crisis.
The subsequent income-spending imbalances, the shortages of cash and the lack of
access to foreign savings impeded the nation’s recovery resulting in the loss of more
than two decades in the development game. The recent improvements in these
indicators have finally brought us back to the growth path that we used to traverse in
the 50s and 60s.

Figure 2.5
Per Capita Income at constant 2008 prices
GNP per person (000 2008 pesos)

100
90 Ramos
Marcos
80
Aquino
70
60 Arroyo
50 Estrada
40
70 73 76 79 82 85 88 91 94 97 00 03 06
Source: NSCB
Figure 2.6
Per Capita Income at current prices in dollars
GNP per person (current dollars)
2200
1900
Ramos
1600 Marcos
Aquino
1300
1000
700
Estrada Arroyo
400
100
70 73 76 79 82 85 88 91 94 97 00 03 06
Source: NSCB
Will the global crisis undermine financial strength?
Although the financial health of the nation has improved, we still need to examine if
this strength can be seriously undermined by the ongoing global crisis. For this
purpose, we need to elaborate on the framework we have previously used.

Figure 2.7
Framework for Assessing Indirect Effects of Global Crisis
Agriculture
Industry
Services OFW Remittances
Will income
sources dry up?
Current Gross/net
account International
balance Reserves
Will expenses go
out of control?
Consumption Interest Payments
Investment Will the nation Capital

have access to account
Gov’t foreign savings? balance
Based on this framework, there are three critical questions to ask:
a. Will the income sources dry up? Will the global crisis severely handicap our
capability to earn income from agriculture, industry, services and OFW
remittances?
b. Will the expenses go out of control? Will the private and public sector go on
overspending spree that could cause a huge imbalance in the finances of the
nation?
c. Will the nation still have access to foreign savings? Will the foreign investors
and lenders find the Philippines an attractive place for their money?
Would income sources dry up?
There are three sources of income that appear vulnerable to the global crisis:
a. Exports of goods and services

b. Remittances of OFWs
c. Income from the business process outsourcing sectors.
The first concern is the one that receives the most attention at the moment. The usual
conclusion: The growth of our exports would slowdown because of the markets
where we are selling our goods are in recession. This would seem logical and the
most recent records of exports seem to confirm this. Since December 2008, our
exports have already posted extraordinary declines.

Figure 2.8
Monthly Exports of Goods in million Dollars
500 0
450 0
400 0
350 0
in milli on do llars
300 0
250 0
200 0
150 0
100 0
50 0
0
50 55 60 65 70 75 80 85 90 95 00 05 10
Source: NSO
Although it is true that our export earnings have slowed down, there are indicators
that suggest that this is not entirely due to the slowing down on the markets that we
serve. Consider the following:
a. Last year, while the growth of our exports declined, other Asian countries
were still posting dramatic increases in their exports.
Growth of $ value of exports

vs. previous year, 2008
(in %)
Philippines -2.65
Malaysia 16.15
Indonesia 18.03
Thailand 34.21
Singapore 14.26
India 19.49
Korea 14.38
Taiwan 3.64
China 17.23
Vietnam 34.40
Source: BSP
b. This was not only happening last year. Our exports used to be growing faster
than the exports of these countries. Starting 2000, however, our pace of
growth slackened while the growth of the other countries picked up
substantially.

Figure 2.9
Index of Export Revenues of Various Countries, 2001=100
500 Philippines
Exports Value Index, 2001=100 Malaysia
450
Indonesia
400 Thailand
350 Singapore
Korea
300 Taiwan
250 India
Vietnam
200
China
150
100
2001 2002 2003 2004 2005 2006 2007 2008
Source: BSP
These trends should provoke us to ask the questions: Why have the other countries
overtaken us? Are they selling to different markets? Is demand our problem?
Clearly, this cannot be the case. We are all trying to serve are the big economies.
Thus, it would be helpful to reflect on the following realities: What is our relative
importance in the markets that we serve? How much is the share of Philippine
exports to the total value of goods that these countries import? The answer: We are a
small player in these big markets. We are a small fish in a very big ocean.
Smallness has important implications. From our perspective as a seller, demand is

infinite. If our share of the total market is infinitesimally small, doubling it does not
create a ripple in the markets that we serve. That means, we can grow fast even in a
stagnant market by simply grabbing very small shares that the other players would not
even notice. The only condition: we should be able to produce the goods at the
prevailing price dictated by the world market and at the quality they demand. If we
cannot, we can sell nothing. This is not a demand problem; this is a problem of
supply capability. In other words, competitiveness is the key. This is a problem that
is internal to us.
Thus, if we are to explain our recent dismal performance in this field, we have to
search for reasons that affect the incentives to suppliers. From this perspective,
movements in the peso prices of exports. One tell-tale sign is the trend in the peso
prices of our exports. Over the past few years, the peso prices of our exports have
been on the decline. Unless our exporters have been able to control their peso costs,
this trend suggests that their peso profits are being squeezed making exporting a less
attractive business proposition.

Figure 2.10
Index of Peso Prices of Philippine Exports, 1985=100
500
450
Price of Exports
Price Index, 1985=100
400
Average
350 Average annual
annual growth
300 growth - 1%
10.8%
250
200
150
100
90 92 94 96 98 00 02 04 06 08* 10
Source: NSCB
The next question to ask: Why have peso prices of exports been on the decline? The
equation to remember is quite simple: peso price of exports is simply the world dollar
price multiplied by peso-dollar rate. Thus, these declines can only come from two
things: from the movements of the world dollar price and/or the peso-dollar rate.
Judging from the movements of the peso-dollar rate, it is clear that the more
significant portion of the decline in the peso prices of exports came from the decline
in the peso-dollar rate.
Figure 2.11
Peso-Dollar Rates
60
55
Peso-dollar rate
50
Peso-Dollar Rate
45 Average
annual Average
40 growth annual
6.5% growth
35 - 2.0%
30
25
20
90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 8 09 10
Source: BSP

Some would argue that other currencies have been experiencing a similar fate because
the dollar has grown weaker in the international financial market. This is only partly
true. The US dollar has become cheaper also relative to other currencies.
Nevertheless, the fall in the peso of price of the dollar has been faster compared to the
declines in its price in terms of other currencies. Implication: other foreign
currencies have also become cheaper in peso terms. Consequently, our
competitiveness in relation to these countries must have been eroded. No wonder,
their exports have grown much faster than ours.
Figure 2.12
Index of the exchange rates of the peso vs. currencies of various countries
Peso price indices of foreign currencies,
150
140
130 US
120 Taiwan
2000=100
S Korea
110
Singapore
100
Malaysia
90 Thailand
80 Indonesia
70
60
97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: BSP
The loss of competitiveness which occurred much earlier than the onset of the global
crisis is clearly reflected in the trend of our earnings from manufactured exports. In
the 90s, our revenues from manufactured exports were growing annually at an
average of more than 19%. During the new millennium, growth of revenues slowed
down to a measly 4.3%. Since the other countries selling to the same market
continued to grow at double digit rates, it is clear that our problem is not lack of
demand. Our competitiveness has been eroded and a large part of this could be traced
to the strength of our currency.

Figure 2.13
Annual Revenues from Manufactured Exports, in Billion Dollars
45
Manufactured exports in $ billion

40
35
Average
30 annual
Average growth
25 annual 4.3%
20 growth
19.5%
15
10
5
0
90 92 94 96 98 00 02 04 06 08 10
Source: BSP
The problem with losing competitiveness is that it cannot be regained back overnight.
The markets lost cannot easily be regained even when cost-competitiveness gets
rebuilt. It takes time to rebuild broken relationships. Reliability as a supplier is built
through time and once eroded it takes time to rebuild it again. Furthermore, once the
overall market suffers a severe contraction, it is the marginal sellers that are likely to
be hit harder.
Definitely, then, this year will most likely be the worst year for Philippine exports.
The downward trend which started showing up last December would most likely
continue for the rest of the year. A double-digit decline in exports this year is highly
likely.
Export earnings and the nation’s income
Will this affect the growth of the nation’s income? Definitely. Nevertheless, the
impact will depend on the relative importance of exports to the nation’s. How much
is this? Gross value of exports represents about 30% of the total value of our
production. This is a significant amount but if we deduct the value of the raw
materials we import, this drops to about 10%. Clearly, this is still a significant
amount. Nevertheless, this is a far smaller magnitude compared to the relative
importance of exports in our neighboring countries.

Figure 2.14
Share of Export Revenues to the Gross National Product, in per cent
60%
50%
Exports as % of GNP
40%
Gross
30% Net of Imported RM
20%
10%
0%
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Source: NSCB, BSP
Workers Remittances
Similar in magnitude in terms of contribution to the nation’s income are the

remittance of OFWs. On the average, this has been increasing at the rate of about
$1.8 billion per year. The bigger fraction of this comes from land-based OFWs whose
remittances have been growing at a fast clip of about $1.5 billion per year. The sea-
based workers’ remittances, on the other hand, which accounts for about 15% of the
total remittances has been increasing at about $ 300 million per year.
Figure 2.15
Remittances of Overseas Filipino Workers, in billion dollars
18
Land-based
16
Sea-based
14 Average
annual
12
increase
in $ billion
10 $1.5B
8 Average
6
annual
increase
4 $0.3 B
2
0
97 98 99 00 01 02 03 04 05 06 07 08 09 10
Source: BSP

Between the two, the more seriously threatened by the world crisis are the remittances
from sea-based workers. With the slowdown in the global trade, there is a possibility
that a substantial number of our seafarers would lose their jobs. Nevertheless, the
remittances figures for the first quarter of this year still show no signs of such
deceleration. Remittances from land-based workers also remained firm. The growth
has slowed down but no declines were posted.
Using the past patterns of remittances as guide, it seems that the more important
factor affecting remittances are internal rather than external. During the episode of
the Asian financial crisis, remittances even grew faster. A slowdown, however, can
be observed during the turbulent years of the Estrada period and the early years of the
Arroyo administration. In the more recent years, however, a dramatic acceleration of
the flows can be observed.
Thus, if past patterns persist, it seems that inflow of OFW remittances would
continue. The worst case seems a slowdown in growth but a decline appears unlikely,
A big chunk of our remittances originate from the US. Many of these workers are
teachers and nurses whose jobs are not likely to be threatened by the slowdown in the
economic activities.
Business Process Outsourcing
The third source of income growth for the Philippine economy is the business process
outsourcing industry. This is a relatively young sector whose growth was stimulated
by two factors: the dramatic drop and widespread availability of telecommunication
facilities together with the huge difference between the cost of skilled workers
between developed and developing countries. Thus, backroom operations of firms
like call center operations, human resource management, financial analysis and IT-
related activities can be done more cheaply in developing countries.
According to some studies, only 4% of the business activities that can be potentially
outsourced have been tapped by the sector. Thus, the room for growth in this
business is still big. Consequently, the loss in business from those firms that will be
affected by the global crisis can be compensated by the decisions of the surviving
firms to outsource some of their business processes. In fact, the pressures to
outsource can be expected to be greater due to the cost-cutting drives that can be
expected from these firms that would be operating in a tougher environment.
The Philippines is well-positioned to take advantage of these developments. It enjoys

a good reputation in this business. Again, the main constraint here would the be
availability and cost of the manpower needed to sustain the growth of BPOs. This
does not look like a problem in the short run because BPOs are now trying to tap the
pool of human resources available outside of the National Capital Region. In the
medium term, however, this is an internal problem that we need to address.
Bonus: Slowdown in inflation rate would boost real buying power
It is clear then that dramatic drop in income from exports can be offset by the
continued inflows of workers’ remittances as well as the growth in the BPO sector.
As a bonus, the real buying power of the incomes earned by the nation would get a

boost from the slowdown in inflation rate. Two pressures that pushed inflation last
year have eased up. The bubble in the dollar prices of petroleum in the world market
has burst and the increases in the price rice have decelerated. As of May this year,
inflation has slowed down to 3.3%. Definitely, the increase in the prices of consumer
goods this year will be below 5%.
2.4 Will Spending Spin Out Of Control?
Given the positive outlook on the nation’s income, the remaining factors that could
undermine the nation’s macroeconomic strength would be the nation’s spending
propensities and its access to foreign savings. While the current strategies being
employed in the more developed countries have centered on increased spending, such
policies need to be applied with caution in a small country context whose currencies
are not acceptable for international transactions. Ultimately, deficits incurred by the
nation need to be financed by foreign currencies. And as the Philippine experience in
the decades of the 70s, 80s and 90s show, there is a high price to pay for excessive
profligacy.
There are two main groups of earners and spenders: the private and the government
sectors. How is the nation’s income split up between them? Up to 1997, the share of
the nation’s income going to the government was on an upward trend. This trend has
been reverse. From a relative high share of more than 16%, the government’s share
of the nation’s income plummeted to a low of about 11%. Although there has been a
slight reversal in the recent years, the peak recorded in 1997 has not been duplicated.
Figure 2.16
Tax Collections as Percentage of GNP
18%
Taxes collected as % of Income
17%
16%
15%
14%
13%
12%
11%
10%
9%
81 86 91 96 01 06
Source: NSCB, Bureau of Treasury (BoT)
Private sector’s behavior
If the share of the government has been declining, this can only mean that the
proportion that remained in the private sector’s hands must have been increasing. The
question is: How has the private sector managed its finances?

As a whole, the private sector has been exhibiting an improvement in its spending
behavior. As a proportion of the nation’s income, personal consumption expenditure
has been on the decline.
Figure 2.17
Personal Consumption Expenditures as % of GNP
78%
Private consumption as % of GNP
76%
74%
72%
70%
68%
66%
64%
62%
60%
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09
Source: NSCB
In terms of balancing its incomes with expenses, the records have likewise improved.
Up to 1997, the private sector was posting deficits. This has changed. It has been
posting surpluses since then.
Figure 2.18
Income-Spending Balances of the Private Sector
30
Private Sector's Income-Spending
25
Balance as % of GNP
20
15
10
0
85 87 89 91 93 95 97 99 01 03 05 07
-5
Source of basic data: NSCB
Implication: The nation’s savings rate has improved considerably. From dismally
low levels of about 16% in the nineties, savings rates have gone up to almost 28% in
the recent years. No wonder banks have been awash with funds and this has cause
interest rates to decline substantially.

Figure 2.19
Gross Savings Rate as % of GNP
30
28
26
24
Savings/GNP
22
20
18
16
14
12
86 89 92 95 98 01 04 07
Source of Basic Data: NSCB
Figure 2.20
Average Monthly 91-day Treasure Bill Rates
30
25
91-day T Bill Rate
20
15
10
0
86 89 92 95 98 01 04 07
The more problematic aspect of the private sector’s behavior, however, is its
investment behavior. Despite the availability and low cost of funds, the proportion of
the nation’s income set aside for private investment has been on the decline. In other
words, private investors seem to be afraid of betting on the future.

Figure 2.21
Private investment Expenditures as % of GNP
25%
Private Investment as % of GNP

20%
15%
10%
5%
81
84
87
90
93
96
99
02
05
08
The government’s struggles
Contrary to common impressions, the government has likewise shown relatively

prudent behavior. Government consumption expenditures (i.e. those expenses that are
directly related to the running of the government bureaucracy) have been declining as
a proportion of the nation’s income.
Figure 2.22
Government Consumption Expenditures as % of GNP
Gov't Consumption Expenditures as % of GNP
14%
13%
12%
11%
10%
9%
8%
7%
6%
5%
81 83 85 87 89 91 93 95 97 99 01 03 05 07 09

What the government has been trying to increase in the more recent years is the
proportion of the nation’s income being set aside for public construction. During the
period of severe limitations in terms of government’s revenues, even these
expenditures were dramatically cut. Recently, however, the proportion of the nation’s
income invested on infrastructure has shown an increasing trend.
Figure 2.23
Public Construction Expenditures as % of GNP
9%
Public Construction as % of GNP
8%
7%
6%
5%
4%
3%
2%
1%
0%
81
83
85
87
89
91
93
95
97
99
01
03
05
07
09
From the mid-eighties up to 1997, the government carefully watched the balance
between its revenues and expenses. In a sense, it was dictated by the need to service
the debts inherited from the decade of the seventies. The trends changed in 1998.
Tax collections as a proportion of the nation’s income dropped substantially while
government’s spending as a fraction of the nation’s income was kept intact. Result: a
dramatic increase in the government’s deficits. In a way, the increase in deficits was
deliberate. The government was trying to pump-prime the economy that was
perceived to be reeling from the impact of the Asian financial crisis. The change in
government leaders in 2001 did not arrest the decline in the government’s share of the
national income. Nevertheless, to avoid a serious fiscal crisis from taking place, the
government drastically clipped its spending propensities. It is only in the recent years
that the tax intake improved. Consequently, government spending has been increased
although the deficits are still being kept within tolerable levels to avoid the bad
consequences of government. In fact, if not for the financial meltdown currently
taking place, the government has targeted a zero deficit before the exit of the present
dispensation.

Figure 2.24
Taxes and Government Expenditures as % of GNP
18%
Taxes as % of GNP Expenses as % of GNP
17%
16%
15%
14%
13%
12%
11%
10%
86 89 92 95 98 01 04 07
Sources of Basic Data: NSCB, BoT
2.5 Summary
Summing up, our historical records of income and spending give encouraging answers
to the critical questions that we have identified.
a. Will the global crisis cause our sources of income to dry up?
1. Export revenues have indeed dried up and the difficulties faced by our
exporters are likely to continue. Nevertheless, the bigger part of this
slowdown is not due to global crisis. Export revenues have been
declining much earlier and the more likely culprit seems to be the
erosion of the nation’s competitiveness which has been undermined by
the long-term decline peso-dollar rate.
2. Two sources of income, however, seem to be holding up to the

challenge of the crisis: the remittances from OFWs and the continued
growth in the revenues from BPOs.
3. The growth of the nation’s buying power (i.e. growth in nominal gnp
less the inflation rate) is also getting a boost from the dramatic decline
in inflation rate. The pressures that pushed inflation rates last year
have eased up. World oil prices have tumbled and increases in the
price of rice have moderated.
b. Will it cause spending to spin out of control?
1. The private sector has behaved prudently. Personal consumption

expenditures as proportion of the nation’s income continue to drop.

Saving rate continue to improve causing interest rates to decline. The
only problem: private investors are hesitating to bet on the future
despite the improved conditions in the credit market.
2. The public sector has been similarly well behaved. Government

consumption expenditures have declined as proportions of the nation’s
income while there have been attempts recently to jack up what the
nation sets aside for infrastructure spending. Furthermore, the track
records of the government over the past six year in terms of managing
the balance between its revenues and expenses suggest remarkable
prudence.
c. Will we have access to foreign savings?
1. Given our track records and the present state of affairs, we should be
more attractive to foreign lenders and investors. The private and
public sectors have been managing well the balances between their
income and spending. This has allowed the nation to build up its
international reserves. These two indicators are the ones usually
looked at to assess a nation’s creditworthiness or attractiveness as an
investment area.
2. Unfortunately, we still seem to be out of the radar of foreign creditors

and investors. On the net, more dollars in the form of capital still flow
out of the country compared to the amounts of capital that come in.
Clearly, there is a need to improve the foreigners’ perceptions on our
economy to stimulate them to bet on our future.
2.6 Implications On Policy Formulation
What do these suggest on how policies should be crafted in response to the crisis?
The following considerations are important to keep in mind:
1. Lack of global demand is not our main problem. The erosion of

competitiveness of our export sector which has been taking place even before
the crisis struck seems to be the more important one to address.
2. Lack of confidence is holding back our growth prospects. Despite the

availability and lower cost of funds, domestic investors continue to hesitate to
bet on our future. Also, despite the dramatic improvements in the nation’s
financial health, foreign investors and creditors are still hesitating the park
their savings on Philippine shores.
3. Employment generation still falls short of the nation’s needs. The number of
people employed is increasing but the rate of growth is still too low to make a
significant impact on the nation’s unemployment problem.

In short, the roots of the obstacles to the nation’s growth have weak links on the
global crisis. They are deep-seated problems that require strategic responses with or
without the crisis. True, the nation’s income will most likely weather the current
global turmoil but when the recovery sets in, we might not be ready to take advantage
of it unless strategic reforms that address these weaknesses are aggressively put in
place.
These considerations would be helpful in evaluating the government’s response to the

crisis as articulated in its Economic Resiliency Plan (ERP)
Economic Resiliency Plan
There are four components in the plan:
(a) increase in budget

(b) reduction in taxes
(c) large infrastructure projects jointly undertaken with the private sector
(d) improvement of social security benefits.
It is laudable that the program is presented as one that aims to accomplish three things
instead of simply a deficit program aimed to offset the drop in aggregate demand
expected as a consequence of the global crisis:
(a) that the amounts budgeted are actually spent

(b) that the expenditures made would have high impact
(c) that the participation of the private sector is harnessed
In other words, the government has avoided presenting this as a deficit target or as a
Keynesian medicine as the more developed countries are now doing. This is a
prudent move. Government deficits could stimulate demand but they could also pose
problems when they leak out as demand for imports. We have enough historical
examples that could caution us whenever a deliberate government deficit is used as a
strategy to stimulate demand. One only needs to recall the past crises that the
Philippines went through to have an idea of the high cost deficit spending could
imposed on a developing economy. The more recent episode was the response to the
Asian financial crisis which could have been the root of the fiscal crisis that we faced
in the subsequent years.
Nevertheless, the program needs to be framed within the context of the three
impediments to growth that we have previously mentioned. How will it address the
problem of competitiveness? How will it restore domestic and foreign investors’
confidence? How much jobs will it generate?
Perhaps, more than just focusing on stimulating the economy through deficit
spending, improving the business environment through an aggressive infrastructure
program and eliminating bureaucratic red tapes that hamper business transactions
might have more significant effects in improving the competitiveness of industries.
We have made significant strides in creating a calmer price environment which should
be favorable to making business decisions with longer time horizon. Nevertheless,
businesses are still vocal in their complaints about the bureaucratic obstacles involved

in starting and running business in the Philippines as well as additional costs that poor
infrastructure facilities impose on them.
In short, most of the problems that we face have longer term roots and have been with
us with or without the global crisis. The government might want to seize the
opportunity to institute real, long-lasting reforms now given the relative openness of
the people to make sacrifices in the light of the on-going crisis.

3 Vulnerability of Philippine Agriculture
Rolando T. Dy, Ph. D.2
Philippine agriculture is a vital cog of the Philippine economy. It comprises about

20% of the gross domestic product (GDP), and some 37% of the labor force.
However, its share to total merchanidise export is less than 10%, a result that will be
explained later. When the whole agri-food chain is considered (agribusiness context),
it accounts for nearly half of GDP3. This includes supply of industrial farm inputs
and services, agri-food processing, packaging, logistics and financing.
Is Philippine agriculture4, or the broader scope of agribusiness, vulnerable to the

ongoing global financial crisis? Is its vulnerability a result of shrinking global
demand and the resulting fall in commodity prices? Or is it the lack of
competitiveness and preparedness to the world business cycle? This paper hopes to
answer these questions.
Moreover, five selected agriculture industries will be analyzed. Thereafter, proposals

will be made in the short-term and medium-term to address important concerns.
3.1 Importance of Agriculture
Some 12 M farm workers and fishers in the sector, plus another 4 M in non-farm
enterprises. There are about 10 million (M) hectares (ha) of farmland in the country
scattered in 5 M farms, averaging only 2 ha. . During the 1980s and 1990s, Philippine
agriculture growth lagged behind its Asian neighbors. It is an evidence of the “lost
decades” where severe under-investment reigned. Sector performance recovered in
the 2000s. The growth drivers were fishery, palay, corn and poultry.
2
Executive Director, Center for Food and Agribusiness, University of Asia and the Pacific
3
Allen and Dy (1990).
4
Agriculture as defined in this paper includes fishery.

Table 3.1
Agriculture Growth: The Philippines tailed its neighbors in the 80s and 90s
(% average annual growth)
1980-1990 1990-2000 2001-2006
Indonesia 3.6 2.1 3.2
Malaysia 3.4 0.3 3.5
Philippines 1.0 1.7 3.7
Thailand 3.9 4.2 2.6
China 5.9 4.1 4.1
Vietnam 2.8 4.3 3.8
Source: World Bank Development Indicators, 2004 and 2006; Asian Development
Bank – Key Indicators of Developing Asia and Pacific Countries, 2007
Table 3.2
Drivers of agriculture growth: fishery, rice and corn led the way…
Sources of growth
2001 – 2008, %
Palay 17.8
Corn 8.5
Coconut 1.9
Sugarcane 2.7
Banana 5.1
Other crops 7.5
Livestock 6.3
Poultry 8.4
Fishery 36.9
Total 100.0
Source of basic data: National Statistical Coordination Board (NSCB)
Despite the notable growth, however, experts have questioned why rural poverty still
hovers at 50% when other countries such as China, Indonesia and Vietnam have
recorded significant falls in poverty incidence. Habito (2009) found that the growth of
manufacturing jobs is a factor. Perhaps, another factor is the country’s poor
performance in agri-food exports.
3.2 International Benchmarking
Benchmarking is a tool for comparing a country’s or an industry’s performance

relative to peer group. A country’s record in exports is a good comparator of global
competitiveness. The Philippine export performance appears way below par in
several metrics.
3.2.1 Agri-food export intensity is way below peers. In 2007, the Philippines had
only 6.7% of its total merchandise exports coming from agri-food compared to 20%
for the top 15 exporting countries, and to 18% for its ASEAN neighbors. The ASEAN
peers posted large trade surpluses but the Philippines had large deficit.

Table 3.3
Agri-Food Exports and Their Shares to Total Merchandise Exports, 2007
Agri-food Agri-food Export Intensity Trade
Export ($ B) % Share to Total Export Balance
USA 113.5 9.8 +
Brazil 48.2 30.0 +
Canada 48.7 11.6 +
China 38.8 3.2 -
Argentina 28.8 51.5 +
Thailand 25.0 16.3 +
Indonesia 23.4 19.9 +
Australia 22.4 15.8 +
Malaysia 20.5 11.6 +
New Zealand 16.0 59.5 +
India 16.0 11.0 +
Mexico 15.6 5.7 -
Chile 13.6 20.0 +
Vietnam 11.7 24.2 +
Turkey 10.0 9.4 Nil
Average 20.0 +
Memo item
Philippines 3.2 6.7 -
3.2.2 Export per unit of land. Relative to its ASEAN neighbors, the Philippine
export-to-farm land ratio is very low. It was only $300 per ha in 2007 compared to
$2,710 for Malaysia, $1,500 for Vietnam, and $1,420 for Thailand.
Table 3.4
RP dismally underperforms in agri-food exports, 2007
Exports Imports Balance Export $ per
($ B) ($ B) ($ B) Farm area
Indonesia 23.4 10.5 +12.9 710
Malaysia 20.5 10.6 +9.9 2,710
Thailand 25.0 8.4 +16.6 1,420
Vietnam 11.7 6.1 +5.6 1,500
Philippines 3.2 4.3 -1.1 300
Source of basic data: World Trade Organization, Central Intelligence Agency
(CIA)
Based on area alone, the Philippine agri-food export could have been at par with
Malaysia and Vietnam.

3.2.3. In seafood export intensity, the Philippines only exported $11 per kilometer
of coastline as compared to $1,918 for Thailand, $890 for Vietnam, and $137 for
Malaysia.
Table 3.5
Philippine seafood exports… in the cellar
Export 2007 Coastline Export
($ M) (km) ($’000/km)
Indonesia 1,949 57,716 34
Malaysia 640 4,675 137
Philippines 391 36,289 11
Thailand 6,173 3,219 1,918
Vietnam 3,064 3,444 890
Note: HS 03 & h16
Source: International Trade Centre, and CIA
3.2.4. Revealed Comparative Advantage (RCA). On the basis of RCA, Philippine

exports totaled $2.5 B versus $7.3 B for Vietnam, and $22.8 B for Thailand in 2006.
The Philippine export effort is only a third of Vietnam’s, and one-seventh of
Thailand’s.
Table 3.6
Comparative advantage in exports: The Philippines lags badly…
Value ( $ B) Indonesia Malaysia Philippines Thailand Vietnam
Fish, etc 1.6 0.3 2.3 2.5
Veggies 0.7 0.2
Fruits & nuts 0.6 0.5
Coffee 0.9 1.6
Cocoa and prepn 0.9 0.6
Cereals & prepn 0.2 2.7 0.9
Vegetable oils 6.1 7.0 0.6
Seafood prepn 0.3 0.1 4.0 0.6
Rubber prod 5.5 4.8 8.9 0.9
All products 15.8 12.4 2.5 22.8 7.3
Products groups with RCA of 1 or above are competitive (2006 data).
Source: ITC
The above metrics clearly indicate low level of efforts of stakeholders in penetrating
the global markets

3.3 Industry Analyses
Going into specifics, in-depth analysis will be made for five commodities:
• Rice, corn, and sugarcane - all domestically-oriented industries

• Coconut – the major traditional export
• Banana - a benchmark export
The discussion will cover four areas:
• Situationer;
• Analysis of vulnerability;
• Actionable measures; and
• Strategic options.
Figure 3.1
Impact of Global Financial Crisis on Commodities
Global
financial tsunami
Global demand
Output Input Quantity

prices prices

The above framework shows that the global financial crisis will affect demand for
commodities by: (a) reducing output prices; (b) falling input prices such as fertilizers;
and/or (c) lowering demand.
3.3.1. Rice
Rice accounts for 17% of agriculture gross domestic product (GDP). In terms of farm
area (2.47 M ha) and number of farms (1.35 M), it is next to coconut. Rice is
cultivated in most of the 80 provinces, but farming is concentrated in Cagayan Valley,
Central Luzon, Western Visayas, and Mindanao. It is a highly political crop. It
happens to be the main crop in the lowlands where a large urban population resides.
The country’s rice import of 2.5 M tons in 2008 was a record. Importing rice to
supplement domestic food supply is not new. The country imported rice in more than
90 out of the last 100 years. The Philippines imports rice because of several factors.
First, it has no comparative advantage in growing rice because of limited rice lands
given its rugged topography. Second, it does not possess large river systems unlike
Thailand with its Chao Phraya, Vietnam (Red and Mekong), and Myanmar
(Irrawaddy). Large river systems provide cheap irrigation. Cambodia and Laos are
also countries to watch as the Mekong River traverses the region. Lastly, the
Philippines is typhoon-prone. Thus, it would cost more to irrigate rice than its
ASEAN peers. Third, some 20 typhoons visit the country every year causing damage
to rice harvests. Only Mindanao is spared.
Philippine rice yield is below global average, and lower than those of Indonesia and
Vietnam. The relative limited use of good seeds, low fertilizer usage, and large
rainfed areas are among the causes. Rice yield growth has surpassed global average
but lags behind Thailand and Vietnam.
Because of the drive for self-sufficiency, rice receives a disproportionate allocation of

government resources. According to DA sources, it receives some 70 to 80% of DA
budget, of which irrigation is the major expense.
Table 3.7
Benchmarking rice
RP yield growth slower than the key rice exporters
Harvested Absolute Yield Absolute
area, ha Growth rate, % ton/ha Growth, %
2007 1990-2007 2007 1990-2007
Indonesia 11.9 +16 4.66 +7
Philippines 4.35 +27 3.83 +33
Thailand 10.6 +21 2.76 +41
Vietnam 7.4 +18 4.98 +67
China 28.9 -13 6.43 +12
World 4.17 +18
Source: US Department of Agriculture (USDA)

The latest rice crisis created serious concern. World prices accelerated in March 2008
and peaked in April. Misguided concern for domestic supply led India and Vietnam
(key exporters) to curb exports. In the process, world rice prices started to spike. Also,
the National Food Authority reacted by taking large orders at abnormal prices.
Certain sectors in government believe that the rice crisis makes 100% self-sufficiency
a more strategic option than ever without reference to cost-benefit analysis.
Figure 3.2
World rice price peaked in 2008…
The Philippines paid dearly for rice
Source: World Bank Pink Sheet
Rice competitiveness and sensitivity
Philippine rice is not competitive with imports without tariff protection (now at 50%
in-quota). Exporting rice is also a losing proposition. The lower world fertilizer and
fuel prices in 2009 will help enhance farmers’ profits.
Competitive Analysis
Table 3.8
Rice is not competitive without tariff protection; nor in the export market
IMPORT PARITY EXPORT PARITY
US$/ton
FOB, Vietnam 460 460
+ Freight 40 -
CIF/FOB Manila 500 460
Php/ton (P48)
CIF/FOB Manila 24,000 22,080
+ Handling and margin 15,600 (2,208)
(15%,+ 50% tariff)
Derived Whole Price* 39,600 19,872
Actual Wholesale 32,000 to 40,000

Table 3.9
Indicative Rice Farm Profitability
(Pesos/hectare)
2008 2009
Costs 45,000 37,000
Sales 56,000 64,000
Profit 11,000 27,000
Source: Annex
Key Challenges
Low fertilizer usage, increasing soil acidity, improving but still limited use of good
seeds, as well as poor state of irrigation maintenance are among the causes of low
yield. Extension services have also suffered since the advent of the Local
Government Code in 1991.
On the other hand, the drive for 100% self–sufficiency makes rice a disproportionate
recipient (70 to 80%) of the DA budget. This has caused reduction of resources
flowing to equally or more deserving sectors.
Actionable Measures
The national government (NG) and local government units (LGUs) must support the
mayors and governors as the agriculture champions in their respective localities.
Cluster farmers are convergence points for interventions in:
• irrigation systems restoration

• certified and hybrid seeds use
• extension services
• soil analysis and organic fertilizer development
Meanwhile, the private sector, given favorable business climate, can expand hybrid
seed supply, and modernize the rice mills.
Strategic Response
In the medium-term, there is need for the DA to address the following:
• implement a rice master plan

• research and development (R&D) into rice varieties with low water
requirements (Palay production is a heavy water user)5
• independent review of the cost of rice self-sufficiency
• refine targeted rice subsidy to consumers
• allocate resources based cost-benefits to regions.
5
It takes 5 cubic meters (5,000 liters) to produce one kilo of rice. This translates to 600 cubic meters
per capita per year assuming an annual per capita rice consumption of 120 kilos.

The Management Association of the Philippines (MAP) calls for the following: (a)
drastic curtailment of the role of the National Food Authority; (b) promotion of non-
rice sources of carbohydrates; and (c) encourage formation of rice growers
associations to have a private sector lobby.
Moreover, a program of soil rejuventation in rice and corn areas is imperative as

yields have stabilized or declined due to acidic soils (Augusto de Leon, 2009).
3.3.2 Corn
Corn accounts for 6.4% of agriculture GDP. It has the third largest farm area (1.35 M
ha) and number of farmers (0.7 M) after coconut and rice. Over 80% of corn is used
as feed ingredients for poultry and swine. The key production zones are in Cagayan
Valley (particularly Isabela), Ilocos (mainly Pangasinan), and Mindanao. Corn is an
upland crop where access to marketing infrastructure is more limited than lowland
crops like rice.6
Compared to competitor countries, corn yield is only 54% of global average and is
lower than China’s or Thailand’s. Hybrid seed use is reportedly one factor. 7
However, the good news is that it posted the highest growth in farm yield among
Asian peers since 1990. The private seed companies as well as the input suppliers
have played a key role in expanding hybrid seed use.
Table 3.10
Benchmarking corn
Outstanding yield growth but yield remains below world average
area, M ha Growth,% Ton/ha Growth
2007 1990-2007 2007 1990-2007
China 29.48 +38 5.17 +14
Indonesia 3.56 +32 2.11 +14
Philippines 2.74 -4 2.65 +100
Thailand 1.00 -26 3.85 +37
World 4.93 +32
Source: USDA
The export potential of corn is robust. East Asia (Japan, South Korea, Taiwan, and
Malaysia) imports over 30 M tons a year from the Americas (e.g. USA and
Argentina). Only China and Thailand exhibit significant surpluses.
6
The author has observed these constraints in the Bukidnon and South Cotabato (Mindanao).
7
The low yield of white corn pulls down the overall corn yield in the Philippines.

Table 3.11
Asian Corn Trade
Importers Exporters
‘000 tons ‘000 tons
Japan 16,500 China 500
Korea 7,200 Thailand 490
Taiwan 4,000 Indonesia 90
Malaysia 2,500
Vietnam 700
Indonesia 300
Philippines Nil
Source: USDA
Corn competitiveness and sensitivity
Corn is not yet competitive in export, but it will gain competitiveness with
improvements in yield and farm and post-harvest infrastructure. The lower fertilizer
and fuel prices in 2009 will provide a breathing space for corn farmers.
Table 3.12
Parity Prices
Import Parity Export Parity
In $/ton
No. 2 Corn yellow, US 160 160
+ Freight and others 40
In Php/ton(P48)
= CIF/FOB Manila 9,600 7,680
+ Handling and margin +35% 4,300 (770)
tariff
= Dervived wholesale price 13,900 6,910
Source of basic data: World Bank
Table 3.13
Indicative Corn Farm Profitability
(Pesos/hectare)
2008 2009
Cost 45,000 37,000
Sales 54,000 54,000
Profit 9,000 17,000
Source: Annex
Key Challenges
High post harvest losses due to inadequate post harvest facilities, the poor state of
farm-to-market roads and distance to market, and upland soil degradation are among
the challenges. Extension services have suffered since its devolution under the Local

Government Code in 1991. The LGUs are, by and large, unprepared for their new
mandates.
Under the ASEAN Free Trade Area (AFTA), tariffs of the remaining tariff lines,
except rice, will fall to zero to 5% in 2010. These include corn (from 35%), vegetable
oil, sugar, feeds, chicken, and pork. Sadly, stakeholders’ preparation to this strategic
milestone falls short.
Actionable Measures
The tasks for the NG and LGUs are to:
• construct, rehabilitate and maintain farm-to-market roads

• build village level post harvest facilities
• prepare for AFTA 2010.
On the part of the private sector:
• expand hybrid seed supply

• invest in large post-harvest facilities (PHFs) (for corn cobs)
• prepare for AFTA 2010
Strategic Response
In the medium term, there is need to focus on corn value/supply chain improvements
to make the industry competitive, and become an export player. In this regard, a
critical mass of infrastructure in production zones is imperative from roads to PHFs to
bulk handling facilities (end to end) from Mindanao to Luzon and the Visayas.
In addition, the MAP recommendations must be considered. These include: (a)

accelerating adoption of Bt corn; (b) enhancement of credit access to support
investments on post-harvest facilities; and (c) establishing a corn growers’ association
(like the Sugar Alliance).
It is also imperative that a program of soil rejuvenation is undertaken as overused

soils are no longer providing the expected yield despite application of adequate
fertilizers.
3.3.3 Coconut
Coconut is the largest agriculture industry. Its farm land (3.3 M ha) is 34% larger
than rice; and its number of farms (1.4 M) slightly higher. But it contributes only 3.4
% to agriculture GDP, principally because of dismally low farm productivity8. The
8
The average farm yield is only 40 nuts per tree (4,000 nuts per ha), or about 800
kilos of copra per ha. With clone clones and under plantation management, it should
get three times the current yield.
industry suffers from decades of neglect. It does not receive the resources it deserves.
it gets not even one-twentieth of the rice budget.
The existing tree stocks are of poor genetics. Severe under-investment has led to
senile trees, while the lack of fertilizers causes low productivity. The senile trees need
replanting as more than 95% of tree stocks are from poor clones. There is also need
for intercropping to supplement low farm incomes. Today, only one million ha are
intercropped with varying degrees of management.
The main coconut regions are Mindanao, Bicol, East Visayas, and Southern Tagalog
(principally Quezon). Concidentaly, they happen to have the highest concentration of
rural poor and insurgency.
Benchmarking the industry shows that the Philippines has the lowest farm yield
among competition. Indonesian yield is 30% higher, not to mention Brazil and PNG
at more than double. Philippines yield growth has been above average for unexplained
reasons as fertilization had been minimal.
Table 3.14
Benchmarking coconut
Near average yield growth, but yield is way below competitors
area, M ha Growth 1990- Ton/ha Growth, %
2007 2007 2007 1990-2007
India 1.88 +27 5.00 +2
Indonesia 2.62 +16 5.94 +11
Philippines 3.45 +11 4.52 +28
Cote d”ivoire 0.03 -40 8.00 +20
Brazil 0.27 +29 10.13 +366
PNG 0.20 -23 9.17 +90
World 5.02 +18
Source: USDA
The lower productivity of coconut will have a long-term impact on its

competitiveness with palm kernel oil, its only competitor in the lauric oil market.
There is a large price differential between coconut oil and palm kernel oil. The
probability of feedstock shift is getting higher with this large price gap.
Table 3.15
Large CNO premium over PKO will harm the coconut industry in the long run
World prices 2008
($/ton)
Q1 Q2 Q3 Q4 01- 09
Coconut oil 1,379 1,499 1,246 772 718
Palm kernel oil 1,156 1,198 928 512 534
Price difference 223 301 318 260 184
Source: World Bank Pink Sheet, February 2009

Coconut competitiveness and sensitivity
The Philippines lost its top spot in production to Indonesia in the 1990s due to the
latter’s more organized development program. Meanwhile, palm kernel oil from
Indonesia and Malaysia has been making inroads in the global market.
The dramatic fall in world prices in 2009 will cut farm profits. Only a large peso
depreciation can help reverse the income shrinkage.
Table 3.16
Indicative Coconut Farm Profitability
(Pesos/ha)
2008 2009
Cost 12,500 12,500
Farm sales 26,700 10,700
Profit 14,200 (1,800)
Source: Annex
Key Challenges
Low farm productivity and limited intercropping are the main causes of high poverty
in coconut areas. The former is the result of spontaneous plantings of poor clones, a
large proportion of senile trees due to limited replanting, and inadequate fertilization.
Little investments have flowed into the industry in over 25 years. These caused the
declining competitiveness of the industry, and the high poverty in coconut regions.
Actionable Measures
The NG through the Philippine Coconut Authority (PCA) and LGUs must consider
fertilization of strategic areas. There are reports that yield can increase by 50% in 24-
36 months.
As 95% of trees are of poor genetics, there is need for replanting with good clones. In
poverty areas such as coconut lands, intercrop for food and cash can have large
spillover effects. Quick access to the levy money can help fund these projects.
Meanwhile, depreciating the peso will mitigate the collapse of farm incomes in the
coconut areas.
The private sector should consider seed nuts multiplication as potential project.
Strategic Response
It has been 23 years since 1986 when the coconut levy issue began. The long
litigation has caused the limited flow of resources to the coconut industry. The long
wait for the recovery of the coconut levy has hurt the industry.
It is time to craft a strategic plan that will cover: (a) fertilization of 2 M ha; (b)
replanting 1 M ha with world class clones; (c) market-led intercropping; (d)
diversification of by-products; and (e) R&D. Coconut research must be separated
from PCA following the Philippine Rice Research Institute model.

Further, there is need to: (a) unlock the coconut levy; and (b) promote new products
(like coconut flour and coconut sugar) as recommended by the MAP.
3.3.4 Sugar
Sugar is the 4th largest agriculture industry contributing 2.5% to agriculture GDP. It
has 363,000 ha on 67,500 farms, and employs 500,000 farm workers. Sugarcane is the
main source of bio-ethanol. Sugarcane is grown in Western Visayas, Central Visayas,
and Mindanao. Rehabilitation of mills and new ethanol plants can generate excess
electricity for sale to the national grid.
Sugarcane yield increased below world average since 1990. However, sugar recovery
rate of the new cane varieties has risen by 16% due to the efforts of the private sector-
funded Philippine Sugar research Institute (Philsurin) established in 1997.
Table 3.17
Benchmarking Sugar
Industry-led research is bearing fruits in higher yield and sugar recovery
area, M ha Growth % Ton/ha Growth
2007 1990-2007 2007 1990-2007
Indonesia 0.35 +3 72.0 -11
Philippines 0.40 +25 63.2 +6*
Thailand 1.01 +46 63.7 +30
Australia 0.42 +27 85.7 +17
World 70.9 +15
* Philippine sugar recovery: 1990 - 1.33 PSTC; 2007 - 1.54 PSTC, (+16%) (PSMA)
Source: USDA; PSMA adjusted for 1990 - 59.5
Sugar competitiveness and sensitivity
Sugar is not competitive without the AFTA tariff of 38%. Export is not a viable
option, except in the high-priced US quota market. 9 Lower fertilizer and fuel prices
in 2009 will support higher farm profits. The depreciation of the peso will help farm
margins.
By 2010, the AFTA will reduce tariffs to 0-5%. Despite many years to restructure, the
industry is seeking including sugar in the exclusion list as the stakeholders feel it is
not ready.
Domestic sugar cannot compete without tariffs relative to Thai sugar.
9
The US quota price is 50% higher than world price.

Table 3.18
Domestic Sugar Competitiveness
Retail price (Php/kg)
1. Thai sugar with 38% tariff 40.90
2. Thai sugar with 0% tariff 32.60
3. Local refined sugar 35.80
Differential (3-2) 3.20
Source of basic data: SRA
The fall in fuel and fertilizer prices in 2009 should help farm profits. However, this
will also depend on farm efficiency.
Table 3.19
Indicative Sugar Profitability
(Pesos/hectare)
2008 2009
Farm cost 85,550 69,200
Farm sales 78,300 78,300
Profit at full cost (7,250) 9,100
Profit at direct cost 9,250 25,600
Source: SRA updated; 60% plant and 40% ratoon
Key Challenges
The main challenge for the sugar industry is to attain global competitiveness. This
involves addressing the supply chain gaps: input costs, cane yield, logistics to mill,
mill efficiency. The advent of the agrarian reform program in 1988 and extended to
2008 has severely curtailed land transactions that could have given land to the
efficient managers. Thus, economies of scale in plowing, irrigation and harvesting
have been constrained.
Actionable Measures
The NG together with LGUs can consider the following:
• improving key farm-mill roads, and

• expanding irrigation access to sugar lands.
The private sector needs to:
• sustain R&D by the Philsurin in cooperation with the Sugar Regulatory

Administration;
• improve mechanization rate; and
• hone extension services through the mill district development council.
Strategic Response will entail supply chain improvements for a competitive

industry. This will include:

• land consolidation to attain scale economies and farm mechanization;
• freer land market (revisiting agrarian reform provisions on land eligibility and
transferability); and
• modernization of the mills for power co-generation.
3.3.5 Cavendish Banana
Banana export is competitive. The Mindanao-based industry ranks 2nd to Ecuador in

global exports. Its 50,000 ha generate some $400 M in exports annually and
contributes about 2% of agriculture GDP. No other commodity can surpass this
achievement. Most of the banana production is contracted to growers. The industry
employs about 100,000 direct and indirect workers.
Table 3.20
Benchmarking Banana: Rapid export growth, global player
area, ha Growth, % Ton/ha Growth, %
2007 1990-2007 2007 1990-2007
Philippines 50,000 +100 40 -
Ecuador 210,000 +47 29 +37
Costa Rica 43,000 +35 52 -5
World (all varieties) +32
Source: USDA; Author’s estimate for Philippine yield.
Cavendish banana competitiveness and sensitivity
The industry is globally competitive. It is expanding market share and is a dominant

supplier in Asia. Lower world fertilizer prices will enhance farm profits; peso
depreciation will boost peso earnings
Table 3.21
Indicative Banana Profitability ($/box)
2008 2009
Total cost 2.70 2.45
Farm sales 2.90 3.15
Profit 0.20 0.55
Source: Annex
Key Challenges
Mindanao has the potential for expansion given the growth of the banana market in
Asia and the Middle East. Expansion into new areas will entail several activities:
• building access roads to farm areas;

• stable policy environment; and
• securing peace.

Actionable Measures
The Government can provide the enabling environment by:
• improving road networks to plantations and potential areas;

• restoring peace in Mindanao; and
• lobbying for entry of bananas to Australia
The role of the private sector: there is need to replicate the financing schemes of
OneNetworkBank, Tagum Rural Bank and PenBank to individual small farmers with
BPPA contracts10 with big buyers. The Bangko Sentral ng Pilipinas and Land Bank’s
5-7 year rediscounting plus technical assistance to bank’s production technicians
could be the key components.
Strategic Options
The road map is for the Government (NG and LGUs) to provide a good business
climate to investors. Unilateral changes in policy (e.g. ban on aerial spraying) are not
a positive signal of stable policy.
3.4 Is Philippine Agriculture Vulnerable?
Yes, it partly is. World commodity prices have declined since their peak in 2008.
These have dual effects: reduce output prices for some exportables, principally
coconut, and reduce input prices. Lower fertilizer and fuel prices in 2009 will have
positive effects on farm bottom lines. On the policy front, peso depreciation has
positive effects on many products, principally for exportables like coconut and
banana.
But, the sector’s coping mechanisms could have been far better if the country had
long invested in sector competitiveness. Adequate investments would have generated
higher productivity.
The AFTA 2010 looms. Corn, sugar, feeds, chicken and pork will face competition.
Feeds and meats will enter the country duty-free and this will, in turn, reduce the
demand for corn. The industries were given lead time, but preparations appear to be
taking unnecessarily longer.
10
For example banana production and purchase agreement (BPPA) is a long-term deal of 10 to 15
years to producers with fixed US$ buying price.

Box 3.1 The AFTA Common Effective Preferential Tariff Scheme (CEPT)
The CEPT scheme, introduced in 1993 to eliminate intra-ASEAN import tariffs, is

now almost completed. The ASEAN-6 and Viet Nam have reduced duties on all
products to 0-5 per cent. ASEAN-6 will eliminate duties on all products by 1
January 2010, except the limited Sensitive and Highly Sensitive Unprocessed
Agricultural Products.
Lao PDR and Myanmar are expected to reduce duties on all products by 1 January
2008 except Sensitive and Highly Sensitive Unprocessed Agricultural Products.
Cambodia is given until 1 January 2010 to do so. These countries and Viet Nam
will eliminate duties on all products by 1 January 2010.
Indonesia and the Philippines have yet to offer rice and sugar for concessions. A
special dispensation has been given to both countries to phase in these products by
2015.
Source: http://www.miti.gov.my
On a regional basis, the most impacted regions will be the coconut areas of Mindanao,
Bicol, Eastern and Central Visayas, and Southern Tagalog (mainly Quezon).
Table 3.22
Vulnerability Summary
Product/Area Region(s)/areas Vulnerability
Coconut Mindanao, Bicol, East Visayas, High
(3.3 M ha) Central Visayas, S. Tagalog.
Sugarcane West Visayas, Central Visayas Low
(~400,000 ha) Mindanao * High (with AFTA 2010)**
Corn Cagayan Valley, Mindanao Low

(1.35 M ha) Pangasinan High (with AFTA 2010)**
Rice Cagayan Valley, Central Luzon, Low
(2.47 M ha) Western Visayas, Mindanao,
Other regions
Cavendish banana Mindanao (S, C, N) Low
(50,000 ha)
* also Cagayan Valley, Central Luzon
** AFTA 2010 has been agreed by the ASEAN members for over five years.

Sensitivity and Key Challenges to Agriculture Industries amidst the Global Financial Crisis
Current Situation Sensitivity and Key Challenges Possible Interventions
Rice • Rice accounts for 17% of • Philippine rice is not competitive • The national government (NG) and local
agriculture gross domestic with imports without tariff government units (LGUs) must support the mayors
product (GDP). In terms of protection (now at 50% in-quota). and governors as the agriculture champions in their
farm area (2.47 M ha) and Exporting rice is also a losing respective localities. Cluster farmers are
number of farms (1.35 M), proposition. The lower world convergence points for interventions in:
it is next to coconut. fertilizer and fuel prices in 2009 o irrigation systems restoration
• The country’s rice import will help enhance farmers’ o certified and hybrid seeds use
of 2.5 M tons in 2008 was profits. o extension services
a record. The country • Low fertilizer usage, increasing o soil analysis and organic fertilizer
imported rice in more than soil acidity, improving but still development
90 out of the last 100 limited use of good seeds, as well • The private sector, given favorable business
years. as poor state of irrigation climate, can expand hybrid seed supply, and
• The Philippines imports maintenance are among the modernize the rice mills.
rice because it has no causes of low yield. Extension
comparative advantage in services have also suffered since
growing rice due to limited the advent of the Local
rice lands given its rugged Government Code in 1991.
topography, it does not • On the other hand, the drive for
possess large river 100% self–sufficiency makes rice
systems, and it is typhoon- a disproportionate recipient (70 to
prone. 80%) of the DA budget. This has
• Philippine rice yield is caused reduction of resources
below global average, and flowing to equally or more
lower than those of deserving sectors.

Indonesia and Vietnam.
Corn • Corn accounts for 6.4% of • Corn is not yet competitive in • The tasks for the NG and LGUs are to:
agriculture GDP. It has the export, but it will gain o construct, rehabilitate and maintain farm-
third largest farm area competitiveness with to-market roads
(1.35 M ha) and number of improvements in yield and farm o build village level post harvest facilities
farmers (0.7 M) after and post-harvest infrastructure. o prepare for AFTA 2010.
coconut and rice. Over The lower fertilizer and fuel • On the part of the private sector:
80% of corn is used as feed prices in 2009 will provide a o expand hybrid seed supply
ingredients for poultry and breathing space for corn farmers. o invest in large post-harvest facilities
swine. • High post harvest losses due to (PHFs) (for corn cobs)
• Compared to competitor inadequate post harvest facilities, o prepare for AFTA 2010
countries, corn yield is the poor state of farm-to-market
only 54% of global roads and distance to market, and
average and is lower than upland soil degradation are
China’s or Thailand’s. among the challenges. Extension
Hybrid seed use is services have suffered since its
reportedly one factor. devolution under the Local
However, the good news is Government Code in 1991. The
that it posted the highest LGUs are, by and large,
growth in farm yield unprepared for their new
among Asian peers since mandates.
1990. The private seed • Under the ASEAN Free Trade
companies as well as the Area (AFTA), tariffs of the
input suppliers have played remaining tariff lines, except rice,
a key role in expanding will fall to zero to 5% in 2010.

hybrid seed use. These include corn (from 35%),
• The export potential of vegetable oil, sugar, feeds,
corn is robust. East Asia chicken, and pork. Sadly,
(Japan, South Korea, stakeholders’ preparation to this
Taiwan, and Malaysia) strategic milestone falls short.
imports over 30 M tons a
year from the Americas
(e.g. USA and Argentina).
Only China and Thailand
exhibit significant
surpluses.
Coconut • Coconut is the largest • The Philippines lost its top spot • The NG through the Philippine Coconut
agriculture industry. Its in production to Indonesia in Authority (PCA) and LGUs must consider
farm land (3.3 M ha) is the 1990s due to the latter’s fertilization of strategic areas. There are reports
34% larger than rice; and more organized development that yield can increase by 50% in 24-36 months.
its number of farms (1.4 rogram. Meanwhile, palm • As 95% of trees are of poor genetics, there is need
M) slightly higher. But kernel oil from Indonesia and for replanting with good clones. In poverty areas
it contributes only 3.4 % Malaysia has been making such as coconut lands, intercrop for food and cash
to agriculture GDP, inroads in the global market. can have large spillover effects. Quick access to
principally because of • The dramatic fall in world the levy money can help fund these projects.
dismally low farm prices in 2009 will cut farm Meanwhile, depreciating the peso will mitigate
productivity. The profits. Only large peso the collapse of farm incomes in the coconut areas.
industry suffers from depreciation can help reverse • The private sector should consider seed nuts
decades of neglect. It the income shrinkage. multiplication as potential project.

does not receive the • Low farm productivity and
resources it deserves. it limited intercropping are the
gets not even one- main causes of high poverty in
twentieth of the rice coconut areas. The former is
budget. the result of spontaneous
• The existing tree stocks are plantings of poor clones, a
of poor genetics. Severe large proportion of senile trees
under-investment has led due to limited replanting, and
to senile trees, while the inadequate fertilization. Little
lack of fertilizers causes investments have flowed into
low productivity. The the industry in over 25 years.
senile trees need replanting These caused the declining
as more than 95% of tree competitiveness of the
stocks are from poor industry, and the high poverty
clones. There is also need in coconut regions.
for intercropping to
supplement low farm
incomes. Today, only one
million ha are intercropped
with varying degrees of
management.
• Benchmarking the industry
shows that the Philippines
has the lowest farm yield
among competition.
Indonesian yield is 30%

higher, not to mention
Brazil and PNG at more
than double. Philippines
yield growth has been
above average for
unexplained reasons as
fertilization had been
minimal.
Sugar • Sugar is the 4th largest • Sugar is not competitive without • The NG together with LGUs can consider the
agriculture industry the AFTA tariff of 38%. Export following:
contributing 2.5% to is not a viable option, except o improving key farm-mill roads, and
agriculture GDP. It has in the high-priced US quota o expanding irrigation access to sugar lands.
363,000 ha on 67,500 market. Lower fertilizer and • The private sector needs to:
farms, and employs fuel prices in 2009 will support o sustain R&D by the Philsurin in
500,000 farm workers. higher farm profits. The cooperation with the Sugar Regulatory
Sugarcane is the main depreciation of the peso will Administration;
source of bio-ethanol. help farm margins. o improve mechanization rate; and
Sugarcane is grown in • The main challenge for the o hone extension services through the mill
Western Visayas, sugar industry is to attain district development council.
Central Visayas, and global competitiveness. This
Mindanao. involves addressing the supply
Rehabilitation of mills chain gaps: input costs, cane
and new ethanol plants yield, logistics to mill, mill
can generate excess efficiency. The advent of the

electricity for sale to the agrarian reform program in
national grid. 1988 and extended to 2008 has
• Sugarcane yield severely curtailed land
increased below world transactions that could have
average since 1990. given land to the efficient
However, sugar recovery managers. Thus, economies of
rate of the new cane scale in plowing, irrigation and
varieties has risen by harvesting have been
16% due to the efforts of constrained.
the private sector-funded
Philippine Sugar
research Institute
(Philsurin) established in
1997.
Cavendish • Banana export is • The industry is globally • The Government can provide the enabling
Banana competitive. The competitive. It is expanding environment by:
Mindanao-based market share and is a dominant o improving road networks to plantations
industry ranks 2nd to supplier in Asia. Lower world and potential areas;
Ecuador in global fertilizer prices will enhance o restoring peace in Mindanao; and
exports. Its 50,000 ha farm profits; peso depreciation o lobbying for entry of bananas to
generate some $400 M will boost peso earnings. Australia.
in exports annually and • Mindanao has the potential for • The role of the private sector: there is need to
contributes about 2% of expansion given the growth of replicate the financing schemes of
agriculture GDP. No the banana market in Asia and OneNetworkBank, Tagum Rural Bank and

other commodity can the Middle East. Expansion PenBank to individual small farmers with BPPA
surpass this into new areas will entail contracts with big buyers. The Bangko Sentral ng
achievement. Most of several activities: Pilipinas and Land Bank’s 5-7 year rediscounting
the banana production is o building access roads to plus technical assistance to bank’s production
contracted to growers. farm areas; technicians could be the key component.
The industry employs o stable policy
about 100,000 direct and environment; and
indirect workers. o securing peace.

3.5 Overall
The lack of sector competitiveness principally an unfortunate result of severe under-

investment in agriculture. This is shown by the country’s poor export
competitiveness, the unproductive coconut tree stocks, and high poverty, among
others. The Agriculture and Fisheries Modernization Act (AFMA), passed into law in
1997, was the best hope. It was expected that some an additional Php 15 to 20 B a
year will flow to the sectors. But due to the lack of resonance among the top decision
makers on the urgency of agriculture development, AFMA failed to deliver the extra
resources.
Resource allocation is also captured by political expediency. Public spending is

heavily biased for rice self-sufficiency. There are sad consequences (low productivity
and poverty) for others like tree crops, corn and small fishery
Table 3.23
AFMA budget allocation, 1997-2006
billion pesos
Year Regular GATT AFMP Total
1997 2.69 14.48 17.16
1998 2.84 12.89 15.73
1999 3.34 11.61 14.96
2000 4.16 16.64 20.80
2001 4.66 11.45 16.11
2002 5.60 14.44 20.04
2003 4.44 12.13 16.57
2004 4.25 9.36 13.61
2005 4.27 10.26 14.54
2006* 4.35 11.47 15.82
Source: Department of Agriculture
While agriculture and fishery development is a vital cog of development, this is not a
sufficient condition for energizing the countryside and alleviating rural poverty. As
shown in other countries like Thailand, development of agro-based processing
industries is a major cog. These industries are labor-intensive, and absorb excess
labor in agriculture. This is easier said than done. Rural-based industries require a
favorable business climate including: (a) a steady supply of quality raw materials
for processing; (b) adequate marketing infrastructure and power and water supply;
and (c) good local governance.
Investing in rural communities is vital. Many LGU executives are competent but they
lack resources (financial and manpower). They need support as they have limited
resources for quick stimulus. There are merits to explore alternative financing beyond
the internal revenue allotment (IRA). For example, development market place scheme
and conditional cash transfers are interesting options.

3.6 Moving Forward
In the short term, for agriculture as a whole, emphasis should be given on the
following:
1. The budget for 2010 should reflect sound resource allocation in order to have a
broad-based impact on farm incomes and poverty reduction.
2. The increment should be proportionately more for the under-budgeted sectors in
the past such as corn, coconut and other tree crops, fishery and livestock.
3. A concerted effort should be made to craft an AFTA 2010 preparedness program.
In the medium term, several competitiveness concerns should be addressed. It can be

started with sustaining efforts geared towards sound budget and resource allocation to
enhance farm incomes and reduce poverty. This include ensuring that the 2010
budget will provide funding for industries which suffered discrimination in the past
due to singular focus on rice self-sufficiency. There must be a shift to ensuring
income security and reducing poverty as a quantum leap from the past.
1. Implement AFMA by program elements, and with regional perspective.

2. Revisit the budget line by commodity (GMA rice, corn, HVC, livestock, fisheries)
Lacks flexibility; and biased against R&D and marketing support.
3. Sound resource allocation criteria (benefit-cost analysis)
About 70-80% of DA resources allocated for rice. Bias for production support,
and against R&D and marketing. There are fewer resources for poverty-stricken
sectors like coconut and fisheries.
4. R&D needs to catch up
The AFMA formula is inadequate for a catch up strategy. R&D generates high
economic gains. The Benchmark at 1% of GVA should be targeted.
5. Weak extension systems
The Local Government Code, now an 18-year old legacy, needs amendment.
Agriculture extension has weakened.
6. Dispersed regulatory system
Goods enter the border through customs before quarantine.
7. Frequent changes in DA bureaucracy
The lack of continuity affects efficiency and institutional memory. Meritocracy
must be observed.
8. Make CARP investment-friendly
Farming alone will provide the jobs for the rural sector. Private investments are
needed in rural industries; there is also need for economies of scale. There is a
looming crisis of un-employed and underemployed: if paradigm of exclusion of
private investments
9. Monitoring and evaluation of programs
It is severely inadequate and predominantly input monitoring. More needed for
outcomes monitoring.
10. A pro-active Congressional Oversight Committee on Agricultural and Fisheries
Modernization (COCAFM) that will monitor AFMA implementation.

Altogether, it is highly imperative to craft regional agriculture strategies that
capitalize on each region’s competitive advantage. For example, there is need to
pursue the food basket strategy in typhoon-free Mindanao. The strategies must also
capture the vitality of marketing support and R&D, and not predominantly production
support as has been the common practice.
The success of these strategies will be contingent on the absorptive capacity which, in
many respects, is anchored on sustained human resource development at the national,
regional and local levels.

ANNEXES
References
1. Presentation to COCAFM, January 17, 2009
2. SRA Survey of Farm Costs (Maru)
List of Stakeholders Consulted

1. Management Association of the Philippines
2. Senen Bacani (banana)
3. Ramon de Vera (banana)
4. PSMA (c/o )
5. Philmaize (Chair: Rodger Navarro)
6. DA GMA Rice
7. DA GMA Corn
8. PCA
9. DTI
10. DA Philippine Agribusiness Corporation
11. National Council for Competitiveness
12. Anonymous Player (Coconut industry)
Data Sources
• International Trade Centre
• USDA
• WTO
• World Bank
• Sugar Regulatory Administration
• Industry sources
• Center for Food and Agri Business (UA&P

ANNEX 1
RICE: SENSITIVITY OF COSTS AND RETURNS
Lower fertilizer costs, higher margins
Pesos/hectare 2008 2009

SEEDS (certified) 2,000 2,000
LAND PREP 6,000 6,000
FERTILIZER 20,000 12,000
Chemicals 3,000 3,000
Crop planting and 6,000 6,000
maintenance
Harvest and threshing 5,600 6,400
(10%)
Other costs 5,400 5,400
TOTAL COSTS 48,000 40,800
Production (kg/ha) 4,000 4,000
Price (Pesos/kg dry) 14 16
SALES 56,000 64,000
PROFIT 8,000 23,200
Note: Ballpark estimates
ANNEX 2
CORN: SENSITIVITY OF COSTS AND RETURNS
Lower fertilizer costs, higher margins

SEEDS 3,400 3,400
LAND PREP 4,000 4,000
FERTILIZER 24,000 16,000
Crop Maintenance
MD (42) 4,200 4,200
MAD (6) 1,200 1,200
Shelling, Drying, 2,250 2,250
Trucking 2,500 2,500
Other costs 3,450 3,450
TOTAL COSTS 45,000 37,000
Cost/kilo, 4,500 kg 10.00 8.22
SALES, P12/kg 54,000 54,000
PROFIT 9,000 17,000
Note: Ballpark estimates

ANNEX 3
COCONUT: SENSITIVITY OF COSTS AND RETURNS
Drastic fall in income in 2009

Ring weeding (3 MD x 6x/year at P200/day) 3,600 3,600
Harvesting (4,000 nuts x P2/nut 8,000 8,000
Copra making (890 x P1/kg copra) 890 890
TOTAL COST 12,490 12,490
Yield (copra t/ha) 890 890
FARM SALES (P30/KG, P12/KG) 26,700 10,680
PROFIT* 14,210 (1,810)
*Alternative scheme: 1/3 each of gross for worker, tenant and landowner
ANNEX 4
SUGAR: SENSITIVITY OF COSTS AND RETURNS
Plant and ratoon mix, 40: 60

Land Prep, etc 5,700 5,700
Planting/replanting/liming 3,300 3,300
Fertilizers 29,400 19,100
Cultivation 3,700 3,700
Weeding 3,800 3,800
Cutting, loading 55TC 7,150 7,150
Hauling 16,000 10,000
Total Direct 69,050 52,750
Indirect, excluding land rental of 16,500 16,500
P10k
TOTAL 85,550 69,250
Yield, raw sugar Lkg 110 110
Molasses 2.6 2.6
Sales: Sugar (P920/Lkg) 101,200 101,200
Molasses (P4,100/t) 10,660 10,660
Total sales, net of mill share of 78,300 78,300
30%
Net profit (7,250) 9,050

ANNEX 5
BANANA: SENSITIVITY OF COSTS AND RETURNS
$/Box 2008 2009

Wages, salaries and 1.20 1.20
benefits
Fertilizers and chemicals 0.60 0.50
Plastic, fuel, oil 0.30 0.20
Other costs, land rental, 0.40 0.40
etc.
Transport to pier 0.20 0.15
Total Cost 2.70 2.45
Farm Sales + Incentives 2.90 3.15
Farm profit 0.20 0.70
Source: Industry Players

4 Impact on the Philippine Business Process Outsourcing Sector
Ceferino S. Rodolfo11
• Global outsourcing & off-shoring (O&O) of services, commonly referred to as

business process outsourcing (BPO), has been a recent but rapidly growing
phenomenon. Its growth can be attributed to two main drivers:
o From the demand side, as competition in the global market intensified due
to the lowering of barriers to trade, companies were forced to be more
competitive in terms of lower costs and better services.
o From the supply-side, rapid developments in information and

communication technology (ICT) have made it technically possible to
digitize service activities and transmit them via the internet in a cost-
effective and timely manner.
Thus, while outsourcing and off-shoring—separately and in combination—have

long been part of corporate strategies, their application to service processes has
increased the coverage, depth and value of O&O activities.
• India has been the established country-leader in the global BPO industry,
supported primarily by the availability of qualified professionals. However, the
Philippines has gained recognition as a viable BPO location based on:
o the availability of professionals with the required language skills,

cultural affinity with the US (the main BPO market), and strong
customer service orientation;
o the dramatic improvements in telecommunications infrastructure
resulting from the deregulation of the industry in the early 1990s,
among others;
o the availability of premium-grade building facilities; and,
o the relatively competitive incentive regime that we provide to BPO
investments.
• As a result, over the past five years (2004 to 2008), the Philippine BPO industry
grew in terms of employment from 100,000 to about 372,000 full-time employees
(FTEs), for an average annual growth of about 40%; and in terms of revenues,
from about US$1.5 billion (B) to US$6B, for an average growth of 43%.
4.1 Current Industry Status

4.1.1 Employment
11
Director, Master of Science in Management, University of Asia and the Pacific

As of end-2008, the BPO industry employed a total of 371,965 full-time employees
(FTEs). Over the five-year period from 2004-2008, the number of FTEs in the
industry more than tripled, for an average annual growth of 40%.
While BPOs contribute only slightly more than 1% of total employment in the
Philippines;12 it accounts for a substantial portion (7%) of total employment in the
National Capital Region (NCR). Employment in BPOs is already larger than the
whole financial intermediation sector.13 This is particularly good accomplishment for
an industry than is barely a decade old.
Figure 4.1
Chart 1. BPO Employment

2004-'08, in full-time employees (FTEs)
371,965
Digital content/Game development

Engineering Services Outsourcing
298,953
IT Outsourcing
Animation
Transcription 235,575
Back office / Knowledge Process Outsourcing
Contact centers
163,250
100,500
2004 2005 2006 2007 2008

Source: BPA/P
Contact call centers account for 61% of total employment in the sector; followed by
Back Office / Knowledge Process Outsourcing or KPO with 19%; IT Outsourcing or
ITO is next with 9%; Transcription, 6%; Animation, 3%; Engineering Services
Outsourcing or ESO, with 2%; and Digital content / Game development, with 0.2%.
12
based on January 2009 estimate of 34,258,000 employed Filipinos, per NSCB
13
banks and non-bank financial institutions, including insurance and pre-need companies, employ
about 336,000 people nationwide

Figure 4.2
Chart 2. 2008 BPO Employment, by sector
in no. of full-time employees (FTEs)
TOTAL FTEs
(371,965)
Engineering Services
Digital content/
IT Outsourcing Outsourcing (12,000)
Game development
(35,314)
(500)
Animation
(8,000)
Transcription
(20,224) Contact centers
(227,000)
Back office/
Knowledge Process
Outsourcing (68,927)
Source: BPA/P
4.1.2 Revenues
In terms of revenues, the industry has grown by more than four (4) times between the
period 2004-2008 for an annual average growth of 43%. In terms of size, the
industry’s revenues is already about 1/3 the size of OFW remittances—presumably
without the attendant social costs associated with OFW and migration.
In 2000, the industry’s total revenues was only US$350 M; by 2008, its total revenues
was at US$6.1B—a growth of more than 17 times in seven years. Based on direct
output alone, 2008 BPO revenues is about 5% of the country’s Gross Domestic
Product.

Figure 4.3
Chart 3. BPO revenues

2004-'08, in US$ Million
6,061
Digital content/Game development

Engineering Services Outsourcing
IT Outsourcing 4,816
Animation
Transcription
Back office / Knowledge Process Outsourcing
Contact centers
3,207
2,375
1,475
2004 2005 2006 2007 2008

Source: BPA/P

Contact call centers again contribute the largest share to total BPO sector revenues at
68%; KPOs, 14%; ITO, 10%; ESO, 4%; Transcription, 3%; Animation, 2%; and
Digital contents/game development, 0.05%. However, the fastest growing sub-sectors
are the KPOs and the ESOs, as each grew by almost seven times their revenue base
over the past five years. This indicates the Philippines is already starting to diversify
into non-voice BPOs.
Figure 4.4
Chart 4. 2008 BPO Revenues, by Sector

(in US$ Million)
Total BPO
(6,061)
Information Technology Digital content/
Outsourcing Engineering Services Game development
(601) Outsourcing (3)
(228)
Animation
(120)
Transcription
(182)
Contact centers
(4,100)
Back office/
Knowledge
Process
Outsourcing
(827)
Source: BPA/P

4.1.3 Revenue per Employee
There had been previous recommendations for the Philippine BPO industry to move
up the “value-chain.” This is commonly interpreted as referring to the shift from call
center operations into “more complex” types of BPOs, e.g. KPOs, ESOs, ITOs, etc.
However, in terms of revenue generated per employee, call centers are among those
with the highest in the industry (US$18,062), ranking a close second to ESOs
(US$19,000). Call centers, while essentially offering voice services, require agents to
possess multiple technical skills as certain program (client) types have agents
simultaneously operating several software programs while interacting with a client /
caller.
Figure 4.5
Chart 5. Revenue per Employee

2008, in US$
Digital content/Game
6,000
development
Engineering Services
19,000
Outsourcing
IT Outsourcing 17,019
Animation 15,000
Transcription 8,976
Back office / Knowledge

12,000
Process Outsourcing
Contact centers 18,062
Total BPO 16,294

Source: BPA/P

Overall, revenue per employee in the BPO industry has improved to reach US$16,294
in 2008, from US$14,677 in 2004. Partly, this is due to the growth in higher value-
adding sub-sectors such as KPOs and ESOs. Higher revenue per employee implies
that industry revenue targets can be supported with less employees.
Figure 4.6
Chart 6. Revenue per Employee (Total BPO)
2004-'08,in US$
16,294
16,111
14,677
14,548
13,613
2004 2005 2006 2007 2008

Source: BPA/P
4.1.4 Regional Distribution of Employment
The BPO industry is still largely concentrated in the NCR. There are however BPOs
that pursue a deliberate strategy of locating in areas outside of the NCR and Metro
Cebu. While there is a smaller pool of prospective BPO applicants in these locations,
the quality—in terms of BPO-relevant skill-sets—is high especially in those that serve
as regional education centers.
Nevertheless, about 78% of total BPO employment is generated in the NCR, with
Region VII (or Central Visayas, including Cebu) accounting for 6%. Region III,
which includes Clark (Pampanga) and Bulacan, contributes another 5%; and Region
IV (CALABARZON), 3%.

Figure 4.7
Chart 7. Regional Distribution of BPO Employment

2008, no. of FTEs
XI CAR
X XII
VIII 3,927 4,505
1,193 33
VII 1,787 I
23,863 667
VI
11,344
III
V 18,321
2,454
IV-A
12,688
NCR
290,236
Source: BPA/P
4.1.5 Linkages with the National and Local Economy
The BPO sector has limited contribution in terms of inter-industry output multiplier.
Its forward linkage (which measures the relative importance of the sector as a supplier
to other industries) is low, as its output is geared mainly for clients abroad and not for
domestic industries; this is also about the same situation with its backward linkage
(which measures its relative importance as a buyer of inputs from other sectors), since
its most important input is labor (which is a primary input and not the product or
output of another industry), as salaries and wages account for 40% to 60% of the total
costs of a BPO operation.
However, BPOs are significant contributors in terms of income multiplier (i.e. an

increase in overall household income given an increase in BPO revenues). Table 1
indicates that it is one of sectors with the highest income multiplier. Presumably,
considering BPO professionals high average salary (e.g. compared with workers of
the same age),14 they would have higher propensity for consumption—which then
translates to an increase in the final demand (an exogenous element) for other
industries.
14
A call center agent earns between Php14,000 to Php25,000 monthly, excluding
bonuses.
Table 4.1
Household Income Multiplier and Linkage Indices
Income
Sector
Multiplier
Public services and social work 0.76751
Private services 0.49925
Business services 0.40473
Call/Contact centers, Business Processing outsourcing and other IT-
0.39017
based services
Repairs of motor vehicles and personal and household goods 0.36809
Construction 0.35638
Computer-related activities 0.35531
Other community, social and personal service activities 0.34361
Tourism 0.34031
Furniture 0.30986
Agribusiness 0.30059
Miscellaneous manufacturing 0.28863
Garments 0.28630
Air transport 0.26858
Manufacture of wood, wood products (except furniture) leather,
leather products, rubber, rubber products, paper, paper products, 0.26606
chemicals, miscellaneous chemicals, drugs and plastic
Land transport (including road freight transport but excluding tour
0.26104
buses)
Wholesale and retail trade 0.26066
Automotives including railroad, aircraft, and animal and hand-drawn
0.25079
vehicle
Electronics 0.24565
Finance 0.24313
Storage, postal and telecommunications 0.24302
Mining 0.23220
Activities of other transport agencies (including custom brokerage,
0.23219
n.e.c)
Manufacture of petroleum, asphalt, pottery, glass, cement, clay,
concrete, non-metallic mineral products, metal, iron, and non-ferrous 0.22551
products
Supporting services to transport 0.21128
Shipyards and boatyards 0.20038
Electricity, Steam and Water 0.19292
Water transport 0.18085
Real Estate 0.05665
Source: NSCB Input-Output Table (2000)

Given BPOs’ concentration in particular areas, especially in the NCR, the sector has
significant impact in specific localities. BPOs attract significant commercial activity
that also tend to match their 24/7 operations, including food services, transport,
entertainment establishments, and housing developments and dormitories, etc. For
instance, the about 290,000 BPO professionals in the NCR earn annual personal
incomes of at least Php75 B.15
LGUs, even if BPOs enjoy fiscal incentives under PEZA rules, benefit from the
higher tax base—both from the commercial establishments that support BPO
operations and from the taxes that BPO professionals individually pay as residents of
the locality. For a locality to fully benefit from BPOs operating within its boundaries,
a progressive LGU should ensure that its young workforce—for instance, those
studying in LGU-run or LGU-supported public universities—possess the necessary
BPO-related skills.
All other things equal, there is a strong market-based incentive for BPOs to hire
agents living proximate to their operations as this affects agents’ quality of life (e.g.
travel time to office), physical security especially as they leave office premises late at
night or early in the morning, access to public transportation, ability to be mobilized
during emergencies (e.g. for their back-up plans to ensure continuous operations
during natural calamities and civil disruption), etc. All these affect BPO attrition rates.
It should be emphasized the latest available Input-Output table was constructed by the
NSCB in 2000 (using data gathered in 1999), when the BPO industry was still at its
nascent stage. For instance, the call center sub-sector only had 2,400 employees in
2000 and revenues of US$24M; in 2008, its employee base was about 95 times bigger
(227,000) and its revenues about 171 times larger (US$4.1 B).
4.2 Impact of the Crisis on the Sector
In 2007, prior to the global crisis, the industry developed the Offshoring &
Outsourcing Philippines Roadmap 2010. It targeted to grow the country’s share of
the global market from the approximately 5%-6% in 2006, to about 10% by 2010.
This means that—based on projections then of the global market—revenues should
increase to about US$13B by 2010, supported by about 900,000 full-time employees
(FTE).
With the global crisis, the industry no longer expects to meet the 2010 targets—at
least not in 2010. However, the industry will continue to enjoy strong growth—
revenues will increase by between 20% to 30%; while employment will grow at a
slightly lower rate since (a) productivity in the sector has been increasing (i.e. less
employees are needed to support the revenue targets) and (b) more value-adding BPO
services are being established. Thus, by 2010, revenues will most likely grow to about
US$9.5B; and full-time employees will number at least 580,000.
15
Assuming average salary of Php20,000; based on basic monthly salary alone and
13th month pay.
Table 4.2
BPO Projections
2010 2011
Original projected projected
target * ** **
Revenues (US$ M) 13,000 9,455 13,048
Employment (FTEs) 900,000 580,265 800,816
Source: Author's estimates based on interviews
The revised revenue estimate of BPA/P for 2010, as quoted by the JETRO Manila
Center, is about US$11.4-11.8 billion.16
Given the global orientation of the BPO sector, its performance should be positively
correlated with that of the global economy—especially of the main BPO markets, e.g.
the United States. However, a confluence of factors provides the Philippine BPO
industry with a unique opportunity to consolidate its position as a preferred location
for BPO services in the context of the slowdown—especially in relation to the
problems currently besetting its leading competitor-country (India).
The impact of the crisis on the industry can be examined from the market demand-
side and from the supply-side.
4.2.1 Impact on Market Demand:
• Positive impacts. The continued relative stability of the country’s economy,

coming at a time when India is suffering from negative perceptions due to the
terrorist attacks in Mumbai17 and financial governance scandal at Satyam,18 has
highlighted the Philippines’ attractiveness as a BPO location.
In addition, the global crisis and the resulting corporate bankruptcies have pushed
companies to seek ways by which they can enhance their cost competitiveness and
improve service quality—key value propositions of BPOs.
And, provided that the crisis will result in a stable and predictable depreciation of
the Philippine Peso, this may also have a positive impact on foreign exchange-
earning sectors, including BPOs.
16
JETRO Philippine IT Industry Update – eServices Philippines 2009, FY2008 - No.3, March 31,
2009, JETRO Manila Center.
17
Refers to the coordinated bombing and shooting attacks that occurred in Mumbai, India that lasted
from November 26 to 29, 2008.
18
Refers to the corporate fraud scandal in one of India's biggest software companies, Satyam Computer
Services.

• Negative impacts: The financial crisis resulted in a decline in business
transactions supported by BPO companies. However, two important trends must
be highlighted:
First, even with the general slowdown, certain types of transactions were observed
to have increased (e.g. outbound calls for credit collection); and, second, there is
continued strong interest in the Philippines as a BPO location, with potential
projects already in the pipeline. However, it is expected that the negotiation
process for contracts will be harder, as clients adopt a certain level of wait-and-see
posturing, exhibit greater risk aversion, and express greater interest in fee
reductions. Moreover, since client companies are also in the midst of financial and
organizational restructuring themselves, negotiation cycles become longer.
4.2.2 Impact on the Supply Side
• Positive impacts. The most critical cost items for BPOs are: salaries and wages,
rent, telecoms expenses, and utilities. Slower economic growth is expected to
lessen inflationary pressure on these cost items, thereby positively affecting BPO
operations and profitability.
More importantly, however, the financial crisis can be a unique opportunity for
the country to address a major competitiveness challenge—the sustainability of
the supply of BPO professionals. This can best be analyzed by looking at the
different stages in the supply pipeline: from the pool of graduating college
students, to those actually applying in BPOs, to those successfully accepted, and
eventually, to those who choose to remain in the BPO industry.
4.2.3 Analyzing the Pipeline of BPO Professionals
The economics of off-shoring service processes is influenced primarily by

arbitraging labor cost differences and, in the case at least of the Philippines and
India, higher quality services. These are dependent, to a great extent, on the size
and quality of the country’s educated work force, i.e. number of college
students—with the relevant skill-sets—that the educational system produces every
year.

Figure 4.8
Chart 8. Sustainability of Supply of BPO Professionals
External: Opportunities in other sectors

Internal: Management Skills gap – ability of
managers to create viable work environment (e.g.
career growth & training, viable career paths, No. of
interesting job & work environment, etc.). retained
Business model – for cost-based propositions, employees
higher pay of tenured employees vs. recruitment &
training costs, etc. No. of qualified /
accepted
Applicants’ Skills gap: Short-term - training applicants
courses on specific skills, addressed to near-hires;
Long-term – enhancing tertiary-level curricula, as
well as elementary & secondary education No. of applicants to
BPOs
Attractiveness of BPO employment / career:
growth of BPOs vs. other industries, compensation
in BPOs, nature of the work & of work environment,
opportunities for career growth No. of graduates / job
seekers
Population level; Consolidation of higher education
institutions in a locality; Business environment; ICT
readiness of localities.
No. of graduates / job seekers - this is affected by the population level and the
amount of public and private resources devoted to the educational system. In turn,
these are reflected in student cohort rates. For the Philippine case, the quality of
graduates is also affected by—to a certain extent—by the shorter basic education
program (i.e., number of years of full-time schooling from elementary to high
school to college) and the migration of school teachers to other countries.
There is also wide variability in the quality of educational services across the
different localities of the country. For instance, certain locations have evolved to
become excellent de-facto regional centers of education (e.g. areas where
American Christian missionaries established excellent educational institutions).
Hence, the size and quality of the pool of college graduates can be location-
specific. To the extent that these areas can be supported with the appropriate
policies and infrastructure, then BPOs can take advantage of their pool of
graduates.
Number of applicants to the BPO industry. This is a function of the

attractiveness of the BPO industry as an employer vis-à-vis other industries. It is
affected by economic (e.g. comparative salaries & wages, wage increase
expectations, etc.) and non-economic factors (e.g. quality of life and work
environment, work-life balance, stress levels, career opportunities, etc.). These
factors, as they actually are or as they are perceived by the public, determine to a
large extent the attractiveness of an industry.

Number of qualified / accepted applicants. This is mainly affected by the skill-
sets of graduates applying for BPO positions. For the BPO industry, the important
skills required are: language proficiency (e.g. English), computer skills, critical
thinking, analytics, problem-solving, and soft skills (including leadership,
teamwork, initiative, and customer service orientation).
To have a higher percentage of qualified applicants, it is also important for an

industry to attract graduates from good feeder schools (e.g. the so-called “first-
tier” schools)19 and those who took appropriate courses.
No. of retained employees. For the BPO industry, voluntary attrition is a key
variable that is being monitored. Due in part to the nature of BPO work—e.g. the
daily schedule, stress levels, and monotony of tasks—BPO employment is seen by
many as just a “stepping-stone” towards finding careers in other industries. Lately,
however, there has been a broadening of approach on the problem of attrition
rates—from previous approaches which highlighted agent-specific factors to
current proposed solutions that consider the role of supervisors and managers.
4.2.4 Impact of the Crisis on the Pipeline of BPO Professionals
The impact of the crisis on the pipeline of BPO professionals can be described at
each stage of the pipeline (ref. Table 3.3).
19
It is however probable that there is negative correlation between a school’s ranking
and voluntary attrition among its graduates who work in the BPO industry.
Table 4.3
Impact of the Crisis on Supply Pipeline of BPO Professionals
Current Situation Impact of the Crisis Possible Interventions

• The country produces • Possibly, some students may • More students choosing to study in their localities
No. of around 320,000 college drop-out of college, leading to may encourage dispersion of BPOs away from
graduates / graduates every year;20 deterioration in cohort rates. But NCR (and Metro Cebu). Currently, BPOs in NCR
job seekers about 110,000 or 35% took in the short-term (within a one- generate about 78% of total industry employment
business or IT-related year period), the impact on though the rest of the country accounts for around
courses. number of graduates may not be 75% of total college graduates—especially
• Around 25% of the as significantly felt. Regions IV-A, VI, VII and III.
graduates are in the • Possibly, greater number of • Ensure BPO readiness and friendliness of localities
National Capital Region students will choose to study in which serve as regional education hubs.
(NCR).21 their home localities rather (or in • Provide opportunities for part-time BPO
• Out of 100 students who regional education hubs) than go employment to college students, as a way of
enter grade 1, only 75.3% to the NCR. funding their studies; or developing other
manage to finish manage mechanisms for financing their studies, e.g. thru
to the elementary level; loans and scholarships.
while only 79.9% percent
of those who enter
secondary schools manage
to finish high school.22
• Strong negative perception • Other industries’ slower growth • Job assistance programs jointly organized by
No. of of BPO work as being can make employment in BPOs BPA/P, industry associations representing sectors
applicants monotonous, stressful both more attractive for newly negatively affected by the crisis, and relevant
to BPOs in terms of nature of work graduates and industry shifters. national and local government agencies.
and its schedule, offering • Retrenched workers from other • Job assistance programs for returning OFWs
20
Based on the 315,928 graduates in 2003/04, as reported by the Commission on Higher Education (CHED);
21
The share of NCR was computed to include graduates of masters and doctoral courses.
22
Based on 2007-2008 cohort survival rates as reported in the DepEd Fact Sheet (as of September 2008), Research and Statistics Division, Office of Planning
Service, Department of Education.

Table 4.3

limited career growth, etc. industries and returning OFWs jointly organized by BPA/P and the appropriate
can be potential BPO national and local government agencies.
applicants—provided they • Partnerships between BPA/P and academic
possess the required skill-sets or institutions to provide students with a broader,
can be re-trained to acquire BPO- more realistic understanding of the BPO sector and
related skills. the career opportunities in this industry.
• Specific country-knowledge of • Enhancing employer branding of BPOs.
returning OFWs can provide
opportunity to penetrate
additional country-markets.
• Low success rate among • Better-qualified applicants may • Partnerships between BPA/P and academic
No. of applicants, estimated based consider BPO employment, e.g. institutions in offering courses that will develop
qualified / on interviews at between graduates of “first-tier” schools BPO-related skills (including English language
accepted 5% to 10%. (however they may be defined), proficiency) and in exploring internship
applicants graduates of courses more opportunities in BPOs; harnessing greater
appropriate for BPO jobs, laid-off involvement of the Commission on Higher
managers from other industries, Education (CHED) in these initiatives.
etc. • Providing remedial training for “near-hires”.23
• Academic institutions, given • Reviewing Philippine basic educational system and
brighter prospects in the BPO benchmarking it with international practice,
sector, may embed BPO-related possibly towards (a) lengthening current 10-year
courses in college curricula and basic education program and (b) developing
may actively encourage students courses more relevant for current shift towards
to pursue BPO-related careers. technology-intensive, service-based economies.
• Varying (voluntary) • Given slower growth in other • Improving quality of life of BPO workers, in the
No. of attrition rates in the industries, BPO professionals context of nature of work and of work schedule.
23
Define “near-hires”
Table 4.3

retained industry, with the average may be encouraged to stay longer • Promoting work-life balance within the industry.
employees attrition estimated at with BPO companies. • Developing career paths within the industry,
between 20%-25%; with including possibilities of overseas posting as part
some companies of business development teams in new markets
experiencing 50% attrition (e.g. China).
or even higher.24 • Improving leadership and supervisory skills of
front-line BPO managers—who are typically
young, newly-promoted BPO agents with limited
work experience but tasked with handling large
team(s) of agents.
• Consider developing new HR recruitment and
employee retention models based on realities of the
industry (i.e. of being considered as stepping stone
towards career in other industries).
• Consider enhancing direct and indirect economic
benefits (e.g. pay increases, training, benefits
which are linked to tenure, e.g. car, housing &
education plans, etc.) of BPO professionals,
considering direct and indirect costs of attrition
(e.g. cost of recruiting replacement—given low
applicant’s success rate—for each worker that
voluntarily leaves the BPO industry); possibly
using as model the other industries which
previously experienced pronounced talent
recruitment needs and retention problems.
24
Based on author’s interviews conducted between April to May 2009.
In summary, the global crisis is expected to enhance the attractiveness of BPOs as
employers of new graduates, industry shifters, retrenched workers and returning
OFWs—provided that they possess the required skill-sets or can be re-trained to
acquire these BPO-related skills. The crisis presents an opportunity for the industry to
surmount negative perceptions about the nature of BPO work (e.g. it is monotonous)
and perception on the poor quality of life among BPO professionals. As the crisis can
cause a deterioration in the cohort survival rate among students, BPOs can assist
students fund their studies and at the same time introduce them to BPO (part-time)
employment. The industry should also resist the temptation to take advantage of the
weak labor market to unjustly squeeze current and incoming BPO professionals. In
the long-run, BPOs must develop strategies that will highlight the benefits of being
employed in BPOs, e.g. globally-oriented career path, and must fundamentally re-
think industry current human resource recruitment and retention models.
4.2.5 Industry Expectations: Impact of the Crisis
The BPA/P has been monitoring the impact of the global crisis on BPOs. Industry
perception on the impact of the crisis, based on a number of surveys, had consistently
been optimistic—or cautiously optimistic, at worst. These surveys and highlights of
their results are given below:
• In October 2008, the BPA/P conducted a survey participated by 113 of their

members. Nearly 80% indicated that the global financial crisis will have a neutral
or positive impact on their Philippine operations, with larger BPOs (e.g. those
with employment of above 5,000) more optimistic than those with less than 500
people. Among BPO sub-sectors, the software segment was more pessimistic than
other segments, with majority of software BPOs indicating that the crisis would
have a “negative impact” on their operations.25
• In another BPA/P survey in November 2008, focusing on non-voice BPO services

and participated in by 190 companies, 96% of non-voice BPO service providers
are optimistic about the business outlook for 2009—regardless of the size of the
organization; with about 51% saying that prospects were “excellent”. In terms of
workforce growth for 2009, 92% projected an increase of 6%; with about 65% of
them expecting growth of more than 16%.26
• In January 2009, the People’s Management Association of the Philippines

(PMAP) released the results of a survey participated by 177 companies, 13 of
which were from the BPO sector. The results showed that BPOs seemed to be
more optimistic than other industries as 80% of the surveyed BPOs expected to
increase headcount in 2009, with 91% of them attributing this to growth in
business; in contrast, across all sectors, only 60% said they expect an increase in
headcount—with about 48% of them attributing this to a growth in business.27, 28
25
As reported in the JETRO Philippine IT Industry Update – eServices Philippines 2009, FY2008 -
No.3, March 31, 2009, JETRO Manila Center
26
Ibid. (same as the reference above???)
27
Accessed from www.bpap.org, April 2009
CRC Foundation Inc. 103

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• In another survey, with 160 BPO respondents, undertaken by the BPA/P and
Outsource2Philippines from March 31 to April 29, 2009, around 83% said that the
impact of the global crisis has been “moderate” or “minor”; 16% mentioned that
the impact has been significant; while only 5% answered “very significant.”
Moreover, as noted by Ms. Gillian Joyce Virata, BPA/P Executive Director for
Information and Research, BPOs have been introducing new services—an
indication that innovative BPOs “are identifying new opportunities as a result of
the crisis.” The survey likewise validated that supply of BPO professionals
remain a challenge as more than half of the respondents indicated a success rate of
7% or greater; while 45% experienced success rates of 6% or less. 29
4.3 Specific Recommendations

A number of the possible interventions mentioned in Table 2 are actually already
being implemented by the industry, mainly in partnership with government agencies
and academic institutions.
4.3.1 BPO Industry Roadmap
As mentioned, the industry already has a well-defined roadmap, authored by the

BPA/P and jointly developed with stakeholders (e.g. key government agencies
including the CICT and DTI). It presents a detailed analysis of the challenges that the
Philippines faces in order to grow the BPO industry, as well as prescribed solutions.
The BPO Roadmap identified the key drivers for the industry’s growth: Talent, Next
Wave Cities, and the Business Environment.
• On talent, the industry recognizes that the speed and trajectory of its growth is
dependent on the continuous recruitment and retention of BPO professionals.
To address this, the following actions were specified: (1) developing a training
program for “near-hires” to qualify for employment in the industry; (2)
creating awareness of the career opportunities in the industry, directed to
young graduates and critical influencers (e.g. parents and academics); (3)
tapping alternative labor pools—including housewives, retirees, non-
graduates, and career-switchers—as well as the 75% of college graduates that
reside outside of NCR; (4) creating opportunities for students to fund their
studies by working in the industry (e.g. as working students); and (5)
partnering with academic institutions to ensure that college and secondary
curricula are relevant in developing skills relevant for future employment in
BPOs, as well as in other industries.
• On next wave cities, the industry is overly concentrated in the NCR, creating
demand pressure on the supply of talent, real estate, and telecoms
infrastructure. The BPA/P City Scorecard project aims to provide actionable,
28
“Employment situation not uniformly dismal,” Press Release on the Results of PMAP Pulse Survey,
People’s Management Association of the Philippines (PMAP), 26 January 2009 [accessed from
www.pmap.org.ph on June 2, 2009]; Presentation accessed from www.bpap.org, April 2009.
29
“BPO executives optimistic despite global crisis—survey,” BusinessWorld, S1/3, col. 1, May 27,
2009.

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accurate information and create convergent stakeholder interest on other
viable locations.
• On the business environment, the industry seeks to maintain its attractiveness

to investors by ensuring the continued competitiveness of its investment
(financial) incentives, support to investors from beginning-to-end of the start-
up process, improving international perception of Philippine investment
climate and risk environment, and overall support to develop the industry from
government, industry organizations, and other stakeholders.
4.3.2 Public-Private Partnership as a Strategy
Sustainability of talent supply, developing next wave cities, and improving the
business environment are issues that can only be addressed through collaboration
between the industry, government and academe—or thru Public-Private-Partnership
(PPP) approaches. Key players from government are the Department of Trade and
Industry (DTI), the Commission on Information and Communications Technology
(CICT), the Technical Education and Skills Development Authority (TESDA), the
Department of Labor and Employment (DOLE), and the Commission Higher
Education (CEHD); while the industry is represented by the Business Processing
Association of the Philippines (BPA/P).
In general, excellent PPP initiatives are already existing and on-going in the BPO
industry. These initiatives can just be up-scaled or enhanced.
These PPP approaches, arranged according to the timing of their intended impact and
the relevant stage in the supply pipeline of BPO talent, are enumerated in Table 4.

- -
Table 4.4
Selected PPP initiatives in the BPO industry
Timing of intended impact:

Short-term Medium Term Long-term
• Expanding BPO locations to outside • Addressing the decline in Philippine
No. of graduates / of Metro Manila and Metro Cebu educational system, especially as it
job seekers (e.g. Next Wave Cities within the relates to following specific skills:
Cyber Corridor initiative of the language proficiency (e.g. English),
BPA/P, CICT, and DTI) computer skills, critical thinking,
• Maintaining BPO-friendly business analytics, problem-solving, and soft
environments in localities [e.g. thru skills (incl. leadership, teamwork,
more intensified Industry-LGU-NG initiative, customer service)
dialogues and partnerships, as • At the tertiary-level, the Service
initiated by local ICT Councils] Science Management and
Engineering initiative of CICT and
industry players
• Promoting industry-specific exposure
No. of applicants to students, [e.g. longer internships as
to BPOs being advocated by the ECCP and
• Addressing mismatch between skills currently practiced by a number of
No. of qualified / and job requirements via training, academic institutions; BPO-specific
accepted especially of the near-hires (e.g. elective subjects embedded in college
applicants TESDA - BPA/P partnership on the courses; and the Advanced English
Pangulong Gloria Scholarships) Proficiency Training Program
(ADEPT), a tie-up between BPA/P
and the Coordinating Council of
Private Educational Associations
(COCOPEA)]

Table 4.4
Selected PPP initiatives in the BPO industry

• Joint Industry-Academe management
No. of retained development programs [e.g. Training
employees for Offshoring and Outsourcing
Leadership Program (TOOL) -
middle management program for the
in partnership with Ateneo and De La
Salle]

4.3.3 Specific Recommendations: What (Else) Can Be Done?
The BPO industry resulted from the close partnership between the industry (or the
entrepreneurs who early-on saw the possibility of developing the sector) and
government (principally, thru then DTI Sec. Manuel A. Roxas III). Gradually, the
Academe became involved as the importance of ensuring supply of BPO talent
became apparent; and as universities saw the economic opportunities that the industry
can open to their graduates.30
In the context of the global crisis and cognizant of the industry’s deep experience and
certain level of success in pursuing PPP projects, specific steps can still be pursued in
order to ensure the sustainable development of the industry. These include the
following:
• Ensure compliance with the Implementing Guidelines of MOA signed between

TESDA and BPA/P on February 4, 2008 under the PGMA-TWSP. The
Memorandum of Agreement (MOA) specified that the BPA/P “shall have sole
discretion to distribute and allocate” the training vouchers for the O&O sector;
while “TESDA shall be responsible for the release of funds to the Regional
Offices for payment to BPA/P training providers.” Such a delineation of roles is
critical in ensuring that the training vouchers are efficiently distributed only to
qualified prospective BPO candidates, or more specifically to the “near-hires.”
In 2008, the BPA/P distributed over 44,000 certificates worth Php260M resulting
in the following employment yield rates (i.e. percentage of trainees who were
eventually employed) for the BPOs: 67% for Contact Centers; 82% for Medical
Transcription; and 100% for Software and 100% Animation.31
• Form ICT Councils in the NCR. There are already 23 ICT councils nationwide,
with only one (Quezon City) in the NCR. ICT Councils can be very effective in
advocating location-specific improvements in the business environment.
Currently, in the NCR, this function is being performed by the BPA/P and the
CICT. However, these national-level institutions are not direct political
constituencies of local government units (LGUs) and may thus have limitations on
their impact given the dynamics of local policymaking.
Even as BPOs enjoy PEZA incentives that exempt them from certain national and
local-level taxes and fees, there are anecdotes of LGUs within NCR that impose
various kinds of regulations and try to collect different fees specifically targeting
BPOs. While there are indeed additional local-level public services required to
support an industry with 24/7 operations, e.g. security, traffic enforcement, etc.,
care must be exercised to ensure that any additional fees and regulations will not
be seen as capricious steps meant to cash-in on a growing industry. Since the fees
seem to be directed primarily at BPOs, it is important for LGUs to actually deliver
30
Not surprisingly, “second-tier” academic institutions and those in the provinces—who are more
aggressive in searching for employment opportunities and career advantages for their students—proved
to be more open and active in promoting BPO careers among their students.
31
Presentation to the BPA/P General Membership Assembly, March 2009, accessed from the BPA/P
website (www.bpap.org) May 2009.

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the promised services at the efficiency- and quality-levels required by BPO
operations. For instance, if a certain locality is, in the first place, already finding it
difficult to deliver public health services to its residents, would it have the
capability to provide these same services to BPOs? As time is a very valuable
resource for BPOs, does the LGU have adequately-supported health facilities
proximate to BPO locations and which can provide the health services at the least
amount of waiting time? Will these health services not be a duplication of the
private health insurance benefits normally provided to BPO agents?
Over and above the issue of additional fees are questions of: (1) timing, i.e.
prudence of imposing additional fees in the context of the current global crisis and
(2) the real possibility that these fees and regulations will create another layer of
complex procedures and add to transaction costs. It is in this context that the
formation of ICT councils in the NCR—where BPOs are concentrated—is critical.
The ICT councils can provide the venue for discussing how localities and their
LGUs can maximize benefits from BPOs and, at the same time, enhance the
competitiveness of their localities.
As mentioned, though BPOs enjoy incentives that exempt them from certain
national- and local-level taxes and fees, they however enlarge the tax revenue base
by attracting commercial activity and providing employment and income
opportunities for residents. ICT councils can be very instrumental in upgrading
local residents’ skills, through for example PPP projects in private and public
(including those operated and/or supported run by the LGUs) universities.32
Enhancing local workforce’ skills is important in making the benefits of BPOs
tangible in the localities where they operate. BPOs, for their part, already face
market-based incentives to hire agents who reside near the workplace. (See 4.2.5
Linkages with the national and local economy)
Another approach is to formalize the collection of fees, as in the case of a

particular LGU in NCR which recently signed a Memorandum of Agreement
(MOA) with PEZA for the collection of additional fees and taxes for locators of
an IT building in the city.33 Currently, Republic Act No. 7916 or the Special
Economic Zone Act of 1995 (as amended) provides that PEZA locators are
subject only to a five percent (5%) tax on gross income, remitted as follows: 3%
to the National Government and 2% to the municipality or city where it is located.
32
For example, ICT councils may push for PPP projects in local universities that would provide part-
time BPO employment opportunities for students, internships in BPOs, and introduce BPO-embedded
courses.
33
The MOA mandates the collection of the following fees:
- Quarterly waste management fee of Php50-Php1,000, depending on the aggregate area of the
business;
- a Php6,000 annual mayor’s permit fee;
- an annual permit fee on exercise of profession of Php300 per employee;
- an annual health certificate fee of Php100 per person of managerial or supervisory rank, and
Php50 per person for rank and file;
- an annual sanitary inspection fee ranging from Php50-Php1,000 depending on aggregate area;
and,
- a City Card fee of Php750 for non-residents of the City that entitles holders to free lab and
other health care benefits.

- -
The MOA at least provides a certain degree of transparency to the collection of
local-level fees.
However, with high probability that it will be replicated in other localities, the
implementation of the MOA should be closely monitored in terms of the manner
by which these fees would be collected and the actual levels of additional costs as
compared to the services actually delivered. The last thing that the country needs
is to erode its competitiveness at the time when the attracting global investments
(including into BPOs projects) have been very challenging.
However, in as much as LGUs in NCR (and perhaps Metro Cebu) are faced with
greater challenges in delivering public services (e.g. due to over- concentration of
population in urban areas) and, at the same time, are already attracting high
investor interest, local-level fees may not be pursued by LGUs outside of the
NCR. This can then make them more attractive to investors and can in fact hasten
the development of alternative BPO locations.
BPOs are by nature global in terms of their outlook and are a stickler for global
standards and procedures. Local ICT councils can provide the industry with the
local perspective needed in the expanding BPOs to different locations and to
develop win-win local solutions for all stakeholders.
• Intensify holding of Training Matching and Job Assistance Events. The existing
partnership between government (e.g. TESDA, CICT, DOLE, DTI, etc.), BPA/P
and its member companies, and other industry associations (e.g. Semiconductor
and Electronics Industries in the Philippines, Inc. or SEIPI) should be intensified
further as they provide an effective way for matching the job seekers with
industries where they are needed.
For instance, a Training Matching and Job Assistance Event (TMJAE) event was
held last February 16, 2009 at TESDA Complex, Taguig City. There were 6,240
registrants, mainly from the NCR and Region IV-A; of whom, 277 were OFWs,
3,871 displaced workers, 512 dependents, and 1,580 walk-ins). About 18 BPAP
members participated, offering a total of 12,420 job openings broken down as
follows: call centers-11,820, Animation-500; and Medical Transcrition-100).
There were 295 who registered for language proficiency tests, and about 130
actually qualified for assessment with the “Pro-Speak” language software. Both
local and overseas employers participated in the TMJAE.
• Ensure strict implementation of Republic Act No. 9492 “An Act Rationalizing the
Celebration of National Holidays,” and rationalize declaration of holidays at the
local level. For a labor-intensive industry supporting a 24/7 operation, the impact
of holidays—local and national—can be substantial. The whole industry
reportedly loses about US$1 million for each day that is declared a holiday. The
country must ensure that the number of its regular work days remain competitive
with those of other countries.
• Continue aggressively promoting the Philippines internationally. The Philippines

continues to suffer from negative perception problems abroad, most of which are
totally unrelated and irrelevant to the BPO industry. For instance, isolated terrorist
activities and kidnappings are highlighted in foreign media. There is a need to

- -
continue, and even intensify, joint government-industry efforts to highlight the
advantages of the Philippines as a BPO location.
While the industry has grown sufficiently large to have the capability to engage in
international promotion activities, there is still scope for government involvement
because of two (2) important reasons.
First international promotional activities can be considered as a public good since

it creates positive externalities for the whole industry. Moreover, given the
shortage in the supply of a critical input (i.e. BPO professionals), there is actually
incentive for current players to limit the number of entrants into the industry.34
Second, it is also imperative that the Philippines—if it wants to grab global BPO
market share—immediately embarks on an aggressive international promotion
campaign, especially given the difficulties being experienced by India. However,
with the global crisis, BPOs may not be in a position to prioritize this and instead
may be concentrating on internally growing their respective businesses.
Promotional efforts could therefore be led by government (e.g. CICT and DTI,
thru CITEM and/or BOI).
• Ensure continued attractiveness of government investment incentives for BPOs.

At present, the Philippines’ investment incentives (primarily administered by
DTI’s Board of Investments or by the PEZA) are comparable with those being
awarded by other countries. Incentives are critical in attracting investors,
especially in industry models that revolve on cost arbitrage. Given the strong
interest among other countries to aggressively promote their own O&O sectors,
the Philippines must ensure that the incentives it provides are at the very least, not
diluted (e.g. that BPOs continue to be included in relevant priority lists, such as
the Investment Priorities Plan) if not enhanced. One particular country which is
expected to be more aggressive in promoting O&O investments is Sri Lanka, now
that its prolonged civil war has ended.
Attempts by LGUs to collect additional fees may be blown-up in press coverages

and affect perceptions about the BPO and the continuity of its being a priority
sector in the Philippines.
• Support the passage of key legislations. There are two pending bills in Congress
which are critical to the BPO sector. The first is House Bill No. 03828 or “An Act
Protecting Individual Personal Data in Information and Communications Systems
in the Government and the Private Sector, creating for this purpose a National
Data Protection Commission, and for other purposes.” This was filed by
Congresswoman Liwayway Vinzons-Chato on April 16, 2008 and seeks “to
regulate how an individual's personal information is used and protected from
misuse in both private and government information and communications
systems.” A data privacy law will assure stakeholders that the country has the
relevant regulatory framework for ensuring data protection. This is critical as,
among others, investors still perceive that intellectual property and confidential
34
It can however be argued that the industry association, rather than government, can perform these
functions that take the nature of a public good.

- -
data are not adequately protected in the country (e.g. the Philippines continues to
be in the USTR’s Special 301 Watch List,35 as well as the Business Software
Alliance’s annual report on software piracy36).
The Data Privacy Act will provide an overall framework for data privacy and
security. Currently, this is being provided by several different agencies and
regulations, e.g. the Department Administrative Order No. 8 of the DTI, that
focuses on guidelines for the protection of personal data in information and
communications systems in the private sector; BSP Circular Number 542 of the
Banko Sentral ng Pilipinas, which provides consumer protection for electronic
banking; and various guidelines issued by the National Telecommunications
Commission (NTC) on consumer protection, as well as on storing of data logs of
traffics by telecommunications companies. Moreover, although the Philippines
has an E-Commerce Law, it does not provide details on the implementation of
data protection and privacy.
The other critical bill is Senate Bill No. 2546 or “The Department of Information
and Communications Technology Act of 2008” filed on August 14, 2008 and
sponsored by Senators Edgardo Angara and Loren Legarda. The bill seeks to form
a permanent entity that would promote ICT utilization and to effectively
coordinate and implement national and local ICT services. The proposed
Department of Information and Communications Technology (DICT), as a
separate Cabinet-level department, would help ensure policy coherence and
consistency for the formulation and implementation of a long-term ICT
development strategy, as coordinated with other relevant agencies including: the
Department of Transportation and Communication, the Department of Trade and
Industry (e.g. the Board of Investments and the Center for International Trade
Expositions and Missions), TESDA, CHED, and DOLE. But, equally important,
the DICT will communicate to foreign investors the level of national priority
being provided to the industry.
If elevated into a DICT, the current CICT will have greater influence and access
to resources in implementing the Philippine Cyber Corridor project. Under
Executive Order No. 561, signed by President Gloria Macapagal-Arroyo on
August 19, 2006, the country was divided into five economic super regions:
Northern Luzon Agribusiness Quadrangle, Luzon Urban Beltway, Central
Philippines, Agribusiness Mindanao, and the Cyber Corridor. The Cyber Corridor
traverses the other super regions from Baguio to Cebu to Davao. The Philippine
35
The “Special 301” Report is an annual review of the global state of intellectual property rights (IPR)
protection and enforcement, conducted by the Office of the United States Trade Representative (USTR)
pursuant to Section 182 of the Trade Act of 1974, as amended by the Omnibus Trade and
Competitiveness Act of 1988 and the Uruguay Round Agreements Act (enacted in 1994). The 2009
Special 301 Report was released on April 30, 2009 by the Office of the United States Trade
Representative [accessed from www.ustr.gov, May 2009]
36
The Business Software Alliance (BSA) is a nonprofit trade association of software companies and
their hardware partners. Its goal is to promote a safe and legal digital world. Its latest report (2009)
indicated that the personal computer (PC) software piracy level in Philippines in 2008 was at 69%,
resulting in US$202 million losses for software companies. RP PC Software Piracy Rate Remains At
69%, but Losses Increase to US$202 Million [Accessed from www.bsa.org, May 2009]

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Cyber Corridor aims to create interconnected centers of BPO services all over the
country.
• Study the possibility of up-scaling alternative BPO models, e.g. home-based

outsourced service work. With broadband internet connection becoming more
available and affordable, opportunities are being opened for home-based services
that can be delivered via the internet e.g. virtual administrative assistants, data
encoders, transcriptionists, etc.
This BPO sub-segment is in its nascent stage. There are already interesting
anecdotes of how it provides employment opportunities (e.g. a Filipina nurse used
to work in a New York hospital but is now providing medical transcription
services to a US doctor from her home in Taguig City.
4.3.4 Areas for Further Study / Activities at the Level of Individual Bpos
While PPP approaches are needed to address critical challenges that the industry faces
as a whole, competitive realities require that individual BPOs also implement their
own would respective strategies. These strategies can include:
• Management Development Programs – while recruitment of entry-level BPO

professionals (e.g. call center agents) is one of the most pressing problems in the
industry, BPOs are faced with the equally critical problem of developing a deep
pool of qualified supervisors and managers. Typically, a BPO manager would
have risen from the ranks through the following career path: 3 years as an agent;
followed by 2 years as team leader, responsible for about 8-15 people; then about
2 years as a shift leader, responsible for about 30-90 persons; and then 4 years as
an operations leader, with about 60-450 people.
It is therefore not uncommon to find mid-level BPO managers who are only in
their mid-to-late 20s but are already handling over 100 people and are responsible
for multi-million dollar accounts. Given the pressure-filled BPO work
environment, even a seasoned manager would find it difficult to handle such an
assignment. Inexperienced managers, though possessing technical skills, would
find it difficult to arrest high attrition rates as they may not be able to enhance
workforce motivation and morale by developing the agents (and their careers)
under them.
BPOs can therefore institute formal management development programs to

enhance the leadership and managerial skills of their high-potential BPO talents.
The Program can be customized to address problems specific to a particular BPO,
as well as create a common understanding of the issues that the company is
facing.
Alternatively, as an interim measure, should a BPO still not have the resources
and competence to develop its own management program, it can take advantage of
industry and academe initiatives on this matter. For instance, the BPA/P partnered
with the Ateneo Center for Continuing Education (CCE) in offering an industry-
specific Leadership and Management Development Program that seeks to equip
the young BPO manager.

- -
• Employer branding, work-life balance initiatives, and development of career
paths – industry-wide efforts to improve the image of the industry as an employer
would have to be match by: (1) company-level branding strategies, (2) actual
improvements in the quality of life of BPO professionals, and (3) development of
alternative career paths for BPO professionals.
BPOs must aggressively strengthen their brands as employers, much in the same
way that multinational companies in the fast-moving consumer goods (FMCG)
sector have been able to position their brands as among the employer of choice
among new graduates. To recruit agents, BPOs, when the industry was still
starting, highlighted the economic benefits of joining the industry; later on, non-
economic benefits were emphasized, such those related to social- and aspirational
goals.
In terms of developing career paths, the industry can look at the possibility of
supporting agents in pursuing advanced management degrees. If this can be linked
to tenure and performance, advanced studies can both develop job-related skills
(e.g. leadership and management skills) and provide incentives to stay longer with
the company. Another possibility would be to highlight opportunities for overseas
assignment, especially as BPOs now look at the Philippines as talent source for
future China operations.
• Invest in and support academic studies. As a relatively young industry, there

are still a small number of rigorous studies on the industry. BPOs, given the
numerous urgent operational challenges that vie for their time, attention and
resources, may benefit from industry-academe partnerships for studying industry
issues and problems.
For instance, recent professional internship assignments and thesis work of

students at the University of Asia and the Pacific (UA&P) have revealed
interesting insights.
o Student-interns from the Master of Science in Management (MScM)

Program were tasked by a particular BPO to provide inputs for the
development of a recruitment and employer-branding strategy. The
students designed and conducted an extensive survey (in the NCR and in
selected Philippine regions) of various target BPO candidate categories
(e.g. students of “tier 1” colleges, students of “tier 2” colleges, industry
shifters, and call center shifters), regarding factors affecting job choice,
sources of info about jobs, major influencers when making job choices,
perceptions on BPOs, influencers on BPO perceptions, and willingness to
work in a BPO or in a callcenter.
o A student of the Industrial Economics Program (IEP) modeled voluntary

attrition in a particular BPO company. Based on the model, the student
was able to estimate the probability that specific employees will either
leave or will stay with the company, based on the following variables:
previous work experience in BPOs, nature of course taken in college
(technical vs. non-technical) and type of school (private vs. public), variety
in type of work assigned to, distance of residence to workplace,

- -
performance evaluation rating, type of account being handled, length of
pre-employment training, and unemployment level in the economy.
Further studies could focus on two important areas: first, re-defining the BPO
human resource recruitment and retention model; and, estimating the real cost of
attrition.
There is a segment of BPO agents that look at BPO employment only as a

stepping stone towards a career in another industry. Rather than wrestling with
this reality,, BPOs can instead use it to their advantage—in much the same way,
for example, as certain auditing firms (known for their low-pay and absence of
work-life balance) have used their reputation to attract the best applicants (and
eventually lose them to client companies). BPO-related experience provides
excellent training in critical skills which are equally valued in other industries
(e.g. non O&O IT, FMCG, banking & finance, etc.). BPOs can leverage this to
forge partnerships with other industries (e.g. the relevant industry-wide
association of HR managers) to develop a protocol for hiring and recruiting
professionals from BPOs.
It is also interesting to study the real cost of voluntary BPO attrition, with a view
to possibly enhancing either BPO salaries or training opportunities. For instance,
the cost of replacing a worker includes advertising expense for attracting
applicants (doubly difficult given a hiring success rate of between 5% to 10%--
which means that to recruit one successful applicant, a BPO must interview
between 10 to 20); the cost of processing and interviewing the applicants; training
expenses; etc. These costs can instead be added to enhance the salaries or benefits
(e.g. training) of BPO agents.
It may also be useful to study the experience of other industries which have
undergone either rapid growth (e.g. IT industry) and or have suffered from
negative perceptions about workers’ quality of life or limited career opportunities
(e.g. sales-oriented sectors).37 They may present lessons on how they were able to
surmount recruitment and retention challenges.
37
It may however be difficult to find an industry that suffered from both of these situations.

- -
Table 4.5
Summary of Recommendations
Government Industry Academe
(1) Sustainable supply of BPO professionals
Attractiveness Intensify holding of Employer branding Exposure of students to
of BPO Training Matching BPOs as a viable career
employment / and Job Assistance (going beyond call
career Events, as a centers), via internships
partnership between and specific BPO-focused
government, courses
BPA/P, and other
industry
associations (e.g.
SEIPI).
Applicants’ Short-term - training courses on specific skills,
Skills gap addressed to near-hires; ensure implementation
of joint TESDA – BPA/P circular
Business-Academe partnerships; Internship
programs, BPO-focused subjects in the tertiary
curricula
Long-term – enhancing tertiary-level curricula, as well as elementary &
secondary education; Service sector focused curricula, as initiated by the
CICT and industry players.
Promote CHED-Academe dialogue, facilitated by CICT (or, in the future,
the DICT)
ADEPT
Management Management development programs, jointly
Skills gap developed by BPA/P and the Academe
(2) Maintaining BPO-friendly environment at the level of localities
BPO-LGU-NG dialogues/partnerships at the
local level, led by the ICT Councils (especially
in the NCR); Promote LGU-NG-Academe
partnerships, to include participation of LGU-
run or LGU-supported universities.
Ensure strict
implementation of
RA No. 9492 (on
celebration of
national holidays)
and Rationalize
declaration of
holidays at the local
level.
(3) More aggressive promotion of the Philippines as a BPO location
Continue aggressively promoting the
Philippines as a BPO location, jointly by the
BPA/P, CICT and DTI
Continued inclusion of BPOs in BOI / PEZA
incentives
Passage of a Data Privacy Law

- -
5 The Philippine Electronics Industry in a Global Recession
Winston Conrad B. Padojinog38
Over the years, the fortunes of the Philippine electronics industry have moved in
tandem with prospects in the global electronics market. As a producer of primary
inputs in a global supply chain, the Philippine electronics industry is sensitive to
fluctuations in international demand. This means Philippine electronics exports will
continue to grow as long as global electronics sales are sustained.
This paper seeks to:
a. Analyze the structure of the Philippine electronics industry specifically its role
in the production strategy of MNCs, the country’s share on global output and
the share of electronics to total economic activity; and,
b. Determine the impact of the global recession on the electronics industry in
particular and the Philippine economy in general.
Study Framework
Global Electronics
Industry
Role in the Production

Strategy of MNCs
The Philippine Electronics
Share on the Global
Industry in the Global Chain
Electronics Industry Export Structure of Phil.
Electronics
Jobs
Impact on the Philippine Exports
Economy: National and National Income
Regional Economy Technology & skills
transfer
The study will provide a brief discussion of the global electronics industry. It will
then link the performance of the Philippine electronics industry to the global industry
taking into account the share of the Philippines in the global production, structure and
the trends in the share of the Philippine electronics industry to total country exports.
The study will then focus on the impact of the global recession on the industry in
particular and the Philippine economy in general with specific focus on jobs, exports,
national income and technology. The study will end by identifying competitiveness
issues and recommending actionable measures on how to mitigate the adverse impact
of the global crisis on the electronics industry. Most of the inputs for the latter part
38
Senior Economist, University of Asia and the Pacific

- -
especially the competitive issues facing the industry and actionable measures on how
to address these and the impact of the global crisis will come from roundtable
discussion with the players in the semiconductor industry.
5.1 Global Electronics Industry and the Philippines
The rapid growth in Philippine electronics manufacturing is a direct effect of

the decision of multinational electronics makers to move production activities to more
cost-effective locations like the Philippines. Over the 10-year period between 1995
and 2005, the percentage of electronics inputs manufactured in low-cost locations has
grown from 25% to 47% or nearly half of all inputs. The platform shift makes sense
to manufacturers—drastically lowered costs help them sustain their
competitiveness—as well as generate the jobs and export receipts for less developed
economies.
Figure 5.1
The Percentage Share of Electronics Output Classified
According to High Cost and Low Cost Countries
The Philippines is vulnerable to external shocks in the global electronics industry

because of its growing share in the global output and the nature of its production
activity. The Philippines is ranked seventh most cost-competitive location for
electronics manufacturing, after China (first), South Korea (third), Malaysia (fourth)
and Taiwan (sixth). With this, the prospects of the Philippine electronics industry are
invariably linked with movements in the markets of the global electronics industry.
Electronics production in the Philippines can be classified into two types of activities:
(1) electronics manufacturing services (EMS), which make intermediate inputs to
other downstream goods (about 26% of local manufacturing activity); and (2)
semiconductor manufacturing services (SMS), which are primary inputs and therefore
more vulnerable to shifts in global output. Semiconductor manufacturing makes up
74% of manufacturing activity in the sector.

- -
Figure 5.2
The Rank of the Philippines in Terms of Total Global Exports of Electronics
High-cost locations: US, Canada, Japan, Western Europe

Low-cost locations: Asia/Pacific, China, Eastern Europe, ROW
Source: World Economic Forum
In terms of industry structure, the local electronics industry accounts for almost 60%
of total Philippine exports. Estimates indicate that without this sector, Philippine GDP
would contract hypothetically by an estimated 38.6%.
Figure 5.3
Share of Exports of the Philippine Electronics Sector to Total Philippine Exports
75
70
65
60
55
% 50
45
40
35
30
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
Firms in the electronics industry are regionally dispersed, generating a significant

number of jobs in the countryside. There are total of 926 firms in the industry
employing an estimate 460,000 workers (2008). Only a small number of these firms
are located in the National Capital Region (NCR); most are in regions III, IV and VII.

- -
Figure 5.4
Regional Dispersal of Firms in the Electronics Industry
Cavite
39%
Batangas
3%
Region 3
3%
Baguio
1% NCR
3% Cebu Laguna
12% 39%
Source: PEZA sample of 345 companies
5.2 Impact of Global Electronics Slowdown
Simulations show that a 10% increase in global electronics output was followed by a
corresponding 4.66% increase in Philippine electronics exports and a 2.6% increase in
employment in the industry. It is logical to assume then that decreases in global
output will result in corresponding dips in export output and employment. Hence, a
21% change in global output will lead to a 10% decline in Philippine exports. This
will translate to job losses of at least 8,000 (see Table 4.1). Since, the local industry is
projecting a 30% decline in exports this year (i.e, 2009), a total of at least 24,600 jobs
are expected to be lost. A 2009 decline in export levels will for the first time bring
Philippine exports of electronics to experience at least two consecutive years of
contraction. More jobs are expected to be lost if the global outlook in 2010 will not
improve.
Table 5.1
Estimated impact of the Assumed Annual Change in Global Electronics
Output on Philippine Electronics Exports and Local Jobs
Assumed annual Impact of change Estimated job
change in global in global output on losses in the
output (%) Philippine Electronics Sector
electronics exports
(%)
2009 -21 -10 (8,291)

2010 -17 -8 (6,608)

- -
The slowdown will be keenly felt by domestic regional economies. With more
electronics factories located in the countryside, the adverse economic effects of the
slowdown in electronics exports will be felt more keenly outside NCR. About 90% of
the industry’s workforce are women, so they will bear the brunt of job displacement
caused by the crisis. No doubt the economic effects of the slowdown in electronics
exports will be felt in other sectors as well. The electronics exports slowdown will
have a direct impact on jobs, household incomes, national output and even on taxes.
Table 4.2 shows estimates of the impact of this slowdown. Assuming that the exports
of the electronics industry contracts 10% and 8% in 2009 and 2010, respectively,
there will be substantial reductions in household incomes, taxes and trimming of
current GDP levels and thus GDP growth.
Table 5.2
Impact of Electronics Exports Slowdown On Other Sectors
Change in Change in Change in Change in taxes Impact on Expected

exports exports household (P billion) GDP contributio
($ billion) (P billion) incomes (P billion) n to
(P billion) reduction
in
2009/2010
GDP (%)
(current
prices)
2009 (2.90) (136.30) (42.25) (19.08) (398.00) -5
2010 (2.08) (97.77) (30.31) (13.69) (285.49) -4
USD1.0 = PHP47.00
GDP 2008 current prices = P7,498B
A weaker electronics industry also means drastically reduced opportunities for

knowledge and skills development. The industry is estimated to provide 13 million
hours of training per year or an average of 40 hours per employee. Training modules
are usually diverse, ranging from process, product and equipment engineering
knowledge and skills upgrading to IT-training and interpersonal skills development.
Spending on training can range from P60,000–100,000. Others firms also provide
scholarships, research support and in-house degree granting programs to their
employees.

- -
Impact of the Crisis on Output and Employment of Electronics Industry
Output • In terms of industry structure, • A 21% change in global output will • Ensure credit availability to electronics firms operating
the local electronics industry lead to a 10% decline in Philippine and expanding in the Philippines. The industry proposes
accounts for almost 60% of exports. that government can allocate part of its stimulus package
total Philippine exports. • Assuming that the exports of the by extending a credit guarantee to existing electronics
Estimates indicate that electronics industry contracts 10% and semiconductor firms expanding and/or investing in
without this sector, Philippine and 8% in 2009 and 2010, the Philippines.
GDP would contract respectively, there will be substantial • Move up the value chain of the electronics industry. The
hypothetically by an reductions in household incomes, Philippines cannot remain in the same level of skills and
estimated 38.6%. taxes and trimming of current GDP capabilities. It must move up the value chain. Some of
levels and thus GDP growth. the concrete steps include (a) establishing R&D and
incubation centers funded and/or supported by the
government, the industry and the academic institutions;
(b) eliminate donors taxes and accelerate processing of
documents for equipment donated by the industry to the
academe; (c) promote the development of the upstream
component of the electronics industry (i.e., wafer fabs) in
order to preserve testing and assembly operations in the
Philippines and (d) promote a stronger partnership
between the academe, the industry and other
stakeholders to meet the manpower and other needs of
the electronics and semiconductor industry to remain
competitive.
• Encourage consolidation of global operations in the
Philippines. The global crisis has forced companies to
consolidate their global operations into a select few of
geographical locations where their competitiveness are
sustained or enhanced. Thus government must conduct
investment promotion activities directed at parent

Impact of the Crisis on Output and Employment of Electronics Industry
companies that have manufacturing operations in the
Philippines and to harmonize investment-related
incentives of LGUs, Ecozones and SEZ’s.
Employment • Firms in the electronics • A 10% decline in Philippine exports, • Improve efficiency of business operations to sustain cost
industry are regionally as a result of decline in global competitiveness. To improve the industry’s state of
dispersed, generating a output, will translate to job losses of competitiveness, the industry must in coordination with
significant number of jobs in at least 8,000. government provide continuous training of production
the countryside. There are • A weaker electronics industry also managers to improve manufacturing knowledge and
total of 926 firms in the means drastically reduced skills; improve the quality and reliability of power
industry employing an opportunities for knowledge and supply and reduce the cost of doing business in the
estimate 460,000 workers skills development. The industry is country.
(2008). Only a small number estimated to provide 13 million
of these firms are located in hours of training per year or an
the National Capital Region average of 40 hours per employee.
(NCR); most are in regions Training modules are usually
III, IV and VII. diverse, ranging from process,
product and equipment engineering
knowledge and skills upgrading to
IT-training and interpersonal skills
development. Spending on training
can range from P60,000–100,000.
Others firms also provide
scholarships, research support and
in-house degree granting programs
to their employees.

5.3 Competitiveness Issues
The global crisis has also magnified the competitive issues of the industry. The
following are issues confronting the electronics industry:
Low value-added manufacturing operations. The concentration of the activities of the

Philippine electronics industry is on assembly, testing, cleaning and packaging. R&D
and design capabilities of the industry are very limited. Most of these activities are
now being moved either to areas where labor is inexpensive (e.g., Vietnam) or to
countries with wafer fab operations. In fact, according to industry players, countries
that have wafer fabs tend to attract already testing and assembly operations, which
before locate in a different geographical location.
Credit is tight for the sector. Local financial institutions are believed to have tightened
credit to the industry due to the global crisis. Unlike in other countries, there are
limited government-guarantees to loans extended to vulnerable sectors like electronics
in the Philippines.
Limited pool of managerial knowledge and skills in production. The industry still
considers the senior managerial skills and knowledge of Filipino production managers
as limited. There is a lack of culture on productivity enhancement and practices
among the ranks and managers in the production line.
Lack of incubation centers. The Philippines do have any incubation center to test and
model their projects. The link between the academe and the industry remains weak.
Some companies even complain about the bureaucracy involved if they decide to
donate their equipment to educational institutions.
Lack of Policy Consistency at the Local Level. SEZs, Ecozones and even LGUs tend
to undercut each other in order to attract or retain investments or locators in their
locality. This leads to inconsistency in the application or implementation and even
unpredictability of policies.
5.4 Actionable Measures to Mitigate the Impact of the Global Crisis
Ensure credit availability to electronics firms operating and expanding in the

Philippines. The industry proposes that government can allocate part of its stimulus
package by extending a credit guarantee to existing electronics and semiconductor
firms expanding and/or investing in the Philippines.
Move up the value chain of the electronics industry. The Philippines cannot remain in
the same level of skills and capabilities. It must move up the value chain. Some of the
concrete steps include (a) establishing R&D and incubation centers funded and/or
supported by the government, the industry and the academic institutions; (b) eliminate
donors taxes and accelerate processing of documents for equipment donated by the
industry to the academe; (c) promote the development of the upstream component of
the electronics industry (i.e., wafer fabs) in order to preserve testing and assembly
operations in the Philippines and (d) promote a stronger partnership between the

- -
academe, the industry and other stakeholders to meet the manpower and other needs
of the electronics and semiconductor industry to remain competitive
Improve efficiency of business operations to sustain cost competitiveness. To improve

the industry’s state of competitiveness, the industry must in coordination with
government provide continuous training of production managers to improve
manufacturing knowledge and skills; improve the quality and reliability of power
supply and reduce the cost of doing business in the country
Encourage consolidation of global operations in the Philippines. The global crisis has
forced companies to consolidate their global operations into a select few of
geographical locations where their competitiveness are sustained or enhanced. Thus
government must conduct investment promotion activities directed at parent
companies that have manufacturing operations in the Philippines and to harmonize
investment-related incentives of LGUs, Ecozones and SEZ’s.
References
Santiago, E. “SEIPI Today” (2008). Presentation Slides of the SEIPI. RCBC, Makati
City.
Center for Research and Communication (2006). “Economic Impact of the

Electronics Industry on the Philippine National and Local Economies. Presentation
Slides. Ortigas Center, Pasig City.
Industry Workshops and Consultations
Interview of Ernie Santiago, Executive Director, SEIPI at the SEIPI Office, RCBC
Tower, Makati City, 19 February 2009.
Roundtable discussion during the SEIPI Board Meeting held at RCBC Tower, Makati
City, 13 March 2009.

- -
6 The Global Crisis and Philippine Tourism
Maria Cherry Lyn S. Rodolfo 39
Given the natural, cultural and human resource endowments of the country,
tourism has been identified as a sunrise and globally competitive industry by the
national government. An agglomeration of service-oriented activities, tourism is a
major contributor to economic growth and development. Tourism is one of the largest
employers in the Philippines, offering a wide array of jobs to the unskilled, semi-
skilled and highly skilled workforce. In 2008, the World Travel and Tourism
Council (WTTC) estimated that tourism in the Philippines contributed 8.8 percent to
the GDP and 10.3 percent to national employment (see Table 5.1).
Table 6.1
Economic Impact of Philippine Tourism
Year GDP Employment
(PhP bn) (‘000)
Direct
2005 190.6 1,185.9
2006 245.3 1,357.2
2007 269.7 1,385.0
2008f 285.2 1,377.1
T & T Economy
2005 190.6 1,185.9
2006 245.3 1,357.2
2007 269.7 1,385.0
2008f 285.2 1,377.1
% Share (Direct)
2005 3.5 3.7
2006 4.1 4.1
2007 4.1 4.1
2008f 3.9 4.0
% Share (Direct and Indirect)
2005 8.2 9.9
2006 9.1 10.6
2007 9.1 10.6
2008f 8.8 10.3
Source: The 2009 Travel and Tourism Economic Research Report on the
Tourism Satellite Accounts of the Philippines. WTTC, London.
Reality Check: Crisis Slows Down Global Travel
Tourism’s power to reduce poverty is threatened by the global financial crisis.

On the other hand, the correct policy responses to mitigate the negative effects of the
crisis are deemed to make tourism play a key role in global recovery.
39
Economist, University of Asia and the Pacific and Director, CRC Tourism Institute. The author
would like to acknowledge the assistance of Ms. Louie Anne Bercasio in the preparation of this report.

- -
In 2008, global tourism’s growth slowed down to 1.8 percent, from 6.9 percent
in 2007 (see Figure 5.1). In February 2009, the World Tourism Organization (WTO)
projected that growth will range from -2 percent to 0 percent by the end of the year.40
In May, the WTO reported that the results for the first two months of 2009
demonstrated the lingering effects of the crisis when world tourism volume dipped by
8 percent from its year-ago level. It expected global tourism to decline by 2 percent
to 3 percent in 2009.41 Recovery is projected to require a longer period due to the
threat of the Influenza A(H1N1) virus scare that started in April of this year.
Figure 6.1
Growth in Global Tourist Arrivals
But Tourism is Still Key in Global Recovery
The WTO affirmed its message that tourism is a key driver in economic
recovery during the 5th UNWTO International Conference on Tourism Statistics
(Bali, Indonesia, 30 March-2 April).42 To date, as reported by the WTO Crisis
Committee, a number of countries have already developed and continue to develop
stimulus measures to mitigate the negative impact of the crisis on tourism.
Recognizing the role of tourism as key driver in global economic recovery, many
countries are already developing stimulus measures and some destinations are
reducing taxes and improving travel facilitation, recognizing that it is now crucial to
remove all obstacles to tourism, especially taxation and over regulation. 43
This report aims to address the following questions:
40
Tourism confronting the Economic Downturn Madrid, Spain, 5 March 2009
http://www.unwto.org/media/news/en/press_det.php?id=3781
41
“Tourism: An Engine for Employment Creation and Economic Stimulus,” Bali,
Indonesia, 3 April 2009 http://www.unwto.org/media/news/en/press_det.php?id=3891
42
“World Tourism in the Face of the Global Economic Crisis,” Madrid, Spain, 12
May 2009 http://www.unwto.org/media/news/en/press_det.php?id=4181&idioma=E
43
Ibid
- -
(1) How has the crisis affected Philippine tourism?
(2) Is the industry vulnerable to the crisis due to the contraction in demand?
(3) Is it in a better state to absorb the impact of the global economic crunch?
(4) How are the government and private sector responding to mitigate the
negative effects of the crisis in the short-term and in the long-term?
(5) How can competitiveness be enhanced and sustained?
6.1 Impact of the Crisis on Philippine Tourism
Is the industry vulnerable to the crisis due to the contraction in demand? The
answer depends on how the Philippine tourism industry is linked to the US and other
major economies that are significantly exposed – directly and indirectly – to the
global crisis and the trends in the factors that significantly influence the demand for
tourism to the Philippines.
Is it in a better state to absorb the impact of the global economic crunch? To

answer this question, it is important to examine the impact of the crisis on the tourism
suppliers.
6.1.1 Impact on Market Demand
Prior to the current global crisis, the DOT aimed to attract 5 million visitors by
the year 2010, an average of 14 percent growth from 2007 to 2010 (see Figure 5.2).
These visitors are projected to contribute a total of US$ 4.5 billion by 2010 (see
Figure 5.3).
Figure 6.2
Tourism Targets: Visitor Arrivals
Tourism Targets: Visitor Arrivals
6 Volume 25
5
5 Grow th Rate 4.42 20
Arrials in millions
3.88
Growth Rate
4 3.4
2.55 2.96 15
3 2.3
10
2
1 5
0 0
2004 2005 2006 2007 2008 2009 2010
Source: DOT
Figure 6.3

- -
Tourism Targets: Foreign Exchange Revenues
Tourism Targets: Receipts
5 18
4.5 16
Receipts in US$ Billions

4 14
3.5
Growth Rate (%)

Receipts 12
3
Grow th Rate 10
2.5
8
2
6
1.5
1 4
0.5 2
0 0
2005 2006 2007 2008 2009 2010
Source: DOT
In 2007, the country recorded a total of 3 million arrivals, slightly below the
target of 3.4 million as shown in Figure 2. Nevertheless, in terms of receipts, the DOT
surpassed its 2010 target of $4.5 B in 2007, 3 years ahead of the projected timeline.
During that year, the Bangko Sentral ng Pilipinas (BSP) reported that exports of travel
and tourism amounted to $4.9 B. Travel and tourism ranked as the fourth largest
source of foreign exchange revenues (the top three are electronics exports –$28.5 B,
overseas workers remittances - $16B, and business process outsourcing - $6B) for the
country in 2008. Its receipts of US$4.4 B accounted for 43 percent of total service
exports.
Channels of Impact on the Markets
The determinants that affect the tourists’ decision to travel and consume
tourism include: socioeconomic factors (income, relative prices between origin and
destination countries, population, length of stay), technical factors (ease of
communication and travel), psychological and cultural factors (preferences and way
of life of tourists) and random factors related to unexpected events (political
instability and natural calamities).
Income The most direct impact of the crisis is on the income or purchasing power of
the origin markets. The lower incomes diminish the capacity for international travel to
the Philippines. Local residents may also tend to substitute domestic tourism over
outbound travel as a result of the crisis, if local tour packages prove to be significantly
cheaper than other overseas tours. However, it is also possible for local residents to
reduce their domestic leisure consumption in favour of more necessity goods and
services or savings in anticipation of prolonged crisis.
Relative Prices Assuming all else constant, the higher the price of the Philippine’s
tourism products and service, the lower is the demand for tourism – foreign and
domestic. There are various proxies for price. They include the real effective
exchange rate index, price of oil per barrel, and distance as proxy for transportation
cost.

- -
• Volume of Arrivals
The early impact of the global crisis was evidenced in the slower growth of
international arrivals in 2008 (see Figure 5.4). A total of 3,139,422 visitors arrived in
the Philippines last year, 1.5 percent higher than the volume in 2007 but the slowest in
the past five-years.
Figure 6.4
Volume of Arrivals
3,500 Arrivals ('000) 35%
Growth Rate (%)
30%
3,000
25%
2,500 20%
15%
Growth Rate (%)

Arrivals ('000)
2,000
10%
5%
1,500
0%
1,000 -5%
-10%
500
-15%
- -20%
82
83
84
85
86
87
89
91
92
93
94
95
96
97
98
00
02
03
04
05
06
07
81
88
90
99
01
08
19
19
19
19
19
19
19
19
19
19
19
20
20
20
20
20
19
19
19
19
19
19
19
19
20
20
20
20
Source of basic data: DOT
As shown in Table 5.2, the slower growth in 2008 was due to the decline of
77,387 visitors from Korea and Japan. These two origin markets alone accounted for
31 percent of arrivals per year. The volume of visitors from Korea significantly
dipped in the second half of 2008 due to the impact of the crisis on personal incomes
and the sharp and rapid decline in the value of the Korean won. According to the
ITB, a number of destinations like Europe and the US also suffered from the
slowdown in Korean outbound tourism in 2008. Europe suffered from a 5 percent
drop in demand from South Korea. The growth in arrivals from Korea to the US,
another favourite destination, was flat and intra-regional trips increased by just 1
percent.
In the case of Japan, the volume of arrivals to the Philippines started years
before the onset of the global crisis. The Philippines was not alone in lamenting at the
poor growth record of outbound travel from Japan, particularly to Southeast Asian
destinations according to the ITB report. Overall, outbound travel from Japan in 2008
was down 5%, according to IPK International, with all world regions suffering similar
declines.
In the case of the US market, the decline was very small (737 visitors)
compared with Korea and Japan. This can be explained by the fact that Balikbayans
continued to sustain the US inbound tourism during the Christmas holiday season.

- -
Among the Asian destinations, both the Philippines and Vietnam suffered the least
from the slowdown, largely because of a relatively significant VFR markets. In
contrast, both Thailand and Singapore, top destinations of US outbound travel in
Southeast Asia, suffered from 10 percent and 8 percent reduction in US visitors,
respectively.
Table 6.2
Performance of the Top 12 Source Markets
Country Arrivals GDP Growth
2008 percent Growth 2008 2009f 2010f 2011f
Share (in
to Total percent)
Korea 611,629 19.48 -6.38 4.3 -2.8 0.1 4.4
USA 578,246 18.42 -0.13 1.4 -2.0 0.6 1.5
Japan 359,306 11.44 -9.04 0.7 -3.8 -0.1 1.0
China 163,689 5.21 3.86 9.8 6.0 7.2 8.2
Australia 121,514 3.87 8.05 2.1 -1.2 0.5 1.2
Taiwan 118,782 3.78 5.86 1.7 -3.5 1.1 4.3
Hong 116,653 3.72 4.20 2.8 -4.7 0.2 3.1
Kong
Canada 102,381 3.26 12.13 0.5 -2.2 0.7 1.9
Singapore 100,177 3.19 6.56 3.0 -7.2 1.8 2.9
United 87,422 2.78 9.73 0.7 -3.8 -1.1 0.7
Kingdom
Malaysia 69,676 2.22 6.06 5.5 -0.3 2.8 5.1
Germany 55,303 1.76 -1.06 1.3 -5.3 -0.8 1.3
Sources: Philippine’s Department of Tourism; Euromonitor International;
Economist Intelligence Unit
The 5.2 percent decline in the top 3 markets was compensated by the growth
in the rest of the Top 12 markets and the double digit growth of emerging markets
such as Russia, Emirates, Vietnam, France, Norway, India, and Spain. These markets
are also high yield markets, with higher average daily expenditures and average
length of stay.

- -
Table 6.3
Fast Growing Markets in 2008
Rank Country Jan-Dec Growth
2008 Rate
1 Russian Federation 10,959 34.25%
2 United Arab Emirates 10,931 28.75%
3 Vietnam 13,675 28.09%
4 France 22,891 18.77%
5 Norway 14,963 15.77%
6 India 31,135 13.88%
7 Canada 102,381 12.13%
8 Spain 12,946 10.97%
9 United Kingdom 87,422 9.73%
10 Indonesia 27,830 8.99%
11 Australia 121,514 8.05%
12 Saudi Arabia 17,515 7.07%
13 Singapore 100,177 6.56%
14 Taiwan 118,782 5.86%
Source: DOT
Compared with our Asian neighbours in 2008, the Philippines performed better than
Vietnam, Thailand and Singapore. Others like Malaysia and Indonesia had relatively
more impressive records in 2008 due to higher shares of intra-ASEAN visitors.
Table 6.4
International Tourism in ASEAN in 2008
2008 2007 Growth
Malaysia 22,052 20,973 5.14%
Vietnam 4,172 4,254 -1.93%
Indonesia 6,230 5,506 13.15%
Thailand 14,536 14,464 0.50%
Philippines 3,139 3,091 1.55%
Singapore 10,116 10,284 -1.63%
Source: Various Tourism Authorities
The leisure market, accounting for one third of arrivals, was the hardest hit by
the crisis due to its sensitivity to income changes. As regards the MICE market,
according to the Philippine Convention and Visitors’ Bureau (PCVC), contraction in
corporate events and product launches has been noted as local and foreign companies
implement cost-cutting measures. Some association conferences and trade exhibitions
are being postponed. As MICE foreign arrivals constitute only 1.16% of total foreign
visitor arrivals to the country, any decrease will have minimal impact on overall
visitor traffic. To date, the domestic market, especially association events continue to

- -
provide good source of business for this industry.44 The role of the domestic market
in the survival of the convention industry amidst the crisis was also noted by the
private sector. From the private sector’s perspective, the crisis has provided
opportunity for the Philippine convention industry to catch up with the rest of Asia
where MICE events are at least three times more than the volume in the Philippines.
There are programs to expand the capacity for conventions by the industry. The SM
group, for example, is pursuing to build mini SMX Convention Centers given the
opportunities to develop secondary destinations.45
• Tourism Receipts
For the whole year of 2008, receipts dipped to $4.4 B in 2008, 11.1 percent
lower than the earnings in 2007 (see Figure 5.5). It was during the 4th quarter of 2008
when tourism export revenues significantly declined by 22.7 percent, from U$1,355
M to $ 1,047 M. In peso terms, however, the receipts contracted by only 7.01 percent
but their direct and indirect impact was estimated at PhP 35 B for the whole economy.
Figure 6.5
Tourism Receipts
6 100
5 80
R e c e ip ts in U S $ B
G ro w th R a te in %
60
4
40
3
20
2
0
1 -20
0 -40
80
81
82
83
84
85
86
87
88
89
90
91
92
93
94
95
96
97
98
99
00
01
02
03
04
05
06
07
08
Sources of basic data: DOT and BSP
The DOT has stopped releasing the data on monthly volume of arrivals in
order to mitigate the impact of pessimistic perceptions about the industry’s
performance.46 The preliminary BSP data on export receipts from travel and tourism
serve as an indicator of international tourism demand. The 1st quarter results revealed
that revenue flows declined from $1,155 M to $744 M (35.6 percent). In peso terms,
the decline was only 8.43 percent. The receipts are estimated to fall by 12 percent
but this is only a preliminary estimate. The final results will also depend on the
44
Response of Director Danilo Corpuz, Executive Director of the Philippine Convention and Visitors
Bureau, 30 March 2009.
45
Interview with Mr. Dexter Deyto, Executive Director of PACEOS.
46
Commentary by Undersecretary Eduardo Jarque, Office of Tourism Promotions. Delivered by
Director Rolando Canizal, Office of Tourism Development Planning, during the Forum on Global
Crisis and the Philippine Economy, April 23, 2009 at the Dusit Hotel, Makati City.

- -
effects of the A(H1N1) on the volume of arrivals in May and June. The reversal of
trends by the 3rd and 4th quarter through higher expenditures or longer length of stay
or more arrivals or better, a combination of all factors will be very crucial for the
survival of firms significantly exposed to international tourism.
• Outlook for 2009
The industry is vulnerable to the contraction in global demand for

international tourism due to the strong linkages of the Philippines with the US, Korea
and Japan. As revealed in Table 2, the economic recovery of the Top source markets
of Philippine tourism is expected to happen in 2010. The DOT projected that growth
in arrivals will only range between 0 - 0.5 percent in 2009 under a medium growth
scenario.47 These forecasts do not necessarily represent the targets of the DOT. As
commented by Mr. Samie Lim, the DOT should set a target higher than the
predictions of the model. As representative from the private sector, he believed that
the DOT and the private sector can jointly aim to reverse the slowdown in arrivals by
coming up with more innovative packages (such as those offered by Singapore)
beyond the traditional Balikbayan promotions. 48
• Some Trends in Outbound Travel
US Travel Trends 49 The overall U.S. outbound market totaled 63.6 million in 2008,
down by one percent compared to 2007. During the 1st quarter of 2009, outbound
travel reached 8.3 million, 8.9 percent lower than its year-ago level. US travel to the
Asian region was lower by 13.2 percent.
Northeast Asia
China is the more promising origin market in Northeast Asia for the
Philippines and the rest of Asia according to the ITB Berlin report. Chinese tourists
have been listed in the World's top five holiday consumer groups and they have
become a significant force in overseas shopping and created a great consumption
value. Although the International Monetary Fund expects the GDP growth to be 6.5
per cent in 2009 and 7.5 per cent in 2010, declines in bookings from China to various
destinations in Asia Pacific have been noted due to the H1N1 Influenza than the
global crisis. Non-essential travel has been discouraged or banned.
47
Commentary by Undersecretary Eduardo Jarque, Office of Tourism Promotions. Delivered by
Director Rolando Canizal, Office of Tourism Development Planning, during the Forum on Global
Crisis and the Philippine Economy, April 23, 2009 at the Dusit Hotel, Makati City.
48
Commentary by Mr. Samie Lim, Chairman of the Tourism Committee of the Philippine Chamber of
Commerce and Industry and private sector representative during the Forum on Global Crisis and the
Philippine Economy, April 23, 2009 at the Dusit Hotel, Makati City.
49
Based on data from the US Office of Travel and Tourism Industries
http://www.tinet.ita.doc.gov/view/m-2009-O-001/index.html

- -
• Trends in Travel Costs
• Oil Prices
Higher oil prices lead to higher travel costs, lower mobility of travellers, and
lower profitability of travel and tourism businesses (via its impact on demand and cost
structure). Since August 2008, oil prices (monthly averages and indices) exhibited a
downward trend. However, they started to rise again in January 2009. The price
inched up to $58 per barrel last month, its level sometime in September 2008.
Although there are no immediate indications that prices will shoot up to the high
levels reached in 2008, it is very important for tourism enterprises to monitor its
movements given its impact on industry bottomline.
Figure 6.6
Monthly Petroleum Price Index
300
250
200
Index
150
100
50
0
Fe 4
Ju 5
Fe 5
Ju 6
Fe 6
Ju 7
Fe 7
Ju 8
Fe 8
9
O 4
D 4
O 5
D 5
O 6
D 6
O 7
D 7
O 8
D 8
A 4
A 5
A 5
A 6
A 6
A 7
A 7
A 8
A 8
A 9
-0
-0
-0
-0
-0
-0
-0
-0
-0
-0
-0
-0
-0
-0
-0
0
-0
-0
-0
-0
-0
0
n-
b-
n-
b-
n-
b-
n-
b-
n-
b-
ec
ec
ec
ec
ec
pr
pr
pr
pr
pr
ug
ug
ug
ug
ug
ct
ct
ct
ct
ct
Ju
• Relative Prices
The rapid decline in the value of their currencies against the US dollar, notably
during the second half of 2008, increased the cost of overseas travel for major revenue
origin markets such as the Japan, Korea, Russia and Australia. The Philippines was
one of those negatively affected by the lower mobility of these markets last year. In
tourism, it is important to maintain a competitive level for the exchange rate to
encourage tourist flows. The real effective exchange rate index can serve as proxy
indicator for the relative prices of tourism products and service.

- -
• Domestic Travel
With the lower GDP growth in 2008 and during the 1st quarter of 2009, we can
expect domestic tourism as a form of recreation and leisure to decline. However, we
cannot really determine the impact on the volume and spending given the absence of
data similar to international tourism.50 Some indicators can be used as proxy
variables to check the trends in domestic travel. One indicator is the volume of
domestic passenger traffic by air. The growth in flights and passenger volume in
2008 was sustained in the 1st quarter of 2009. Flights increased by 17.4% while
passenger volume jumped by 15.4% (compared to its year-ago level).
Another indicator is the volume of travel monitored by the DOT (see Table
5.5) based on data gathered from establishments.51 The 1st quarter performance report
of the DOT revealed that tourist arrivals in top destinations of the country grew by
10.33 percent for a total of 1.3 Million52. Overall, the volume of domestic tourists
visiting key destinations grew faster at 13 percent while foreign arrivals recorded a 4
percent hike in the first quarter.
Table 6.5
Tourist Volume in Top 15 Destinations
January to March 2009/2008
2009 2008 Growth Rate

Destinations Domestic Foreign Total Domestic Foreign Total Domestic Foreign Total
Cebu 237,449 184,790 422,239 226,753 183,844 410,597 4.72 0.51 2.84
Boracay 94,127 63,903 158,030 88,200 68,044 156,244 6.72 -6.09 1.14
Davao City 140,487 15,981 156,468 137,212 15,669 152,881 2.39 1.99 2.35
Camarines Sur 115,244 24,976 140,220 85,644 12,256 97,900 34.56 103.79 43.23
Zambales 63,466 25,252 88,718 55,164 23,910 79,074 15.05 5.61 12.20
Bohol 47,526 24,350 71,876 44,485 20,465 64,950 6.84 18.98 10.66
Oriental Mindoro 69,232 59,902 - - 15.58
Negros Oriental 46,499 11,861 58,360 41,836 9,855 51,691 11.15 20.36 12.90
Palawan 32,909 12,028 44,937 6,689 16,559 23,248 391.99 -27.36 93.29
Ilocos Norte * 26,230 3,719 29,949 23,201 6,330 29,531 13.06 -41.25 1.42
Legaspi City 22,973 2,099 25,072 22,156 1,362 23,518 3.69 54.11 6.61
Surigao City 13,068 1,757 14,825 11,977 1,323 13,300 9.11 32.80 11.47
Sorsogon 2,677 10,434 13,111 2,297 7,047 9,344 16.54 48.06 40.31
Samal Island 11,110 834 11,944 10,941 848 11,789 1.54 -1.65 1.31
La Union ** 3,908 1,624 5,532 3,338 461 3,799 17.08 252.28 45.62
Total 857,673 383,608 1,310,513 759,893 367,973 1,187,768 12.87 4.25 10.33
* January-February data only
** January data only
Source: DOT First Quarter Performance Report
50
The household-based survey by the NSO and the DOT revealed that during the first six months of
2005, a total of 24 million Filipinos travelled and about 50 percent spent at least one night in the
destination. If we were to use the regional travellers data reported by the Regional Tourism and/or local
government unit offices (based on accommodation survey), the relative share of domestic tourists in
the various destinations can be as high as 95 percent.50
51
We cannot use a single source of data to confirm the shares of local versus foreign travellers given
that domestic tourism volume (especially the Visiting Friends and Relatives segment) is not completely
captured by the current statistical system in the same way that foreign tourism is monitored. But we
can refer to surveys by the DOT to get an idea of the relative size of the domestic travel market.
52
Preliminary Data Tourist Accommodation Establishments

- -
6.1.2 Impact on Suppliers
Air Transport
• Lower International Traffic Volume and Yields
Among the providers, the most vulnerable to the global tourism slowdown is
the international airline sector which carries 98 percent of international arrivals to the
Philippines. About half of international inbound passengers are tourists and the rest
are returning Philippine residents (e.g. tourists and Overseas Filipino Workers).
The vulnerabilities have been evident in the reduction of flights (with the
exemption of Middle East carriers), decline in passenger volumes and most
importantly in yields (about 35 to 50 percent). During the 1st quarter of 2009,
international flights in the NAIA increased by 8.4 percent but passenger volumes
declined by 4.0 percent. Terminal 1 alone, where foreign airline operations are
concentrated, already suffered from a reduction of 20.9 percent in flights and 17.4
percent in passenger volume. The Mactan-Cebu International Airport (MCIA), the
main port of entry for tourists to the Central Philippines Super Region, also registered
a decline of 5 percent in flights and 9 percent in passenger volume during the same
quarter. However, the operations of the low cost carriers in the Diosdado Macapagal
International Airport (DMIA) in Clark defied the trends given the rise in international
flights and passenger volumes by 35.5 percent and 16.2 percent, respectively, during
the same quarter. Nevertheless, the low cost operators also suffered from lower yields
and profits. For 2009, international passenger traffic for the Philippines is expected to
fall by 7 to 12 percent (preliminary estimate).
The severity of the impact of the crisis on the foreign airlines that carry half of
the international traffic volume to and from the Philippines was highly evident during
the 1st quarter of 2009 based on their gross receipts53 from the sale of international
passenger tickets. In 2008, they were still able to generate US$565 M, 44.1 percent
more than their earnings in 2007. But their 1st quarter gross receipts fell by 8.7
percent, indicating that the 41.1 percent growth last year will not be sustained, given
AH1N1 outbreak in the Philippines and the upward trend in fuel prices.
• Slower Growth in Gross Value-Added
The effects of the crisis on the local airlines are evident on the slower growth
of the gross value-added (GVA) in 2008 and in the 1st quarter of 2009. In 2008, the
GVA of air transport rose only by 5.9 percent in real terms. In 2007, the industry’s
output expanded by 14.4 percent, faster than the 7.2 percent growth in the GDP. On
a quarterly basis, the industry posted a poor record during the 3rd quarter, when GVA
increased by only 2.3 percent. The 1st quarter growth of 3.5 percent paled in
comparison with the high growth rates during the same quarter in the previous years.
The projected real GVA growth for 2009 is only 1.4 percent.
53
Note, however, that refunds will still be deducted from these receipts.

- -
Figure 6.7
Growth in GDP and GVA of Air Transportation
20
GDP
Air Transport
18
16
14
12
Percent
10
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
05-06 06-07 07-08 08-09
As mentioned in the previous section, local traffic volume by Philippine

carriers rose in 2008 and continued to do so during the first quarter of the year.
However, yields were still relatively low. Profit-squeezing is evidenced in slower
growth in export revenues of carriers with international operations. Their dollar
revenues last year were 2.6 percent higher than in 2007 but significantly lower than
the growth record of 13.3 percent in 2007. It was during the 4th quarter of 2008 when
gross earnings from the sale of international tickets plunged by 24 percent (from
US$154 M to $ 117 M). The 1st quarter 2009 record showed gross receipts to be
higher by 2.9 percent from its year-ago level.
The gross value added figure also reflects the performance of the cargo
operations of local carriers. As a result of the global trade slowdown, PAL was one of
the worst affected in terms of declines in freight ton kilometres based on the records
of the Association of Asia Pacific Airlines (AAPA). PAL’s FTK declined by 52.6
percent during the 1st quarter of 2009. The performance of PAL clearly reflected the
general trend in the industry in the Asia Pacific region. Data from the AAPA revealed
that for the 1st quarter of the year, international passenger numbers were 10.8 percent
lower than the same period last year when traffic was still buoyant. Apart from the
decline in capacity, passenger load factors declined to below 75 percent levels and
year-to-date international passenger traffic in revenue passenger kilometre terms
slipped by 12 percent.

- -
• Forecast for 2009
In March 2009, the International Air Transport Association (IATA) revised

(downward) its forecasts for passenger and cargo services and airline revenues for the
global airline industry. Cargo traffic is expected to fall 13 percent, passenger traffic
by 5.7 percent and airline revenues to decline by 12 percent or $63 billion for the year
2009. Based on preliminary estimates, gross foreign exchange receipts of Philippine-
based foreign and local airlines from the sale of passenger tickets are expected to
decline by 18 percent and 12 percent, respectively, for 2009.
Tours and Travel Agencies
Those handling inbound tourists, especially from Korea, Japan, and China have
experienced sharp reductions, as high as 35 to 50 percent, in their bookings. Airlines
have reduced their commission rates for these agencies, particularly in the business
and first class seats. The industry is very competitive and switching costs are lower,
forcing agencies to reduce their mark ups on economy class seats and to consider
adopting new business models (e.g. integrators/syndicators for niche markets such as
medical tourism, long stay tourism, educational tourism) to generate higher value-
added.54
Accommodation
Growth in international tourism is positively related with the performance of

the accommodation industry. Foreign tourism is also a major driver of demand for
rooms and is highly associated with the Korean and the Japanese markets.55
Correlation analysis reveals that the demand for hotel rooms (all four categories) in
Metro Manila is closely associated with the volume of visitor arrivals.56 Specifically,
there is a relatively high correlation between monthly tourism demand and de luxe
hotel room demand.
• Lower Occupancy Rates
The occupancy rates of hotels in Metro Manila already declined from 73.8
percent in 2007 to 69.8 percent in 2008 (or a decline by 4.5 percent). The year-end
figure was still above the average of 65 percent over a 20-year period (see Figure
5.8). For January 2009, the occupancy rate reached only 64.7 percent, 12.7 percent
lower than its year-ago level.
54
Interviews with Mrs. Alejandra Clemente, President of the Federation of Tourism Industries of the
Philippines, Mr. Cesar Cruz, President of Philippine Tour Operators Association, Mr. Paul So (Angala
Travel) and Mr. Teodoro Bautista (Roundtrip Travel ), members of the Philippine Tours and Travel
Agencies Association.
55
The Pearson correlation coefficient of 0.610 is significant at 0.01 level (2-tailed test). The
Spearman’s rho coefficient is higher at 0.625.
56
Using annual data the Pearson correlation coefficient of 0.84 is significant at 0.01(2-tailed test). The
coefficient of 0.70 is significant at 0.01 (2-tailed test) using monthly data (1998 to December 2008).
The coefficient is higher (0.841) using seasonally adjusted series.

- -
Based on the DOT data, hardest hit were the bay area, Makati/Mandaluyong/Pasig
and Alabang hotels. Category-wise, the de luxe and first class hotels registered the
most significant drop in occupancy due to the lower inbound travel from Korea and
Japan and the cost-cutting measures of the local corporate markets. For the year
2009, the average occupancy rate is expected to reach only 61 percent for all hotels in
Metro Manila.
Figure 6.8
Occupancy Rates of Hotels in Metro Manila
80 20%
OR
Growth
70 15%
60 10%
50 5%
Occupancy Rate (%)
Growth
40 0%
30 -5%
20 -10%
10 -15%
0 -20%
1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008
• Lower Gross Value-Added
Similar to the air transport sector’s output performance, the GVA of the hotel
and restaurant sector slowed down in 2008 after an impressive record in 2007, when
it grew faster than the growth in GDP (see Figure 5.9). The slowest growth of 0.78
percent occurred during the 3rd quarter of 2008. The holiday season contributed to
the recovery and modest growth of 4.01 percent in the 4th quarter. The projected
GVA growth for the hotel and restaurant sector is 2.1 percent for 2009.

- -
Figure 6.9
Growth in GDP and GVA of the Hotel and Restaurant Sector
12
GDP
H&R
10
8
Percent
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1
05-06 06-07 07-08 08-09
6.1.3 Impact on Employment
Total employment in tourism-related industries reached 3.3 million in 2008,

1.5 percent higher than the previous year’s level. The growth was slower than its
2007 record of 3.7 percent and the growth of 2.5 percent for total Philippine
employment (see Table 5.6). In 2008, the about a thousand workers in the passenger
transport and tour and travel agency industries were displaced. The hotel and
restaurant industries managed to increase its workforce overall. But it also had to
displace some workers due to the slower tourism business, particularly from the
international markets. From October 2008 to April 2009, the DOLE reported that
about 147 workers (50-50 male/female) working in hotels and resorts nationwide
were displaced, mostly food attendants and kitchen related service workers (see Table
5.7). The hotel and restaurant industries employ a significant number of women,
about 40 percent in all medium to large establishments (those with 20 or more
employees).57
57
Based on the employment data for establishments with 20 or more employees (NSO ASPBI 2006).

- -
Table 6.6
Total Employment in the Philippines and Employment in Tourism Industries
(in '000 persons)
Source: Romulo Virola, Tourism as Employment Engine, April 2009 (www.nscb.gov.ph)
There are promising employment prospects in tourism for the year 2009 given
the opening of ongoing projects by the end of the year until 2010. Based on the 1st
quarter performance report of the DOT, for the period January to March 2009, a total
of 1,231 additional rooms, estimated at a cost of P8.016 B were opened to provide
direct employment to 1,286 people. By year-end, some 1,946 people will be directly
employed nationwide once the additional 2,315 rooms become operational in major
tourism destinations like Cebu, Palawan, Boracay in the country. A US$ 200-Million
luxury spa and resort is also set to be developed by Banyan Tree in a 55-hectare
property in Diwaran Island of Palawan. About 8,000 direct and indirect jobs will be
created during the planning, construction and operational stages from 2009 to 2012.

- -
Table 6.7
Displaced Workers in Hotels
Position Count % Share
Barista 4 2.72%
Bartender 8 5.44%
F&B Manager 1 0.68%
F&B Supervisor 1 0.68%
Food Attendant 20 13.61%
Headwaiter 5 3.40%
Hospitality Girl 2 1.36%
H&R Manager 2 1.36%
H&R Salesperson 1 0.68%
Housekeeping Attendant 8 5.44%
Receptionist 5 3.40%
Supervisor 2 1.36%
Steward 1 0.68%
Housekeeper (Hotel and Resort 4 2.72%
Housekeeper (Private) 4 2.72%
Housekeeping Services Assistant 3 2.04%
Housekeeping Supervisor 2 1.36%
Kitchen Crew 23 15.65%
Kitchen Helper 20 13.61%
Proprietor 1 0.68%
Supervisor 3 2.04%
Room Attendant 27 18.37%
Total 147 100.00%
Source of basic data: DOLE
6.1.4 Impact on Investments
The Philippines was not a recipient of foreign direct equity investments (FDI)
in the hotel and restaurant industries for the past decade (see Table 5.8). In 2007 new
equity infusion worth US$2.6 M was recorded. There were significant increases in
FDI from 2004 onwards, as evidenced in the real estate sector. These investments
reflect the endorsed investment projects by the DOT during the period. In fact, from
2005 to 2008, the DOT endorsed PhP 146 B worth of cumulative private investments.
Total investments per year reached PhP 36 B or 1,616 times larger than those
generated during the period 2001 to 2004. These investments were placed largely in
tourism economic zones.
The DOT already endorsed five development projects worth P6.323 Billion in
st
1 quarter of the year. These projects are projected to create 6,340 jobs for local
residents. The preliminary figures from the BSP already revealed that tourism
continues to attract interest from the international community and that the industry
will not surely post zero investment despite the crisis. In fact, the private sector views

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the implementation of the Tourism Act of 2009 as an engine of quick recovery
through investment mobilization.58
Table 6.8
BSP Foreign Direct Equity Investments (M US$)
Hotels
TOTAL Restaurants Real Estate
2000 1,333.00 0 2.62
2001 556 0 6.74
2002 1,607.00 0 0
2003 249 0 27.49
2004 750 0 54.76
2005 1,181.00 0 111.93
2006 1,324.00 0 120.49
2007 1,949.00 2.6 137.66
2008 p/ 1,350.00 20.65 154.78
Jan '2008 p/ 82 0.34 6.17
Jan '2009 p/ 54 0.08 9.92
Source: BSP
6.1.5 Impact on Local Destinations
The DOT data on regional travellers serve as indicator of the minimum

volume of visits since they do not fully capture the VFR market segments. The
dataset reveal travellers tend to flock to the National Capital Region, Region 7 (Cebu
and Bohol), Region 6 (Aklan and Boracay), Region 3 (Pampanga and Subic) and
Region 4 (Laguna, Batangas, Cavite). Investments in the past five years are also
concentrated in most of these areas as shown in Table 5.9. The LGUs in these
destinations have to monitor tourism closely because they are likely to experience
displacement in tourism workers if the dramatic slowdown in global travel happens
and if the appropriate response measures are not pursued.
58
Interview with Mrs. Alejandra Clemente, President, Federation of Tourism Industries of the
Philippines.

- -
Table 6.9
Total Tourism Investment by Region, 2000 - 2008
Tourism Investment (in Million pesos)
Region 2000 2001 2002 2003 2004 2005 2006 2007 2008 Total
CAR 38 3 88 - - 484 2,600 - - 3,214
NCR 838 542 429 279 456 5,086 35,818 17,559 10,409 71,418
I 2 6 11 1 575 - 44,143 - 4 44,742
II - - - - - - 55 - 50 105
III 6 119 13 239 - - 186 44 1,433 2,039
3,75
IV 841 244 280 5 98 2,768 1,543 2,979 2,870 15,378
V - - - - - 375 191 1,327 854 2,747
VI 118 - - 864 - 254 4,158 175 187 5,756
VII 759 12 8 284 70 2,795 5,059 165 2,204 11,356
VIII - - - - 88 - - - 58 146
IX - - 4 - - - - - 4
X 464 - - 30 - - - - - 494
XI - - - - - - - 95 - 95
XII - - - 18 - 25 12 - - 55
XIII - - - - - 151 - - - 151
Total
Investment 3,065 927 829 5,473 1,288 11,938 93,766 22,344 18,070 157,700
Source of basic data: DOT – Office of Tourism Standard
The DOT’s 1st quarter report revealed that the 1st quarter of the year witnessed
a relatively robust tourism in secondary destinations such as Cebu, Boracay,
Zambales, Camarines Sur, and Bohol. Domestic travellers to Puerto Princesa City
and Coron in Palawan posted a record breaking growth of 392 percent as more flights
were mounted to these destinations from Manila, Cebu, and Caticlan as well as Kota
Kinabalu in Malaysia. Likewise, local visitors flocked to Camarines Sur for
wakeboarding, Surigao del Sur, Sorsogon (Donsol) for whale shark interaction,
Zambales (Subic) for recreation, Ilocos Norte and La Union for sightseeing and beach
holiday resulting in double digit gains in these destinations.

- -
6.2 Industry and Government Response
On the demand-side, the tourism industry is vulnerable to the crisis in so far as

the contraction in the volume of arrivals from traditional and mass-based markets,
particularly from Northeast Asia, will continue throughout the year without
significant increases in new and emerging markets. Thus, diversification is a key
element of survival and eventually sustainability. The volume to be generated from
these other markets may not be sufficient to compensate for the expected declines in
the traditional markets. Nevertheless, the additional arrivals will still provide income
opportunities to the industry and enable the providers to survive the crisis period.
Based on the 2008 arrivals data from the DOT, the fastest growing markets include:
Russian Federation, United Arab Emirates, Vietnam, France, Norway, India, Canada,
Spain and United Kingdom to name a few.
The industry has turned to the domestic market for survival opportunities.
However, opportunities to further enlarge the base of travellers to secondary
destinations also hinge on the international tourism market and its recovery from the
crisis and the AH1N1 outbreak. The Philippines is still a relatively small player at
this time and opportunities exist to expand the market shares of tourism-related
businesses and destinations in the global industry.
One major opportunity is to support the survival, recovery and long term
competitiveness of the industry by identifying areas where stimulus measures can be
pursued in exchange for the long-term benefits and where growth and investment
climate can be enhanced. This is true especially in the case of tourism suppliers
whose vulnerabilities are rooted in the unfavourable business and investment climate
in the country. It makes it easier for these suppliers to close down their operations
and to shift to more lucrative markets outside of the Philippines.
6.2.1 Current Response
• Fiscal The Board of Airline Representatives and the IATA requested for some
stimulus package from the government, thru the aviation authorities – Manila
International Airport Authority, Mactan Cebu International Airport Authority
and Civil Aviation Authority of the Philippines. In April 2009, BAR
specifically asked for 50 percent reduction in airport-related charges effective
for one year with a review at the end of the one-year period as an incentive for
continuous operations. As part of its global campaign for support to the airline
industry, the IATA recommended the following actions to all airport
authorities (including the Philippines): waiving of certain fees and charges, a
cut in present fees and charges or temporary discounts for a given period,
postponement of all non-essential costs and investments flowing through to a
mid-year adjustment in 2009 rates, and acceleration of initiatives/projects that
will bring cost efficiency benefits.
The request of the industry to the MIAA board was indorsed by both
the DOT and the DOTC. In May, the MIAA granted 10 percent discount on
airport related charges for all commercial flights and 15 percent for all extra

- -
section flights for a period of six months or until the end of 2009. The
Philippines therefore joins the ongoing efforts in the region to help mitigate
the negative impact of the crisis on airlines:
• Malaysia has granted 50 per cent rebate on landing charges for two years,
starting April 1, 2009.
• A 25 percent reduction in landing charges is now implemented in
Singapore’s Changi airport.
• 10 percent reduction in landing and parking charges (Korea Airports
Corporation)
• 25 percent reduction in cargo landing fees (Toronto Airport)
• In Thailand, the Department of Civil Aviation was told to cut the landing
and parking fees for all airports under its supervision by 50 percent for
chartered flights and by 20 percent for scheduled flights.
The government has also committed to accelerate the development of tourism-

related infrastructure such as the Caticlan airport in order to expand the capacity
of local destinations.
• Marketing At the start of the year, the DOT already announced a “stimulus
package” aimed at stimulating travel from the US, Japan, Korea and China.
This stimulus package is more of a re-allocation of marketing funds rather
than infusion of new funds in order to support the industry. There is already an
ongoing promotional program of US$999 to bring in more residents from the
US, particularly the Balikbayans.59 The promo includes roundtrip
international airfare via PAL, two (2) night hotel accommodation in any of the
selected deluxe hotels, daily American breakfast and one-way transfer from
the airport to hotel or vice versa and extension adventure tours to Palawan,
Cebu, Bohol, Boracay and Cagayan de Oro are also offered at affordable
costs.
The private tour operators also launched programs such as the Island Get Away
packages in order to encourage domestic travel particularly during the summer
months.
• Public-Private Partnership The PPP approach was prominent in product

development and marketing at the local destinations. For example, the DOT
reported in its 1st quarter performance report that the DOT and the Cagayan
Economic Zone Authority have combined their resources in organizing the
recently concluded international windsurfing exhibition in Anguib beach in
Sta Ana, Cagayan. In other areas such as Candaba, Hundred Islands, Puerto
Princesa, Mount Apo and Pantabangan Dam, syndicated efforts of the DOT,
the Wild Bird Club of the Philippines, tour operators and the LGUs in key
destinations, were directed at developing birdwatching tours to address the
59
The tour operator consortium is composed of Air Travel Center , GTT International, LBC Travel,
Pacific Air Leisure, and Travelfast/Mango Tours. The official ground-handler for this extraordinary
tour package is San Francisco-based Rajah Tours International; while the participating hotels are
Sofitel Philippine Plaza, Crowne Plaza Galleria, Diamond Hotel, Holiday Inn Galleria and Dusit Thani
Hotel. This package is available only up to May 23, 2009.

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increased demand for nature and wildlife adventure. The same PPP approach
was adopted in Aliminos Pangasinan to design and promote sea kayak tours to
be managed by the Hundred Islands Eco-Tour Association (HIETA), a
community-based organization of out-of-school youth.
To support associations and companies in trying to bring down costs for the
conduct of MICE events, PCVC shall promote “GREEN EVENTS” by
advocating less use of paper, reducing waste, introducing energy efficient
facilities and designing compact meeting schedules. This should result in
lower administrative costs.60
• Human Resources The private sector is using the crisis period as

opportunity to train its current workforce in anticipation of more
discriminating markets in the next two years. Under a PPP approach, the
PCVC has teamed up with the Philippine Association of Professional
Congress & Exhibit Organizers (PACEOS) to run training programs and
Events Management and Marketing in selected secondary destinations initially
Bacolod, Subic/Clark. Domestic events continue to be the backbone of the
local MICE industry and are an excellent vehicle to disperse revenues to
provincial areas.
• Monetary None
6.2.2 Industry Expectations and Other Proposed Interventions
The private sector is seeking the support of the government in truly making tourism as
key tool for economic recovery by responding to these additional proposed
interventions. It echoes the call of the UNWTO to reduce barriers to mobility and to
remove all obstacles such as taxation and over regulation.
• Fiscal In June 2009, the airlines requested the MIAA, the MCIAA and
the Civil Aviation Authority of the Philippines to follow the lead of other
airport authorities in the region by increasing the discount in airport
landing and take-off fees. The approved 10 percent discount was
insufficient to enable their survival from the combined impact of the
AH1N1 outbreak, global crisis and increasing fuel prices on travel
demand and on their viability.
Apart from reductions in aeronautical fees, the airlines appealed to the

government to help them reduce their costs of doing business by removing
airlines from the enumeration of users to be charged for the overtime
work by Customs, Immigration and Quarantine personnel and by
reviewing the tax regime (gross receipts tax for foreign airlines and
Philippine travel tax).61
Foreign airlines seek for a review of the tax regime that governs their
operations in the Philippines. They are currently taxed on gross receipts
60
Email response of Director Danilo Corpuz, Executive Director of PCVC
61
Consultation with Board of Airline Representatives, Pasay City, 01 April 2009.

- -
basis regardless of the place of issuance and /or payment of tickets (based
on the 1997 Tax Code). The airlines seek a PPP approach with the
Department of Finance (DOF) and the Bureau of Internal Revenue (BIR)
to help address their concerns, that is, for the tax experts of the industry to
work together with the DOF and BIR in implementing revised rules that
will make the Philippines a more attractive investment destination.
Practices from other countries can be used as basis for revising the rules.
The implementation of the Philippine travel tax also contributes to the

higher costs of doing business for airlines and travel agencies and
additional transaction costs (cost of exemption, transportation expense,
opportunity cost of time) for the travelling public. It is also not consistent
to the promotion of green tourism and green tourism businesses for
environmental sustainability. Some airlines are required to handle about
35,000 travel tax-related documents every month and to spend on
additional manpower (at least two) per month to collect, compile and
prepare the documents for the travel tax audit conducted by the Philippine
Tourism Authority.
Local government units in major tourist destinations are also requested to

consider suspending rate increases and/or waiving or reducing fees for
business permits for one year.
• Marketing Per recommendation from the private sector, the DOT should
develop and match the innovative and competitive packages of Singapore
and Vietnam. Such promotional activities are needed given that the
country is competing with its neighbours that have poured in new
resources to address the impact of the crisis.
• Vietnam launched its “Impressive Vietnam”campaign by offering 30-

50 percent discounts on tours (by Vietnam Airlines) particularly to
central and northern Vietnam. Under the programme, there will be a
30-50 percent discount for hotel rooms as well as airfares for both
international and domestic flights. Target markets by hotels
specializing in conventions include Australia, Korea, America, and
Europe.
• Cambodia has removed the US$20 visa fee for tourists and is working
on improving connectivity from Thailand.
• Taiwan unveiled a plan to spend almost 900 million US dollars on a
bid to attract more tourists to the island over the next four years; The
draft plan allows for the government to pour 30 billion Taiwan dollars
(887.5 million US) into various projects including updating popular
sightseeing spots, promotion at home and abroad, renovating hotels
and training tourism personnel.
• The Malaysian Tourism Ministry allocated RM 200 million to be
spent on infrastructural upgrade in tourist areas, diversifying tourism
products, organising more international conferences and exhibitions in
Malaysia and improving the homestay programme. It has also
partnered with its counterpart in Indonesia to jointly promote Malaysia
and the Indonesia as twin destinations.

- -
• In Thailand, the government has granted visa exemptions for a period
of three months to tourists and waived visa fees for all tourists.
According to the PCVC, tour operators and hotel/resort establishments would

want to see more buyers brought into the country in the form of familiarization trips
to be able to introduce new packages and conduct business appointments. Both DOT
and PCVC has plans to increase these multinationals this year by expanding the
Travel Mart Exchange (TRAMEX) in Cebu this July and the Philippine Travel
Exchange (PHITEX) in Manila this September. Likewise, a MICE Buyers Forum
during the latter part of the year is being planned.
• Public-Private Partnership There is scope for stronger partnership with

the private sector and the local government units. They can support the
central DOT’s initiatives by offering competitive or cheaper rates for their
products and services (in the case of the private sector). In the case of the
local government units, they can help mobilize their local communities to
make the tourism experience truly worthwhile (in the case of the local
government units) through more efficient transport management systems,
clean and safe (and secure) tourist environment – ports, airports, bus
terminals, tourist sites as examples. Private stakeholders in some
destinations have started to tap new markets (e.g. India and Middle East)
as part of their diversification program (as in the case of Cebu). The local
government units can help expand this program by supporting the
initiatives of the private sector through the measures mentioned earlier.
For these new markets, their good experience in the Philippines will have
a positive effect on the destination through word of mouth advertising.
This PPP can be strengthened further through the Implementing Rules and
Regulations of the Tourism Act of 2009.
6.3 Competitiveness Issues and Strategic Response
As mentioned in the previous section, the crisis serves as the right opportunity
to make the Philippines a more favourable and competitive investment destination.
Now is the time to remove the obstacles to mobility and to competitiveness. The
objective is to make it more difficult for existing investors to leave and for new
investors to ignore the Philippines.
Based on global competitiveness reports (by the World Economic Forum), the
areas which contribute to the lack of tourism competitiveness include: transport and
tourism infrastructure, investment rules, regulatory environment and health and
hygiene. The safety and security issue cited in these reports is more of a perception
problem.62 The secondary destinations of the country are safe for both foreign and
local tourists. Unsafe destinations are isolated and not recommended for tourism.
Both the government and the private sector should continue to address this perception
problem.
62
Commentary provided by Undersecretary Oscar Palabyab during the inter-agency meeting at the
Board of Investments, April 17, 2009.

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6.3.1 Enhance international and local connectivity through improved
infrastructure and more enabling business and investment climate
This crisis period is the right time to mobilize investments to generate jobs and
income and prepare infrastructure and human resources in time for the economic
recovery. In general, infrastructure to improve farm to market access in the
countryside and in the metropolis will benefit tourism as evidenced in the case of
Thailand. The DPWH, DOT, DOTC already have a list of these projects. The airports
and ports should be a priority in relation to improving processes and ensuring safety
of travellers. There has been underinvestment in airport facilities and process
improvements in the past decades.
Local connectivity can also be improved with the completion of mass

transport projects (e.g. rail system) within the metropolis and between the metropolis
and its environs. Connectivity can also be improved with the development of port
facilities to support domestic travel via the RORO. New products such as cruise
tourism can be designed and promoted with the right port infrastructure.63 Monitoring
will be another critical component in overall competitiveness.
There has been underinvestment in room infrastructure to tap and expand the
high yield international MICE markets. The capacity will significantly expand in the
next two years with the completion of a number of endorsed projects by the DOT.
But room infrastructure must improve as the country sets higher targets for tourism.
As regards infrastructure, the spending record has been quite low in previous
years. There is very limited connectivity in terms of number of international flights
operating in the country, relative to the regional hubs. Some reasons to explain this
situation include: the restrictions imposed by the bilateral air services agreements of
the Philippines and the limited capacity of the Philippine carriers to expand overseas
operations. Some foreign airlines have shifted to off-line operations which have
reduced employment opportunities at the airport due to the relatively high costs of
doing business (e.g. related to overtime pay for CIQ personnel) for international
carriers (including the Philippines’ carriers), and gross receipts taxation for foreign
airlines.
From May 2007 to March 2009, the DOTC pursued and concluded bilateral
air talks with a number of countries, thus leading to significant increases in air seat
capacity. This has been a marked improvement from the relatively low record of one
air talk per year during the period 1997 to 2007. The government should continue
enabling secondary gateways to develop outside of the restrictions of the bilateral
framework. Liberalizing the entry into secondary international gateways can enable
the faster development of tourism destinations through faster and cheaper access. The
recent agreement with Australia provides unrestricted point to point capacity to and
from some secondary points of Australia to Cebu, Davao and other gateways outside
of Manila and Clark. This should serve as opportunity to expand the arrivals from
Australia and to compete with favourites such as Bali and Phuket.
63
Comments by Undersecretary Oscar Palabyab, April 17, 2009.

- -
6.3.2 Improve the investment and business climate to support investment
mobilization and job generation
Tourism has been identified as a globally competitive and sunrise industry by

the government. Hence, government should seek to reduce transaction costs. In the
case of the airline industry, the issues on CIQ charges (e.g. overtime, meals and
allowances etc) paid directly to the personnel has yet to be resolved despite the fact
that this has been cited as an impediment to competitiveness, expansion and
connectivity in a number of consultations for almost a decade already. The taxation
regime should also be benchmarked with other competitive destinations. Other costs
associated with the implementation of policies (e.g. travel tax) and regulations in all
tourism-related services should be included in the agenda. Another strategic response
is to streamline procedures and processes (e.g. registration, access to information,
licensing, etc) at the LGUs through one-stop shop tourism investment centers
(including website).
6.3.3 Implement product development and service improvement programs
When demand is down, it is the best time to implement maintenance work in

the facilities, train people, develop service manuals, upgrade standards of facilities
and services, implement GREEN TOURISM programs or projects, develop new
products and improve the existing products (in terms of packaging, labeling, etc.),
enhance data collection systems especially at the destination levels. Training human
resources is a strategy pursued by global tourism brands during crisis, thus making
them more competitive after the crisis. The government can consider giving
incentives for those that will conduct training programs in the country (e.g. rebates
etc.).
6.3.4 Develop globally competitive tourism workforce
Long term tourism growth and competitiveness cannot be achieved without

the support of a globally competitive workforce and human resources plan. This plan
should cover human resource development even at the grassroots level. This is where
international donor agencies can help tourism development, by supporting the human
resource training needs of SMEs and microfinance groups in tourism, especially the
women and out of school youth.
The requirement for competitive human resources, both in numbers and in quality, has
been a subject of a number of stakeholders’ consultations in the past. During the
National Manpower Summit in 2006, the Technical Education Skills Development
Authority (TESDA) explicitly highlighted the gap in critical skills of about 150,000
workers in the hospitality services - housekeeping, cooking, bartending, waitering,
food serving and handling, baking, front desk services, and room attendant. The
TESDA reported that while the number of deployed workers in these hospitality
service fields has not yet reached critical level, the country must be prepared to
address the growing demand for hospitality workers in the Philippines and abroad
(e.g. Canada, Australia, New Zealand, USA, Middle East and Africa). The POEA
data on overseas employment reflect that one of the dominant sectors for overseas

- -
employment is Hotel and Restaurant. According to the data, the sector will be
needing a total of 86,962 workers in the next five years. The wide disparity in wages
and benefits will pull more and more graduates of the Tech-Voc as well as HEIs out
of the country in the next three to five years. During the National Competitiveness
Council People Summit last November 15, 2007, the stakeholders raised concerns
about the quality of graduates in hospitality courses. The Hotel and Restaurant
Association of the Philippines reported that only about 8 percent of the annual
graduates of hotel and restaurant management courses in the Philippines are fully
qualified to take on the job responsibilities with hardly any retraining or very minimal
retooling.
Based on the projections by the Technical Skills Development Authority

(TESDA), manpower shortage in the hospitality industry is expected to reach 174,864
for 2006-2010 period. The five (5) occupations with highest manpower shortages are:
waiters, food and beverage service attendants, cooks, food servers and handlers, and
bartenders. There are already existing channels (e.g. school-based, center-based,
community-based and enterprise-based programs) by which the TESDA can be
supported to further uplift the quality of tourism workers. The recommendations
during the Manpower Summit in 2006 are more relevant and urgent given the
potentials of the Tourism Act to generate more investments in tourism:
Encourage more training providers in the sector and possible expansion of

the capacity of the existing TVET providers;
Encourage active participation of private sector in dual training system,
apprenticeship program, enterprise-based training, and more on-the-job
training (OJT); and
Promote assessment and certification especially in food and beverages and
particularly on standards of safety on food and beverage handling.
6.3.5 Public-Private Partnership
The Philippines has already gained the attention of the international

investment community with the entry of global tourism brands in the past four years.
Now is the time to intensify the interest of both foreign and local investors in the
potentials of tourism. Promotions should continue to generate interest in the
Philippines not only as a tourism site but also as an investment location. The
promotional programs should also cater to local investors that have either the land or
the network to put together projects.
This program should be accompanied by the improvement of LGU

capabilities, particularly in ensuring high quality of standards of facilities and
services. The Tourism Act of 2009 (Republic Act No. 9593) spells out the national
policy for tourism as an engine of investment, employment, growth and national
development. Critical to this policy is the institutional framework that will define the
rules of the games in the pursuit of the above objective.
Investment mobilization can also be supported by the national government

stimulus program. In the case of tourism, the DOT, through its Grassroots for
Entrepreneurship and Employment in Tourism (GREET) has stepped up the granting

- -
of financial subsidies to tourism establishments located in provincial areas to upgrade
both facilities and services to local and foreign travelers. Now on its second year of
implementation, the GREET has expanded from eco-tourism programs to tourism
livelihood projects in general. The private sector, LGUs and international agencies
are welcome to provide counterpart funding or support.

- -
Impact of the Crisis on Tourism and Possible Interventions
Market demand In 2007, the country recorded a Volume of Arrivals Per recommendation during the April 23 forum, more
total of 3 million arrivals, slightly The early impact of the global crisis innovative packages should be developed for markets
below the target of 3.4 million. was evidenced in the slower growth of other than the US or Balikbayans.
Nevertheless, in terms of international arrivals in 2008. A total
receipts, the DOT surpassed its of 3,139,422 visitors arrived in the Development or improvement of marketing channels such
2010 target of $4.5 B in 2007, 3 Philippines last year, 1.5 percent as websites and booking channels especially at the LGU
years ahead of the projected higher than the volume in 2007 but the levels
timeline. slowest in the past five-years.
Tourism Receipts Review of fees charged by tourism suppliers and LGUs to
Travel and tourism ranked as the For the whole year of 2008, receipts tourists, especially to high value market segments such as
fourth largest source of foreign dipped to $4.4 B in 2008, 11.1 percent divers in line with sustainable tourism revenue (and
exchange revenues (the top three lower than the earnings in 2007. The taxation) generation mechanisms
are electronics exports –$28.5 B, 1st quarter results revealed that
overseas workers remittances - revenue flows declined from $1,155 LGUs can help mobilize their local communities to make
$16B, and BPO - $6B) for the M to $744 M (35.6 percent). the tourism experience of current and new market
country in 2008. segments truly worthwhile through more efficient
transport management systems, clean and safe (and
secure) tourist environment – ports, airports, bus
terminals, tourist sites. For these new markets, their good
experience in the Philippines will have a positive effect on
the destination through word of mouth advertising.
Funding support by international agencies in tourism can
be directed towards these types of projects.
Market Supply Among the providers, the most Air Transport The Board of Airline Representatives requested for
vulnerable to the global tourism The vulnerabilities have been evident discounts on airport charges. In May, the MIAA granted

slowdown is the international in the reduction of flights (with the 10 percent discount on airport related charges for all
airline sector which carries 98 exemption of Middle East carriers), commercial flights and 15 percent for all extra section
percent of international arrivals decline in passenger volumes and flights for a period of six months or until the end of 2009.
to the Philippines. About half of most importantly in yields (about 35 Requests submitted to the Mactan Airport Authority and
international inbound passengers to 50 percent). Civil Aviation Authority of the Philippines have been
are tourists and the rest are denied because airport authorities have not increased their
returning Philippine residents Gross Value Added (GVA) The rates in previous years.
(e.g. tourists and Overseas effects of the crisis on the local
Filipino Workers). airlines are evident on the slower Pro-active dialogue between the DOTC and the airlines for
growth of the gross value-added them to make a case for the stimulus package or extension
(GVA) in 2008 and in the 1st quarter beyond December 2009. The long-term benefits of the
of 2009. package should outweigh the foregone revenues of the
airport authorities or the DOTC for a fiscal year or two.
Tours and Travel Agencies
Those handling inbound tourists, Review of investment incentives for SMEs in tourism.
especially from Korea, Japan, and Most of the tour operators are SMEs that cannot meet the
China have experienced sharp minimum fleet requirements for buses by the government.
reductions, as high as 35 to 50
percent, in their bookings. Airlines
have reduced their commission rates
for these agencies, particularly in the
business and first class seats.
Accommodation
The occupancy rates of hotels in
Metro Manila already declined from
73.8 percent in 2007 to 69.8 percent in
2008 (or a decline by 4.5 percent).
The GVA growth of the hotel and

restaurant sector slowed down in 2008
after an impressive record in 2007,
when it grew faster than the growth in
GDP.
Employment Total employment in tourism- From October 2008 to April 2009, the International agencies/chambers of commerce can extend
related industries reached 3.3 DOLE reported that about 147 support to the DOT through the GREET program in order
million in 2008, 1.5 percent workers (50-50 male/female) working to expand the pool of funds for the SMEs and
higher than the previous year’s in hotels and resorts nationwide were microfinance projects proposed by local communities and
level. The growth was slower displaced, mostly food attendants and enterprises. These projects can support the women
than its 2007 record of 3.7 kitchen related service workers. The entrepreneurs.
percent and the growth of 2.5 hotel and restaurant industries employ
percent for total Philippine a significant number of women, about Link-up projects for women in tourism with private sector
employment. 40 percent in all medium to large initiatives such as the 10,000 women project of the
establishments (those with 20 or more Goldman Sachs and the University of Asia and the Pacific.
employees).
Provide training programs, develop service manuals to
prepare the industry for the rebound. Some proposals
from the 2006 Manpower Summit include: encourage
more training providers in the sector and possible
expansion of the capacity of the existing TVET providers;
encourage active participation of private sector in dual
training system, apprenticeship program, enterprise-based
training, and more on-the-job training (OJT); and promote
assessment and certification especially in food and
beverages and particularly on standards of safety on food
and beverage handling.

Support through discounts or rebates can be given
especially to SMEs participating in training programs
Business and From 2005 to 2008, the DOT The DOT already endorsed five The Implementing Rules and Regulations of the Tourism
Investment Climate endorsed PhP 146 B worth of Development projects worth P6.323 Act of 2009 (Republic Act 9593) need to be drafted and
cumulative private investments. Billion in 1st quarter of the year. promulgated by second week of November.
Total investments per year These projects are projected to create
reached PhP 36 B or 1,616 times 6,340 jobs for local residents. The Other salient points of the Act with implications on LGUs
larger than those generated preliminary figures from the BSP include: masterplanning, identification of lands for tourism
during the period 2001 to 2004. already revealed that tourism development, implementation of standards for
These investments were placed continues to attract interest from the accreditation, development of one-stop shops for
largely in tourism economic international community and that the investments and businesses to reduce time and financial
zones. industry will not surely post zero costs (particularly in licensing and registration, land titling
investment despite the crisis – including verification and authentication). Projects of
international donor agencies can focus on these areas to
help LGUs mobilize tourism investments in light of the
Tourism Act of 2009
Certain transaction costs tend to The crisis magnified the burden of Review of the rationale for the collection of these charges
raise the costs of doing business these costs on the tourism suppliers and the taxation regime for foreign airlines, and make
in the country and make it easier amendments to the rules and regulations that govern such
for investors to shift operations to practices in light of global practices and the long-term
more competitive tourism international connectivity and competitiveness of
destinations. Specifically, in the Philippine tourism. It is important to identify the remedies
airline sector: gross receipts needed – administrative, legislative, executive, judiciary
taxation (global sales and not just and the lead agencies to enable the reform process.
the business turnover in the
Philippines) imposed on foreign To develop competitive and sustainable tourism taxation
airlines, costs of overtime in the country, the pertinent laws and regulations on taxes
payments (overtime rate per hour, and charges being applied to the entire tourism value chain

meals and transportation (airlines, hotels, travel agencies, tour operators, facilities)
allowances) to customs, need to be reviewed with a wholistic perspective – long
immigration and quarantine term development of tourism. International agencies can
personnel (CIQ), and impact of support projects to assess the impact of the current tourism
travel tax procedures taxation regime on the value chain and propose ways to
generate more innovative, competitive and sustainable
sources of taxation revenues
In general, infrastructure to improve farm to market access
Infrastructure The Philippines’ ranking has not Government has decided to channel in the countryside and in the metropolis will benefit
improved based on international some funds to infrastructure tourism as evidenced in the case of Thailand. The DPWH,
surveys development, including tourism, in DOT, DOTC already have a list of these projects. The
order to generate jobs airports and ports should be a priority in relation to
improving processes and ensuring safety of travellers.
There has been underinvestment in airport facilities and
process improvements in the past decades.
Local connectivity can also be improved with the

completion of mass transport projects (e.g. rail system)
within the metropolis and between the metropolis and its
environs. Connectivity can also be improved with the
development of port facilities to support domestic travel
via the RORO.

7. The Philippine Automotive Industry and the Global Financial
Crisis
Ceferino S. Rodolfo
7.1 Current Industry Status

7.1.1 Sales, Production, Imports and Exports
The Philippine automotive industry can be characterized as small, domestic-oriented,

and import-dependent. In 2008, the industry’s brand-new vehicle sales of 124,449
were at just about same level as the 124,381 units sold in 1995. In fact, the industry
still has to match the 157,361 units it sold in 1996, prior to the Asian Financial Crisis.
Figure 7.1
Chart 1. New Vehicle Sales
(in units, 1971-2008)
180,000
160,000 157,361
140,000
124,449
120,000
100,000
80,000
60,000
40,000
20,000
0
1971 1976 1981 1986 1991 1996 2001 2006
Source: CAMPI
Worse, of the brand-new vehicle sales, only about half are actually assembled in the
country as the rest were imported as completely built units (CBU). For instance,
Hyundai—which has now become a popular car brand cornering a market share of
8.2% in 2008—does not have an assembly facility in the country and imports all of
the vehicles that it sells in the Philippines. The share of imported CBU vehicles to
total industry sales had increased from just about 4% (or 3,149 units) in 2000 to 48%
(56,775 units) in 2007.64
64
Page 14. Table 9. Globalization and the Need for Strategic Government-Industry Cooperation in the
Philippine Automotive Industry. Rafaelita M. Aldaba. DISCUSSION PAPER SERIES NO. 2008-21.
August 2008.

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Figure 7.2
Chart 2. CBU Imports
(in units; in % share to total new vehicle sales)
60,000 0.6
CBU Imports
50,000 0.5
% to Total Sales
40,000 0.4
% to total sales
in units
30,000 0.3
20,000 0.2
10,000 0.1
0 0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
CBU Imports 1461 1609 4125 1146 24730 23947 12328 9779 3149 11468 10853 6948 29246 38497 43491 56775
% to Total Sales 0.0242 0.0192 0.0399 0.0089 0.1526 0.1658 0.1537 0.1314 0.0426 0.1496 0.1268 0.0752 0.3321 0.3966 0.4369 0.4815
Source of basic data: Aldaba, R. "Globalization and the Need for Strategic Government-Industry Cooperation in the Philippine Automotive
Industry," p.14, 2008.
In 1996, the Philippines produced about 131,000 vehicles; by 2008, this had gone
down to about 66,000.65 In contrast, other ASEAN countries were already able to
fully recover from the 1997 crisis. Thailand, for example, produced almost 1.4 million
(M) vehicles in 2008; compared with just 559,000 in 1996. Its domestic market of
615,270 units (2008) is almost five times bigger than the Philippines’. It exports more
than 500,000 vehicles every year.66
Thailand’s production size is about 21 times larger than the Philippines’; Malaysia’s
is nearly eight times; while Indonesia’s is more than seven times bigger.
Table 7.1
Comparative Vehicle Production
Pre-1997 Crisis
Country Estimated Production 2008*
in ‘000 units
Indonesia 386 (in 1997) 465
Malaysia 462 (in 1997) 507
Philippines 131 (in 1996) 66
Thailand 559 (in 1996) 1,372
* light vehicles
Source: U (2003) for 1996-1997 data, www.csmauto.com for 2008
65
Four-wheel vehicles (e.g. passenger cars, jeeps, pick-ups, vans, four-wheel drives, sports utility
vehicles, etc.), excluding trucks & buses.
66
Aldaba, Policy Notes, p. 7

- -
Measured in terms of value, the Philippines exported almost US$90 M-worth of
automobiles in 2006; while Thailand exported almost US$3 billion (B). Thailand’s
automobile exports were more than six times larger than the value of its imports; the
Philippines, on the other hand, is in the opposite situation—its imports were more
than six times the size of its exports.
Table 7.2
Comparative Value of Exports & Imports of Motor Vehicles
2006, trucks, buses & automobiles
Ratio of Exports
Country Exports Imports
to Imports
(in '000 US$)
Thailand 2,925,828 469,641 6.23

Philippines 89,738 561,440 0.16
Indonesia 366,069 504,180 0.73
Malaysia 179,540 1,419,319 0.13
Source of basic data: www.macmap.org
The total size of the Philippine auto market is actually much higher than that
suggested by brand-new car sales. In 2004, total first-time vehicle registrations
reached 226,855 units—but only 88,075 units represented brand-new vehicle sales by
the industry; more than 60% (or 138,780) were from other sources, e.g. those brought
in by balikbayans or diplomats, those from assembled by informal motor shops (e.g.
owner-type jeeps) and, most importantly, second-hand motor vehicles imported
through special economic zones.
For an industry that is sensitive to scale, the importation of second-hand vehicles has
a significant impact. For instance, the current best selling passenger car model is the
Toyota Vios, with sales in 2008 of about 12,000 units. This still falls short of the
estimated 40,000-50,000 units needed to efficiently produce a given vehicle model.
(source:__ ).
Disallowing the importation of second-hand vehicles does not however automatically

increase the domestic market. The industry must also find a way of servicing the
needs of those who buy imported second-hand at the price-level that they can afford.

- -
Figure 7.3
Chart 3. New Vehicle Registrations
brand-new industry sales vs. other sources
250,000
~227k first-
time
Other Sources
vehicles
Industry Sales registration
200,000 s
61% of
~139k
150,000 total new
from
registered
other
vehicles in
units
sources
2004
100,000
~88k
industry
brandnew
sales
50,000
0
1982 1987 1992 1997 2002 2007
Source of basic data: CAMPI, LTO
7.1.2 Contribution to the Economy
The Automotive industry has the potential to contribute significantly to the Philippine
economy. It is one of the sectors with the highest, if not the highest, output multiplier.
Its multiplier of 2.42 means that a Php1 increase in the sector’s output leads to an
additional Php2.42 increase in the output of other industries.
It is not difficult to visualize why the industry has a high multiplier. To manufacture,
assemble, and sell motor vehicles require a wide range of parts, raw materials, and
services. A vehicle contains parts made of steel and other metals, plastics, rubber,
glass, leather, etc.

- -
Figure 7.4
Chart 4. Output Multipliers
(selected sectors, based on 2000 Input-Output table, aggregated into 29 sectors)
BPOs 1.60
Real Estate 1.20
Finance 1.66
Tourism 2.24
Automotives 2.42
Electronics 2.06
Furniture 2.28
Garments 2.19
Mining 1.70
Agribusiness 1.97
0 0.5 1 1.5 2 2.5 3
However, for the Philippines to realize the benefits from the auto industry’s high
output multiplier, the local economy must first be able to competitively supply the
raw materials and parts needed by industry. As it is, the Philippine auto industry is
heavily dependent on imported parts and components—thereby missing-out on the
potential multiplier impact of the industry on economic output.
Of the total costs of the industry, about 61% are imported (especially from Japan and
Thailand); 23% are locally-sourced; while 16% represent assembly costs.

- -
Table 7.3
Cost Comparison between RP and Thailand
Cost Item RP Thailand

Assembly costs 16 13
Local components 23 67
Multi-supplier parts 61 20
- supplied from Japan 12 13
- supplier from ASEAN 49 7
(e.g. Thailand or RP)
100 100
Source: Adapted from Aldaba, R. “A call for strategic government–industry coordination. The autobus
is leaving...Can the Philippines catch it?,” Figure 2. Comparative cost study between Thailand and the
Philippines. PIDS Policy Notes. No. 2008-02 (March 2008)
The lower assembly cost of Thailand is derived primarily from the economies of scale
that it enjoys from having a larger domestic market. It can spread its fixed costs over
larger production runs and it can fully utilize its production capacity. In 2006,
Thailand has a production capacity of 1,576,500 units. Based on its annual production
levels, the capacity utilization in Thailand is more than 85%. In contrast, with
production capacity in the Philippines pegged at about 230,000 units (2008), capacity
utilization is only about 29%.67
The comparative cost structure between the Philippines and Thailand highlights two
critical problems faced by the local auto industry:
- a small domestic market (in an industry where economies of scale is

important) that is being competed for by a number of players (including those
which import CBUs), and
- low level of parts localization.
The Philippine parts and components sector has about 256 companies, producing
around 330 different parts and components made of metals, plastic, rubber, and
composite materials. Of the parts manufacturers, around 124 are considered as first-
tier manufacturers (direct suppliers of domestic automotive assemblers); while the rest
are mostly small and medium enterprises (SMEs). In contrast, Thailand, in 2002,
already had about 1,800 locally-based parts suppliers, with about 700 belonging to the
first-tier.68
As a result, the industry, despite its potential to serve as a leading output catalyst, has
failed to make a significant impact on the economy. Its share of total value of
industrial output is only 4.3%; while contributing only 2.3% of total employment.
67
Industry capacity estimate is based on the presentation of Atty. Homer Maranan, Secretary General
of the Chamber of Automotive Manufacturers and Producers, Inc. during the seminar on “The Present
Situation of the Philippine Auto Industry and Its Position in East Asia,” December 2007 at the UA&P,
as contained in the UA&P SGRA Report No.002 (2008).
68
Aldaba. Policy Notes. p4.

- -
Table 7.4
Contribution to Total Industry
Total Industry Manufacture of Share of Motor

(in Php) Motor Vehicles Vehicles to
(in Php) Total Philippine
Industries
No. of Firms 6,554 126 1.9%
Total Value of Output 2,912,184,831 125,754,261 4.3%
Employment 1,025,814 23,539 2.3%
Value-Added 684,837,519 21,573,460 3.2%
Total Revenue 2,949,134,088 138,297,565 4.7%
Source of Basic Data: NSO
7.2 Impact of the Crisis on the Auto Industry
Trade represents a considerable part of the Philippine economy—with the absolute

share of exports to GDP at 43%, and imports at 42%. However, it is still a domestic-
oriented economy, with domestic private consumption accounting for close to 70% of
total GDP. In contrast, in neighboring countries such as Thailand and Malaysia,
private consumption expenditures account for only about 50% of GDP.
During periods of high global growth, the Philippines’ relatively lower share of
exports to GDP (compared with Thailand’s 73% and Malaysia’s 110%) prevents it
from experiencing greater economic expansion. However, during times of global
contraction, a large domestic-oriented market provides a higher level of resiliency to
the country.
Table 7.5
Structure of Gross Domestic Product
2007, in %, based on current prices
PCE * Gov't. ** GDCF *** Exports Imports

RP 69 10 15 43 (42)
Japan 57 18 24 18 (16)
Thai 53 13 27 73 (66)
Indon 63 8 25 29 (25)
Malay 46 12 22 110 (90)
Viet 65 6 42 77 (90)
China 37 14 44 41 (31)
India 55 10 38 21 (24)
* Private Consumption Expenditure; ** Gov't. Consumption
*** Gross Domestic Capital Formation
Source: Asian Development Bank

- -
The Philippine automotive industry is domestic-oriented and is less exposed to the
depressed global demand. There are specific companies though which are more reliant
on exports, for instance those which use the Philippines as hub for regional production
under the ASEAN Industrial Cooperation (AICO) scheme.
Previous growth in domestic demand has been driven by availability (i.e. ease of
availment and low interest cost) of financing and buoyant demand from OFWs and
their families. Based on interviews, as well as business news reports, about 70% of
brand-new car buyers rely on bank loans; while OFWs account for about 25% of the
market for vehicles.
7.2.1 Trends in Loan Rates
Despite the global financial crisis, the financing environment has been relatively
conducive to the growth of the auto industry. Average loan rates in the country had
been relatively stable over the past decade, resulting in higher auto loan availments.
Figure 7.5
Chart 5. Average Loan Rate
(in %, average annual rates)
30
28.23%
25
20 18.39%
15
%
10
8.28%
5
0
1982 1987 1992 1997 2002 2007
Year
Source: www.bsp.gov.ph
Equally important, the crisis does not seem to have led to a substantial deterioration in
auto loan payments—which, if it materializes, could lead banks to be more
conservative in lending to car buyers (e.g. by increasing loan rates, increasing
downpayment levels, shortening loan repayment terms, adopting stricter applicant
screening procedures, etc.). In the first three quarters of 2008, auto loans (ALs) have

- -
been relatively stable; and there was no significant increase in non-performing loans
(NPLs).
Table 7.6
Auto Loan Indicators
Universal, commercial & thrif banks
As of end periods indicated, in Php B
March
'08 June '08 Sept '08
Total Auto Loans (AL) 76.559 79.084 77.171

- Performing 72.298 75.042 73.241
- Non-Performing 4.261 4.041 3.931
Total Loan Portfolio (TLP) 2,137.409 2,325.543 2,393.360
Non-Performing Loans (NPL) 133.257 133.725 140.348
Total ALs to TLP(%) 3.58 3.4 3.22

Non-Performing ALs to total NPLs (%) 3.2 3.02 2.8
Non-Performing ALs to TLP (%) 0.2 0.17 0.16
Non-Performing ALs to total ALs (%) 5.57 5.11 5.09
In fact, according to Ms. Elizabeth Lee, President of the Chamber of Automotive

Manufacturer’s and Producers, Inc. (CAMPI), what has been important for the
sustained sales of the auto industry “is the stable financing environment which allows
buyers to take out loans to finance their purchases.” 69 This sentiment was echoed by
Mr. Froilan Dytianquin, Assistant Vice President for Marketing Services of
Mitsubishi Motors Philippines Co. (MMPC). Aside from the introduction of new
models and model variants, he attributes Mitsubishi’s notable sales performance “to
the aggressiveness of financial institutions to accept auto financing loans, especially
for entry level buyers such as small-medium entrepreneurs and OFWs.” Mr.
Dytianquin added that: “Unlike other markets, we believe that the local financial
institutions remain to be healthy and have actually kept the local automotive industry
buoyant in the midst of the global recession.”70
7.2.2 Trends in OFW remittances
In terms of OFW remittances, the inflow of remittances has surprisingly been robust
even in the face of the global crisis. OFW remittances account for roughly 9% of total
GNP (2008).
69
As cited in CAMPI: Local Auto Sales Climb 4.6% in May. CAMPI: Local Auto Sales Climb 4.6% in
May. June 9, 2009. (www.tsikot.com, accessed June 2009)
70
Mitsubishi Motors Philippines Registers Impressive 32% Growth in 1Q 2009. May 22, 2009.
(www.tsikot.com, accessed June 2009)

- -
Vehicles are popular among OFWs not only for their personal use but also for
pursuing possible business opportunities, e.g. for the logistics needs of their small
businesses or for shuttle services.
Table 7.7
Overseas Filipinos' Remittances
annual, in '000 US$
000 US$ growth

2003 7,578,458
2004 8,550,371 13%
2005 10,689,005 25%
2006 12,761,308 19%
2007 14,449,928 13%
2008 p/ 16,426,854 14%
Jan-Mar
2008 3,950,481
2009 4,057,029 3%
In 2008, even with the crisis, OFW remittance increased by 14% in dollar terms. For
the first quarter of 2009, remittances managed to grow by 3%.
7.2.3 Trends in Fuel Prices
Another important factor that affects sales of motor vehicles is the price of fuel. This
may however have a counter-intuitive effect as higher fuel prices may actually attract
car owners to buy smaller, more fuel efficient vehicles or shift from gas-powered
engines to diesel or even hybrid fuel—thereby, at least initially, increasing vehicle
sales. It is noteworthy that sales of vehicles even increased in early 2008 at the height
of fuel price increases.
The global crisis has however eased the upward pressure on fuel prices. From a high
of almost Php60 per liter of unleaded fuel in July 2008 (Metro Manila), fuel price had
consistently gone down to reach a low of about Php31 in February 2009. In general,
this has made it more affordable to own and use a vehicle.
Fuel prices have started to again increase with signs of impending global economic
recovery.

- -
Figure 7.6
Php Chart 6. Fuel Price

(Php per liter, unleaded, Metro Manila)
70
59.76
60
50
40
30
31.14
Source:
Based on DOE (www.doe.gov.ph) reported
20 prices of Shell, Caltex & Petron; selected days
of the month; months with missing prices were
based on average of previous & succeeding
months.
10
-
J- F- M- A- M- J- J- A- S- O- N- D- J- F- M- A- M- J- J- A- S- O- N- D- J- F- M- A- M- J- J- A- S- O- N- D- J- F- M-
06 06 06 06 06 06 06 06 06 06 06 06 07 07 07 07 07 07 07 07 07 07 07 07 08 08 08 08 08 08 08 08 08 08 08 08 09 09 09
7.2.4 Summary: Impact of Crisis on Vehicle Sales
While the sales of brand-new vehicles in the country have not yet even returned to its
pre-1997 level, the industry was at least able to grow, albeit at a slower pace in 2008.
In fact, even in the first quarter of 2009, the industry still managed to grow slightly by
2.6%. This is in sharp contrast to the more than 50% contraction being reported in the
North America (which includes the United States).
Table 7.8
New Vehicle Sales
(annual, sales in units, growth in %)
RP North America
Year
units growth units growth
2000 83,949 23.3% 206,033,967 0.5%
2001 76,670 -8.7% 186,534,550 -9.5%
2002 85,587 11.6% 197,232,449 5.7%
2003 92,336 7.9% 191,891,111 -2.7%
2004 88,075 -4.6% 189,508,877 -1.2%
2005 97,063 10.2% 189,029,245 -0.3%
2006 99,541 2.6% 183,229,317 -3.1%
2007 117,903 18.4% 181,414,609 -1.0%
2008 124,449 5.6% 152,645,706 -15.9%
Jan-Mar
2008 28,907 41,693,778
2009 28,564 2.6% 20,033,755 -52.0%
Source of basic data: CAMPI for RP data; www.csm.com for North American figures

- -
The Philippines, thus is relatively still in a better situation than most other countries.
Its domestic orientation has been sustaining the industry. The industry is expected to
register flat growth this year—as long as the following are sustained: stable interest
rates on auto loans, inflow of OFW remittances, and stable (and low) fuel prices.
Figure 7.7
Chart 7. Monthly New Vehicle Sales
(in units, 2006-March 2009)
14000
2006
2007
12000
2008
2009
10000
8000
6000
4000
2000
0
January February March April May June July August September October November December
Source of Basic Data: CAMPI

- -
Impact of the Crisis on Sales of Automotive Industry
Loan rates • Despite the global financial • The crisis does not seem to have led • Financial institutions should further come up with more
crisis, the financing to a substantial deterioration in auto attractive auto loan rates
environment has been loan payments—which, if it • The government can also come up with its own auto loan
relatively conducive to the materializes, could lead banks to be system that can encourage consumers to buy cars
growth of the auto industry. more conservative in lending to car
Average loan rates in the buyers (e.g. by increasing loan rates,
country had been relatively increasing downpayment levels,
stable over the past decade, shortening loan repayment terms,
resulting in higher auto loan adopting stricter applicant screening
availments. procedures, etc.). In the first three
quarters of 2008, auto loans (ALs)
have been relatively stable; and there
was no significant increase in non-
performing loans (NPLs).
• Unlike other markets, it seems that
the local financial institutions remain
to be healthy and have actually kept
the local automotive industry
buoyant in the midst of the global
recession.
OFW Remittances • In terms of OFW remittances, • In 2008, even with the crisis, OFW • The government should continue to look for fresh job
the inflow of remittances has remittance increased by 14% in opportunities abroad to sustain growth in remittances
surprisingly been robust even dollar terms. For the first quarter of • Encourage competition among banks offering transfer of
in the face of the global 2009, remittances managed to grow remittances services to bring down transfer fees
crisis. OFW remittances by 3%.
account for roughly 9% of
total GNP (2008).

• Vehicles are popular among
OFWs not only for their
personal use but also for
pursuing possible business
opportunities, e.g. for the
logistics needs of their small
businesses or for shuttle
services.
Fuel prices • Another important factor • The global crisis has however eased • The government and oil companies must have a
that affects sales of motor the upward pressure on fuel prices. concerted effort to make sure that domestic prices really
vehicles is the price of From a high of almost Php60 per reflect the movements of oil prices in the world market
fuel. This may however liter of unleaded fuel in July 2008
have a counter-intuitive (Metro Manila), fuel price had
effect as higher fuel prices consistently gone down to reach a
may actually attract car low of about Php31 in February
owners to buy smaller, 2009. In general, this has made it
more fuel efficient vehicles more affordable to own and use a
or shift from gas-powered vehicle.
engines to diesel or even
hybrid fuel—thereby, at
least initially, increasing
vehicle sales. It is
noteworthy that sales of
vehicles even increased in
early 2008 at the height of
fuel price increases.

Overall Sales • While the sales of brand-new • The Philippines, thus is relatively • Implement more effectively EO 156
vehicles in the country have still in a better situation than most
not yet even returned to its other countries. Its domestic
pre-1997 level, the industry orientation has been sustaining the
was at least able to grow, industry. The industry is expected
albeit at a slower pace in to register flat growth this year—
2008. In fact, even in the first as long as the following are
quarter of 2009, the industry sustained: stable interest rates on
still managed to grow slightly auto loans, inflow of OFW
by 2.6%. This is in sharp remittances, and stable (and low)
contrast to the more than fuel prices.
50% contraction being
reported in the North
America (which includes the
United States).

7.3 Recommendations
This paper will concentrate on viable short-term recommendations to help the

industry cope with the impact of the global financial crisis. However, a short review
of the experience of Thailand—considered as the automotive hub in Southeast Asia—
may be illustrative.
7.3.1 The Experience of Thailand
In the late 1980s to early 1990s,71 as the Japanese Yen appreciated, manufacturing
capacity left Japan and migrated to other countries to maintain competitiveness. In
addition, automotive companies saw an opportunity to consolidate production in
regional hubs as: (1) quantitative restrictions declined globally as well as tariffs and
(2) regional trade initiatives accelerated to promote intra-region trade and production,
e.g. the ASEAN Industrial Cooperation (AICO) scheme.
In Southeast Asia, Thailand was chosen by automotive manufacturers to be their

regional hub for market and policy considerations. First, automotive manufacturing,
as noted earlier, is sensitive to economies of scale. Hence, locating in a country with a
larger vehicle market size and better growth prospects can make it easier for an
assembler to attain economies of scale.72
In ASEAN, Thailand had the largest domestic market. For instance, from 1989–1996,
Thailand’s annual vehicle sales of slightly more than 400 thousand units accounted
for about 42% of total vehicle sales in the ASEAN 4 (i.e. Thailand, Indonesia,
Malaysia, and the Philippines). Indonesia had about 27%; Malaysia, 21%; and the
Philippines, 10%.73
Second, policy environment also played a critical role. In general, investors—

including auto manufacturers—would want to invest in countries which have more
liberal and stable policy environments. Policy consistency is especially important
especially considering the amount of investments involved and the long period within
which these can be recovered.
Thailand had the edge in terms of the policy environment. For example, unlike
Malaysia, it never had an explicit policy of developing its own national car and was
therefore seen as offering a “level playing field.” Neither did it have an explicit target
in nationalizing local parts, as was the case in Indonesia and the Philippines.74 And,
although Thailand had high tariff rates on auto, it was the first country to begin
unilaterally liberalizing its automotive industry. It was also more consistent with its
policies than the Philippines and, most especially, Indonesia. Furthermore, it
committed to remove the local content rule by 2000, along with foreign ownership
restrictions.
71
For instance, the 1985 Plaza Accord triggered significant increase in Japan FDI outflows.
72
Kohpaiboon (2004) noted that an efficient scale can be attained at 40,000 to 50,000 units per model
(page 14)
73
Kohnpaiboon (2004) page 14
74
(Doner, 1991: p.61); as cited in p. 15 Pookhabia.

- -
Equally important, Thailand had consistently subjected the commercial vehicle
segment to lower tariffs and consumption (excise) tax (i.e. compared with passenger
vehicles). As a result, the price of a one-ton pickup in Thailand was about half that of
a medium-size passenger car. This allowed the country to attain economies of scale in
the one-ton pick-up segment and enhanced its competitiveness as regional hub for
these vehicles. In fact, it had become the world’s second largest production base for
one-ton pickups.75
7.3.2 Implications for the Philippines
1. Long-term measures
The Philippines would have to make a decision on whether it would like to develop its
own automotive industry. As mentioned, the industry has the potential to significantly
contribute to the economy. However this requires a large domestic market base and a
stable policy environment.
Though Thailand is already ahead in terms of being a regional hub, it is currently

faced with difficult challenges as its production is more intricately related to the
global market and it has been intermittently experiencing political turmoil. Now is the
most opportune time for the Philippines to aggressively present itself as an alternative
regional production hub for specific types of vehicles (e.g. hybrid vehicles).
This will however require reviewing the current Motor Vehicle Development Program
to ensure that a stable and consistent policy framework, with realistic goals and
targets, is formulated and implemented. This will encompass questions on fiscal
incentives, tariff differentials (between CBU and CKD parts), taxes, human resource
and development, international promotions, and other relevant investment policy
variables; as well as policies on used vehicle importation, quality and standards, etc.
The whole exercise should be geared towards providing a stable and consistent
framework, identifying specific segments or niches where the country can still be
competitive, and—at least in the identified segment or niche—making the country
more attractive than Thailand and even China.
An alternative policy option, however, is for the country to abandon its motor vehicle
development program and follow market-based policies with respect to the
importation of vehicles. This policy, while foregoing the economic benefits from
having a fully-developed automotive industry, will provide car buyers with choices—
both in terms of quality, service, and price. In a few years, after the market has
sufficiently enlarged, the country may by then have already become an attractive
production location for automotive manufacturers.
75
(Doner et al., 2004: p. 187-188). Doner, R. F., G. W. Noble, and J. Ravenhill (2004), ‘Production
Networks in East Asia's Auto Parts Industry’, in S. Yusuf, M.A. Altak and K. Nabeshima (eds.), Global
Production Networking and Technological Change in East Asia, Oxford University Press, Washington,
DC.

- -
7. Short-term measures
Regardless of the choice, however, the current crisis compels the implementation of
measures to assist the industry in the short-term. While the industry’s domestic
orientation somehow insulates it from the crisis, the industry will, at best, register flat
growth for this year. Moreover, it must be emphasized that this same domestic
orientation prevents the local auto industry from taking advantage of any global
upswing.
There are a number of measures that can be recommended, albeit with varying
chances of actually being implemented. These include:
- Exchange rate depreciation – some economists76 have argued that the Philippine
peso is overvalued (e.g. some estimates put this at about 20%). Its impact has been
to make the imported parts and CBUs less expensive. While some industry players
have been complaining about the free trade agreement (FTA) talks which the
government has engaged in, the impact of an overvalued exchange rate on the
sector’s price competitiveness is conceivably greater.
- Reduction in taxes – taxes on new vehicles average about 20% of their retail price.
Economists have noted that, based on the first quarter GNP results, income (e.g.
OFW remittances) seems to still continue flowing into the economy but consumer
confidence and purchases seem to bee down. In the United States, as well as other
developed economies, governments have offered tax rebates (e.g. for families who
will buy vehicles for the first time) to spur people to buy cars.
To the extent that tax rebates will encourage families who were previously not
intending to buy a new car, it will be revenue neutral for the government.
- Encourage buying locally-assembled vehicles – previous motor vehicle

development programs contain provisions that encourage buying locally-
assembled over imported CBUs. For instance, governments were mandated to buy
locally-assembled Asian Utility Vehicles (AUVs). Such a stipulation may
however no longer be allowed given the rules under the multilateral trading
system.
An alternative way of pursuing this, however, can be in terms of providing

specifications slanted to favor locally-assembled vehicles. For instance, as some
LGUs have now been buying newly-introduced China-made brands, a requirement
can be in terms of having products which have been proven—for a number of
years—to be acclimatized with Philippine road conditions, a wider dealership
network (e.g. to ensure after-sales service), etc.
Given a diffused industry, policies that favor locally-produced / assembled

vehicles may not be as unanimously supported at present. Industry players now
consist of those which import CKDs and assemble the units here, those which
import CBUs, and those which do both. Moreover, whereas in the past the
76
For instance, Prof. Benjamin Diokno of the U.P. School of Economics and Professors Victor Abola
and Emilio Antonio, Jr. of the University of Asia and the Pacific.

- -
industry was dominated by Japanese manufacturers, today there this dominance is
being challenged by American, Korean, and Chinese brands.
Vehicle buyers would also be adversely affected by such as policy.
- Prevent the importation of second-hand vehicles. Based on industry interviews,

however, the most important measure that should be implemented is the
prohibition of the importation of second-hand vehicles. However, while for certain
sectors this simply means the implementation of E.O. 156 (i.e. the Motor Vehicle
Development Program), it has actually taken a complex legal question. Suffice to
say, this contributes to an industry development framework that is not stable and
inconsistent.
It must be emphasized though that it is the most realistic policy response and the
one which will yield the largest impact. Aside from being a complex legal issue,
it also requires considerable political will.

- -
8. Assessing the Impact of Global Economic Slowdown on Philippine
Regions and the Subic-Clark-Batangas Corridor
Enrico L. Basilio77
While the global economy is going through a “storm”, the

Philippines must seize this opportunity to prepare itself for the
eventual takeoff that will take place sooner than expected. An
assessment of the macro-economy indicates the country’s resiliency in
the midst of the financial crisis. However, there are some export-
oriented sectors that exhibited certain levels of vulnerabilities –
automotive, electronics, tourism, agri-business. Similarly, these
industry-based effects are likewise felt in specific regions where the
exporters and manufacturers of these products operate. The good news
is that the impact has been minimal and the administrations of special
economic zones in Clark, Subic and CALABA areas have instituted
programs to mitigate the effects of the economic slowdown.
On the transport sector, the rapid expansion of the Strong

Republic Nautical Highway (SRNH) and the service efficiency and cost
reduction the system brought about have provided the economy a
welcome relief. It has cushioned the impact of the reduction of fleet
capacity in domestic trade due to the recent maritime tragedy. There
are proponents for a region-wide adoption of the RO-RO concept in
South Asia to improve “regional connectivity”. The massive
development of land transport infrastructure in the Greater Mekong
Sub-region supports this initiative. In line with this, the National
Competitiveness Council (NCC) is pushing for the development of the
Subic-Clark-Batangas Corridor to promote the country as a regional
logistics and transshipment hub. But to attain this vision, there
remains some tasks that needs to be competed – i.e., further investment
in infrastructure to address gaps (e.g., high speed rail system from
Clark to Central Business Districts in Manila, NLEX-SLEX connection
via C6), and policy enhancements to promote greater public-private
partnerships in infrastructure development.
77
Senior Economist, University of Asia and the Pacific and Director, CRC Transport and Logistics
Institute .The author would like to thank the assistance of Messrs. Rafael Hernandez and Keene Antolm
Calipara, CRC Transport and Logistics Institute, in the preparation of this paper.

- -
8.1 Decline in Global Output, Trade and Transport
The collapse of global investment banking and the resulting credit crunch led to the
sharp decline in industrial production, commercial operations, and capital spending
across the world. The World Bank (2009) forecasts a 6.1% reduction in the volume
of world trade in goods and services. The estimated growth for East Asia and the
Pacific will ease at 5.3% in 2009, mainly because of weaker export demand. Roughly
6% of total containership fleet capacity has been laid up as of February 2009.
Furthermore, this global economic malaise is causing havoc on the global supply base
especially in developing countries. China, for one, has closed down more than
150,000 factories of various sizes at the end of 2008. The automotive sector have also
felt the havoc as the Big Three US automakers have filed bankruptcy which will
impact not only domestic suppliers but also the offshore suppliers that make up an
increasingly important share of auto parts supply.
Figure 8.1
GDP Forecasts of Select Economies
4.0
3.0
2.0
1.0
0.0
2008F
2009F
2002
2003
2004
2005
2006
2007
US Euro Area Japan
Source: World Economic Outlook, IMF (2008)
The Philippines is not totally immune from the effects of this economic
slowdown. While the macroeconomy remains stable, effects are felt in specific
export-oriented industries such as electronics, automotive, tourism, and agribusiness.
These sectors of the economy have manifested certain levels of vulnerabilities. The
decline in the consumer electronics industry has already affected the entire electronics
value chain, right from the raw material suppliers, chipset manufacturers, silicon
foundries, computer manufactures. In January 2009, electronic exports sunk by about
50.3% y-o-y. Since electronics manufacture is dependent on imported raw materials,
its continuous decline will pull down both export receipts as well as import
expenditures. In fact, electronic products which accounts for 35% of country’s total
imports, sharply declined by 46% in December 2008 (UA&P, March 2009).

- -
8.2 Impact on the Philippine Regions
Similarly, these industry-based effects are likewise felt in specific regions where the
exporters and manufacturers of these products operate. The 2008 regional GDP
figures affirm this observation. From a record-high of 7.2% growth in 2007, the
Philippines only managed to grow by 4.6% in GDP. The marked decline in economic
output can be observed in regions where the heavily hit industries (electronics,
automotive) operate. Together, these regions (NCR, Central Luzon, CALABARZON,
Western and Central Visayas) account for 68% of the country’s total GDP.
Table 8.1
Philippine Region’s Growth Trends (2006 – 2008)
REGION / YEAR 2006 2007 2008
PHILIPPINES 5.6% 7.2% 4.6%
NCR METRO MANILA 7.5% 7.8% 5.1%
CAR CORDILLERA 3.8% 7.2% 3.0%
I ILOCOS 5.5% 5.8% 3.5%
II CAGAYAN VALLEY 8.0% 6.6% 3.7%
III CENTRAL LUZON 4.9% 6.1% 3.6%
IVA CALABARZON 4.3% 5.5% 3.8%
IVB MIMAROPA 1.6% 9.4% 7.3%
V BICOL 2.8% 7.7% 4.9%
VI WESTERN VISAYAS 4.2% 7.7% 5.9%
VII CENTRAL VISAYAS 5.1% 8.7% 4.6%
VIII EASTERN VISAYAS 4.6% 3.2% 5.3%
ZAMBOANGA
1.9% 7.4% 4.5%
IX PENINSULA
X NORTHERN MINDANAO 7.8% 7.9% 5.6%
XI DAVAO REGION 3.6% 6.7% 4.2%
XII SOCCSKSARGEN 6.8% 6.8% 3.9%
ARMM MUSLIM MINDANAO 3.7% 5.4% 2.6%
XIII CARAGA 6.6% 8.6% 0.9%
Sources: NSO; Philippine Statistical Yearbook 2008

- -
Table 8.2
Philippine Regions and Share to Total Gross Domestic Product
% Share in % Share in
REGION 2007 2008
GDP GDP
PHILIPPINES – TOTAL GDP 1,369 100 1,432 100
NCR METRO MANILA 447 32.6% 470 32.8%
CAR CORDILLERA 30 2.2% 31 2.2%
I ILOCOS 40 3.0% 42 2.9%
II CAGAYAN VALLEY 27 2.0% 28 2.0%
III CENTRAL LUZON 114 8.3% 118 8.2%
IVA CALABARZON 166 12.1% 172 12.0%
IVB MIMAROPA 38 2.7% 40 2.8%
V BICOL 38 2.8% 40 2.8%
VI WESTERN VISAYAS 99 7.2% 105 7.3%
VII CENTRAL VISAYAS 98 7.2% 103 7.2%
VIII EASTERN VISAYAS 29 2.1% 31 2.1%
IX ZAMBOANGA PENINSULA 35 2.6% 37 2.6%
X NORTHERN MINDANAO 68 4.9% 71 5.0%
XI DAVAO REGION 62 4.5% 64 4.5%
XII SOCCSKSARGEN 48 3.5% 50 3.5%
ARMM MUSLIM MINDANAO 12 0.9% 12 0.9%
XIII CARAGA 18 1.3% 18 1.3%
Sources: NSO; Philippine Statistical Yearbook 2008
* 2007 and 2008 values in million pesos
Accordingly, some locator-firms operating in special economic and freeport zones

scaled down operations and laid-off some workers. In Subic, two major electronics
companies have laid-off approximately 5,000 workers. As a result of decline in
maritime trade and increase of ships being laid-up, few orders for ship construction
were cancelled. On a positive note, the downtrend in container fleet capacity
worldwide provides some opportunities for ship lay-ups. Currently, twenty (20)
international vessels are laid-up in Subic. Another ship lay-up facility is being
developed in Davao. SBMA is trying to address and manage the crisis by: (1)
offering re-tooling and livelihood programs to displaced workers (so that they can be
re-integrated in other manufacturing companies; (2) assisting locators in availing
loans from local and foreign banks; and (3) providing rental adjustments.
In Clark, employment is minimally affected. While companies slowed down their

operations, minimal lay-offs occurred. About 2,000 workers from 12 firms were
displaced as of December 2008. Of the 12 companies, 6 are into garments
manufacture, 4 in ICT, and 2 from the industrial sector. These laid-off workers
account for only 3% of the total employment level in Clark. It is, however, important
to point out that most of the displaced workers were contractual employees hired
during peak season. In any case, some Clark locators companies organized their
workers in shifts to mitigate the lay-offs and provide everyone the opportunity to
work and earn. And by January 2009, despite the crisis and the lay-offs, Clark’s
employment reached its record-high level (57,790 workers). This is mainly
attributable to the increase in actual investments (roughly P69 billion) from various

- -
firms that are mostly industrial, garments manufacturing, tourism, ICT and BPO
companies.
In the Cavite-Laguna-Batangas (CALABA) area, roughly 10,000 jobs were

lost according to PEZA. (CALABA is home to about 1,000 PEZA locators operating
in 42 industrial estates in the area). The good news according to the DOLE is that
80% of these affected workers (roughly 7,975 employees in 29 firms) have returned to
their regular work. Some firms in the economic zones affected by the crisis have
started to recover as new orders are starting to come in. Slowly, these firms are
returning to their normal operations and normal working hours.
Table 8.3 Impact of Global Crisis on Clark-Subic and CALABA area

AREA EFFECT OF FINANCIAL CRISIS
Subic • 5,000 jobs lost in 2 major electronics firms
• Cancellation of ship orders (2)
• The crisis also has positive benefits – i.e., ship lay-ups (more than
20 international ships are currently laid up in Subic bay. The
government is also developing a lay up facility in Malalag, Davao)
Clark • 2,000 jobs lost
• Top electronics exporter operating at 30% capacity today; no lay-
offs but shorter working days
• Call center operations shrunk by 40%, but BPO presents
opportunities (buying US companies, labor arbitrage)
CALABA • 10,000 jobs lost in various industrial estates/special economic
zones in Southern Tagalog according to PEZA; Good news
according to DOLE is that 80% of the displaced workers were re-
hired.
Sources: SBMA, CILA, CDC, PEZA

- -
Impact of the Crisis on Subic-Clark-CALABA area
Impact of the Crisis Possible Interventions
Subic • 5,000 jobs lost in 2 major electronics firms

• Cancellation of ship orders (2)
• The crisis also has positive benefits – i.e., ship lay-ups (more
than 20 international ships are currently laid up in Subic bay.
The government is also developing a lay up facility in • The government in coordination with private
Malalag, Davao) sector must continue to implement infrastructure
development along the Subic-Clark-Area to
Clark • 2,000 jobs lost promote more employment and growth in this
• Top electronics exporter operating at 30% capacity today; no area.
layoffs but shorter working days
• Call center operations shrunk by 40%, but BPO presents
opportunities (buying US companies, labor arbitrage)
CALABA • 10,000 jobs lost in various industrial estates/special economic

zones in Southern Tagalog according to PEZA; Good news
according to DOLE is that 80% of the displaced workers were
rehired.

Strategic Response to continue the development of SCB Corridor
• The policy on chassis-RORO service • To maximize the potential of SCB • Critical to the development of this
Infrastructure (EO 170-C) must be issued. Cha-Ro Corridor, the idea is to consolidate these corridor is investments in
development: Subic- will expand the RORO service and major industries and transform it into one necessary intermodal
Clark-Batangas becomes all the more a relevant policy integrated mega region. infrastructures that promote a
(SCB) Corridor reform to push, not only to reduce • In support of the investments in hard seamless and modern transport
transport cost, but more importantly, infrastructure projects, equally important network along the corridor. The
in support of the regional RORO is the issuance and implementation of good news is that we have already
initiative necessary policies that promotes invested in most of these
competition and attracts greater private necessary infrastructure facilities.
sector participation in the development of • There is a need to promote Public-
the corridor. Private Partnership (PPP) projects
• The National Competitive Council (NCC) in country through the: (1)
initiative to develop a masterplan for the implementation of PPP projects
SCB Corridor must be immediately under the proposed Php 100
pursued. A major step towards this end is billion Infrastructure Fund, and
the conduct of an international study that (2) improvement / enhancement
would spell out the requirements of the of existing infrastructure-related
region/ international market to guide policies (Build-Operate Transfer
relevant authorities in crafting strategies to Law, Joint Venture Agreement)
respond effectively to existing/ potential
market opportunities.
• There is a need to fast-track completion of
relevant infrastructure projects along SCB
Corridor – i.e., SLEX, North and South
rail projects, North-South linkage project,
and C-6 Expressway.

8.3 Infrastructure Development as a Key to Mitigating the Impact of the
Crisis
Infrastructure creates a direct impact on the country’s economic growth and

global competitiveness. Good roads and bridges expand market opportunities, lower
the cost of goods and services, and enable countries to use their productivity. The
impact of infrastructure on trade, tourism, industries and technology development, not
forgetting poverty alleviation and reduction of income inequality, is remarkable in
those Asian countries which adequately invested on infrastructure projects to attract
foreign investments and to achieve global competitiveness.
Table 8.4 Completed Infra Projects by

Region (as of December 2008; in Billion
Pesos)
Realizing the importance
Number of
of investing on infrastructure, the Total
REGION Projects
Spending
government since 2006 has Completed
implemented a 5-year NCR METRO MANILA - -
CAR CORDILLERA 1 0.01
infrastructure development I ILOCOS 1 0.78
program. As of December 2008, II CAGAYAN VALLEY - -
III CENTRAL LUZON 4 31.02
32 key infrastructure projects of IVA CALABARZON 4 8.57
different types (roads, airport, IVB MIMAROPA 1 0.03
V BICOL 3 1.42
seaports, energy projects) were VI WESTERN VISAYAS 4 13.06
completed to the tune of Php77 VII CENTRAL VISAYAS 5 2.38
VIII EASTERN VISAYAS 3 0.16
billion. IX ZAMBOANGA PENINSULA - -
X NORTHERN MINDANAO 4 18.71
XI DAVAO REGION 1 0.42
XII SOCCSKSARGEN 1 0.0015
ARMM MUSLIM MINDANAO - -
XIII CARAGA - -
TOTAL 32 76.6
Much of the actual expenditures went to Central Luzon (Region III), CALABARZON
(region IV-A), Western Visayas (Region VI), and Northern Mindanao (Region X).
The big ticket projects completed in region 3 – which got the highest share in total
spending (40%) – include the Subic-Clark-Tarlac Expressway and Subic Bay Port
Terminals 1 and 2. These projects are critical to the integrated development of Subic-
Clark-Batangas Corridor. In CALABARZON, the Southern Tagalog Arterial Road
was extended from Lipa City to Batangas City (STAR 2) to provide seamless road
link to the Batangas International Port. Meanwhile, two major airports were
constructed in Western Visayas, particularly in Sta. Barbara, Iloilo and Silay,
Bacolod. These two new airports and the other ongoing airport projects in Visayan
region will be part of intra-regional and extra-regional air transport system that will
make key tourist destinations in the Central Philippines more accessible. Lastly, two
power plants in Misamis Oriental, Northern Mindanao were built to increase and
ensure the sufficient supply of energy in the region.
With higher spending and stricter monitoring of projects, the government is now bent
on ensuring the timely and effective implementation of the remaining SONA
commitments. There are 122 social and physical infrastructure projects more across

- -
all regions that are currently implemented under SONA list. The recently approved
Php 1.4 trillion 2009 national budget carries with it a Php 330 billion Economic
Stimulus Package (ESP) as part of its effort to lift the economy by 4% this year. This
stimulus will be mainly spent on infrastructure projects as well as agriculture and
health. The increased public spending on infrastructure will create more job
opportunities and income that will provide insulation against the adverse effects of the
global financial crisis. From the business perspective, these infrastructure projects
will help businessmen cut down on operational and transport cost. Better
infrastructure helps the economy sustain growth.
Table 8.5
Infrastructure Spending Allocation for the On-going and Prospective Projects
under SONA Commitments
RAN No. of Allocatio %
REGION
K Projects n Share
1 III CENTRAL LUZON 16 191.17 29.50%
2 NCR METRO MANILA 15 172.23 26.57%
3 V BICOL 10 60.36 9.31%
4 IVA CALABARZON 5 37.50 5.79%
5 I ILOCOS 8 27.70 4.27%
6 XI DAVAO REGION 2 15.87 2.45%
7 XII SOCCSKSARGEN 3 14.91 2.30%
NORTHERN
8 X MINDANAO 9 14.90 2.30%
9 VI WESTERN VISAYAS 7 13.62 2.10%
10 IVB MIMAROPA 6 11.05 1.70%
11 VII CENTRAL VISAYAS 8 9.16 1.41%
12 II CAGAYAN VALLEY 5 3.62 0.56%
13 CAR CORDILLERA 2 3.15 0.49%
ZAMBOANGA
14 IX PENINSULA 5 2.45 0.38%
15 VIII EASTERN VISAYAS 8 2.17 0.34%
ARM
16 M MUSLIM MINDANAO 1 2.07 0.32%
17 XIII CARAGA 5 0.55 0.09%
NATIONWIDE PROJEC
TS 7 65.64 10.13%
TOTAL 122 648.1 100%
* Total Infrastructure Spending valued in billion pesos
Source: PPSSC

- -
8.4 From Inter-Island Connectivity to Regional Connectivity
An archipelagic country with fragmented island economies, the Philippines is

invariably affected by accessibility and mobility for the transport of goods and people
within its geographical boundaries. In 2003, the national government laid down a
policy initiative supporting a transport infrastructure network that will later become a
major “legacy” program of the administration. Dubbed as the RO-RO Road Terminal
System (RRTS) with its government-initiated marketing program Strong Republic
Nautical Highway (SRNH), the system is aimed at binding local economies more
closely together and working for better domestic integration through Roll on-Roll off
(RO-RO) vessels or “moving bridges.” The RO-RO policy is embodied in Executive
Order 170 which encourages private sector investments in the development of the
RRTS.
Figure 8.2
Strong Republic Nautical Highway
Ba tan ga s C ity,
Batan g as
Cal ap an , O rie nta l Pi lar, S orso gon

M in dor o Ma tno g, S orsog on
Aro roy, Ma sb ate
Alle n , S a ma r
Ro xa s, Ori en tal
Mi nd oro Ca wa yan , Masba te
C ati clan , A kla n
Daa n ban taya n,

C ebu
Du ma n gas, Il oli o
Li loa n , S ou th ern
Ba co lod , Neg ros
Leyte
Occid en tal
M an dau e C ity,
Ce bu Lip ata, S u riga o
T ag bil ara n, De l S u r
Bo ho l
Legend:
W este rn Na utical H igh way Ja gn a, Boh ol
Cen tral Nau tical Hig hway G ui nsi lib an,

D um a gu ete, Ne gro Ca mi gu in
E ast ern N aut ical High way Ori en tal Mam b aj ao ,
Ca m igu in
Da pi tan , Z am bo an ga Bal in goa n , Misa mi s
del N orte
CE NT ER F OR R ESE A RC H A ND
CO MMUN ICA T ION
O rie nta l
In sum, implementing the RRTS presented both market opportunities for business as
well as infrastructure support facilities required to make the RRTS work. On the
market side, the RRTS altered the way (a) tourism was promoted; (b) goods were
transported and distributed - i.e. reducing transport costs and improving efficiency in
loading/unloading of cargoes; and (c) people mobility was enhanced. It also
presented a new approach in countryside development and agriculture-fisheries sector
modernization.

- -
Figure 8.3
Western, Central and Eastern
Nautical Highways
The Western, Central, and Eastern To Caticlan To Masbate To Samar
Nautical Highways serve as the main Dumangas, Iloilo
routes of the SRNH system that

Punta
efficiently link up Mindanao and Luzon Enganio,
through the islands of Visayas. There Bacolod Cebu

Jetafe, Bohol
are also east-west lateral RORO links San Carlos, Negros
that connect these major nautical Toledo, Cebu
highways. Bohol
Ubay, Bohol
CENTER FOR
FOR RESEARCH
RESEARCH
AND
AND COMMUNI
COMMUNICATION
CATI ON
To To Camiguin
Zamobanga
The Western and Central-Eastern Nautical Highways are complementary. Traffic in

the Eastern seaboard did not decline (in fact it continued to grow) with the
establishment of Western seaboard. What RO-RO operations affected was the direct
long-haul Liner shipping operations from Manila to Iloilo, Dumaguete, and Cebu.
This is the locus of competition. RO-RO also softened the impact of the Liner
shipping crisis in June (2008). The grounding of the Sulpicio ships as a result of the
Princess of the Stars tragedy reduced the supply of ships that would transport the
goods and people within the country. It was RO-RO that provided the alternative
mode of sea transport.
In general, transport costs increased in recent years due to the steep rise in fuel prices
worldwide. The efficiency of RO-RO operations provided the countervailing force to
mitigate the rising costs. Agricultural products passing through the SRNH include
fruits and vegetables as well as fishery products coming all the way from General
Santos and Davao. Mineral products such as nickel, chromite, silica and limestones
are shipped out from Surigao. For some routes in the Central Nautical Highway as
well as east-west lateral connections (e.g., Cebu-Tubigon, San Carlos-Toledo), palay,
rice, copra, live animals, fishery products, fruits and vegetables top the list of major
agricultural commodities that are transported by RO-RO. RO-RO likewise facilitates
the movement of agri-fisheries products (largely marine, seaweeds and livestock) in
the Southwestern Mindanao network. Tourism, particularly in Cebu, Boracay,
Dapitan and Bohol benefitted much from RO-RO operations.
Given the domestic success of RO-RO in the Philippines, there are proponents who
are pushing for the expansion of the concept to cover the South Asian region. The
Asian Development Bank is organizing a 2nd Regional Connectivity Conference in
October 2009 to discuss further this initiative. At the recent APEC Transport
Ministers Meeting in Manila, a similar initiative was presented and was approved at
the plenary for inclusion in the July meeting in Singapore as part of its efforts to
facilitate trade and investment in the Asia-Pacific Region by accelerating economic
integration through the enhancement of regional physical connectivity “across the
border”. This requires the improvement of logistics and transport network/systems

- -
for lower cost and more efficiency in the transportation of goods, services, and
people78.
Strategically located at the heart of Southeast Asia, the Philippines needs to maximize
its potential as a competitive logistics hub to enhance trade and further integrate itself
with the region. While trade within the Asia-Pacific region has been affected, there
are bright prospects for the Philippines. Crises are good opportunities for critical
strategies to be made that would be useful in the future. Intra-Asia trade continues to
be robust.
Although the Philippines’ major trading partner countries (Japan and US) remain to
be important markets, increasing trade is happening between the Philippines and its
Asian neighbors. To begin with, the share Asia’s merchandise trade vis-à-vis total
world trade has grown quite substantially (25%) in recent years.
Figure 8.4
Intra-Asia Trade
6th APEC Transportation Ministerial Meeting

27-30 April 2009
Intra-Asia Trade (Growth Trend)
30%
25%
t 20%
e
a
R 15%
th
w
o
r 10%
G
5%
0%
20 02 20 03 200 4 2 00 5 2 00 6 2 007
-5%
Intra-Asia Intra-Pacific
S OU RCE: IMF
MANILA, THE PHILIPPINES 2009
78
Other important measures to be adopted by APEC countries in pursuit of economic integration also
include: (1) liberalizing trade and investment flows “at the border” by making the rules of origin of
existing free trade agreements (FTAs) more business-friendly, identifying possible vehicles for a future
FTA of the Asia-Pacific (FTAAP), and deepening the analysis of an FTAAP; and (2) improving the
business environment “behind the border” through the simplification of business regulations and
lowering the cost of doing business.

- -
Table 8.6
Trends in World Merchandise Imports
Responding to this development, – Th The economic “action” is happening in

the Philippines started changing Asia; we don’t have to look far
gradually its trade patterns;
World Merchandise Imports
expanding its exports toward Asian
Year 1948 1953 1963 1973 1983 1993 2003 2007
markets (China, South Korea, Value
Hong Kong, and Taiwan. From World .62 85 164 595 1882 3787
Share
7691 13968
12% in 1997, Philippine exports to World 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
North America 18.5 20.5 16.1 17.2 18.5 21.4 22.5 19.4
these economies have grown to So uth and Central America 10.4 8.3 6.0 4.4 3.8 3.3 2.5 3.3
45.3 43.7 52.0 53.3 44.2 44.6 45.0 43.4
30% by 2007. Eu rope
Commonwealth of Independent
States (CIS) b - - - - - 1.2 1.7 2.7
Africa 8.1 7.0 5.2 3.9 4.6 2.6 2.1 2.6
Middle East 1.8 2.1 2.3 2.7 6.2 3.3 2.7 3.4
Asia 14 15.1 14.1 14.9 18.5 23.6 23.5 25.3
Source: WTO Statistics
C E N T E R F O R R E S E A R C H A N D C O M M U N I C A T I O N
Figure 8.5
Merchandise Exports: Philippines
199 7 Ph i lip p i n e M er ch an d ise Ex p o rt s b y
12 %
R eg io n al B lo cs (% Sh are)
S out h Korea, China, 0.97 Ot her countries,

1.88 1.38
Taiwan, 4.63
Hong K ong, 4.64 A mericas, 36.75
A SEA N, 13.62
Japan &
A us tralasia, Europe, 18.49
17.64
E xp o rt s o f th e 199 7
P h il ip p in e s 2 0 0 7 P hilippine M e r c ha ndis e Ex port s b y

R e giona l Bloc s (% S hare )
30 % Oth er c o un tr ies,
C h ina, 11.39 2 .0 4
So u th K o re a,
3 .53 A m er ic as , 18.31
Ta iw an, 3.91
H o ng Ko n g, 11.5 Eu ro p e, 17 .3 5
A SEA N , 15.92 Jap an &

So u rce : B u r e au o f E xp o rt a n d Tra d e A us tralas ia ,
P r o m o tio n s , D T I 16 .05
2 00 7
With the necessary infrastructures in place, the key to transforming the Philippines
into a regional transshipment hub is the introduction of a “regional RO-RO system
(Roll-on/Roll-off shipping) in Southeast Asia – one the will connect it with a network
of key gateways. Mr. Paul Apthorp of TNT Logistics, speaking at an ADB
Conference in November last year, introduced this concept and recommended that
RO-RO should also be used for Southeast maritime transshipment. The economic
impact / benefits of RORO system has already been realized and extensively used in
Europe (North Sea, Mediterranean) for a mode of sea transport. RO-RO shipping is

- -
also extensively employed as an efficient means of sea transport for bridging the
various islands of the Philippine archipelago (RO-RO ships serve as “moving
bridges”).
8.5 Proposed Regional RO-RO Framework for South Asia

Nanning
Guangzho
Vietnam PX
Myanmar
越南 G
Hano Chin
Laos i a
VTE VT
Thailand
ZV
Danang
Bangko
k
Cambodia
Phnom
Phen Ho Chi
Minh
Malaysia
Strong REGIONAL
Kuala
Nautical Highway
Lumpur In the archipelagic SEA
Singapore
The massive road infra development in the GMS supports the concept RORO
operations in SEA
Given the extensive road infrastructure development in the Greater Mekong Sub-
Region (GMS), the inter-modal transport which RO-RO offers makes the system
feasible for the archipelagic SEA region. The Philippines can attract mother ships
(panamax vessels) to call at the Subic or Batanagas Port if it can ensure that a regional
transshipment (i.e., feedering of cargoes) can be efficiently done through the “regional
RO-RO system”.
Instead of moving only the country’s 2 million import-export cargoes, the Philippines
can look and take greater share of the regional transshipment traffic in the East Asian
region. There are about 60 million containers annually that are being transshipped
from the Pacific to Asia.
In support of this initiative is the development of the Subic-Clark-Batangas Corridor.

This strategy is designed not only to enhance the country’s competitiveness, but more
importantly, to reduce the transport cost of Philippine exporters, decongest Metro

- -
Manila, and maximize the utilization of the infrastructure built recently. It will also
significantly support the development of the Philippine regions in terms of (a)
providing opportunities for greater export activities, and (b) promoting value-adding
activities in the Clark-Subic Freeport areas that will generate revenues and local
employment. The current RO-RO system (western, central and eastern nautical
highways) will serve as the domestic link. As a complementary step, the government
must craft a policy that will govern the gradual transition/shift of cargoes from the
Port of Manila to either Subic or Batangas as the new maritime gateways.
8.6 Subic-Clark-Batangas Corridor
The Subic-Clark-Batangas (SCB)

Corridor is host to a conglomeration of
CENTRAL variety of major industrial, commercial,
LUZON
Iba
and invenstment centers in the
Tarlac City
TARLAC
Philippines (including 24 IT parks, 39
CLARK special economic zones, and a number
Clark and ZAMBALESAngeles City
Subic as City of San Fernando

PAMPANGA
BULACAN
of BPO centers). It contributes to
logistics Olongapo City
Malolos City
San Jose del Monte City
more than 50% of the country’s GDP.
center
Balanga City
BATAAN Manila
QUEZON To maximize the area’s potential, the
Antipolo
RIZALCity
SUBIC MANILA BAY
Cavite City idea is to consolidate these major
Laguna
Urban industrial de
Sta. Cruz
Lamon Bay
industries and transform it into one
CAVITE Bay
beltway: Calamba
Tagaytay City LAGUNA
Central Luzon-
San Pablo City
Lucena City
integrated mega region.
Lake
Lipa City
CALABARZON Taal
BATANGAS
Growth Corridor Tayabas Bay

In 2007, the President announced her
Batangas City
CALABARZON
vision to Batangas as
develop
Calapan the SCB
Mamburao MINDORO
ORIENTAL Int’l. Port
Development Corridor as a major
MINDORO
south of
Transshipment and Logistics Hub in the
OCCIDENTAL
Manila
Asian region - a logistics area where
value-adding services can be provided.
The market, therefore, is not limited to
the Philippine economy but considers the growing economies of Asia.
Critical to the development of this corridor is investments in necessary intermodal

infrastructures that promote a seamless and modern transport network along the
corridor. The good news is that we have already invested in most of these necessary
infrastructure facilities.

- -
Table 8.7
Cost of Completed Infra Projects in the Subic-
Clark-Batangas Corridor
Over the last decade, a
Infrastructure Project COST total of $1.5 billion worth of
infrastructure has been put in
Clark International Airport Expansion &
Upgrading
US$ 37.4M place to support the development
of the Subic-Clark-Batangas
Subic Port Development Project US$ 230.0M Corridor. Because of their
strategic locations, Subic and
Batangas are being developed as
Subic-Clark-Tarlac Expressway Project
US$ 504.3M full-blown maritime hubs. Clark,
(SCTEx)
on the other hand, was designated
by the President as the
North Luzon Railway Phase 1 US$ 503.4 M
international premier gateway of
North Luzon Expressway Rehabilitation US$ 226.4M
the country because of its great
C E N T E R F O R R E S E A R C H A N D C O M M U N I C A T I O N
potential to be an aviation hub in
Asia.
Two new container terminals in Subic were completed in 2008 to increase Subic
Port’s annual capacity to 600,000 twenty-equivalent units (TEUs). In Clark, the
newly expanded and upgraded passenger terminal building of Diosdado Macapagal
International Airport (DMIA) basically doubles the current capacity from 1 million to
2 million passengers a year. A second terminal is being proposed for construction in
DMIA with a handling capacity of 7 million passengers per annum. The Subic-Clark-
Tarlac Expressway (SCTEx) will connect the major areas of Central Luzon,
dramatically reducing travel time from Manila to Clark (from 3 hours to 1 ½ hours)
and Manila to Tarlac (from 2-3hours to 1 ½ hours).
The continuous network of highways from Clark/Subic to Metro Manila to Batangas

Port is almost complete. The rehabilitation of the North Luzon Expressway (NLEX)
which connects Metro Manila was completed a few years ago. Meanwhile, the
ongoing expansion and rehabilitation of South Luzon Expressway (which connects
Manila to the cities of Alabang, Cavite, and Laguna) is expected to be completed by
December 2009. This highway is likewise being extended from Calamba, Laguna to
Sto. Tomas, Batangas to interconnect it to the Southern Tagalog Arterial Road
(STAR). The STAR toll road, on the other hand, was extended all the way to
Batangas City, giving ease of access to the International Port of Batangas. The
Circumferential Road 5 (C-5) extension project is ongoing. This is designed to
provide alternate link between SLEX to NLEX.
Railroad projects are also being put into place to provide mobility to goods and people
and connectivity from North and South Luzon. The ongoing Northrail project is
designed to connect the existing transit system in Manila to Pampanga. Rehabilitation
and upgrading of existing railway tracks along Caloocan to Calamba is likewise
ongoing Down south, the Southrail project will upgrade the existing railway line from
Calamba to Lucena.

- -
To address the problem of urban
congestion along major thoroughfares,
the government is expanding existing
metro rail lines/network.
The ongoing LRT Line 1 North

Extension project aims to extend the
existing LRT line 1 to close the EDSA
loop. The MRT 7 project is designed to
extend the light rail system (outside of
Metro Manila) all the way to San Jose
Del Monte in Bulacan. Similarly, there
is a proposal to extend the LRT Line 1
south of Metro Manila (all the way to
Bacoor, Cavite). Once completed, the
amalgamation of these lightrail systems
will improve access to/within central
Manila by providing off-street public
transport connections to and from the
congested northern portion and the
rapidly growing southern portion of
Metro Manila.
In support of the investments in hard infrastructure projects, equally important is the

issuance and implementation of necessary policies that promotes competition and
attracts greater private sector participation in the development of the corridor.
Summarized in Table 7 are some of the transport policy concerns.

- -
Table 8.8
Summary of Transport Policy Concerns
TRANSPORT
Issues
POLICIES
Ports and Maritime • Designation of Subic and Batangas as principal maritime
gateways for Luzon
• Phased shift of present maritime traffic from Manila
ports to Subic & Batangas
• Promotion of intra-and inter-port competition. Intra-port
competition among operators of NCT 1 and 2.
• Issue Chassis-RORO (Cha-RO) policy
Air • Need to issue EO 500-B to define air transport policy for
DMIA
• Pursue and conclude more bilateral talks/negotiations
with other countries
• Develop Masterplan for DMIA considering market size
and growth, logistics requirements for people and
cargoes.
Road and Rail • Provide common-user bus terminal facility outside Metro
Manila connected to MRT 7 line for provincial bus
operators to unclog traffic in Metro Manila
• Provide high-speed rail system from Clark to CBDs of
Metro Manila
• Northrail, Southrail and Linkages to complement cargo
movements along corridor.
Logistics Hub • Conduct an international market survey on the logistics
Operations requirements of the region
• Use this information
To attract locators to invest in the Subic-Clark-
Batangas corridor
To promote logistics and value-adding activities
To enhance plans for the further development of the
Corridor
8.7 Next Steps
To address the necessary infrastructure requirements - both hard (physical) and

soft (policies) – critical to the development of the corridor and realization of regional
connectivity, we recommend the following actionable measures:
a. The National Competitive Council (NCC) initiative to develop a masterplan

for the SCB Corridor must be immediately pursued. A major step towards this
end is the conduct of an international study that would spell out the
requirements of the region/ international market to guide relevant authorities
in crafting strategies to respond effectively to existing/ potential market
opportunities.

- -
b. The policy on chassis-RORO service (EO 170-C) must be issued. Cha-Ro
will expand the RORO service and becomes all the more a relevant policy
reform to push, not only to reduce transport cost, but more importantly, in
support of the regional RORO initiative
c. There is a current effort to craft a Philippine Merchant Shipping Law to

address the flaws in existing policies and provide an environment conducive to
the development and modernization of the maritime sector. The passage of
this Act will hopefully improve our global competitiveness and “credibility”
as a maritime centre – both in terms of administration and arbitration
d. There is a need to fast-track completion of relevant infrastructure projects

along SCB Corridor – i.e., SLEX, North and South rail projects, North-South
linkage project, and C-6 Expressway.
e. There is a need to promote Public-Private Partnership (PPP) projects in

country through the: (1) implementation of PPP projects under the proposed
Php 100 billion Infrastructure Fund, and (2) improvement / enhancement of
existing infrastructure-related policies (Build-Operate-Transfer Law, Joint
Venture Agreement).

- -
9. Revitalizing the Philippine Metallic Mining Industry
Winston Conrad B. Padojinog

Coleen G. Hubo
The metallic minerals industry is one of government’s priority projects. The sector is
envisioned to generate much-needed jobs and dollar earnings from mineral exports
and investments. While the recent softening of world prices has stolen some of the
glitter from our mining prospects, long term rewards from the industry remain bright.
When the global economy finally recovers from the recession, the Philippine mining
industry must be ready to help satisfy the world’s appetite of for metallic minerals.
Stagnating for almost two decades and a half, the mining industry in the Philippines is
being revived in connection with poverty alleviation and countryside development
efforts. Mining activities can unlock the value of mineral reserves and can positively
impact the Philippine economy in terms of: employment, foreign investments and
exports, as well as fiscal stability of local communities as mining companies generate
royalty and tax payments, income taxes, business licenses, fees and social and
community development.
The public and private sectors are looking for ways to revitalize the mining sector
under a public-private partnership framework. The government needs meaningful
information on the kind of assistance or support the private sector needs in terms of a
fiscal stimulus package or other means. The private sector needs a to take a more
comprehensive view of obstacles facing the sector’s development and how it can best
use private initiatives in overcoming these.
Objectives
This paper seeks to:
a. Determine the primary drivers of development in the Philippine metallic

mining industry;
b. Analyze the current state of development of the metallic mineral sector and
its impact on the Philippine economy;
c. Identify obstacles hindering revitalization of the metallic mineral sector; and
d. Recommend concrete action programs to help overcome obstacles facing the
metallic mineral sector in the Philippines.

- -
Study Framework
The structure of the Philippine metallic mining industry is defined by external

and internal drivers. To a large extent, the growth and the development of the
mining industry is influenced by these drivers. Internal drivers refer to country
advantages that make the Philippines an attractive site for mineral investments.
External drivers refer to global forces that affect the financial and credit markets,
policies governing mining development and prices as well as demand for and
supply of metallic minerals. Only a brief discussion will be devoted to external
factors since, being a small and young player, the Philippine mining industry has
little influence on global market forces.
A discussion of the structure and development of the metallic industry will cover
the sector’s contribution to the economy in terms of jobs, exports and
investments, the status of mining projects, and possible nodes of impact a
revitalized mining sector can give to the national economy in general and
regional economies in particular.
Study Framework
Global Market Country Advantage
for Metals • Mineral Endowments
• National Regulatory Framework
Structure of the Philippine Metallic Mining Industry

• Present contribution to the economy (Investments, Exports, Jobs)
• Production Structure, Status of Projects
• Nodes of Impact on National & Regional Domestic Economies
External Internal
Obstacles Obstacles
Public-Private Partnership
Initiatives in Overcoming the
Hurdles
Given an appreciation of the state of the industry as well as its potential impact
on the economy, the study will highlight obstacles to the development of the
Philippine metallic industry as perceived by various stakeholders, especially
local mining industry players and their investors, local governments and
regulatory agencies. The views reflect those raised in three round-table
discussions and a recent study of the 2009 Fraser Institute Annual Survey of
Mining Companies. The study presented how executives rank the Philippines in
various aspects of mining operations. We will conclude by recommending a set

- -
of concrete action programs that may help overcome the obstacles identified.
These recommendations to some extent must work within a public-private
partnership framework.
9.1 Drivers of the Development In The Mining Industry
9.1.1 External Drivers of the Metallic Mining Industry
External drivers are keys to putting the Philippines on the radar of mining
companies. These external drivers push developments in the local industry as
investors and buyers search for prospects in the country.
The huge demand for metals and soaring global prices revived interest in mining
in the Philippines. Though recent softening of metallic prices have stalled
growth, this is seen as mostly temporary. Sooner or later, a recovering global
economy will feed a rising demand for minerals.
The global movement for responsible mining will have direct implication on
mining practices in the Philippines. In the past, destructive mining practices by
companies had received worldwide condemnation, forcing mining companies to
seriously consider not only to the economic but also environmental and social
impacts of their activities.
Many mining companies have responded to rapidly changing stakeholder

expectations by committing themselves to higher standards than those required
by their host country. For instance, the industry has recognized the need and
obligation to identify and mitigate the adverse environmental consequences of its
activities and have formulated CSR policies to capture its responsibilities to
communities, workers and the environment.79
The World Bank further observes, “The stakes for mining companies operating in
developing countries are getting higher since they risk losing their social and
political “license to operate”—the unspoken agreement and understanding with
civil society, both on the ground and in the realm of international politics, that a
particular operation is desirable and should be supported, rather than actively
opposed. Losing this license to operate can have dire financial consequences,
ranging from falling share prices to loss of access to capital.”80
9.1.2 Internal Drivers of the Metallic Mining Industry
Internal drivers on the other hand refer to country factors which are within the
control of the Philippines and which push development in the local metallic
mining industry. Nurturing these internal drivers or factors and removing
79
Hubo, C. and Padojinog, W (2007). “Rapid Assessment of the Sustainability Agenda in the Mining
Industry.: A Case for Developing a Pre-Exploration and Post-Mine Development in the Philippines.” A
Publication of the University of Asia and the Pacific and funded by the Shell Exploration BV Project.
80
The World Ban (2002). An Asset Competitiveness: Sound Environmental Management in Mining
Countries. Washington, D.C. p. 3.

- -
obstacles to the development of the mining industry requires strategic action on
the part of private stakeholders and policy makers.
What are these internal drivers? There are three: vast mineral potential, favorable
national law on mining, and strong government support and promotional efforts.
Philippines’ mineral potential. Strategically located along the Pacific’s rim of

fire, the Philippines is endowed with rich mineral resources. In the 2008/2009
Annual Survey of Mining Companies by Fraser International, the Philippines is
ranked 24th out of 71 countries in terms of policy/mineral potential, assuming
industry best practices and liberal regulations are in place. Note that the country
was previously ranked first out of 68 countries covered in a previous Fraser
survey.
It is estimated that close to 38% of the Philippine land area of 30 million hectares
have high mineral potential. This translates to a little over 11 million hectares.
Only about 7% or 775,377 hectares are covered by approved mining permits.
Figure 9.1
Mineral potential across the Philippines (2008)
Mineral Land:
High Potential
35%
Mineral Land:
Low / Lim ited High Potential
Potential With Perm its
62% 3%
Source: MGB

- -
Minerals in the Philippines
The Philippine geological setting, considered young and complex, offers many potential
sites for mineral resources development. Mineral discovery and production in the
Philippines dates back to the pre-Spanish era and has been confirmed by many geologists
not in Asia and the world.
Mineral endowment
• The Philippines has established reserves of about 13 known metallic and 29 non-
metallic minerals. In 1996, the Mines and Geosciences Bureau’s recorded a total of
7.1 billion metric tons of metallic and 51 billion metric tons of non-metallic reported
reserves.
• Copper dominates the metallic reserves, comprising 4.8 billion metric tons or 67.5%
of the total. Philippines’ mineral endowment is second in the world for gold and third
for copper—truly enticing figures that largely account for increasing investment
interest in the Philippines.
• Limestone accounts for 57% of total non-metallic reserves, or 29 billion metric tons,
followed by marble, which accounts for 16.7%, or 8.5 billion metric tons.
• The country is an important global mineral resource due to its relatively high mineral
endowment ranking compared to its small land area. Based on past production and
defined resources, the
Metallic mineral resources
• Porphyry copper plays a major role in the country’s mineral industry. It was a major
commodity mined with the introduction of bulk or large-scale methods of mining.
While disseminated copper is the most popular, deposits of vein, contact
metasomatic, Cyprus, Kuroko and Besshi type are also significant. In the past, 35% of
the country’s metallic production value came from copper.
• Gold is found throughout the country in the form of lode or placer deposits. The
principal gold-producing districts are Baguio, Paracale, Masbate, Surigao and
Masara. Experts have observed that the largest and richest gold deposits tend to lie in
the vicinity of the Philippine fault zone, but there are many exceptions. Recently, gold
exploration has been directed toward epithermal deposits. Silver is a by-product of
copper and gold mining.
• The bulk of chromite deposits in the country are found in Zambales Province and
Dinagat Island (Surigao), off northeastern Mindanao. Individual chromite bodies are
of various sizes—from small pods to several million tons. The chromite deposit in
Coto, Zambales was believed to be the largest known deposit of refractory chromite
in the whole world.
• The country is also greatly endowed with nickel-rich deposits of laterites, which are
currently the source of its nickel export. The vast laterite deposits are known; the bulk
of the country’s deposit are lateric type, formed by concentration during the processes
of tropical weathering. Cobalt is an important by-product of nickel.
• Other metallic mineral deposits such as platinum, iron, manganese, lead, zinc,
molybdenum, mercury and aluminum are dispersed throughout the geological terrain
of the Philippines.
Non-metallic mineral resources
• Non-metallic deposits such as coal, fertilizer, salt, sand and gravel, marble, clay,
feldspar, dolomite, magnesite, phosphate rock, guano, sulfur, industrial gemstone and
decorative minerals also abound and are major sources of material for construction,
agriculture and power generation.
Source: Minerals Industry Profile, Mines & Geosciences Bureau (MGB)

- -
A favorable regulatory environment. The Mining Act of 1995 and its
implementing rules and regulations are the governing documents outlining the
legal requirements for mine development in the country. Experts consider the act
a model framework for social and environmental initiatives in sustainable
development.81 It was designed to transform the “environmental and social
responsibilities of mining operators as major cost centers.”82 Under the Act,
mining companies are obliged to allocate:
• 10% of capital investments for environment-related structures

• 3–5% for annual environmental programs
• 1% of direct mining and milling costs for social and community
development
• 1% of annual gross revenues as royalty to indigenous groups, if present in
the mining area
• the cost of mine rehabilitation and decommissioning, including costs of 10
year maintenance and monitoring period
• a monitoring fund for the multi-partite monitoring committee (DENR,
LGU, mining company, host community and accredited NGO)
The law also contains social and environmental safety nets far stronger than those
in previous mining laws and regulations. It has:83
• Built-in protection for indigenous peoples through the prior informed

consent requirement, making the Act possibly the only mining law in the
world that contains such requirement. This pre-date the free and prior
informed consent (FPIC) requirement of the Indigenous Peoples Rights
Act of 1997;
• Equitable sharing of the benefits of mining among major stakeholders:
the national and local government, communities and the mining company.
Under the prescribed fiscal regime, the benefits of mining are shared
approximately 50-50 between the government and the contractor. The
government’s half is further divided into 50% for the national government,
10% for the provincial government and 20% each for the municipality and
host barangays; and
• Environmental and social provisions that are comparable, if not better
than similar provisions in mining laws of established countries. During the
World Bank Mine Closure and Sustainable Development Workshop in
2000, the Philippines was among the nations considered to “have [a]
comprehensive policy and legislation that provides for both comprehensive
mine closure and post-mining sustainable development.” The Social
Development and Management Program (SDMP) was also cited as a “tool
for community participation.” The SDMP is meant for the development of
the host and neighboring communities and is managed by the communities
81
Impressions of various speakers during the various mineral consultations and workshops conducted
in 2002 and 2003 by the Mines and Geosciences Bureau and the World Bank.
82
Cabalda, et. al.(2002). “Sustainable Development in the Philippine Minerals Industry: A Baseline
Study.” IIED (UK), p. 6.
83
Cited from the Information, Education, and Communication materials of Mines and Geosciences
Bureau.

- -
themselves together with the mining company, with guidance from the
government and site-based NGOs. In addition, the national wealth sharing
scheme prescribed by the Local Government Code of 1991—in 40% of
mining taxes collected by the national government flows back to the local
community—was cited as “one of the only few wealth-sharing schemes of
such nature in the world.”
• Competitive fiscal regime. The fiscal regime is a major consideration
among investors. The fiscal regime of the Philippines is considered
competitive not only in Asia but throughout the world, according to an
independent study done by the Institute for Global Resources Policy and
Management of the Colorado School of Mines (CSM) in the United States
in 2000.
The Supreme Court in July 2005 ruled with finality in favor of the
constitutionality of the Mining law and affirming the prerogative of the president
and Congress to enter into financial or technical assistance agreements with
foreign parties to explore, develop and utilize the country’s mineral resources.
This paved the way for foreigners to render 100% participation in financial or
technical assistance agreements, and in exploration and mineral processing
permits in mining. Now that the channel for foreign ownership has opened,
foreign investors in the mining industry can benefit from incentives under the
mining law. These include:
(a) Fiscal incentives like tax exemptions, tax credits on supplies and
additional deductions from taxable incomes. Specifically, this can mean
tax holidays during recovery of pre-operating expenses for a maximum of
five years from commercial production, income tax carry forward of
losses, accelerated depreciation of fixed assets and exemption from
payment of real property taxes on pollution control devices;
(b) Non-fiscal incentives like employment of foreign nationals, simplified
customs importation procedures and importation of consigned equipment
for a period of 10 years;
(c) Investment guarantees like repatriation of capital, freedom from
expropriation, remittance from earnings and interest on foreign loans,
freedom from requisition of properties and confidentiality of information.
Indeed, the Mining Act has spurred a remarkable change in the way mining
operations are carried out in the country. The strong environmental component of
the Act, which was largely driven by lessons from the negative impact of
previous mining activities, addresses many concerns of stakeholders. However,
some stakeholder groups have increasingly tied environmental concerns to social
justice issues such as worker rights, economic justice and gender discrimination.
The shift from regulation to promotion by the national government is manifested
by the passage of the National Minerals Policy and Executive Order 270.84
84
The discussion of these two policies are excerpted from “Rapid Assessment of the Sustainability
Agenda in the Mining Industry: A Case for Developing a Pre-Exploration and Post-Mine Development
in the Philippines” by Hubo and Padojinog (2007) published by the University of Asia & the Pacific in
cooperating with the Shell Exploration BV Project.

- -
National Minerals Policy. The government’s National Minerals Policy (NMP)
aims to address the interlinked issues of environmental and social impact and
“promote sustainable development through responsible mining practices.”85 The
policy has four major policy thrusts:
• Protection and rehabilitation of the environment

• Promotion of social and community stability
• Preservation of options for future generations
• Establishment of a competitive and prosperous minerals industry
Each policy thrust consists of specific policy objectives that address specific
issues relating to the Precautionary Principle; the Polluter Pays Principle; Free
and Prior Informed Consents in Ancestral Domain Areas; the Role of NGOs and
LGUs; Community Development; Consensus Building; and Mine Rehabilitation.
The NMP also aims to address some of the barriers to the growth of mining in the
country. Among them:
• High production costs associated with labor-intensive practices, rising
labor costs and growing trade union militancy;
• Higher taxation levels with complex royalty, excise, realty, capital goods,
income and value-added taxes;
• High interest rates with foreign financial bodies not willing to provide long
term loans due to fears of policy instability;
• Complex procedures for issuance of mining contracts and permits and the
lack of investment assistance centers that can provide information and
advisory services to mining applicants and other prospective mining
investors;
• A lengthy approval process for grant of Environmental Compliance
certificates (ECC) for mining projects especially for environmentally
critical projects.
The National Minerals Policy (NMP) was launched following the National
Mining Conference in December 2003 where the President Gloria Arroyo signed
Executive Order 270 outlining the National Policy Agenda on Revitalizing
Mining in the Philippines.
Executive Order 270. EO 270 put into action President Arroyo's pronouncement
regarding the policy shift in mining—from one of tolerance to promotion—in
recognition of the industry’s potential economic contribution. It “aims to promote
responsible mineral resources exploration, development and utilization to
enhance economic growth, in a manner that adheres to the principles of
sustainable development and with due regard for justice and equity, sensitivity to
the culture of the Filipino people and respect for Philippine sovereignty.”86
EO 270 underscored principles that will guide the revitalization based on points
agreed on during the consultation process among government, industry and civil
society groups as well as other stakeholders. The process culminated in a
National Mining Conference in December 2003 after which EO 270 was signed
85
Director Horacio Ramos of MGB in a speech before the Philippine Minerals Exploration Association
(February 2003).
86
BusinessWorld, 22 January 2004.

- -
along with the adoption of an action plan to address outstanding mining issues
on:
• The critical role of investments in the mineral industry;
• Clear, stable and predictable investment and regulatory policies;
• Value-adding of minerals and mineral products;
• Promotion of the small-scale mining sector as a formal sector;
• Use of efficient technologies in extraction and utilization of minerals;
• Integration of environmental protection. mitigation and progressive
rehabilitation in mining operations;
• Safeguarding the ecological integrity of areas affected by mining including
biodiversity and small-island ecosystem;
• Pursuit of multiple land use and sustainable utilization of minerals;
• Remediation and rehabilitation of abandoned mines;
• Equitable sharing of economic and social benefits from mining;
• Enhancing public awareness and respect for the rights of communities;
• Institutionalizing a continuous and meaningful consultation process with
industry and all other stakeholders.
The Order also directed the DENR to formulate the Minerals Action Plan (MAP)
based on these principles in consultation with all stakeholders, to be submitted to
the Office of the President. The top priorities for the MAP include the
remediation and rehabilitation of abandoned mines and pursuing accountability
for the negative impacts of mining.
9.2 Structure of the Philippine Metallic Mining Industry
This section introduces the different stages that mining companies will have to go
through before and after full commercial production. It will also discuss the current
economic impact of mining in the Philippines, the production structure, status of
mineral permits, and the different ways by which mining activities will impact the
national economy and local economies.

- -
Figure 9.2
Critical Phases in minerals development
Pre-development
• Environmental Protection and Environmental Trust
3
Enhancement Program (EPEP) Fund (ETF)
Development/
• Safety and Health Program Mine Wastes and Mill
Environmental Compliance
Tailings Reserve
Fund (MWTRF)
Construction
Certificate (ECC) issued by Establishment of
Environmental Mgt Bureau Mine Rehabilitation Contingent Liability
Fund (MRF) and Rehabilitation
2 Environmental Impact Statement
(EIS) by Company
-Rehabiliation Cash
Fund (RCF)
Fund (CLRF)
- Monitoring Trust
Feasibility
Fund (MTF)
4
Commercial
Social Development
Management
Production
Program (SDMP)
Establishment of
Multipartite
Monitoring Team
1. Necessary Exploration Permit to be issued by (MMT)
1 MGB
2. Environmental Work Program (EWP)
3. Certificate of Env’t Management & Community 5
Exploration Relations Record (CEMCRR)
4. Baseline Environmental and Social Data
Mine Decommissioning
Plan (MDP), prepared 10
(company option, not mandated by law but yrs before mine closure Mine Rehabilitation/
encouraged by some Regional MGBs)
5. Community Technical Working Group (CTWG) Decommissioning
Site Inspection,
(not mandated by law during exploration but
Monitoring & Audit
encouraged by some Regional MGBs)
6. Mineral Resources Database
9.2.1 Permitting Process
Mineral activities can be divided into five major phases: (1) exploration; (2)
feasibility study (which also includes financing); (3) development and
construction; (4) commercial production; and (5) mine rehabilitation or
decommissioning. The steps that large scale mining companies will have to go
through at each phases are well documented and laid out in the implementing
rules and regulations (IRR) of Mining Act of 1995.
There are three ways by which players can be granted mining rights in the
country: through an exploration permit (EP), a mineral production sharing
agreement (MPSA), or a financial technical assistance agreement (FTAA). The
typical processes for applicants are detailed above.
As of end-2008, applications for mining rights with the Mines and Geosciences
Bureau cover approximately 11.113 million hectares or 37% of the country’s
total land area. But not all mining applications prosper. The grant of mining
rights is conditioned on the following factors:
1. Qualified person. The Mining Act and its IRR specifically state that a
mining permit or contract can only be granted to a qualified person,
meaning one possessing, among others, proof of financial and technical
capability as well as a satisfactory environmental management and
community relations track record. Filipino corporations may apply for an
MPSA, FTAA or EP as long as they meet the criteria for a Qualified
Person. Foreign corporations, on the other hand, may apply for an EP,

- -
FTAA or Mineral Processing Permit. In a Mineral Agreement, foreign
participation is limited to a maximum of 40% equity.
2. Land-use priorities. Areas classified as critical watersheds, protected
areas and national parks are automatically excluded from mining
applications.
3. Economic feasibility. A mining contractor may not proceed to
development and commercial operation after it has completed exploration
works. Should the mining contractor find a mineral deposit during the
exploration period, the contractor must prepare and submit for approval a
mining project feasibility study. The study must consider all socio-
economic, market, financial and technical factors relevant to the project as
well as the minimum expenditures for social and environmental
commitments provided under the revised IRR.
Figure 9.3
Percentage Contribution of Mining Output to Current GDP
30.00
Share of Mineral Dollar Exports to Total
25.00
Philippine Exports
20.00
15.00
10.00
5.00
0.00
1970 1975 1980 1985 1990 1995 2000 2006
% Share to Total Exports
9.2.2 Economic Impact
During its peak in the 1980s, the mining industry contributed 2.10% to GDP, 25%
to total exports, and about 13% to government taxes. It also employed an average
of 134,000 workers or about half a percent of the country’s employed labor force
of 32.5 million. Furthermore, the industry contributed to national development by
helping host communities build roads, churches, markets, schools, housing,
utilities (electricity and water) and hospitals. In fact, mining spurred significant
growth and development in towns and cities like Baguio, Sipalay and Toledo

- -
(Manuzo, 2002).87 Through the years, however, the industry’s contribution to the
national income has steadily decreased. This decline was due to the closure of
many mines—a historical trend since the 1980s. The share of mining and
quarrying employment has also been steadily decreasing since the 1990s.
Figure 9.4
Percentage Contribution of Mining Exports to Total Philippine Exports
2.30
2.10
Mining Output as % to Current GDP
1.90
1.70
1.50
1.30
1.10
0.90
0.70
0.50
1970 1975 1980 1985 1990 1995 2000 2006
% Share to Total GDP
The favorable policy environment coupled with attractive global prices and
heightened promotional efforts have rekindled interest in mining activities. In
2007, mining activities accounted for 1.4% of current GDP, 5.4% of total
exports, and about 153,000 (0.4%) of total employment. Mining recorded its
highest employment level in 1989, with about 168,000 workers—an estimated
0.77% of the total work force. But note that these employment figures include
operations from mining and quarrying activities and thus grossly overestimate the
total employment contribution of large scale metallic mining companies. It is
estimated that current employment generated by large scale mining companies is
about 10,000 to 15,000 persons. The majority of those employed in the industry
belong to small-scale mines.
Mining activities contribute to government coffers in four ways: fees and

royalties charged by the MGB-DENR, excise taxes, local and national taxes
collected by the national and local governments. In 2006, the government
collected close to P3.1 billion (B) in taxes from mining activities, up from the
P1.4B collected in 2002. In 2007, the government was able to generate over
87
Manuzon, Maricar (2002). An Industry’s Crusade. Available online:
http://www.philippinebusiness.com.ph last accessed February 10, 2004.

- -
P10.4B in taxes and royalties—a more than two-fold increase from the P3.5B
collected in 2004.
9.2.3 Production Structure and Status of Projects
There are now 26 primary mining companies involved in metallic production

(2008) (Table 1). Most of these principal or large-scale companies are engaged in
mining gold and nickel. Another 2,947 pending applications are being processed,
a majority of which are for MPSA (1,058) and EP (1,496) (Table 2). These
applications involve potential mining activities scattered all over the archipelago
(see Table 8.3).
The number of approved and registered applications are as follows:

- 264 mineral production sharing agreements
- 2 financial/technical assistance agreements
- 39 exploration permits
- 199 IP and 41 mineral processing permits
Permits under process are also numerous:
- 1,058 mineral production sharing agreements
- 52 financial/technical assistance agreements
- 1,496 exploration permits
- 291 IPs and 40 MPPs
Figure 9.5
Percentage Contribution of Mining to Total Philippine Employment
0 .8 0
Contribution of Mining Employment to Total Philippine Employment
0 .7 0
0 .6 0
0 .5 0
0 .4 0
0 .3 0
0 .2 0
1970 1975 1980 1985 1990 1995 2000 2006

- -
Table 9.1
Summary of mining industry statistics
Released: January 30, 2009
2004 2005 2006 2007* Q3 2008*
Gross production value in mining (MGB) (P billion)
Large scale metallic mining 8.0 13.2 27.4 48.5 23.6
Small scale gold mining 21.5 24.2 28.1 32.2 27.4
Non-metallic mining 13.9 12.8 17.0 20.9 Nya
Total P43.4B P50.2B P72.5B P101.5B P51B
Gross value added in mining (NSCB)
At current prices (P billion) 41.0 46.3 59.6 90.4 71.6
Mining contribution to GDP (%) 0.9 0.9 1.0 1.4 1.3
At constant prices (P billion) 14.1 14.8 14.1 18.0 14.2
Mining contribution to GDP (%) 1.2 1.2 1.0 1.4 1.3
Total exports of minerals & mineral products
(BSP) ($ million) 797 820 2,103 2,548 2,060
Mining contribution to total exports 2.0% 2.0% 4.5% 5.2% 5.4%
Total paid-up investment in mining (SEC)
(P million) 282.7 5,969.9 504.8 2,645.9 Nya
Employment in mining and quarrying (DOLE) 118,000 123,000 141,000 149,000 153,000
Mining contribution to total employment (%) 0.3 0.4 0.4 0.4 0.4
Taxes, fees and royalties from mining (P million)
Fees, charges & royalties collected by
DENR-MGB 120.1 210.2 192.1 774.0 414.2
Excise tax collected by BIR 232.5 251.4 489.6 942.1 Nya
Taxes collected by national gov't agencies 2,769.1 4,733.6 5,313.2 8,349.7 Nya
Taxes and fees collected by LGUs 385.5 453.5 395.0 357.9 17.6
Total P3,480.2M P5,648.7M P6,389.9M P10,423.7M P431.8M
Number of operating metallic mines
Copper with gold & silver 1 1 1 1 2

Table 9.1
Summary of mining industry statistics
Released: January 30, 2009
2004 2005 2006 2007* Q3 2008*
Copper with gold, silver & zinc - - - 1 1
Gold with silver 7 7 7 7 8
Metallurgical chromite (ore & concentrate) 2 2 2 2 1
Refractory chromite 1 1 1 1
Chemical grade chromite 1 1 1 1 1
Nickel 4 4 5 11 12
Nickel concentrate - 1 1 1 1
Iron ore - - - - -
Total operating metallic mines 16 17 18 25 26
Number of operating non-metallic mines:
Sand and gravel 1,744 2,490 1,830 1,784 -
Cement 16 16 16 16 -
Other non-metallics 533 688 519 626 -
Total operating non-metallic mines 2,293 3,194 2,365 2,426 -

Table 9.2
Permit statistics summary (December 2008)
Number of applicants
MLP/PLC/
Summary MPSA FTAA EP IP LLC SMP SMEP MPP Total
1. Total under process 1,058 52 1,496 291 0 9 1 40 2,947
2. Total approved
Approved and registered 264 2 39 199 92 2 0 41 639
Approved but for
registration 13 1 0 0 0 0 1 3 18
3. Withdrawn 191 68 223 37 0 1 0 1 521
4. Denied/rejected 1,706 27 345 370 33 0 0 1 2,482
5. Converted to other tenement 80 10 16 1 22 0 0 0 129
6. Approved but expired or
wholly relinquished to gov't 3 5 43 65 41 3 1 0 161
7. Expired but with pending
application for renewal 0 0 15 24 25 0 0 0 64
8. Transferred to other R.O.
with rightful jurisdiction 86 11 49 7 1 0 0 0 154
9. Others 25 2 15 30 34 0 0 64 170
Total applications filed 3,426 178 2,241 1,024 248 15 3 150 7,285
1. Hectares covered by
applications under process 2,253,279.72 2,127,489.36 5,889,642.97 4,341.64 1,053.35 5,558.22 0.00 0.00 10,281,365.25
2. Hectares covered by
approved applications 452,108.38 133,573.84 167,384.14 2,763.20 16,610.75 1,927.41 1,009.22 0.00 775,376.95
Registered 411,519.73 121,164.42 167,384.14 2,763.20 16,610.75 1,927.41 0.00 0.00 721,369.66
For registration 40,588.65 12,409.42 0.00 0.00 0.00 0.00 1,009.22 0.00 54,007.29
3. Hectares covered by expired
tenements with applications for
renewal 0.00 0.00 54,220.16 168.18 1,354.02 0.00 0.00 0.00 55,742.36
Total 2,705,388.10 2,261,063.20 6,111,247.26 7,273.02 19,018.12 7,485.63 1,009.22 0.00 11,112,484.56

Table 9.3
Mining Tenements Statistics Report
December 2008
MPSA FTAA EP IP MPP Total
Approved Approved Approved Approved Approved Approved
Under and Under and Underand Under and Under and Under and
Region process registered process registered process
registered process registered process registered process registered
CAR 51 9 11 0 54 2 1 2 0 0 117 13
I 73 13 4 0 55 4 109 85 3 2 244 104
II 22 3 4 1 79 5 25 30 0 4 130 43
III 139 33 4 0 142 1 51 11 9 0 345 45
IV-A 87 32 4 0 57 3 45 4 15 8 208 47
IV-B 107 12 7 0 254 0 15 0 0 1 383 13
V 131 22 0 0 117 4 4 0 3 3 255 29
VI 30 12 7 0 84 1 0 6 5 7 126 26
VII 142 30 1 0 92 1 8 13 1 10 244 54
VIII 68 14 1 0 100 1 22 35 1 0 192 50
IX 44 11 4 0 87 1 0 9 0 0 135 21
XII 22 6 1 1 49 0 0 0 0 0 72 7
XIII 69 42 2 0 125 9 2 0 3 2 201 53
Total 1,058 264 52 2 1,496 39 291 199 40 41 2,937 545
Notes
1. Data based on Central MGB mining tenement data and the MGB Regional Offices Mining Tenements Statistics Report (MTSR) as of December 2008 except for MGB Regional
Office No. XIII which was based on its MTSR as of November 2008.
2. All data in subject to validation. They should be used only for research and reference, except for litigation purposes.

Table 9.4
Reported Investments from Priority Mining Projects, 2004 Onwards
(4th Quarter 2008)
Reported January 23, 2009
Reported (in million US$)

Project name Total
2004 2005 2006 2007 2008 (04-08)
A. Operating/expansion stage
1. Palawan HPAL Nickel Project (Line 1) 18.18 222.94 61.27 302.39
2. Rapu-Rapu Polymetallic Project 16.40 64.71 6.45 25.11 14.00 126.67
3. Canatuan Silver-Gold Project 7.97 14.21 9.46 2.80 34.44
4. Sto. Tomas II Copper Expansion Proj. 6.05 12.44 3.81 35.09 57.39
5. Teresa Gold Project 37.14 16.83 7.65 6.85 8.06 76.53
6. Berong Nickel Project 3.00 0.40 15.50 2.00 20.90
7. Maco (Masara) Gold Project 30.30 6.28 36.58
8. SIRC (PGMC) Nickel Project 2.00 2.35 16.58 9.70 30.63
9. SIRC (CTP) Nickel Project 2.00 2.35 6.34 11.54
10. PASAR Copper Smelter Exp. Proj. 18.00
41.00 19.00 78.00
11. Philsaga Co-o Gold Project 4.00 2.20 6.20
12. Acoje PGE/Nickel Project 7.80 7.80
Sub-Totals (Operating stage) 85.74 338.13 142.04 125.92 96.39 789.08
First tier priority mineral development projects

B. Construction and development stage
13. Carmen (Toledo) Copper Project 1.46 14.57 143.00 18.97 178.00
14. Palawan HPAL Nickel Project (Line 2) 230.00 57.00 287.00
15. Fiminera Masbate Gold Project 0.62 14.66 3.72 56.52 124.48 200.01
16. Canatuan Base Metal Project 11.57 11.43 23.00
17. Didipio Copper-Gold Project 42.00 33.70 4.09 31.00 110.79
18. Iligan Ferronickel Smelter Plant 11.40 1.20 12.60
19. Manticao Ferronickel Smelter Plant 0.03 22.44 1.20 23.67
Table 9.4
(4th Quarter 2008)

Project name Total
2004 2005 2006 2007 2008 (04-08)
20. Isabela Nickel Project
Sub-Totals (Construction & dev't stage) 42.62 49.82 22.42 505.93 214.28 835.07
C. Feasibility/financing stage
21. Tampakan Copper Project 1.93 12.00 13.23 23.62 50.00 100.78
22. Surigao Sumitomo HPAL Project 25.00 25.00
23. Boyongan Copper Project 2.20 34.72 2.53 3.24 42.69
24. Itogon Gold Project 0.07 0.13 0.22 0.85 2.87 4.14
25. Nonoc Nickel Project
26. Mindoro Nickel Project 0.09 0.09
27. Akle Cement Project 14.00 0.13 14.13
28. Far Southeast Gold Project 0.22 1.04 0.10 0.00 0.00 1.36
29. King-King Copper-Gold Project 0.38 0.38
Sub-Totals (Feasibility/financing stage) 4.42 61.89 16.69 27.71 77.87 188.58
D. Advanced exploration stage

30. Colet Copper-Gold Project 2.65 2.24 0.56 5.45
31. Siana Gold Project 5.00 8.00 0.55 13.55
32. Agata Project (Copper-Gold-Nickel) 0.81 0.30 1.11
33. Balabag Project 0.00
34. Runruno Gold Project 2.42 2.42
35. Bayugo Copper-Gold Project 0.00
36. Pujada Nickel Project 0.40 2.35 2.75
37. Sta. Cruz Nickel Project - Benguet 3.00
Table 9.4
(4th Quarter 2008)

Project name Total
2004 2005 2006 2007 2008 (04-08)
Sub-Totals (Advanced exploration stage) 5.00 11.05 5.21 1.37 2.65 28.28
Sub-Totals (First tier projects) 52.04 122.76 44.32 535.01 294.80 1,051.93
Second tier priority mineral development projects

38. Amacan Copper-Gold Project 0.00
39. Batong-Buhay Copper-Gold Project 0.00
40. Diwalwal Direct State Dev. Project 1.70 2.45 0.64 4.79
Sub-Totals (Second tier projects) 1.70 2.45 0.64 0.00 0.00 4.79
Priority exploration projects

1. Crescent Mining
2. Conner Apayao Gold Project 0.25 0.17 0.42
3. Capcapo Project 0.17 0.17
4. Macro Asia Palawan Project
5. Ipilan Nickel Project (Celestial) 0.80 0.80
6. Nalesbitan Gold Project
7. Vista Buena Mining
8. Mt. Mines Copper-Gold Project 0.69 0.69
9. Archangel Gold Project 2.88 0.16 3.04
10. Lobo Gold Project 0.02 0.01 0.03
11. Pao Copper-Gold Project
12. Gambang Copper-Gold Project 0.12 0.12
13. Colossal Offshore Magnetite Project
14. Citinickel Palawan Nickel Project
Table 9.4
(4th Quarter 2008)

Project name Total
2004 2005 2006 2007 2008 (04-08)
15. Barlo Copper Project
16. Panaon Gold Project
17. Century Peak nickel Project
18. Surigao Nickel Project - Oriental
Synergy
19. Hixbar Copper-Gold Project
20. Panag Gold project
21. Vista Alegre Gold Project
22. Taipan San Francisco Project
Sub-Total (Exploration projects) 0.80 3.15 1.32 5.27
Grand Total 139.48 463.34 187.79 664.08 392.51 1,851.06

Table 9.5
Projected investments from priority mining projects (4th Quarter 2008)
Projected (U$ million)
Total
Project name
disclosed
4Q 2008 2009 2010 2011 2012 2013 project cost
A. Operating/expansion stage
1 Palawan HPAL Nickel Project (Line 1) 0.00
2 Rapu-Rapu Polymetallic Project 0.00
3 Canatuan Silver-Gold Project 0.00
4 Sto. Tomas II Copper Expansion Proj. 0.00
5 Teresa Gold Project 0.00
6 Berong Nickel Project 0.00
7 Maco (Masara) Gold Project 0.00
8 SIRC (PGMC) Nickel Project 0.00
9 SIRC (CTP) Nickel Project 0.00
10 PASAR Copper Smelter Exp. Proj. 0.00
11 Philsaga Co-o Gold Project 2.60 3.16 5.76
12 Acoje PGE/Nickel Project 10.00 10.00 300.00 200.00 520.00
Sub-Totals (Operating stage) 10.00 12.60 303.16 200.00 525.76
First tier priority mineral development

projects
B. Construction and development stage
1 Carmen (Toledo) Copper Project 0.00
2 Palawan HPAL Nickel Project (Line 2) 0.00
3 Fiminera Masbate Gold Project 0.00
4 Canatuan Base Metal Project 0.00
5 Didipio Copper-Gold Project 64.00 145.21 209.21
Table 9.5
Total
Project name
disclosed
4Q 2008 2009 2010 2011 2012 2013 project cost
6 Iligan Ferronickel Smelter Plant 1.60 4.90 5.50 0.11 12.11
7 Manticao Ferronickel Smelter Plant 1.60 4.98 0.34 0.09 7.01
8 Isabela Nickel Project 13.70 13.70
Sub-Totals (Construction & dev't stage) 80.90 155.09 5.84 0.20 0.00 0.00 1,153.09
C. Feasibility/financing stage
9 Tampakan Copper Project 250.00 700.00 800.00 300.00 2,050.00
10 Surigao Sumitomo HPAL Project 25.00 250.00 800.00 600.00 1,675.00
11 Boyongan Copper Project 25.00 25.00 200.00 300.00 200.00 200.00 950.00
12 Itogon Gold Project 9.13 10.00 6.00 25.13
13 Nonoc Nickel Project 10.00 30.00 100.00 860.00 1,000.00
14 Mindoro Nickel Project 10.00 90.00 500.00 500.00 1,100.00
15 Akle Cement Project 30.00 32.00 36.00 98.00
16 Far Southeast Gold Project 40.00 60.00 300.00 100.00 500.00
17 King-King Copper-Gold Project 10.00 140.00 222.00 160.00 532.00
Sub-Totals (Feasibility/financing stage) 159.13 887.00 2,864.00 3,320.00 500.00 200.00 8,118.71
D. Advanced exploration stage

18 Colet Copper-Gold Project 134.00 134.00 268.00
19 Siana Gold Project 10.00 50.00 60.00
20 Agata Project (Copper-Gold-Nickel) 2.20 2.20
21 Balabag Project 2.00 2.00
22 Runruno Gold Project 15.00 15.00 150.00 180.00
23 Bayugo Copper-Gold Project 10.00 40.00 150.00 200.00 200.00 200.00 800.00
Table 9.5
Total
Project name
disclosed
4Q 2008 2009 2010 2011 2012 2013 project cost
24 Pujada Nickel Project 14.65 25.00 25.00 20.00 500.00 500.00 1,084.65
25 Sta. Cruz Nickel Project - Benguet 5.00 5.00
Sub-Totals (Advanced exploration stage) 58.85 264.00 459.00 220.00 700.00 700.00 2,401.85
Sub-Totals (First tier projects) 298.87 1,306.09 3,328.84 3,540.20 1,200.00 900.00 11,673.65
Second tier priority mineral development

projects
26 Amacan Copper-Gold Project 50.00 50.00 100.00
27 Batong-Buhay Copper-Gold Project 50.00 50.00 100.00
28 Diwalwal Direct State Dev. Project 9.00 11.00 20.00
Sub-Totals (Second tier projects) 0.00 9.00 111.00 100.00 0.00 0.00 220.00
Priority exploration projects

1 Crescent Mining 5.00 5.00
2 Conner Apayao Gold Project 2.83 2.83
3 Capcapo Project 2.23 5.60 40.00 47.83
4 Macro Asia Palawan Project 2.00 2.00
5 Ipilan Nickel Project (Celestial) 2.00 2.00
6 Nalesbitan Gold Project 2.00 2.00
7 Vista Buena Mining 2.00 2.00
8 Mt. Mines Copper-Gold Project 1.31 1.31
9 Archangel Gold Project 1.84 1.84
10 Lobo Gold Project 1.99 1.99
11 Pao Copper-Gold Project 1.00 1.00
Table 9.5
Total
Project name
disclosed
4Q 2008 2009 2010 2011 2012 2013 project cost
12 Gambang Copper-Gold Project 0.88 0.88
13 Colossal Offshore Magnetite Project 1.00 1.00
14 Citinickel Palawan Nickel Project 1.00 1.00
15 Barlo Copper Project 0.60 0.60
16 Panaon Gold Project 0.50 0.50
17 Century Peak nickel Project 0.50 0.50
18 Surigao Nickel Project - Oriental Synergy 0.50 0.50
19 Hixbar Copper-Gold Project 0.10 0.10
20 Panag Gold project 0.10 0.10
21 Vista Alegre Gold Project
22 Taipan San Francisco Project 0.10 0.10
Sub-Total (Exploration projects) 29.48 5.60 40.00 75.08
Grand total 338.35 1,333.29 3,743.00 3,880.20 1,200.00 900.00 11,394.84

9.3 Impact Of Mining Activities
The impact of mining activities can be felt at both local and national levels. The
channels through which the impact will be felt are through investments, exports,
jobs and taxes.
A total of 62 mining projects at various stages of development identified as

priorities by government have infused a total US$1.85B in investments in 2004
and the third quarter of 2008. The bulk of these investments went into the
construction and development stage of 8 companies infusing about $835M and
another 12 companies at the operating and expansion stage injecting $789M in
investments.
During the period 2004-2007, a total of 18,031 jobs were generated by these
priority projects. In the four years between 2008 and 2011, another 29,825 jobs
are expected to be created, mostly coming from new mining projects (see Table
8.5). From the last quarter of 2008 to 2013, the government projects an additional
infusion of $11.4B in investments from mining projects at various stages of
development.
Government projections did not provide estimates of additional taxes as well as

the exports these new mining projects will generate. However, if all these mining
investments push through as projected especially those at the 8 mines at the
development/commercialization stage and the 12 others at the
expansion/operating stage, mineral export and taxes will substantially increase
from mineral extraction, processing and sales.
However these figures tend to underestimate the total investments and jobs being
created by the sector. As observed earlier, there are over 2,900 pending
applications for mining tenements with the government. Approval and
commercialization of any of these projects will have a substantial impact in the
long term on exports, investments, fiscal and employment sectors.
As discussed earlier, only during the commercial operation of a mine will the
national as well as local government and communities fully enjoy the benefits of
the mining activities. At the national level, the economic benefits derived from
commercial operations are as follows:
- For MPSA: Excise tax on minerals of 2% of market value; 5% if in

mineral reserve
- Corporate income tax of 5% or 3% of sales
- For FTAA: Net mining revenue option of 50% of gross output net of
deductible expenses or profit-based option of 25% of excess profits (net
profit after tax less 40% of gross output)/(1-income tax rate)
- Environmental management fee of 1% of capex during construction
- Mine wastes fee of P.05/MT and tailings fee of P.10/MT
For the LGUs that have jurisdiction over the claims, in addition to realty and
business taxes and license permits, their share on the 40% excise taxes from a
fully operating mine are as follows:
- -
- 20% to the province
- 35% to the municipality
- 45% to the barangay
Other stakeholders that can partake from the commercial operations of a mine are
as follows:
- Communities within and around the mining site can benefit from a social
investment requirement of 1% of direct milling cost, of which 90% must be
spent on SDMP for the communities and the remaining 10% on mining and
geosciences technology
- Indigenous communities (if present onsite) get a royalty fee of 1% of gross
output
9.4 Obstacles to Mining Activities
There are external as well as internal obstacles that hinder foreign mining companies
from coming to the Philippines.
9.4.1 External Obstacles
Factors external to the Philippines that discourage investments in exploration and

mine development and commercialization are the credit crisis, the softening of
world prices, and the presence of international anti-mining lobby groups against
any form of mining activities. These factors are well beyond the country’s
control.
The credit crisis and falling world prices. In a 2008/2009 annual survey
conducted by the Fraser Institute of 658 exploration and mining-related
companies around the world, more than 4 out of 5 believe that at least 30% of
exploration companies will be forced out of business in the current economic
downturn. The same survey indicated that over 90% of respondents believe
exploration and development activities will be curtailed, with 57% saying activity
will decline a “great deal” and 85% saying that activities of production
companies will be curtailed.
The implications can be adverse to the Philippine mining sector as most projects
in the country are still at the exploration and feasibility/financing stages.
Postponements or outright cancellations of exploration activities can eliminate
the Philippines’ long term prospects in mining.
The postponement of exploration and commercialization activities can lead to

commodity shortages when the economy recovers. According to the same report,
“the world may face a shortage of raw materials and sky rocketing commodity
prices as the world economy moves past the recession and into renewed growth.”

- -
The report further states “the curtailment of development activity will hit in the
short-term, likely during the opening phase of the recovery period. The gap
between exploration and production typically span five years to ten years. This
means that the negative impact from the lack of exploration on commodity
supplies will begin to hit as the recovery matures.” While it may augur well for
existing mining operations, the report observed that “these problems could
weaken the recovery and spark inflation fears.”
Anti-mining lobby. The spotlight focused on Philippine mining has also

rekindled fierce opposition from international and local environmental groups
and other non government organizations who are seriously concerned about non-
economic issues like the adverse impact on the environment and violations of
rights of indigenous peoples. Campaigns by the local network of environmental
activists have already impeded a number of mining projects.
9.4.2 Internal Obstacles
Miscommunication between national bodies and local stakeholders. While

regulatory policy and national laws favor mining companies, the lack of formal
linkages between national bodies and local stakeholders has led to animosities.
Local government units, community leaders and organizations, academic and
religious institutions and the like are directly affected by existing or future
mining activities, yet they have limited involvement in the permit approval or
monitoring process as well as little access to information about the mining
activities of a company locating in their community.
This lack of knowledge promotes distrust and enmity between the mining
companies and local parties. This is why some local government units implement
mining moratoriums in their communities despite the presence of approved
mining tenements and operations in the area. LGUs also complain about the lack
of transparency in mining operations and delayed remittances of their rightful
share in excise taxes of local mining operations.
Such problems can be better managed—if not prevented—if there were formal
mechanisms to facilitate more communication between national agencies, the
mining companies and local stakeholders. If not addressed effectively, these
difficulties may significantly hurt the Philippines’ attractiveness to mining
explorations and investors.

- -
Table 9.6
Philippine Ranking in Annual Survey of Mining Companies
2008/2009 2007/2008 2006/2007 2005/2006
Mineral potential
Current policy potential index 59 60 61 60
Policy/mineral potential assuming no
land use restrictions in place 24 1 35 28
Current mineral potential assuming
current regulations and land use
restrictions 50 52 47 40
Total number of countries covered 71 65 65 64
Source: 2008/2009 Fraser Institute Annual Survey of Mining Companies
The ranking of the Philippines in terms of policy and mineral potential, assuming
no land use restrictions are in place and current best practices are in place, has
deteriorated from being ranked first in 2007 to 24th place in the 2008 survey (see
Table 8.6). When assuming regulations and land use restrictions, there is a rapid
deterioration in the attractiveness of the Philippines as an investment site; from a
rank of 40th the Philippines now ranks 50th in this category.
The general ranking of the Philippines has remained almost unchanged, with the
rating hovering between 59 and 60 over the last two surveys. What are the factors
contributing to the lack of improvement on this ranking? The 2008/2009 Fraser
Annual Survey of Mining Companies can provide insights into some contributing
factors.
Other Internal Factors. Despite Philippine Mining Law being adjudged by the
World Bank as the best in the world, uncertainties in its administration,
interpretation and enforcement make implementation difficult. Problematic issues
like aboriginal land claims, areas covering wilderness areas or parks,
socioeconomic and community development conditions and security concerns
also complicate the overall picture (see Table 8.7).

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Table 9.7
Philippine Ranking In Annual Mining Company Survey:
What Attracts Investments In Exploration
Philippine
rank "Best" "Worst"
(out of 71) jurisdiction jurisdiction
Uncertainty in administration, interpretation
and enforcement of existing regulations 55 Quebec Venezuela
Environmental regulation 41 Chile Washington
Regulatory duplications and inconsistencies 64 Quebec Venezuela
Taxation regimes 32 Wyoming Zimbabwe
Uncertainty concerning native/aboriginal land
claims 62 Wyoming Ecuador
Uncertainty concerning which areas will be
protected as wilderness areas or parks 55 Kazakhstan California
Infrastructure 53 Nevada Kyrgyzstan
Socioeconomic agreements/community
development conditions 59 Nevada Ecuador
Political stability 57 Alberta Zimbabwe
Labor regulations/employment agreements 50 Wyoming Venezuela
DRC
Geological database 53 Norway (Congo)
Security 68 Utah Zimbabwe
DRC
Supply of labor/skills 34 Nevada (Congo)
Current policy & mineral potential 38 Quebec Guatemala
Source: 2008/2009 Fraser Institute Annual Survey of Mining Companies
Lack of knowledge by local finance institutions on mining operations. The

conspicuous absence of substantial funds from local finance institutions in the
mining exploration and development stage can be attributed to their lack of
knowledge on and appreciation of mining activities. The Philippines continues to
look to foreign capital to fund exploration, feasibility and commercial
development of its mines. In addition to mobilizing excess liquidity in the
financial system, active participation by local financial institutions can be an
effective positive signal to foreign investors about local confidence in the
country’s mining sector.
Poor or limited monitoring of mining activities. National agencies lack the

manpower and resources to carefully monitor each mining project that is
perceived to threaten the economic and non-economic well-being of local
communities and government units. Unrecorded or under-reported mineral
exports, for instance, deprive the government and local communities of fair
duties and fees. The bad mining practices of some mining companies can also
damage the reputation of other law-abiding mining companies.

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9.5 Action Programs for Overcoming Obstacles In Mining
To make the Philippines more attractive for mining exploration and

commercialization, the following action programs are being recommended:
Enrolment in Extractive Industry Transparency International. The government must

enroll the Philippine mining industry in the EITI, an organization that certifies and
promotes transparency best practices and standards in mining industries. To promote
transparency, mining companies must be encouraged to waive the confidentiality of
their tax payments to the government and to fully disclose all tax payments.
Establish a formal links between national agencies, companies and local stakeholders.
There is a need to formulate a locally-oriented, responsive and representative minerals
protocol which can provide mechanisms for representation, dialogue, consultation,
education, monitoring, conflict resolution and capacity building among key
representatives of communities. Local communities must be viewed as authentic
partners by mining companies and national government agencies. A communication
protocol like this must ensure the following:
• Authentic human development of members of local communities

• Establishment of programs to de-couple economic activities of mining
communities from mining activities over time
• Promotion and observance of transparency in operations and financial
transactions of mining companies
• Establishment of a mechanism of engagement between the different
stakeholders with adequate representation as early as the pre-exploration stage
• Enhancement of capability of local stakeholders to monitor and assess
different stages of mining activities
• Promotion peace and order and security at the mining site, in coordination
with the PNP and AFP
• Consistency in the levying of tax laws by LGUs on mining operations
• Devolve at the local level monitoring and assessing the social and economic
impact of a mine operation
• Consultation and assistance in drafting exit development plans for
decommissioned mine sites
Enhance the economic and non-economic impact of a mine operation. An

organization must be in place, preferably devolved at the local level with adequate
representation from appropriate agencies and local communities (perhaps the same
organization or group being proposed in the minerals protocol above), to strictly
monitor mineral production and exports, and help assist stakeholders draft programs
for spending or allocation of their share in mining operations. Another way to fully
optimize the impact of a mine operation is to encourage other sectors to invest in
downstream operations like mineral processing plants.
Timely recording and remittance of LGU’s share. To ensure their mandated share in
excise taxes are remitted and collected on time, LGUs should consider the following:

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• A joint certification of tax collection by relevant agencies (i.e., DOF-BIR,
DENR-MGB, DILG, DOE, DOF-BOC) on the total amount of taxes collected;
• Specified timelines for the reconciliation, recording and sharing of all taxes
collected by relevant government agencies;
• Incorporate in the succeeding year’s expenditure budget how the LGU intends
to spend their share of the excise taxes
According to the latest information provided in the last consultative workshop, the
different government offices are in the process of coming up with a memorandum of
agreement aimed at streamlining and enhancing the process of recording, computing
and informing and disbursing the rightful shares of the LGUs on the taxes from
minerals.
Tap local financial markets to fund mining projects. There is a need to educate local
financial institutions about mining operations to encourage these to fund mining
projects. There are on-going proposals to offer a Mining 101 course in UP to other
interested parties like lawyers, accountants, government officials, etc.
The participation of local financial institutions can lead to the mobilization of excess
liquidity and to give a positive signal to investors about local commitment and
confidence on mining prospects in the country. Lately, negotiations are on-going with
the Philexim bank to extend credit guarantees on loans provided to mining projects.

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Impact of Global Financial Crisis to the Mining Industry
Competitiveness of • World Rank: Annual Survey • In a 2008/2009 annual survey • Enhance the economic and non-economic impact of a
Philippine Mining of Mining Companies by conducted by the Fraser Institute of mine operation. An organization must be in place,
Industry Fraser International, the 658 exploration and mining-related preferably devolved at the local level with adequate
Philippines is ranked 24th out companies around the world, more representation from appropriate agencies and local
of 71 countries in terms of than 4 out of 5 believe that at least communities (perhaps the same organization or group
policy/mineral potential, 30% of exploration companies will being proposed in the minerals protocol above), to
assuming industry best be forced out of business in the strictly monitor mineral production and exports, and help
practices and liberal current economic downturn. The assist stakeholders draft programs for spending or
regulations are in place. Note same survey indicated that over 90% allocation of their share in mining operations. Another
that the country was of respondents believe exploration way to fully optimize the impact of a mine operation is
previously ranked first out of and development activities will be to encourage other sectors to invest in downstream
68 countries covered in a curtailed, with 57% saying activity operations like mineral processing plants.
previous Fraser survey. will decline a “great deal” and 85% • Tap local financial markets to fund mining projects.
• Mineral Potential: It is saying that activities of production There is a need to educate local financial institutions
estimated that close to 38% companies will be curtailed. about mining operations to encourage these to fund
of the Philippine land area of • The implications can be adverse to mining projects. There are on-going proposals to offer a
30 million hectares have high the Philippine mining sector as most Mining 101 course in UP to other interested parties like
mineral potential. This projects in the country are still at the lawyers, accountants, government officials, etc.
translates to a little over 11 exploration and feasibility/financing • The participation of local financial institutions can lead
million hectares. Only about stages. Postponements or outright to the mobilization of excess liquidity and to give a
7% or 775,377 hectares are cancellations of exploration positive signal to investors about local commitment and
covered by approved mining activities can eliminate the confidence on mining prospects in the country. Lately,
permits. Philippines’ long term prospects in negotiations are on-going with the Philexim bank to
• Contribution to National mining. extend credit guarantees on loans provided to mining
Income: Through the years, • The postponement of exploration projects.
however, the industry’s and commercialization activities can
contribution to the national lead to commodity shortages when
income has steadily the economy recovers. According to
decreased. This decline was the same report, “the world may face
due to the closure of many a shortage of raw materials and sky
mines—a historical trend rocketing commodity prices as the
since the 1980s. The share of world economy moves past the
mining and quarrying recession and into renewed growth.”
employment has also been • The report further states “the
steadily decreasing since the curtailment of development activity
1990s. will hit in the short-term, likely
• Contribution to employment: during the opening phase of the
It is estimated that current recovery period. The gap between
employment generated by exploration and production typically
large scale mining companies span five years to ten years. This
is about 10,000 to 15,000 means that the negative impact from
persons. The majority of the lack of exploration on
those employed in the commodity supplies will begin to hit
industry belong to small- as the recovery matures.” While it
scale mines. may augur well for existing mining
• Mining Companies: There operations, the report observed that
are now 26 primary mining “these problems could weaken the
companies involved in recovery and spark inflation fears.”
metallic production (2008).
Most of these principal or
large-scale companies are
engaged in mining gold and
nickel. Another 2,947
pending applications are
being processed, a majority
of which are for MPSA
(1,058) and EP (1,496).
These applications involve
potential mining activities
scattered all over the
archipelago.
• Mining Projects: A total of
62 mining projects at various
stages of development
identified as priorities by
government have infused a
total US$1.85B in
investments in 2004 and the
third quarter of 2008. The
bulk of these investments
went into the construction
and development stage of 8
companies infusing about
$835M and another 12
companies at the operating
and expansion stage injecting
$789M in investments.
• Job generation: During the
period 2004-2007, a total of
18,031 jobs were generated
by these priority projects. In
the four years between 2008
and 2011, another 29,825
jobs are expected to be
created, mostly coming from
new mining projects. From
the last quarter of 2008 to
2013, the government
projects an additional
infusion of $11.4B in
investments from mining
projects at various stages of
development.

References
Cabalda, et. al.(2002), Sustainable Development in the Philippine Minerals Industry:

A Baseline Study. IIED-UK.
Fraser Institute (2009). Annual Survey of Mining Companies 2008/2009. 1770 Burrard
St., Vancouver, BC.
Hubo, C. Lewis, J. and Warner, M.(2004). Final Report of the World Bank Technical
Assistance on CSR in the Philippine Mining Industry. The World Bank.
Hubo, C. and Leray, T (2005). Outcomes of the World Bank Technical Assistance on
CSR in the Philippine Mining Industry. The World Bank.
Padojinog, W. and Hubo, C (2006). Prospects of Sustainable Mining in Ilocos Norte.
Center for Research and Communication Foundation.
Padojinog, W. and Hubo, C (2006). Rapid assessment of the sustainability agenda in
the Philippine mining industry. SPEX-UA&P.
Bangko Sentral ng Pilipinas www.bsp.gov.ph
BusinessWorld, 22 January 2004.
Mining Tenements Division, Mines and Geosciences Bureau. www.mgb.gov.ph
Mineral production review, January-March 2007. Mines and Geosciences Bureau.
Philippine metallic mineral production, May 9, 2007. Mines and Geosciences Bureau.
World Bureau of Metal Statistics. http://www.world-bureau.com/
Industry workshops and consultations

1. Interview with Mr. Ernesto Villaluna, President, Philex Mining Corporation,
University of Asia & the Pacific, Dining Lounge, Pasig City, 16 February
2009.
2. Consultative workshop meeting with the Management Association of the
Philippines, Ayala Tower One, Makati City, 3 March 2009
3. A round-table discussion with key representatives of the Chamber of Mines
led by Mr. Philip Romualdez, University of Asia & the Pacific, Pasig City, 17
March 2009.
4. Industry consultative workshops with stakeholders invited by the Department
of Trade and Industry at DTI Building, Makati City, 17 March 2009.
5. Industry consultative workshops with the Chamber of Mines represented by
Mrs. Nelia Halcon and organized by the Department of Trade and Industry at
the DTI Building, Makati City, 17 April 2008.

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Global Recession, RP Eco

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The Global Recession and the

Philippines Economy: Impact

Submitted to USAID/Philippines by the Local Implementation of National Competitiveness for

Center for Research and Communication Foundation Inc.

2. THE GLOBAL MELTDOWN: MACROECONOMIC IMPLICATIONS ON THE

3 VULNERABILITY OF PHILIPPINE AGRICULTURE.................................................. 54

4 IMPACT ON THE PHILIPPINE BUSINESS PROCESS OUTSOURCING

5 THE PHILIPPINE ELECTRONICS INDUSTRY IN A GLOBAL RECESSION ....... 117

6 THE GLOBAL CRISIS AND PHILIPPINE TOURISM ................................................ 126

7. THE PHILIPPINE AUTOMOTIVE INDUSTRY AND THE GLOBAL FINANCIAL

8. ASSESSING THE IMPACT OF GLOBAL ECONOMIC SLOWDOWN ON

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9. REVITALIZING THE PHILIPPINE METALLIC MINING INDUSTRY..................... 198

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The report is organized as follows. Chapter 2 examines the effects of the

1.1 Effects on the Philippine Macroeconomy

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In summary, the Philippine economy is in a better financial position to face the

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To a developed economy whose currency is acceptable for international transactions,

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1.2 Major Findings on Key Sectors

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With more electronics factories located in the countryside, the adverse

A weaker electronics industry also means drastically reduced opportunities for

Low value-added manufacturing operations. The concentration of the activities of the

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Tourism’s power to reduce poverty is threatened by the global financial crisis

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(c) Business Process Outsourcing

Global outsourcing & off-shoring (O&O) of services, commonly referred to as

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In summary, the global crisis is expected to enhance the attractiveness of

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Trade represents a considerable part of the Philippine economy—with the

The Philippine automotive industry is domestic-oriented and is less exposed to

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The agriculture sector is partly vulnerable to the crisis. World commodity

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A total of 62 mining projects at various stages of development identified by

Government projections did not provide estimates of additional taxes as well

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The factors external to the Philippines that discourage investments in exploration

The postponement of exploration and commercialization activities can lead to

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1.3 Actionable Recommendations

The actionable recommendations proposed in this report are presented in

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Encourage consolidation of global operations in the Philippines. The global

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Unlike other markets, it seems that the local financial

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Support through discounts or rebates can be given especially to SMEs

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