The Philippines has been urged to reduce power costs for manufacturing projects to drive more investments in the country as the economy is largely skewed in favor of the overgrown services sector, a former chief economist of the government urged.
During the virtual Pilipinas Conference 2021” Dr. Raul Fabella suggested that power tariff in the country, which is the highest in ASEAN and second highest in Asia, for manufacturing establishments could be reduced by 45 percent.
Fabella said the government should follow the Germany model for power cost for manufacturing, which only includes generation, transmission and distribution cost. “Other add-ons to the manufacturing today shall be transferred to services,” he said.
According to Fabella, this model would reduce the power cost to manufacturing establishments by about 45 percent and in accordance with COP 26 Agreements.
He stressed that what is happening is that the country’s incentive structure favors short payback investments due to lack of regulatory and rule of law and stability that has led to an overly broad service sector.
Fabella presented data showing how the Philippines regard manufacturing as economic driver for the country. In fact, the percentage of manufacturing value added to GDP in developing countries has always been rising very rapidly in contrast to that of the Philippines.
For instance, he said, in 2010 Vietnam’s manufacturing value added was 13 percent of its GDP and has grown to 17 percent at present and services at 42 percent share but is expected to further change very quickly in favor of manufacturing.
Comparatively, the Philippines’ manufacturing value added to GDP was 23 percent in 2010, but this has gone down to 18 percent in 2020 while services value added share to GDP is at a high of 61 percent at present.
Singapore, a developed country, has 26 percent manufacturing share to GDP and services at 71 percent because it has become an OECD country. Thailand has higher manufacturing value added share in its GDP at 25 percent while services at 58 percent, Malaysias’ manufacturing contribution is also high at 22 percent as against services of 55 percent. Indonesia’s manufacturing value added to GDP is at 20 percent as against services of 44 percent.
“Now, this gives a view of how manufacturing has fared in these countries,” he said.
In terms of investment rate, Fabella also showed that China got 42 percent in 2020 from 47 in 2010. Vietnam has investment rate of 36 percent in 2020, Indonesia at 32 percent in 2020 from 33 percent and Malaysia at 20 percent from 23 percent. The Philippines, however, lagged behind at 17 percent investment rate in 2020 from 20 percent in 2010.
“This reflects a very interesting observation either we Filipinos have very little regard for our future or our children or we envision our children making their future in some other locality and not. The rule of law is so bad that we don’t want to go into long term investments because we may never see the fruits of those investments,” he said.
“So, investment is more rapid when the manufacturing share GDP is the highest tier of GDP. It it’s higher, the higher is the foreign direct investments. It’s also higher when the rule of law is rigorous in the country,” he stressed.
Aside from power cost reduction, Fabella also urged to pass the easing of the land market bill to hasten consolidation to larger farms, raise ownership ceiling to 25 hectares, and 500 hectares for agro-industrial complexes.
He also urged state-owned Land Bank of the Philippines to broker consolidation and leasing of lands for agro-industrial complexes.
There are also low hanging fruits that could hasten investment as well. He urged to reopen to investors the mining, mining with state of the art regulation and governance.
In addition, h called for the upgrade one of the Philippine power grid, particularly the submarine cables, to improve connectivity in the country.