MANILA - American automaker
Ford's recent announcement that it will shut its
vehicle assembly plant in the Philippines by the
end of the year has dealt another blow to
President Benigno Aquino's efforts to shore up the
manufacturing sector.
Ford executives
cited the the country's small market as the reason
for the closure, while insisting to reporters that
the decision was not a reflection of its corporate
confidence in Aquino's and the country's economic
direction. Filipinos are expected to purchase
180,000 cars this year, up from the 166,000 new
cars they bought in 2011.
Those sales are
dwarfed elsewhere in the region - Thailand's auto
sales last year topped 700,000 while Indonesia's
were close to
one million, according
to industry statistics.
Ford's Philippine
plant failed to reach half of its annual projected
output of 36,000 vehicles per year, and was only a
fraction of the 300,000 units Ford's factories
typically churn out in Thailand and China.
The company joins a growing list of
multinational corporations that have folded up
their manufacturing facilities in the Philippines
to relocate to China or other Association of
Southeast Asian Nations (ASEAN) countries.
Big multinational manufacturers that have
opened and subsequently closed production
facilities in the country include Acer,
Colgate-Palmolive, Intel, Philips, Procter &
Gamble, Toshiba, and several pharmaceutical
companies. Some of these have cited the
uncompetitive costs of doing business, including
high regulatory, energy and transport costs, as
cause for their departure.
Peter Fleet,
Ford's president for ASEAN, pointed to a dearth of
auto-parts suppliers and a lack of economies of
scale as major issues behind the decision to close
its US$270 million factory. Ford Philippines,
which started local operations in 1999, has been
largely dependent on parts suppliers from China
and Thailand.
Some analysts believe that
Ford's decision was also motivated by a lack of
transparency inside the bureaucracy and by
automobile-related regulations. That supposedly
includes persistent illegal imports of second-hand
cars from neighboring countries, which by some
estimates have hampered growth and sales in the
local new car market.
The closure hits the
Philippines' once ambitious car export program,
which was intended to transform the country into a
regional hub for automotive production, especially
low-cost models and utility vehicles used for mass
transport.
It also presents a reversal for
the country's industrial ambitions. In 1996, the
Philippines tried to woo US automaker General
Motors (GM) through generous investment
incentives, including the free use of land next to
Subic Bay, site of a former US military base. GM
finally decided to establish a $750 million
production plant in Thailand, cementing that
country's position as Southeast Asia's auto
manufacturing hub.
Philippine officials
are predictably looking for scapegoats. Trade
Undersecretary Adrian Cristobal said in the wake
of Ford's decision that the country must encourage
more investment in car parts and components.
Open borders Ferdi Raquelsantos,
president of the Motor Vehicle Parts Manufacturers
Association of the Philippines, countered in a
public statement that its member plants are
operating at less than 50% of their installed
capacity and could easily ramp up production if
there was underlying demand. He argued that the
problem is more related to increased imports of
completely built cars, mainly from Thailand, than
a lack of locally produced parts.
His
association is urging the government to review the
Motor Vehicle Development Program, which intends
to rationalize the local automotive industry by
leveling the competitive playing field, and
replace it with one that emphasizes local
manufacturing over foreign trade. Beginning next
year, Ford will only import cars into the
Philippines, similar to the sales strategies of
its competitors in the local market.
Rafaelita Aldaba of the Philippine
Institute of Development Studies think tank said
in an interview that the Philippines at present
has 256 auto parts and components suppliers with
strong comparative advantages in ignition sets,
radio receivers, lead acid electric accumulators,
brake systems, transmissions, propellers and
shafts.
"Our parts alone contribute 5% to
total manufacturing employment, 3% to total value
added and represent 7% of the country's total
exports. The parts industry is a net exporter,
with exports amounting to $3.8 billion in 2011,"
Aldaba said.
She said that to develop the
industry and address the limited economies of
scale that Ford cited as a reason for its
departure the government should do more to curb
parts smuggling and implement laws that prohibit
illegal import of used vehicles.
From a
jobs perspective, Ford's closure will not be as
dramatic as chipmaker Intel's pullout a few years
ago, which shed 5,000 jobs. Only 360 workers will
be affected by Ford's closure, on top of the 200
who were laid off earlier this year.
Still, Ford's departure has sent a
worrying signal to other manufacturers that
upstream supply chains could be hurt. The
Philippines received only $1.2 billion out of a
total $116 billion invested in the 10-member
Association of Southeast Asian nations last year,
lagging behind even underdeveloped Vietnam's $7
billion.
In a global executives survey
conducted by global management consultant firm A T
Kearney and released earlier this year, the
Philippines was not among the top 25 global
countries considered attractive by foreign
investors - in poor comparison with regional
rivals such as Indonesia (placed ninth in the
survey), Malaysia (10th), Vietnam (14th) and
Thailand (16th). In 1990, manufacturing
contributed 25% to the Philippine economy; that
figure had dropped to 21% by 2010, according to
the research.
Ernesto Herrera, a former
senator and president of the Trade Union Congress
of the Philippines (TUCP), said Ford's closure is
symptomatic of a larger malaise in the industrial
sector.
"One major reason why investors
are avoiding and even moving out of the
Philippines is the lack of stability in investment
policies. [One government] approves policies that
then become void by the Supreme Court in the next
administration," Herrera said.
Other major
reasons, Herrera said, relate to protectionist
restrictions on foreign investments, which are
capped by law at 40% foreign ownership, and
endemic official corruption.
"While there
is corruption to accommodate investments in other
countries as well, the degree we have is among the
worst in the world," he said. "A big part of the
reason is the earlier restriction in investment
... which forces investors to partner with
controlling families."
He contends that
during the previous Gloria Macapagal-Arroyo
administration no major foreign investments were
allowed in the country unless an allied big
business family participated.
Many hoped
the Philippines' global image would improve under
Aquino's reformist leadership. But while his
government's anti-corruption drive has made some
traction in bringing wayward officials to account,
it so far has failed to win a larger share of new
foreign investments entering the region and, as
seen in the case of Ford, to keep those companies
already committed to the Philippines parked in
place.
Joel D Adriano is an
independent consultant and award-winning freelance
journalist. He was a sub-editor for the business
section of The Manila Times and writes for ASEAN
BizTimes, Safe Democracy and People's Tonight.
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