The Global Economic Meltdown: Its Impact on Philippine. Business

Transcription

1 The Global Economic Meltdown: Its Impact on Philippine Business Sergio R. Ortiz Luis Jr. President, Philippine Exporters Confederation Rizal Chamber of Commerce and Industry 27 November 2008 Guests, ladies and gentlemen: On behalf of the Philippine Exporters Confederation, Inc. whom I represent, I wish to thank the organizers for inviting me to speak on the most talked about business issue in the world today, that is, the spreading economic meltdown. What started last year as a seemingly small domestic problem in the US involving home-mortgages, has been spreading like wildfire across the globe. As of the end of last week, 15 nations under the European Union led by Germany had declared their economies are in a state of recession. In Asia, Japan and Singapore had likewise admitted they, too, had caught the recession flu. Pakistan is even worse off. It had applied for a few billion rescue loan with the International Monetary Fund. What former US Federal Reserve chief Alan Greenspan described as an economic tsunami never seen before, is turning out as a self-fulfilling prophesy. Like falling dominoes, national economies from Europe to Asia, are failing one after another. In the US, besides the distressed banks and insurance companies that are now lining up for the $700 billion rescue funds the US Congress approved, the three biggest car manufacturers, Ford, General Motors and Chrysler, are now begging for a $25 billion share from that crisis fund. The questions that bug local businessmen and executives like us is when will the tsunami hit the country? In what form will it hit us and for how long? What segments of the economy will be hit hardest? And what are we doing to survive it? I will try my best to give some answers to those questions this afternoon. Assurances by government s economic managers that the meltdown s impact will be minimal makes us nervous because of some contradicting statements from other government personalities and agencies. For one, respected presidential economic adviser and now Albay Governor Joie Salceda, keeps on prodding his former colleagues in Congress to pass a law setting up a P100 billion firewall fund. Sixty billion of that will be plowed into the Bangko Sentral ng Pilipinas to shield the local banking system, and P40 billion to the Philippine Deposit Insurance System (PDIC) to cover the increase in bank deposit guarantees for every depositor from P250,000 to P500,000. 1

2 Under the Salceda suggestion, that fund should protect the lenders, the borrowers and the depositors. He insists that sooner than later, the tsunami will reach our shores. From the standpoint of exporters whom I represent in this forum, the tsunami is upon us. At the start of the year, we targeted merchandise and services exports to at least post 12 percent growth. That target has been trimmed downward two times. We are still hopeful that with more than a month to go, the three to five percent total export growth that we last set for ourselves could be met. Orders for the last quarter have been made. If there are no last minute cancellations, we can still hit our target. But global events are working against us. In August, the total export growth rate was a nominal 1.1 percent. In September, which is the latest data, growth was still tiny at 1.2 percent. Because of better performance in the first half of this year, the first nine months still posted a 5.1 growth rate despite the retreat of our biggest export products, electronics and garments in August and September. We in the export sector consider this growth rate tiny. In the past decade, our sector consistently grew from 1992 to the year 2000 at double digit rates averaging 16 percent a year, a track record we again recovered in We have demonstrated to government that a double-digit economic growth is attainable, but it was a downhill roll from there. If you remember, the peso started going strong against the dollar with hefty exports and increasing OFW remittances in January of last year, the peso was at a rate of P50 to one US dollar. By December, it was P40 to the dollar. In the exporting business, orders are booked and prices agreed on, between six months to one year in advance. With the rapid appreciation of the peso last year, most of our exporters incurred heavy losses. One of the bigger furniture makers lost in one year what he earned in 15 years. We made a survey of close to 3,000 enterprise-members at the end of last year. From survey responses and other separate official and unofficial reports, casualty list saw at least 60 companies that closed shop, 20 others suspended operations and some 20,000 workers lost their jobs. We again sent out a new survey to assess the impact of the current crisis. We hope to get a clearer picture of the situation hopefully before the end of this week. What lies ahead for Philippine exports? We have been invited by different agencies of government for dialogues and consultation meetings on the global crisis in the past couple of weeks. We were often advised to get smarter. To summarize government s recommendations, most of them simply advised us to diversify our markets and diversify our products. That exactly is what the industry has been doing and what we have determined to do even more aggressively under the new export development plan. As in the previous crises, particularly on the exchange rate, what happens is we see export companies folding up, as there are new companies, even sectors, that emerge. Again as in any crisis, we will see winners and losers. If there will be job losses, we can safely assume that this will hit the temporary or contractual employees. 2

3 Our export industry has been prepared to go market niching, such that those that have positioned themselves at the high-end are reaping from this long-term strategy now, as they maintain orders from clients, many are based in Europe, US and Japan. Let s admit it. Those with tremendous buying capacity such as those being catered to by high-end products, will continue to buy. What we definitely lost for now are the midrange consumers. Meanwwhile, we know that since China came into the global trading picture, it has already cornered the mass production market. But there was one presentation made by the Department of Labor and Employment (DOLE) which coincides with the experiences of members of PHILEXPORT. I wish to share with you this afternoon the gist of the DOLE presentation. DOLE approached the global crisis by trying to find out where job losses may happen. We have not asked them what tools they used in their research and analysis. But they arrived at the conclusion that the dollar earning segments of the economy, meaning the exporters, the OFWs and the Business Process Outsourcing or BPO outfits, are the most vulnerable. For you to appreciate the contribution of these sectors to the national economy, let me rattle off a few important data. Commodity exports earned $52 billion last year. The BPOs which we call services exports earned $5 billion more. The OFWs sent home $14 billion through the banks. In all, they contributed $71 billion to the national economy last year. That amount is easily more than half of the total Gross Domestic Product last year. Counting 8.7 million Filipinos working abroad until 2007 plus another one million deployed this year, OFWs alone are supporting one out of every two Filipino families. If these three sectors get hit, and they are at the direct path of the tsunami, more than half of all 90 million Filipinos will take the hit. The DOLE analysis did not see it that way however. It identified the groups which are most likely to lose their jobs. In the export sector, DOLE sees lay-offs, retrenchments, closures or shortened work hours are most likely in the garments industry with a work force of 120,000. They came to the conclusion after noting that 77 percent of Philippine garment exports goes to the United States, the eye of the tsunami. Second industry that may resort to lay-offs is the electronics industry with 13.4 percent of its exports going also to the United States. The industry s 111,000 workers are at risk of losing their jobs. Incidentally, the two industries are the biggest in the country in terms of dollar earnings, contributing about 61 percent of all exports as of last September. Two other industries, the manufacturers of automotive wirings and coconut oil, the biggest Philippine agricultural export, are expected by DOLE to fire out 2,000 workers each. These four industries have one thing in common. Their exports have gone negative in August and September. Based on the DOLE data, the jobs of 234,000 workers in four export industries, out of 1.2 million workers in the whole sector, may lose their jobs between now and next year. 3

4 Job losses in the OFW sector are many more and also concentrated in four categories. The first are 129,000 workers with temporary working visas in the United States, mostly teachers. Number two are 130,000 seamen working as crews of cruise ships. Third are 268,000 factory workers in South Korea, Taiwan and Macau plus 48,000 domestic helpers in Singapore, Macau and Hongkong. A few days back, the papers have reported that Korean police have started rounding up Filipino factory workers with deficient papers. In sum, close to one million Pinoys in the export and OFW sectors are at risk of losing their jobs according to the DOLE analysis. It does not see much impact on BPOs although the latest we heard, the BPOs have frozen promotions and salary increases. It appears that the whole government has officially adopted the DOLE analysis as basis for its contingency planning efforts to cope with the crisis. We hope an actionable program is set in place fast enough. What we are afraid of is their assumption that the crisis will start blowing away by the second half of next year. They projected recovery by 2010 which will be an election year. Taking stock of latest events affecting major industries like banking job cutbacks and manufacturing declines in the US and Europe, international economic analysts are already saying the global recession may last longer than a year. Closer to home, we are honestly scared the global crisis would last until What if exports decline at double digit rates next year like what happened in 2001 when it went 16% below zero because of the global trade slowdown? If it happens two years in a row, and not only half a million but a million OFWs are sent home for good at the same time, the peso is bound to rapidly depreciate due to a dollar scarcity. If, under that circumstance, the BSP does what the Bank of Thailand did when the Thai Bhat rapidly lost value at the start of the Asian financial flu in 1997, its Gross International Reserve of $35.7 billion could be wiped out in weeks. With our balance of payment already at $1.5 billion in deficit last month, that scenario is dangerously possible. The Philippines may find itself in a real dollar shortage crisis similar to the one that hit the Philippines in the dying years of the Marcos regime when practically all our traditional exports like logs, copra, sugar and gold went sour. If we do not have the dollars to buy our monthly oil and rice imports, this nation will see a national catastrophe. It is a worst case scenario that we hope will not happen. But it should be the scenario we must prepare for -- so that it will not happen. If there has to be any firewall package to save this nation from the devastation of the US bred, globalizing economic recession, it must focus on these segments of the productive economy. Many of our exporter-members have bank loans they may not be able to pay as orders get scarcer in the coming months. With the exception of mainland China, all our major export 4

5 destinations are either in recession or they are going there. We don t expect the government to do what the US government did for many Americans who lost their homes after they defaulted with the banks -- write off their debts. All they ask is a restructuring of their loans so that they be given longer time to pay. If they can buy time and stay in business, they can tide over the bust period and be ready to again ride on to the boom years. The good news is many exporters have remained hopeful. Like the Chinese who see opportunities in every crisis, exporters have re-grouped and are looking at the silver lining that came out of some recent events. For one, the melamine scare has cast serious doubts again on the quality of China-made products, not just food. The domino effect of this negative buyer attitude against the mainland producers spells tremendous business as we saw old buyers coming back and Filipino designers leaving the Chinese factories and working with us again. Further, if you are not yet aware, minimum wages in China have gone up to nearly our rates, even as they have also started granting overtime pay and other benefits. There is marked labor unrest in Vietnam and Indonesia is in a recession. Meanwhile, lower oil prices have been translated to reduced prices of fuel and by-products. Moreover, the peso has remained at a favorable level to exporters and OFWs. Our government s fiscal and economic reforms have proven to be the cushion that has so far helped keep the country s economy afloat. The much-criticized E-VAT is what is now paying for the infrastructure, education and other social programs that many lifeline Filipino families are availing of. For the export industry, the manna came in the form of an export promotion fund to the tune of P1 billion starting next year. And so in the export industry, we all hang on. We can take this time to do some housekeeping, but we will not rest in our research and marketing. This is definitely the opportune time to strategize so that when the environment improves, we are ready to deliver. On this note, I wish to invite you to join the export industry in spreading the good news about the increasing competitiveness that is borne from our collective efforts to rise above ourselves and the current situation to regain our lost glory in the global trading environment. Thank you and good afternoon. Source: 27 November 2008 Access time: January