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No Free Lunch

Fixing our trade

/ 05:20 AM December 21, 2018

Are we living beyond our means as a country? This year so far, we bought $33.9 billion worth more goods from foreigners than we sold them. Our merchandise import bill jumped 16.8 percent from the same period last year, but our corresponding export earnings moved in the opposite direction and fell by 1.2 percent, leading to the widening gap.

Countries export so they can pay for their imports. One has to worry, then, when the former can’t keep up with the latter. While we do sell services to foreigners, too, prominently as business process outsourcing (BPO) services, even the $23 billion we earned from that sector last year still wouldn’t close the gap, which is headed to surpass $40 billion by yearend.

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We need to take a much closer look at what’s wrong with our trade performance, and make it a national agenda to fix it. Decades ago, Japan, followed by South Korea, and more recently China and Vietnam, set their sights on dramatically boosting their exports, even setting ambitious export targets per industry. And they provided focused attention and assistance toward achieving the targets.

There’s no reason we can’t do the same. But we must start with a clearer understanding of where our trade challenges lie. Two key observations from an examination of our latest trade data could help us understand the challenge better.

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First, the bulk of our imports are production inputs, and our recent import growth comes primarily from the same. Don’t think it’s because we Filipinos love imported products too much, or have to import too much food. It’s not consumer goods or food (especially rice) that are bloating our import bill, but the need for capital equipment, intermediate inputs and raw materials to feed a growing production sector.

Consumer goods made up only 16 percent of our total imports this year, and accounted for even less (11 percent) of the growth in total imports. Rice, by the way, contributed a mere 2 percent of the growth in imports this year; food in general accounted for 5 percent. But inputs to production make up the lion’s share (84 percent) of our imports, in the form of capital goods (33 percent), raw materials and intermediate goods (39 percent), and mineral fuels and lubricants (12 percent). These inputs contributed an even larger share (88 percent) of the growth in imports this year, mainly because higher oil prices pushed fuel products’ share to 17 percent.

While I’ve pointed out that it’s not the government’s “Build, build, build” program that’s pushing our import bill so far, the good news is that it’s private investments that are, and that’s good. Our imports are not the problem then, as they are growing mostly to feed the needs of our fast-growing economy. The exports side is where we need to look for the solutions to our yawning trade gap.

This leads us to the next important observation: On the exports side, it was farm-based exports that took a proportionately greater hit. While 64 percent of the gross drop in exports trace to manufacturing, the sector comprises 84 percent of total exports. But agriculture, which accounts for 6.7 percent of total exports, contributed more than three times that proportionate share (24 percent) to the gross export decline. Half of that drop was in coconut oil exports, which have seen much lower prices this year, indicating that the drop is more in value, not in volume.

On the side of manufacturing, wood manufactures contributed the biggest drop (21 percent of the gross decline), followed by chemicals (11 percent). There are also sizable drops in other electronics, garments and processed food and beverages.

But our main electronics exports continued to grow by 5.2 percent, with consumer electronics exports nearly doubling (91 percent growth). This is good news, as this means we are now exporting more finished electronic products as against unfinished intermediate goods.

All told, we need to address the needs of the vulnerable export manufactures like chemicals and wood products, but must also work to boost our farm-based exports much closer to what our comparable neighbors earn from theirs. With farmers making up the bulk of our poor, it all makes eminent sense.

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TAGS: balance of payments, Cielito F. Habito, No Free Lunch, trade gap
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