Why can’t we export more?
We are an outlier among our Asean peers—meaning Indonesia, Malaysia, Thailand, and Vietnam—as far as exports are concerned. The numbers say it all: we averaged $69 billion in annual export earnings between 2017 and 2020. Indonesia got $170 billion, Malaysia $234 billion, Thailand $242 billion, and Vietnam $251 billion. Even if we add our annual services exports today of some $33 billion, and overseas remittances of about the same amount—in both of which we do better than our neighbors—we’d still be far below Indonesia’s goods exports alone.
I’ve written before about how our laggard export performance mirrors our similar laggard status in attracting foreign direct investments, and in exporting agricultural and agriculture-based products (“Pathetic laggard,” 9/14/21). Our more dynamic neighbors get most of their export earnings from foreign investors. It also shows us how our neglect of high-value exportable crops has deprived our farmers of the higher incomes they could have been earning, if not for the pervasive dependence on traditional crops that have mired them in poverty. And yet, these are the same crops that got disproportionate attention (and protection) and budgets from the government all these years. But apart from that perverted situation, why else is our export performance so pathetic?
We must start by looking at the demand and supply sides of the export markets, as there are drivers and hurdles to export growth on either side. As a small exporting country in the global economy, the demand side of export markets is virtually unlimited from our point of view. Hence, getting higher demand for our exports mainly entails better marketing (via trade missions, participation in trade fairs and exhibitions, etc.), and expanding our market access through preferential trade agreements (PTAs).
In both, we are far from our four neighbors. They reportedly spend an equivalent of 2 to 5 percent of their export earnings on market promotion and advertising. Our own Department of Trade and Industry keeps fighting for a much bigger budget for trade and investment promotion, but this falls on largely deaf ears in our budget authorities or in Congress. On PTAs, we are a country seemingly terrified of them. Witness how we can’t even have our Senate ratify the long-signed Regional Comprehensive Economic Partnership agreement. Our four neighbors are part of 15 to 27 PTAs; we have 10. Lagging exports? No surprises here.
On the supply side is a far longer list of challenges and impediments, or things that keep us from producing and selling more to the export markets. In a recent analysis done toward the formulation of the Philippine Export Development Plan, the list included the following: lack of private and public investments (the latter in infrastructure, human resource development, and science and technology support); weak access to financing by exporters, especially small ones; fragmented land structure that makes having economies of scale in raw materials production extremely difficult; lack of the needed skills in the workforce; gaps in product value chains (example: we export nickel ore but import batteries in which nickel is the key component); coordination failures across firms, industries, value chain links, government entities, and among government, private sector and civil society; and faulty government policies and processes. Under the last is an even longer list of shortcomings, including taxation and fiscal incentives issues; regulatory burden and red tape; political risk and policy inconsistency; weak interagency coordination; and graft and corruption, to name a few.
We must break out of the vicious circle our country is trapped in: Low average incomes and high poverty incidence lead to a limited domestic market. In turn, this limits the growth our producers and our economy, in general, can attain. And this leads us back to low incomes, and we come full circle.
The only way to break out of the vicious circle and turn it into a snowballing virtuous circle, thus creating much more jobs and incomes, is to look to the export markets. But as we have seen, we have a lot of homework to do.
