Putting ‘eggs(ports)’ in more baskets
Being a laggard can bring blessings. That the Philippine economy continued growing in the wake of the global financial crisis in 2008-2009, when erstwhile more dynamic economies around us suffered significant declines, is traced to the fact that unlike them, our exports are less developed. Thus, when the Western export markets dried up with the financial turmoil, we had far less to lose than heavily export-oriented Singapore and Thailand, for example. Over the past decade, these two countries’ exports amounted to 218 percent and 70 percent respectively of their gross domestic product (GDP); ours was only 45 percent.
Having a smaller export sector may have been a blessing in disguise for us in the face of global economic problems, but this doesn’t mean we shouldn’t be trying to sell overseas as much as we can. It is earnings from exports, after all, that allow us to import—i.e., buy goods and services from abroad—especially things we need that we cannot produce ourselves. The lesson that Asian export-oriented countries have learned from the still-ongoing global slowdown is not that they should export less, but that they shouldn’t overly rely on the United States and Europe as buyers of their exports. It makes good sense to “put our eggs in more baskets,” so that dropping one or two won’t leave us empty-handed. Export diversification is the order of the day.
For many years, we have in fact been putting too much of our eggs in too few baskets, in more ways than one. For decades, the United States, Japan and Western Europe received the bulk of our exports. China’s entry into the picture in the last decade changed that somewhat, joining the list of our top export destinations, thus moderating the disproportionately high share that used to go to the United States, especially. Even then, we have largely been ignoring fast-growing markets in such places as Central and Eastern Europe and Latin America.
I have always lamented our lack of better trade ties with the latter in particular. Even in the 1990s, neighbors like Malaysia and Indonesia were already trading briskly with countries like Mexico, Brazil, Argentina and Chile, while our trade with them bordered on the insignificant. And yet I have always argued that our common Hispanic colonial history ought to have been an advantage for us in fostering trade with these economies, as against our neighbors whose historical ties were with the British and the Dutch. We were, after all, the entry point to the rest of Asia from the Americas and Europe in the era of the Manila-Acapulco galleon trade. But we have long lost that status to Singapore and Taiwan.
For many years, we had also been too dominantly reliant on electronics exports (mainly semiconductors and circuit boards rather than finished products) which accounted for about two-thirds of all our merchandise export earnings. This made our export sector unduly vulnerable to one industry’s ups and downs. And given that the world electronics industry has indeed been prone to such swings, the same instability is transmitted into the Philippine export sector, and the economy at large.
But all these are changing, it seems. In its latest Quarterly Update on the Philippines, the World Bank, in a special focus section on exports, observes two significant trends. One, Philippine export markets have become increasingly more diversified in recent years. Between 1999 and 2009, the number of economies to which our country exports to has grown from 70 to well over 100. Two, non-electronics exports (products like garments, footwear, furniture and fixtures, etc.) now occupy 50 percent of total exports, a significant improvement from just around 30 percent that they accounted for many years since at least the 1990s. And it’s not simply because electronics exports had dropped steeply (falling by over 20 percent in the first 10 months of 2011), but was also due to an impressive 30-percent jump in non-electronics exports in the same period. This is quite different from the 2008-2009 experience, when non-electronics exports collapsed together with electronics exports.
Still, there is a long way to go in achieving the export diversification that would give us both higher levels of exports and higher levels of export stability. We have indeed come a long way from the time when the United States took more than half of all our exports. Now, about a fifth of total merchandise exports each goes to the European Union, United States, Japan, China and the rest of East Asia. But the World Bank notes that trade remains insignificant with other large and fast-growing countries, particularly the so-called BRICS (Brazil, Russia, India, China and South Africa) countries, with the exception of China. There remains much scope, then, for further diversification of our export destinations.
Meanwhile, part of the diversification on the product side is the brisk growth in services exports, particularly business process outsourcing (BPO), which grew by 8.5 percent in the third quarter last year. The industry projects 15-20 percent growth in the coming years even amid threats of renewed global slowdown, inasmuch as BPO is an industry considered to be recession-resilient (and even benefiting from recession in the West). Our other major services export, tourism, remains far from reaching its full potential, but that promises to change too with the popular “more fun in the Philippines” campaign, among other things.
And so, with our “eggs(ports)” getting into more baskets lately, we may yet have another reason not to fret unduly about lingering economic risks in Europe. We just might have a strong enough shell (pardon the pun) to withstand it.
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