Falling exports: Why I worry

Philippine export earnings in February fell by a hefty 15.6 percent from last year, the National Statistics Office reported last week. The fall largely traces to an even heftier drop during the same period (-36.5 percent) in our electronics exports, which still comprise our single largest export product category. Global demand for personal computers has slumped in recent months, spurring a deep decline in electronics exports worldwide.

There are upsides and downsides to our recent export trends, but I’m a bit concerned about the situation, for a number of reasons. First, the drop in our exports was deeper than in most of our closest neighbors, except Singapore. Second, we have lagged far behind our Asean neighbors in export performance all these years, so we ought to be catching up rather than falling even farther behind. Third, we are still too heavily dependent on exports of electronics, making us more vulnerable to volatility in just one product.

Against our 15.6-percent drop in February, Indonesia’s exports fell by only 4.5 percent, Malaysia’s by 7.8 percent, Thailand’s by 5.8 percent, and Vietnam’s by 13.6 percent. If it’s any consolation, Singapore’s corresponding 30.6-percent drop was nearly double ours, as it was also hard hit by steeply falling electronics and computer exports. For the first two months of the year, our exports fell by 9.4 percent, against a drop of only 2.9 percent in Indonesia and 2.3 percent in Malaysia. Singapore’s fell by 16.4 percent. But for Thailand and Vietnam, exports actually still grew 4.1 and 22.1 percent respectively in the two months combined. Even as the slowdown in export markets in Europe and North America has affected us all, these comparisons suggest that certain factors peculiar to the Philippines led us to take a bigger hit.

It’s particularly disturbing to see our export growth do much worse than most of our neighbors’, given that we have already been trailing them badly all these years. I recently cited that in 2004-2011, average annual export earnings in our closest Asean neighbors ranged from Vietnam’s $55 billion to Singapore’s $333 billion—yet we only managed $44 billion (“An early Easter gift,” Inquirer, 4/2/13). Indonesia averaged $125 billion, Thailand $154 billion, and Malaysia $174 billion in the same 8-year period. We like to console ourselves that we have the unique element of overseas remittances to compensate for our export shortfall relative to our neighbors’ export earnings. But that’s far from enough; even if we add the $21 billion we got from remittances last year, we are still nowhere close to the kind of foreign exchange earnings that our four original Asean cofounders reap every year. We are too far behind their export performance—even that of relative Asean newcomer Vietnam—that one would have to suspect that there is something structurally wrong with our economy that has led us to this.

Our vulnerability to wider swings comes from our inordinately high dependence on electronics exports, which still accounted for nearly 40 percent of our export earnings in February. But there is good news. Our dependence on these export products had actually already declined significantly in recent years. Up until a few years ago, these products—mostly semi-conductors and circuit boards—accounted for two-thirds (66 percent) of our export earnings. Their export share has eased not so much because electronics exports declined, but more because nonelectronics exports have grown by so much more. This is a positive indication that we are beginning to attain greater export diversification, something we have long needed and must pursue with even more vigor.

Still, our neighbors’ exports are even more diversified, hence less vulnerable to downswings in just one particular product. Looking at our neighbors’ trade data, the highest shares I saw for any particular product category were 31 percent and 22 percent (also for electronics) in Malaysia and Singapore respectively. But agricultural and nonelectronic manufactured exports figure more prominently in our neighbors’ export portfolios, such as fishery products, palm oil, processed fruit, rubber and rubber products, chemical products, pharmaceuticals, and precious gems/stones, among many others.

What are our neighbors doing right that we are not doing? The composition of their exports provides some clues. For one thing, we have long been allocating the lion’s share (an estimated 70 percent) of our agriculture commodity budget to rice—which contributes only 16 percent to the value of total farm output—to the relative neglect of exportable crops such as coconut, sugar, fruits, coffee, cacao and many more. Our agricultural exports are thus uncompetitive, and have in fact declined through the years while those of our neighbors grew briskly. Another difference with our neighbors is our failure to industrialize the way they did. Here’s a stark contrast: In 1990, industrial production made up 39 percent of Indonesia’s GDP, and 34.5 percent of ours. By 2009, industry’s share in Indonesia rose to 48 percent; it went  down  to 30 percent in our case. A host of reasons are behind that divergent performance, ranging from policy, governance and institutional weaknesses (including smuggling), to “cultural” impediments such as individualistic (“kanya-kanya”) attitudes of many small- and medium-scale Filipino entrepreneurs.

One thing is clear: Fixing our foreign trade is a matter of critical importance in our national economic agenda. And it’s time that we take a long hard look at the problem and come up with a deliberate, strategic and concerted approach to address it.

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E-mail: cielito.habito@gmail.com