Garments revival

The local garments industry, once a major dollar-earner for the country, is undergoing a revival of sorts, and trade officials are predicting a boom in the sector in the next three to five years.

They are betting that more companies will take advantage of the Philippines’ inclusion in the European Union’s new generalized system of preference (GSP+) scheme, which gives developing countries duty-free access to EU markets provided they comply with international conventions involving such matters as human rights and sustainable development. As of 2014, the Philippines is the only Asean country included in the GSP+ scheme, and this gives local garment firms a competitive advantage over their counterparts in the region—for now.

But the private stakeholders and the government have much to do to bring the garments industry back to globally competitive standards. The sector had been struggling since it peaked in the 1990s and the few remaining firms needed to resort to contract manufacturing to survive. From a cottage-type industry in the early 1950s, it expanded into a leading nontraditional export sector.

According to government data, from $36 million worth of garments and textiles exported in 1970, the industry grew tremendously to earn its first billion dollars in 1987. But in 1995, the World Trade Organization approved a 10-year phaseout of the Multi-Fiber Agreement (MFA), which set quotas and preferential tariffs on garments and textile items imported from developing countries by the United States, Canada and some European nations. This opened the playing field in 2005 to countries capable of producing huge volumes at much lower costs—specifically China—eventually sidelining small countries such as the Philippines.

The year 2000 was a banner year for earnings as the industry breached the $3-billion mark. This slid to $1.9 billion in 2006, the year after the MFA was scrapped, slowing further to $1.2 billion in 2010, although there was a slight pickup in 2011 to $1.5 billion. As of November 2014, garments were just the eighth biggest export of the country with $132.14 million in earnings for the month. At its peak in 1991, the industry represented more than a third of Philippine exports and employed about a million. By 2005, employment in the industry had dropped to some 660,000, thinning further to half a million by 2011.

A master plan or roadmap for the industry is necessary for an effective revival strategy. Productivity and skills enhancement along with technological upgrading should be a major component of this roadmap. A productivity-based wage system, advocated in the past, should be

given a try to address the issue of the country’s cost competitiveness. Given the low-interest-rate regime and the available money circulating in the system, it would also be easy to put up a financing facility to assist the industry and give manufacturers access to cheap credit for upgrading and expansion.

One other important aspect to consider is the industry’s competitive advantage. An earlier suggestion is that investments be poured into the areas of textile and apparel manufacturing, dyeing, printing and finishing. The Department of Trade and Industry has noted that the abundance of indigenous Philippine fibers such as abaca, piña, silk and ramie provides an opportunity for the development and production of ecologically friendly fabrics in commercial quantities. This is what experts call “moving up the value chain.”

An earlier study by a partner at SGV & Co. says that with the natural creativity, affinity for design and generations-honed craftsmanship of Filipino artisans, it would make sense for garments enterprises to move up to

higher-value products and services. It points out that the most valuable elements in the garments value chain lie, not in the manufacturing, but in the design, branding and marketing of the products. “Many fashion houses, for example, outsource the design and production of their fashion lines to external suppliers. This may be an area of opportunity for the Philippines. By upgrading the technical expertise of our workers and adding value to the manufacturing and assembly process, we can bypass competing on a mass-production level where we have a disadvantage, and instead move up to the apparel design and development level where we can put our people’s talents to best use,” the study says.

Europe’s GSP+ program can very well be the spark to start a revival of the Philippine garments sector. Private stakeholders and the government need to work on a roadmap so as not to let this golden opportunity go to waste.