Moving PH Electronics Up the Value Chain
Moving Philippine Electronics Up the Global Value Chain
SEIPI is on a mission to keep Philippine electronics competitive even in tough times.
By Jambi Gaston Reyes
Published November 20, 2020
The Philippine electronics market, which accounts for about 60 percent of the country’s annual exports, is bracing for a 15 percent drop in export revenue this year due to the pandemic. Surprisingly, while the worsening US-China trade war threatens to compound the problems already caused by COVID-19, the industry has been largely unaffected by deteriorating Sino-American relations.
“The contraction of the industry is primarily COVID-driven and not significantly because of the US-China trade war,” said Dan Lachica, President of the Semiconductor and Electronics Industries in the Philippines Foundation (SEIPI), the country’s largest association of local and foreign electronics companies.
About 53 of SEIPI's regular members and 29 associate members are located in industrial parks in the southern portion Meralco's franchise area. To soften the impact of high power costs, Meralco helps these companies optimize energy efficiency at the plant site and continues to improve power reliability and flexibility through electric capital projects such as substation expansions.
In December 2019, Meralco launched the Laguna Technopark Inc (LTI) expansion, and targets to install additional transformer banks for First Philippine Industrial Park (FPIP), Light Industry & Science Park 1 (LISP1) and Laguna International Industrial Park (LIIP) by the end of 2020. These projects aim to address overloading concerns by providing additional capacity and prevent outages for the industrial, commercial and residential customers in Cabuyao, Laguna.
SEIPI has been working on its vision to make the Philippines a globally competitive manufacturing destination for semiconductor and electronics companies since 1984. And they do this by promoting the country's competitive advantages in workforce productivity and resiliency, and moving the Philippines up the electronics value chain through Training, R&D, Advocacy, Information, Networking and Services (TRAINS).
Our workforce remains a major draw
The Philippines’ English-speaking, high productivity workforce is one of the country’s competitive advantages, and to a certain extent compensates for the high cost of doing business. SEIPI plans to further enhance the quality of human capital by boosting our local IC (Integrated Circuit) design capability through collaborations with government and overseas semiconductor organizations. SEIPI’s PATHS (Product and Holistic Strategy) industry roadmap, which was funded by DTI and administered by DOST, also includes setting up lab-scale wafer fabs to complement the IC Design lab, as well as an R&D facility in Region IV-A.
“There are six companies that do IC design, but this sector is not as advanced and well-developed compared to the rest of the world,” Lachica said. “It would be beneficial if we had a semiconductor wafer fab in the Philippines so we can design and fabricate the wafers ourselves and deliver these directly to the local test and packaging lines. However, we cannot sustain a commercial wafer fab because the utilities costs and power quality are not up to par with industry needs. So if we can't expand down the semiconductor value chain, the logical thing to do is to move up to IC design.”
SEIPI’s initiatives also include a partnership with the Technical Education and Skills Development Authority (TESDA), which aims to equip even high school graduates with basic skills for employment in the electronics sector. These consist of two-week programs that introduce clean room procedures, ISO practices and provide hands-on experience with computers and manufacturing equipment. Since its inception, the industry’s partnership with TESDA has trained over 10,000 workers for inclusive employment.
Incentives are key to a level playing field
Tax incentives that offset high operating costs have also been instrumental towards attracting electronics investments, but the benefits enjoyed by the industry are in danger of being revoked with the impending passage of the Corporate Recovery and Tax Incentives for Enterprises (CREATE) act. For instance, prior to CREATE, electronics companies, most of which are located in industrial parks regulated by the Philippine Economic Zone Authority (PEZA), enjoy a corporate tax holiday lasting four to six years, plus duty-free incentives on imported raw materials, equipment and spare parts. Once the tax holiday expires, instead of paying national and local taxes, companies need only pay a 5 percent special tax on gross income earned (GIE). PEZA’s proven program has successfully drawn billions of dollars in foreign direct investments (FDI)over the years.
While SEIPI is supportive of the CREATE provisions that lower corporate income tax from 30 percent to 25 percent once the bill is passed, and then gradually down to 20 percent from 2023 to 2027, the association is pushing for the retention of incentives for exporters, or at least apply the grandfather rule for current locators in the proposed bill for existing incentives, especially in the wake of the pandemic. These incentives were introduced in the mid-1990s to attract badly needed foreign investments, with the understanding that they would continue indefinitely. Diluting these incentives could eventually drive electronics companies away from the Philippines. To date, two electronics companies have already announced shutdowns.
“There was an implicit sovereign guarantee when the multinationals signed on the dotted line to locate in the Philippines to enjoy a given set of incentives," said Lachica. SEIPI hopes that our government will approve the retention of incentives or at least a grandfather rule for our existing investors.
“In all fairness, I think we can retain and even attract more investments without going overboard with incentives, especially with perks we can't afford. Expatriates like the Philippines and its young workforce. They find it advantageous and productive to have workers who can speak English and imbued with excellent work habits. If we can leverage on the strengths we have and not give up too much in terms of incentives, I think the situation may work.”
To learn more, contact your Relationship Manager, call 16210 or email us at corporatepartners@meralco.com.ph.
Story originally posted on Power Club.