PEZA perks keep Philippines slightly ahead of Vietnam

MANILA, Philippines — The Philippines has now tied Vietnam in terms of labor cost attractiveness for manufacturing companies, according to Japanese investors, but the country still has a slight competitive advantage over its regional peers due to the set of incentives provided by the Philippine Economic Zone Authority (PEZA).

“We observe that labor cost is almost the same for a Japanese factory, between Philippines and Vietnam. We observe that for Vietnam, labor cost will increase more. Of course Philippines may increase but we observe that Vietnam cost will be a much faster increase. That means Philippine competitiveness is strong,” Japan Chamber of Commerce and Industry of the Philippines president Hiroshi Shiraishi said.

In a presentation during the 43rd Philippine Business Conference yesterday, Japan External Trade Organization (JETRO) Manila executive director Takashi Ishihara said the Philippines has one of the lowest labor costs in Asia for Japanese manufacturing companies.

Ishihara said labor cost in the Philippines and Vietnam in 2016 reached the same level, with that of the Philippines remaining almost unchanged since 2014, while that of Vietnam seeing a significant increase.

Countries like Malaysia, Indonesia and Thailand have more expensive labor costs than both countries.

“Major existing Japanese companies in Philippines have continued in expanding capacities of their factories. In reality, Japanese expansion has been very, very aggressive in addition to the new foreign direct investments from Japan,” Shiraishi said.

Shiraishi said four major factors are currently drawing Japanese investors into the Philippines. These are labor cost, easy communication in English, competitive incentives and rules of the domestic market.

“PEZA incentives are better than other countries. It’s a reputation and strong competence for Philippines,” he said.

It is for this reason that the Japanese chamber and JETRO are calling for the retention of PEZA incentives, according to the Japanese businessman.

“We want to maintain the PEZA incentives. This is the so-called core competence of the Philippines. We will support the comprehensive tax reform package but we also wish to maintain PEZA incentives, especially for one-stop shop services and approval system,” Shiraishi said.

“We understand the tax reform will consist of different package. We of course will see carefully what will happen after each package and how will it impact incentives of PEZA because PEZA incentive also consist not only for corporate tax, but also income tax and value added tax. That’s why we hope to see very carefully how this tax reform will go on,” he added.

Despite having a very competitive labor cost and attractive incentives, the Philippines could do so much more if it wants to attract more Japanese investments, Shiraishi said.

“PEZA is already very reputable, but additional attraction like open policy, easing regulations and restriction for foreign investment will be other key factors. These are also good for capturing Japanese investors and clear message for competition in ASEAN countries,” he said.

As of end-2016, JETRO said there were a total of 1,440 Japanese companies in the Philippines.

Japan has been a major source of investments for the Philippines, with cumulative FDI from 2000 to 2016 reaching P635.9 billion, topping that made by Netherlands and the US at P480.8 billion and P430.5 billion, respectively.