MANILA, Philippines — The level of sophistication of Philippine exports remains lower than the average sophistication content of exports in the world market, according to a report prepared by state-run Philippine Institute for Development Studies (PIDS).
In a recently published research note titled “Facilitating Structural Transformation through Product Space Analysis: The Case of Philippine Exports,” the policy research body said the country has yet to see a significant structural transformation that will provide forward linkages that will allow the products in the country’s export basket to have higher sophistication content.
“Using some metrics from the product space, the paper finds that the average sophistication of products included in the country’s export basket has barely improved from 1995 to 2014. It has remained lower than the average sophistication content of exports in the world market,” said the paper.
PIDS attributed this to the high concentration of the export basket in integrated circuits and parts/accessories of data processing equipment.
Another reason for this is the inability to adapt to product trends as seen in the disappearance of cameras and radio receivers from the export basket in 2000s because of the development of high technology gadgets that became better substitutes for these exports.
PIDS noted that there are relatively sophisticated products in the country’s export basket that can benefit from forward linkages and expand the country’s net trade.
These include static converters, photosensitive/ photovoltaic/LED semiconductor devices, parts of line telephone/telegraph equipment, electric capacitors, electronic printed circuits, and cruise ships/excursion boats/ferry boats.
“Some of the products in the country’s overall export basket have potential forward linkages to goods with relatively higher sophistication content. This, in turn, have potential linkages to even more sophisticated goods,” said the paper.
The paper noted that the average sophistication content of agricultural exports during this period has not improved as well as exports remain limited to primary farm commodities like bananas, pineapples, coconut/copra oil cake, shrimps, and tuna.
“This has serious implications not only on the sector’s productivity but also, more importantly, on the skills content of 26 percent of the employed population in agriculture,” said PIDS.
Moving forward, PIDS urges the creation of an enabling environment to spur the growth of industries and expand opportunities for exports.
Priority should be given to the following: relaxing restrictive foreign ownership provisions of the constitution and other laws to attract more foreign direct investment; enhancing market competition through improving ease of doing business; and setting up a national quality infrastructure system to integrate and coordinate standardization, metrology, testing analysis, quality management, certification, and accreditation.
Likewise, amending the Consumer Act to increase protection of consumers and harmonize existing law with current and future technological advancements.
The paper also said a culture of competition and innovation must be strengthened to harness new technologies.
Short run diversification strategies must also be carried out for products that are not yet substantially produced but the country has competitiveness in and has a ready market for.
Another short-run diversification strategy is to look at products that are relatively close to the country’s current production structure but the country has no competitive advantage in so that new products and markets can be developed.
PIDS also urges the development of more ports under the administration’s infrastructure program.
“The government has big infrastructure programs that will ensure the connectivity of various players from production to consumption and trade. However, the infrastructure projects mostly focus on the development of subways and mass railway transits,” said PIDS.
“There is a need for the country to also look into the potential increase in the demands for ports brought about by the importation of construction materials due to the Build, Build, Build program. Development of ports,” it added.