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Vietnam overtakes us (Part 2)

DEMAND AND SUPPLY - Boo Chanco (The Philippine Star) - February 12, 2021 - 12:00am

Every two decades or so, an ASEAN economy’s GDP per capita moves ahead of the Philippines.

In 1983, Thailand surpassed the Philippines $824 to our $743. In 2003, Indonesia overtook the Philippines $1,186 to our $1,063. Last year, 2020, Vietnam was set to surpass the Philippines, $3,498 to our $3,373. Which country will overtake us next?

I got this e-mail from Ambassador Benedicto V. Yujuico, president of the Philippine Chamber of Commerce and Industry, reacting to my last column.

“I agree that the Philippines can and must do much better than Vietnam (and other ASEAN countries). It is regrettable that our country has competitive advantages that are way underutilized.

“In 2011, I was invited by the Vietnam Chamber of Commerce and Industry to visit the nascent Ho Chi Minh Stock Exchange and factories. Today, Vietnam’s stock exchange is larger than the PSE. The same regrettable situation has happened in many other production facilities as well.

“In order for our country to achieve ‘Ambisyon 2040’ – when the Philippines is no longer poor and all Filipinos can enjoy a good life – many things need to change now. Otherwise, when 2040 comes, some clever pundit will suggest changing 2040 to 2060.”

There are many reasons why we are eating Vietnam’s dust. Bad politics nurtured by blood sucking politicians is a major reason. Vested interest groups insisting on economic protectionism. No sense of nationhood and the common good among us.

Here we are now, being overtaken by a badly war-torn Vietnam and not too many of our leaders or people are the least bit concerned. Our failure, while rooted in the Marcos years and earlier, mostly happened post-EDSA.

We continue the second part of our exposition on how Vietnam is beating us in attracting foreign investments and moving people out of poverty.

Business costs – The Vietnamese economy opened with labor dirt cheap, but wages have increased, and today JETRO statistics show manufacturing wages are the same in the Philippines and in Vietnam.

However, most other costs for manufacturing are lower in Vietnam. If you are an exporter, every cent counts to be competitive. It helps Vietnam that it has lower power costs and less paid holidays.

“The fiesta-loving Filipinos celebrate twice as many non-working holidays (NWH) than their Vietnamese counterparts. Philippine employers shut their factories for religious holidays of Christians, Muslims,” an exasperated foreign investor in Manila commented.

The Koreans are the number one investors in Vietnam, led by Samsung. But Koreans are also big in garments and footwear. Here is a Manila-based foreign chamber official’s observation:

“Look at the Nike website which has a great map showing the countries where its products are made. Vietnam is the favorite with 500,000 Vietnamese workers in over 100 factories. Nike designs and sells, but does not manufacture.

“Are there 500,000 Filipinos who could make Nike products? Of course, but the government has become dependent on remittances and has passively accepted the destruction of a garment and footwear export industry from one million workers to 250,000. The last factory making products for Nike in the Philippines closed some time ago and relocated to Vietnam.

“The Filipino-owned exporter firms quit because they could not make money (labor and logistics costs too high, red tape and corruption made it more profitable to invest in treasury notes).”

Export costs and port reliability – Ho Chi Minh City last year reached the Holy Grail of container shipment costs when the first of the class of largest container ships began to service the new port.

Such a ship can sail directly to the US West Coast, while a container shipped from Manila to Long Beach has to be transshipped, thus costing more and taking longer. The Philippines does not have the volume of exports to justify a port call at Manila.

“Also, periods of port congestion in Manila have created concerns for Philippine-based exporters whose products have to reach foreign markets on time. The logistics chain does not tolerate delays.

“Yet Manila imposes truck bans, thus reducing the efficiency of truck prime movers that then charge more because they can only make fewer movements daily.

“Or Manila suffers from a huge excess of empty containers because imports exceed exports. The containers are no longer clogging the port, but when the owners have to export them empty, it adds to higher costs for Philippine logistics.

“And keep in mind that imports contain the raw materials for exports because of the lack of adequate local production. Thus, imports and exports can be delayed, making the Philippines less attractive.

“This is why Ford, the last auto assembly firm to export, closed. It tried its factory for 10 years in Laguna, expecting the local auto parts firms to meet more of its requirements. They didn’t, so Ford closed.

“Ford did not shift to Vietnam, but to Thailand, which has created a massive cluster with 4,000 auto industry locators producing two million vehicles a year.

“The Philippines has achieved this for BPOs because of English, a sector where Vietnam does not compete. But Vietnam has better software engineers than the Philippines.”

Trade access – Vietnamese leaders have a foreign market vision, Philippine leaders less so. Vietnam observed how Japan, Korea, Taiwan, China, and others have progressed through exports and decided the quickest way was to invite foreign companies to locate.

Vietnam successfully negotiated an EU-VN FTA. So now Hanoi can tell an investor to locate in Vietnam because it can access the TPP members and the EU, plus all ASEAN and the countries with agreements with ASEAN (India, China, Korea, etc.).

“Phl-EU talks are suspended because Brussels legislators have deep human rights concerns from the Duterte drug war and political pressures on the media.”

Vietnam is more open to FDIs. The OECD rating of openness shows Vietnam near the OECD average. The Philippines was the most restricted (in 2018).

Indonesia, which in the OECD rankings is just next to the Philippines, is rapidly opening restricted sectors and attracting more FDIs, including manufacturing firms not wanting to be in China only.

In summary, we are a mess… and we know it, but we seem content in our puddle. Pity our younger generations as the country’s economy continues to sink.

 

 

Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter@boochanco

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