MANILA — The Philippines will offer tax breaks to as many as three automakers as one of Asia’s fastest-growing economies aims to become a regional production hub.
President Benigno Aquino is set to issue an order implementing the Comprehensive Automotive Resurgence Strategy programme, or CARS, "within this year," Trade Secretary Gregory Domingo said in an interview in his office in Manila Tuesday. "The car industry's supply chain feeds into other industries, and we think that becoming a regional hub will help fill our gaps in manufacturing."
The Philippines is seeking to replicate Thailand's success in building its auto industry, betting that a young workforce and its biggest economic boom since the 1950s will lure companies such as Volkswagen AG.
Mr Aquino, who steps down in June 2016, is increasing spending on roads and airports to a record this year to lure more foreign direct investment and bolster growth to as much as 8% this year and next.
Workers put their hands together as they chant teamwork slogans after finishing a shift at Toyota Philippines manufacturing plant in Sta Rosa, Laguna, south of Manila Aug 11. (Reuters photo)
"Government support will be a factor in determining further investment and future plant expansion," said Rommel Gutierrez, a spokesman for Toyota Motor Corp in Manila. An incentive programme will "benefit both the government and private sector, if it's feasibly administered," said Mr Gutierrez, who is also president of the Chamber of Automotive Manufacturers of the Philippines Inc.
Car companies will need to meet minimum production levels to qualify for the incentives, Mr Domingo said, declining to specify exact amounts as officials still are discussing details. The government has considered annual output of 40,000 vehicles fully built in the country to qualify for benefits, the Manila Bulletin reported in November.
Infrastructure improvements
Easing infrastructure logjams also will be essential to spurring more auto production. "If the intention is to start exporting, you need good quality ports and roads, and that needs to move in tandem with offering incentives," said Rahul Bajoria, a Singapore-based regional economist at Barclays Plc.
The auto industry accounted for about 3.6% of the Philippine economy in 2011, according to a study by Ramon Vicente Kabigting, executive director of the Philippine Automotive Competitiveness Council, Inc. The CARS programme is intended to save as much as US$17 billion in import costs by 2022, the Philippine Daily Inquirer reported in October.
The Philippines lost to Thailand in 1996 when General Motors Co chose its neighbour for a $750 million car factory even as the company was offered fewer incentives. Philippine officials had tried to woo GM by offering free land for the plant to boost the country's auto industry.
The Philippines lost to Thailand in 1996 when General Motors Co chose its neighbour for a US$750 million car factory. “We can’t compete head on with the likes of Thailand, which is so far ahead of the curve in terms of car production,” Trade Secretary Gregory Domingo said. (General Motors photo)
Philippine manufacturing expanded an average 9.2% in 2013 and 2014, while net FDI rose 66% to $6.2 billion last year, the central bank reported Tuesday. In 2013, Thailand had $12.6 billion of FDI while Vietnam attracted $8.9 billion.
Finding a niche
"We can't compete head on with the likes of Thailand, which is so far ahead of the curve in terms of car production," Mr Domingo said. "The vision is to find a niche for the region, a mass producer of a model that is not produced in Thailand."
While Philippine manufacturing has diversified into medical devices, parts for aircrafts and motorbikes, and oil and gas platforms, the nation lacks the medium-sized "in-between" products such as cars and refrigerators, Mr Domingo said.
The Philippines probably is "no longer a competitive place for automakers," said Jessada Thongpak, an analyst with IHS Automotive in Bangkok. The nation will produce 90,000 light vehicles this year, compared with 2.14 million in Thailand and 1.3 million in Indonesia, IHS projects.
Japanese companies are very interested in the Philippine auto road map, Japan Chamber of Commerce and Industry Chairman Akio Mimura said in February. Mr Aquino met with officials from Volkswagen in September during a trip to Europe, offering the Philippines as an Asian production base.
"We want serious players who really have an intent to make us a regional manufacturing base," Mr Domingo said. "We want a bigger commitment because they'll be forced to bring their supply chain, and that will really boost our manufacturing."