The Philippines’ latest national trade data suggests a recent slump may be over for the Southeast Asian country’s troubled garment export sector thanks to a surge in the number of foreign investors shifting production from China to avoid additional US tariffs.
The Philippines was considered a sunrise industry during the 1990s but has since fallen far behind its Chinese, Vietnamese and Cambodian counterparts. And last year the industry faced an especially tough time, with a dismal year-on-year average contraction in exports of 40% in the first quarter followed by a 60% decline across the whole of 2017, according to data published last month.
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However, garment exports were up 7.1% year-on-year this August, generating US$97.4m in receipts, easily outpacing national overall export growth of just 3.1% that month. It was the third consecutive month the country’s clothing exports had risen year-on-year.
The Confederation of Garment Exporters of the Philippines (CONGEP) forecasts that garment exports will post year-on-year growth of between 10% and 20% this year. The Foreign Buyers Association of the Philippines (FOBAP) expects the full-year tally to come in at between US$1.3bn and US$1.5bn.
While the country’s textile exports sank ever deeper into negative territory, recording a year-on-year contraction of 53.6% in August, industry insiders say the return to growth in garment exports will be sustained.
“Around 90% of garment manufacturers in the Philippines are owned by foreign investors, and they have begun shifting cut-and-sew from China to the Philippines in order to avoid the additional tariffs US President Trump has recently imposed on Chinese goods”, says Maritess Agoncillo, executive director of CONGEP. Its data shows that the US accounted for 67% of total garment exports in 2017, worth US$1bn.
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By GlobalDataSpeaking to just-style, Agoncillo adds that most of the foreign investors in the Philippines’ garment sector are Japanese, South Korean, Taiwanese, mainland Chinese or Hong Kong companies that also own factories in a number of other countries in the region, such as China, Vietnam and Cambodia.
With trade barriers between these countries falling because of free-trade agreements such as the ASEAN–China Free Trade Area (AFCTA), “the movement of orders between their own factories in the is very easy when trade impacts happen,” Agoncillo says.
Additional impetus for the Philippines garment sector’s external competitiveness has also been created by the local currency, the peso, witnessing a prolonged period of near-historic weakness versus the US dollar, in turn keeping labour costs down in US dollar terms.
FOBAP agrees that the US-China trade war is indeed translating into a shot in the arm for garment exports, but it warns of the Philippines’ garment producers’ failures to comply with foreign investors’ requirements in terms of child labour, good working conditions and waste management.
“As far as our FOBAP members’ order status, yes, we are increasing significantly, but every time our buyers come here to audit, our factories have been found non-compliant,” FOBAP president Robert Young told just-style.
Also, the Philippines tops southeast Asia in terms of electricity bill rates, claims Agoncillo.
Meanwhile, another challenge to the sector is in the making, with the government planning a sweeping removal of tax incentives for the manufacturing sector as a key part of its fiscal reform plans. “The incentives cuts will hit the exporting industries in particular,” said Agoncillo.
