The Manufacturing Sector Goes on a TRAIN Ride

It was a bumpy ride at first, but it has become smoother after passing a few stations.

When Republic Act No. 10963 or the Tax Reform for Acceleration and Inclusion (TRAIN) law took effect on January 1, 2018, the local manufacturing sector felt its presence almost immediately with slowdowns in growth and investments marking the first two months of the year.

Demand for products under the sector were low due to higher prices. This was brought on by increased excise taxes slapped on certain products to replace foregone revenues caused by the tax reform law.

A number analysts and think tanks have said that the new tax regime brought about a cloud of uncertainty in the economy. It also raised questions on recovery, resulting in slower demand for goods and pressures on profit margins. And yet, the manufacturing sector swung to an accelerated growth pace starting March, posting better prints in the Nikkei Philippines Manufacturing Purchasing Managers’ Index. However, it quickly slipped back to a “notably” slow growth in July due to a softening in demand and lower sales.

Despite a seemingly gloomy start, manufacturers are expected to benefit from the tax reform law in the long run. As the government pursues its most ambitious infrastructure initiative under the Build, Build, Build (BBB) program as well as other endeavors like the Public Utility Vehicle Modernization Program, demand for products under the manufacturing sector is expected to increase.

The infrastructure thrust lists more than 75 flagship projects, worth about P1 trillion, which are spread across the Philippines. Majority of the projects fall under the jurisdiction of the transportation department including the construction of roads, railway facilities, transportation hubs, and airports, among others. Hence, demand for materials such as metals, semiconductors, rubber, cement, and other products under the manufacturing sector is expected to increase.

Socioeconomic Planning Secretary Ernesto M. Pernia likewise painted a rosy outlook for the sector, citing confidence from consumers and investors that stemmed from the increased economic activity due to the infrastructure program. Thus, manufacturing, he said, will continue to help drive the Philippine economy to higher heights.

Trade Secretary Ramon M. Lopez said that it is the best time to invest in the Philippines, given that policy reforms in areas such as ease of doing business, the liberalization of various industries, and the rollout of the BBB program are in the works. His agency is implementing the Inclusive Innovation Industrial Strategy, which lists 12 priority industries for development. Out of the 12 are five industries under manufacturing, namely: electronics, automotive, shipbuilding, aerospace, and furniture. The trade department has also launched the Manufacturing Resurgence Program. The program targets to increase the sector’s contribution to the local economy by 2025 as it increases its share in total employment by 15 percent in the same year.

The transportation department is also expected to contribute to the manufacturing sector, particularly in the automotive and e-vehicle industries. It is seeking to replace some 300,000 old jeepneys with new ones that are on par with industry standards. The department has pledged to provide incentives to manufacturers that will produce these new vehicles locally. Since then, a number of local and international automotive players have set up shop for the production of e-vehicles and regulation-compliant jeepneys.

Ergo, it is high time for manufacturers to capitalize on the increased demand in the manufacturing sector, taking into consideration that the Philippines is also a sachet economy — or one that values smaller-sized products in larger quantities. Sachet-sized products are expected to be in high demand as employees now have higher disposable incomes, thanks to the TRAIN law.

While the TRAIN had hit a few bumps and wasn’t as smooth a ride as it should have been, the Philippine manufacturing sector is on a safe and comfortable commute towards long-term sustainability and growth.

If you want to learn more on The Effects of TRAIN in the Manufacturing segment, visit www.higherheights.ph or call +63-920-695-4183, +63-915-265-3153, +63-49-302-1944.

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