Overview of the Philippine Auto Industry Roadmap Rafaelita M. - - PowerPoint PPT Presentation

Overview of the Philippine Auto Industry Roadmap

Rafaelita M. Aldaba PH Department of Trade and Industry Board of Investments 29 January 2016, Acacia Hotel, Alabang, Manila

Presentation Outline

Roadmaps for upgrading industries to foster sustainable & inclusive development, transformation, & growth

MACRO PERFORMANC E

NEW INDUSTRIAL POLICY

CARS PROGRAM

PH MACROECONOMIC PERFORMANCE

PH REMARKABLE GROWTH PERFORMANCE

Macro Performance

• Robust growth due to strong macro fundamentals supporting

domestic demand & shielding us from global weaknesses

• Rising trend in manufacturing after sluggish growth in 80s-90s
• 10.0
• 5.0

0.0 5.0 10.0 15.0 20.0 09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4

Quarterly Growth 2009-2015

GROSS DOMESTIC PRODUCT AGRI., HUNTING, FORESTRY, AND FISHING MANUFACTURING SERVICES

PH a new growth area

• PH Industry growth: 7.3% (‘12); 9.3% (’13, highest),

7.5% (‘14 highest)

• 10.0
• 5.0

0.0 5.0 10.0 15.0 20.0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 in % Year

Industry Growth: PH vs Selected East & Southeast Asian Countries

PH TH INO VN PRC MAL

5

WHAT MAKES PH DIFFERENT

Market

• Growing market, middle class
• Demographic sweet spot

Labor

• Young, English speaking, highly trainable
• Moderate wage increases

Operating environment

• Strong macro fundamentals
• Political stability, strong business/consumer confidence

Policy focus

• New Industrial Policy
• Investment Promotion Agencies

Competitivenness

• Improved competitiveness ranking (World Economic

Forum #47 from #52)

Comparison of Wage Rates

53 74 133 205.5 259.5 344 345 352.375 1143 1230 1619 1734

500 1000 1500 2000 Myanmar Cambodia Vietnam Indonesia Philippines Malaysia Thailand China Singapore Taiwan Hong Kong Korea

Workers source: Japan External Trade Organization (JETRO) 138 285.75 298 373 387.5 635.75 698 944 1456 2255 2263 2325

500 1000 1500 2000 2500 Myanmar Vietnam Cambodia Indonesia Philippines China Thailand Malaysia Singapore Korea Hong Kong Taiwan

Engineers (mid-level)

• Wages for workers & engineers are relatively lower than

China, Malaysia, & Thailand

THE NEW INDUSTRIAL POLICY FOR STRUCTURAL TRANSFORMATION

MANUFACTURING, AGRIBUSINESS, & SERVICES ROADMAPS

New Industrial Policy

Inclusive growth

Regional economic integration, FTAs* Jobs, Competitive- ness

• Competitiveness crucial in

upgrading, rising regional integration & global value chains

* Free Trade Areas

• Industrial policy best

way to create jobs, reduce poverty, & achieve inclusive growth

• Upgrade industries
• Remove growth obstacles

GOAL: Improve Competitiveness

• Create proper environment for private sector

development

• Private sector: proximate source of growth

Government as Facilitator

• How to plug in regional production networks
• Move up the value chain
• Build strong regional economies

GVC-focused, Cluster-based

Strategic Industrial Policy

MANUFACTURING ROADMAP

• automotive,

aerospace parts electronics, garments, food, resource-based industries, chemicals, furniture, tool & die, shipbuilding

• move to high tech

transport equipment, chemicals, electrical machinery

• manufacturing hubs

in regional & global production networks for auto, electronics, machinery, garments, food

• high value added

activities upstream industries: chemicals, iron & steel, med-tech basic & fabricated metal

Phase I 2014-2017 Phase II 2018- 2021 Phase III 2022- 2025 VISION: globally competitive & strongly linked with other sectors, a main growth driver

Major Strategies

Manufacturing

• -15% to GDP

Horizontal measures Coordination mechanism Vertical measures

• Close supply chain gaps
• Expand domestic market

& exports

• HRD & skills trainings
• SME development
• Innovation
• Green growth
• Promotion
• Power, smuggling,

logistics, infrastructure

• Improve regulation,

reduce cost of doing business

• Competitive exchange

rate

• pen trade regime, sustainable macro policies, sound tax policies & administration,

efficient bureaucracy, secure property rights, institutions

Strategic Actions: Manufacturing

13

STRATEGIC ACTIONS

 Close Supply/Value Chain Gaps : Copper, Furniture, Tool & die, Paper, Iron & steel, Petrochemical, Plastic  Domestic Market Base & Exports: Automotive, Shipbuilding  HRD & Skills/Trainings: engineers, design, tool-making, prototyping, molding, die casting, technical-vocational  SME Development & Innovation: Finance access, compliance with product standards, Incubation, Quality testing, R&D, Industry-academe linkages, Fablabs, SME Business Centers  Aggressive marketing & promotion to attract investments  Horizontal issues: high cost of power & domestic shipping, smuggling & streamline & automate government procedures

AGRIBUSINESS ROADMAP

DRIVE REGIONAL ECONOMIC TRANSFORMATION Transform & upgrade agriculture from traditional farming to a globally competitive agribusiness sector

• rubber, coconut,

mangoes, coffee, cacao, banana, palm

• il & other high

value crops

• supply chain gaps
• deepen

participation in GVC

• PH as

agribusiness regional hub

• strengthen agro-

processing & its linkages to production: R&D; strengthen supply chains, upgrade commodity clusters; access to technologies, finance; regulatory & certification system

Phase I 2014- 2017 Phase II 2018- 2021 Phase III 2022- 2025

SERVICES ROADMAP Glue That Binds All Sectors Together

• Labor-intensive

sectors: tourism, construction, ship repair, MRO

• accelerate

infrastructure investments

• move up IT-BPM

GVC

• PH as regional

hub: training

• upgrade services,

manufacturing related services to sustain growth & job creation

• Education, design,

R&D, finance, infrastructure

• Services embedded

in manufacturing

• HRD & skills training
• Innovation

ecosystem linked with manufacturing

Phase I 2014- 2017 Phase II 2018- 2021 Phase III 2022- 2025 Globally competitive services, create quality jobs, move up the value chain, enable structural transformation

Comprehensive National Industrial Strategy

(CNIS)

• THREE IMPORTANT CHANNELS AFFECTING INDUSTRY

GROWTH: COMPETITION, INNOVATION, PRODUCTIVITY

16

MANUFACTURING SERVICES AGRICULTURE FISHING, FORESTRY MINING INTERNAL FACTORS: GOVERNMENT POLICIES &PROGRAMS, INSTITUTIONS, INFRASTRUCTURE, MACRO STABILITY, RULE OF LAW, PEACE & ORDER, POLITICAL CLIMATE EXTERNAL FACTORS: GLOBALIZATION, REGIONAL/BILATERAL/MULTILATERAL TRADING ARRANGEMENTS, GLOBAL & REGIONAL PRODUCTION NETWORKS

Industry Development Council (IDC)

IDC Secretariat

IDC Technical Committee DTI - Chairman

• DTI, NEDA, DA, DOF, OP; Private sectors representatives

IDC Executive Committee DTI – Chairman

• 11 representatives from government
• 7 representatives from private sector
• 1 representative of academe
• 1 representative of research institute/think tank
• 1 representative of labor
• 1 CSO representative

Chemicals, plastics, petrochemical

Eminent Persons Group (EPG) 5 industry leaders

Philippine Industry Development Council

Electronics Mass housing IT-BPM Furniture Ceramic tiles Biodiesel Aerospace Automotive Copper Metal casting, Rubber Iron & steel Motorcycle Natural health Retirement Tool & die Paper

COMPREHENSIVE AUTO RESURGENCE PROGRAM

Auto roadmap visions, goals, strategies, timeline

Current State and Strengths

Industry Characteristics

• Rated capacity: 200K units/year
• 4 carmakers
• Parts & components: 272
• Direct Employment: 68K
• Net exporter of parts:

Exports US$4.3B (7% of total)

• Strong current comparative

advantage: ignition sets, radio receivers, external power, lead- acid electric accumulators, brake system, transmissions, air filters for engines, tires, etc

• Highly skilled labor & technical

manpower

Metro Manila Pampanga Laguna Cavite Batangas Vehicle Parts 7 plants electro- deposition painting systems 3 stamping, 5 transmission, 6 wiring harness, 2 large injection, 3 suspension system, 2 tool & die, 50+

• thers

PH Auto Industry Sales & Growth

269164 321532

• 50%
• 40%
• 30%
• 20%
• 10%

0% 10% 20% 30% 40% 50% 50000 100000 150000 200000 250000 300000 350000 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Total Industry Growth

• PH: high population with low vehicle ownership
• Motorization rate: PH: 35; VN:20; INDO:73; THA:200; MAL:

395

• Significant market potential as the share of households who

can afford to buy vehicles increased from 26% to 36%

32% 42% 2011 19.3 4% 7% 11% 31% >25k 15-25k 10-15k 5-10k <5k 2017 21.6 8% 9% 27% 56% 47% 2009 18.6 3% 5% 12% 16% 33% 33% 2015 20.0 6% 9% 14% 32% 20.8 2013 5% 8% 13% 39%

# of households in the income range Millions of households

Source: Ayala & Mckinsey

PH Market Potential

21

• Share of HH who

can afford to buy vehicles up from 26% to 36%

• Significant

potential in PhP43K to1.1M income bracket

• Up from 21% to

28%

• Over PhP1.1M 

from 5% in 2013 to 8% in 2017

Vehicle Sales of Selected ASEAN Countries (Jan.-Jun. 2015)

• 12%
• 18%
• 3%

21% 72%

• 16%

67%

100,000 200,000 300,000 400,000 500,000 600,000 700,000 Brunei Indonesia Malaysia Philippines Singapore Thailand Vietnam Jan-Jun 2015 Jan-Jun 2014

source: ASEAN Automotive Federation

Vehicle Production of Selected ASEAN Countries (Jan.-Jun. 2015)

• 14%

3% 9%

• 2%

45%

200,000 400,000 600,000 800,000 1,000,000 Indonesia Malaysia Philippines Thailand Vietnam Jan-Jun 2015 Jan-Jun 2014 source: ASEAN Automotive Federation

Market Opportunities

• Motorization starts at GDP/capita level US$2,500
• Mitsubishi to stop US operations, expand Asia

1 .7 MI LLI ON VEHI CLES 2 .5 MI LLI ON VEHI CLES 3 -6 MI LLI ON VEHI CLES

ASEAN Market Size

Production : 764K units

Thailand’s Snapshot

GDP per capita : US$2,603 Population : 62 Million Domestic Sales : 626K units Production : 923K units ASEAN Market Share

3 7 %

I ndonesia’s Snapshot

GDP per capita : US$2,980 Population : 238 Million Domestic Sales : 764K units ASEAN Market Share

3 1 %

Production : 702K units

2004 2010 2015-2022 Indicator 2010 2011 2012 2013 2014 2015 2016 2020 GDP/capita (US$) 2155 2378 2611 2790 2934 3279 3601 4757 Population (M) 92 94 96 98 99 101 103 109

Source: Sugata, M. (2014). TMPC

Manufacturing Cost Gap (per unit)

$- $2,000 $4,000 $6,000 $8,000 $10,000 $12,000 $14,000 $16,000 Philippines Thailand

Assembly Cost Assembly Cost Cost of Local Components Cost of Imported Parts from ASEAN

Cost of Parts Imported from Japan

12% 49% 23% 16% 13% 7% 67% 13%

$1,500-$1,800

Cost of Local Components

Cost of Imported Parts from ASEAN

Cost of Parts Imported from Japan

25

PH Auto Industry Roadmap

Auto Program Formulation and Approval Local Market Expansion Integration of PH Auto Industry into ASEAN Production/ Sales Network STAGE 1

(2013-2015) Government support critical

STAGE 2

(2016-2020) Investment & capacity building

STAGE 3

(2021-2025) Full integration to take advantage of AEC

The CARS Program

Goals

• Revive

auto manufacturing, generate employment, attract investments, build domestic scale, develop PH into a regional auto manufacturing hub

Coverage

• Vehicle Production
• Parts Manufacturing: body shell assembly, large plastic assemblies,

common parts, strategic parts not currently produced in PH, shared testing facilities

Fiscal Incentives

• Time-bound; Output/performance-based
• Fiscal support not exceeding PhP27B spread over 6 years
• 3 models; 200,000 units per model
• Fixed Investment Support (40%): Invest in parts &/or shared testing

facility

• Production Volume Incentive (60%): Exceed 100,000 units in

production volume per model

Fiscal support: Allocation

Production Volume Incentive (PVI) 60% of MLB Fixed Investment Support (FIS) 40% of MLB Model Life Budget (MLB) PHP9B Body shell assembly Common parts & shared facility Strategic parts Standard Production Support Actual Annual Production Logistics Efficiency Index

Who are eligible to enroll in the program

Participants Qualifications Car Maker

• Internationally-recognized carmaker
• Proven track record
• Multinational operations including R&D,

manufacturing, marketing & after sales services in Asia, Europe, N.America Parts Maker

• Endorsed by the PCM to manufacture parts of its

enrolled model

• OEM auto parts maker
• proven track record
• member of good standing of the PH Parts Makers

Association Shared Testing Facility Provider

• Collectively endorsed by the PCMs
• proven track record

Criteria for evaluating applications

• Track record & model competitiveness including global &

domestic sales

• New investments in body shell assembly & large plastic

parts assemblies

• Planned volume no lower than 200K units over model life

up to maximum of 6 years

• Economic impact of the investment plan: parts

manufacturing, linkages, strategic & common parts, employment, consumer welfare

• Impact on overall competitive environment & long term

industry development

• Safety, fuel efficiency, emission level standards (no lower

than standards under the Clean Air Act)

• Adoption of national standards for auto parts &

certification of international quality systems (TS 16949) & environmental management system (ISO 14001)

• Alignment of PH standards with other countries: labor

incentives, customs procedures & systems, technical, environment & safety standards

• Strict implementation of vehicle registration regulations–

Motor Vehicle Inspection System

• Full implementation of the automated import & export

documentation system

• Streamline regulatory procedures to reduce cost
• Allocation of road user’s tax to improve infrastructure
• Demand stimulating measures: easy consumer financing

& others

Non- Fiscal Measures

Envisioning the Future

50 100 150 200 250 300 350

CARS Program to sustain the growth & development of the industry from 2016 and beyond

Actual Imports Actual Production Projected Imports Projected Production

THANK YOU!

With the industry roadmap’s clear vision to transform the economy & a more pro-active government bent on creating an environment conducive to private sector growth, PH is now seen as a good place to invest & one of Asia’s brightest spots. For more information, visit our website at industry.gov.ph