Philippine ANALYST August 2014
Aerospace, electric vehicles industry roadmaps revealed The aerospace industry and electric vehicles industry revealed its roadmap during the Board of Investments’ forum held last July 24. The industry roadmaps aim to make the Philippines globally competitive by boosting sales and production targets and through increased government support.
The roadmaps were presented by the Aerospace Industries Association of the Philippines (AIAP) and the Electric Vehicle Association of the Philippines (EVAP). Aside from these industries, 12 other industries have released their respective roadmaps with the goal of developing further investments in the Philippines. This includes: manufacturing, copper, iron and steel, cement, chemicals, creative industries, jewelry, furniture, paper, mass housing, rubber, and natural health products.
According to AIAP, the Philippine aerospace industry for 2013-2022 is envisioned to become “a major hub for manufacturing of original equipment manufacturer (OEM) parts and allied services for the global commercial aircraft industry.” The local industry is expected to become a $1.4 billion industry by 2022 from $385 million in 2013 – or an annual increase of approximately 29%. It is also expected to increase its employment generation to 8,300 (see chart).
Meanwhile, the electric vehicle industry roadmap for 2014- 2024 aims to accelerate the country’s conversion from gas- powered to electric vehicles, and to develop a transportation landscape that is “one with the environment.” It also aims to increase domestic industry sales by almost 2000%, from P214 million in 2013 to P4.4 billion in 2015. EVAP executive director Roberto Cruz said the industry expects to produce 38,220 units this year and 69,145 units in 2017. Annual growth rate is targeted at 11-
13%. The roadmap presented by EVAP has 4 phases: the 1st phase will be implemented in 2014, the 2nd phase in 2015 to 2016, the 3rd phase in 2017 to 2019, and the 4th phase in 2020 to 2024 (see table).
Both the aerospace and electric vehicle industry called on government support to help them overcome the challenges faced by their respective industries and to achieve the targets stated in the roadmap (see table). At present, the 2 industries are still small
The aerospace industry is seen to become a $1.4 billion industry by 2022, while the electric vehicles industry aims to increase production to 69,145 units in 2017.
Philippine ANALYST August 2014
particularly when compared with other countries. In 2010, data from the World Trade Services shows that the Philippine aerospace industry had total investments of $150 million, whereas Singapore had $4.6 billion, Indonesia $234 million, and Malaysia $1 billion. Similarly, the electric vehicle industry produced only 168,000 units in the same year, well below Thailand’s 800,000 units, Indonesia’s 765,000 units, and Malaysia’s 605,000 units. The industry currently has 20 local e-vehicle manufacturers/importers and 8 foreign investments while employing 42,000 people.
The creation of a roadmap for the 2 industries may be the beginning of their continuous development. Both still face numerous challenges involving policies, bureaucracy, and training and development. They need stronger government support.
Source: AIAP, EVAP
4 PHASES OF THE ELECTRIC VEHICLE INDUSTRY ROADMAP
YEAR(S) DESCRIPTION PLANS
2014 Program development and approval
Formulation of electric vehicle development program a. Charting of implementing rules and regulations b. Creation of incentives program c. Passing and approval of Executive Order
Program implementation/registration and monitoring
2015-2016 Local market buildup/ production capacity enhancement
Domestic market buildup: critical support from government Incentive program to strengthen auto parts industry Intensive investment promotion to attract foreign and domestic investment fl ows to the sector
2017-2019 Local and export markets expansion Increase in industry output and manufactures electric vehicles and more parts and components for
both domestic and export
Labor capacity building, skills and capital accumulation
2020-2024 Full integration of EV with auto industry / Technological advancement
Full integration of the automotive industry Complementation between EV industry, automotive industry, and all related industries Resources integration for established regional and global networks
Policy Include Aerospace Manufacturing as a pioneering industry with extension of Tax Holidays from 4-6 years to 6-8 years in the
2014 Investment Priority Plan (IPP) Maintain status of the Philippines as a Category 1 country by International Aviation Regulatory Standards.
Training and education Investments in training and development
Government programs and incentives Provide continuous review and improvement of policies and incentives that are supportive of the industry
Administrative bottlenecks Make government programs and incentives more attractive to entice investors Streamline import/export lead times and procedures for faster transaction processing
High costs and fi nancing Passage of SB 2856 (HB 5460) or the “Electric, Hybrid, and Other Alternative Fuel Vehicles Incentives Act” to bring down
the price given fi scal incentives Creation of special vehicle pollution control fund (P3.4 billion) to support electric vehicle manufacturing
Technological issues Establish standards and regulations for electric vehicles and charging stations Rigid education and training to overcome problem on social acceptance Device effi cient methods and systems to lower cost of battery replacement and improve waste disposal
Bureaucracy Update and systematize Land Transportation Offi ce’s registration process
PHILIPPINE AEROSPACE INDUSTRY (in USD Million)
AEROSPACE INDUSTRY PROJECTED EMPLOYMENT GENERATION
HOW THE GOVERNMENT CAN HELP THE AEROSPACE AND ELECTRIC VEHICLE INDUSTRY
Source: AIAP Source: AIAP
Philippine ANALYST August 2014
Credit surety funds to help MSME’s bank credit access
A bill that will enhance bank credit access through the institutionalization of credit surety fund (CSF) cooperatives for micro, small and medium entrepreneurs (MSMEs) is being deliberated in the Congress.
Banks are hesitant to extend credit to MSMEs as the risk of default in the sector is high. Banks’ compliance with the requirement to provide loans to micro and small enterprises was only at 6.1% in 2013, below the mandated allocation of 8% under the Magna Carta for MSMEs. In particular, universal banks which compose 49% of total banks, have under-complied since 2008 (see table). Large banks normally opt to pay the P500,000 fi ne for under compliance rather than extending credit to MSMEs. Particularly discouraging are MSMEs’ lack of acceptable collateral, unstable income or cash fl ows, and lack of business experience or track record. House Bill 278 aims to increase credit availability for MSMEs especially those in the countryside through the establishment of CSF cooperatives.
HB 278 or the “Credit Surety Fund and CSF Coop Act”, would establish special cooperatives that will help MSMEs in the areas of credit evaluation, loan and risk management
ITEM 2008 2009 2010 2011 2012 2013* Net loan portfolio (P mil.) 1,637,533 1,728,628 1,881,139 2,303,436 2,912,347 3,070,505
Min. amount required to be set aside ** (P mil.) 163,753 172,863 188,114 230,344 291,235 307,050
Total funds set aside for MSMEs (P mil.) 310,882 309,357 308,554 348,915 387,681 384,579
Compliance for MSEs (%) 10.0 9.7 8.5 7.6 6.4 6.1
Universal and Commercial Banks 7.1 7.1 6.8 5.8 5.3 4.8
Thrift Banks 16.4 16.1 14.0 16.2 11.3 10.8
Rural and Cooperative Banks 51.8 41.1 34.1 29.6 22.3 26.5
Compliance for MEs (%) 9.0 8.2 7.8 7.6 6.9 6.4
Universal and Commercial Banks 8.3 7.9 7.7 7.4 6.7 6.2
Thrift Banks 12.9 8.9 8.6 8.0 7.8 7.7
Rural and Cooperative Banks 11.4 12.8 12.0 10.5 9.5 8.9
ME = medium-sized enterprise, MSE = micro and small enterprise, SME = small and medium-sized enterprise. Notes: Compliance required under the Republic Act No. 6977 (amended by RA No. 8289 and 9501). * as of June 2013 * * 8% of net portfolio to micro and small enterprises and 2% to medium-sized enterprises Source: Asia SME Finance Monitor 2013 by the Asian Developmental Bank.
Provide its members of good standing access to formal sources of credit like banks
Increased membership and capital
Additional income derived from surety fees
Access to broader sources of fi nancing
Lower cost of borrowing
Formal training on business management
Banks Avenue for complying with required lending allocation to MSMEs as mandated under theMagna Carta for MSMEs
Credit risks associated with extending loans to MSMEs are mitigated