MANILA, Philippines — As Vietnam builds a strategy to develop its semiconductor industry, the Philippines should focus more on its local semiconductor sector to be able to compete in attracting investments, an industry group said.
In an interview with reporters, Semiconductor and Electronics Industries in the Philippines Foundation Inc. (SEIPI) president Dan Lachica said the Philippines is being overtaken by Vietnam in terms of semiconductor output as it builds a strategy to develop the industry.
According to a report from online newspaper VietnamPlus, Vietnam Prime Minister Pham Minh Chinh said the country is creating a development strategy and a human resources development plan, along with appropriate regulations, policies and mechanisms, aimed at attracting the world’s leading semiconductor manufacturers and designers to the country.
The initiatives aim to promote collaboration with Vietnamese firms, creating conditions to improve their capability and gradually join the semiconductor industry value chain, according to the news report.
“That’s why Vietnam is overtaking us because of what they’re doing,” Lachica said.
Asked if the Philippines should mirror Vietnam’s strategy, Lachica noted that at least an attempt to focus on the industry should be made, acknowledging the challenges of funding for the initiative.
“Well, we don’t necessarily have all the money that they have but at least make an attempt to focus on the industry, not just what we’re doing today. Something has to be done otherwise, the industry will die,” Lachica said.
The SEIPI official cited the case of a multinational firm that has presence in the Philippines deciding to set up a new facility in Vietnam.
Lachica lamented that the company decided to set up its research and development (R&D) and expansion project in Vietnam instead of the Philippines, noting that this was a $1.6 billion investment.
In the same interview, Lachica shared that the group is still waiting to be able to speak with the Office of the President to be able to discuss the industry’s concern on incentives in the Corporate Recovery and Tax Incentives for Enterprises Act (CREATE).
Last year, Lachica shared that five companies have opted to bring their $3.6 billion worth of investments to Vietnam, Thailand and China instead of the Philippines due to concerns on the CREATE, particularly the rationalization of fiscal incentives.
Under the CREATE, changes were made to the grant of incentives to make these performance-based, targeted, time-bound and transparent.
Qualified exporters will be able to enjoy four to seven years of income tax holidays (ITH), followed by 10 years of five percent special corporate income tax or enhanced deductions under the law, while domestic enterprises will be able to enjoy four to seven years of ITH to be followed by five years of enhanced deductions.
In an interview last month, Lachica said the electronics industry continues to appeal to the government to study the effect of the incentives rationalization and figure out why the country is still not getting as much foreign direct investments compared to Thailand or Malaysia.
He said the Philippines has high operating costs particularly in power, labor and logistics.
“The reality is that we still have high operating costs. And so I realized that we can’t reverse what was done in terms of the incentives rationalization, but we really need to solve this problem, otherwise, we’re still talking about maybe just getting 17 to 20 percent of what ASEAN competitors are getting. We need to resolve that,” Lachica said earlier.
He said that while the local industry is still getting some investments, it is not as high as what its ASEAN neighbors are getting.
“And the problem with electronics is we depend on new products and technologies. Made from the perspective of the CEO of a multinational, they will operate in a country where the operating cost is at its lowest,” Lachicha said.
“And since they have sites in different countries outside the Philippines, they can compare the numbers. And so if you have high operating costs, if you have high power costs, for example, and if you don’t have some measures to mitigate that with incentives, then where do you think the CEO will place these new products?,” he said.
The SEIPI official stressed that if the industry is unable to get investments for new products, it will continue to run on legacy products.
“And the industry that you see today, the $49 billion in 2022, three million direct and indirect workers, it’s not going to be the same. I mean, the clock is running. We have eight and a half years or so for the transition period,” Lachica said, referring to the transition period for the CREATE.
“We’re already seeing some signs like I said, expansion projects are not coming here. Investments are not the same as we’d like. So that’s a big threat to the industry,” he added.
Latest data from the Philippine Statistics Authority showed that electronic products remained the Philippines’ top export in August, registering earnings of $3.88 billion, a six percent increase from $3.654 billion a year ago.
In contrast, electronics exports declined by 4.8 percent to $28.196 billion.