Subic's export miracle short-circuits progress

Despite worsening problems on many fronts, the Philippines had reason to crow a little the other day. The trade figures for June showed electronics exports up 46 per cent over the previous June to US$1.2 billion.

Electronics accounts for more than half of the country's exports. If rank in electronics were assessed on this measure, the Philippines would be the electronics capital of Asia.

The country is clearly doing better here than the rest of Asia. Electronics can be notably hard to define in trade figures, but Asia, excluding the Philippines, shows only a barely positive growth rate in electronics exports at the moment, while the Philippines has consistently posted more than 30 per cent growth rates for the past four years.

As a result, it accounts for an estimated 5.3 per cent of all Asian electronics exports while its share of Asian exports is only 2.3 per cent.

All well and good, but this does not tell the full story.

The difficulty is that the Philippines has concentrated on the low end of the business, particularly when establishing the Subic Bay export processing zone, and it does not get much value-added from its electronics exports.

Last year, a visit to a listed company billed as the star of the Philippine electronics industry revealed an assembly operation working under contract to a single big US name in electronics.

The company employed in one vast room 400 women stuffing components into printed-circuit boards by hand because it was cheaper to do it this way than investing in even the simplest equipment to do some of it by machine. For every $100 of raw materials and components imported, the shop could not have exported more than $110 worth of finished products.

It is mighty easy to build up the figure for electronics exports this way, but it does not mean much. There is just too little money left in the economy from this sort of business to help the country out of the mess it is still in.

It is also not easy to change the mould. Philippine manufacturers can and do try to move gradually up-market, following the established pattern of Japan and Taiwan.

However, it was easier to do this when there was less competition up-market than there is now. Other countries are not about to move out of the way to make room for the Philippines.

And the foreign firms that have let out the contracts on which the Philippines operates are not necessarily minded to change things. They wanted low-cost processing. They got it. They have no great incentive to change a comfortable arrangement for themselves.

This is one of the pitfalls of targeting industrial development in an area as attractive as electronics. If it is done the easy way, by playing the foreign investor card, it can bring quick headline results but not much real technological advance. The harder way, creating conditions for home-grown expertise to flourish, is much slower.

The Philippine export figures only reveal that the transition to that harder way has not advanced very far yet.