Japanese investors in the Philippines have warned that the strong appreciation of the peso against the US dollar could offset the country’s cost-competitiveness gains in the manufacturing sector.

Tomohiro Ando, Investment and advisor to the Japan Foreign Trade Organization (JETRO) Manila Economic Partnership Agreement, raised the currency factor in the Philippines’ cost competitiveness at the 2021 Virtual Security Bank Economic Forum: The Future of the Philippine manufacturing industry.

Ando noted that the Philippine peso has appreciated since last year after experiencing a stable rate in recent years. “The Philippine peso exchange rate has appreciated 5% against the US dollar and that’s another factor we need to consider in the short term,” Ando said.

Ando, ​​who presented the results of Jetro’s latest survey on the competitiveness of Japanese companies operating in the ASEAN region, also linked the issue of the exchange rate to the cost of Filipino labor.

According to the Japanese official, the target salary in the Philippines has been “much, much more stable than in other Asian countries”, including that of Vietnam.

The Jetro survey showed stable monthly wage rates in the Philippines for workers in the manufacturing sector. From $ 250 per month in 2011, the wage rate remained stable until 2020 at a level of $ 260.

In comparison, Vietnam’s wage rate has risen from a little above the level of 100 dollars in 2011 to already 250 dollars in 2020, almost to the level of the Philippines ”.

He added that while the cost of labor in the Philippines has remained virtually unchanged since 2010, Japanese companies alone have increased the wage rates of their Filipino workers by about 5 percent per year.

Ando further explained that even though Japanese companies were spending higher wages on their Filipino workers, this was offset by the stability of the exchange rate in the country.

But with the domestic currency appreciating against the US dollar over the past year, Ando has hinted that this could offset the country’s competitiveness gains. He urged the government to consider its impact on manufacturing companies, which import most of their raw materials.

The peso climbed to P47.80 against the US dollar when trade closed last Friday.

Ando raised the currency factor as the domestic manufacturing sector, which accounts for 20% of the country’s GDP, is expected to maintain its growth momentum by being the most cost-competitive among its peers in Asia.

In the same presentation, Ando showed a table on the comparison of manufacturing costs from a JETRO survey of Japanese manufacturing companies operating outside of Japan, in which the Philippines consistently ranked among the competitors of neighboring countries in the manufacturing sector.

“Almost every year for the past ten years, the Philippines has been the most competitive among these countries in the table,” Ando said, pointing to the table in the survey.

The Philippines, however, came second after Vietnam in 2020 after dropping 2.2 notches.

“In short, and we have to pay attention to this fact that in general the Philippines has been competitive even in terms of cost competitive in this way,” he said.



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