Business matters
Philippine Daily Inquirer, 27 October 2018
Annette Balaoing-Pelkmans and Emmanuel S. de Dios


Recent concern over a widening current account deficit has refocused attention on the country’s lagging export performance. Goods exports have fallen drastically as a share of GDP from 45 percent in 2000 to just 16 percent in 2017. Big Data offers some clues to this decline.

A little known fact is that the Philippine Statistics Authority—in collaboration with the University of the Philippines School of Economics and the Erasmus University Rotterdam—now possesses a new database on the exporting and importing behavior of every Philippine firm from 1991 to 2012. The first thing this dataset shows is the extreme narrowness of the country’s export base in terms of both firms and products. Half of total exports from 1991 to 2012 were earned by just 12 firms. Indeed, only 5 percent of all exporting firms accounted for 85 percent of revenues. Meanwhile, 53 percent of all export earnings was due to only 10 out of 7,000 products exported in the same period.

This firm-level database provides new performance indicators such as survival, diversification, and quality of products. Just as with people, one can also monitor the birth and death of exporting firms and the rates at which they begin and stop exporting. Of 64,115 firms that ever exported anything during 1991-2012, only 14 percent were still active as of 2012. New birth or export entry rates reached their peak in 1999 at 88 percent, but this was completely reversed by 2012, with only 12 percent of firms being new entrants.

Another indicator is the ability of a new exporter to continue exporting in the following year. In 2000, 81 percent of new entrants survived to export in the following year. This rate had fallen to 50 percent in 2008, and by 2011, only 24 percent lived to export another year. The increase in permanent exit has become more rapid among manufacturing firms, from 10 percent in 1992 to 51 percent in 2008.

Any dynamism remaining in Philippine exports today is owed to the survival of just a few large firms, characteristically with Japanese ownership and producing a narrow range of products in the semiconductor and electronics sectors. Resilience in exporting is high among these firms, which is unsurprising given the technological power of their multinational partners. Policy attention has been drawn toward these champions (e.g., the concern over the effects of TRAIN 2’s changes in the corporate tax regime).

But if export diversification and deepening are the goals, it would be a grave omission to neglect the country’s most firm-populous sectors that comprise thousands of micro, small and medium-sized firms. The Top 10 industries in terms of the most number of firms generate only 3 percent of total export value, although they account for the bulk of transactions. They also show the highest exit rates, yet very little by way of policy and research is devoted to understanding their constraints.

Any strategy to diversify exports and expand the manufacturing base entails a shift in policy attention toward firms at the base of the revenue pyramid. Big Data should be exploited to develop typologies of firms according to their potential and their peculiar constraints and opportunities. It is important to uncover the characteristics of resilient firms to recognize the possible factors of success.

But it is equally important to track one-time entrant firms, as well as those that permanently exited after experiencing initial export success. What specific difficulties did they confront? How many were inherently bound to fail anyway, and how many merely lacked some ingredient for doing business that policy could have provided?

Entrepreneurship is a scarce resource in developing countries, and we need to understand how these types of firms can be sustained.

It is certainly possible—no, vital—for the country to do better at exporting. A first step is to abandon the one-size-fits-all mode of policymaking and apply more nuanced diagnostics of the problems faced by firms. But don’t expect any of this to be simple or easy.