The Philippines plans to offer tax breaks to as many as three automakers as one of Asia’s fastest growing economies aims to become a regional production hub.
Philippine President Benigno Aquino III is set to issue an order implementing the Comprehensive Automotive Resurgence Strategy (CARS) program “within this year,” Philippine Department of Trade and Industry Secretary Gregory Domingo said in an interview in Manila on Tuesday.
“The car industry’s supply chain feeds into other industries, and we think that becoming a regional hub will help fill our gaps in manufacturing,” he said.
The Philippines seeks to replicate Thailand’s success in building its auto industry, betting that a young workforce and its biggest economic boom since the 1950s will lure companies like Volkswagen AG.
Aquino, who steps down in June next year, is raising spending on roads and airports to a record high this year to lure more foreign direct investment (FDI) and bolster growth to as much as 8 percent this year and next.
“Government support will be a factor in determining further investment and future plant expansion,” Chamber of Automotive Manufacturers of the Philippines Inc president and Toyota Motor Corp spokesman Rommel Gutierrez said.
An incentive program will “benefit both the government and private sector, if it is feasibly administered,” Gutierrez said.
Car companies would need to meet minimum production levels to qualify for the incentives, Domingo said, declining to specify exact amounts as discussing are ongoing. The government has considered annual output of 40,000 vehicles fully built in the nation to qualify for benefits, the Manila Bulletin reported in November last year.
Easing infrastructure logjams would also be essential to spurring more auto production.
“If the intention is to start exporting, you need good quality ports and roads, and that needs to move in tandem with offering incentives,” said Rahul Bajoria, a Singapore-based regional economist at Barclays PLC.
Philippine manufacturing expanded an average 9.2 percent in 2013 and last year, while net FDI rose 66 percent to US$6.2 billion last year, the central bank reported on Tuesday. In 2013, Thailand had US$12.6 billion of FDI, while Vietnam attracted US$8.9 billion.
“We can’t compete head on with the likes of Thailand, which is so far ahead of the curve in terms of car production,” Domingo said. “The vision is to find a niche for the region, a mass producer of a model that is not produced in Thailand.”
While Philippine manufacturing has diversified into medical devices, parts for aircraft and motorbikes, and oil and gas platforms, the nation lacks the medium-sized “in-between” products, such as cars and refrigerators, Domingo said.
“We want serious players who really have an intent to make us a regional manufacturing base,” Domingo said. “We want a bigger commitment because they’ll be forced to bring their supply chain, and that will really boost our manufacturing.”
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