Monday, October 6, 2008

Semiconductor Industries

President Gloria Macapagal Arroyo's Speech during the 10th
Semiconductor and Electronics Industries in the Philippines, Inc.
(SEIPI) CEO Forum

Thank you.

Thank you, Secretary Favila.

Chairman Arthur Young, President Ernie Santiago, all the members and
officers of SEIPI, welcome once again to Malacanang!

Many of you may remember the last time we met as a group two years
ago. But between then and now, I've met some of your principals at
international fora and I get to see many of you individually during
the many company events that have taken place in the industry. And I
stay updated on your many successes as well as your concerns. For
after all, you have made, as our two speakers have said, tremendous
contributions to our economy. Thank you to the industry.

A special thanks to the 242 companies that form SEIPI, the moving
spirit that has made your sector among the most united and organized
of Philippine industries. I have heard about your GAINS program for
global competitiveness, advocacy, information, networking and
services, and that it is the most forward-looking industry strategy in
the country. Congratulations to you!

We saw a part of your work in the two presentations today and for the
ordinary Filipino, the Philippine economic landscape of the 21st
century would be unrecognizable without your industries. You have
every right to claim to be the "driver of the Philippine economy," as
Ernie said in the beginning of his speech, you produce two-thirds of
Philippine exports. Over a billion Philippine-made memory chips, power
devices, disk drives, digital signal processors, magnetic heads and
similar products are found in various electronic appliances all over
the world coming from you. Because of you, our country has an
18-percent share of the global electronics market since 2006. I thank
you also personally because during my presidency, you have earned 200
billion dollars for our country. Your exports have grown almost 50
percent -- from 22 billion dollars in 2001 to 31 billion dollars a
year. And I was looking at the growth rate of the world and of Asia,
your exports in the last seven years have grown faster than the rest
of Asia.

Your industries have been major job creators. You give direct
employment to almost half a million Filipinos. That is the same number
as our Department of Education, which is our largest single government
employer.

Your sector invested five billion dollars during my administration.
And the peak, the rise in investments, was with Texas Instruments
which, by itself, is pumping more than a billion dollars for a new
operation in Clark, not to mention its new activities in Baguio. So,
we thank Bing for bringing that investment over.

I've also had the fortune of presiding over the expansion of other
companies like SunPower, large expansion. So, I'm very grateful for that.

In 2001, I was telling Ernie, that in 2001 you had a negative growth
rate, didn't you? And Ernie remembers that 2001 had a minus-22 growth
rate. It was a negative 22 percent. At that time, that was right after
the 9/11, but even before 9/11, the global market was already slowing
down. In 2001, the main market for Philippine-made electronics and
semiconductor items was the United States. Then the U.S. market
suffered a drop in sales. That's why your growth rate was minus 22
percent, though I might say that at that time, I remember how I said,
"Naku! Kakaupo ko lang, magne-negative growth rate ang Pilipinas,"
because electronics is such a major part of our economy.

But we work to do other things to strengthen the domestic market,
release all the arrears of IRA to the local governments, work on the
housing industries, spend on agriculture, as a result of which the
Philippine economy still had a positive growth rate even if the
electronics industry had a negative growth rate. But in the meantime,
just as we were working on how to make the Philippine economy remain
with a positive growth rate, you were also working, you were looking
for other markets. And indeed, you found other markets. So that when
we met in 2006, China was already your main customer, taking in 26
percent of your exports. And today, with even more changes in the
global economic arena, you have shifted your focus again.

This year 2008, `cause most of your figures are 2007, Ernie confirmed
to me that about 22 percent of your products go to Europe, 15 percent
to Japan, 14 percent to the U.S., 13 percent to China, and the rest to
other Asian countries.

But Arthur was telling me that there is a lot of potential, as you've
shown us in the presentation, within our own region. And so, with such
dynamism, your industry -- though it had a negative growth rate for
the first six months of the year -- in June, it managed to grow 2.6
percent year-on-year, and maybe that means that the slump is over and
you're beginning to go back to your upswing.

We have been working tirelessly as we did in 2001, and now even more
to address challenges arising from the slowdown in the global economy
which this time is combined with the spike in oil and food prices. We
all know this is a global phenomenon. Your presentation shows how
aware you are, and you need to be aware, because you're so integrated
with the global economy of what's going on in the world.

The events in the U.S. and the slowdown in the global economy are
causing real difficulties for countries around the world. But we are
not insulated from them, but our economy is more resilient today than
ever before. And I would say more resilient than some other countries
in our region. In some other country, which is also an attractive area
for your investments otherwise, the overheating is so much that the
government has to cut down on infrastructure spending. We have not
reached the stage of overheating and we are not cutting down. In fact,
we are increasing infrastructure spending.

We're able to do this because of the economic and fiscal reforms that
we have implemented in recent years through the cooperation of
Congress. These have resulted in the strengthening of our
macroeconomic fundamentals as well as our banking system. So our
economy is strong enough to withstand the external financial turmoil.

We've been working hard on all fronts to manage inflationary
pressures, to provide a safety net to those hit hardest by these
global developments, and deliver the growth that will continue to
generate jobs and tax revenues that we need to fuel our investments in
our nation's future.

We've been working hard to make sure that food supplies remain stable
and to put food on the table for every Filipino in order to avoid
demands for a wage spiral and, therefore, keep you competitive. We
were discussing what we know when Arthur was making his presentation
about our... the cost being a small portion of the cost of goods sold
compared to other places. So overall, there is still a good amount of
competitiveness here and we contribute to that, among other things, by
trying to keep the cost of food low or affordable so that there will
be no demand for a wage spiral.

We've also been introducing measures to lift the burden of high fuel
prices off our people. So that there will be no big transportation
cost increase for the workers who go to work for the same reason to
avoid demands for a wage spiral.

On the same token, our Economic team, of which Peter is a member, in
coordination with the Bangko Sentral, of which Peter is our government
representative to the Monetary Board, our Economic team is closely
monitoring developments in the global financial markets. We're working
hard to further strengthen the domestic economy by accelerated
spending for infrastructure. As I have said, whereas other countries
around us may be pressured to reduce infrastructure spending, we're
accelerating infrastructure and agriculture, fast-tracking financial
reforms to further strengthen the banking system, improve our fiscal
health by better tax collection and also by legislative measures, and
encouraging investment by such measures as reducing regulatory
bottlenecks for strategic industries like the semiconductor and
electronics industry.

Texas Instruments, Bing was telling us, came to the Philippines and it
was not easy for us to make sure that they come to the Philippines.
There were other very attractive or prospective hosts, and we are all
vying and the key was the red tape. And we won over our other rival
possible destinations and Texas Instruments decided to do their new
plant here. The same thing with some other multi-hundred
million-dollar investments coming up soon. Peter, who is chairman of
our Anti-Red Tape Task Force, is working hard to make sure that old
bottlenecks are removed and I hope we will be seeing this new
investment soon.

We are addressing most of the concerns you presented in 2001, aside
from the concerns that are presented by individual prospective
investors. And I remember infrastructure was one of your biggest
concerns. And your companies were among the ones we thought of when we
pushed for big infrastructure projects across the nation. The SLEX,
the Alabang Viaduct, is now 83-percent complete -- should be finished
soon. But even now, with one lane already completed, it has eased the
flow of traffic from CALABARZON towards NAIA. The Batangas Port, which
was completed last year, last December, services some of your
companies. The SCTEX has been completed also for the convenience of
the factories located in the northern part of the Luzon Urban Beltway.

Now, I remember the last time we had a meeting, you saw all the
infrastructure coming up. So you were confident about that, so you
said the infrastructure we must work on now must be the power sector.
And on power costs, PEZA now offers reduced rates for its locators.
And hopefully, we will have the implementation of open access which
would hopefully bring power cost down some more and, probably, the
milestone for that will be the consummation of the Calaca investment
in the power sector, perhaps by November.

Earlier than that, we began the `time of use method' of computing
power rates along with the WESM, then MERALCO's Customer Choice
program and High Load Factor Discount for customers consuming at least
5 MW, and that's certainly you. Other provisions of the EPIRA,
particularly the condonation of the loans of electric cooperatives,
have been implemented. And let me point out that there are areas
around the country where the host municipalities and barangays give
discounts or subsidized the electric bills of their customers. So I
would reiterate my invitation that when you do your expansions, you
think of locating in these areas where the local government has the
royalties from the power sources that are in their areas and they used
these royalties to subsidize electric bills.

One example would be Palinpinon in the town of, is it Dauin or
Zamboanguito? Ah, no, in Valencia in Negros Oriental, and that's the
reason why we're making the airport better so that your airports... so
that your whole logistics will be acceptable to you. Another example
would be the geothermal areas in Leyte in Tongonan, in Ormoc and the
neighboring town of Kananga, I believe, because they also have a lot
of royalties. Some barangay residents don't even pay any electric bill
at all. And we have an airport in Ormoc or even in Tacloban that can
be suited to your requirements, as Texas Instruments has seen, we are
doing with La Union Airport for their Baguio operation. So these are
things that will help you to reduce your power costs. And we will
spend in the infrastructure that you need for your transport
competitiveness.

And most recently, an ERC ruling lowered to eight percent the
recoverable systems loss of distribution utilities.

But together, let us look for more ways to reduce power costs,
especially for small and medium companies outside of PEZAs, some of
whom are your own suppliers and subcontractors.

On manpower, Ernie Santiago said I should announce to you, because not
all of you know, that we are promoting Engineering R&D activities in
the country at a significant scale. Three billion pesos is our budget
for that in order to modernize every aspect of the economic
underpinnings of the Philippines, including semiconductors and
electronics, to propel economic growth. Because we know that
modernization needs a critical mass of R&D-capable manpower that will
further attract technology-based investments like semiconductorsand
especially electronics. This three billion pesos that I'm talking
about started last year. It's an investment in Engineering Research
and Development Technology. As a part of this, as a big part of this
since last school year, seven universities led by the U.P. College of
Engineering have been offering scholarships for masters and doctoral
degree programs in all fields of Engineering, including what
specialized field you might want for your own industry.

But I must congratulate SEIPI because they're already a part of this
program spearheading linkages with U.P. and other reputable academic
institutions for specialized masteral and doctoral training for your
industry.

Government consults SEIPI on the steps that can strengthen your
industries, expand your markets, and increase your convincing power in
bringing in more investors to your sector. Ernie last appeared before
a Cabinet meeting only last month, so he can attest to how frequently
we consult SEIPI when we need to do our industrial planning.

A continuation of these efforts will help us weather the global storm
and make sure that we are able to achieve the economic rebound that we
are projecting for next year.

As I said, if you think of the fact that we will have flat growth this
year, remember you were minus-22 percent in 2001 and how you
recovered, and you will recover even more now because we can see the
investments that are under gestation. Texas Instruments will formally
open in January and with their market of three billion dollars a year,
we can expect that by yearend, we will have a very big increase in the
electronics exports not to mention those new industries that Peter is
nursing, or those new factories that Peter is nursing for them to
locate here in the Philippines.

So, against the gale force winds of the global economy, we remain
bullish on our country and your industry. We are optimistic about our
future, your future, and we're deeply committed to being a force for
the good of your industry which is good for our people. The
semiconductor and electronics industries and the government have a
strong synergy. You are an invaluable partner in Philippine growth.

So, from a grateful nation, Mabuhay at maraming salamat sa inyo!

Thank you.

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Visit the Website of President Gloria Macapagal Arroyo - http://www.kgma.org/gma


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