Home » SCMAP Perspective » Knock-on Effects

The Philippine economy performed below expectations in 2018. Gross domestic product grew by only 6.2% in the past year, slower than the government’s target growth range of between 6.5 and 6.9%.

 

The government itself has conceded that record inflation rates in the past year has contributed to slower-than-expected economic growth. Rising prices meant consumers were more wary of spending, while businesses became more tentative about expanding.

 

Of course, there are many reasons for the record inflation rate, and it is not wise to attribute it to one factor. That said, the high cost of oil is definitely one reason – both high prices in the world market and government’s decision to increase taxes on gasoline and, for the first time, impose them on diesel. It certainly put a damper on consumption, as Filipinos began to ditch going out in favor of staying in – why bother, when filling up your car costs too much, and there’s not much to do in malls anyway?

 

From a cost standpoint, the high cost of fuel also impacted on logistics costs. Government agencies were keen to stress that new excise taxes would only have a minimal impact on the final price of goods, but the failure to understand that every element that goes to the production and distribution of any product would be affected by any increase on fuel cost has led to a failure to anticipate any knock-on effects.

 

Again, of course, there are other factors. From a supply chain standpoint, inefficiencies continue to led to higher-than-optimal logistics cost, from overburdened and limited infrastructure, to unjustified fees, to continuing issues with capacity. Our shortcomings are also highlighted in times of calamity, as well as during higher-than-usual demand. That means more knock-on effects to the final price of goods, and as we’ve seen, all that adds up. The Philippine economy may be consumption-based, but it doesn’t mean Filipinos will blindly consume, especially when they see that the value of their paychecks are slowly shrinking. (People are shopping online because of perceptions of value and convenience, for example.) There may be a slight uptick in 2019 because of increased consumption that always accompanies the campaign period, but the clouds of high costs will still have an impact regardless of how optimistic your outlook may be.

 

The first Logistics Efficiency Indicators survey organized by the Department of Trade and Industry has found that logistics costs accounts for 27% of the total costs of goods, and this varies depending on location. Ideally this would be lower, and more consistent wherever you may be in the country. And yes, there are efforts going on across all fronts – continued investment in infrastructure, identification of bottlenecks, regulatory reforms – and we hope that these would ultimately lead to more efficient and predictable (and innovative) supply chains, which would lead to more stable prices – and, as we mentioned a couple of columns back, this means Filipinos would feel like more is within their reach. The knock-on effect of that on the country’s economy would be fascinating to see.

 

Supply Chain Outlook: Join us this Friday for our first event of 2019, happening at the EDSA Shangri-la in Mandaluyong City. We will explore the role supply chain plays in ensuring food security for all Filipinos with Department of Science and Technology secretary Fortunato dela Peña, Cold Chain Association of the Philippines president Anthony Dizon, and REID Foundation’s Ronilo Balbieran. Register now by visiting scmap.org.

 

Henrik Batallones is the marketing and communications executive of SCMAP. A former board director, he is also editor-in-chief of the organization’s official publication, Supply Chain Philippines. More information about SCMAP is available at scmap.org.

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