PANEL 3: PORTS, SHIPPING, AND THE BLUE ECONOMY. PRESENTATION OF GUEST SPEAKER Ms. Doris Magsaysay-Ho President and CEO, A. Magsaysay, Inc.

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1 SEVENTH ARANGKADA PHILIPPINES ANNIVERSARY FORUM ARANGKADA PHILIPPINES: BETTER INFRASTRUCTURE FOR A STRONG ECONOMY September 12, 2018 Marriott Grand Ballroom, Marriott Hotel Manila PANEL 3: PORTS, SHIPPING, AND THE BLUE ECONOMY PRESENTATION OF GUEST SPEAKER Ms. Doris Magsaysay-Ho President and CEO, A. Magsaysay, Inc. Good afternoon everyone. I am so grateful to have this opportunity to speak with you. Offset, I would like to congratulate the Joint Foreign Chambers, the AmCham, especially John Forbes, Michael Raeuber, and Henry Schumacher for all the work they have devoted for the past years for the Philippines through Arangkada. I thank them specifically for always the shipping industry voice in the seaport and shipping chapters. The shipping industry is an invisible service to most of the public. I know this because most of friends of mine do not have any idea what I do. For those in business, shipping is sometimes viewed as an annoyance, a cost that some wish would disappear. I have mentioned to colleagues in the industry that we should protest to Amazon because they always encourage a sale by saying shipping is free, but, actually, there is a major service behind that. The reality is that shipping plays an important service carrying over 90% of everything that you and I and everyone in the world use and consume in our daily lives and makes an important contribution to humanity. We do it at a very small percentage of the cost to produce the goods that all of you here make. I greatly appreciate this opportunity to speak before you to move the conversation to word counts, where shipping is a key part of a logistics chain in an archipelagic country and is an agile and a strategic partner not impediment to business. However, I would like to present two concepts, which I hope can form part of the strategic discussion and policies for the position and competitiveness of the Philippines. The first is that shipping follows trade that means that small domestic and international trade volumes result in small ships and logistics capacity. Small means higher costs. The second is the Philippines has a great opportunity to build a blue Philippines strategy where the maritime Philippine agenda can become a key driver of the Philippine economy. 1

2 Our economy is driven by domestic consumption with negative growth of exports widening our country s trade imbalances. For every ten fully loaded containers, Michael Raeuber told me, maybe two come back full. Imagine that ten full containers come in and only two go up with exports, meaning you have eight negative. For those of us in the domestic industry, for every ten that goes south only four come back full. To make matters worse, our parcel sizes of trade volumes are small. This is due to many things: One is that retail margins cannot cover the cost of keeping large inventories. Another is that infrastructure ports are lacking, small ports mean small ships. No port infrastructure means outdated ships requiring cranes that are no longer built in the international shipping market. We are what is called a feeder economy. Instead of shipping imports and exports on a mother ship, our customers pay a feeder cost from a hub like Singapore, Hong Kong or Kaohsiung. Other countries we compete with like Vietnam are very conscious of improving competitiveness by building their scale of production. One Vietnamese trade minister I spoke with said that his country is determined to stop being a feeder economy by building economies of scale of manufactured and agri products to attract large mother ships into their ports. We are advocating a mindset shift. Shift our focus from shipping as a problem to shipping, logistics, and infrastructure, including ports to respond to the needs of a particular trade. Remember, it takes seven years to grow a coconut tree, 18 months for a pineapple to harvest, and many years to build a manufacturing facility, yet a shipping company can bring in a ship to service a trade in a few months or, if they wish, to build a special purpose ship, which could take 12 months. Instead of a challenging shift to federalism, I believe there is an important opportunity for the leadership of each region or governor of a province to identify and pursue their respective competitive advantages to drive their economy through cluster development. These clusters would be geographical concentrations of companies and institutions in a particular sector that the region already excels in and would encompass linked sectors including SMEs that formed part of the supply chain. There will be university-led R&D and vocational training for the workforce that may be part of the successful ecosystem of shared resources and costs. The region would then be able to attract investments because of a clear story. Clusters should be developed in proximity to port and airport infrastructure, which will be designed to make the handling of particular products efficient. The cluster would create badly needed jobs in the provinces and benefit from economies of scale driving down the cost of shipping, power, and other utilities. We compete with Thailand. This is how Thailand presents their cluster in the internet. We compete with Malaysia, who is developing a huge cluster right outside of Singapore with huge ports, airports, and a very clear strategy. There are some areas for cluster development and I am looking at Lilia de Lima, who did so much good work with the PEZA, and this is sort of something like it, but led by a provincial area identifying areas that they already do well in. 2

3 We have China is, believe it or not, now shifting out of being a manufacturing zone to becoming the world s hi-tech center. You can see how strategic these countries think. Some potential areas for cluster development in this country could be: Tarlac, Subic, Batangas, etc. and I will just go quickly through them. For example, the Clark-Tarlac-Subic Development Cluster, with the airport there could be focused on hi-tech innovation on artificial intelligence. There could be selected manufacturing clusters and there is already a shipbuilding and ship repair cluster in Subic. Three yards that are now number four including the one in Cebu in the world. Imagine we are so proud of that cluster, but that cluster is not even big enough to attract a subcontractor from international markets. It is a pity that we do not grab the opportunity and say if that cluster now already has that opportunity to build shipbuilding and ship repair, we could really create something amazing for this country. Another is Zambales that is full of mango, the best mango in the world. If you drive around there you will see so much empty land. It seems as if we are wasteful because we are not thinking. We are sort of having the tail wag the head, while the head really should wag the tail. One problem in that area is you have two heads. One for Clark and one for Subic and I have told Vince Dizonmaybe they should just be together in planning a strategy for the region. Expansion of the port is limited to having to reclaim and encroaching into either that or into the airport. It could have a local government strategy for the area to serve as a gateway to the north. Another one could be Batangas. In this case, the Batangas Cluster is not government-owned land. It would have to be zoned with land use laws, which we do not have. There is an automotive aspect of it because all the cars coming from Thailand go into Batangas and there is a lot of Japanese manufacturing there already. Cebu could be an amazing cluster. Right now, if you go to Cebu, the port is in the middle of all the traffic. If I were the mayor, I would not know whether my city is a tourism destination or a manufacturing destination. We have been pushing government to create a production cluster around a new port and bring everybody out of Cebu City and you could make Cebu a beautiful tourism destination and have a much more efficient logistics hub with let us say manufacturing of furniture and all the things that they do well. Leyte has a 300,000 hectares special economic zone. After Yolanda, I do not know how dynamic our vision is to have something return there. I do not know if anyone planted coconuts, but they do have an amazing port because PHILPOS and PASAR have their port there. Cagayan de Oro owns PHIVDEC, 3,000 hectares government-owned land and with Bukidnon could be a food basket for the country. Del Monte is in the region, foreign ships already come in and if there could be more strategic processing logistics have for food not just serving Manila, but even the region. 3

4 Davao Cluster, Sarangani is a very long coast similar to Chile that could be a fisheries cluster and General Santos has already been developed as a port. Basically, what is important to understand is if shipping follows trade, the port also follows trade. Just to give you a quick example of what I mean, this is a ro-ro port. A ro-ro port looks like a giant parking lot that means a port carrying car trade. Today in Batangas, the cars kind of compete with the containers. This is a ferry terminal in Vancouver. Even if ro-ro sounds cheap, if you really develop a very good ro-ro network, you do have to spend money on a very good terminal. This is a cruise terminal. All of you have probably come across those. A ferry terminal is a silo and so on and so forth. The second aspect of my presentation addresses the concept of a potential maritime Philippine strategy to contribute to the economy. As what you heard earlier from Usec. Judan, over the past 40 years, the Philippines has developed important parts of a maritime ecosystem, which could now be looked upon as just potential strategic driver for a maritime Philippine strategy. Singapore is the most successful of such an ecosystem. Driven by the advantage that all ships from Asia to Europe pass the Malacca Straits, Singapore strategically and meticulously developed a maritime hub that attracts shipping investors and locators because of its stable policy regime and rule of law. Singapore has become a ship registry of choice, has a complete roster of shipping and logistics services, government support with R&D money for innovation, and the ironic part of it is many professionals working in Singapore are Filipinos. President Widodo of Indonesia has launched a maritime fulcrum as well. They have great advantage because of their strong commodity exports, but lack trained seafarers who could become the professional management pool. Maritime Philippines, the way we envision it, would be a cluster of sectors that have grown independently and strategically, but not yet put together and meticulously strategically planned. We hope that we can achieve this to inspire a new vision for the country. These sectors include: domestic shipping, shipbuilding and ship repair sectors, the seafaring sector, training and education, human resource and manning sectors, which in a way are actually high-level BPO, technical services sector like managing ships here, which are actually very high level BPO business, and also building into becoming an international ship registry sector. The domestic shipping serves the transportation of products and raw materials on container ships, tankers carrying liquid products, ro-ro s carrying passengers and trucks, barges, and landing craft tanks(lcts) carrying raw materials and goods for hard to reach areas. The domestic industry can be requisitioned by the government in times of war and natural disasters as was the case with Yolanda. These shipping sector stakeholders are the seed for a potential expansion into regional shipping with the vision to provide services to the region and the world. The shipbuilding and ship repair sector is now by far the fourth largest in the world and can grow if strategically supported. 4

5 One weakness of the Philippines as a destination for ship repair is that no ships come here because we do not have cargo. It all comes down together. If we really develop our manufacturing and have more dynamic trade then ships would come here. Therefore, it would help grow our ship repair industry. The sector has a vast manpower force. Now, you heard Usec. Judan speak about seafarers, which comprise over 30% of the world s fleet and contribute over US$ 5 billion in annual remittances. A robust industry sector of training and education has emerged. In addition, outsourcing services such as human resources in management and training, technical management of vessels, and other outsourcing services benchmarked with Singapore is really our vision for the future. With these services, the maritime Philippines should be promoted with focus, but only after the private and government sectors work together towards a common vision and action plan to make the Philippines a truly dynamic trade and production area in the maritime industry supporting it as a key driver for employment and development. Thank you. 5