Lockdown Economy Philippines

Why issues of digitalization, logistics, health and safety, and employment have become the most challenging for the country, located on more than 7500 islands.

In 2020, the Philippines was the first country in the world to report deaths from COVID-19 outside of China [1]. However, the situation at the beginning of the pandemic was better compared to nowadays. Up until the end of 2020, the number of confirmed weekly cases did not exceed 31 thousand [2]. In September 2021, this figure reached 145 thousand, representing an increase of 466% over the previous year.

As a result, the pandemic has seriously impacted the economic situation in the country. In 2020 the real GDP growth was negative for the first time since the 1990s and constituted -9.5% [3]. The reason for this is the decline in the service sector, which accounts for 58% of the total economic structure of the Philippines and was affected the most [4]. Quarantine measures, movement restrictions, and sales reductions made it more vulnerable compared to agricultural and industrial branches.

In this context, tourism should be mentioned as an illustrative example within the service sector. Before the pandemic in 2019, its contribution to the Philippine economy made up 12,7% of the GDP [5]. In 2020, this figure decreased by more than half, standing at just 5,4% [6]. It is important to note that the suspension of the activities of the companies also affected the indicators.

According to statistics, 30% of businesses from all sectors in the Philippines were closed temporarily at the end of 2020, while 7% decided to stop working completely [7]. The largest proportion of closures (both interim and permanent) accounted for enterprises from branches such as tourism (64%), arts and entertainment (57%), transportation (45%), and food services (43%). In comparison, the same figure for the agricultural sector remained low at just 36%, and for the manufacturing industry only 35%.

Think Tank AlterContacts conducted a series of Lockdown Economy interviews in the Philippines with the main focus on the most affected branch. 80% represented the service sector, while 13,3% and 6,7% worked within the manufacturing and agricultural industries respectively [8]. According to the respondents, the biggest challenges faced during the pandemic have become a lack of online presence and digital marketing, logistical issues, health concerns, and a decrease in employment. This is demonstrated in Figure 1. In order to understand better the importance of each issue, we propose to address these challenges using specific cases to which they apply.

Lack of knowledge in digital marketing

Lockdown in the Philippines has revealed that representation in the digital space is an integral part of each company operating in a rapidly changing world. In the space of just six months in 2020, more than 73,000 businesses registered online [9]. This is heavily linked to the fact that in 2020, e-сommerce in the Philippines demonstrated an increase of 42,5% [10]. Moreover, the number of potential buyers among Internet users has reached 91% during the pandemic [11].

This increase occurred alongside the suspension of activities for physical stores. COVID-19 required businesses to change their development strategies and start focusing on digital expansion. For example, the co-founder of TattoooiePH stated that in this new reality they had no sales during the whole month at the beginning of lockdown [12]. According to Kat Garfin, they managed to renew demand by 60% only after being more active on social media and joining the two biggest e-commerce platforms. 

On the way to grabbing the attention of Internet customers, TattoooiePH faced the problem of creating high-quality images for online content at their home office. This has become a big challenge, largely due to the fact that 75% of online buyers name the quality of photos as the key factor influencing the decision [13]. 

Besides images, there are many other types of content formats such as posts, articles, and videos which also play an important role in brand promotion on the market [14]. This was noted by designers Daniel Ubas and Viktoria Laguyo of Krete Manila. During the pandemic, they were forced to learn online marketing in order to replace traditional physical sales channels with social media [15]. The lack of expertise in online marketing, however, has become the stumbling block to the growth of the company.

Consequently, these examples demonstrate the difficulties faced by small and medium-sized businesses when developing their presence in the digital space. Without action, the existing situation will lead to a decrease in competition on the market and the inaccessibility of original manufactured products and services.

Call to Action: Support with information and human resources

The problem with establishing an online presence and promoting business in the digital space has become one of the most important challenges, despite the efforts of the government to increase the Internet speed and provide access in the framework of the program “Free Wi-Fi for All” [16]. Even published instructions and remote events [17] could not address the lack of expertise in online marketing.

To resolve this problem, the government should work alongside international organizations to provide the necessary support to small and micro businesses. This could include the opportunity to take courses in the field of digital marketing or support with human resources and financial aid. Dedicated specialists should teach entrepreneurs how to enter the online market to work with both e-commerce and social media platforms. 

Logistical issues: Connection between local businesses and international trade

Besides the existing difficulties in the digital transformation process, the lockdown period has raised concerns regarding logistical issues. Border closures, in addition to the specific features of the Philippines such as geographical location and poor infrastructure, have negatively impacted businesses [18]. It reveals the data of the Philippine Statistics Authority, according to which the foreign trade turnover has significantly dropped in 2020 in comparison with the same period in 2019 [19] [20] [21].

Companies using imported raw materials and depending on overseas suppliers have become especially vulnerable due to COVID-19. For example, the founder of Hypergleam Cosmetics claimed that delays in delivery jeopardized the ability of the business to sell products [22]. As the company manufactures the lip gloss using imported sources, late supplies during lockdown led to the shortage of cosmetics in stock, and consequently an inability to meet the customers’ needs.

Logistical problems were also experienced by the founder of Little Rituals Records, as the company works in close partnership with the providers of equipment and vinyl albums from the United Kingdom [23]. Despite the increased demand, Kim Ang reported that the orders had not yet (at the time of the interview) shipped, due to delays in the local and international supplies. This meant that it caused difficulties with both client satisfaction and business growth.

Call to Action: Necessity for the processes optimization

A reduction in delivery time of exported and imported goods is one of the top priorities to address these logistical issues. First of all, the government should focus on developing infrastructure, because the Philippines consists of more than 7500 islands [24]. Secondly, the transition from the usage of manual labor to digitalization should take place in order to shorten the duration of shipping supplies. Moreover, the customs clearance process for importers, taking 25 days, must be substantially minimized to increase the figures of foreign trade turnover [25]. 

In this context, it should be noted that the Philippine Government has launched a nonstop shipping service together with the United States [26]. Although the project is aimed to reduce the delivery time and increase trade, this measure is not enough to resolve logistical problems.

Health and safety concerns: Why coronavirus is a threat not only to health but also to businesses

As mentioned earlier, health and safety continue to remain one of the most urgent concerns for the population in the Philippines, because the number of cases is constantly increasing. At the time of the interviews, the country had not started the vaccination campaign, as the first doses were received only in February-March 2021 [27]. For that reason, businesses are still suffering from restrictions and quarantine measures.

This is particularly true for companies operating within the service sector, such as cafes and restaurants. For example, in July 2021 they were forced to switch again to delivery within 24 hours [28]. In addition, customers have become very concerned about safety issues. In 2020 Gayle Ante, a co-founder of Avenida Pedestrian Delights reported that existing threats for health remain a significant factor in preventing clients from attending public places [29]. Moreover, during the pandemiс, people began paying much more attention to food packages due to health concerns.

Threats to health are also a point of concern for photographer Regina Roque [30]. Apart from the pre-existing risks related to the spread of coronavirus, many foreign clients have postponed events, especially weddings. This created significant obstacles to her development as a destination photographer. Regina Roque claimed that the country could resolve the existing challenge by formulating safer travel guidelines and making swab tests more affordable.

Call to Action: More investments in the healthcare system

Albeit belatedly, the government of the Philippines has indeed taken measures (in addition to lockdown) to reduce collateral damage from the coronavirus. In August 2021, the prices for PCR tests were lowered across the country [31]. Moreover, the government decided to include young people aged 12-17 in the vaccination campaign [32].

However, these measures cannot be effective on their own. The country should invest money into the development of the medical care system, particularly including the establishment of specific educational programs for additional staff. Nowadays, there are 10 beds for every 10000 inhabitants [33]; the significant lack of doctors is also observed. This situation accurately reflects the reason for safety concerns among the population, as people understand that the medical care system will be unable to cope with a large number of patients. 

Decrease in employment: Shorter working hours as a decision for the company during the pandemic

Although lockdown has slowed down the rate of infection for a period of time, it has also led to serious consequences for employment among the population. In April 2020, the percentage of jobless people was twice as many as in the same period in 2021 [34]. Moreover, due to quarantine employees were forced to work less and consequently earned lower pay. The average workweek after the beginning of the pandemic consisted of approximately 38.25 hours (Figure 3), while this figure was no less than 43.2 in 2019 [35].

Such changes cause serious concerns for business owners. For example, the co-founder of Hugot Café by Sir Oca claimed that they were forced to reduce work shifts for all team members in order not to fire anyone [36]. The company believes that even part-time employment is better than job loss. 

Similarly, the co-owner of Baddie Bakes expressed her hopes that in the nearest future they would hire additional staff to meet the increased customers` demands [37]. Because of the existing challenges in the country, however, Nicole Cledera and her brother are still handling everything on their own. As a result, both examples demonstrate the ways in which instability in the economic sphere is closely connected with the unemployment rate in the social field. 

Call to Action: Requalification of the specialists

For the maintenance of jobs, the government of the Philippines established a wage subsidy program in 2021, which considerably helped over 3 million workers [38]. At the same time, no steps had been taken to improve unemployment insurance, which has very limited coverage. Moreover, the government should pay much closer attention to education and training programs.

The coronavirus pandemic has revealed that there is a lack of specialists in both the medical and digital spheres. However, requalification is not considered a necessary step. Not addressing this challenge, the country risks facing a high unemployment rate, and simultaneously a shortage of trained professionals.

CONCLUSION

It is important to emphasize that the COVID-19 pandemic in the Philippines has caused severe challenges for the economy and businesses from multiple sectors. It also revealed existing gaps in infrastructure development. At the same time, these difficulties have become a driving force in the move to digital transformation, optimized logistic processes, improved safety standards, and changes in the labor market. However, the successful outcome of these processes nowadays is fully dependent on the government of the Philippines. Only when the necessary measures are taken in a timely manner can the existing challenges lead to the prosperity of the country.

Written by Lyutsiya Shlafman, an independent researcher and market analyst with a Master’s degree.

Edited by Olivia Grace

Editor-in-Chief - Julia Skupchenko

REFERENCES

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