SCMAP Perspective is our fortnightly column on PortCalls, tackling the latest developments in the supply chain industry, as well as updates from within SCMAP. On this column, Henrik Batallones dives into the Pax Silica Initiative and its impact on Philippine logistics and the economy as a whole.
Fears, anxieties, and valid concerns
There’s this development over the last few months that I didn’t think would widely capture the imagination, but in recent weeks, it has: the Pax Silica Initiative.
I hope you can forgive me. This story was the sort that would be limited to the business section and would not get a lot of air time in the evening newscast. But credit to the critics who have been relentless in drumming up their opposition, because now we’re pretty much on the verge of a necessary discussion as to the pros and cons of the Philippines joining this US-led partnership.
The thing is, there’s so little detail about the whole thing that it seems easy to plug in your assumptions, your worst fears, and form your opinions on the basis of that. We do know the Philippines is set to host “the first AI-native industrial acceleration hub”, which some have interpreted to mean a lot of resource-intensive data centers. I personally believe the bid is to house advanced manufacturing facilities, for components – if not the devices – that will feed the global demand for AI and cloud infrastructure. It’s not like we’re starting from scratch: after all, we already host a strong semiconductor industry, with the sector exporting USD 49.64 billion worth of goods last year, according to the Semiconductor and Electronics Industry of the Philippines Foundation (SEIPI).
It is worth noting that Pax Silica stems from the United States’ focus on securing electronic supply chains through the lens of national defense – particularly to counter, if not scuttle, the emergence of China on artificial intelligence. The CHIPS Act passed under the Joe Biden presidency sought to develop domestic manufacturing capability. On the other hand, Pax Silica – only launched late last year, under the second Donald Trump presidency – seeks to bring together like-minded countries to, let’s face it, allow the United States to have greater control of those electronic supply chains.
There are valid concerns that the Philippines will end up suffering from this ostensible partnership, as just a sourcing point for “critical minerals” that make part of these electronic components and nothing more. The government is betting that our participation will accelerate our industrialization strategy – which has been held back by high energy and logistics costs; one hopes President Marcos’ pronouncements on the latter during his recent State of the Nation Address would also come into play here – and further develop other parts of the country, particularly New Clark City which will host the hub, and surrounding areas.
In the broader scheme of things, our participation in Pax Silica is just part of the plans for the Luzon Economic Corridor, originally forced by the US (under Biden), Japan and the Philippines to bolster the region’s competitiveness – and again, let’s admit it, counter Chinese influence. The LEC also includes plans for the Subic-Clark-Manila Batangas cargo railway, expansion of aerospace manufacturing and shipbuilding, extensive fuel storage facilities, and possible investment in nuclear power.
Even with that background, we still know little about what the final shape of the Pax Silica hub will be, if we even reach that idealized point described in press briefings and artist renderings. So we have the vacuum of definite details filled with fears and anxieties – some of which, again, are valid, and will have to be addressed by the government. How will those displaced by the development be supported? How will the potential impact on water and power supplies – something starkly highlighted by this “super” El Niño and the crisis in the Strait of Hormuz – be addressed? But the lack of answers at the moment should not mean we should say no to this altogether. We’re not starting from scratch here.
That said, I do have a few quibbles. Setting aside the question of whose jurisdiction the facility would be under – the United States wants the hub to operate under their laws, something the Philippines disagrees with – I’m thinking about the jobs that will be generated. The estimates vary wildly, with one citing almost a million jobs will be made, but it won’t just come from the new manufacturing facilities themselves, but from the ecosystem around it: construction, services, hospitality, the works.
But if one of the goals is technology and knowledge transfer, consider this: the Philippine semiconductor industry has lagged behind its neighbors because we have been limited by what we can do. We only make the components, not the chips themselves. We do not host advanced facilities. The knowledge gap is there. When the hub welcomes its first locators, there’s a good chance it won’t be Filipinos on the top of the hierarchy, because we don’t have the capabilities yet. Will the jobs we do get from the beginning allow us to climb the social and financial ladder? How long will we have to wait, if ever? Or will we end up only with jobs on the periphery? How will the government commit to boosting the capability of our current and future work force to be as “AI-native” as the industrial hub wants to be? So many questions to be answered, and not just now that we’re on the verge of signing the form.