What It Will Take for Pax Silica to Transform the Philippine Economy?

Facing its worst growth slowdown since the pandemic, the Philippine government is betting big on Pax Silica to help break out of the slump. President Ferdinand “Bongbong” Marcos Jr. has touted the US-led “friendshoring” effort, highlighting it in his latest State of the Nation Address as a way to “accelerate [the country’s] competitiveness and revitalise [the] economy”.

However, not everyone is jumping on the bandwagon. Critics have raised concerns over Pax Silica’s implications for sovereignty, indigenous communities and the environment, with some even warning that participation could further entangle Manila in the China-US strategic rivalry. While these concerns are valid, so too is the imperative to jumpstart an economy stuck in a rut, especially as business confidence wanes and two of the country’s economic pillars — business process outsourcing and overseas workers — face growing uncertainty.

What, exactly, can Pax Silica deliver for the Philippines? Can it live up to its promise to transform the economy?

Through Pax Silica, the government hopes to position the Philippines as a critical node for artificial intelligence and advanced manufacturing in the Indo-Pacific. Yet, the policy has remained hazy despite immense public attention. Details are still emerging, with the actual planning set for 2027, but discussions thus far suggest the Philippines hopes to tap Pax Silica through infrastructure expansion, greenfield investment and industrial clustering. To realise the transformative potential of the prospective investment by US and partner countries, the Philippines must build both domestic capabilities and the institutions to sustain them.

The push to position the country as a regional industrial hub will place greater demands on energy, physical and digital infrastructure. In the energy sector alone, meeting this additional demand could spur new investments, with renewables and small modular reactors (SMRs) among the options being considered. Because the country has some of the region’s highest electricity prices, additional investments and grants could help lower costs and improve Philippine manufacturing’s competitiveness, provided that new capacity keeps pace with growing demand rather than straining existing supply.

Beyond energy, Pax Silica could stimulate investment in physical and digital infrastructure. Development partners from ten countries have already pledged support for the Luzon Economic Corridor, a broader multilateral infrastructure initiative in the northern regions of the Philippines with projects encompassing fibre-optic networks, the National Cybersecurity Center, the Subic-Clark-Manila-Batangas Railway and modernisation of Manila and Clark airports.

Participation in the initiative is also expected to facilitate clustering within the Corridor, with New Clark City as its flagship site. Backed by improved infrastructure and investment climate reforms, the 4,000-acre development could bring stakeholders together and strengthen linkages across related industries, fostering agglomeration effects that can draw in further investment.

Pax Silica’s biggest promise may lie in the investment and jobs it could bring. As West-based firms seek supply chain diversification, Pax Silica could redirect up to USD70 billion into the Clark hub alone at full development, potentially generating up to USD200 billion in exports and hundreds of thousands of jobs over the next three decades. One such investment could come from Taiwanese electronics giant Foxconn, whose entry would signal a major vote of confidence in Philippine manufacturing, much like Intel and Texas Instruments did in the 1970s. The opportunity extends into downstream segments, where developing domestic mineral processing capabilities could help the country capture more value from its vast copper and nickel reserves.

The Philippines has not seen an opportunity of this magnitude in recent memory, but scale alone is not tantamount to industrial transformation. Except for mineral processing, much of the country’s Pax Silica strategy builds on the same things the previous governments have pursued for decades.

Industrial development takes time, requiring not only patient capital but also political commitment. Too often, priorities in the Philippines shift with each administration, leaving long-term initiatives at the mercy of short-term interests.

The limits of this strategy are evident in semiconductors and electronics, the very industries at the heart of Pax Silica. Since the 1970s, the country’s top export earner has remained concentrated in assembly, testing and traditional packaging, among the lowest segments of the value chain. Moving beyond this will require innovation and building domestic capabilities that do not come automatically with more foreign investment. Multinational companies may bring capital, but technologies will not simply be handed over on a silver platter.

This highlights a critical limitation of the country’s industrial strategy thus far: its emphasis on attracting investment rather than building domestic capabilities. Addressing this requires facilitating transfer or procurement of technologies where possible and nurturing domestic firms that can compete globally and complement lead firms. Such a project would also involve upskilling of workers and aligning education with industry needs, leveraging public procurement to support domestic firms and developing supplier ecosystems for materials, chemicals and other specialised inputs.

However, possessing a bold vision is only half the equation, which leads to another important missing component: institutions. Industrial development takes time, requiring not only patient capital but also political commitment. Too often, priorities in the Philippines shift with each administration, leaving long-term initiatives at the mercy of short-term interests. With the upcoming 2028 presidential elections, a strategic vision for Philippine industrialisation is imperative for the country to sustain its participation in Pax Silica.

Attempts to institutionalise, such as the creation of the Semiconductor and Electronics Industry Advisory Council (SEIAC), are promising. But as a mere administrative creation, it risks being sidelined. For Pax Silica to be truly transformative, it must build policy consensus around an industrial strategy that prioritises domestic capability—building institutions that can withstand the uncertainty of Philippine politics. It must be embedded in an industrial strategy beyond the election cycle.

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