Pax Silica: Where to start and where to end up
By Dr. George Manzano
UA&P School of Economics
When the Pax Silica initiative was announced, criticism came swiftly and from many directions. Environmental groups worried about the enormous electricity and water requirements of AI infrastructure. Governance advocates questioned whether the country had the institutional capacity to negotiate well and regulate such a massive undertaking. Labor groups fret on who would ultimately benefit, while others raised concerns about foreign control, national security, inequality, and whether the Philippines would simply shoulder the environmental costs while richer countries captured the technological gains. Recently, BCDA clarified that no data centers—the central point of many environmental concerns—are planned for the Tarlac portion of the Clark ecosystem. Whether that completely addresses the environmental debate remains to be seen, but it is a reminder that the details are still evolving. In fact, the parties have yet to conclude negotiations, and the public has not seen the negotiating text. Yet the discussion—both for and against Pax Silica—has taken on a life of its own.
Among the many concerns, one stands out because it deserves careful attention. It is the fear that the Philippines will end up contributing only the lowest-value activities in the AI ecosystem while the sophisticated work—chip design, cutting edge software development, advanced research, and innovation—remains elsewhere. This is not really an argument about whether Pax Silica will generate growth or exports for the Philippines. Most people agree it probably can. The real concern is distribution. Will Filipino workers and firms remain trapped at the bottom of the value chain while others capture the knowledge-intensive jobs and the highest returns?
That concern deserves to be taken seriously, but it also rests on what economists would call a static view of industrial development. The Philippines is not entering this race from the sidelines. Electronics has long been the country’s largest export industry. For decades, Philippine firms and workers have been part of global production networks for semiconductors and electronic components. Pax Silica is not about creating an electronics industry from scratch. Rather, it is about taking that existing foundation and connecting it to an even more advanced ecosystem—one built around artificial intelligence, advanced chip technologies, high-performance computing, cloud infrastructure, AI-enabled manufacturing, cybersecurity, and digital innovation. If today’s electronics supply chain is a national highway, Pax Silica aims to connect the Philippines to an expressway where the technologies, investments, and opportunities are moving much faster. The real value of joining that network is that it helps overcome one of the country’s biggest constraints: attracting the scale of technology investment needed to move into the next generation of industries.
The Philippines has seen this kind of evolution before, although in a different industry. When the BPO industry first arrived, many dismissed it as little more than call centers. Then it grew into accounting services, human resource management, healthcare information management, software development, engineering support, legal process outsourcing, and sophisticated back-office operations for global banks and multinational corporations. That transformation did not happen because the industry skipped the simpler tasks. Rather, it materialized because firms built experience, workers acquired new skills, and clients gradually gained the confidence to entrust Philippine operations with more sophisticated functions. Ones firms become part of a production network, they understand the standards, logistics, quality systems and what customers require. This familiarity lowers the cost of taking on more complex work. Economists call this learning by doing. Businesses simply call it building capability.
This does not mean upgrading happens automatically. It requires good education, workforce development, infrastructure, sound institutions, and above all, astute negotiation. The critics are asking an important question, and it should not be ignored. But perhaps the more useful question is not whether the Philippines starts somewhere lower on the value chain. Most countries do. The real challenge is making sure it does not remain there. That seems to be where the negotiations should be focused. Beyond attracting investment, the Philippines should negotiate for opportunities to build local capabilities, develop Filipino suppliers, upgrade the skills of our workforce, and encourage technology transfer. In the end, the success of Pax Silica will not depend on where the Philippines enters the supply chain, but on whether it creates real opportunities for the country to move up it.
The views expressed here are the author’s and do not necessarily reflect those of the Publication and the University.