Rebalancing strategy should include Taiwan

More Asian leaders seem to be taking the cue from President Duterte when they talk about “rebalancing” their international political and economic relations. Thanks to Socioeconomic Planning Secretary Ernesto Pernia, the threatening phrase “separation from the US” was quickly replaced by the more innocuous “rebalancing our relations.”

One national economy with which the Philippines should establish closer and stronger relations is Taiwan.  Both our government and private sector should seize the opportunity arising from the “Southbound” or “Look South” policy announced exactly a year ago by Taiwanese President Tsai Ing-wen.

I have been traveling to Taiwan for the last 30 years and have seen its dramatic transformation from a poor country to a First World economy. Most impressive in my visit in January 2016 were the first-class infrastructures that Taiwan had been able to put up in record time: an underground metro in Taipei that functions with clock-like precision, bullet trains connecting the major cities, nuclear plants that provide cheap and reliable supply of electricity, and others that we still dream of when we talk about our private-public partnership projects.

I saw how Taiwan in the first decades of its development efforts gave the highest priority to the agricultural productivity of small farms through a very successful agrarian reform program backed by the most thoroughgoing infrastructure building efforts (farm-to-market roads, irrigation systems, postharvest facilities, research and development, etc.). Its government also had the common sense (which our government did not) of exempting the sugar sector from fragmentation since it is a no-brainer that economies of scale are needed in sugar farming (which do not apply to rice and other commodities). That is why before Taiwan plunged headlong into industrialization, it had the foundation of an efficient agricultural sector.

Then it went through the usual “East Asian Tiger” formula for industrial development: first, the labor-intensive, export-oriented industries like garments, shoes, toys, etc.; then the capital-intensive industries such as steel, shipbuilding, chemicals and cement; and finally the high-technology industries like computers and biotech. It also established some very high-quality tertiary educational institutions together with world-class research institutes. With these well-thought-out strategic moves, Taiwan was one of the few economies in the last century to escape the middle-income trap (together with South Korea).

Now that the Philippines is poised to move from its decades of mediocre growth to middle-income territory in the next 10 years or so, there are many lessons to learn from Taiwan, especially if it invests capital and transfer technology in a massive way in our country. Remember that Taiwan was the No. 1 investor in China during its heyday of 10- to 12-percent GDP growth.

We have much to gain from Taiwanese technology in agribusiness, construction and infrastructure, heavy industries, electronics, renewable energy like solar and wind, and food manufacturing. Already, Taiwan International Ports Corp. is actively looking for investment opportunities at the Subic Bay Freeport Zone, together with other Taiwanese companies that have been planning to relocate to the Philippines as their country’s ports are already overcrowded. In fact, there is the Taiwanese-managed Subic Bay Gateway Park, which hosts some 80 direct locators and 60 sublessees, among them Taiwanese firms Wistron Corp., Taian Electric Co. Ltd., Taiwan Hitachi, and Ton Lung Metal Industry Co.

Subic is the most logical first location that Taiwanese investors will consider. But if they are looking for another export base to service the whole Asean market, Taiwanese firms targeting the Philippine market of 102 million consumers will be wise to consider alternative ports in the cities of Batangas, Iloilo and Cagayan de Oro—identified in a Usaid study as the next international port cities to decongest Metro Manila.

A major worry of Taiwanese society is food security. It would be wise for Philippine agribusiness companies to travel more frequently to Taiwan to look for potential joint-venture partners in food production.

Comments may be sent to bernardo.villegas@uap.asia.