Manufacturing revival

Amid criticism that the economic boom under the Aquino administration is one of “jobless growth” and not “inclusive,” Socioeconomic Planning Secretary Arsenio Balisacan is saying that the government wants to see a “revival” of the local manufacturing sector.

But can the government revive a sector that has been severely weakened through the years by bureaucratic red tape, smuggling, disruptive labor policies, high electricity costs and heavy dependence on imported inputs, to name a few?

How it intends to revive the sector will perhaps be clearer when it launches this month the “Manufacturing Industry Roadmap,” which it claims will help local industries boost their competitiveness ahead of the economic integration of the Association of Southeast Asian Nations (Asean) in 2015. A draft version of the roadmap indicates that the first phase in 2014-2017 will focus on strengthening so-called emerging products, maintaining “classics,” and rebuilding the existing capacity of industries. Among the “emerging champions” are agriculture-related products, machinery, glass and some chemical products. The so-called classics, in which the Philippines has had high comparative advantage since the 1990s, are forest items, raw materials, cereals, labor- and capital-intensive garment products, machinery and certain chemical products. The second phase in 2018-2021 will involve attracting investments to high value-added activities and linking and integrating industries within the economy.

The Aquino administration can use some inputs from an assessment report of Arangkada Philippines, an undertaking of the Joint Foreign Chambers (JFC, or the different foreign investors’ organizations in the Philippines) to encourage the government to speed up implementation of reform initiatives. The report points out how the country continues to tail  its Asean neighbors in the competitiveness race. Manufacturers and exporters in Singapore, Malaysia, Thailand and Vietnam have benefited greatly from globalization, but not the Philippines, it notes.

The assessment report, released early this year, includes recommendations; the most important is for the government to give greater priority to manufacturing and to make serious efforts to offer a competitive business environment. It notes that the private sector throughout 2012 was quite assertive in raising awareness among policymakers on the importance of manufacturing, and this was best articulated in the 17 industry roadmaps generated during the year, including the Philippine Industry Roadmap of the Federation of Philippine Industries, as well as industry-specific groups for chemicals, rubber, copper, furniture, auto parts and bioethanol, among others. On the export front, the report says one indicator of the failure to diversify is the country’s continued dependence on electronics, which account for the bulk of export receipts when about 90 percent of these exports use imported inputs.

Much earlier than the 2012 report, Arangkada Philippines put it very clearly: A proven strategy to achieve higher investment and increase exports and jobs is to prioritize economic sectors with high growth potentials. In 2009, the JFC issued a study suggesting that the Philippines build up “Seven Big Winner Sectors” where it has competitive advantages and high growth and employment potentials. With its position within Asean, its large, youthful English-speaking population, and improved access through free trade agreements to fast-growing markets, the Philippines was seen as situated to draw large foreign investments that could create millions of new high-quality jobs in agribusiness; information technology-business process outsourcing; creative industries; infrastructure; manufacturing and logistics; mining; and tourism, medical travel and retirement.

The biggest challenge to the manufacturing sector now is the integration of the Asean market in 2015. This means duty-free importation from any member-country and easier access to raw production materials. Local manufacturers cannot wait for government action on many of their recommendations. They must now improve their efficiency—from production up to packaging and marketing—in order to survive tougher competition with foreign products and services.

The government, for its part, must vigorously pursue its antismuggling efforts. To quote from the Arangkada Philippines report, “as long as smuggling provides better profits than manufacturing, the economy will be one of traders and smugglers rather than manufacturers.”