Opportunity in the manufacturing industry

Despite registering a 6.4-percent growth rate in the first quarter of 2023, well within the range targeted by the government for this period, the Philippine economy is hobbled by several structural, fundamental issues that threaten its full recovery and sustained development.

Foremost, this quarter’s performance was the lowest in seven quarters since the country started recovering from the blow of the pandemic in the second quarter of 2021.

And then, the debt-to-gross domestic product (GDP) ratio was pegged at a staggering 61 percent, way higher than the pre-pandemic level of 39.6 percent in 2019. This was because of the government’s record-high outstanding debt at P13.86 trillion.

Employment continues to be skewed heavily in favor of the services sector at 59 percent. Just 23.5 percent of employed Filipinos are in agriculture, and 17.5 percent are in industry which includes manufacturing. So, while unemployment and underemployment fell in March 2023, most working Filipinos are concentrated on one sector, leaving big gaps and untapped employment potential in the two other sectors.

Further, according to the Philippine Statistics Authority, consumer spending accounts for 75 percent of the country’s GDP. There is thus plenty of room for other demand-driven aspects of the economy, especially the critical role of investments in driving our country’s robust economic growth.

Stratbase has been advocating a shift to investment-driven growth, especially in sectors that hold great potential like manufacturing. Investments in manufacturing stimulate layers of economic linkages and create jobs for millions of Filipinos, thus fueling consumer spending and keeping the economy running strong. This idea is not new. This goal is integrated into the country’s medium-term development plan (2023-2028).

Last May 16, we held our second business roundtable discussion for this year entitled “Reinvigorating the Philippine Manufacturing Sector for Job Creation.”

Trade Undersecretary Rafaelita Aldaba said for this to happen, we need structural change through an industrial policy that is science, technology, and innovation based.

The Pulse Asia Research Inc. president, Dr. Ronald Holmes, presented the latest Stratbase commissioned survey on manufacturing, where nine in 10 Filipinos said the manufacturing sector opens up more opportunities for domestic businesses in other sectors to support manufacturing operations. Respondents believe the government should support the manufacturing sector to hasten the economic growth and development of the country. The same survey said Filipinos believe the government should train workers to upgrade or learn new skills.

This was echoed by Sergio Ortiz-Luis Jr., president of the Employers Confederation of the Philippines and of the Philippine Exporters Confederation, Inc. Ensuring the upskilling and retooling of workers on the supply side, he said, has long been part of our development agenda. Equally important for Ortiz-Luis is the stability of the business environment. “Business efficiency and productivity also rest on ensuring that the regulatory and policy environment is conducive. There has to be a stable and predictable business environment by enforcing the rule of law, protecting intellectual property rights, and providing a level playing field for domestic and foreign investors.”

“At the end of the day, we really want to dream big and be part of powerhouses as far as manufacturing is concerned,” said Michael Arcatomy Guarin, vice president for internal affairs of the Financial Executives Institute of the Philippines. A robust and very active manufacturing space here in the Philippines has to be in line with how the rest of the manufacturing supply chain is doing around the world, Guarin said. “It is not a five-year plan, it really extends beyond five years, and it has to entail continued efforts across administration(s) on a go-forward basis.”

Andrew Masigan, political and economic columnist, said many impediments prevent the Philippines from realizing its manufacturing potential at the present time. We have to improve our regulatory justice and governance regime. We need to work on infrastructure so we can bring down the costs of manufacturing. “The way to encourage investments in the manufacturing sector is through regulatory, judicial, and governance reforms,” he said.

We have made a strong argument for shifting to investment-led growth, and more specifically, channeling that strategy to the manufacturing sector. The more important order of the day for our country, and for all of society, is to work toward building the foundations for this shift. With well-focused and collaborative efforts, we must step up to this challenge and seize this opportunity.

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Dindo Manhit is founder and CEO of the Stratbase Group.