Dindo Manhit, President, Stratbase-ADRi
During last Sunday’s presidential debate in Cagayan de Oro City, the Filipino nation glimpsed the presidential candidates’ respective economic programs. The candidates tackled poverty and development during the second round of the debate, raising different policy options—such as post-harvest support for farmers and easier access to capital for fishermen—focused primarily on agriculture. The discussion, although limited was timely: one in every four Filipinos were mired in poverty in 20141, with one in five Filipinos reportedly seeking for more work in 20152.
Dr. Epictetus Patalinghug, ADRi Trustee, helps us put weight to the candidates’ words. In his Policy Paper “Foreign Direct Investment, Exports, and Philippines Economic Growth” found in ADRi’s “Thinking Beyond Politics”, Dr. Patalinghug refers to the Philippine Development Plan for 2011-2016 goal of which was to outline such a strategy. The PDP’s goal was to reorient the economy towards investments, trade, and exports, by recommending specific interventions to improve the business climate, increase productivity, improve infrastructure, and increase innovative capacity.3
Despite the numerous details pitched during last Sunday’s presidential debate, we failed to hear an overarching anti-poverty vision for the country that articulates the candidates’ chief priorities and primary strategy for success. Specifically, how do they see agricultural and industrial policies—as enshrined in the current PDP—working hand in hand? Without a coherent anti-poverty and pro-employment strategy, campaigns can get lost in the details and campaign promises will tend to stay as empty promises.
To take one side of the coin, Dr. Patalinghug argues that the Philippine government should work to revitalize the manufacturing industry in the country. By promoting high-value production and networking domestic suppliers, the Philippines can simultaneously take better advantage of its labor force and multiply the returns of its trade participation.
Lethargy in manufacturing and its share in employment
The comprehensive data from the National Economic and Development Authority (NEDA) dated April 2015 reflects the recent performance of the country’s manufacturing sector: Volume of Production (VoPI) slightly grew by 1.4 percent, lower than 10.8 percent growth in April 2014; Value of Production (VaPI) dropped to -4.2 percent, lower than 10.9 percent a year ago; Volume of Net Sales (VoNSI) also dropped to -3.6 percent, lower than 2.1 percent growth a year ago; and lastly, Value of Net Sales (VaNSI) fell by -8.9 percent, lower than 2.1 percent a year ago.4
The data is the latest of the extensive track record of relative lethargy of the Philippine manufacturing sector that dates back in the 1980s, when the Philippines began opening up the manufacturing industry through the removal of tariff and non-tariff barriers.5 Despite the implementation of market-oriented reforms, average growth rate of the manufacturing sector was registered only at: 5.9 percent in 1971-80; 0.9 percent in 1981-1990; 2.5 percent in 1991-2000; 4.1 percent in 2001-2010; 4.7 percent in 2011; and 5.4 percent in 2012.6 (Please refer to table below.)
Along with the decades-long lethargy of the manufacturing sector is the relative decline of manufacturing share in employment. In 1980, the share of manufacturing is 11.0 percent; by 1985, it dropped to 9.7 percent; in 1990 and 1995, it slightly rose to 10.1 and 10.2 percent respectively; then it underwent steady decline from 2000 (10.0 percent) to 2005 (9.5 percent) and 2010 (8.4 percent)—the lowest manufacturing share among the ASEAN 6.7 (Please refer to table below.)
Shedding the dead weight of import-substitution industrialization
A worker applying glue to shoes at a factory in Marikina City. (Source: The Times, http://www.thetimes.co.uk/tto/business/economics/article3879147.ece)
What explains the persistent dismal track record of the Philippine manufacturing sector? Dr. Patalinghug sheds further light on this matter. In the same Policy Paper, he articulates that one of the country’s major stumbling blocks to attaining robust and sustainable growth is inefficient industrial structure. This inefficient structure is usually marked by: a.) limited employment absorption of the industrial sector; b.) decline in productivity; c.) absence of structural change; d.) high concentration of manufacturing; and e.) biased incentive structure in favor of large and capital-intensive firms.8
Dr. Patalinghug cites the conclusion of some studies that the adoption of import-substitution development strategy instead of an export-promotion strategy has led to such inefficiency.9 As Prof. Walden Bello describes it, protection rewarded only a narrow segment of consumer goods manufacturers, but discriminated against exporters and producers of capital and intermediate products.10 Towards the end, the import-substitution development strategy was unsuccessful in providing an efficient mechanism for allocation of domestic resources in the economy.11
Shifting to a smart export-promotion strategy
Car assembly in Toyota’s manufacturing plant and head office, Toyota Santa Rosa, Laguna. (Source: The Philippine Pride, http://www.thephilippinepride.com/more-cars-more-jobs-toyota-mitsubishi-to-expand-production-capacity-in-ph/)
Echoing Assistant Secretary Rafaelita M. Aldaba of the Department of Trade and Industry, Dr. Patalinghug stresses that the secular lack of structural transformation demands a redirection of the country’s long-term manufacturing strategy towards the following: a.) rebuilding capacity of existing industries; b.) strengthening emerging industries; c.) maintaining competitiveness of comparative-advantage industries; d.) moving into high-value sectors; and e.) deepening participation in regional production networks in automotive, electronics, machinery, garments, and food industries.12
To achieve these objectives, he cites four (4) policy recommendations, drawing from the seminal works of Dr. Myrna S. Austria and Dr. Ponciano S. Intal, Jr.:13
- First, the Philippines must move away from the assembly and testing segment of the production chain and shift to specialization in high-value production through industrial upgrading and technological learning.
- Second, the government should invest in developing local supplier industries in order for multinational corporations (MNCs) to increase the local content of goods that they produce in the country.
- Third, the country must invest in good infrastructure and logistics that can lower production costs and enable a more efficient management of the supply chain.
- Fourth, the government must ensure political stability to improve the investment climate.
1 Philippine Statistics Authority, Poverty incidence among Filipinos registered at 25.8%, as of first semester of 2014—PSA, Philippine Government.
2 Kathryn Mae Tubadeza, “2015 joblessness lowest in 11 years”, Business World, 08 February 2016, accessed 22 February 2016, http://www.bworldonline.com/content.php?section=TopStory&title=2015-joblessness-lowest-in-11-years&id=122793.
3 Epictetus E. Patalinghug, PhD, “Foreign Direct Investment, Exports, and Philippine Economic Growth,” Thinking Beyond Politics: A Strategic Agenda for the Next President (Quezon City: Rex Publishing, 2015), p. 50. 4 Official Gazette, Manufacturing sector outlooks remains upbeat in 2015, 10 June 2015, Philippine Government.
5 Rafaelita M. Aldaba, “The Philippine Manufacturing Industry Roadmap: Agenda for New Industrial Policy, High Productivity Jobs, and Inclusive Growth”, The PIDS Discussion Paper Series No. 2014-32, June 2014, p. 10.
7 Epictetus E. Patalinghug, PhD, “Foreign Direct Investment, Exports, and Philippine Economic Growth,” Thinking Beyond Politics: A Strategic Agenda for the Next President (Quezon City: Rex Publishing, 2015), p. 53. 8 Ibid, p. 51.
10 Walden Bello et al., “Industrial Decay: The Hollowing-Out of Manufacturing and Employment”, State of Fragmentation: The Philippines in Transition (Quezon City: Focus on the Global South, 2014), p. 69.
11 Rafaelita M. Aldaba, “A new industrial policy for the Philippines”, Business World Online, 06 January 2013, accessed 12 February 2016, http://www.bworldonline.com/content.php?section=9&title=A-new-industrial-policy-for-the-Philippines—-1&id=63811.
12 Epictetus E. Patalinghug, PhD, “Foreign Direct Investment, Exports, and Philippine Economic Growth,” Thinking Beyond Politics: A Strategic Agenda for the Next President, p. 54.
13 Ibid, p. 55.