Economic resilience through a reinvigorated manufacturing sector

Dindo Manhit, President, Stratbase ADR Institute

The pandemic tested us in so many ways. It revealed gaps in our health system, exposed the tendencies of our leaders, and set back our economy. Now that we are about to end 2022 — our third year with COVID-19 in our midst — and as we make our way to the new normal, it is only prudent that we move forward armed with the lessons of the past and with a heightened perspective of what will and what will not work to our country’s ultimate benefit.

Even as the public health crisis now eases and people are no longer hampered by mobility restrictions, it would be a stretch to say that the worst is over. Other external factors continue to threaten our recovery and development — for example, Russia’s invasion of Ukraine has driven up the prices of fuel and other commodities. We remain hostage to developments in the outside world. As a result, despite best efforts to resume economic activity, the Philippines’ growth prospects remain limited. Millions of Filipinos remain poor and hungry, and unable to improve their quality of life.

We have to do things differently to achieve a different outcome.

As always, we begin from what the numbers tell us. A small consolation is that the Philippines’ total trade in September this year grew by 11.3% year on year, according to data from the Philippine Statistics Authority (PSA).

But there is one thing glaring despite the growth: the trade gap continues to widen. Imports remain dominant, accounting for 62.6% of total trade, and far exceeding exports. It is clear that we have to narrow this trade gap by reducing our reliance on imports.

Reinvigorating manufacturing, specifically by encouraging investments, will do much to narrow the import-export deficit. Manufacturing will allow us to cater to our growing domestic base and produce what we need, right here within our shores, without resorting to importing them.

Aside from narrowing the trade gap, enabling the growth of manufacturing and allowing it to expand to its full potential will also set in motion a domino effect for our domestic economy. We will be able to boost productivity and increase output while generating more jobs, providing people with income security, alleviating poverty, and revitalizing consumer spending. These would, in turn, keep the economy running strong — and resilient in the face of whatever external shocks there may be in the future.

There is definitely room for growth in manufacturing. The PSA says total investment pledges of foreign and Filipino nationals in the manufacturing sector, approved by investment promotion agencies (IPAs) in the third quarter of 2022 amounted to P10.78 billion — a measly 6.8% of total pledges.

The amount represents a staggering 73.6% contraction year on year and is also significantly lower than the P17.7 billion registered the previous quarter.

All these must serve as cue to the government to step up its efforts to pursue growth through investments in general, and the manufacturing sector in particular.

Crucial to all this is the creation of a policy environment that is conducive for businesses to thrive.

Thus far, the Philippine government has taken significant steps to open the economy to more trade and investments. Amendments to the Public Service Act, the Foreign Investments Act, and the Retail Trade Liberalization Act all complement the Corporate Recovery and Tax Incentives for Enterprises (CREATE) Act which was signed into law in March 2021. These pieces of legislation enjoy the support of the business community, who acknowledge that recovering from the pandemic entails structural economic reforms.

But when we talk about investments, I do not just mean foreign ones. Domestic investments are equally important and there is great untapped potential among Filipino investors who may want to pursue businesses here, focusing on the needs and wants of the domestic consumer.

A meeting with industry leaders and executives of consumer goods producers revealed that the lack of helpful policies that will support and supplement the growth of their businesses is a major factor why Philippine-based producers do not have the appetite to invest more in the country.

They say, for instance, that they wish the government would provide greater support in the form of incentives, and address issues such as the high cost of electricity and ease of doing business. The latter continues to be a problem given the various bureaucratic and regulatory concerns in both LGUs and the National Government.

They also lack stable access to raw materials such as wheat, sugar, salt, corn, and coffee, and the Department of Agriculture and the Department of Trade and Industry still focus on safeguards based on outdated data instead of re-evaluating the supply and demand for raw materials based on recent data.

The potential investors also cite challenges in trade facilitation from the Bureau of Customs and the Philippine Ports Authority.

Further, micro, small, and medium enterprises lack access to capital when they could fill the gap in producing raw materials and other essential components in certain sectors.

Finally, the government must also help develop and upgrade the skills of workers — this will do much in ensuring greater productivity and higher quality output.

Indeed, there remain many things to do in recovering from the economic crisis and ensuring sustainable and inclusive growth. But the feat is not impossible, especially since we have a fairly good idea of what needs to be done in order to improve the current situation. We only need to muster the will to begin taking the right steps, and to keep on doing them. In the end, a resilient economy will redound to the welfare of our people — and will hopefully make us less vulnerable to external events which may be out of our control.

This article was originally published in BusinessWorld.

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