The Future of Philippine Industries

The Philippine New

Industrial Policy for

More Competitive

Regional Economies

Rafaelita M. Aldaba

Industry Development

Group

Baguio Country Club

27 May 2015

The Future of Philippine Industries

Outline of Presentation

Objective: PH new industrial policy

1. Why the Need for A New Industrial

Policy

2. PH Manufacturing Industry Roadmap

3. A Roadmap to Build A More

Competitive CAR Economy

Transforming CAR: manufacturing as

engine of growth

Part 1. Motivations: Why

promote industrial policy?

Inclusive growth, creation of more & better jobs Jobless growth: unemployment 7.5% (’06-’10);

underemployment 18-20% (late 2000s) Stagnant manufacturing & failure to create jobs,

services cannot provide all the needed jobs Persistently high inequality: poverty incidence has

declined but inequality hardly changed even worsened in 1997 and 2000

Globalization, rising regional economic integration, global value chains (GVCs) AEC 2015

Competitiveness is crucial: innovation ability; R&D into innovative technologies; green manufacturing

Growth Performance

PH growth rate: 6.8 (‘12), 7.2% (’13, 2nd to China 7.7%), 6.1%

(‘14)

Impressive growth performance of the Philippines: Asia’s

new economic tiger

2015 Forecasts- Government: 7-8%, IMF: 6.7%, ADB: 6.4%,

OECD: 6.2% (to lead growth in ASEAN), JPMorgan: 6.4%,

Fitch Ratings: 6.3%

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

GDP Growth

PH TH INO VN PRC MAL

Manufacturing Resurgence

Industry growth: 7.3% (‘12); 9.3% (’13, highest)

Manufacturing resurgence: 5.4% (‘12); 10.3% (‘13); 8.1%

(‘14)

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

in %

Year

Industry Growth

PH

TH

INO

VN

PRC

Growth ChallengesArea Major Constraints

Regulation • Complex/costly business procedures

• Policy consistency, transparency, predictability

• 60-40% foreign equity rule, competition law

Infrastructure • High cost of power, domestic shipping

• Lack of ports, airports, road infrastructure

SME • Access to finance, technology, support for start-

ups, product standards, network links

HRD • Lack of skilled workers, limited standards &

certifications, quality of teachers

Innovation • Industry-academe linkages, R&D facilities

Supply/value

chain

• Weak linkages among manufacturing,

agriculture, & services

Manufacturing • Required Components: Materials, Skills, Energy,

Capital, Digital technology

Part 2: Strategic Industrial Policy

Goal: improving competitiveness & productivity

Growth oriented action to upgrade industries, move up

the value chain, low productivity to high productivity

Remove obstacles to growth Investments

Deepen participation in regional production networks

Role of Government: Coordination/facilitation

Proximate cause of growth: private sector, investment

& entrepreneurship

Government: create proper environment for private

sector development

GVC-focused industrial policy

Define position in the GVC, how do we plug into

global/regional production networks

Cluster-based industrial strategy to build strong &

competitive regional economies

Manufacturing Roadmap

-Strengthen existing capacity, strengthen emerging industries maintain competitiveness of comparative advantage industries

-move to high

tech activities;

-Participate as

manufacturing

hubs in regional

& global

production

networks for

auto,

electronics,

machinery,

garments, food

-Shift to high

value added

activities,

investments in

upstream

industries, move

up value chain

Link & integrate

industries, SMEs

& large firms,

Innovation

ecosystem; R&D

Phase I

2014-2017

Phase II

2018-2021

Phase III

2022-2025

Vision: globally competitive industries with strong

forward & backward linkages

To Make Manufacturing An Engine Of Growth

30% value added

Horizontal measures

Coordination mechanism

Vertical measures

• Close supply chain

gaps

• Expand domestic

market & exports

• HRD & skills trainings

• SME development

• Innovation

• Green growth

• Promotion

• Power, smuggling,

logistics,

infrastructure

• Improve regulation,

reduce cost of

doing business

• Competitive

exchange rate

open trade regime, sustainable macro policies, sound tax policies &administration, efficient bureaucracy, secure property rights, institutions

Strategic Actions

Sector Action

Copper Institutional mechanism to fully integrate the industry

Furniture Supply hubs for raw & natural materials

Tool & die Access to raw materials, equipment, & software

Paper Fiber raw material base, develop massive tree

plantations, commercial agro forestry with virgin wood

pulp production

Iron &

steel

Full integration of industry upstream-mining, reliable

supply of iron ore & coal

① Close Supply/Value Chain Gaps

Complex product, 30,000+ parts & components, different

production processes: large multiplier effect

Auto investments: foundation for broad-based industrial growth

CARS Program: jumpstart industry development to enable PH to

deepen its integration into global production networks

Basic Industries

Parts & Components Manufacturing

Vehicle Manufacturing

Auto Supporting Industries

3rd Tier Supplier

(Raw

Materials)

2nd & 1st Tier Supplier(Intermediate & semi-

finished)

Mining

Iron & Steel

Petrochemicals

Textile

Machinery & Equipment, Dies & Moulds, Metal Stamping, Die Casting,

Machining

Rubber

Chemicals

② Expand domestic market export platform

Type Sectors

Design, tool making, prototyping,

molding, die casting

Auto parts, Tool & Die

Chemical engineering, Materials

Engineering

Chemical, Rubber,

Plastics

Supervisory, managerial, productivity Furniture

Foundry technology, Metallurgical,

Mechanical, Industrial, Metal casting

Engineering

Metal casting

Die design, Tool & Die Engineering Tool & Die

Vocational trainings (TESDA) Iron & steel, Furniture

③ HRD & Skills Trainings

Cooperation with TESDA, CHED

Investment in skills & education

④Other Strategic Actions

STRATEGIC ACTIONS

• SME Development: Finance access, compliance

with product standards, Clusters, Incubation, Shared

Services Facilities (Quality testing facilities, Fablabs)

• Innovation: Industry-academe linkages, R&D,

adoption of green processes, green products,

technology extension services esp. to SMEs; metrology,

standards testing, quality control; incubation; information

& communication

• Marketing & promotion: attract investments

• Horizontal issues: high cost of power &

domestic shipping, smuggling & streamline &

automate government procedures

The Future of Philippine Industries

Comprehensive National Industry

Strategy (CNIS) FRAMEWORK

THREE IMPORTANT CHANNELS AFFECTING INDUSTRY GROWTH: COMPETITION, INNOVATION, PRODUCTIVITY

MANUFACTURING SERVICES

AGRICULTURE

FISHING,

FORESTRY

MINING

INTERNAL FACTORS: GOVERNMENT POLICIES &PROGRAMS,

INSTITUTIONS, INFRASTRUCTURE, MACRO STABILITY, RULE OF LAW,

PEACE & ORDER, POLITICAL CLIMATE

EXTERNAL FACTORS: GLOBALIZATION,

REGIONAL/BILATERAL/MULTILATERAL TRADING ARRANGEMENTS,

GLOBAL & REGIONAL PRODUCTION NETWORKS

Implementation Mechanism

Industry Development Council mechanism for discussion of industry strategies,

policies & programs coordination, monitoring of roadmap implementation

Technical Working Groups champions from BOI & industry, relevant

government agencies

Manufacturing Resurgence Program: enhance manufacturing competitiveness; budget P182.6B Lead Implementing Agency: DTI

Participating Agencies: DOST, DOLE, DOLE-TESDA, CHED, DOE, DA, NPC, NEA, PCA

Industry Development

Council (IDC) IDC Secretariat

IDC Technical Committee

DTI - Chairman• DTI, NEDA, DA, DOF, OP; Private sectors representatives

IDC Executive Committee

DTI – Chairman• 11 representatives from government

• 7 representatives from private sector

• 1 representative of academe

• 1 representative of research institute/think tank

• 1 representative of labor

• 1 CSO representative

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troc

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Eminent Persons

Group (EPG)

5 industry

leaders

Philippine Industry Development Council

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Part 3: Transforming CAR Economy CAR: electronics, coffee, mining, healthcare & wellness,

IT & ITES, tourism

Competitive Products: Revealed Comparative

Advantage >1

Products ‘91-’95 ‘96-’00 ‘01-’05 ‘06-’10 2011

FRUIT, VEGETABLE JUICES 4.00 1.38 1.68 1.75 3.00

FRUIT,NUTS EXCL.OIL NUTS 7.12 2.56 2.75 2.86 5.67

FRUIT,PRESERVED,PREPARED 12.04 4.19 4.07 4.55 7.22

FISH PREP’D, PRESERVED NES 8.28 2.36 1.93 3.41 4.83

VEGETABLE TEXTILE FIBRES 24.28 9.24 3.68 6.60 7.56

COFFEE,COFFEE SUBSTITUTE 0.30 0.04 0.08 0.04 0.02

VENEERS, PLYWOOD, ETC 1.10 0.15 0.12 0.16 0.31

WOOD MANUFACTURES, NES 6.62 2.15 1.45 9.51 27.08

Limited access to quality seedlings, high cost of inputs, inadequate

transportation from farm to warehouse, inadequate post-harvest,

high cost of organic certification

Steps in Roadmap formulation

STEP 1: What are the existing & future growth potentials of

the industry in both domestic and export markets?

• Identify dynamically growing tradable industries; not picking

winners, self-discovery by firms

STEP 2: See if private sector is already in these industries;

are there existing or nascent activities? if none, seek FDI

STEP 3:What are the obstacles preventing firms from

upgrading quality of their products? new firms from

coming in?

STEP 4:Take action to remove constraints

• Horizontal: protection of property rights, business &

investment environment, industrial clusters, eco zones

• Vertical: tax incentives for a limited time, direct credits,

access to raw materials & capital equipment

• Coordination mechanisms: RDCs

CAR Industry Roadmaps For Structural

Transformation

Industrial policy to upgrade industry

Private sector: ownership of the roadmaps, leadership

Government: facilitator & coordinator

Remove binding constraints to competitiveness

o Physical infrastructure

o Administrative infrastructure: trade facilitation, FTAs

o S&T infrastructure

o Supply/value chain gaps: collective action

o HRD & skills trainings

Get mix of incentives right (farmers/processors)

Support for SMEs’ inclusion in clusters

Cluster upgrading & moving up the value chain

Implementation Plan, close coordination

The Future of Philippine Industries

We cannot leapfrog industrialization, we need to

upgrade & transform our industries.

With or without AEC, we need to pursue a new industrial

policy to make our industries competitive and create an

environment conducive to private sector development.

This could lead to more investments, & more & better

jobs, sustainable & inclusive growth.

THANK YOU!