Tuesday, May 21, 2013

For the nth time . . . from the ADB

The Asian Development Bank (ADB) . . . said that revival of the Philippine industrial/manufacturing sector may be critical, since its development has lagged most other larger countries in Southeast Asia. [Manila Times, 10th Apr 2013] In the Asian Development Outlook (ADO) 2013, the ADB explained that the share of manufacturing in the country’s gross domestic product declined to 22 percent in 2012 from 26 percent in 1990 . . . [M]anufacturing in the Philippines provides only 8.3 percent of total employment, “a much smaller contribution than in comparable countries . . . A stronger industrial base, particularly in manufacturing, could generate a wide range of jobs, it said.”

[T]his will require a stronger push by policy makers to improve infrastructure and the business environment, to encourage manufacturers to locate in the country . . . [S]purring industrial development requires broad-based reform to address the long-standing challenges of under-provision of infrastructure, an unfriendly investment and business environment, and poor governance . . . The ADO . . . cited the recent governance reforms and gradual improvements in infrastructure in the Philippines that enhanced the investment environment. However, it stressed that while such reforms are crucial, these may not be enough to attract substantial new manufacturing investment in the near term, adding that targeted interventions aimed at manufacturers may be also be required . . . [T]he challenge is to identify constraints on the development of particular industries, and formulate policies to deploy against them . . . That requires considerable consultation with the industries concerned.”

And there is another challenge: "Labor cost is just one variable," Arthur Tan told reporters Friday after IMI's [a semiconductor manufacturer] annual stockholders meeting. He said that even if the labor costs in China continue to increase at a double-digit pace--as it had in the last couple of years--manufacturing costs there will still be lower compared to the Philippines because of the lower price of electricity and the well-developed supply chain in China.” [Dow Jones Newswires, 12th Apr 2013] [H]e expressed doubt that the Philippines electronics industry will post exports growth of 6% this year, as targeted by industry group Semiconductors and Electronics Industries in the Philippines Inc., or SEIPI. Shipments in 2012 had contracted 5.2% to $22.56 billion in 2012 . . . I think it's going to be a challenge," said Mr. Arthur Tan, who once served as SEIPI's president. Aside from the weakness in the global environment, he said local manufacturers will also have to wrestle with the high electricity costs.”

Manufacturing, in order to be globally competitive, must be founded on producing competitive products. And IMI in fact reflects that fundamental problem we have in PHL; and that is, our business model in many cases is designed around being third-party providers – like in garments and even in the BPO industry. We are not about developing products that would appeal to the end consumer. And that points to our inherent weakness when measured against the imperatives of global competitiveness: investment, technology and innovation as well as the development of talent, products and markets. Unfortunately, our success model and also our albatross is oligopoly – and by definition is not geared for an open economy and open competition – and as some legislators have revealed, worked against opening up certain industries that could have brought in, beyond foreign investment, technology that we sorely need. And not surprisingly, PHL FDIs have remained minuscule. [I have in prior blogs talked about URC, Jollibee and Splash; unfortunately, while they’ve gone global and aren’t inward-looking, they are the exceptions. We need more of them.]

And so while OFW remittances (“the equivalent to 8.5% of GDP, helping the country to plug its trade deficit and amass over $80 billion of currency reserves,” Manila Times, PH relies more on remittance, 9th Apr 2013) may have impressed Fitch, our inherent weakness remains; and that is, our economy isn’t designed and geared to pursue global competitiveness . . . and accelerate economic growth, which is why we have widespread poverty. 

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