Sunday, March 15, 2015

We think we do . . .

We say we do care but then again, does it have to do with the ambivalence in our traits and values? “Four Arangkada Forums have already been held. It will definitely be a shame if we enter the fifth Arangkada forum and a large number of these recommendations, which have garnered the consensus of almost all the major business groups in the country, remain unimplemented.” [Boo Chanco, DEMAND AND SUPPLY, The Philippine Star, 11th Mar 2015]

“In Energy, maybe they can deliver after a long wait, the proper policies and procedures to guide our so-called market-based rate setting for electricity . . . Reforming the power industry will be a gigantic achievement if they can do it. The biggest oligarchs are in the business and their influence on government policy cannot be underestimated.” [Juan de la Cruz is in good company; and can he overcome the influence of oligarchy? “What the synod confirmed is that there is now an open conflict within the Vatican over very serious questions,” said Marco Politi, a Vatican expert who has recently published an essay entitled “Francis among the wolves.” [Two years and counting: Pope’s opponents play waiting game, Business World, 12th Mar 2015]

“There are many other things that could be done as outlined in Arangkada, the reform agenda the foreign chambers presented to P-Noy in 2010. I decided to skip this year’s Arangkada reiteration of their suggestions because it is a waste of time to hear them speaking to a choir of businessmen with similar frustrations. Nothing really moved from their original list.”

“Makati Business Club chairman Ramon “Boy Blue” del Rosario Jr spoke during that Arangkada conference last week and he tried very hard to hide the frustration of the business sector.”

And President Aquino was a no-show? Should we wonder why we Pinoys seem unable to turn a plan or a roadmap into reality? Is it the path of least resistance? In the private sector there is an execution bias because of the profit motive. One would not want to lose their shirt.

“Yesterday, I watched a video in the ABS-CBN website of ADB Vice President Stephen Groff being interviewed by ANC’s Coco Alcuaz. Stephen Groff stressed the strategic importance of manufacturing in the Philippines, and specifically the need for industry policy and planning.” [Bobby Batungbakal, Philippine Manufacturing Revisited, 13th Apr 2012]

“This reminds me of Dr. Norio Usui, ADB’s Senior Economist who started talking about the need for structural transformation for inclusive growth in our country . . . According to Dr. Usui, our slow economic development vis-a-vis our neighbors can be traced to lack of structural transformation, which is to say that we failed to shift labor to higher productivity sectors of the economy. And the sectors with the highest productivity are industry and manufacturing….much higher than services and agriculture.”

“The good news is both government and private sector are listening. Last year, the DTI re-organized to form the Industry Development and Trade Policy Group under Usec. Adrian Cristobal. After the1st Philippine Manufacturers and Producers Summit by the FPI, industry associations started working with the BOI to create industry roadmaps as reported in our previous posts.”

Sound good . . . but what is reality? “The steel sector is pushing for the amendment of the Iron and Steel Act (RA 7103) stressing the steel sector is one of the country’s basic strategic industries that can promote real inclusive growth even as the industry laments over government’s penchant to craft an incentive scheme for non-inclusive automotive sector.” [Steel sector laments non-inclusive industry development priorities, Manila Bulletin, 2nd Mar 2015]

“[T]he country’s strong demand for steel cannot survive by rehabilitating the mothballed NSC . . . What we’ve left to the private sector in 1995 was a state of the art steel plant, but it is not anymore to today’s standards. The steel sector has already its roadmap, but it is not enough. A roadmap is a continuing tool of where we are, where we want to be and how to get there. The steel industry roadmap showed that the Philippines is the lone country among five ASEAN countries — Malaysia, Indonesia, Vietnam, Thailand — with no domestic steel industry to speak of.”

Crafting an industrialization or development program presupposes visionary leadership and strategic thinking. Yet it must be simple in order to engender execution; and it must have an overarching goal to facilitate priority setting and focus. And once it is reduced into a plan or roadmap, execution is a must, meaning it must be made real.
For example, can we trace our inability to move forward with Arangkada to our falling into an “activity trap” (e.g., 30 or so roadmaps, among others?) and can’t articulate where the priorities lie? Why? Because we’ve not kept an eye on a predetermined outcome – i.e., “begin with the end in mind,” meaning the bias must be on the outcome not the activity.

Let’s take the car program: saving $17 billion on imports without figuring out the impact on the revenue side (i.e., predetermined outcome) may disappoint, especially when we're looking at a niche auto model. Niche means small scale and the multiplier effect is limited. Niche works in “self-actualizing” (i.e., it responds to rational, emotional, experiential needs) innovations – like an iPhone 6S – for which consumers will pay a hefty premium.

And if it is a simple auto model – with a low competitive barrier – Thailand can develop a competing entry. And given economies of scale – or the size of their auto industry – and well-developed ecosystem (including roads and ports, etc.), they will easily upend us. We need clarity of strategic intent, like: (a) a sharper overarching goal and definition for the manufacturing industry that will be the core of an industrialization program; (b) that will yield a far greater multiplier effect – via intermediate and support industries – and a marked incremental economic output or GDP; and (c) be sustainable because we have competitive advantage.

In sum, we need more than an opportunistic approach. Recall the OFW phenomenon. It was opportunistic and became the key driver of the economy yet it failed to lift us up – i.e., we’re the regional laggard because we're the least developed. “Opportunistic” is a.k.a. Pinoy abilidad? Yet we must recognize that this is the 21st century, the age of Big Data and analytics. The caveat? Those ahead of the curve employ “creativity” (i.e., connecting the dots) to temper pure quantitative analysis – e.g., Steve Jobs ignored a dig from Bill Gates that he wasn't truly a techy.

In the meantime, given the incentive we are dangling, car manufacturers despite the low anticipated volume (of 120,000 units versus Thailand and Indonesia’s million-unit range) are professing keenness. And that is why they want to understand the mechanics and details of our incentive. Will the incentive we offer in fact subsidize and cover their potential margin shortfalls? And for us, the question is: what level of incremental GDP will we gain?
Clearly an auto program must demonstrate that it can be a driver of our manufacturing industry because it will spawn intermediate and support industries, which is the challenge being raised by the steel sector. And what we as a people must demonstrate is that what we have long invoked as our strength or quality of resiliency is not in fact a manifestation of complacency – i.e., we are unable to act and overcome our underdevelopment.

In the private sector, leadership is key to success. And in nation-building it is as well as the Asian Tigers have demonstrated. Should leadership then be at the top of the national agenda instead of poverty, for example, being our biggest challenge? In business education they talk about design thinking which is founded on human empathy – i.e., solve people’s problems.

In other words, we can’t overcome poverty if we don’t solve the problem that is underlying poverty. And alms-giving does not equate to problem-solving especially in a feudalistic society where it perpetuates a hierarchal system and structure . . . and its consequent subservience.

Where do we sorely need leadership? Think Arangkada or reforming the power industry or the importance of manufacturing or the Industry Development and Trade Policy or the steel sector. Have we stepped up to the plate to address and solve our problems? And if we haven’t, should we expect underdevelopment and poverty to persist? No one promised us a rose garden . . . Do we even care?

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