The Philippine New Industrial
Policy for More Competitive
Regional Economies
Rafaelita M. Aldaba
Industry Development Group
Diversion 21 Hotel, Iloilo City
26 November 2014
Outline of Presentation
Objective: structural economic transformation
through PH new industrial policy & its
usefulness & application to the regions
1. Why the Need for Structural Economic
Change?
2. PH New Industrial Policy
3. Transforming Region VI: manufacturing as
engine of growth
4. Framework Cluster-based Approach
5. Industrial Policy Recommendations:
Roadmaps for Building Competitive
Industry Clusters
Part 1. Structural Change & industry
upgrading inclusive growth
Value Added
average growth
Employment
average share
average share
80s
90s
20s
80s
90s
20s
80s
90s
20s
GDP
1.7
3.0
4.7
100
100
100
100
100
100
AGRI
1.1
1.8
3.0
23.9
20.8
18.9
49.6
43.2
36.1
IND
0.3
3.0
4.2
38.0
34.1
33.1
14.5
16.0
15.1
MFG
SER
0.9
2.5
4.1
26.3
24.3
23.7
9.9
10.0
9.1
3.3
3.6
5.8
40.4
42.4
48.0
35.9
40.9
48.8
 Services cannot provide all the needed jobs
 800K new entrants/year
 3M unemployed ; 7.3M underemployed
 Transform & upgrade manufacturing
 employ skilled, semi-skilled, unskilled
3
Industry Challenges:
Horizontal
Major Area Main Issues & Constraints
Infrastructure • High cost & unpredictability of power
& Logistics
• High cost of domestic shipping &
logistics
Governance • Smuggling, corruption,
& Regulation
bureaucracy/red tape
• Lack of streamlining/automation of
interrelated business procedures
/Lack of transparency
• Permits issued by LGUs, national
agencies (DENR’s ECC, BI visa, BFAD
regulations, BIR registration)
• 60-40% Foreign Equity Rule
• Weak competition & regulation
4
Industry Challenges: Vertical
(cont’d)
Area
Main Issues & Constraints
Supply/value • Absence of raw materials (upstream);
chain gaps
weak parts & components sector (midstream); downstream
SME
• Access to finance, technology
upgrade, inability to comply with
product standard regulations
HRD
• Lack of skilled workers, engineers,
trainings
Innovation
• Industry-academe linkages new
product development, R&D facilities
5
Growth Opportunities
GDP Growth
16.0
14.0
12.0
PH
10.0
TH
8.0
INO
6.0
VN
4.0
PRC
2.0
MAL
0.0
-2.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
-4.0
• PH growth rate: 6.8 (‘12), 7.2% (’13, 2nd to China 7.7%)
• H1 (’14): PRC 7.45%, MAL: 6.3%, PH 6%, INO 3.8%, TH -0.1%
• PH: ASIA’S NEW ECONOMIC TIGER
Manufacturing Resurgence
Manufacturing Growth
20.0
15.0
PH
in %
10.0
TH
5.0
INO
VN
0.0
PRC
-5.0
-10.0
Year
• Industry growth: 7.3% (‘12); 9.3% (’13, highest)
• Manufacturing resurgence: 5.4% (‘12); 10.3%
(‘13); 8.8% (H1’14)
WHAT MAKES PH DIFFERENT
Market Opportunities
• Growing market & middle class: demographic sweet spot
Labor
• Young, English speaking, highly trainable workforce
• Moderate wage increases
Operating Environment
• Strong macroeconomic fundamentals
• Political stability, business/consumer confidence
Policy Focus
• New Industrial Policy & a more pro-active Government
• PEZA rules & regulations, BOI Incentives & investor care
• BOI industry development programs to support
manufacturing resurgence
Improved competitiveness ranking (World Economic
Forum)
• Rank #52 in 2014-15 from rank #59
Part 2. Strategic Industrial Policy
 Motivations for New Industrial Policy
 Inclusive growth, creation of more & better jobs
 Globalization, regional integration, AEC 2015
 Improving competitiveness & productivity
 Growth oriented action to upgrade industries
 Remove obstacles to growthInvestments
 Deepen participation in regional production networks
 More pro active Government:
coordination/facilitation, creation of proper
environment for private sector development
 Government not proximate cause of growth, but private
sector, investment & entrepreneurship
 Create environment to strengthen industries, ensure
they are not disadvantaged by international
competitors
 Cluster-based industrial strategy to build strong &
competitive regional economies
 Promote clusters for inter-firm cooperation & agglomeration
of activities
Roadmap for Structural Transformation
Vision: globally competitive manufacturing
Phase I
2014-2017
-Rebuild capacity
existing industries,
strengthen
emerging
industries,
maintain
competitiveness of
comparative
advantage
industries
Phase II
2018-2021
-Shift to high value
added activities,
investments in
upstream
industries
-Link & integrate
industries
-SMEs & large
enterprises
Phase III
2022-2025
-Participate as
hubs in regional
& global
production
networks for
auto,
electronics,
machinery,
garments, food
10
Strategic Actions, Complementary
Measures
Coordination
mechanism
Vertical
measures
Horizontal
measures
• Investment
promotion
• Power, smuggling,
logistics &
infrastructure
• Competitive
exchange rate
30% value
added; 15%
employment
• Close supply chain gaps
• Expand domestic market
& exports
• HRD & skills
• SME development
• Technology upgrading,
innovation, green
growth
open trade regime, sustainable macro policies, sound tax policies &
administration, efficient bureaucracy, secure property rights,
institutions that promote adaptive research & patent regime, access to
11
finance & technology for SMEs
Comprehensive National Industry Strategy
GOAL: globally competitive industries with strong
domestic & global linkages
EXTERNAL FACTORS: globalization, regional/bilateral/multilateral trading
arrangements, global & regional production networks
AGRICULTURE
FISHING,
FORESTRY
MINING
MANUFACTURING
SERVICES
INTERNAL FACTORS: government policies &programs, institutions,
infrastructure, macro & political stability, rule of law, peace & order
• Cluster-based industrial strategy to build strong & competitive
regional economies
Part 3. Transforming Region VI
• “…how to transform a predominantly agriculture economy
into a competitive, efficient, & sustainable agri-business
economy” (p. 29 Region 6 RDP 2011-2016)
INDUSTRY STRUCTURE (% SHARE to GRDP)
2011
2012
2013
AGRICULTURE, HUNTING, FORESTRY, FISHING
27.3
25.3
23.5
INDUSTRY
Manufacturing
17.7
6.5
17.7
7.3
18.6
7.8
SERVICES
57
57
57.9
• Major Exports: muscovado sugar, coal, raw cane sugar & cane
molasses, crabmeat, steel scrap, marine products
• Other Major Products: coconut, sugarcane, mangoes
• Constraints: power outages, poor access to credit, high
registration fees & locally imposed taxes, complex
registration procedures, shipping costs
• Food Processing: lack of modern slaughterhouse, packaging
Potential Areas for Investment
Manufacturing as engine of growth?
Province
Priority Areas
Aklan
Agribusiness; Aquaculture
BPO, Tourism
Antique
Rice, muscovado sugar
Fishery; Tourism, Mining
Capiz
Food & seafood Processing; Abaca
Processing; Tourism
Guimaras
Mango & cashew production
Food & fruit Processing
Lime quarrying & processing; Tourism
Iloilo
Palay; Swine; Fishery
Agribusiness
Mining; BPO; Tourism
Competitiveness Indicator
Products
‘91-’95
Iron ore, concentrates
0.70
Copper ores,concentrates
14.41
Coal,not agglomerated
0.00
Copper
5.40
Fruit,nuts excl.oil nuts
7.12
Fruit,preserved,prepared
12.04
Sugars, molasses, honey
4.63
Sugar confectionery
1.50
Fish,fresh,chilled,frozn
1.53
Fish prepared, preserved
nes
8.28
Rice
0.23
Vegetable textile fibres
24.28
Lime,cement,constr.material
0.39
‘96-’00 ‘01-’05 ‘06-’10 2011
1.46
1.02
0.70 0.11
1.26
0.31
1.18 2.85
0.00
0.00
0.22 0.47
1.71
1.73
2.92 3.91
2.56
2.75
2.86 5.67
4.19
4.07
4.55 7.22
1.37
0.86
0.93 3.57
0.77
0.86
1.45 2.46
0.82
0.62
0.91 1.29
2.36
0.00
9.24
0.25
1.93
0.00
3.68
0.61
3.41
0.02
6.60
0.55
• Competitive Products: Revealed Comparative Advantage >1
4.83
0.04
7.56
0.54
Part 4. Competition, Innovation, & Productivity Nexus
International factors: globalization, regional/bilateral/multilateral
trading arrangements, global & regional production networks
AGRIC’RE
FISHING
FORESTRY
MINING
• Industrial
Policies
• Demand &
Production
• Managerial,
technical,
financial
• Human
resources
• Market
orientation
• Raw material
sources
• Customers
• Foreign equity
Competition
Innovation
Productivity
Growth
&
Employment
SERVICES
CONSTRUC
TION
MANUFACTURING
Domestic factors: rule of law, government policies & institutions,
infrastructures, macro stability, peace & order, political climate
What makes a cluster competitive?
Porter’s Framework for Competitive Advantage
• Firms in a cluster
are mutually
competitive and
cooperative
Factor
(Input)
Conditions
Natural, human
•- Natural,
humanand
and
capital
resources
capital resources
Physical, administrative,
•- Physical,
information, scientific
administrative,
and technological
information,
scientific
infrastructure
and
technological
infrastructure
Adapted from: Porter, M. E. (2000).
Context for
Firm Strategy
& Rivalry
• Drives FIRM
PRODUCTIVITY,
COMPETITION &
INNOVATION
1. Investment &
constant
upgrading
2.Competition
among local
firms
Demand
Conditions
•
Related &
Supporting
Industries
•
•
Local customers wl
high product & quality
specifications
Production meets
needs of existing &
new customers
Production in
specialized segments
that can be exported
Agribusiness Clustering & Competitiveness
Crop processing
equipment
Seeds Nurseries
Fertilizer, insecticides,
herbicides
State Government &
Donor Agencies
Transportation
Farm Equipment
Packaging Services
Storage Facilities
Public Relations
Advertising
Irrigation Technology
Growers
Clusters of Other
Agricultural Products
Clusters of
Buyer/Consumer
Industries
Processor
s
Specialized
Publication
Financial Services
Educational, Research &
Trade Operations
Source: World Bank Group. (2009)
• producers, agribusinesses, & institutions in same agricultural or agroindustrial sector, interconnect & build value networks, when addressing
common challenges & pursuing common opportunities (FAO)
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
Part 5. Regional Industry Roadmaps For
Structural Transformation
 Cluster-based industrial strategy to build strong &
competitive regional economies
 Collective action foundation of cluster competitiveness
• For the private sector
1. Ownership of regional industry cluster roadmaps
o Government is enabler/facilitator, proximate
source of growth is private sector, investment, &
entrepreneurship
2. Leadership in developing industry cluster
o Sustainability in implementing programs
o Active participation of business groups in
Regional Industry Cluster Meetings
3. Collaboration with academe
Policy Recommendations
• For government: pro-active facilitator & coordinator
1. Remove binding constraints to competitiveness
o Physical infrastructure
o Administrative infrastructure
o S&T infrastructure (link with academe, innovation,
R&D, shared services facilities, post harvest
processing facilities, pests & diseases)
o Addressing supply/value chain gaps
o HRD & skills trainings
2. Get mix of incentives right for farmers &
processors
3. Provide support for SMEs’ inclusion in clusters
4. Cluster upgrading & moving up the value chain
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.
We cannot leapfrog industrialization, we need to
upgrade
&
transform
our
industries.
THANK YOU!