The Philippine Economy: Short-term and Structural

Report
Accelerating Inclusive Growth and
Competitiveness through the AEC:
Focus on the Manufacturing
Sector
Josef T. Yap
15 November 2013
Background
Lack of Economic Transformation
Share of Manufacturing in GDP (%)
1980
1990
China
43.9
36.5
Indonesia
13.5
23.0
Malaysia
21.6
22.7
Philippines
27.7
26.8
Thailand
21.5
24.9
Viet Nam
16.1
12.3
2000
40.4
27.7
29.9
24.5
33.6
18.6
2006
32.9
27.5
28.8
23.6
35.0
21.2
2011
32.2
24.3
24.6
21.1
29.9
19.4
Source: UN Statistics Division [http://unstats.un.org/unsd/dnlList.asp; accessed, 6 October 2013]
Comparing Per Capita GDP
Table 1: Per Capita GDP (in constant 2005 USD)
1960 1980 1984 2012
Hongkong, China 2,968 10,325 12,696 32,742
Indonesia
201
556
646 1,732
Korea, Republic of 1,154 4,270 5,498 21,562
Malaysia
813 2,318 2,713 6,765
Philippines
692 1,109 1,005 1,501
Singapore
2,251 9,645 11,951 33,989
Thailand
321
882 1,018 3,353
Source: World Bank's World Development Indicators, accessed on 7 October 2013
Note: 1960 data are in constant 2000 prices and were accessed on 15 August
2012
Main Outcome: Poverty Situation
in PH is dismal
Role of Regional Production
Networks
Structure of Regional Production and
Distribution Networks
Regional Integration Anchored on Regional Production Networks
Regional Economic
Integration
Regional Production
Networks
FDI
Manufacturing Sector
200
Billions of US Dollars
160
China
120
ASEAN
80
South Korea
& Taipei,China
40
Japan
0
84
86
88
90
92
94
96
98
00
02
04
06
08
10
Intermediate Goods Exports from East Asia
as a Whole to Individual Countries or Regions.
Note: ASEAN includes Malaysia, the Philippines, Singapore, and Thailand.
Source: CEPII-CHELEM Database
Value of Intermediate Goods Imports of Individual East Asian Countries and Regions
from East Asia as a Whole (Billions of U.S. Dollars)
Region
1990
1995
2000
2005
2008
2009
2010
Japan
5.2
13.6
22.0
34.3
45.0
37.1
47.9
China
5.6
19.2
28.9
85.2
118.6
115.7
161.9
ASEAN 4
15.8
47.5
54.6
67.9
82.7
69.6
95.9
S.Korea+Taipei,China
13.2
31.8
41.7
59.2
74.0
64.2
86.1
Source: W. Thorbecke “Exchange Rates and Trade in East Asia”
Source: Cheewatrakoolpong, Sabhasri, and Bunditwattanawong (2013)
…Largely through FDI
FDI Inward Stock (million US$), ASEAN and China
FDI inward stock (million US$)
1990
2000
2010
2012
Indonesia
8,732
25,060 154,158 205,656
Malaysia
10,318
52,747 101,510 132,400
Philippines
4,528
18,156
26,319
31,027
Singapore
30,468 110,570 461,417 682,396
Thailand
8,242
29,915 137,191 159,125
Viet Nam
1,650
20,596
65,348
72,530
China
20,691 193,348 587,817 832,882
Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics), accessed on 6 October
PH export performance has lagged
behind that of other EA economies
Export of Goods and Services (in million US dollars)
1995
2000
2005
2012
Japan
441,538 479,323 595,697 798,937
Korea
125,058 172,268 284,419 547,870
Indonesia
45,418
62,124
85,660 190,032
Taipei, China
111,405 151,458 198,168 300,533
Philippines
17,447
38,078
41,255
51,995
Malaysia
73,865
98,229 141,595 227,334
Thailand
56,444
69,152 110,360 228,141
China
148,780 249,203 761,953 2,048,900
Hongkong
173,753 201,855 289,325 442,775
Viet Nam
5,449
14,483
32,447 114,573
Source: ADB Key Indicators for Asia and the Pacific 2013
a. FDI vs. GVC participation
b. GVC participation growth vs. GDP per capita growth
Main argument: A more
dynamic manufacturing sector
would have provided more
higher-paying jobs to the lesseducated workforce, thereby
making poverty reduction
faster and economic growth
more inclusive.
Policy Options for Inclusive Growth
• AEC is an opportunity to attract more FDI
• AEC will generate regional public goods,
especially in infrastructure
• Comprehensive Roadmap for Industry:
address horizontal and vertical constraints,
coordination failure
• Emphasis on facilitating involvement of
SMEs in regional production networks
Opportunities & constraints
Strengths
•
•
•
•
Good macroeconomic environment
Political stability: “Daang Matuwid”
Young, trainable, English speaking workers
Export zones’ legal framework, incentives
Weaknesses
•
•
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Power cost
Inadequate infrastructure
Governance: smuggling
Weak industry competitiveness
Opportunities
Threats
• Calamities in Thailand & Japan disrupted
supply chain driving investors to seek
alternative locations
• Rising labor cost in China & increasing
tension between Japan & China
• ASEAN, FTAs: market of over 600 million;
regional production networks
• Strong peso
• Global uncertainty, economic
slowdown in the developed
world
•
•
6.6% 2012; 7.6% H1; economic outlook remains positive; a new
growth area, capitalize on this to attract FDI
To sustain high growth, take advantage of market opportunities
from a bigger market AEC 2015  transform & upgrade
manufacturing
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Potential Growth areas: Nearby
Criteria
Leamer
Nearby: Detailed Commodity Group (SITC 4 digit)
Highest
level
sophisticat
ion
Highest
spillover
effect
Machinery
Complete digital processing machines; watches; photographic cameras;
TV, radio-broadcasting, transmitters; clocks; electrical line telephonic;
portable radio receivers; microphones; calculating, accounting machines;
sewing machines; domestic electromechanical appliances & parts
Capital
Fabrics, woven of continuous synthetic textile materials
Labor
Precious jewelry; porcelain or china house ware; pianos
Animal
Fish, dried, smoked; fish fillets frozen
Agriculture Refined sugar
Highest
labor
intensity
Cereal
Flours & meals, of meat , fish
Labor
Synthetic or reconstructed precious or semi-precious stones; pianos; pens;
small wares & toilet articles; precious jewelry; porcelain
Capital
Knitted not elastic nor rubberized of fibers other than synthetic; Fabrics,
woven of continuous synthetic textile materials
Machinery
Clocks; watches; photographic cameras; sewing machines
Source: Usui, N. 2012. Taking the Right road to Inclusive Growth. ADB. Manila.
•
Can be developed with relative ease, can utilize existing capabilities (inputs,
institutional/infrastructure, skills, technology) embedded in the current
export structure
19
Constraints to Growth
Major Area
Main Issues & Constraints
Infrastructure &
Logistics
High cost & unpredictability of power
High cost of domestic shipping
Governance &
Regulation
Smuggling, corruption, bureaucracy & red tape
Lack of streamlining/automation of business procedures
MSME
development
Access to finance, technology, inability to comply with
standards
Innovation
Lack of innovation
HRD
Lack of skilled workers
Supply chain gaps
Absence of upstream/downstream industries; weak parts
& components sector high cost of raw materials
Domestic &
export expansion
Lack of scale economies due to shrinking domestic base
•
•
•
Liberalization competition reduce firm survival
Crucial factors in a liberalized & highly competitive market: productivity,
export-orientation, foreign equity, firm size
How to address challenges & take advantage of opportunities arising from
AEC transform & upgrade manufacturing
20
Roadmap for structural transformation
Vision: globally competitive manufacturing industry
Phase III
2024-2028
Phase II
2019-2023
Phase I
2014-201
-Rebuild capacity of
existing industries,
strengthen emerging
industries, maintain
competitiveness of
comparative
advantage industries
-Shift to high value
added activities,
investments in
upstream industries
-Link & integrate
industries
--crucial industrial
linkages bet. SMEs &
LEs to set off a chain
reaction of broad based
industrial development
-Deepen
participation in
regional
integration by
serving as hubs in
production
networks for
industries like
auto, electronics,
machinery,
garments, food
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Targets, Strategic actions, complementary measures
Coordination
mechanism
Vertical
measures
Horizontal
measures
•
•
•
•
•
•
HRD
SME development
Technology upgrading,
innovation
Power, smuggling, logistics
& infrastructure
Investment promotion
Competitive exchange rate
30% value
added; 15%
employment
• Close supply chain gaps
 access to raw materials: food
furniture, garments
 integration mechanism:
copper, iron & steel, chemicals
• Expand domestic market &
exports
 automotive & shipping
open trade regime, sustainable macro policies, sound tax policies &
administration, efficient bureaucracy, secure property rights
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•
•
Industrial Upgrading & Transformation
CRITERIA for Industry Support
 Strong potential to generate employment
 Address missing gaps & linkages & spill-over effects
 Level of product sophistication; Competitive market environment
INDUSTRIES: Automotive, motorcycle, shipbuilding, chemicals & allied
industries, electronics & electrical appliances, food/agri-business, garments,
textiles, copper, pulp & paper, rubber, furniture, jewelry, iron & steel
HORIZONTAL Programs to directly improve productivity

•
HORIZONTAL Programs to address coordination failures

•
•
Cluster-based intervention: increase supply of skilled workers, encourage
technology adoption, improve regulation & infrastructure
Implementation of legislations; strict enforcement of product quality
standards; provide access to raw materials, intermediate inputs & common
service facilities, R&D facilities; aggressive investment promotion &
marketing to attract investment; trainings, business & academe linkages
VERTICAL Program to attract investment in “middle” & “far-away”
 Temporary fiscal incentives to auto, ship-building, iron & steel
COORDINATION MECHANISM Industry councils/institutes:
 Auto, chemicals, garments & textiles, electronics, food, motorcycle,
shipbuilding, iron & steel, copper, SME Institute
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 Step (2): Upgrading (more difficult but not impossible)
1. Upgrading in industry structure
Plugging into GVCs
↓
Rising wages due to the absorption of surplus labor
↓
Necessity of upgrading and diversification in industry structure
(otherwise you will be caught in the “middle-income trap”)
 Upgrading in industry structure
Resource and labor intensive industry
→ capital and technology intensive industry
 Policy measures to upgrade industry structure
e.g. More emphasis on tertiary education, Technological cluster development,
promotion and attraction of FDI in R&D
2. Industry cluster development
 Attract more assemblers (FDI)
→ More induced demand for parts and components (through the “backward
linkage effects”)
 Policy measures to support local SMEs
e.g. match-making, credit scheme, technology assistance, skills training,
certification scheme
 Policy measures to attract foreign suppliers
e.g. tax incentives, industrial estates for SMEs
3. Upgrading along GVCs
I.
Process upgrading
II. Product upgrading
III. Functional upgrading
IV. Chain upgrading
Government Coordination
Agency
Area
DOLE
policies on hiring & firing; new, high productivity jobs
DOST
innovation strategy, R&D, common facilities for product
testing & certification, incubation
NEDA
Philippine Development plan, policy coordination esp.
coherent trade & industrial policies, exchange rate
DA
Agriculture roadmaps
BOC
smuggling, trade & customs facilitation
TESDA, DOLE, PRC
training of workers, skilled workers needed (supply gap)
Tariff Commission
tariff distortions, anti-dumping & safeguard measures
DOF, DBM
budget, temporary incentive measures
BOI, PEZA, Clark, Subic
Investment promotion
DTI-MSMED, DOST
MSME development
LGUs
business permits & regulations (double taxation)
DOE
energy plan, policy implementation (B5 biodiesel)
PPA, MARINA
regulatory & port charges & domestic shipping, RA 9295
DENR
environmental permits, plantations
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Maraming Salamat!!!
Dios ti Agngina!!!
Dios mamajes dinio!!!
Dacal a salamat!!!
Salamat tunon!!!
Saeamat kimo!!!
Daghang Salamat!!!
Thank YOU very much!!!!

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