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Reversing the decline of manufacturing in the Philippines

Reversing the trend

From 1960 to 2000, manufacturing share of GDP has averaged around 24.6% (Author’s calculation based on World Bank databank figures). However, from 2000 to 2009, this share went on a rapid decline, raising concern on the future of manufacturing in the Philippines. Fortunately, in the past four years, we seen faster growth in manufacturing sector. But what’s the impact of this renewed growth to manufacturing’s share of the economy? Is it significant enough to reverse the declining trend of the previous decade?

First allow me to point out that the sector has always been growing, thru the decades, as we’ve pointed out in previous posts. So, “decline” is a tricky word when describing the manufacturing sector. But what is factual is that manufacturing’s share of GDP has been declining for some time…until recently.

The table below shows that manufacturing’s share of GDP has rapidly declined from 24.47% in 2000 to a low of 21.47% in 2009. A huge 3 percentage point drop in one decade. It was due to a combination of rapid growth of the services sector and the relatively slow growth of the manufacturing sector. However, the trend has reversed in 2010, and by the third quarter of 2014 it had reached 23.16% of GDP.

Philippine Manufacturing as % of GDP

 

Catching up with the Services Sector

The next table is a familiar one to our readers. This table shows a comparison of the growth rate of the manufacturing versus the services sector. The latest GDP numbers in Q3-2014 extends the lead of the manufacturing sector over services in terms of growth rate to seven consecutive quarters.

Not to be misunderstood, I am not hoping for a slow down of the services sector! But I am advocating a catch-up for the manufacturing sector so that we have a more balanced and robust economy, that can provide a wider range of employment opportunities to Filipinos. We need both engines of growth. Three would even be better, with the agricultural sector.

Growth is not mutually exclusive, it doesn’t have to be. In fact, researchers have pointed out that manufacturing can drive a further expansion of the services sector due to manufacturing’s high multiplier effect.

Manufacturing vs Services Growth Rate

 

A bold vision

While the increase in manufacturing share of GDP is encouraging, this ratio is still far from what we desire, and still far from reaching our true potential. The new Philippine Manufacturing Roadmap crafted by the government and the various industry sectors provided a challenging and bold vision for manufacturing to reach 30% of GDP. It’s a vision that goes beyond our historical performance. But it is a vision that can free us from economic underperformance that has plagued us for decades.

 

 

 

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