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From the doldrums
In 2010, there was a sense of resignation in the manufacturing sector that had witnessed a series of declines for nearly three decades. In the decade of 2000 to 2010 average annual growth of the sector was only 4%[1] with a recent contraction of -4.4% in 2009 due to the effects of the global financial crisis. The common perception is that there was no manufacturing activity left in the country, or at least nothing significantly enough to talk about. The new administration announced their priorities, namely agriculture, tourism and services. Manufacturing, maybe…
Re-awakening
Economists and industry stalwarts tirelessly reminded us that manufacturing is the main driver of the economy. To step up the advocacy, the private sector organized manufacturing summits to increase awareness for strategic importance of manufacturing in the Philippines. The first summit was somewhat discouraging as experts described the dismal performance of the sector, but awareness was created. We started by taking stock of what we still had, a large electronics and semiconductor sector, a resilient and diverse food manufacturing sector and a number of smaller yet successful sub-sectors with un-integrated niches. More summits were conducted, and success stories started emerging, policy makers were engaged and slowly perceptions changed.
Recognizing the need to get organized and the potential of the industry in the new Philippine economy, the government and private sector collaborated through road mapping exercises, some led by the private sector, some prodded by the government. Seminars were held, summits, workshops and technical working groups. Government leaders started talking about prioritizing manufacturing. The media caught on, then public perception changed rapidly. Analyst, first local, and then international started talking about a manufacturing revival in the Philippines.
Rapid growth
By 2013, the Philippine manufacturing sector experienced double digit growth, becoming one of the fastest among major Asian economies. From a handful of industry roadmaps, the manufacturing sector would eventually generate over 30 roadmaps. Government supported both small and large sub-sectors, even extending to agri and agribusiness subsectors. As these exercises became visible and public, individual investors gained confidence that manufacturing is a sector that government will support and that government now has a better understanding of its needs.
Industry champions from the manufacturing sector sectors emerged, and partnered with a government champion in the BOI. The BOI was full of industry development activity, as a series of industry groups poured into the BOI building to conduct meetings and workshops with their counterparts. The government even boosted their capabilities by recruiting PhDs from the academe and the research community to help sectoral champions in their roadmaps and by harnessing global experts from international development agencies.
What we’ve achieved in 6 years
From 2010 to 2015, the manufacturing sector has added Php 738 Billion in gross valued added reaching Php 2.7 trillion GVA at current prices, growing an average of 7.3% per annum[2], nearly double the annual growth rate of the previous decade. We still have a couple of quarters to measure but the growth is not expected to be any less. More importantly, manufacturing labor productivity gained a huge 30% increase (based on GVA current prices) from 2010 to 2014[3] after plateauing in previous decades. Foreign direct investments in manufacturing, excluding reinvestments and debt instruments reach US$ 3.1 billion in the last 5 years[4]. In 2015, approved foreign direct investments reach Php 135 billion pesos, representing 55% of all approved FDIs in that year[5]. Domestic investments which are harder to quantify yielded countless expansions and green field projects. The manufacturing sectors also delivered landmark investments like the first naphtha cracker in the Philippines, new and upgraded oil refineries and two nickel refineries, just to name a few.
Let’s remember though that a lot of investments, huge billion peso investments were made by bold investors not just because of our industry policy, our roadmaps and manufacturing summits. They were made because of favorable market forces, strong macro-economic fundamentals, the change in production cost in China, and so many other factors. But I would like to add that the combined effort of private sector and government in making the sector a prioritized sector have reinforced investor’s confidence to make those big investments in the country.
The path forward
After 5 years, we’ve established a track record of growth, but the road ahead is still very long. Will we reached a manufacturing share of 30% of GDP? Will we increase our manufacturing workforce from 3 million to 7 million workers? Will we gain the needed diversification of our manufacturing sub-sector to have a balanced portfolio of low, medium and high tech sectors? Will we continue to be competitive versus our neighbors? Can we bridge the infrastructure gap? Can we make it a truly inclusive industry and not just for the big boys? It all depends on our next steps.
Government and private sector has started to institutionalize a new industry policy, sectoral road mapping and the manufacturing resurgence program. That is a big step. what more should we do?
(1) We need to implement our sectoral roadmaps, in collaboration with the new administration.
(2) With STEM education in high school as a new enabler for the industry, we should continue and expand TESDA training and factory internship rapidly increase our talent pool for manufacturing.
(3) We must engage the research community to make innovation a more important driver of our growth.
(4) We must lay down strategic enablers like the infrastructure-manufacturing convergence, including special domestic zones for manufacturing.
(5) We must continue to bring down the barriers to investors so domestic and foreign investments will continue and accelerate, with new investments integrating with previous ones, or making new paths into new sectors.
(6) With new government leadership, we should prioritize the integration of MSME into the manufacturing sector.
(7) And finally, industry champions and government partners must continue to lead and accelerate the growth of the manufacturing sector in pursuit of inclusive and sustainable growth of the Philippines.
Personal note:
I’ve spent five years documenting this journey. I want to thank those who encouraged me, read my blog and challenged me. I hope that the articles have inspired some students to seek a STEM education, or a career in manufacturing, hope that one of my articles, or one graph or data point made an entrepreneur seek his fortunes in the manufacturing sector, or helped a manager or a corporate leader to try manufacturing in the Philippines one more time and succeed.
Maraming salamat po.
[1] National Accounts, NSCB
[2] National Accounts, NSCB
[3] Calculated from DOLE labor statistics and Manufacturing GVA data
[4] Banko Sentral ng Pilipinas: http://www.bsp.gov.ph/statistics/efs_ext2.asp#FCDU
[5] Philippine Statistics Authority, Investments: https://psa.gov.ph/sites/default/files/table%203a_0.pdf
Philippine Manufacturing Revisited 