After growing above 9.5% three quarters in a row, Philippine manufacturing jumped to higher gear to reach 12.3% growth, making it the fastest growing industry in the Philippines during the fourth quarter of 2013. Manufacturing extended it’s lead over services through the past four quarters pushing 2013’s full year growth of manufacturing to 10.5%, nearly double the 2012 growth of 5.4%. It was also the fastest quarterly growth for manufacturing in the last three years. For a full report of NSCB on manufacturing go to their site.
To put it into perspective, the graph below shows the size of manufacturing industry vis-a-vis the other industries in the last two years, showing that manufacturing continues to be the largest industry in the Philippine economy.
Government supports manufacturing
NEDA Secretary Baliscan said that sustaining the growth of the manufacturing sector was crucial in achieving inclusive economic growth since it can provide jobs to semi-skilled workers and those without a college degree; supporting the manufacturing sector was one of the highlights of the updated medium-term Philippine Development Plan (PDP); the manufacturing sector was expected to grow some more this year on the back of improving business sentiment; and with help from the manufacturing sector, the Philippine economy is targeted to grow anywhere between 6.5 and 7.5 percent this year.
Trade Secretary Gregory L. Domingo said.“Manufacturing is growing by 10 percent and we expect that it will maintain that pace for another year or two,”
Trade Undersecretary Adrian Cristobal noted that the manufacturing sector currently accounts for just 20 to 23-percent of the country’s total economic output. “We want to bring it higher, to 30-to 34-percent of GDP (gross domestic product), similar to our neighbors.”
I’m personally excited about these high growth rates. It’s provides momentum, but we maybe disappointed if the numbers this year maybe not be as high given the elevated base numbers of 2013. Furthermore more, growth continue to be narrow, majority came from one sector which is the chemical and chemical sector. Semi-conductor and electronic continue to see weakness in the short term. The remarkable growth of wood manufactures is actually driven by the growth of a hand-full of export firms. We’d like to see sectors like food, garments, furniture take root this year given our growing competitiveness.
Drivers for sustained industrial growth are aligning. Government understands industry a little better. Industry is gaining confidence, we have a more competitive peso, smugglers and tax evaders are being chased. We look forward to the long awaited Industry development council to strengthen the coordination across the various industries in our pursuit of industrialization.
Here’s to a strong 2014.
In past two years, public perception on manufacturing have changed significantly. What was seen as a laggard is now seen as a solution to our sustainable and inclusive growth. But is our manufacturing sector large enough to make an impact?
To have a clear understanding of where we stand compared to other countries in terms of manufacturing, I charted three sets of data: (1) size of manufacturing sector of each country, also known as manufacturing value added (MVA), (2) growth of each country’s MVA in the last 5 years, (3) manufacturing share of GDP. All data were taken from the World Bank Databank, reference year is 2010, includes a total of 214 countries.
The data shows that the Philippine manufacturing sector is the 24th largest in the world, out of 214 countries in the database. Further, the bubble chart shows that the Philippines is in the upper right quadrant of countries that have rapidly growing manufacturing sector, and a high share of GDP compared to the rest of the world.
Given these figures, I believe the Philippine manufacturing sector contributes significantly to global manufacturing, and we have this manufacturing base to accelerate the growth of our economy.
What’s behind the 7.8% GDP growth of the Philippines in the 1st quarter of 2013? The biggest contributor was industry which grew by 10.9%, led by Construction that grew a whopping 37.6%! But more interesting for this author was the growth of the manufacturing sector.
Based on the National Accounts of the Philippines, the NSCB reported that manufacturing grew 9.7% in the first quarter of 2013, compare to 6% in the same quarter last year. The biggest 4 sub-sector of manufacturing changed as follows (based Gross Value Added, GVA at constant prices):
Food manufactures: +12.2%
Radio, television, comm equipment: +20.2%
Chemicals & chemical products: +18.4%
Petroleum and fuels: -21.5%
Other significant gainers are footwear (+27.4%), basic metals (+65%), machineries (+18.6%) and transport equipment (+11.7%). 2013 is off to a good start. For the full report of NSCB on manufacturing go to: http://www.nscb.gov.ph/sna/2013/1st2013/2013mfg1.asp
By the way, services also grew by 7%, hopefully we now have three engines of growth: construction, manufacturing and services.
The rapid growth of the services sector has diverted our attention from the manufacturing sector. Mistakenly dismissed as a dying and uncompetitive sector, there are many misconceptions about its significant contribution to the economy. Fortunately, there is renewed interest in this sector as policy makers search for new sources of growth after the global financial crisis. To sustain our renewed interest and understanding of its strategic significance to the economy and to our future, it’s important that the state of manufacturing be assessed with a wider set of metrics and perspectives. So here are some interesting and surprising facts about the manufacturing sector that may help policy makers, businessmen, workers and consumers understand that we have a robust, diverse and viable sector poised for rapid growth given the right industrial policies, investments and public support.
1. Manufacturing is still the largest sector of the Philippine economy at 21% of GDP.
Here’s a breakdown of Philippines GDP from NSCB 2010 National Accounts: Agriculture and fishing 12%, Forestry 0%, Mining & Quarrying 1%, Manufacturing 21%, Construction 6%, Electricity, Gas and Water Supply 3%, Transport., Stor., and Comm. 6.5%, Trade and Repair of Motor Vehicles, Motorcycles, Personal and Household Goods, 17.4%, Financial Intermediation 7%,R. Estate Renting & Bus. Actvt 11%, Public Administration & Defense 4%, Other Services 1%. Source: NSCB.
2. Manufacturing generates the most revenue, reaching Php 3.4 trillion pesos in 2009.
Manufacturing generates the largest revenues among all the sectors in the Philippines. Based on the National Statistics Office’s 2009 Annual Survey of Philippine Business and Industry (ASPBI).
3. Manufacturing is growing, at average of 9% per annum in the last 13 years.
Contrary to popular opinion, manufacturing is not declining in the Philippines, in fact it’s been growing at nearly double digits rates for a long time. Based on gross value added at current prices, it grew an average of 9% from 1998 to 2011. Calculated from National Accounts of the Philippines. Source: NSCB.
4. The Philippines ranks #20 out of 120 countries in terms of manufacturing’s share of GDP.
Based on UNIDO Industrial Statistical database, at 21% of GDP puts the Philippines at number 20 out of 120 countries. In term UNIDO’s Competitive Industrial Performance, the Philippines ranks #33 out of 120 countries. Source UN Statistics.
5. As a % of GDP, Philippines manufacturing ranks higher than that of Japan, Italy, Canada, US and UK, Brazil, Russia, India.
The same UNIDO database shows that the share of manufacturing in the Philippines is higher than many OECD countries and higher than BRIC Countries except China. Source: UN Statistics.
6. 100% foreign ownership is allowed for manufacturing….except for the publishing subsector.
The are restrictions to foreign ownership to certain sectors of the economy, but nearly all of the manufacturing activities in the Philippines allows 100% foreign ownership except for a handful of subsectors like publishing. Source: BOI.
7. Manufacturing accounts for 85% of all our exports.
Philippine exports are highly dependent on the manufacturing sector since most of Philippines exports are manufactured products. In 2012, 85% are from the manufacturing sector, last year it was 82% and in 2010 it was 86%. Agro, mineral and petroleum contribution still remains limited. In can be argued that the Philippines converts her natural resources to higher value manufactured products, but this is really not the case. Instead there are self imposed constraints preventing the country from harnessing its own natural resources.Source: NSO.
8. Manufacturing accounts for the majority of registered FDIs in the Philippines.
Manufacturing has been the largest contribution to foreign and domestic investments. In terms of value, manufacturing accounted for 86% of all registered foreign direct investments in 2010. In 2011 it was 55%. In fact, it represents 38% of total investments in the last 10 years. Source: NSCB and BOI.
9. Philippine manufacturing is quite diversified, with non-hi tech sectors gaining share.
While semiconductors and electronics dominate our export, we actually produce a wide range of products and the non-hi tech sector has been growing rapidly. Food manufacturing has the largest share, followed by semiconductors and electronics, chemicals and petroleum products. Based on NSO’s ASPBI 2009 and NSCB National accounts.
10. While electricity prices are high, electricity accounts for an average of only of 4.8% of total production cost in the Philippines.
Electricity cost in the Philippines is known to be very high, as they say next only to Japan. However, such comparisons are usually based on residential rates, not industrial rates which can be significantly lower. Furthermore, not all manufacturing activities require a lot of electricity, this ranges from a high of 45% to a low of less than 1% of total cost. So the average of 4.8% of total production cost is in fact not far from the Other Services sector which is at 3.8% of total cost. Mining is at 7.7%. This was based on ADB Senior Economist Dr. Norio Usui’s calculations from the Philippine I/O table.