Manufacturing revival needed for the Philippines to benefit from AEC

ASEAN will become an economic community in 2015. But is the Philippines prepared to become part of this “single market and production base”? What is the way forward for the country in the context of an ASEAN Economic Community (AEC)? These are just some of the many concerns raised in the Sept. 12 seminar-workshop on “AEC 2015: Development Challenges in the Philippines” organized by the Philippine Institute for Development Studies (PIDS), the National Economic and Development Authority, and the Asian Development Bank.

Three main points were highlighted by Rafaelita Aldaba, PIDS vice-president. One is the need to transform the manufacturing industry which is crucial to attaining inclusive growth. Second is the importance of more foreign direct investment (FDI) inflows and stronger participation of the country in regional production networks given the large market potential that the AEC offers. Third is pursuing domestic reforms necessary to maximize the benefits of regional trade agreements.

Manufacturing is important as a source of inclusive growth as it can generate more high-wage and high-productivity jobs, as compared with services, said Josef T. Yap, former PIDS president. In the region, growth has come from regional production networks that are largely beneficial to the manufacturing sector.

But the local manufacturing sector has stagnated, Yap noted. Thailand’s share of manufacturing to gross domestic product in 2010 was 35.6 percent, compared with the Philippines’ 21.4 percent. In 2011, Thailand recorded USD139.7 billion in inward FDI stock, compared with the Philippines’ USD27.6 billion.

“Why do we have to focus on manufacturing despite its low performance? Because history shows that transformation led by industrialization is important for sustained economic growth despite arguments that we should shift to the service sector,” Yap said. “A more dynamic manufacturing sector would have provided higher-paying jobs to less-educated workers, thereby making poverty reduction faster.”

Aldaba also pointed to the “hollow, missing middle” brought about by the subdued performance of small and medium enterprises (SMEs) in the manufacturing sector.

The Philippines can learn from large Korean business enterprises that subcontracted jobs to small and cottage producers, and the strategic industrial policies of Malaysia and Singapore that tapped SMEs for skills and technology transfer.

Reviving manufacturing, however, doesn’t mean abandoning services as services are also inputs to manufacturing, said Erlinda Medalla, PIDS senior research fellow.

To benefit from the envisioned single market and production base under AEC, the country should look at the entire region of 600 million people as the market for Philippine products, Aldaba said.  “The opportunity is there. AEC is there. It’s up to us to take advantage of it or we can just sit down and do nothing,” she said.

Socioeconomic Planning Secretary Arsenio Balisacan, chairman of the PIDS board of trustees, lauded the Institute for its efforts to educate the public on ASEAN economic integration.

“We in the executive branch must take the lead in informing the public, Congress, stakeholders, and industry on what policies should be revisited to get the economy to benefit from AEC 2015,” Balisacan said. (PIDS)