Philippines urged to focus on manufacturing

The manufacturing sector remains critical for Asian countries like the Philippines to prosper and avoid the middle income trap, according to a report of the Asian Development Bank.

In one chapter of Key Indicators for Asia and the Pacific 2013, the ADB’s flagship annual statistical publication, the multilateral lender noted that a progressive manufacturing sector was key to highly productive service sector, technological innovation and in modernizing agriculture in Asian countries.

“Historically, no economy has reached high-income status without reaching at least 18 percent share of manufacturing in output and employment for a sustained period,” ADB chief economist Changyong Rhee said in a statement issued Wednesday.

“Right now, as services boom in the region, it’s tempting to shun industrialization, but it will be a serious mistake if a country wants to be prosperous,” Rhee added.

The report noted that several economies rapidly industrialized to become high-income countries. These included Hong Kong, China; Japan; Republic of Korea; Singapore and Taipei.

Other developing Asian nations—such as Bangladesh, India, Pakistan and the Philippines—are changing even more slowly, have created fewer manufacturing jobs and are shifting from agriculture to services.

The Philippines, which has had less success at building a manufacturing sector, will specifically need to develop a much deeper industrial base to complement its service sector to avoid being caught in the middle-income trap, the ADB said.

According to the report, several factors help explain why the Philippines failed to industrialize, despite attempts to do so in the 1980s.

The ADB said the Philippines’ shallow industrial base was nearly decimated by the ensuing internal and external crises. The Philippines remained constrained by narrow export specialization, import dependence, and a shallow knowledge base. The reasons include macroeconomic policies, flawed incentive structures and lack of nationalism among the “captains” of industries.

Added to this was the discord in trade, investments, domestic regulation, human resources, and science and technology policies that were supposed to complement the industrial programs in the 1960s to 1980s, the ADB said.