Gov’t urged to focus on industry reforms

After “more than two decades” of trade liberalization, rapid industrial growth continues to elude the Philippines, according to state think tank Philippine Institute for Development Studies (PIDS).

The institution is now urging the government to implement reforms that will enhance the country’s productivity, promote relationships between small and medium enterprises (SMEs) and large domestic and multinational companies, and generate more investments.

The reforms will enable the country to capitalize on the rapidly changing global conditions where emerging economies like the Philippines are becoming key players, as the United States, the European Union, and Japan continue to face slower growth, said PIDS senior research fellow Rafaelita Aldaba.

“The Aquino government should make full use of its popularity and wide support from broad sectors in society to carry out badly needed institutional and regulatory reforms together with huge infrastructure spending. For the manufacturing industry, there is a need to strengthen the domestic parts and suppliers sector, particularly small and medium enterprises, and deepen their linkage with domestic large enterprises and multinational companies,” Aldaba said.

To effectively benefit from reforms, Aldaba said, the next step is to substantially increase investment spending and strengthen its weak institutional and regulatory environment.

“Equally important is for manufacturing industries, particularly electronics, to move up the value chain and diversify the export base. To achieve these, there is a need for strategic industrial policy and carefully designed subsidies that will target improvement of firm level competitiveness such as innovation and research and development activities and human resource development. Apart from diversifying our export base, we also need to diversify our FDI (foreign direct investment) partners. Strong investment promotion should be carried out particularly in countries such as South Korea and Taiwan,” Aldaba said.

Since the 1980s, the Philippine economy has made “considerable progress” in opening up to competition by removing tariff and non-tariff barriers in the manufacturing and agriculture sectors, PIDS said. From the 1980s to the mid-1990s, the country implemented “substantial” trade policy changes by reducing tariffs and removing import restrictions.

“Other market-oriented reforms, consisting of deregulation, liberalization, and privatization, were pursued in infrastructure utilities such as telecommunications, water, power, shipping and airlines. At the same time, foreign investment rules were relaxed in almost all sectors particularly in areas that were reserved only for Filipinos such as banking and retail trade. As a result, the current regime is substantially more open,” Aldaba said.

The Philippines aims to grow its economy at an average pace of 7 to 8 percent from 2011 to 2016 in order to curb poverty. Manufacturing and other labor-intensive sectors are seen as enablers of such growth. As such, infrastructure spending and stronger trade channels have been among the government’s priorities to support growth.