Strong manufacturing needed for Asean integration

Reviving the country’s manufacturing industry through new fiscal and nonfiscal policies may be crucial for the Philippines to take advantage of the opportunities presented by the establishment of the Asean Economic Community by 2015.

Addressing a public forum last week, Rafaelita Aldaba, vice president of the Philippine Institute of Development Studies (PIDS), noted that the government must come up with a new industrial policy that will take advantage of the country’s bright prospects and good macroeconomic condition.

At present, the Philippines has become more attractive for many foreign companies owing to improved governance and the country’s robust economic performance. In the first half of the year, the country registered a gross domestic product growth of 7.6 percent and the economic outlook has remained positive throughout the year.

To sustain this growth however, the Philippines needs to take advantage of market opportunities presented from a bigger market in the Asean Economic Community and from various developments in the region. These include the calamities in Thailand and disrupted supply chain, which have driven investors to seek alternative locations; rising labor cost in China; and the free trade agreements of the Asean with its partners, Aldaba said in her presentation.

The key to taking advantage of these opportunities is to transform and upgrade the local manufacturing industry, as well as address various challenges and constraints to growth.

Based on the presentation, the country needed to address issues on infrastructure and logistics, specifically the high cost and unpredictability of power prices and high cost of domestic shipping.

Aldaba also noted concerns on governance and regulation (smuggling, corruption, bureaucracy and red tape); micro, small and medium enterprises development (access to finance, technology upgrade); lack of skilled workers and appropriate training; supply chain gaps; and lack of scale economies due to shrinking domestic base.

According to Aldaba, the government must also implement a roadmap for structural transformation with the vision of having a globally competitive manufacturing industry.

Under the first phase of this roadmap (2014-2017), the government must be able to rebuild capacity of existing industries, strengthen emerging industries, and maintain competitiveness of comparative advantage industries.

Phase II (2017-2021) entails a shift to high value-added activities, investments in upstream industries; integration of industries, among others, while Phase III (2021-2025) must see a deepened participation in regional integration hubs in automotive, electronics, machinery, garments and food industries.