ADB urges Philippines to push industrialization in cutting poverty

MANILA, Philippines—The Asian Development Bank has urged the Philippines to aim for high level of industrialization—indicated by an ability to produce and export more goods—to squarely address the long-standing problem of poverty.

In a comprehensive study on the Philippines titled “Taking the Right Road to Inclusive Growth,” ADB said poverty incidence in the country has remained high, even if the economy has been growing year after year, because of weak industrialization.

ADB said that the services sector, led by business process outsourcing (BPO) firms such as call centers, has indeed helped keep the economy growing but the sector’s success has not had a significant effect toward poverty reduction. The country could lift more people out of poverty by boosting the industry sector, including manufacturing, the ADB said.

The industry sector, unlike the service sector, is capital-intensive and provides jobs even to individuals with low educational attainment, according to the ADB.

Latest official poverty statistics showed that Filipinos living below the poverty line accounted for 26.5 percent of the country’s population as of 2009, the highest among emerging Asian economies. The figure marked an increase from the 26.4 percent in 2006 and the 24.4 percent in 2003, even as the economy actually grew during the period.

“Despite high and sustained growth over the 2000s, the Philippines has failed to generate inclusive growth that is broad-based across the sectors and benefits the entire population. The country’s standing problems of unemployment, poverty and low investments remain,” the ADB said in the report.

To achieve the level of industrialization that the country needs to trim poverty incidence, the Philippines must come up with a road map that identifies measures that will increase private-sector investments in the production of more goods, besides intermediate electronics goods that account for the bulk of the country’s export revenues, according to the ADB.

One policy recommendation is for the country to identify more products that it can competitively sell offshore so that export revenues will rise and more domestic jobs will be created. ADB pointed to a wide range of products – from machinery, food and jewelry to musical instruments and fabrics – that the Philippines could invest in to become a more competitive exporting country.

Once the products are identified, the government should implement measures that will address problems that prevent the private sector from investing in the manufacture of these products, according to the ADB.

ADB suggested the creation of councils that would be in charge of conducting dialogues between the government and the private sector on the needs of the latter to invest and generate decent profits.

“This problem (of inviting private firms to invest in target products) could be alleviated by setting up an institution to interact with the private sector in identifying firms’ obstacles in exporting new goods, and determining the most appropriate interventions,” ADB said.

ADB said that other emerging Asian economies, unlike the Philippines, were able to significantly trim their poverty rates over the past decade because of stronger efforts toward industrialization.

“This is not to suggest that the growing services sector, in particular the BPO industry, should not be the centerpiece of the long-term development strategy… [However], without dynamic industrial development, the country will continue to suffer from the long-standing problems of high unemployment, slow poverty reduction, and low investment,” the ADB said.