The Future of Philippine Industries

PH COMPREHENSIVE

NATIONAL INDUSTRIAL

STRATEGY

Rafaelita M. Aldaba

Industry Development Group

30 June 2015

The Future of Philippine Industries

Outline of PresentationObjective: PH Comprehensive National Industrial Strategy (CNIS)

1. PH New Industrial Policy

2. CNIS

o Manufacturing

o Agriculture

o Services

3. Implementation Mechanism

o Industry Development Council

o Industry Technical Working Groups

o Manufacturing Resurgence Program

The Future of Philippine Industries

Part 1: Motivations -- Why do we need a

new industrial policy?

• Inclusive growth, creation of more & better jobs

o Jobless growth: unemployment 7.5% (’06-’10); 6.4%

(A ‘15); underemployment 18-20% (late 20s); 17.8%

(A’15)

o Stagnant manufacturing & failure to create jobso Manufacturing share: 26.3% (‘80s), 23.7% (‘20s)

o Employment contribution: 9.9% (‘80s), 9.1% (‘20s)

o Persistently high inequalityo Poverty incidence has declined but inequality hardly

changed even worsened in 1997 and 2000

o Poverty incidence: 24.6 (‘13) to 25.8(‘14)

• Globalization, rising regional economic integration,

global value chains (GVCs)

o Competitiveness is crucial

Global Value ChainsV

alu

e A

dd

ed

Design

Purchasing

Production

Distribution

Marketing

Services

Pre Production Production Post Production

• Most goods are made in the world & countries compete on

economic roles within the value chain

• GVCs – opportunities for upgrading & diversification

• Strategy on how to position our industries

R&D

The Future of Philippine Industries

GVC: IPhone & T-shirt

T-shirts: cotton (US) exported

to China to be manufactured,

returns to US for imprinting &

wholesaling & retail

Trend: dispersion of

functions

Source: Kraemer et al 2011

• Applications processor: Korea

• Memory flash: Korea

• Connectivity: US

• Power management: Germany

• Interface & sensors: US, Japan,

France

• Radio frequency: Germany, US

• Display/camera: Korea or Japan,

US, Taiwan

• Battery: Korea

Distribution of value for Iphone

GVCs require high quality services embodied in production & increasingly outsourced

US (Apple) captures 58.5% of Iphone sales price

Korea: 5%

Japan: 0.5%; China: 1.8%

Most value: product design, software development, product management, marketing & other high wage functions kept by Apple

Trend: dispersion of functions

Source: Kraemer et al 2011

Apple profits30%

Distribution & retail15%

Non-Apple US

profits2%

Taiwan profits2%

Japan profits1%

S. Korea profits7%

Unidentified profits

5%

Cost of inputs materials

31%

Cost of inputs China labor

2%

Cost of inputs non-China labor

5%

Distribution of Value for Ipad

For Ipad, US: 30% & 15% distribution &

retail

Korea: 7%, Taiwan: 2%, China: 2%

Source: Kraemer et al 2011

Apple profits58%

Non-Apple US profits

2%

EU profits

1%Taiwan profits

1%

Japan profits1%

S. Korea profits

5%

Unidentified profits

5%

Cost of inputs materials

22%

Cost of inputs China labor

2%

Cost of inputs non-China

labor3%

The Future of Philippine Industries

Part 2: Comprehensive National

Industry Strategy (CNIS) FRAMEWORK

THREE IMPORTANT CHANNELS AFFECTING INDUSTRY GROWTH: COMPETITION, INNOVATION, PRODUCTIVITY

MANUFACTURING SERVICES

AGRICULTURE

FISHING,

FORESTRY

MINING

INTERNAL FACTORS: GOVERNMENT POLICIES &PROGRAMS,

INSTITUTIONS, INFRASTRUCTURE, MACRO STABILITY, RULE OF LAW,

PEACE & ORDER, POLITICAL CLIMATE

EXTERNAL FACTORS: GLOBALIZATION,

REGIONAL/BILATERAL/MULTILATERAL TRADING ARRANGEMENTS,

GLOBAL & REGIONAL PRODUCTION NETWORKS

Vision, Goals, Strategies• Vision: create globally competitive industries with strong

forward and backward linkages

• Short-run

o Strengthen existing industries, maintain

competitiveness of comparative advantage industries,

support emerging sectors

• Medium-run

o Increase investments especially in upstream industries,

high value added activities

o Accelerate infrastructure investment

• Long Run

o Continue improving competitiveness to sustain growth

& job creation & make Philippines a regional hub

• Strategies: HRD & Skills Training, SME Development,

Innovation, Green Growth, Investment Promotion,

Regulatory System (horizontal issues)

Major Strategies

Structural Change

Horizontal measures

Coordination mechanism

Vertical measures

• Close supply chain

gaps

• Expand domestic

market & exports

• HRD & skills trainings

• SME development

• Innovation

• Green growth

• Promotion

• Power, smuggling,

logistics,

infrastructure

• Improve regulation,

reduce cost of

doing business

• Competitive

exchange rate

open trade regime, sustainable macro policies, sound tax policies &administration, efficient bureaucracy, secure property rights, institutions

MANUFACTURING FOR STRUCTURAL

CHANGE

-automotive, aerospace parts electronics, garments, food, resource-based industries, chemicals, furniture, tool & die, shipbuilding

-move to high tech transport equipment, chemicals, electrical machinery-Participate as manufacturing hubs in regional & global production networks for auto, electronics, machinery, garments, food

-high value added activities upstream industries (chemicals, iron & steel), med-tech basic & fabricated metal; Link & integrate industries, SMEs & large firms, Innovation ecosystem; R&D

Phase I

2014-2017

Phase II

2018-2021

Phase III

2022-2025

VISION: globally competitive manufacturing strongly linked

with other sectors, more & better jobs, a main growth driver

AGRIBUSINESS: CATALYST TO DRIVE

REGIONAL ECONOMIC TRANSFORMATION

VISION: transform & upgrade agriculture from traditional farming to

a globally competitive agribusiness sector

-rubber, coconut, mangoes, coffee, cacao, banana, palm oil; emerging high value crops; supply chain gaps & coordination issues; rural physical infrastructure; S&T infrastructure, HRD

-deepen participation in GVC -PH as agribusiness regional hub

-strengthen agro-processing & its linkages to production; move up the GVC; R&D; strengthen supply chains, upgrade commodity clusters; access to technologies, finance; regulatory & certification system

Phase I 2014-

2017

Phase II

2018-2021

Phase III

2022-2025

SERVICES: GLUE THAT BINDS ALL

SECTORS TOGETHER

-labor-intensive sectors like tourism, construction, ship repair, MRO-accelerate infrastructure investments -move up ITBPM GVC

-PH as regional hub: training -continue to upgrade services especially in manufacturing related services to sustain growth & job creation

-education, design, R&D, finance, infrastructure-engineering & services embedded in manufacturing-HRD & skills training, innovation ecosystem linked with manufacturing

Phase I 2014-

2017

Phase II

2018-2021

Phase III

2022-2025

Vision: globally competitive services, create quality jobs,

move up the value chain, enable structural transformation

Strategic Actions

Sector Action

Copper Institutional mechanism to fully integrate the industry

Furniture Supply hubs for raw & natural materials

Tool & die Access to raw materials, equipment, & software

Paper Fiber raw material base, develop massive tree

plantations, commercial agro forestry with virgin wood

pulp production

Iron &

steel

Full integration of industry upstream-mining, reliable

supply of iron ore & coal

① Close Supply/Value Chain Gaps

Complex product, 30,000+ parts & components, different

production processes: large multiplier effect

Auto investments: foundation for broad-based industrial growth

CARS Program: jumpstart industry development to enable PH to

deepen its integration into global production networks

Basic Industries

Parts & Components Manufacturing

Vehicle Manufacturing

Auto Supporting Industries

3rd Tier Supplier

(Raw

Materials)

2nd & 1st Tier Supplier(Intermediate & semi-

finished)

Mining

Iron & Steel

Petrochemicals

Textile

Machinery & Equipment, Dies & Moulds, Metal Stamping, Die Casting,

Machining

Rubber

Chemicals

② Expand domestic market export platform

Type Sectors

Design, tool making, prototyping,

molding, die casting

Auto parts, Tool & Die

Chemical engineering, Materials

Engineering

Chemical, Rubber,

Plastics

Supervisory, managerial, productivity Furniture

Foundry technology, Metallurgical,

Mechanical, Industrial, Metal casting

Engineering

Metal casting

Die design, Tool & Die Engineering Tool & Die

Vocational trainings (TESDA) Iron & steel, Furniture

③ HRD & Skills Trainings

Cooperation with TESDA, CHED

Investment in skills & education

④Other Strategic Actions

STRATEGIC ACTIONS

• SME Development: Finance access, compliance

with product standards, Clusters, Incubation, Shared

Services Facilities (Quality testing facilities, Fablabs)

• Innovation: Industry-academe linkages, R&D,

adoption of green processes, green products,

technology extension services esp. to SMEs; metrology,

standards testing, quality control; incubation; information

& communication

• Marketing & promotion: attract investments

• Horizontal issues: high cost of power &

domestic shipping, smuggling & streamline &

automate government procedures

Part 3: Implementation Mechanism

Industry Development Council mechanism for discussion of industry strategies,

policies & programs coordination, monitoring of roadmap implementation

Technical Working Groups champions from BOI & industry, relevant

government agencies

Manufacturing Resurgence Program: enhance manufacturing competitiveness; budget P182.6B Lead Implementing Agency: DTI

Participating Agencies: DOST, DOLE, DOLE-TESDA, CHED, DOE, DA, NPC, NEA, PCA

Industry Development

Council (IDC) IDC Secretariat

IDC Technical Committee

DTI - Chairman• DTI, NEDA, DA, DOF, OP; Private sectors representatives

IDC Executive Committee

DTI – Chairman• 11 representatives from government

• 7 representatives from private sector

• 1 representative of academe

• 1 representative of research institute/think tank

• 1 representative of labor

• 1 CSO representative

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Eminent Persons

Group (EPG)

5 industry

leaders

Philippine Industry Development Council

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Growth Performance

PH growth rate: 6.8 (‘12), 7.2% (’13, 2nd to China 7.7%), 6.1% (‘14)

Impressive growth performance of the Philippines: Asia’s new economic tiger

2015 Forecasts- Government: 7-8%, IMF: 6.7%, ADB: 6.4%, OECD: 6.2% (to lead growth in ASEAN), JPMorgan: 6.4%, Fitch Ratings: 6.3%

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

GDP Growth

PH TH INO VN PRC MAL

Manufacturing Resurgence

Industry growth: 7.3% (‘12); 9.3% (’13, highest)

Manufacturing resurgence: 5.4% (‘12); 10.3% (‘13);

8.1% (‘14)

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

in %

Year

Industry Growth

PH

TH

INO

VN

PRC

The Future of Philippine Industries

The Future of Philippine Industries

Thank You

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