INDUSTRY ROADMAPS & THE AEC GAME PLAN

REGIONAL ROADMAPS FOR COMPETITIVENESS

The Philippine New Industrial

Policy for More Competitive

Regional Economies

Rafaelita M. AldabaAssistant Secretary

Industry Development & Trade Policy Group

Legend Hotel, Puerto Princesa

Palawan, 15 October 2015

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Outline of Presentation

1. Strategic Industrial Policy for the Philippines

• Opportunities & Challenges

• Manufacturing Industry Roadmap

• Comprehensive National Industry Strategy

2. New Industrial Policy’s cluster-based approach• Porter’s Diamond Model for Competitive

Advantage

3. Implications for MIMAROPA

• Industry Cluster Roadmaps: sustainable & inclusive regional growth

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Part 1: Opportunities & ChallengesShort-term Outlook

• PH growth rate: 6.8 (‘12), 7.2% (’13), 6.1% (‘14)

• Q1 2015: China 7.3%, VN 6.96% , PH 5.2%, MAL 1.2%,

TH 0.3%, INO -0.18%

• PH impressive growth: Asia’s new economic tiger

• 2015 Forecasts - NEDA: 6-6.5%, WB: 5.8%, ADB: 6%,

OECD: 6.2%, JPMorgan: 5%, Moody’s: 6%

-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

3

PH a new growth area

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

7.5% (‘14 highest)

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

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

in %

Year

Industry Growth: PH vs Selected East & Southeast

Asian Countries

PH

TH

INO

VN

PRC

MAL

4

Manufacturing Resurgence

• Manufacturing resurgence: 5.4% (‘12);

10.3% (‘13); 8.1% (‘14); 5.3% (‘15H1)

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

Quarterly Growth 2009-2015

AGRI., HUNTING, FORESTRY AND FISHING MANUFACTURING

SERVICE SECTOR GROSS DOMESTIC PRODUCT

5

WHAT MAKES PH DIFFERENT

Market Opportunities

• Growing market & middle class: demographic sweet spot

Labor

• Young, English speaking, highly trainable workforce

• Moderate wage increases

Operating Environment

• Strong macroeconomic fundamentals

• Political stability, business/consumer confidence

Policy Focus

• New Industrial Policy & a more pro-active Government

• IPA rules & regulations, incentives & investor care

Improved competitiveness ranking (WEF)

• Rank #47/140 countries in 2015-16 from rank #52

6

Growth ChallengesArea Major Constraints

Regulation • Complex/costly business procedures

• Policy consistency, transparency, predictability

• 60-40% foreign equity rule

Infrastructure/

Logistics

• High cost of power, domestic shipping

• Lack of ports, airports, road infrastructure

SME • Access to finance, technology, support for start-

ups, standards, marketing, network links

HRD • Lack of skilled workers, limited standards &

certifications

Innovation • Industry-academe linkages, R&D facilities

Supply/value

chain

• Limited linkages in manufacturing, agriculture,

& services, weak parts & components sector

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Strategic Industrial PolicyGoal: improve competitiveness & productivity

Growth oriented action to upgrade industries

Remove obstacles to growth Investments

Deepen participation in regional production networks

Role of Government: coordination/facilitation

Create proper environment for private sector

development, strengthen industries

Private sector, investment & entrepreneurship:

proximate cause of growth

Cluster-based industrial strategy

Promote clusters for inter-firm cooperation &

agglomeration of activities

Industry agglomeration to build strong & competitive

regional economies

GVC-focused industrial policy 8

MANUFACTURING DRIVER 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-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

Phase I 2014-2017

Phase II 2018-2021

Phase III 2022-2025

VISION: globally competitive & strongly linked with other

sectors, a main growth driver

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Strategy to make manufacturing an engine of growth

& source of more & better Jobs

30% value added; 15% employment

Horizontal measures

Coordination mechanism

Vertical measures

• Close supply chain gaps

• Expand domestic market & exports

• HRD & skills• 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 10

AGRIBUSINESS: CATALYST TO DRIVE

REGIONAL ECONOMIC TRANSFORMATION

Transform & upgrade agriculture from traditional farming

to a globally competitive agribusiness sector

-rubber, coconut, mangoes, coffee, cacao, banana, palm oil; high value crops; supply chain gaps

-deepen participation in GVC -PH as agribusiness regional hub

-strengthen agro-processing & its linkages to production: 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

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SERVICES: GLUE THAT BINDS ALL

SECTORS TOGETHER

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

- PH as regional hub: training - upgrade services, 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

Globally competitive services, create quality jobs, move

up the value chain, enable structural transformation

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Comprehensive National Industrial

Strategy (CNIS)

• Globally competitive industries, strong domestic & global linkages

• 3 Major Channels: COMPETITION, INNOVATION, PRODUCTIVITY

• Cluster-based industrial strategy to build strong & competitive

regional economies

MANUFACTURING SERVICES

AGRICULTURE FISHING,

FORESTRYMINING

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

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Part 2: What makes a cluster competitive?

Porter’s Framework for Competitive Advantage

Context for Firm Strategy and Rivalry

Demand Conditions

Related and Supporting Industries

Factor (Input)

Conditions

1. Investment & constant upgrading

2. Competition among local firms

Adapted from: Porter, M. E. (2000).

- Natural, human and capital resources

- Physical, administrative, information, scientific and technological infrastructure

• Local customers with high

product & quality

specifications

• Production that meets

needs of existing & new

customers

• Production in specialized

segments that can be

exported

• Natural, human &

capital resources

• Physical,

administrative,

information, scientific

& technological

infrastructure

Drives FIRM PRODUCTIVITY, COMPETITION and INNOVATION

• Firms in a

cluster are

mutually

competitive &

cooperative

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Agribusiness Cluster

Seeds Nurseries

Fertilizer, insecticides, herbicides

Farm Equipment

Storage Facilities

Irrigation Technology

Clusters of Other Agricultural Products

Clusters of Buyer/Consumer

Industries

State Government & Donor Agencies

Educational, Research & Trade Operations

Growers

Crop processing equipment

Processors

Transportation

Packaging Services

Public Relations Advertising

Specialized Publication

Financial Services

Source: World Bank Group. (2009)

• producers, agribusinesses, & institutions

• interconnect & build value networks when addressing common

challenges & pursuing common opportunities 15

Collective action: cornerstone of

agribusiness cluster competitiveness

• Resolution of coordination problems: logistics, inputs supply (packaging materials), access to financial services, pests & diseases

• Public cluster in infrastructure & research ( R& D for new product development, testing centers, nutrient analysis facilities, post harvest processing machines)

• Business intelligence services, collective marketing & promotion, market research & development of a product country brand, training programs

• Collaborative technology research & technology transfer

• Collective compliance with quality, safety, environmental standards

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Part 3: Transforming Region IX

• Region IVB: 5% manufacturing share, 10% average growth rate • How to improve agricultural productivity & sustain manufacturing growth ?

NCR

CAR

ILOCOSCAGAYAN VALLEY

CENTRAL LUZON

CALABARZON

MIMAROPA BICOL

WESTERN VISAYAS

CENTRAL VISAYAS

EASTERN VISAYAS

ZAMBOANGA PENINSULA

NORTHERN MINDANAO

DAVAO REGION

SOCCSKSARGEN

CARAGAARMM

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

-5.00% 0.00% 5.00% 10.00% 15.00% 20.00%Average Growth Rate (’12-’14)

Man

ufa

ctu

rin

g as

% o

f G

RD

P

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Note: poverty

incidence

persistently high

Region IX Development Plan

• Vision: destination of investments, livelihood, residence, employment, adventure, rest and recreation, retirement (RDP Region IV-B 2011-2016)

• Industry Strategy: investments, exports, jobs, SME

• Horizontal Measures: infrastructure & logistics support, incentives, marketing, financing, R&D, other government support to strengthen industry clusters

Source: Philippine Statistics Authority

GRDP STRUCTURE (%) 2010 2011 2012 2013 2014

AGRIC, HUNTING, FORESTRY,

FISHING 26.5 26.4 25.3 23.9 22.9

INDUSTRY 35.3 34.6 34.7 33.3 35.0

Manufacturing 3.7 4.1 4.5 4.7 5.1

SERVICES 38.2 39.0 40.0 42.8 42.0

GRDP growth rate 1.3 6.5 3.1 4.2

Unemployment rate: 3.5%; Underemployment rate: 26% (Jul 2015)

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MIMAROPA’s Shift from

agriculture to agri-processing

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OCCIDENTAL MINDORO grains by product such as rice hull for cooking fuel, insulating materials, fiberboard, building blocks; blast freezing of prawns, crabs

PALAWAN fruit processing (fruit purees and juices, candies for mango, candies, pastilles for cashew); seaweed processing & aquamarine processing of tuna, grouper & tiger prawn

ROMBLON coconut processing into coconut oil & coco-engine oil

ORIENTAL MINDORO fruit processing: calamansi, rambutan, mangoes; banana

MARINDUQUE Root crop, fruit, & vegetable processing

Competitiveness Indicator

• Competitive Products: Revealed Comparative Advantage >1

Products ‘01-’05 ‘06-’10 2011

Coconuts, dessicated 73.34 110.09 150.22

Fruits, dried nes 0.78 0.81 1.40

Seaweeds and other algae, 18.17 11.80 25.69

Coconut (copra) oil crude 108.03 139.20 212.79

Coconut (copra) oil or fractions simply refined 63.57 92.70 138.35

Cocoa powder, sweetened 1.34 1.31 1.01

Natural rubber in other forms 3.62 5.86 18.81

Smoked fish & fillets other than herrings or salmo... 2.72 5.30 7.92

Dried fish, other than cod, not smoked 0.58 0.66 1.25

Shrimps and prawns, frozen 2.40 1.72 2.42

Bananas, including plantains, fresh or dried 13.14 13.90 21.45

Guavas, mangoes and mangosteens, fresh or dried 13.30 8.85 35.01

Rice flour 0.05 27.49 351.70

Jams, fruit jellies, purees and pastes, except cit... 1.81 2.29 3.56

Sauces nes, mixed condiments, mixed seasoning 0.64 1.02 1.88

Agri processing Development

Constraints

• MSMEs’ lack of access to credit, technology

• Poor infrastructure quality, support facilities

• Weak inter- & intra industry linkages

• High cost of doing business

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Strategies for competitiveness

• Food Security: new food production technologies; research in

agriculture & fisheries

• Strengthen link between job skills standards & TVET

curriculum

• Standardize & harmonize business procedures

• MSMEs: expand access to credit, product development

• Develop enterprise/industrial zones

• Industry cluster programs to strengthen linkages

Steps in Industry Roadmap

formulationSTEP 1: What are the existing & future growth

potentials of the industry in both domestic and export

markets?

• Benchmarking: fast growing countries with similar

endowment structure & industries that have grown well

STEP 2: See if private sector is already in these

industries; are there existing or nascent activities? if

none, seek FDI

STEP 3:What are the obstacles preventing the firms

from upgrading the quality of their products? new

firms from coming in?

• Value/Supply Chain analysis

• Growth Diagnostics by Hausman, Rodrik & Velasco (2005)

• Dialogues & consultations with private sector 22

Steps in Roadmap formulation (cont’d)

STEP 4:Take action to remove constraints: latch on to regional production networks, increase capacity to export; link domestic firms especially SMEs to multinationals

oHorizontal interventions: protection of property rights, improvement of overall business & investment environment, R&D, industrial clusters, economic zones

oVertical interventions: incentive measures to address market failure like tax incentives for a limited time, direct credits, access to raw materials & capital equipment

oCoordination mechanisms: industry councils to serve as venues for deliberation and coordination between the government & private sector

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Moving ForwardCluster Competitiveness & Collective Action

Cluster-based industrial strategy to build strong & competitive regional economies

Collective action foundation of cluster competitiveness

• For the private sector1. Ownership of the regional industry cluster

roadmaps

proximate source of growth: private sector, investment, & entrepreneurship

2. Leadership in developing the industry cluster

Sustainability in implementing programs

3. Active participation of business associations in Regional Industry Cluster Team Meetings

4. Collaboration with educational institutions

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Recommendations

• For government: pro-active facilitator & coordinator

1. Remove binding constraints to competitiveness Physical infrastructure: roads, seaports and airports,

power, shipping, logistics

Administrative infrastructure: trade facilitation, business permits, tax administration

Scientific and Technological infrastructure: link with academe, innovation, research & development, shared services facilities, post harvest processing facilities, pests & diseases

Addressing supply/value chain gaps

Human resource development & skills trainings

2. Mix of incentives for farmers/growers & processors

3. SMEs’ inclusion in industry clusters: access to finance, technology, skilled workers, compliance with product standards & quality, production facilities

4. Cluster upgrading & moving up the value chain 25

For more information, visit our website

industry.gov.ph

Thank You!

We cannot leapfrog industrialization, we need

to upgrade & transform our industries.

Through a new industrial policy, we can make

our industries competitive and create an

environment conducive to private sector

development.

This could lead to more investments, & more &

better jobs, sustainable & inclusive growth.

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