Report No. 667a-PH Philippines Appraisal of a Small andMediu Industries Development Project WITHINR (In Two Volumes) ONE vomEtlJ (4 Volume II-Part 1: A Report on Philippine Small a e In str Part 2: Technical Assistance Programs for Small and Medium April 18, 1975 Industries EAPProjectsDepartment Not for Public Use E Dtxument of the International Bank ior Reconstruction and Development This report was prepared for official useorrly by thef Bank Group. It may not be published, quoted or cited wiithout Bank Gfoup authorization. The BankGroup does, not accept respnnNihilitv4ir th o acriiracy or completernesb of thfe report. Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized Public Disclosure Authorized
Transcript
Report No. 667a-PH
PhilippinesAppraisal of a Small and MediuIndustries Development Project WITHINR (In Two Volumes) ONE vomEtlJ (4Volume II-Part 1: A Report on Philippine Small a e In str
Part 2: Technical Assistance Programs for Small and MediumApril 18, 1975 IndustriesEAP Projects Department
Not for Public Use E
Dtxument of the International Bank ior Reconstruction and Development
This report was prepared for official use orrly by thef Bank Group. It may notbe published, quoted or cited wiithout Bank Gfoup authorization. The Bank Group does,not accept respnnNihilitv4ir th o acriiracy or completernesb of thfe report.
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CURRENCY EQUIVALENTS
US$1 P 7.00P 1 = US$0.143P 1 million US$143,000
FISCAL YEAR
July 1 - June 30
ABBREVIATIONS
ASM - Annual Survey of ManufacturesBDT - Bureau of Domestic Trade, Department of TradeBOI - Board of InvestmentsCB - Central Bank
DLC/ILD - Department of Loans & Credits, Industrial Loans DivisionDRBSLA - Department of Rural Banks & Savings & Loan Associations
CBCI - Central Bank Certificates of IndebtednessCCC - US Commodity Credit CorporationCWB - Canadian Wheat BoardcSMI - Commission on Small and Medium IndustryDAP - Development Academy of the PhilippinesDBP - Development Bank of the Philippines
BAAD - Branches and Agencies DepartmentIPD - Industrial Projects Department
DCP - Design Center of the PhilippinesDOI - Department of IndustryFTI - Food Terminal IncorporatedGSIS - Government Services Insurance SystemIGLF - Industrial Guarantee and Loan Fund
STD - Special Time DepositCPA - Counterpart Project Agreement
ISSI - Institute for Small-Scale IndustriesKfW - Kreditanstalt fur WiederaufbauMASICAP - Medium and Small Industry Coordinated Action ProgramNACIDA - National Cottage Industries Development AuthorityNEA - National Electrification AdministrationNEDA - National Economic Development AuthorityNIDC - National Investment and Development CorporationNMYC - National Manpower and Youth CouncilNPC - National Power CorporationPDCP - Private Development Corporation of the PhilippinesPDB - Private Development BanksPFLGC - Philippine Foreign Loan Guarantee CorporationPITC - Philippine International Trading CorporationPNB - Philippine National BankRFC - Rehabilitation Finance CorporationRTAC - Regional Technical Assistance CenterSEC - Securities and Exchange Commission
PHILIPPINES
APPRAISAL OF A
SMALL AND MEDIUM INDUSTRY DEVELOPMENT PROJECT
VOLUME II
TABLE OF CONTENTS
Page No.
PART 1: PHILIPPINE SMALL AND MEDIUM INDUSTRIES ................... 1-25
A. THE ROLE OF SMALL AND MEDIUM INDUSTRIES IN THEMANUFACTURING SECTOR ............................... 1
B. CHANGING PATTERNS IN SMI GROWTH, 1962 TO 1971 ........ 9C. FACTOR PROPORTIONS AND PRODUCTIVITY IN SMI ........... 18D. CONSTRAINTS ON INCREASED PRODUCTIVITY IN SMI ......... 20E. CONST-RAINTS ON THE FURTHER DEVELOPMENT OF SMI ........ 22F. THE PROGRAM OF ASSISTANCE TO SMI ..................... 24
Tables (Incorporated in Text)
Table 1: Total Manufacturing by Size Establishments, 1971 ASM.... 1Table 2: Contribution to the Modern Manufacturing Sector by Size
of Establishments, 1971 ............................... 2Table 3: The Comparative Role of Manufacturing Establishments by
Size in Selected Developing Countries ................. 4Table 4: Some Indicators of Industrial Development ............... 5Table 5: Percentage Distribution of Gross Regional Product by
Industrial Origin, 1967 ......................... , 6Table 6: Regional Distribution of Number of Establishments based
on Employment Size, 1967 ........................ 8Table 7: A Comparison of Regional Distribution of Manufacturing
Industries, 1967 and 1972........................ 10Table 8: Comparison of SMI Output to Exports in Selected Major
Industry Groups ...................... 11Table 9: Average Annual Rates of Growth in Manufacturing,
1962-68 and 1968-71 ................... 12Table 10: Distribution of Manufacturing by Product Groups ......... 14Table 11: Share of Employment and Value Added in SMI by Major
This volume of the appraisal report was prepared by Miss Kathleen Di Tullioand Mr. Percy Mistry with assistance from Miss Kathleen Jordon in thepreparation of the Basic Data Tables.
Page No.
Table 12: Share of Total Modern Manufacturing Employment and GrossValue Added in SMI by Major Product Group, 1962-71.... 17
Table 13: Ratio of Imports to Domestic Availability ............... 18Table 14: Factor Intensity and Productivity in Manufacturing,
1971.. 19Table 15: Wage Rates in Philippine Manufacturing, 1971 ............ 19Table 16: Overall Growth Rates and Productivity in Selected
Table A: 1962 Basic Data for Large Manufacturing Industries by Size ofEstablishments Based on Employment (Current Prices).
Table B: 1962 Basic Data for Large Manufacturing Industries by MajorIndustry Groups Based on Employment.
Table C: 1968 Basic Data for Large Manufacturing Industries by Size ofEstablishments Based on Employment (Current Prices).
Table D: 1968 Basic Data for Large Manufacturing Industries by MajorIndustry Groups Based on Employment.
Table E: 1971 Basic Data for Large Manufacturing Industries by Size ofEstablishments Based on Employment (Current Prices).
Table F: 1971 Basic Data for Major Industry Groups by Size of Establish-ments Based on Employment.
Table G: Investment and Gross Output for Large Manufacturing Industriesby Size of Establishment Based on Employment 1962, 1968, 1971(Percentages).
Table H: Investment and Gross Output for Major Industry Groups by Sizeof Establishments Based on Employment - 1962, 1968, 1971(Percentages).
Table J: Employment and Wages for Large Manufacturing Industries bySize of Establishments Based on Employment - 1962, 1968, 1971.
Table K: Employment and Wages for Major Industry Groups by Size ofEstablishments Based on Employment - 1962, 1968, 1971.
Table L: Contribution to Value Added, Factor Intensity and Productivityfor Large Manufacturing Industries by Size of EstablishmentsBased on Employment, 1962, 1968, 1971.
Table M: Contribution to Value Added, Factor Intensity and Productivityfor Major Industry Groups by Size of Establishment Based onEmployment - 1962, 1968, 1971.
Page No.
PART 2: TECHNICAL ASSISTANCE PROGRAMS FOR SMALL AND MEDIUM INDUSTRRIES
A. Backgrod .. ............... 1B. The Department of Industry (DOI) 1C. The Commission on Small and Medium Industries (CSMI)..... 3D. The Medium and Small Industry Co-ordinated Action Program
(MAIAP A.............. A.......). 6E. SMI Assistance Programs of Other Institutions. 8
Appendices
Appendix 1: DOI - Expenditures and Budget Projections FY74-78
Appendix 2: DWI/PCI Industrial Desk Coverage
Appendix 3: CSNI - Operating Budget for 1974-75
'Appendix 4: MASICAP - Characteristics and Progress of Projects Under-taken by MASICAP - November '73-October '74
Appendix 5: P.D. 488 - Creating a Department of Industry
Charts
No. 9315: DOI - Organization Chart.
No. 9314: DOI/PCI - Joint Program Communication Chart.
No. 9316: CSMI - Organization Chart.
No. 9359: CSMI - Proposed Organization Chart.
Nap
No. 11420 Location of MASICAP Assistance Units.
PHILIPPINES
APPRAISAL OF A SMALL AND MEDIUM INDUSTRY DEVELOPMENT PROJECT(Volume II, Part 1.)
PHILIPPINE SMALL AND MEDIUM INDUSTRIES
A. THE ROLE OF SMALL AND MEDIUM INDUSTRIES IN THE MANUFACTURING SECTOR
1.01 The Manufacturing Sector: Of the 10,248 establishments coveredin the 1971 Annual Survey of Manufactures (Table 1), 8,203 (80%) werecottage industries made up largely of handicraft and traditional non-factory units. They employed 16% of the labor force and, with a notablylow level of labor productivity, contributed slightly less than 5% togross value added in manufacturing. The ASM data on this group howeverare not complete, and do not include the smallest, "unorganized" firmswith 1 - 4 workers. Unofficial estimates 1/ indicate a far greater roleof cottage units in manufacturing employment (75%) and value added (10%).However as the data are very weak for comparative purposes and cottageindustries as a group (establishments with less than e 100,000 in fixedassets and with between 1 to 19 workers) are treated differently forgovernment policy and program purposes, they are not covered extensivelyin the following analysis. The remaining 2,045 establishments, thosewith 20 or more workers, covered in the 1971 ASM make up what, in con-trast to cottage industries, is the "modern" manufacturing sector.
Table 1: TOTAL MANUFACTURING BY SIZE ESTABLISHMENTS, 1971 ASM(Current Prices)
Gross LaborEstablish- Value Produc-
Scale ments Employment Added tivity
# of Workers Number % Number % f mil. % -eI
Cottage 5-19 8,203 80.0 68,209 16.1 324 4.3 4,750
Small 20-99 1,363 13.3 56,489 13.4 693 9.3 12,270
Medium 100-199 291 2.8 40,222 9.5 790 10.6 19,650
Large 200 + 391 3.8 256,297 60.8 5,641 75.7 22,010
Total 18,248 100.0 421,217 100.0 7,448 100.0 17,680
1/ Estimated by Ranis Mission for the ILO Report, Sharing in Development,Geneva, 1974 (p. 142).
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1.02 The Role of Small and Medium Industries: 1/ As Table 2 shows,approximately two-thirds (19363) of modern manufacturing firms are smallscale. They employ 16% of labor, but with a comparatively lower level oflabor productivity, contribute only 10% to gross value added. Mediumscale establishments formed the smallest group, with 291 (14%) firms em-ploying 11% of labor and contributing 11% to gross value added. Only 19%of the number of firms were large scale, but they dominated in terms ofemployment (73%) and value added (79%). Small and medium industries to-gether accounted for 81% of modern manufacturing firms. They employed27% of the labor force and contributed 21% to gross value added.
Table 2: CONTRIBUTION TO THE MODERN MANUFACTURING SECTORBY SIZE OF ESTABLISHMENTS, 1971
(Current Prices)
Average
Official Establish- Gross Fixed AssetsDefinition Scale ments Employment Value Added per Estab.
Fixed No. of Pesos Book ValueAssets Workers No. x__ No. % (million) % P million
1/ For official administrative purposes in the Philippines manufacturingestablishments are divided into four groups, according to size offixed assets. From an analysis of census data the ntmber of workersemployed per establishment, another commonly used index of scale,turns out to be a fairly good indicator of the "official" categorythe average firm would fall into. The target group for the proposedloan includes small industries, with between e- 100,000 - 1,000,000in fixed assets and on average employing 20 to 99 workers, and mediumindustries, with between e- 1 - 4 million in fixed assets and 100 - 199workers.
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1.03 Inter-Country Comparisons: Compared with other developingcountries, small and medium industries in the Philippines play a lesssignificant role in manufacturing. (Table 3) Whereas Philippine smallindustries employ approximately 13% of the total manufacturing labor force(including the "organized" cottage industries) and contribute 9% of valueadded, in Korea and Colombia, two countries at comparable levels of indus-trialization, they account for between 18% and 29% of labor employed inmanufacturing and between 12% and 19% of value added. In less industrial-ized Malaysia, small industries contribute as much as 36% of employmentand 28% of value added, and in Singapore, at a much higher level of in-dustrialization, small industries are also more prominent, with 27% ofmanufacturing employment and 20% of value added. The contrast is lessstriking for medium industries which account for approximately 10% of em-ployment and value added in the Philippines (and Korea), but in the othercountries contribute between 13% and 16% of employment and 17% and 23% ofvalue added.
1.04 The relatively underdeveloped role of small industries in thePhilippines as compared to other countries emerges independent of generalcharacteristics of industrialization. (Table 4) Industrial policies andincentives, on balance, favor large scale manufacturing in all of theother countries. It would appear however that over time the extent ofthe bias in favor of large scale manufacturing (with 200 and more workers)has been greater in the Philippines. The international comparison sug-gests that there are good possibilities for future growth in manufacturingon a small and medium scale in the Philippines. This conclusion is con-firmed by an analysis of manufacturing performance in the Philippines.There is no optimal scale of efficiency in manufacturing. It varies fromsmall, to medium, to large depending on product. (See Basic Data Tables)The evidence available indicates several opportunities for entry of newsmall and medium firms and for their expansion in the manufacture of awide variety of products, such as garments and wood furniture for bothdomestic and export markets and in agro-related industries, including foodprocessing and small agricultural machinery. With appropriate policies(aimed more at neutralizing the bias against SMI rather than toward theiractive promotion) and access to the necessary financial and technical as-sistance, Philippine SMI could play a more significant role in future in-dustrialization.
1.05- Regional Distribution of SMI: An analysis of Gross DomesticProduct by regional origin shows an overwhelming concentration of economicactivity, except for agriculture and mining, in the Southern TagalogRegion (IV) which includes Metropolitan Manila (47.4% of total GDP).There is no other comparable concentration of activity. At a much lowerlevel, between 6% and 9% of GDP originates in each of five other regions:Central Luzon (III); Western Visayas (VI); Central Visayas (VII); NorthernMindanao (X); and Southern Mindanao (XI). (Table 5) Small and mediumindustries, which tend to cluster in urban areas close to supply and de-mand and where infrastructure facilities and other services are more de-veloped, follow this pattern, but to an even higher degree of regionalconcentration. About 65% of SMI establishments are located in the
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Table 3. THE COMPARATIVE ROLE OF MANUFACTURING ESTABLISHMENTS BY SIZEIN SELECTED DEVELOPING COUNTRIES
(Percentages)
Scale Philippines Colombia Korea Malaysia Singapore
/1 -Cottage industries include units with 10 to 19 workers.
Sources: For Colombia, Korea and Singapore see Country Annexes to Bank Staff Work-ing Paper No. 191, Financing the Development of Small Scale Industries,1974. For Malaysia, see IBRD report on the Industrial Sector, 1971.
Table 4. SOME INDICATORS OF INDUSTRIAL DEVELOPMENT
Gross Value Added in Manufacturing Per Capita _
Average Manufactured Labor
As % of VA Annual Expoyi:G Value Added EsoLioates Labor Force Productivity
in Comimodity Real Absolute Annual in Total of Total in in
Productionll Growth Rate Level Growth Rate GNP Manufacturing Population Lahor Force Manufacturing Manufacturing
Source: Noational 'cnoic and DeveLopment Authority. iegionai Income Accounts Project.Preliminary Report,July 24, 1974.
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Southern Tagalog Region: 53% are in Metropolitan Manila alone. Of theremaining 35% of SMI, about 23% are found in the five regions of greatestoverall economic activity and larger urban marketplaces: Central Luzon(8.8%); Central Visayas (7.3%); Western Visayas (4.0%); Southern Mindanao(4.0%); and Northern Mindanao (3.0%). (Table 6) Large scale industries,while still concentrated in the same regions, are relatively moredecentralized.
1.06 Regional Distribution of Cottage Industries: Cottage industriesare by far the most dispersed. They are less dependent on power and tendto process locally available materials for highly localized and small mar-kets. Approximately three quarters of the smallest establishments are inthe food industries (milling, bakeries, etc.) and wearing apparel (tailor-ing, dressmaking, etc.). There are fairly large numbers (from 3 - 5% ofthe total) in the textiles, metal products, electrical machinery andtransport equipment industries where they provide services as well asfabricating small parts and components. These industries could providean important source of entrepreneurs and of semi-skilled and skilledlabor in the development of SMI in the regions. Financing institutionsand DOI's technical assistance field teams 1/ are making an effort to as-sist the larger cottage manufacturers with good prospects for expansionespecially in less developed rural areas. The National ElectrificationAdministration's (NEA) program to establish industries in rural areaswill also reach the cottage industry group. 2/ With one of NEA's criteriain project selection being the availability of local skills and a tradi-tional base on which to build, it is expected that cottage industry work-ers (who are generally engaged in part-time manufacturing jobs with lowproductivity and wages) will be employed full-time in these new projects.3/
1/ See Part 2 on the Medium and Small Industry Coordinated Action Pro-gram (MASICAP). The DBP branches and agencies and other financinginstitutions have a backlog of applications from cottage industries.Improvement in procedures and staff capability should ease the bottle-necks in handling large numbers of small loan applications. As thereis no restriction on minimum size loans for this project, it is ex-pected that the spin-offs from increased capability and funding willfavorably effect cottage industries firms as well.
2/ Volume I, Annex 7 NEA.
3/ In the few cases where assistance to cottage industries has been suc-cessful, e.g., in the Madras leather industry in India, the approachof providing management, marketing and technical assistance now beingtaken by NEA has been used. In the private sector in the Philippines,
this approach has proven effective in one noteworthy instance, i.e.,organizing production of abaca handicraft products for export.
PHILIPPINES
Table 6. DLLioisf Number ofmn Establishments on jLqymijn i ze 1967
ScaleCottage Industries Small and Medium Industries Large Industries
Source, Bureau of Census and Statistics. Economic Census of the PhiliDpines, 1967(Manila, 1973). Vol II. ManufacturinJ and Vnl.IX, Small Establiehments.
The data were reorganL%ea intao the nie regions by che NEDA 8IslE.
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1.07 Future Trends for Regional Distribution: Increased regionaldispersal of manufacturing industries (particularly small scale) is ex-pected to take place in future years. The preliminary release of datafrom the 1972 Economic Census indicates a continuation of past loca-tional patterns (Table 7) among the six most developed regions, althoughthere was a shift away from the Southern Tagalog region. Since 1973,however, the Government has taken steps to restrict creation of capacityin more heavily industrialized urban areas (Greater Manila, Cebu City,and parts of Davao City) and has begun to emphasize regional planning.In 1974 the DOI's Conmission on Small and Medium Industries was createdprimarily to implement a program to assist the growth and development ofsmall and medium industries in the regions, as part of the policy of pro-viding guidance and resources for regional development. There are al-ready encouraging signs of follow-through of Government policies, withmore recent data on loan commitments by financial institutions suggestinga movement of SMI outward from the Manila area.
1.08 Markets Served by SMI: SMI for the most part sell directly tothe highly concentrated urban markets where the factories are located.A significant share of their output however reaches fairly distant na-tional markets, mostly through middlemen who purchase at the factory gatefor transport and resale. Interviews with entrepreneurs and staff of SMIassistance programs suggest that SMI are beginning to develop more of aregional marketing perspective and are aggressively pursuing entry intowider markets.
1.09 At least a small share of SMI products are being exported. Acomparison of SMI share in total output to exports by product indicatesthat in the past SMI made a significant contribution in furniture, leather,and miscellaneous manufactured exports. (Table 8) SMI may also play animportant role in other manufactured exports, such as specialized foodpreparations, wood, and chemicals, although much more detailed data areneeded to follow up on these crude indicators. While a share of SMIoutput reaches export markets, through direct sales and middlemen, it islikely to remain insignificant without substantially greater assistanceto the small manufacturer. Smaller firms often have difficulty in ex-porting because of low quality products, lack of standardization, ina-bility to meet minimum quantity orders, and difficulties in covering mar-keting overheads. They also have difficulty finding suitable exportfinancing. Under the government program of assistance to SMI particularattention is being paid to find ways to develop their export potential.
B. CHANGING PATTERNS IN SMI GROWTH, 1962 TO 1971
1.10 Overall Changes: In the mid-1960's growth in modern manufactur-ing, on the whole, was very sluggish. Towards the end of the decadegrowth rates increased, although not at a pace in keeping with expectedpotential of the sector. From 1962 to 1968 employment in modern manufac-turing grew at an average annual rate of 0.2%. Gross output grew at 3.1%
PHILIPPINES
Table 7. A Comoarison of Regional Distribution of Manufacturing Industries. 1967 and 1972
(Percentages)
Number of TOtal Payrolls and Gross GrossEstablishments Employment Extra Benefits Paid Ler. eiptn Value Added
Sou:rce: aol. R. epor. 7u-Pn u. -entlconc•ric Po sitia:: andProspects o'-the P-',ipi:r-,ies,o II Table 12Col. 2. See Basic Data Table H.
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in real terms (measured in 1965 constant prices) and value added at 2.0%.(Table 9) From 1968 to 1971 manufacturing activity increased, with em-ployment growing at an average annual rate of 2.8%, output at 6.8% andvalue added at 7.8%. During this period (1962 through 1971) the role ofSMI as compared to large scale industries rose and then fell off again inboth relative and absolute terms. It could be expected in a normal pat-tern that the relative share of SMI in manufacturing would decline asgrowth in large scale industries accelerated. However, in the aggregatePhilippine SMI have also experienced a substantial decrease in their ab-solute rates of growth.
Table 9. AVERAGE ANNUAL RATES OF GROWTH IN MANUFACTURING,1962-68 AND 1968-71
(Based on 1965 constant prices)
GrossScale Establishments Employment Gross Output Value Added
1.11 Between 1962 and 1968 the growth of small and medium industriesfar exceeded growth in large scale manufacturing. Employment in SMI grewat an average annual rate of 2 - 3%, while employment in large scale manu-facturing actually declined at an average annual rate of 0.7%. Grossvalue added in small industries grew at a rate of 4.2% and in medium in-dustries at 10%. In large industries gross value added grew much moreslowly, at 0.7%. From 1968 to 1971 the growth pattern shifted. Small in-dustries actually declined in employment (-6.5% average annual rate) andvalue added (-2.7%), and medium industries grew at much slower rates inboth employment (1.6%) and value added (1.1%). In comparison, large in-dustries achieved accelerated growth rates in employment (5.6%) and valueadded (10.8%). In the mid-1960's period of comparatively high growthrates, SMI played an increasingly important role in manufacturing as com-pared to large industry. SMI share of employment rose from 29% to 33%,of output from 25% to 30%, and of value added from 19% to 25%. However,in the subsequent period, 1968-1971, the share of SMI diminished in manu-facturing employment to 27%, in gross output to 25% and in value addedto 21%.
1.12 Diversity of SMI by Major Product Groups: In 1971 over 50% oftotal modern manufacturing production was concentrated in consumer goods,40% in intermediate goods, and only 7 - 8% in capital goods. The impact
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of small and medium scale industries was however greatest in intermediategoods, where they accounted for approximately 35% of total employment and32% of value added, and capital goods, with almost 40% of employment and26% of value added. SMI accounted for only 20% of employment and 12% ofvalue added in consumer goods, which is dominated by large scale mass pro-duced manufactured food, beverage, and tobacco products. (As much as 35%of total large scale manufacturing employment and almost 50% of valueadded are in food, beverages, and tobacco.)
Total Modern Manufacturing Share in SMIEmployment Value Added Employment Value Added
The remaining 60% is spread fairly evenly among all major product groups,at the two digit level. In terms of the share of SMI as compared to largescale manufacturing, however, SMI have their greatest impact in other sub-sectors. (Table 11) Over half of total manufacturing employment and value
Table 10. DISTRIBUTION OF MANUFACTURING BY PRODUCT GROUPS
Part A. Total Manufacturing
Employment Gross Value Added
1962 1968 1971 1962 1968 1971
Number % Number % Number % Number % Number % Number %
(Share of Total Manufacturing) (81.0) (27.3) (20.8)
/1 Estimates, on the basis of residuals, are made in these sub-sectors, since the data by size establishments is suppressed in
the ASM.
Source: See Basic Data Tables.
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added in leather, furn4i.udr2 machinery, 1/ and miscellaneous manufacturedgoods is in SMI. Between one-third and one-half of employment in footwear,and other apparel, metal, naper, petroleum and coal, and rubber (andchemical) products, basic metals, transport equipment, and electricalmachinery is in SMI. Their share in value added in these sub-sectorsranges from 19% to 46%. SMI have least impact in the mass produced con-sumer goods--food, beverages, tobacco and textiles--and in wood and non-metallic minerals.
1.14 Role of SMI by Makor Tndustry Groups: In the mid-1960's periodof growth, the share of SMI in employment and production increased notablyin capital goods industries (t-ansport equipment, and electrical machinery,appliances and apparatus anc machlinery), and to some extent in intermediategoods (rubber products, chemicals and chemical products) and consumer goods(food and textiles). (Table 12) In 1971 the percentage of employmen't andoutput remained about the sane or dropped, except in leather, and rubberproducts, chemicals, and textiles where SMI continued to grow. The fluctu-ations in impact of SKI compared to that of large scale industries in majorproduct groups could be explainey, in part, by the relative scope for im-port substitution and the levels of protection. During the 1960's theratio of imports tc domestic availability was relatively high in the pro-duct groups favored by SMI. (Table 13) At the same time, the effectiverate of protection realized for transport equipment (77), machinery(112), and intermediate products (88) (including chemical products, rubberproducts, and fabrics) was higher than the realized effective rate for allmanufacturing (49) 2/, thus making these industry groups more attractivefor the entry of SMI. 3/
1.15 There is no ready explanation as to why in the 1968-71 periodsmall industries actually decreased and medium industries experiencedsubstantially lower rates of growth. At a more disaggregated level itcould be expected that SMI would not be in direct competition with largescale production, but would be diversifying into product lines where thereare no substantial economies of scale. However, policy incentives haveencouraged large firms inr the Philippines towards vertical integration,and have otherwise encouraged inefficient large size firms, thus narrowingthe opportunities for SMI to produce similar products (and offer similar
1/ Total SMI share is estimated, since data for medium and large indus-tries are not broken down. However small industries alone (20 - 99workers) account for 48% of employment and 34% of value added in themachinery sub-sector.
2/ IBRD report No. 78A-PH, page 17.
3/ See IBRD report No. 280-PH, Industrial Development Problems and Pros-pects in the Philippines, Vol. 2: Review of Selected Sub-sectors.Small manufacturers in engineering goods reported they could competequality and price wise with imports.
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Table 12. SHARE OF TOTAL MODERN MANUFACTURING EMPLOYMENT ANDGROSS VALUE ADDED IN SMI BY MAJOR PRODUCT GROUP, 1962-71 /1
/1 Where the data available are only partially broken down by size estab-lishments estimates have been made. This applies to petroleum andcoal products and machinery in all years; to leather goods and miscel-laneous products in 1968; and tobacco in 1971.
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services) even where economies of scale in production do not exist. Forexample, in the ILO report (Ranis Mission) it was found that garment man-ufacture which could be carried out efficiently on a small scale was in-
creasingly concentrated in large scale firms. For other products SMI ex-perience competition from imports which are allowed because they are felt
not to be produced domestically in sufficient quantity or are felt not to
be of comparable quality. The extent of the distortionary effects on SMIability to compete would appear to be substantial. As the size of both
the domestic and export markets did not expand appreciably during the1960's, SMI were further constrained in prospects for capturing new mar-kets or diversifying. In addition, the slow growth of medium industriesand the decline of small industries is also attributable to inefficien-
cies caused by capital, management, and technology constraints, and the
lack of assistance available to overcome them.
Table 13. RATIO OF IMPORTS TO DOMESTIC AVAILABILITY(Percentages)
Source: IBRD Report No. 78a-PH, Current EconomicPosition and Prospects of the Philipplnes,Vol. II, Annex 1, Table 12. July 25, 1973.
C. FACTOR PROPORTIONS AND PRODUCTIVITY IN SMI
Labor Intensity in SMI: Small and medium industries are morelabor intensive than large industries. (Table 14) The amount of laboremployed per unit of capital is highest in small (.088) and medium firms(.072), and falls to .045 in large firms. Labor content (per unit of
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gross value added) is similarly highest for small firms (.082) and de-clines for medium scale (.051) and large scale (.045). Conversely, capi-tal intensity increases as scale increases: from e- 11,400 per worker insmall firms to e 14,000 per worker in medium firms, to a high of - 22,300per worker in large scale production. At the aggregate level this fitsthe pattern found normally in other countries.
Table 14. FACTOR INTENSITY AND PRODUCTIVITY IN MANUFACTURING, 1971
Scale of Firm Capital Labor Labor Output OutputLabor Capital Output Capital Labor
Capital = fixed assets at book value.Output = gross value added.
1.17 As has been found in other countries labor productivity is lowerin Philippine SMI, especially in small industries where the amount ofcapital employed per unit of labor is lowest. Low labor productivity insmall firms accounts for the gap between percentage of manufacturing em-ployment in SMI as compared to contribution to gross value added. Never-theless, in terms of returns to labor, while productivity and averagewage rates are lower in small industries, wages as a percent of grossvalue added are higher. (Table 15)
Table 15. WAGE RATES IN PHILIPPINE MANUFACTURING, 1971(By Size of Firm)
Scale of Firm Wage Rates Wages as % of Gross V.A.(e- 000's)
Small 3.3 26.6,Medium 4.0 20.3Large 4.6 21.0
Total 4.3 21.5
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1.18 The inability of small and medium industries to sustain improvedproductivity, and thus competitiveness, explains in part the eventual de-cline of relative impact of SMI in total manufacturing. Comparativegrowth rates and labor productivity in five selected product groups inwhich SMI have played an increasingly important role are shown in Table 16.Growth rates and productivity increases have been sustained by SMI onlyin one product group--chemicals. While growth and productivity increaseshave been uneven in textiles and transport equipment, medium industrieshave recovered lost ground in more recent years in these product groups.Furthermore, the decline in the proportion of capital formation (fixedassets and annual net investment) in SMI as compared to that in largescale industries is indicative of both the inability of SMI to financegrowth and improvements and perhaps also to a lack of demand fot theirproducts thus making further investment in SMI unattractive. (See BasicData Tables)
1.19 Capital Productivity in SMI: Small and medium use the scarcefactor, capital, more efficiently than large scale firms. Medium sizefirms use capital most productively (O/K, 1.4), followed by small firms(O/K, 1.1), and finally large firms (O/K, 1.0). While small industriesappear only marginally more efficient than large scale in the use ofcapital, on closer examination (Basic Data Table K) the larger firms inthe "small" group (i.e., those with between 50 - 99 workers) are more ef-ficient in the use of capital (outpuc/capital ratio 1.3) than the smallerfirms (20 - 49 workers) in this group. These small firms along with largefirms (200 - 499 workers) use capital least productively. In other coun-tries (e.g., Pakistan, India, Japan) firms in the 20 - 49 workers (and10 - 19 workers) size group also are observed to be uneconomic in certainindustries. However since, in the Philippines, this is observable in theaggregate, it would suggest the prevalence of a large number of uneconomicfirms in the 20 - 49 workers group, because of either inappropriate scaleor because of serious inefficiencies due to other causes.
D. CONSTRAINTS ON INCREASED PRODUCTIVITY IN SMI
1.20 The relatively low and uneven labor productivity in SMI and theinefficient use of capital by the smallest firms may be explained by anumber of factors including: i) the lower quantity (and quality) of capi-tal goods employed; ii) the lack of access to external sources of bothinvestment and working capital; iii) the lower level of skills recruitedand the tendency to use the apprenticeship system to train labor; andiv) more generally, the inefficiency in smaller firms caused by a lack ofexpertise in organization, management, and choice and ralionalization oftechnology.
1.21 Capital Constraints: Available information reinforced bY theappraisal mission's firsthand observations during visits to a number ofsmaller establishments indicate that there is great scope for improvingSMI efficiency. Long term capital is needed to replace outmoded and in-appropriate machinery for improved processes and for expansion in the
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Table 16. Growthn Rates and Productivitty in Selected Product Groups
(Based on 196 Ton~stant prices)
Product Group cro-rth Rate (M) Labor Productivity (O/L)Labor Value Added . 1962 1968 1971
same and related lines of production where demand is increasing. Theconsiderable underutilization of capacity and problems of marketing flex-ibility could also be relieved by providing SMI with sufficient accessto permanent working capital to build up inventories of materials andfinished goods beyond one production period. 1/ However as institutionalsources of financing generally have not been accessible, SMI have beenforced to rely heavily on internal resources, or short term borrowingfrom non-institutional sources at rates of 5 - 10% per month depending onthe amount, thus severely restraining the ability to modernize, expand,and establish new units.
1.22 Skill Constraints: Efficiency problems are compounded by therelatively low level of managerial skills--in financial management as wellas work organization, production, planning, and marketing--and of techni-cal expertise in refining choice of technologies for improved processes.In many cases entrepreneurs are knowledgeable in one particular area, forexample, those with engineering backgrounds can handle their technologyproblems, but are weak in management. In other cases, former merchantsthat have gone into manufacturing may be strong in marketing and manage-ment areas, but require technical advice on improvement in production pro-cesses. Generally, a package of services is necessary to ensure thatsmall firms have timely access to whatever kind of assistance is necessary.
E. CONSTRAINTS ON THE FURTHER DEVELOPMENT OF SMI
1.23 The Industrial Policy Framework: Although the manufacturingsector is fairly well developed in the Philippines, the industrial struc-ture is top heavy. Production is concentrated in large scale, capitalintensive firms that have benefited from inducements allowing the importof capital goods, components, and industrial raw materials at concession-ary rates. High levels of protection of finished goods coupled with thetariff and tax relief have resulted in high toleration of inefficiencies(such as the creation of excess capacity), accelerated capital labor sub-stitution, and vertical integration of production that could be carriedon in smaller units. Theoretically small and medium manufacturers shouldalso benefit from favorable conditions afforded by high protective levels,
1/ Considerable underutilization of installed capacity ih SMI, particu-larly in the regions, results from unreliable supplies of power.Outages of 4 - 6 hours during a working day are common resulting inwasted production and idle equipment and labor. Small entrepreneursare often forced to overinvest in capacity on the assumption that theyonly have 4 - 6 hours of production time per day. Most small entre-preneurs, unlike their larger counterparts, cannot afford their ownstandby generators and hence are totally vulnerable to vagaries inpower supply. This factor also explains, partly, why SMI are gener-ally unable to reliably supply large batch orders within the timelimits usually set by exporters or large firms.
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but even within this framework SMI cannot compete since they generallyare discriminated against by lack of access to the same cost-reducing(distorting) incentives and to industrial financing for investment andshort-term capital needs available to alrge firms. In spite of adverseconditions, as noted above, SMI have succeeded in entering certain mar-kets; their position however has been very unstable due to apparentlyfluctuating market conditions they face and the inability to sustaincompetitiveness, whether directly with domestic production of homogenousproducts in large scale corporations or with imports.
1.24 Market Accessibility: High urban concentration in GreaterManila and surrounding areas coupled with only moderate increases in ag-gregate consumer demand in this area have further constrained the overallgrowth of SMI. Poor (or expensive) access to larger national marketsrestricts the competitiveness of SMI already located in the Manila areasince they cannot achieve the external economies of large-scale opera-tions. On the other hand, larger firms with greater flexibility (e.g.,in the wood and cement industries) have been able to locate in less de-veloped areas close to raw material sources. These firms however havegenerally geared their operations so as to be virtually self-contained andhave not provided the linkages that could be expected for SMI. Currentefforts to discourage such practices would result in a broader based in-dustrial structure in the future. As for markets outside Manila, thesmaller urban centers such as Cebu and Davao provide good prospects. In.other areas, however, demand tends to be restrained by low rural incomes.With the present push for improvements in agriculture and regional develop-ment generally coupled with the rapid increase in rural incomes over thelast 2 - 3 years, demand for manufactured goods and services in the non-urban areas can be expected to increase, thus providing greater oppor-tunities for SMI to disperse regionally.
1.25 Infrastructure and Support Services: Even where there is de-mand, or good prospects exist for developing markets in the short run,smaller firms find it costly to locate in the regions. There are con-straints on the supply side, even for primarily resource-based industries.Communications and power facilities are inadequate; supporting servicessuch as those provided by financial institutions, suppliers, consultants,transporters, wholesalers, and other industries for intermediate andfinishing processes and maintenance are difficult to find in the localarea, and expensive if available only by shuttling to Manila. For SMImanufacturers located in the regions the main difficult4es seemed *to be:1) power shortages; 2) centralization of decision-making on the part offinancial institutions in the Manila head offices; 3) prolonged periodsof delay in communicating with suppliers and receiving orders; 4) lack oflocal sources for advice on technical problems; and 5) lack of lQcal as-sistance in formulating project proposals for financing.
1.26 Constraints on Exporting: As regards export markets, small andmedium industries in addition to a lack of export market knowledge, alsohave difficulties on the production side (design, quality, and quantity),
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in marketing and in access to trade finance which would enable them tomeet export orders reliably. Exports in manufactured goods that couldbe produced on a relatively small scale (for example, furniture, garments,specialized textiles, and prepared foods) have been increasing in the1970's and there is scope for increases in such products as small agri-cultural implements. With assistance in improving product quality andefficiency, and in financing and marketing arrangements SMI could suc-cessfully enter export markets to a much greater extent in virtually allindustry groups.
1.27 Difficulties in Meeting Institutional Requirements: There is alarge number of Filipino entrepreneurs who are ready to expand and investin new ventures. With new government policy ensuring accessibility tofinancing, they face a more general and immediate problem of firming upproject feasibilities (and making necessary technical decisions) and pre-paring acceptable applications for financing institutions. The processinvolves a number of steps including clearing land titles, ensuring com-pliance with government registrations and certificates (in certain indus-tries such as food) obtaining quoatations from suppliers, and so on.Smaller firms which generally have almost no managerial staff (often onlythe entrepreneur who may be assisted by family members in bookkeeping,sales, etc., attends to such problems) do not have the time (or contactsto cut red tape), and usually lack knowledge of the best sources to con-tact for assistance to carry out a feasibility study and put it into aform acceptable to financial institutions. Consequently plans for newinvestment tend to take unduly long to come to fruition. In the meantimeimprovisations (often very inefficient for labor as well as capital use)are made and opportunities are foregone. In addition, with current ratesof inflation, project costs have to continually be revised upwards. Theseconstraints are being relieved, but only to a very limited extent, by theDOI's field assistance teams and also by financial institutions who aresimplifying their informational requirements.
F. THE PROGRAM OF ASSISTANCE TO SMI
1.28 These constraints on the development of SMI have been recognizedby Government, and in keeping with the new policy thrust of encouragingand assisting growth of SMI primarily in less developed regions, bothfinancial and technical assistance programs are being developed and imple-mented. It is in these two principal areas where small and medium indus-tries have had least access to outside assistance, in both the public andprivate sectors.
1.29 In 1974 the Department of Industry was created with one of itsmajor tasks being the implementation and coordination of programs of as-sistance to SMI. The DOI's basic approach is to reach small and mediumfirms at their places of business with direct assistance by field teams
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who are permanently located throughout the regions. The field teams,comprised of generalists, are responsible for assisting entrepreneurswith project feasibility studies--and the many time consuming steps whichare often the greatest bottlenecks in moving a project along--and prepar-ation of loan applications. When more involved technical assistance isrequired, the teams work through the channel of communications set upwith the support staff in the central unit of the Department of Industry.The central office, which is just being fully staffed, in turn, isequipped to provide the more specialized assistance directly or contactappropriate agencies with the requested expertise. Thus far the program,which was started on a modest basis to determine the real needs of smallentrepreneurs in the regions, has been successful in providing entrepre-neurs with practical services. On the basis of experience gained, theRegional Technical Assistance Centers, being proposed for financing inthe start-up phases under this project, will be implemented to providegreater depth and breadth in technical services permanently located inthe regions. The DOI program is discussed in detail in part 2 of thisvolume. The RTAC's are discussed in more detail in Volume 1, Annex 8.
Basic Data Tables
Table A: 1962 Basic Data for Larg,e Xlan.ufacturing Industries by Size, ofEstablishments Based on Emnployment (3urrent Prices).
Ta:ble B: 1962 Basic Data for Large Manufacturing Industries by MajorIndustry Groups Based on Eloyment.
Table C: 1968 3asic Data for Large Manufacturing Industries 'oy Size o-fEstablishments Based on Eaployment (Current Prices)..
Table D: 1968 Basic Data for Large Manufacturing Industries by MajorIndustry Groups Based on Employnient.
Table E: 1971 Basic Data for Large Maaufacturing Industries by Size ofEstablishments Based on Employment (Current Prices).
Table F: 1971 Basic Data for Major Industry Groups by Size of Establish-aents. Based on Employment.
Table G: Investment and Gross Output for Large Manufacturing Industriesby Size of Establishment Based on Employment 1962, 1968, 1971(Percentages).
Table H: Inrvestmient and Gross Output for Major Industry Groups by Sizeof Establishments Based on Employment - 1962, 1968, 1971(Percentages).
Table J: Eaployment and Wages for Large Manufacturing Industries bySize of Establishments Based on Employment - 1962, 1968, 1971.
Tab1~ e: Emp,y-/ent and Wages for MlaJor Industry Groups by Size ofEstaobishments Based on Employment - 1962, 1968, 1971.
Table L: Contribution to Value Added, Factor Lntensity and Productivityfor Large Manrlufacturing Industries by Size of EstablisIhmentsBased on Enmloynaent, 1962, 1968, 1971.
Table M: Contribution to Value Added, Factor Intensity and Productivityfor Ma-jor Industry Groups by Size of Establishment Based on'.1loyment - 1962, 1968, 1971.
PHILIPPINES
1962 Basic Data For Large Manufacturing Industries by Size of Establishments Based on Employment
(Current Prices)
(In Thousand Pesos)
PayrollsWorking Production and and Extra Fixed Fixed Census
Number of Owners and Related Workers Total Benefits for Assets at Assets per Net Gross 1/ ValueScale Establishments Unpaid Family Plus Others Employment Paid Employees Book Value Establishment Investment output Added
21 Unadjusted, therefore it excludes work in progress.
3/ In the ASM : 1962 the information for firms with "500 and above employees" is not added into the Total Manufacturing statistics, although the data are given in theaggregate table. The values given above include the "500 and above" category.
Source: Bureau of the Census and Statistics, Annual Survey of Manufactures : 1962, Manila, Philippines.
1971 Basic Data for La_rt Manufacturing Industries byize of Establishments Based on Employment
(Current Prices)
(In Thojsand Pesos)
PayrollsWorking Production and and Extra Fixed Fixed Census
Number of Owners and Related Workers Total Benefits for Assets at Assets per Net Gross ValueScale Establishments Unpaid Family Plus Others Employment Paid Employees Book Value Establishment Investment Output Added
Grand Total 2,045 696 352,312 353,008 1,530,687.2 6,909,752.0 3,378.8 1,112,490.3 18,604,377.5 7,124,195.1
- Nil
Source: Bureau of the Census and Statistics, Preliminary Report on Annual Survey of Manufactures: 1971, published 1973, Manila, Philippines.The finalized 1971 ASM and the ASM for 1973 are expected in December, 1974, along with the 1972 Economic Census results.
EAP Projects DepartmentDecember 16, 1974
PHILIPPINES Table F
1971 Basic Data four Major Indstry Groups by lice of E.tablishnonto Based no m,ployment
(In Thousand Peso)
PayrollsWorking Frodnetion and and Entro Flood Fiand Canoo
Bober of Owners aad Related Workers Total Bene.fits for Aasoto at Assets per Not t-n VoIno
Industry Crony Is-tablishomnts UnpidFail Plua others Empoynet laid Employees Bosh Value Establishment Investment Output Added
1/ Unadjusted, therefore it excludes work in progress which is included in the data in later years. a
Sources: Bureau of the Census and Statistics, Annual Survey of Manufactures: 1962 and 1968, Manila, Philippines.Bureau of the Census and Statistics, Preliminary Report prveual Survey of Manufactures: 1971, Manila, Philippines.
Sources: Bureau of the Census and Statistics, Annual Survey of Manufactures: 1962 and 1968, Manila, Philippines.Bureau of the Census and Statistics, Preliminary Report on Annual Survey of Manufactures: 1971, Manila, Philippines.
1/ Based on current prices.
EAP Projects DepartmentDecember 16, 1974
81041009 OooO U 48'0 '968 I~~~~~~~~~~~~~~~~~~~~~~~~~~5 .1 12~ 'Io '00
Contribution to Value Added. Factor Intensity and Productivity for Large Manufacturing IndustriesBy Size of Establishments Based on Employment. 1962, 1968, 1971
_ _ _ Ln Thousands Pesos (Based on Current Prices)Census Value Added Value Added per Fixed Value Added per Worker Fixed Assets per Worker
Sources: Bureau of the Census and Statistics, Annual Survey of Manufactures 1962 and 1968, Manila, Philippines.Bureau of the Census and Statistics, Preliminary Report on Annual Survey of Manufactures: 1971, Manila, Philippines.
Appraisal of a Small and Medium Industry Development Project
Volume II, Part 2.
Technical Assistance Programs for Small and Medium Industries
A. Background
2.01 Prior to 1974 small manufacturers in the Philippines had littleaccess to technical assistance needed to establish, improve,, and expandtheir operations. To remedy this situation the Government, through itsDepartment of Industry, plans to provide a wide range of technicalassistance programs designed to promote the development of SMI. A numberof government ageacies and government-supported institutions have nowlaunched, or are planning, programs for assisting small entrepreneurs inproject development, management, choice of technology, and marketing.Overall responsibility for co-ordinating these programs is a function ofthe Department of Industry (DOI). Within mDI, a Commission on Small andMedium Industries (CSMI) has been created to coordinate the individualagencies' SMI programs and, in keeping with GOP priority on developmentof rural areas, to establish a broad network of technical assistanceservices to reach small and medium entrepreneurs in areas outside GreaterManila. One such field program, the Medium and Small Industries CoordinatedAction Program (MASICAP), has been operational since November 1973, andanother (comprising the seven Regional Technical Assistance Centers) isscheduled to go into operation in 1975.
B. The Department of Industry (DI)
2.02 Establishment. In June 1974, Presidential Decree No. 488 (PD 488)provided for the creation of a Department of Industry to be "the primarypolicy, planning, programming, coordinating, impleinenting and administrativeentity of the executive branch of government in the development, expansionand diversification of industry..." 1/. In amending the Integrated Reorganiza-tion Plan to bring all industrialization programs under one department, theBoard of Investments (BOI) along with the Iron and Steel, Fertilizer and CementIndustry Authorities and the Presidential Advisory Committee on the CopperIndustry were transferred to the Department of Industry. While theycontinue to fVunction under their own separate legal authorities, theiractivities will be co-ordinated by the IOI. In addition, the Bureau ofIndustrial Promotion, formerly in the Department of Trade, and the NationalCouncil for Small and Medium Industries were abolished and their functionstaken over by the new Department.
1/ See Appendix 5. Text of Presidential Decree No. 488. Further AmendinPast IX of the Integrated Reorganization Plan by Creating a Departmentof Industry.
2.03 Organization and Staffin. DOI is headed by the Secretary of In-dustry Hir. V.T. Paterno, concurrently Chairman of the BO!. A Presidentiallyappointed Under-Secretary of Industry (Governor C.C. Diel) is responsiblefor heading the Commission on Small and Medium Industries (CS.MI), the largestof the three DOI sub-divisions. With 44 central office staff and 150 fieldstaff positions CSMI absorbs approximately 44% of the DOI budget.1/ Theother two sub-divisions of DOI are the Bureau of Industrial Coordination,(BIC) with 35 staff and absorbing 22% of the DOI budget, and the Bureau ofIndustrial Information and Programs (BIIP) with 25 staff and accounting for19% of the budget . Each of these Bureaus is headed by an AssistantSecretary. These three operating units together with two units providingdeDartmental financial and administrative services make up the centraloffice DOI staff totalling 146. The DOI budget estimate (Appendix 1) forFY75, including personnel services, capital outlay, and maintenance, isF5.7 million. Projections for the five year plar. period indicate anincrease to P8 million in FY78.2/ DOI's organization is outlined in ChartNo. 9513.
2.o4 Functions. BIC and BIIP are concerned with policy and programformulation and implementation on a sector basis for medium and large scaleindustries, defined as manufacturing firms with total assets of overF1 million and/or with 100 or more employees. The Comnission on Small andMedium Industries, on the other hand, is responsible for coordinating allSMI assistance programs and for providing direct technical assistance tosmall as well as medium-scale manufacturers3/, particularly to firms locatedoutside the Greater Manila. There is already an appropriate overlap accommodat-ing medium-scale firms in both the sectoral approach for policy and programformulation as well as in the provision of technical (and access to financial)assistance to individual firms, especially in more remote areas. However,adequate attention has not yet been given to including small-scale manu-facturers, on a sector basis, in the various stages of policy and programformulation. The Commission is scheduled to participate in BIC's programfor establishing a channel of communications with manufacturers (para. 2.06).-This link could be strengthened, and, at the same time, small manufacturers'participation in industry associations encouraged through the FieldOperations and Central Support Units of the CSMI.
1/ The 44 regular staff positions do not include the Commission's MASICAPfield teams (150 members); however the budget includes allocations forthe field program.
2/ This does not include the budget or staff of the BOI and attachedauthorities.
3/ Small-scale is defined as manufacturing establishments the total assetsof which are P100,000 to P1 million and/or 20-99 employees. 'Medium-scaleare those firms with between P1 million and L million in total assets andemployment in the range of 100-199.
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2.05 The Bureau of Industrial Information and Programs. BIIP isresponsible for providing the Department with timely information onindustry performance, identifying and anticipating problem areas throughanalysis of basic data and special sector studies, and formulating industrysector programs. PD 488 empowers DOI to request from all establishmentsinformation necessary for its purposes. In this connection, the Informationand Statistics Section of BIIP is implementing a registration procedure thatentails all medium and large scale manufacturing firms submitting, on amonthly basis, data on their performance. In addition to providing a database for the Department's internal needs, the information will be publishedon a quarterly basis (or more frequently if the DOI finds it has thecapability to do so).
2.06 The Bureau of Industrial Coordination. BIC has the major functionof coordinating and supervising industry performance in accordance with sectorprograms developed by the Department to meet national objectives. Fiveindustry desks have been established to maintain contact with the privatesector under a joint project with the Philippine Chamber of Industrieslaunched in October 1974. The objective of the project is "the establishmentof a two way channel between the government and the private industry sectorfor consultations on government policies, rules and regulations affectingindustry and for transmission to government of information on industryproblems and proposals ... 'MCommunication channels between the DOI and PCIand between manufacturing firms and the two agencies are depicted in ChartNo. 9314. Industry desks in DOI, and corresponding desks in PCI, have beenassigned to cover industry groups by final product and by preponderantcharacteristics of individual firms or industry associations, as showrn inAppendix 2. Allowance has been made for increasing the number of industrydesks to a maximum of ten. The possibility of PCI creating a separatedesk for small industries as a counterpart to CSMI is under consideration.At present CSMI has direct contact with small entrepreneurs through itsfield operations, and plans to work directly with the PCI liaison committeeon behalf of small industry. However, small manufacturers (as with theirlarge-scale counterparts) are affected by and concerned with policy as itaffects individual industries in addition to policies which affect them asa "sector". They would probably be better served, therefore, by inclusionin the DOI/PCI industry desks. PCI and CSMI could work together to promoteand assist small entrepreneurs either in forming trade associations orencouraging them to join existing ones.
C. The Commission on Small and Medium Industries (CSMI)
2.07 Functions. The Commission on Small and Medium Industries isresponsible for promoting and assisting the growth of small and mediumindustries, particularly in rural areas. While actual establishment ofand investment in SMI would be carried out entirely by the private sector,CSMI, on its part, would facilitate this activity by encouraging institutions
1/ Department of Industry and the Philippine Chamber of Industries,"Institutionalizing Industry Dialogues through Industry Desks",P. 3, October 18, 1974. Mimeograph.
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to provide financial and technical assistance support to the fullest possibleextent.
2.08 O -anization. The Commisslon is organized to function at threelevels (Cha 931:central,regional,and local. There are 41 staffpositions in the Central Office, three Regional Coordinators, and 150field staff. In the approved budget for CSMI, approximately 83% of th epersonal services portion is devoted to Field Operations underscoring theimportance of this program. The four units making up the Central SupportUnit account for about 13% of the personal services budget. The inter-agency Commission, including the Commissioner and member-agency represen-tatives, are not salaried, but receive a per diem for meetings attended,amounting to approximately 4% of CSMIT s FY75 budget (Appendix 3).'
2,09 Representation on CSNI. Eleven government agencies with policiesand programs of assistance to SKI are represented on CSMI which is intendedto serve as a forum for program coordination and.integration. Theseagencies are:
DLGCD Department of Local Government and CommunityDevelopment
UP/ISSI University of the Philippines Institute of SmallScale Industries*
DAP Development Academy of the Philippines*
N12C National Manpower and Youth Council
IGLF National Economic Development Authority/Central Bank(NEDA/CB) Industrial Guarantee Loan Fund**
DBP Development Bank of the Philippines**
FTI Food Terminal Inc.
PITC Philippine International Trading Corporation
DC Design Center of the Philippines
BODT Bureau of Domestic Trade
1/NACIDA National Cottage Industries Development Authority-/
* Agencies to be instrumental in the start-up of the Dejartment of IndustryRegional Techunical Assistance Centers componpnt of the proposed loan.
** Borrowing agencies under the proposed Bank loan.1/ NACIDA remains within the Department of Trade and Tourism; however,
reportedly consideration is being given to transferring it to theDepartment of Industry.
2.10 The Central Support Unit. CSU, which constitutes the technicalcore of CSMI, has four divisions: Technological Assistance, FinancialAssistance, Marketing Assistance, and Information and Programs. Thetechnical staff in the three functional divisions would operate as aclearing house to gather, and put into usable format, information on thetypes of technical assistance available to SMI. CSU would be expected tosupport Field Operations programs by providing additional expertise to workon specialized technical problems, and by establishing contact with appro-priate outside sources for specific technical data or technical services. More-over, each of the three functional divisions would evaluate the findings ofthe field operations so that new programs could be formulated to meet thepractical needs of the entrepreneurs. CSU would also generally coordinateCSMI activities with other agencies at the working level.
2.11 The Information and Programs Division. IPD has the overallresponsibility of analyzing, and preparing for general availability, thebasic data available on SMI from the Bureau of the Census and Statisticsand other sources.l/ The Division will also identify areas where furtherresearch is needed, and either undertake the studies or contract out thework, for example, to the UP/ISSI or the DAP. Support will be given to otherprojects both within DOI and in other institutions, for example, theRegional Technical Assistance Centers and the Development Bank of thePhilippines, in the critical area of setting up evaluation systems tomeasure the economic impact of small and medium industries.
2.12 Field Operations. CSMI's field operations are carried out throughthe Medium and Small Industries Coordinated Action Program (MASICAP) teams.Fifty such teams (three members per team) have been located in provincesoutside the Greater Manila area to assist individual entrepreneurs in develop-ing their projects and putting them into bankable applications (paras2.15-2.18 for details). .The seven Regional Technical Assistance Centers'(RTACS), proposed for financing in the start-up phase under this project,will become part of the Field Operations complex. RTAC staff, in addition toproviding direct technical assistance to individual entrepreneurs will providea hierarchical link between the MASICAP teams (who through their contact withlocal entrepreneurs would provide an input into the RTAC program) and theCentral Support Unit staff (who are equipped to provide backup assistance incontacting specialized expertise as the need for it is identified in thefield).
1/ For example, basic census data on SMI are alreaqy included in the BCSAnnual Survey of Manufactures, but the information is not analyzed orpublished. The Division will not unnecessarily duplicate the field work,but will concentrate on analyzing and publishing collected data as aninput into SWI program evaluation and planning.
-6-
2.13 Proposed Reorganization of CSMI. The inter-agency Commission onSmall and Medium Industries was set up to function as a high level inter-agency advisory and coordinating body concentrating on policy issues. Inthe interim phase, as the DOI is gradually being staffed, the inter-agencygroup of representatives has evolved, perhaps inevitably, into a workinggroup which determines the feasibility of detailed SMI assistanceprograms with the preliminary information available. The inter-agencyCommission, however, was not created with such a task in mind, and isill-equipped to act as a program planning and development group. This isthe intended responsibility of the Central Support Unit, along with thestaff of divisions responsible for SMI policy and programs of the variousagencies. As originally planned, the Central Support Unit once fully staffedshould assume complete responsibility for gathering information, preparingfeasibility studies, and presenting developed program ideas as well asevaluating on-going programs for the inter-agency Commission to review inits advisory and coordination capacity. Furthermore with the imminentexpansion of Field Operations and,consequently, the increasingly importantrole the Central Support divisions will play in coordination, formulation,and e-aluation of programs (both within the DOI and in other agencies),, the ap-praisal mission has recommended that CSMI be reorganized to re-orient its focusto policy issues and to handle ivs broad range of responsibilities moreeffectively. The proposed organization for CSMI is presented in Chart No.9358. Under this scheme, each of the major programs would be given strongerdirection, and control of operations and responsibility woild be more clearlydefined. A Bureau of Field Assistance for SMI would bring together, underone Director, responsibility for the Regional Technical Assistance Centersprogram (eventually to be expanded to 11 centers in all) and the MASICAPUnit. The Central Support Unit for SMI would be strengthened to carry outits function as a centralized source of assistance to the field, on the onehand, and as a planning and evaluation unit on the other hand.
D. The Medium and Small Industry Co-ordinated Action Program (MASICAP)
2.15 Objectives and Organization. MASICAP has been operational sinceNovember 1973, when the progran was originated by the Development Acadexy ofthe Philippines. In June 1974, MASICAP was transferred to the newly createdDOI and placed under the Commission on Small and Medium Industries. The pro-gram is aimed at: assisting new and established small entrepreneurs attheir places of business; gathering information on their projects; goingthrough the procedures of obtaining necessary permissions from local govern-ments; and organizing this information into a form acceptable for applicationto financing institutions. Where necessary, the team members also assistindividual entrepreneurs in finding external sources of technical expertisethrough the CSMI in Maunila. The need for MASICAP services in individualinstances is usually identified by local government officials, DBP branches
agenc-es, and IGLF member banks.
-7-
2.16 Staffing. MASICAP field units are made up of young recruits,usually college graduates and graduating students with above average academicstanding and majoring in business administration, accounting, commerce, oreconomics. These students or recent graduates are inducted for one yearperiods. The success of the program and its wide appeal to activist studentseager to substitute practical work for purely academic study, has ensured anexcess supply of enthusiastic and well-trained recruits for the program.Since poor financial management is one of the major weaknesses of smallbusinesses, each team has at least one member well-trained in accounting whocan assist the entrepreneur in installing a simple bookkeeping system. Thefield teams are characterized in their composition by flexibility and versati-lity. To avoid "bureaucratization" and to ensure maximum mobility on thepart of teams and individual team members, the teams do not have permanentoffice facilities. They work as much as possible on the entrepreneur'spremises, use public transportation, and move their base of operations asnecessary to meet the demands of entrepreneurs who require their assistance.The teams are directed by three Regional Coordinators, (for Luzon, the Visayas,and Mindanao) who advise the teams on project selection, technical problems,and solutions to problems that arise common to many enterprises. The RegionalCoordinators also channel specific requests for more specialized technicalassistance to the Manila office.
2.17 Project Preparation Fees and Costs. MASICAP services are providedon a no-fee basis. However, the entrepreneur generally is expected to provideoffice and communication facilities and transportation to the project sitewhen public transport is poor or unavailable. The board and lodging of theteams, general use of public transportation, cables and other communicationswith the head office are financed through the MASICAP budget. On the average,project preparation takes about one month of a team's time, and the cost toMASICAP per project is about P4,000 (US$575). It is expected that as the pro-gram progresses, the cost per project will gradually decrease.
2.18 Team Location and Performance. Map No. 11420 indicates where the50 MASICAP teams were located as of December 31, 1974. A tabulated summaryof project characteristics and the progress made in the first year of opera-tions, on a regional basis, is provided in Appendix 4. A total of 231 pro-jects have been undertaken with a nearly even division between new (122) andexpansion (109) projects. While MASICAP concentrates on projects in manu-facturing industries, small agricultural and fisheries projects (e.g. pigger-ies, poultry farming and fish ponds) and projects in service industries (e.g.hotels, repair shops and cargo shipping) have also been accepted with abroader view to assisting regional development. Of the 231 projects under-taken, 190 (82%) are in manufacturing, 34 (15%) in agriculture and fishing,and 7 (3%) in services. The majority of the projects (70%) are channelledto DBP for financing, and a smaller proportion (22%) to IGLF member-banks.As would be expected with the lower limit on IGLF loans as compared to EBP,the average size loan in manufacturing for DBP financing is P634,800, whilethe average for IGLF is P164,900. Between November 1973-October 1974 a total
of 11 loans had been approved and 56 applications officially accepted(i.e. application fee paid) by the financing institutions. Of all theprojects accepted thus far by MASICAP, 46 have been dropped/deferred atvarious stages due to lack of continued interest on the part of theentrepreneur or insurmountable problems with the project uncovered duringthe project study. During the early experimental phase of MASICAP opera-tions (November 1973 to June 1974) the drop-out rate was 31%. The rate,with improved project selection, however, has decreased in the July-October 1974 period to 12%. Thus, excluding the projects dropped/deferred,37% (68) of the MASICAP assisted project applications have already beenaccepted (or loans approved) for financing. Based on the estimates oftotal size projects, MASICAP has contributed to facilitating a totalinvestment of approximately P42.6 million. Roughly half of the 231projects undertaken are still being processed by MASICAP teams. Inaddition, as of October 1974, the new pipeline for the field teams totalled149 projects which were well distributed throughout the regions. Withdemand for MASICAP services increasing at a rapid pace, about 20 additionalteams are to be recruited in the near future.
E. SKI Assistance Programs of Other Institutions
2.19 Besides DOI, the two institutions most active in SKI programformulation, training and technical assistance are the Development Academyof the Philippines and the University of the Philippines/Institute forSmall-Scale Industries.!/ Progr&ms in other government agencies (brieflydescribed below) are in the planning stage. In some cases specializedSMI units have been very recently established, and are undertaking pre-liminary investigation of the feasibility of projects in major problem areaswhich act as constraints on the growth of SMI.
2.20 The Development Academy_ of the Philippines was created inMay 1973, with the objective of providing training for top and middle levelexecutives engaged in various fields of development and of researching andinitiating projects in areas considered crucial to meeting national goalsof accelerated social and economic development. High priority has been givento development of small and medium industries and at the request of thePresident in October 1973 for formulation of a program to implement thispolicy, the DAP staff drew up the plans for and carried through the creationof the MASICAP project, consisting of an Information Unit, a Prototype Unit,and an Assistance Unit. The Assistance Unit (field program), as alreadydiscussed, was spun-off to the DOI. However, the units of the MASICAPproject devoted to providing information and industrial research in specializedareas remain in the DAP. Assistance from the DAP/MASICAP project includesgathering, preparation and dissemination of information u6eful to entre-preneurs and agencies involved in small and medium-scale industries, docu-mentation of success stories among small and medium-scale industrialists,
1/ With their training capacity and experience in the field of S141 develop-ment, they will be instrumental in assisting the DOI in establishing andstaffing the Regional Technical Assistance Centers.
-9-
formulation of programmed instruction for the conduct of feasibilitystudies for use in the provinces, and coordination with other agencies inconsultancy work related to these industries. In addition it will coordinatewith the Development Bank of the Philippines in persuading big businesses toenter into sub-contracting arrangements with small and medium-scale industries.
2.21 The University of the Philippines/Institute for Small-ScaleIndustries (ISSI) was created in 1966 to provide training, consultancy,and industrial research facilities for the development of SMI. Presently inthe midst of a transition, ISSI is being re-organized to better define andco-ordinate its role with that of other SMI agencies. While, ISSI will con-tinue to perform its original training, consultancy and research functions,all its programs will be re-structured to meet the demands for the developmentof small and medium-scale industries especially in the rural areas. Thevarious branches of the University of the Philippines will provide the basefor its provincial operations.
2.22 The Design Center of the Philippines has incorporated into itswork program the following activities in support of the program for smalland medium-scale industries: product development, marketing assistance,training services, incentives programs. The Center will launch a registra-tion project of industry producers and exporters to enable these producersto avail of design assistance, export clearance, and other incentives givento firms registered with the Design Center.
2.23 Food Terminal Inc. (FTI) has also established a Small andMedium-Scale Industries Unit under its Trading Operations Department. TheFTI will assist small and medium-scale industries in the local marketingof their produce, trade products generated by these industries that arewithin its capability to handle, provide storage facilities for foodcommodities generated by these industries, and perform related functionsas directed by the proper authorities.
2.24 The Department of Trade. In 1975 DOI expects to set up a TradeAssistance Center to serve the marketing needs of small and medium-scaleindustries. The TAC will have provincial offices located preferably inselected cities which will serve as the monitoring arm of the Bureau ofForeign Trade, the Philippine International Trading Corporation, and theDesign Center Philippines. It will coordinate the marketing activities ofthe various bureaus. For the domestic market, the Department, through itsBureau of Domestic Trade and its provincial offices, will locate sourcesof raw material requirements of small and medium-scale industries. TheDepartment will also assist industry producers in finding markets fortheir products either locally or abroad, and establish a direct link withthe Bureau of Foreign Trade for foreign trade opportunities, market research,and credit checking of importers. For the export market, the Department,through its Bureau of Foreign Trade, will conduct foreign market research,serve as link between exporters and foreign buyers, and disseminate andcoordinate trade information. A Commodity Section in the Bureau now advises
- 10 -
exporters on general market conditions and sales possibilities for specificproducts and services while a documentation center serves to collect,classify, store and retrieve trade, commercial and economic information,based on international standards. The Department, along with the PhilippineShippers Council, has also undertaken to assist exporters and producers ofsmall and medium-scale industry products in securing suitable cargo spaceaboard ocean liners at reasonable rates.
2.25 The Philippine International Trading Corporation (PITC) under-takes trading operations in a wide range of commodities and proposes toextend its export marketing services to accommodate small and medium-scaleindustries. It intends to follow through its promotional work by assistingentrepreneurs in actual negotiations and trading arrangements with foreignimporters. The Corporation will also undertake the importation of capitaland raw materials which are necessary for small and medium-scale industryoperations and together with DOI will coordinate the shipping requirementsof these industries by pooling outgoing cargo into economically size lotsto secure lower freight rates.
2.26 The Board of Investments is concerned with providing incentivesfor exporters and initiating and developing exports of non-traditionalproducts. Assistance rendered by the BOI is aimed at improving theacceptability and marketability of products through improved productionprocesses, better pricing, quality standards, design and packaging.
2.27 The National Manpower and Youth Council (NMYC) proposes to formu-late curricula to address the labor training needs of small and medium-scale in-dustries; to develop suitable training programs and set training targets forworkers in specific types of small or medium-scale industries. NMYC willalso set standards for levels of skill proficiency, develop methods formeasurement of training and formulate policies to effectively promote theemployment goals and objectives of the Council and related agencies. Tenregional manpower development centers will shortly be created to serve thetraining and promotional schemes of the SMI program.
2.28 Local Government. Provincial and municipal governments are repre-sented by the DLGCD on the inter-agency Commission. Directly or indirectlythey are to a large extent responsible for determining which projects aredesirable for their communities. For this reason the general selection ofthe type of small and medium scale industries and the identification ofthe project and proponent are often decisions made by provincial governors(or city mayors) assisted by their provincial development advisers. 4herelocal governments do not yet have trained personnel to perform this task,MASICAP teams have been asked to provide the necessary assistance.
EAP P_jects DepartmentFebruary 24, 1975
PtlILIPPINI_S
Department of IndustryI/
Expenditures and Budget Projections for the Plan Period FY 1974-78
Total for the Program 200,000 5,700,000 6,500,000 7,200,000 8,000,000 14.0 10.8 11.1
1/ Budget obligations from the general fund.
EAP Projects DepartmentDecember 16, 1974
PHILIPPINES Appendix 2
Department of Industry and Philippine Chamber of Industries
Industrial Desk Coverage 1/
Industry Desk No. 1 1. Food Processing2. Vegetable and Animal Oils
Primary capital goods, equipment 3. Grain Millingor raw materials, of other indus- 4. Medicinals and Pharmaceuticalstrial firms requiring intensive 5. Textiles, Thread, and Yarnscapitalization and technologly 6. Garments and Embroideries
7. Soap and Detergents1. PrL ary Chenicals (including salt) 8. Footwear2. Primary Plastics 9. School3. Heavy Equipmnent 10. Alcoholic Beve<ages4. Heavy Metal and Foundries 11. Non-Alcoholic Beverages5. Glass Products 12. Cigars and C,igarettes6. Pulp and Paper Integrated7. Tinmber and Plyirood industry Desk Dio. 48. Others
Durable, "non wage goods" but directa. .iachine Tools "consumer market oriented" assemblyb. Synthetic Fibers production with vertical or horizontalc. Shipbuilding integrationd. Punpse. "lectric iotors 1. Household Appliances
2. Gas AppliancesIndustry Desk No. 2 3. Electrical Fixtures
F. urniture and FixturesIntermediate processing of * Musical Instrumentsindigenous or domestically o. Batteries and Dry Cellsproduced ra-.w materials. Less 7. Tiresoapital/technology intensive S. Othersthan Desk I:o. 1.
a. Firearms1. Cement Products b. Automotive Accessories2. Electrical Products3. Electronic Products industry Desk Mo. 54. Industrial Gases5. Paints and Varnisiles AM industries not covered by DeskZs6. -Metal Fabrications (including !-4. lelatively less capital/technologyAluminum I Copper Products) intensive than Desks 1 and 27. ;Jelding Electrodes8. Tires and Cables 1. Paper and Paper Products9. 4on-i'ietals ^. ackaging and M.on-Metal Containers
10. Others . .ur ber and l`ubber Products4. vOseti cs `nd ToiCetries
a. .O V o sv es 5. Leather Froductso. Plastic Aares
"TiTage goodsl' or direca"'con'-sumer market-orientedl' a. a
and mostly under price control. b. Optical Productsc. aTandicraf tsd. Zipperse. Drushes
1/ T he following industry groups shall be covered bly the different governm.entauthorities: F:-ertilizer, 6emerc, teel ard Eteel Froducts, AutonotiveProducts/ra and '-otorcycle Asse'nbly, Fetroleun Products, Sugar Miilling,Leaf Tobacco Curing, and Public Utilities.
EAP Projects DepartmentDecember 16, 1974
Appendix 3Page 1
PHILIPPIAES
Commission on Small and Medium Industries:
Approved Operating Budget £or the Period October 1, 1974 to June 30 1975
III. Equipment Outlay,includin- purchase of one ,car and one station wagon 150,000: -
TOTAL EXPENDITURES 2,500,000 1,991,299
1/ Requests are for the 10 month period starting September 1, 1974;approvals are for 9 months starting October 1.
2/ The equipment outlay, as stated in the Endorseiment from the President'sOffice, could not be considered favorably in view of the current re-trenchment policy.
EAP Projects DepartmentDecember 16, 1974
PRILIPPlSh5
Cbatecsertarice and Orconree of Onotener Undertaken bn the nirdlint and Snail Indviterirs
Coordinated Action Poron- (MASICAP) bA Reton. NooRabet 1973 Tr October 1974
TOTAL PROJECTS POOPOSTO FINANCING INSTITUOIONh STATISo nF SECTS 1 C
A S P I 0 L Acented bv Fi i -cina Inattntion Loans Anpined Drppd_ In LFs bi I218L.OAASnAL £nbAIt~ meANt neag-22 AnrOege- Steb-r nO Accg Aeen SobeO I92 Ol-f ~ASp iTOt Qu- Dafac-d DSP CIP Oh.
bouron: Conroatctt provided by MASICAP Natiocal Co-rdi-nr,r-
Ij pro)ret sire nod lonon moo- -a i0i0i1l ootoic-s given to MASICAP end .ay be adJ)ct-d Tih fOcrtbnn stody by rho tnns.J
2/ "Acceyance by tbn i--iclgninituti ons iiho opylicsticc fio hOn been paid."ropped/deferred" cay bn don toe eorclynseon t -g. proponent oilhdarn., project delcyed d-c 0o rmed foc furthbe infoenm3tin on feeaibility, .nd an on.
3/ The era pipnlo cc: oie on p-ene0c o bc eseittn--e fron MASTCAP hAn be-n req-enord, bAt corh not yet begot by the ee.
aeon ( ) idc n f-o ore prec/on only.
CAP PFoiecss tepotrct--Occoobcn 10, 1974
Appendix 5Page 1
PRESIDENTIAL DECREE NO. 488
FURTHER AMENDING PART 1X OF THE INTEGRATED REORGANIZATION PLANBY CREATING A DEPARTMENT OF L:_DUSTRY
WHEREAS, there is a need to strengthen government efforts towardsindustrial development to further accelerate economic growth; and
WHEREAS, accelerated industrialization needs integrated governmentassistance and guidance to bring about industry diversification, dis-persal, rationalization and continued growth.
NOW, THEREFORE, I, FERDINAND N. MARCOS, President of thePhilippines, by virtue of the powers vested in me by the Constitution,do hereby adopt, approve and make as part of the law of the land theamendment to the provisions of Part IX of the Integrated ReorganizationPlan oy creating a Department of Industry.
SECTION 1. Creation of a Department of Industry. There ishereby created a Department of Industry, hereinafter referred to asthe Department, which shall be the primary policy, planning, pro-gramming, coordinating, impplenenting and administrative entity ofthe executive branch of the governrient in the development, expansionand div-ersification of industry, in pursuance of the followinEobjectives:
a. Guide the development and operati or of' industryalong directions most contributory to the nationalgoals as domestic and international conditions makeappropriate and as defined from time to time by thePresident and/or the National Economic and Develop-ment Authority;
b. Improve linkages and inter-relationships ofindustry with the development of the country'sagriculture, natural resources, public servicesand infrastructure, and reinforce and enhancethe contributions of vhese sectors, conjunctivellywith industry, to the national progress andwe'fare;
c. IdentLfy the needs, encourage and assist theachievement of national self-sufficiercy, withoutundue burdens to the end-consuwmers, in essentialindustrial products, in accordance W'_' thephilosophy of national self-reliance;
d. imrovre the o-nership structure of industry bypromoting broader ownership oJ large-scale indus-trial enterprises, accelerate the formation andgrowth of small-scale and medium-scale industrialenterprises, and encourage and promote the dispersalof industry throughout the country; and
Appendix Page 2
e. Develop the capabilities of industry to increasethe domestic content of its products, to upgradethe quality of products according to competitiveinternational standards to reduce costs of pro-duction, particularly those involving foreignexchange, and in coordination with the Departmentof Trade, to export manufactures to the inter-national and regional markets.
SECTION 2. Authority and Responsibility. - The authorityand responsibility for the exercise of the powers and discharge ofthe functions of the Department shall be vested in the Secretary ofIndustry, hereinafter referred to as the Secretary. The Secretaryshall be assisted by one Undersecretary.
SECTION 3. Powers and Functions. - The Department shall havethe following powers and functions:
a. Coordinate all activities of the governmentrelative to industry;
b. Encourage, guide and if necessary, regulatethe establishment, growth and expansion of large-scale industries and firms within these industries;
c. Adopt guidelines, subject to the approval ofthe President, and implement them for rational-ization of certain industries whose continuedoperation will result in the dislocation ofand/or overcrowding in said industries, thus,retarding economic growth; upon approval ofsaid guidelines by the President, the Departmentor the Board of Investments upon request of theDepartment, shall implement such guidelines andmay, in appropriate cases, after due notice andhearing restrict, either totally or partially,the importation of any equipment or raw materialsfor firms in the industry not conforming withthe prescribed guidelines;
d. Coordinate with the Board of Investments withrespect to the implementation of rationalizationschemes adopted by the Board by virtue of itspowers under Sec. 16(1) of R.A. 5186;
e. Coordinate with other government agencies;particularly the Department of Trade, for theincrease in exports of recently establishedlines of manufactured products;
f. Assist investors, foreign or domestic, indesirable industrial projects, whether regis-trable with the Board of Investments or not,to have their papers processed with dispatchby all government offices, agencies, instru-mentalities and financial institutions;
Appendix 5Page 3
Promote cooperation in desirable industrialundertakings on complementation basis in theSoutheast Asian regions;
h. Encourage the establishment, growth and expan-sion of medium and small-scale industries par-ticularly in rural areas through effectiveassistance and guidarce in the manufacture ofthe industrial products corncerned;
i. Coordinate and integrate all technical, finan-cial, marketing, purchasing and promotionalassistance of the government for medium andsmall-scale industries;
j. Establish consultation on an institutionalizedbasis with the private industrial sectors toencourage their participation in planning andimplementation for industrial development, inpursuance of objectives established by thegovernment;
k. Prescribe and enforce compliance with suchrules and regulations as may be necessary toimplement the intent and provisions of thisDecree, which rules and regulations shalltUake effect immediately following their pub-blication in two newspapers of general cir-culation in the Philippines;
1. Conduct investigation, hearing and inquiryand for this purpose, issue subpoena andsubpoena duces tecom to compel the attendanceof witnesses and the production of thenecessary papers and documents;
m. Require any person or entity to submit toit such report, data, information, paper ordocument it may deem necessary in the exerciseof its powers and functions;
n. Establish, in accordance with pertinent laws,such advisory committees as may be appropriatefor purposes of consultation and advice to theDepartment in the performance of its functions;
o. Perform such other functions as may benecessary to carry into effect the provisionsof this Act; and
p. Perform such other functions as may be providedby law.
Appendix 5Page
SECTIONS 4. Staff Services. - The Department shall have anAdministrative Service, a Planning Service, a Legal Service, anda Financial and Management Service in conformity with Part 11 ofthe Integrated Reorganization Plan.
SECTION 5. Bureau of Industrial Coordination.- There ishereby created in the Department a Bureau of Industrial Coordinationwhich shall, among others, coordinate and guide industries and in-dustry sectors (including enterprises within such industries whichare not registered with the Board of Investments) to attain developmentobjectives promulgated by the government, maintain liaison withindustry associations, keep informed of developments in the variousindustries, supervise progress and implementation of the various large-scale industry programs initiated by the Department but not coveredby any existing industrial authority, and specifically perform thefunctions enumerated in Section 3-c, d, e, f, g, and j.
The Bureau of Industrial Promotion in the Department of Tradeis abolished and its pertinent functions are transferred to the Bureauof Industrial Coordination together with applicable appropriations,records, equipment, property and such personnel as may be necessary.
The Board of Investments shall continue to be responsible forthe registration and supervision of enterprises for investments andexport incentives under its respective priorities plans, and forlicensing foreign investments under R.A. 5455.
SECTION 6. Small and Medium Industries Commission. - There ishereby created in the Department a Commission on Small and MediumIndustries which shall, among others, promote, assist and developmedium and small-scale industries; undertake studies, surveys,researches and technical assistance programs in connection therewith;coordinate and integrate policies and programs for technical, financial,marketing, purchasing and promotional assistance to medium and small-scale industries rendered by the following government agencies:
1. Department of Local Government and Community Development2. U.P. Institute of Small-Scab Industries3. Development Academy of the Philippines4. National Manpower and Youth Council5. NEDA/CB Industrial Guarantee Loan Fund6. Development Bank of the Philippines7. Greater Manila Terminal Food Market8. Philippine International Trading Corporation9. Design Center Philippines10. Bureau of Domestic Trade11. National Cottage Industries Development Authority'
The above-named agencies shall noainate one (1) representativeeach to the Commission for purposes of coordination, consultation andliaison. This Commission shall replace the National Council for Mediumand Small-Scale Industries. The Commission shall be headed by theUndersecretary of the Department. He shall be assisted by an ExecutiveDirector, and such other regional officers deemed necessary, who shallbe appointed by the Secretary.
Appendix 51Page 5
SECTIOK' 7. Bureau of Industrial Information and Programs. -There is hereby created in the Department a Bureau of IndustrialInformation and Programs which shall, among others, receive fromindustries and &nalyze statistical information relating to production,sales, inventories, imports of major materials, levels of receivablesand expansion plans to enable the Department to monitor and measuLreindustry performance, anticipate problems and provide guidance toindustry. -It shall also formulate development prograns for variousindustry sectors.
SECTION 8. Board of Tnvestments. - The Board of Inves,ments istransferred from the National Economic and Development Authority andattached to the Department for program and policy implementation.The Secretary of Industry shall be concurrently Chairman of the Boardof Investments. The Vice-Chairmar of the Board ---ho -hall be-appointedby the President shall concurrently be its Managing Head.
SECTION 9. Personnel, - Except for such technical positions as-the Secretary may recommend to and be approved by the President, allpositions therein shall be subject to the provisions of the Civil ServiceLaw and the rules and regulations of the Wage and Position ClassificationOffice (EIPCO)e
SECTION 10. Attached A5gencies - The following agencies arehereby attached to the Department: Iron and Steel Authority, FertilizerIndustry Authority, Ceement Industry Authority, and Presidential Advisoryommittee on the Copper Industry.
The Department shall coordinate with other government agencies,particularly the Department of Trade, for the export promotion activitiesof the foregoing attached authorities.
SECTION 11. Appropriation. - To carry out the purposes of thisDecree, there is hereby appropriated, out of any funds in the NationalTreasury not otherwise appropriated, the sum of four million pesos(Pa4,000,000) for the fiscal year nineteen hundred and seventy-four tonineteen hundred and seventy-five (1974-1975) and the sum of two hundredthousand pesos (P200,OO) for the remainder of fiscal year nineteen hundredand seventy-three to nineteen hundred and seventy-four (1973-1974).Thereafter, the appropriations for the Department of Industry shall beincluded in the Annual General Appropriation Act.
SECTION 12. Repeal. - Any and all acts, statutes, decrees, rLles,regulations or parts thereof inconsistent herewith are hereby repealedor modified accordingly.
The Department of Trade shall perform all the functions, exceptthose pertaining to industry, of the Department of Trade and Tourismpursuant to the applicable provisions of the Integrated ReorganizationPlan, as amended by Presidential Decree No. 189.
Appendix 5Page 6
SECTION 13. Effectivity. - This Decree shall take effect
immediately.
Done in the City of Manila, this 21st day of June in the year
of Our Lord, nineteen hundred and seventy-four.
(SGD.) FERDINAND E. 1iARCOSPresident
Republic of the Philippines
By the President:
(SGD.) AL3JATDRO NELCHORExecutive Sec .etary
PHILIPPINESDEPARTMENT OF INDUSTRYORGANIZATION CHART
Secretary of Industry
Undersecretary
Assistant Secretary Assistant Secretary
Board of Investments
Iron and Steel Authority
Cement Industry Authority
Presidential Advisory Commissionon Copper Industry
Financial and ! 4 Administrative ServicesManagement Services
Budget Adminstrative
Accounting Personnel
Management l Legel
Supply
Bureau of Commission on Bureau of 25Industrial Coordination Small and Medium Industries Industrial Information & Programs
Industry Desk No. 1 Technological Assistance lndustr3al Economics & Research
Industry Desk No. 2 Financial Assistance Industrial Planning & Programs
Industry Desk No. 3 Marketing Assistance Industriai Information & Sttisrtics
Industry Desk No. 4 Information & Programs
Industry Desk No. 5 Field Operations
l pFrid Assistance Teams
Note: Numbers of personnel given in right-hand corners of major units indicate proposed level for fully-mannedi Department.
World Bank-9315
PHILIPPINES
DEPARTMENT OF INDUSTRY AND PHILIPPINE CHAMBER OF INDUSTRIESJOINT PROGRAM COMMUNICATION CHART
PHILIPPINE CHAMBER OF INDUSTRIES DEPARTMENT OF INDUSTRY
PRESIDENT SECRETARY
FUNCTIONAL COMMITTEE LICOMMITTEES
_ ___ ._ _ L__ _____ _- EUREAU OF INDUSTRIAL
COMMISSION ON COORDINATION BUREAU OF INDUSTRIALSMALL & MEDIUM INDUSTRIES INFORMATION & PROGRAMS
S 5 INDUSTRY DESKS
I ADDITIONAL DESKS l 77t\___ _ INDUSTRY GROUPS
ASSOCIATIONS
MIEMER AND NON-MEMBER FIRMS
NOTE:
…To be created as necesseay
Chart is simplified to include only relevant aspects. World Bank 9314
PHILIPPINES
COMMISSION ON SMALL AND MEDIUM INDUSTRIESORGANIZATION CHART
Undersecretary Commissionas ex-officio - Representatives of all
Commissioner Member Agencie
1 Private Secretary I 1 Secretary1 Clerk I Consultants1 Messenger
