INDUSTRY ROADMAPS & THE AEC GAME PLAN
REGIONAL ROADMAPS FOR COMPETITIVENESS
The Philippine New Industrial
Policy for More Competitive
Regional Economies
Rafaelita M. AldabaAssistant Secretary
Industry Development & Trade Policy Group
Legend Hotel, Puerto Princesa
Palawan, 15 October 2015
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Outline of Presentation
1. Strategic Industrial Policy for the Philippines
• Opportunities & Challenges
• Manufacturing Industry Roadmap
• Comprehensive National Industry Strategy
2. New Industrial Policy’s cluster-based approach• Porter’s Diamond Model for Competitive
Advantage
3. Implications for MIMAROPA
• Industry Cluster Roadmaps: sustainable & inclusive regional growth
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Part 1: Opportunities & ChallengesShort-term Outlook
• PH growth rate: 6.8 (‘12), 7.2% (’13), 6.1% (‘14)
• Q1 2015: China 7.3%, VN 6.96% , PH 5.2%, MAL 1.2%,
TH 0.3%, INO -0.18%
• PH impressive growth: Asia’s new economic tiger
• 2015 Forecasts - NEDA: 6-6.5%, WB: 5.8%, ADB: 6%,
OECD: 6.2%, JPMorgan: 5%, Moody’s: 6%
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
16.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
GDP Growth
PH TH INO VN PRC MAL
3
PH a new growth area
PH Industry growth: 7.3% (‘12); 9.3% (’13, highest),
7.5% (‘14 highest)
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
in %
Year
Industry Growth: PH vs Selected East & Southeast
Asian Countries
PH
TH
INO
VN
PRC
MAL
4
Manufacturing Resurgence
• Manufacturing resurgence: 5.4% (‘12);
10.3% (‘13); 8.1% (‘14); 5.3% (‘15H1)
-10.0
-5.0
0.0
5.0
10.0
15.0
20.0
Quarterly Growth 2009-2015
AGRI., HUNTING, FORESTRY AND FISHING MANUFACTURING
SERVICE SECTOR GROSS DOMESTIC PRODUCT
5
WHAT MAKES PH DIFFERENT
Market Opportunities
• Growing market & middle class: demographic sweet spot
Labor
• Young, English speaking, highly trainable workforce
• Moderate wage increases
Operating Environment
• Strong macroeconomic fundamentals
• Political stability, business/consumer confidence
Policy Focus
• New Industrial Policy & a more pro-active Government
• IPA rules & regulations, incentives & investor care
Improved competitiveness ranking (WEF)
• Rank #47/140 countries in 2015-16 from rank #52
6
Growth ChallengesArea Major Constraints
Regulation • Complex/costly business procedures
• Policy consistency, transparency, predictability
• 60-40% foreign equity rule
Infrastructure/
Logistics
• High cost of power, domestic shipping
• Lack of ports, airports, road infrastructure
SME • Access to finance, technology, support for start-
ups, standards, marketing, network links
HRD • Lack of skilled workers, limited standards &
certifications
Innovation • Industry-academe linkages, R&D facilities
Supply/value
chain
• Limited linkages in manufacturing, agriculture,
& services, weak parts & components sector
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Strategic Industrial PolicyGoal: improve competitiveness & productivity
Growth oriented action to upgrade industries
Remove obstacles to growth Investments
Deepen participation in regional production networks
Role of Government: coordination/facilitation
Create proper environment for private sector
development, strengthen industries
Private sector, investment & entrepreneurship:
proximate cause of growth
Cluster-based industrial strategy
Promote clusters for inter-firm cooperation &
agglomeration of activities
Industry agglomeration to build strong & competitive
regional economies
GVC-focused industrial policy 8
MANUFACTURING DRIVER for
STRUCTURAL CHANGE
-automotive, aerospace parts electronics, garments, food, resource-based industries, chemicals, furniture, tool & die, shipbuilding
-move to high tech transport equipment, chemicals, electrical machinery-manufacturing hubs in regional & global production networks for auto, electronics, machinery, garments, food
-high value added activities upstream industries (chemicals, iron & steel), med-tech basic & fabricated metal
Phase I 2014-2017
Phase II 2018-2021
Phase III 2022-2025
VISION: globally competitive & strongly linked with other
sectors, a main growth driver
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Strategy to make manufacturing an engine of growth
& source of more & better Jobs
30% value added; 15% employment
Horizontal measures
Coordination mechanism
Vertical measures
• Close supply chain gaps
• Expand domestic market & exports
• HRD & skills• SME development• Innovation & green
growth
• Promotion• Power, smuggling,
logistics, infrastructure
• Improve regulation, reduce cost of doing business
• Competitive exchange rate
open trade regime, sustainable macro policies, sound tax policies & administration,efficient bureaucracy, secure property rights, institutions 10
AGRIBUSINESS: CATALYST TO DRIVE
REGIONAL ECONOMIC TRANSFORMATION
Transform & upgrade agriculture from traditional farming
to a globally competitive agribusiness sector
-rubber, coconut, mangoes, coffee, cacao, banana, palm oil; high value crops; supply chain gaps
-deepen participation in GVC -PH as agribusiness regional hub
-strengthen agro-processing & its linkages to production: R&D; strengthen supply chains, upgrade commodity clusters; access to technologies, finance; regulatory & certification system
Phase I 2014-2017
Phase II 2018-2021
Phase III 2022-2025
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SERVICES: GLUE THAT BINDS ALL
SECTORS TOGETHER
-labor-intensive sectors: tourism, construction, ship repair, MRO-accelerate infrastructure investments -move up ITBPM GVC
- PH as regional hub: training - upgrade services, manufacturing related services to sustain growth & job creation
-education, design, R&D, finance, infrastructure-engineering & services embedded in manufacturing-HRD & skills training, innovation ecosystem linked with manufacturing
Phase I 2014-2017
Phase II 2018-2021
Phase III 2022-2025
Globally competitive services, create quality jobs, move
up the value chain, enable structural transformation
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Comprehensive National Industrial
Strategy (CNIS)
• Globally competitive industries, strong domestic & global linkages
• 3 Major Channels: COMPETITION, INNOVATION, PRODUCTIVITY
• Cluster-based industrial strategy to build strong & competitive
regional economies
MANUFACTURING SERVICES
AGRICULTURE FISHING,
FORESTRYMINING
INTERNAL FACTORS: GOVERNMENT POLICIES &PROGRAMS, INSTITUTIONS, INFRASTRUCTURE, MACRO STABILITY, RULE OF LAW,
PEACE & ORDER, POLITICAL CLIMATE
EXTERNAL FACTORS: GLOBALIZATION, REGIONAL/BILATERAL/MULTILATERAL TRADING ARRANGEMENTS, GLOBAL & REGIONAL PRODUCTION NETWORKS
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Part 2: What makes a cluster competitive?
Porter’s Framework for Competitive Advantage
Context for Firm Strategy and Rivalry
Demand Conditions
Related and Supporting Industries
Factor (Input)
Conditions
1. Investment & constant upgrading
2. Competition among local firms
Adapted from: Porter, M. E. (2000).
- Natural, human and capital resources
- Physical, administrative, information, scientific and technological infrastructure
• Local customers with high
product & quality
specifications
• Production that meets
needs of existing & new
customers
• Production in specialized
segments that can be
exported
• Natural, human &
capital resources
• Physical,
administrative,
information, scientific
& technological
infrastructure
Drives FIRM PRODUCTIVITY, COMPETITION and INNOVATION
• Firms in a
cluster are
mutually
competitive &
cooperative
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Agribusiness Cluster
Seeds Nurseries
Fertilizer, insecticides, herbicides
Farm Equipment
Storage Facilities
Irrigation Technology
Clusters of Other Agricultural Products
Clusters of Buyer/Consumer
Industries
State Government & Donor Agencies
Educational, Research & Trade Operations
Growers
Crop processing equipment
Processors
Transportation
Packaging Services
Public Relations Advertising
Specialized Publication
Financial Services
Source: World Bank Group. (2009)
• producers, agribusinesses, & institutions
• interconnect & build value networks when addressing common
challenges & pursuing common opportunities 15
Collective action: cornerstone of
agribusiness cluster competitiveness
• Resolution of coordination problems: logistics, inputs supply (packaging materials), access to financial services, pests & diseases
• Public cluster in infrastructure & research ( R& D for new product development, testing centers, nutrient analysis facilities, post harvest processing machines)
• Business intelligence services, collective marketing & promotion, market research & development of a product country brand, training programs
• Collaborative technology research & technology transfer
• Collective compliance with quality, safety, environmental standards
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Part 3: Transforming Region IX
• Region IVB: 5% manufacturing share, 10% average growth rate • How to improve agricultural productivity & sustain manufacturing growth ?
NCR
CAR
ILOCOSCAGAYAN VALLEY
CENTRAL LUZON
CALABARZON
MIMAROPA BICOL
WESTERN VISAYAS
CENTRAL VISAYAS
EASTERN VISAYAS
ZAMBOANGA PENINSULA
NORTHERN MINDANAO
DAVAO REGION
SOCCSKSARGEN
CARAGAARMM
-10.00%
0.00%
10.00%
20.00%
30.00%
40.00%
50.00%
60.00%
70.00%
-5.00% 0.00% 5.00% 10.00% 15.00% 20.00%Average Growth Rate (’12-’14)
Man
ufa
ctu
rin
g as
% o
f G
RD
P
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Note: poverty
incidence
persistently high
Region IX Development Plan
• Vision: destination of investments, livelihood, residence, employment, adventure, rest and recreation, retirement (RDP Region IV-B 2011-2016)
• Industry Strategy: investments, exports, jobs, SME
• Horizontal Measures: infrastructure & logistics support, incentives, marketing, financing, R&D, other government support to strengthen industry clusters
Source: Philippine Statistics Authority
GRDP STRUCTURE (%) 2010 2011 2012 2013 2014
AGRIC, HUNTING, FORESTRY,
FISHING 26.5 26.4 25.3 23.9 22.9
INDUSTRY 35.3 34.6 34.7 33.3 35.0
Manufacturing 3.7 4.1 4.5 4.7 5.1
SERVICES 38.2 39.0 40.0 42.8 42.0
GRDP growth rate 1.3 6.5 3.1 4.2
Unemployment rate: 3.5%; Underemployment rate: 26% (Jul 2015)
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MIMAROPA’s Shift from
agriculture to agri-processing
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OCCIDENTAL MINDORO grains by product such as rice hull for cooking fuel, insulating materials, fiberboard, building blocks; blast freezing of prawns, crabs
PALAWAN fruit processing (fruit purees and juices, candies for mango, candies, pastilles for cashew); seaweed processing & aquamarine processing of tuna, grouper & tiger prawn
ROMBLON coconut processing into coconut oil & coco-engine oil
ORIENTAL MINDORO fruit processing: calamansi, rambutan, mangoes; banana
MARINDUQUE Root crop, fruit, & vegetable processing
Competitiveness Indicator
• Competitive Products: Revealed Comparative Advantage >1
Products ‘01-’05 ‘06-’10 2011
Coconuts, dessicated 73.34 110.09 150.22
Fruits, dried nes 0.78 0.81 1.40
Seaweeds and other algae, 18.17 11.80 25.69
Coconut (copra) oil crude 108.03 139.20 212.79
Coconut (copra) oil or fractions simply refined 63.57 92.70 138.35
Cocoa powder, sweetened 1.34 1.31 1.01
Natural rubber in other forms 3.62 5.86 18.81
Smoked fish & fillets other than herrings or salmo... 2.72 5.30 7.92
Dried fish, other than cod, not smoked 0.58 0.66 1.25
Shrimps and prawns, frozen 2.40 1.72 2.42
Bananas, including plantains, fresh or dried 13.14 13.90 21.45
Guavas, mangoes and mangosteens, fresh or dried 13.30 8.85 35.01
Rice flour 0.05 27.49 351.70
Jams, fruit jellies, purees and pastes, except cit... 1.81 2.29 3.56
Sauces nes, mixed condiments, mixed seasoning 0.64 1.02 1.88
Agri processing Development
Constraints
• MSMEs’ lack of access to credit, technology
• Poor infrastructure quality, support facilities
• Weak inter- & intra industry linkages
• High cost of doing business
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Strategies for competitiveness
• Food Security: new food production technologies; research in
agriculture & fisheries
• Strengthen link between job skills standards & TVET
curriculum
• Standardize & harmonize business procedures
• MSMEs: expand access to credit, product development
• Develop enterprise/industrial zones
• Industry cluster programs to strengthen linkages
Steps in Industry Roadmap
formulationSTEP 1: What are the existing & future growth
potentials of the industry in both domestic and export
markets?
• Benchmarking: fast growing countries with similar
endowment structure & industries that have grown well
STEP 2: See if private sector is already in these
industries; are there existing or nascent activities? if
none, seek FDI
STEP 3:What are the obstacles preventing the firms
from upgrading the quality of their products? new
firms from coming in?
• Value/Supply Chain analysis
• Growth Diagnostics by Hausman, Rodrik & Velasco (2005)
• Dialogues & consultations with private sector 22
Steps in Roadmap formulation (cont’d)
STEP 4:Take action to remove constraints: latch on to regional production networks, increase capacity to export; link domestic firms especially SMEs to multinationals
oHorizontal interventions: protection of property rights, improvement of overall business & investment environment, R&D, industrial clusters, economic zones
oVertical interventions: incentive measures to address market failure like tax incentives for a limited time, direct credits, access to raw materials & capital equipment
oCoordination mechanisms: industry councils to serve as venues for deliberation and coordination between the government & private sector
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Moving ForwardCluster Competitiveness & Collective Action
Cluster-based industrial strategy to build strong & competitive regional economies
Collective action foundation of cluster competitiveness
• For the private sector1. Ownership of the regional industry cluster
roadmaps
proximate source of growth: private sector, investment, & entrepreneurship
2. Leadership in developing the industry cluster
Sustainability in implementing programs
3. Active participation of business associations in Regional Industry Cluster Team Meetings
4. Collaboration with educational institutions
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Recommendations
• For government: pro-active facilitator & coordinator
1. Remove binding constraints to competitiveness Physical infrastructure: roads, seaports and airports,
power, shipping, logistics
Administrative infrastructure: trade facilitation, business permits, tax administration
Scientific and Technological infrastructure: link with academe, innovation, research & development, shared services facilities, post harvest processing facilities, pests & diseases
Addressing supply/value chain gaps
Human resource development & skills trainings
2. Mix of incentives for farmers/growers & processors
3. SMEs’ inclusion in industry clusters: access to finance, technology, skilled workers, compliance with product standards & quality, production facilities
4. Cluster upgrading & moving up the value chain 25
For more information, visit our website
industry.gov.ph
Thank You!
We cannot leapfrog industrialization, we need
to upgrade & transform our industries.
Through a new industrial policy, we can make
our industries competitive and create an
environment conducive to private sector
development.
This could lead to more investments, & more &
better jobs, sustainable & inclusive growth.
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