New Wave of Industrialization: Prospects for a Globally Integrated Philippine Economy

Undersecretary Adrian S. Cristobal Jr.

Department of Trade and Industry
Managing Head, Board of Investments 22 October 2013 Manila Hotel

New Wave of Industrialization

Distributed Manufacturing

Source: Asian International Economists Network, ADB

CURRENT SITUATION AND GLOBAL OPPORTUNITIES

Disrupted Supply Chain in Neighboring Countries Rising labor cost in China Calamities in Thailand & Japan Increasing tension between Japan & China Labor disputes and strikes in China & Vietnam Aging Asian Countries Renewed optimism in Japan - ABENOMICS ASEAN Economic Community in 2015 and Other FTAs

MANUFACTURING GROWTH & STRUCTURE

average growth rate average share

80s
GDP 1.7 1.1 0.3

90s
3.0 1.8 3.0

2000s
4.7 3.0 4.2

80s
100 23.9 38.0

90s
100 20.8 34.1

2000s
100 18.9 33.1

Agriculture
Industry Manufacturing Services

0.9
3.3

2.5
3.6

4.1
5.8

26.3
40.4

24.3
42.4

23.7
48.0

RESURGENCE OF MANUFACTURING

Philippines in the ASEAN Economic Community (AEC)

ASEAN at a Glance (2012)

Ten member states at varying levels of economic development Population of 616 million people Combined income (GDP) of US$ 2,306 billion Average GDP per capita of US$ 3,744 Total exports (to world) of US$ 1,265 billion Total imports (to world) of US$ 1,243 billion

Total intra-ASEAN trade of US$ 33 billion

Source of data: World Economic Outlook April 2013 Database, International Monetary Fund; TradeMap, International Trade Center

ASEAN and Its Partners

ACFTA (CHINA)
Entry Into Force (EIF) Market Size (MS) Economy Size (ES) Total Trade (TT) 2005 1.97B US$ 10.6T US$ 319B

AANZFTA
EIF 2010 MS 625M ES US$ 4.0T TT US$ 79B

(AUSNZL)

AKFTA

(KOREA)

ATIGA

EIF 2007 MS 647M ES US$ 3.5T TT US$ 131B

EIF 2010 MS 1.81B ES US$ 4.3T TT US$ 76B

AIFTA

AJCEP

(INDIA)

(JAPAN)

EIF 2008 MS 726 M ES US$ 8.3T TT US$ 262B

PH Top Markets, 2012

Non-FTA Partners
FTA Partners

Source: NSO

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Trade in Goods
FREE FLOW OF GOODS WAS SUBSTANTIALLY ACHIEVED WITH THE REALIZATION OF THE AFTA IN 2010
Percent of Total No. of
Tariff Lines at ATIGA 0% Brunei Darussalam Indonesia Malaysia Philippines 99.03% 98.66% 98.68% 98.63%

Percent of Total No. of Tariff Lines at ATIGA 0% 5%

Cambodia Lao PDR Myanmar Vietnam 98.53% 95.18% 99.28% 99.68%

Singapore
Thailand

100%
99.84%

*Based on: 1. AFTA-CEPT Packages from the ASEAN Secretariat website 2. Okabe, M. and S. Urata (2012), The Impact of Trade Liberalization in ASEAN on Intra-ASEAN Trade flows (mimeo)

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Trade in Goods
As of 2010, all duties have been eliminated on agricultural and industrial products Except for: live swine, live chicken, meat of swine, meat of chicken, manioc (cassava) and sweet potatoes, maize, rice and sugar Duties maintained at 5% beyond 2015 for (1) Live swine; (2) Live chicken; (3) Meat of swine; (4) Meat of chicken, turkeys, ducks, geese and guinea fowls; (5) Manioc (cassava) and sweet potatoes; and (6) Maize. Rice duty at 40% until 2014; 35% by 2015 12 Sugar Duty: 18% (2013) ; 10% in 2014; 5% in 2015

PHILIPPINE TRADE DEFICIT WITH ASEAN

In US$ Million

2012 PH Trade Deficit with ASEAN - Without oil - Without oil & rice - Without oil, rice & petrochemicals - Without oil, rice, petrochemicals & automotives

2011

2010

2009

2008

(4,307) (5,601) (3,947) (5,124) (7,543) (2,051) (3,622) (1,716) (3,265) (791) (3,404) (4,645) 594 (2,465) (3,010)

(1,095) (2,658) 1,102 (2,219) (2,705) (554) (2,105) 1,808 (1,638) (2,291)
Source: NSO (processed by BITR)

PHILIPPINE TRADE WITH ASEAN (2012)

Top 10 Imports from ASEAN
Product Group 1 Electrical, electronic equipment 2 Mineral fuels, oils, distillation products 3 Machinery, nuclear reactors, boilers 4 Vehicles other than railway, tramway 5 Plastics and articles thereof 6 Miscellaneous edible preparations 7 Animal, vegetable fats and oils, cleavage products 8 Cereals 9 Essential oils, perfumes, cosmetics, toiletries 10 Optical, photo, technical, medical, etc apparatus % Share 20.0 14.8 11.4 8.9 5.7 3.0 2.5 2.1 1.9 1.9

Top 10 Exports to ASEAN

Product Group 1 Electrical, electronic equipment 2 Machinery, nuclear reactors, boilers 3 Vehicles other than railway, tramway 4 Mineral fuels, oils, distillation products 5 Optical, photo, technical, medical apparatus 6 Copper and articles thereof 7 Tobacco and manufactured tobacco substitutes 8 Cereal, flour, starch, milk preparations and products 9 Rubber and articles thereof 10 Fertilizers % Share 59.5 8.4 5.1 3.0 2.7 2.1 1.8 1.3

1.2
1.2

Source: ITC Trademap, August 2013

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PHILIPPINE TRADE WITH ASEAN

Our (growing) trade with ASEAN is largely intraindustry in nature (we trade in products belonging to the same industries) Electronics: We export intermediate components but import finished products We sell Thailand motor vehicle parts; they sell us motor vehicles Our trade relationship in ASEAN are largely complementary rather than competitive in nature; opportunities lie in regional (and global) value chains
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GOVERNMENT AS ENABLER

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FIVE GROWTH STRATEGIES

1. Sustain growth in revenue streams (big ones)
e-Services (IT-BPO), Semiconductors and electronics (SMS/EMS), Shipbuilding, Infrastructure

2. Pursue Countrywide Growth (SMEs-inclusive)

Agri-based (engineered bamboo, coffee, cocoa, rubber, coco coir, processed food), Fishery

3. Develop new revenue streams (new BPOs)

Creative industries (animation, software, gaming, etc.), Medical space (clinical support services), Mineral Processing, Coconut

FIVE GROWTH STRATEGIES

4. Recapture Exports Manufacturing
Motor vehicles/auto parts Apparel Footwear Travel goods Consumer electronics

5. Revisit the backbone sectors

Iron and steel Petrochemicals Copper downstream Chemicals

INDUSTRY DEVELOPMENT PROGRAM

Industry Roadmapping Project
a. Sectoral roadmaps
21 Completed Sectoral Roadmaps 8 sectoral roadmaps publicly presented 19 Roadmaps under development

b. Manufacturing Industry Roadmap c. Comprehensive National Industrial Strategy d. Industry Development Council

INDUSTRY DEVELOPMENT PROGRAM

Manufacturing Resurgence Project
Critical role of roadmaps in focusing existing government programs
Secured commitment of lead agencies: a. Infrastructure (DPWH) b. Power and Energy (DOE) c. Research & Development (DOST) d. Human resource development (DTI as lead; DepEd, CHED, DOLE, TESDA) e. Local Government Regulations (DILG, NCC) DTI as lead: a. International Marketing & Promotions (BOI, PEZA, other IPAs, CITEM, BETP, among others) b. Logistics (DTI as lead for amendment of cabotage-related laws & regulations)

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INDUSTRY POLICY TOOLS

Tariffs General review of Executive Order 61 (issued Oct 2011) Market access negotiations Incorporation into the Trade Negotiation Agenda for FTAs and Preferential Access Incentives Investment Priorities Plan of 2014-2015 Technical Standards Development of standards across products and services; mandatory implementation of existing standards Trade Remedies / Trade Defense Demand-side stimulation Public investment in common facilities agroindustrial hubs, shared services facilities and technology business incubation facilities
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SME DEVELOPMENT PROGRAMS

Big Push for SMEs -Shared Services Facilities -SME Roving Academy Leveling-up One Town, One Product (OTOP) - National Industry Cluster Capacity Enhancement Program

EASE OF DOING BUSINESS

Philippine Business Registry (PBR)
Streamlines business registration procedures Processing time
Sole proprietorship registration 30 minutes Micro and small enterprise registration 1 day

Business Name Registration System (BNRS)

Regulates requirements and procedures in registering a business name Processing time 4-8 hours to 15 minutes

V. CONCLUSION
The Philippines is riding a new wave of industrialization. There is a resurgence in industry, particularly manufacturing. Our products are already competing in an open regional market. Our key industries are integrated in regional and global supply chains. We are the fastest growing economy in the fastest growing region, amidst global uncertainty.

PHILIPPINE DAILY INQUIRER, 06 AUGUST 2013

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V. CONCLUSION

Often, we underestimate our capabilities.

Our people are our biggest asset.