Accelerating Inclusive Growth and Competitiveness through AEC: Focus on the Manufacturing Sector Josef T. Yap

1. Accelerating Inclusive Growth and
Competitiveness through the AEC:
Focus on the Manufacturing
Sector
Josef T. Yap
21 October 2013

2. Background

3. Lack of Economic Transformation
Share of Manufacturing in GDP (%)
1980
1990
China
43.9
36.5
Indonesia
13.5
23.0
Malaysia
21.6
22.7
Philippines
27.7
26.8
Thailand
21.5
24.9
Viet Nam
16.1
12.3
2000
40.4
27.7
29.9
24.5
33.6
18.6
2006
32.9
27.5
28.8
23.6
35.0
21.2
2011
32.2
24.3
24.6
21.1
29.9
19.4
Source: UN Statistics Division [http://unstats.un.org/unsd/dnlList.asp; accessed, 6 October 2013]

4. Main Outcome: Poverty Situation
in PH is dismal
PRC
Indonesia
Malaysia
Philippines
Thailand
Viet Nam
Poverty and Inequality in East Asia
Proportion of
Population
Population in
Gini Coefficient3/
Poverty (in
Below $1.25
percent)1/
(PPP) a Day2/
4.2 (2008)
11.8 (2009)
0.425 (2005)
12.0 (2012)
16.2 (2011)
0.381 (2011)
1.7 (2012)
0.0 (2009)
0.462 (2009)
26.5 (2009)
18.4 (2009)
0.430 (2009)
13.2 (2011)
0.4 (2010)
0.394 (2010)
20.7 (2010)
16.8 (2008)
0.356 (2008)
Sources/Notes:
1/
World Bank, WorldDevelopment Indicators accessed 6 October 2013
2/
Asian Development Bank, Statistical Database System accessed 6 October 2013
3/
http://www.adb.org/sites/default/files/pub/2013/ki2013.pdf accessed 6 October 2013

5. Role of Regional Production
Networks

6. Regional Integration Anchored on Regional Production Networks
Regional Economic
Integration
Regional Production
Networks
FDI
Manufacturing Sector

7. Structure of Regional Production and
Distribution Networks

8. 200
Billions of US Dollars
160
China
120
ASEAN
80
South Korea
& Taipei,China
40
Japan
0
84
86
88
90
92
94
96
98
00
02
04
06
08
10
Intermediate Goods Exports from East Asia
as a Whole to Individual Countries or Regions.
Note: ASEAN includes Malaysia, the Philippines, Singapore, and Thailand.
Source: CEPII-CHELEM Database
Value of Intermediate Goods Imports of Individual East Asian Countries and Regions
from East Asia as a Whole (Billions of U.S. Dollars)
Region
1990
1995
2000
2005
2008
2009
2010
Japan
5.2
13.6
22.0
34.3
45.0
37.1
47.9
China
5.6
19.2
28.9
85.2
118.6
115.7
161.9
ASEAN 4
15.8
47.5
54.6
67.9
82.7
69.6
95.9
S.Korea+Taipei,China
13.2
31.8
41.7
59.2
74.0
64.2
86.1
Source: W. Thorbecke “Exchange Rates and Trade in East Asia”

9. Source: Cheewatrakoolpong, Sabhasri, and Bunditwattanawong (2013)

10. …Largely through FDI
FDI Inward Stock (million US$), ASEAN and China
FDI inward stock (million US$)
1990
2000
2010
2012
Indonesia
8,732
25,060 154,158 205,656
Malaysia
10,318
52,747 101,510 132,400
Philippines
4,528
18,156
26,319
31,027
Singapore
30,468 110,570 461,417 682,396
Thailand
8,242
29,915 137,191 159,125
Viet Nam
1,650
20,596
65,348
72,530
China
20,691 193,348 587,817 832,882
Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics), accessed on 6 October

11. PH export performance has lagged
behind that of other EA economies
Export of Goods and Services (in million US dollars)
1995
2000
2005
2012
Japan
441,538 479,323 595,697 798,937
Korea
125,058 172,268 284,419 547,870
Indonesia
45,418
62,124
85,660 190,032
Taipei, China
111,405 151,458 198,168 300,533
Philippines
17,447
38,078
41,255
51,995
Malaysia
73,865
98,229 141,595 227,334
Thailand
56,444
69,152 110,360 228,141
China
148,780 249,203 761,953 2,048,900
Hongkong
173,753 201,855 289,325 442,775
Viet Nam
5,449
14,483
32,447 114,573
Source: ADB Key Indicators for Asia and the Pacific 2013

12. Main argument: A more
dynamic manufacturing sector
would have provided more
higher-paying jobs to the lesseducated workforce, thereby
making poverty reduction
faster and economic growth
more inclusive.

13. Policy Options for Inclusive Growth
• AEC is an opportunity to attract more FDI
• AEC will generate regional public goods,
especially in infrastructure
• Comprehensive Roadmap for Industry:
address horizontal and vertical constraints,
coordination failure
• Emphasis on facilitating involvement of
SMEs in regional production networks

14. Opportunities & constraints
Strengths
•
•
•
•
Good macroeconomic environment
Political stability: “Daang Matuwid”
Young, trainable, English speaking workers
Export zones’ legal framework, incentives
Weaknesses
•
•
•
•
Power cost
Inadequate infrastructure
Governance: smuggling
Weak industry competitiveness
Opportunities
Threats
• Calamities in Thailand & Japan disrupted
supply chain driving investors to seek
alternative locations
• Rising labor cost in China & increasing
tension between Japan & China
• ASEAN, FTAs: market of over 600 million;
regional production networks
• Strong peso
• Global uncertainty, economic
slowdown in the developed
world
•
•
6.6% 2012; 7.6% H1; economic outlook remains positive; a new
growth area, capitalize on this to attract FDI
To sustain high growth, take advantage of market opportunities
from a bigger market AEC 2015  transform & upgrade
manufacturing
14

15. Classics, Emerging Champions
Classics (RCAs remain high)
Emerging Champions (low to hi)
Forest
copper ores & copper
scrap ferrous waste
Raw
materials
fuel wood, wood charcoal
Raw
materials
milk & cream
Cereal, etc
Unmanufactured tobacco
& vegetable textile fibers
Animal
prods.
Cereals, etc
Laborintensive
Knitted men, boys,
women, girls’ clothing;
other textile apparel
Manufactured
tobacco
Machinery
Capitalintensive
tulle, lace, embroidery
electric power
machinery, parts;
electric machinery
apparatus nes; parts
for tractors &
motor vehicles
Labor-int.
glass
Chemicals
metal salts, inorganic
acid
Machinery electric distribution
equipment, nes; radio
broadcast receiver;
transistors, valves
Chemicals
•
•
alcohol, phenol
Classics: maintain long term competitiveness
Emerging Champions: need to build on these products
15

16. Disappearances, marginals
Disappearances (high to low)
Marginals (RCAs remain low)
Raw
Stone, sand, gravel; non- Forest
materials ferrous waste, scrap
Pulp & paper*
Forest
veneers, plywood
Cereals
cereal prep’ns*, edible prod.*
Tropical
agri
sugars, molasses, cocoa,
natural rubber
Capitalintensive
furskins, tanned, dressed
Animal
fish, animal veg. fats,
oils, nes
Machinery ship, boat, float structures*
cycles, motorcycles;
aircraft, associated
equipment; medical
instruments; arms &
ammunitions
Labor
pottery, furniture,
intensive cushions, clothing
accessories, fabric
Cereals
•
•
animal feed stuff
Chemicals
soap, cleaners, polish, etc
Disappearances: declining competitiveness, move up the value chain,
product/technology ladder to more sophisticated products
Marginals: observe & let them grow to become exporter
16

17. Potential Growth areas: Nearby
Criteria
Leamer
Nearby: Detailed Commodity Group (SITC 4 digit)
Highest
level
sophisticat
ion
Highest
spillover
effect
Machinery
Complete digital processing machines; watches; photographic cameras;
TV, radio-broadcasting, transmitters; clocks; electrical line telephonic;
portable radio receivers; microphones; calculating, accounting machines;
sewing machines; domestic electromechanical appliances & parts
Capital
Fabrics, woven of continuous synthetic textile materials
Labor
Precious jewelry; porcelain or china house ware; pianos
Animal
Fish, dried, smoked; fish fillets frozen
Agriculture Refined sugar
Cereal
Labor
Synthetic or reconstructed precious or semi-precious stones; pianos; pens;
small wares & toilet articles; precious jewelry; porcelain
Capital
Knitted not elastic nor rubberized of fibers other than synthetic; Fabrics,
woven of continuous synthetic textile materials
Machinery
Highest
labor
intensity
Flours & meals, of meat , fish
Clocks; watches; photographic cameras; sewing machines
Source: Usui, N. 2012. Taking the Right road to Inclusive Growth. ADB. Manila.
•
Can be developed with relative ease, can utilize existing capabilities (inputs,
institutional/infrastructure, skills, technology) embedded in the current
export structure
17

18. Potential growth areas: Middle
Criteria
Leamer
Middle: Detailed Commodity Group (SITC 4 digit)
Highest
level
sophisticat
ion
Chemicals
hormones, natural, or reproduced by synthesis; other nitrogen-function
compounds; modified natural resins; oxygen function amino compounds;
epoxide resins; regenerated cellulose; salts of metallic acids
Metal
angles, shapes, sections & sheet filing of iron or steel
Labor
orthopedic appliances, heating aids; safety glass
Machinery
metal forming machine-tool; nonmechanical or electrical instruments;
aircraft of unladen weight from 2000kg to 15000kg
Machinery
cocks, valves for pipes boiler shells; air pumps, vacuum pumps & air or gas
compressors; other articles of rubber; other non-electric parts &
accessories of machinery, nes
Chemicals
phenoplasts; aminoplasts
Capital
felts, articles of felt; coated or impregnated textile fabrics & products;
bonded fiber fabrics
Raw
materials
slag, scaling, dross & similar waste; other natural abrasives; seeds, fruits,
spores, nes for planting
Forest
fiber building board of wood or other vegetable material
Highest
spillover
effect
Highest
labor
intensity
Source: Usui, N. 2012. Taking the Right road to Inclusive Growth. ADB. Manila.
• Can be developed with some difficulties, not all required
capabilities are in the country
18

19. Potential growth: far-away
Criteria
Leamer
Far-away: Detailed Commodity Group (SITC 4 digit)
Highest
level
sophisticat
ion
Chemicals
amide-function compounds exc. urea; other organo-inorganic compounds;
suphonamides, sultones
Forest
printing paper & writing paper
Machinery
chassis fitted with engines for vehicles; furnace burners mechanical
strokers etc & parts; other non-electrical machines & parts
Highest
spillover
effect
Machinery
electrical insulating equipment; furnace burners, mechanical stokers;
harvesting & threshing machines; engines & motors; other parts &
accessories of vehicles
Forest
paper & paperboard coated impregnated in rolls sheets
Chemicals
aldehyde, ketone, & quinone-function compounds; inorganic esters, salts
& derivatives; polyamides
Capital
special products of textile materials
Machinery
nuclear reactors & parts; bodies for vehicles; other parts &
accessories for vehicles; railway track fixtures; parts nes of aircraft hdg
792, mechanically propelled railway, tramway, trolleys
Capital
linoleum & similar floor covering, special products of textile material;
central heating equipment
Highest
labor
intensity
Source: Usui, N. 2012. Taking the Right road to Inclusive Growth. ADB. Manila.
• Need quite different capabilities that the country has not yet developed
19

20. Constraints to Growth
Major Area
Main Issues & Constraints
Infrastructure &
Logistics
High cost & unpredictability of power
High cost of domestic shipping
Governance &
Regulation
Smuggling, corruption, bureaucracy & red tape
Lack of streamlining/automation of business procedures
MSME
development
Access to finance, technology, inability to comply with
standards
Innovation
Lack of innovation
HRD
Lack of skilled workers
Supply chain gaps
Absence of upstream/downstream industries; weak parts
& components sector high cost of raw materials
Domestic &
export expansion
Lack of scale economies due to shrinking domestic base
•
•
•
Liberalization competition reduce firm survival
Crucial factors in a liberalized & highly competitive market: productivity,
export-orientation, foreign equity, firm size
How to address challenges & take advantage of opportunities arising from
AEC transform & upgrade manufacturing
20

21. Roadmap for structural transformation
Vision: globally competitive manufacturing industry
Phase III
2024-2028
Phase II
2019-2023
Phase I
2014-201
-Rebuild capacity of
existing industries,
strengthen emerging
industries, maintain
competitiveness of
comparative
advantage industries
-Shift to high value
added activities,
investments in
upstream industries
-Link & integrate
industries
--crucial industrial
linkages bet. SMEs &
LEs to set off a chain
reaction of broad based
industrial development
-Deepen
participation in
regional
integration by
serving as hubs in
production
networks for
industries like
auto, electronics, m
achinery, garments
, food
21

22. Targets, Strategic actions, complementary measures
Coordination
mechanism
Vertical
measures
Horizontal
measures
•
•
•
•
•
•
HRD
SME development
Technology upgrading,
innovation
Power, smuggling, logistics
& infrastructure
Investment promotion
Competitive exchange rate
30% value
added; 15%
employment
• Close supply chain gaps
 access to raw materials: food
furniture, garments
 integration mechanism:
copper, iron & steel, chemicals
• Expand domestic market &
exports
 automotive & shipping
open trade regime, sustainable macro policies, sound tax policies &
administration, efficient bureaucracy, secure property rights
22

23. •
•
•
Industrial Upgrading & Transformation
CRITERIA for Industry Support
 Strong potential to generate employment
 Address missing gaps & linkages & spill-over effects
 Level of product sophistication; Competitive market environment
INDUSTRIES: Automotive, motorcycle, shipbuilding, chemicals & allied
industries, electronics & electrical appliances, food/agribusiness, garments, textiles, copper, pulp &
paper, rubber, furniture, jewelry, iron & steel
HORIZONTAL Programs to directly improve productivity

•
HORIZONTAL Programs to address coordination failures

•
•
Cluster-based intervention: increase supply of skilled workers, encourage
technology adoption, improve regulation & infrastructure
Implementation of legislations; strict enforcement of product quality
standards; provide access to raw materials, intermediate inputs & common
service facilities, R&D facilities; aggressive investment promotion &
marketing to attract investment; trainings, business & academe linkages
VERTICAL Program to attract investment in “middle” & “far-away”
 Temporary fiscal incentives to auto, ship-building, iron & steel
COORDINATION MECHANISM Industry councils/institutes:
 Auto, chemicals, garments &
textiles, electronics, food, motorcycle, shipbuilding, iron &
steel, copper, SME Institute
23

24. Government Coordination
Agency
Area
DOLE
policies on hiring & firing; new, high productivity jobs
DOST
innovation strategy, R&D, common facilities for product
testing & certification, incubation
NEDA
Philippine Development plan, policy coordination esp.
coherent trade & industrial policies, exchange rate
DA
Agriculture roadmaps
BOC
smuggling, trade & customs facilitation
TESDA, DOLE, PRC
training of workers, skilled workers needed (supply gap)
Tariff Commission
tariff distortions, anti-dumping & safeguard measures
DOF, DBM
budget, temporary incentive measures
BOI, PEZA, Clark, Subic
Investment promotion
DTI-MSMED, DOST
MSME development
LGUs
business permits & regulations (double taxation)
DOE
energy plan, policy implementation (B5 biodiesel)
PPA, MARINA
regulatory & port charges & domestic shipping, RA 9295
DENR
environmental permits, plantations
24

25. •
•
•
•
•
•
•
•
Maraming Salamat!!!
Dios ti Agngina!!!
Dios mamajes dinio!!!
Dacal a salamat!!!
Salamat tunon!!!
Saeamat kimo!!!
Daghang Salamat!!!
Thank YOU very much!!!!