Road map to reindustrialization

I WAS in Bangkok for a brief visit last week, and felt the same sadness I’ve always felt each time I’ve visited there in recent times. Thailand’s economy was a virtual identical twin of ours about four decades ago. In 1970, we had exactly the same average annual income or GDP per capita ($250), very similar economic structures in terms of sectoral composition of output, identical population (36 million), and even the same population growth rate (3.1 percent per year). We were teaching many things to the Thais back then, including and especially in the agricultural sciences.

I grew up in Los Baños when Thai overseas students were a common sight in the UP College of Agriculture campus. I witnessed this first hand, as my father headed the Office of Student Affairs then, and my elder sister even had a Thai suitor at one time. Today, Thai UPLB agriculture alumni remain among the most loyal and proud of that university’s foreign graduates, and I hear that many of them actually gather on their own to celebrate the university’s annual alumni Loyalty Day every Oct. 10.

My sadness comes from knowing all the above, while also knowing how far we have fallen behind Thailand in agriculture and overall economic development. As of 2010, Thailand’s per capita income ($5,325) was well over twice ours ($2,215). Our population was 92.6 million against Thailand’s 67.3 million, or a difference roughly equivalent to the entire population of Mindanao. The share of the industry sector (including manufacturing) in Thailand’s total output grew from 23 to 40 percent from 1970 to 2010; in the Philippines, industry’s share only inched up from 28 to 33 percent. Rice in Thailand now costs only half as much as ours, and the country is a major rice exporter; we have become the largest rice importer worldwide. But what particularly struck me again last week was seeing such a rich variety of dried tropical fruit products fetching rather steep prices at Suvarnabhumi Airport’s duty-free shops. I cannot see why we are unable to do as much with our own abundant fruits, especially in Mindanao.

This week, the Department of Trade and Industry is conducting discussions on a manufacturing industry road map prepared over the past year in cooperation with the Philippine Institute for Development Studies. According to the DTI, 20 out of the 32 industries participating in the road mapping initiative have already completed their respective road maps. Five more such road maps will be finalized within the year, while seven have just been commissioned by their respective industries. Other industries for which road maps have been prepared or are being prepared include the auto industry, mass housing, chemicals, furniture, copper products, information technology and business process management, electronics, creative industries, bamboo products, shipbuilding, garments and textile, mining, medical travel, and processed food.

The last is particularly important, as it comprises 38 percent of the entire manufacturing sector, the single largest subsector therein. And as Thailand’s experience would suggest, it is also here where there remains great scope for even faster growth. What is significant about this segment of the manufacturing sector is its very high domestic content, being directly linked to our large agricultural sector. In contrast, electronics and garments, our two largest manufactured exports, heavily rely on imported raw materials, hence account for a very thin layer of domestic value added mainly in the form of assembly labor. Growth in the food manufacturing sector and agri-processing industries in general thus creates more jobs and better promotes inclusive growth.

It is already well-established that our best drivers for inclusive growth are agriculture/agribusiness, tourism and manufacturing, which is why the Philippine Development Plan accords highest priority to these economic sectors. Within manufacturing, activities that are closely linked to agriculture and tourism (such as handicrafts, souvenirs and “pasalubong” industries) would have even more potent inclusive growth effects than others. These are also manufacturing activities that lend themselves better to more widely dispersed small- or medium-scale production, thereby further enhancing inclusiveness. Still, we need to push the whole range of manufacturing activities—from light, medium to heavy—that our economy is equipped to support.

The road map for manufacturing calls for a combination of “shotgun” and “rifle” approaches, or what the draft road map calls horizontal and vertical interventions. The former type addresses general constraints to investments in general, including protection of property rights, policy consistency, rule of law, sanctity of contracts, labor market flexibility, research and development support, and lowering the general costs of doing business. “Rifle” or vertical interventions are focused on specific firms, industries and sectors, and include targeted loans, subsidies, tax incentives, industry-specific infrastructure provision and human resource development. But history teaches us that targeted incentives from government must be limited in both time and financial cost, and not be in the form of monopoly rent, high tariffs, or other distortions prone to rent-seeking and political capture.

With clear signs that manufacturing is on a resurgence in our country, helped along by a confluence of positive internal and external factors, we would do well to have a clear road map for the sector indeed. And this time, we’d better implement it right.

*** E-mail: cielito.habito@gmail.com