For decades, consumption has driven the Philippine economy. We have seen, however, how this has made us extremely vulnerable to external factors. For instance, the pandemic-induced lockdowns disrupted supply chains and restricted people’s mobility, resulting in the contraction of Gross Domestic Product (GDP) by 9.5% for the full year 2020. Russia’s invasion of Ukraine also had serious economic consequences in terms of the price of petroleum fuel and basic commodities.
GDP expanded by 6.4% in the first quarter of this year. While this is within the government’s anticipated range of 6% to 7%, it remains the slowest expansion in seven quarters, or since that time our economy started recovering from the pandemic.
What, then, could bring about robust, consistent, resilient growth that would enable our economy not only to recover from the ravages of the pandemic but also realize sustainable growth in the years to come?
Stratbase ADR Institute has advocated a shift from consumption- to investment-driven economic activity. We believe that channeling investments, both foreign and domestic, to a sector that is untapped and that carries a big multiplier effect in terms of job creation will enable our economy to flourish and make all economic benefits felt by more Filipinos.
The services sector — which includes wholesale and retail trade, financial and insurance activities, real estate, and information and communication — accounts for a staggering 61.1% of GDP. Industry, meanwhile, which includes manufacturing activities, accounts for just 20.1% of GDP.
Here is where the potential lies.
According to the Philippine Statistics Authority, the manufacturing sector was responsible for 174,000 new jobs for Filipinos over the last year, making manufacturing the sub-sector with the second-highest increase of employed persons during the second half of 2022. Industry watchers believe that the manufacturing sector will experience faster growth following reports of production volume and value that jumped to double digits as of January 2023. Indeed, firms now have their moving capacity at pre-pandemic levels.
The manufacturing sector needs significant investments: in infrastructure, workforce, and knowledge capital. The returns can be substantial. A fully developed manufacturing sector can provide a stable and secure economy, especially after our experience of the pandemic. These will not only meet the growing demands of consumers but bring about innovation and transformation — more and better job opportunities and trained workers that produce goods and will keep the Philippines globally competitive. It will have a strong multiplier effect by increasing consumer spending, creating jobs and livelihood opportunities, and allowing for greater prospects for upward mobility.
Earlier this year, in a paper entitled “Investments in Manufacturing: Managing Through a Position of Strength,” we argued that the government “should take full advantage of the existing sweet spots enjoyed by the country in the areas of demographics, natural resources, geographical location, and language facility.” These advantages, we said, power up the country’s position of strength. With these inherent strengths, the Philippines will find it easy to build the momentum for long-term growth and development — provided, of course, it focuses on getting its house in order through good governance and adherence to the rule of law.
DOMESTIC INVESTMENTSCertainly, investments coming from other countries provide a much-needed impetus for various sectors and cement our place in the global economy. We needed them before, and we need them now. This is why our leaders make so much effort to obtain pledges and investment commitments from other countries. This is why we constantly work on our image as a nation that is governed well, that abides by the rule of law, and where rules are constant and predictable.
But domestic investments, specifically in the manufacturing sector aimed to cater to the needs of the growing domestic market, are equally important. Advancing the development of the local manufacturing sector would boost productivity, enable the affordability of goods, and generate more jobs. If given more support by the government, the country’s manufacturing sector can provide income security, alleviate poverty, and revitalize consumer spending to ensure the upward and stable growth of the economy.
In this light, the Stratbase ADR Institute organized its second virtual business roundtable discussion for 2023 entitled, “Reinvigorating the Philippine Manufacturing Sector for Job Creation,” held on May 16.
Pulse Asia president Dr. Ronald Holmes discussed “Public Perception on Strengthening the Manufacturing Sector to Accelerate Economic Growth.” His report on the survey commissioned by the Stratbase ADR Institute during the first quarter of 2023 found that an overwhelming 89% of Filipinos agree that the government should support the Philippine manufacturing sector due to its capacity to accelerate the growth and development of the country’s economy. In particular, Filipinos perceive manufacturing activities as crucial in creating livelihood opportunities for local business services needed to support manufacturing operations (62%), making goods more affordable and accessible to Filipino consumers (62%), and increasing local and foreign investment that can create more quality jobs and employment opportunities (50%).
Survey respondents also identified the top three actions that the government should carry out to boost the growth of the country’s manufacturing sector and other industries: providing opportunities for training to workers to upgrade or learn new work skills (61%), providing more incentives that are competitive to other countries (50%), and developing more economic zones (45%).
Department of Trade and Industry Undersecretary for Competitiveness and Innovation Rafael Aldaba discussed the need to upgrade industries in the context of inclusive and sustainable development. The president of the Employers Confederation of the Philippines and the Philippine Exporters Confederation, Sergio Ortiz-Luis, Jr., talked about “Promoting Investments for Job Creation: Key to Sustained Economic Recovery.”
FINEX Vice-President for Internal Affairs, Michael Arcatomy Guarin, sees the need to further incentivize businesses to sustain growth and expansion. Political and economic columnist Andrew Masigan talked about driving wealth generation in the Philippines.
Do feel free to watch the insightful discussions of these experts in the session’s recording posted at the Stratbase ADRi Facebook page.
There is a palpable sense of urgency to recover the lost momentum of growth because of the three years of the pandemic crisis. We have a very capable private sector ready to invest their resources and expertise and lead us into much better times. All they need is enough empowerment and a conducive policy environment in partnership with the government.
Victor Andres “Dindo” C. Manhit is the president of the Stratbase ADR Institute.