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Philippine manufacturing sector on a roll

Publication Date : 15-07-2014

 

The Philippines' manufacturing sector is growing by leaps and bounds.

The Philippine Statistics Authority released data last Friday from the 2012 Census of Philippine Business and Industry (CPBI), showing that the number of manufacturing firms with 20 workers or more jumped to 7,313 from 4,663 in 2010—a hefty 57 per cent jump in two years. Still not counted are firms with less than 20 workers, and informal enterprises.

The CPBI only covers the formal sector composed of corporations and partnerships, cooperatives and foundations and formal single proprietorships. One can surmise that the numbers would be much larger with the inclusion of smaller firms (less than 20 workers) and those operating informally.

This is the latest hard evidence that manufacturing in the country has been in resurgence since 2010, when the sector swung around to a 12.3-per cent jump from 5.1-per cent contraction in 2009. I have already written how annual growth of the sector has averaged 8.1 per cent in the last four years, against only 3 per cent in 2004-2009.

The sector’s impressive growth of late is manifested in the number of firms and size of production. On top of that, the CPBI data show similarly impressive growth in the number of new manufacturing jobs (more on this below).

Food products took the largest share of all manufacturing firms, comprising 12.4 per cent of the total. Second was wearing apparel, followed by plastic products and printing and related services. Other top industries included furniture, fabricated metal products, metal works, nonmetallic mineral products, paper and paper products, chemical products, and grain mill, starch and starch products.

These reflect a good range and variety of manufactures, much of it closely linked to agriculture, another key source of jobs. I have similarly been encouraged to see rapid growth in heavy manufactures like shipbuilding and large steel fabrication, including offshore rigs and large building frames.

I’ve written of how special economic zones I have personally visited across the country are reporting significant growth in the number of locators, contrasting the weaker interest they reportedly faced in the past decade. It’s easy to see that something good is really going on here.

The growing jobs contribution of manufacturing is especially heartening. Total employment generated by manufacturing establishments with 20 or more workers (1.1 million) represented a 21-per cent increase since 2010. This is remarkable given that overall job growth was only 3.2 per cent in that same period.

Electronics accounted for the largest share (13.2 per cent or 140,000 jobs); followed by wearing apparel; food products; motor vehicle parts and accessories; and computers and peripheral equipment and accessories. These jobs are almost entirely (99.6 per cent) wage and salary-paying jobs, with the tiny remainder consisting of working owners and unpaid family workers. Economy-wide, the latter two account for nearly half.

What’s behind our manufacturing resurgence? Both push and pull forces are at work here. There’s the push out of China, whose attractiveness as a manufacturing base has faded in the face of labor supply difficulties and rapidly rising wage rates. It’s the undesirable result both of China’s economic success (i.e., too rapid growth), and demographic dynamics arising from its one-child policy that has already impacted on its current active working population.

Apart from affecting their numbers, it led, in the analysis of scholars, to a generation of “over-indulged” children (spoiled “little emperors”), prone to poor social communication and cooperation skills, lack of self-discipline and weak adaptive capabilities. And they have little desire to work in factories, especially because of what the Chinese call the “4-2-1 problem”: four grandparents and two parents end up depending on the now-adult only child for support. The Chinese government has begun easing the one-child rule, but it will be a while before some demographic balance is restored.

Meanwhile, foreign manufacturers that had set up shop in China now see strategic value in having a second major base in Southeast Asia, if not transferring their China operations altogether. Our manufacturing surge is partly because we have managed to attract some of this business from the China exodus, even as many Filipino industrialists have repatriated their operations back home.

We are also managing to pull new manufacturing investments in with substantial improvements in the governance environment. And there remains vast scope for further strengthening our pull factor.

Critical here, in the analysis of Ateneo economist Leonardo Lanzona Jr., is coordinated growth, where government provides the policy environment that will attract simultaneous investments in interlinked and interdependent industries.

This will take another article to expound, but suffice it to say here that to this end, the Board of Investments has already fostered, for the first time ever, the formulation of dozens of manufacturing industry road maps. Still in the works are corresponding road maps for specific agricultural products that will feed into expanded manufacturing activity.

If we manage to pull these off, manufacturing should continue being on a roll for some time to come.

 

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