COMPREHENSIVE NATIONAL

INDUSTRIAL STRATEGY for Sustainable & Inclusive Growth

Rafaelita M. Aldaba

Department of Trade and Industry

Board of Investments

12 May 2016, Tuguegarao, Cagayan

Securing the Future of Industries

Presentation Outline• Opportunities & Challenges

• Government Policy

• New Industrial Policy: Structural Transformation

for Inclusive & Sustainable Growth

o address unemployment and poverty

o attract more investments

o maximize gains from ASEAN Economic Community

& global value chains

• Comprehensive National Industrial Strategy

(CNIS)

o Manufacturing, Agriculture, Services

• Implications for Region II2

Part 1: Macro

Performance, Opportunities &

Challenges

• Robust growth due to strong macro fundamentals: PH as a

new growth area

• Rising trend in manufacturing after sluggish growth in 80s-

90s

• Manufacturing resurgence

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

09Q1 09Q2 09Q3 09Q4 10Q1 10Q2 10Q3 10Q4 11Q1 11Q2 11Q3 11Q4 12Q1 12Q2 12Q3 12Q4 13Q1 13Q2 13Q3 13Q4 14Q1 14Q2 14Q3 14Q4 15Q1 15Q2 15Q3 15Q4

Quarterly Growth 2009-2015

AGRI., HUNTING, FORESTRY AND FISHING MANUFACTURING

SERVICE SECTOR GROSS DOMESTIC PRODUCT

WHAT MAKES PH DIFFERENT

Market

• Growing market, middle class

• Demographic sweet spot

Labor

• Young, English speaking, highly trainable

• Moderate wage increases

Operating environment

• Strong macro fundamentals

• Political stability, strong business/consumer confidence

Policy focus

• New Industrial Policy

• Investment Promotion Agencies

Competitiveness

• Improved competitiveness ranking (World Economic Forum #47 from #52)

Comparison of Wage Rates

53

74

133

205.5

259.5

344

345

352.375

1143

1230

1619

1734

0 500 1000 1500 2000

Myanmar

Cambodia

Vietnam

Indonesia

Philippines

Malaysia

Thailand

China

Singapore

Taiwan

Hong Kong

Korea

Workers

source: Japan External Trade Organization (JETRO)

138

285.75

298

373

387.5

635.75

698

944

1456

2255

2263

2325

0 500 1000 1500 2000 2500

Myanmar

Vietnam

Cambodia

Indonesia

Philippines

China

Thailand

Malaysia

Singapore

Korea

Hong Kong

Taiwan

Engineers (mid-level)

• Wages for workers & engineers are relatively lower than

China, Malaysia, & Thailand (monthly rates in US$)

How to position PH industries in

Global Value Chains?V

alu

e A

dd

ed

6

Design

Purchasing

Production

Distribution

Marketing

Services

Pre Production Production Post Production

• PH supplies to

Gap, Coach, Mars, Nestle, Yokohama, Boing, Airbus, Texas

Instruments, Canon, Brother, Epson, Sunpower, Toshiba, etc

R&Dmost goods are made in

the world & countries

compete on economic

roles within the chain

Readiness of Industries

• Revealed comparative advantage (RCA): export competitiveness indicators calculated from 2000 to 2014

2008-2014RCA>1

2008-2014RCA <1

2000-2007 RCA >1

Classics: industrieswhose competitivenessremains consistently high

Disappearance: industries with disappearing or declining competitiveness

2000-2007 RCA <1

Emerging Champion: competitiveness improves substantially from relatively low to relatively high level

Marginal: industries with low level of competitiveness

CODE PRODUCT DESCRIPTION611 Sugars, beet and cane, raw, solid

2659 Vegetable textile fibres, nes, and waste4243 Coconut (copra) oil541 Potatoes, fresh or chilled, excluding sweet potatoes573 Banana, plantain, fresh or dried585 Fruit or vegetable juices589 Fruit prepared or preserved, nes615 Molasses371 Fish, prepared or preserved, nes577 Nuts edible, fresh or dried

8745 Measuring, controlling and scientific instruments, nes7621 Radio receivers for motor-vehicles7591 Parts, nes of & accessories for machines of headings 7511 or 75187722 Printed circuits, and parts thereof, nes8432 Women’s, girls’, infants’ outerwear, textile, not knitted or crocheted

7763 Diodes, transistors, photocells, etc8811 Photographic cameras, flashlight apparatus, parts, accessories, nes

7764 Electronic microcircuits

Classics

CODE PRODUCT DESCRIPTION344 Fish fillets, frozen342 Fish, frozen, excluding fillets

2923 Vegetable plaiting materials484 Bakery products

1223 Tobacco, manufactured; tobacco extract and essences1211 Tobacco, not stripped4311 Processed animal and vegetable oils582 Fruit, fruit-peel and parts of plants, preserved by sugar813 Oilcake and other residues (except dregs)

7781 Batteries and electric accumulators, and parts thereof, nes

8813 Photographic and cinematographic apparatus and equipment, nes7439 Parts, nes of the machines falling within headings 7435 and 74367928 Aircraft, nes and associated equipment

7932 Ships, boats and other vessels

8812 Cinematographic cameras, projectors, etc, parts, accessories, nes5121 Acyclic alcohols, and their derivatives6975 Base metal indoors sanitary ware, and parts thereof, nes5231 Metallic salts and peroxysalts of inorganic acids7783 Automotive electrical equipment; and parts thereof, nes5112 Cyclic hydrocarbons

Emerging Champions

CODE PRODUCT DESCRIPTION

612 Refined sugar etc

712 Coffee extracts, essences or concentrates

711 Coffee green, roasted; coffee substitutes containing coffee

723 Cocoa butter and paste

730 Chocolate and other preparations containing cocoa, nes

721 Cocoa beans, raw, roasted

752 Spices, except pepper and pimento

2331 Synthetic rubber, latex; factice derived from oils

421 Rice in the husk or husked, but not farther prepared

422 Rice, semi-milled or wholly milled

440 Maize, unmilled

4242 Palm oil

4244 Palm kernel oil

4249 Fixed vegetable oils, nes

224 Milk and cream, preserved, concentrated or sweetened

6639 Articles of ceramic materials, nes

7851 Motorcycles, auto-cycles; side-cars of all kind, etc

5530 Perfumery, cosmetics, toilet preparations, etc

2882 Other non-ferrous base metal waste and scrap, nes

Marginals

CODE PRODUCT DESCRIPTION224 Milk and cream, preserved, concentrated or sweetened

6574 Elastic fabrics and trimming (not knitted or crocheted)6674 Synthetic or reconstructed precious or semi-precious stones7131 Internal combustion piston engines, for aircraft, and parts, nes6517 Yarn of regenerated fibres, not for retail, monofil, strip, etc6612 Cement8122 Ceramic plumbing fixtures7518 Office machines, nes8422 Men's and boys' outerwear, textile fabrics not knitted or crocheted;6899 Base metals, nes & cermets, unwrought (including waste & scrap)8421 Men's & boys' outerwear, textile fabrics not knitted or crocheted;112 Meat of sheep and goats, fresh, chilled or frozen

2734 Pebbles, gravel, crushed or broken stone, etc6411 Newsprint2882 Other non-ferrous base metal waste and scrap, nes7612 Television receivers, monochrome7525 Peripheral units, including control and adapting units

Disappearances

Growth challenges faced by industries

Area Major Constraints

Regulation • Complex/costly business procedures

• Policy consistency, transparency, predictability

• 60-40% foreign equity rule

Infrastructure • High cost of power, domestic shipping

• Lack of ports, airports, road infrastructure

SME • Finance access, technology, support for start-

ups, product standards, network links

HRD • Lack of skilled workers, limited standards &

certifications, quality of teachers

Innovation • Industry-academe linkages, R&D facilities

Supply/value

chain

• Weak linkages among manufacturing,

agriculture, & services

Manufacturing • Required Components: Materials, Skills, Energy,

Capital, Digital technology

PHILIPPINES

CHINA

KOREA JAPAN

AUSTRALIA

NEW ZEALAND

BRUNEI

MYANMAR VIETNAM

THAILANDINDONESIA

CAMBODIAMALAYSIA

SINGAPORELAO

INDIA

CURRENT FTA ROUTES TO PH

SOURCE: DTI HANDBOOK

Free Trade Agreements for market

access & investment opportunities

• 7 Concluded Free Trade Agreements

• PH-EFTA

• PH-EU

• Chile, Mexico, Peru

More jobs needed for growth to be inclusive

• Unemployment 7.2% (’13); 6.8% (‘14); 6.5% (‘15), 5.8% (‘16);

underemployment 19.7% (‘16); 21% (’15)

• In 2014, unemployment rate: Thailand 0.8%, Malaysia

2.9%, Vietnam 1.9%, China 4.1%, Indonesia 5.9%

• Persistently high inequality, poverty incidence increased from

24.6% in ‘13 to 25.8% in ‘14, & 26.3% of the population in ’15

2013 2014 2015 2016

Unemployed 2815 2538 2723 2465

Employed 36277 37326 39177 40042

Labor force participants 39091 40050 41901 42508

36M37M

39M40M

2.8M2.5M

2.7M2.5M

39M40M

41.9M 42.5M

33000

34000

35000

36000

37000

38000

39000

40000

41000

42000

43000

No

. of

Pe

rso

ns,

in 0

00

Jobs Deficit

Need to attract more FDI

• 2013-2014: PH ($3.9B; 6.2B) still lags behind Indonesia ($18B;

25.9), Malaysia ($12.3; 10.6B), Thailand ($12.9B;

12.7B), Singapore ($63.8B; 67B ), & Vietnam ($8.9B

• aggressive marketing/promotion program to attract FDI esp.

technology intensive, target companies to fit our IP strategy

-10000

0

10000

20000

30000

40000

50000

60000

70000

FDI Inflows, annual 1970-2013 (million US$)

Brunei Darussalam

Cambodia

Indonesia (…2002)

Lao People's Dem. Rep.

Malaysia

Myanmar

Philippines

Singapore

Thailand

Viet Nam

Part 2: Government Strategy

New Industrial Policy & CNIS

Inclusive growth

Regional economic

integration, FTAs*

Jobs, Competitive-ness

• Competitiveness crucial in upgrading, rising regional integration & global value chains

* Free Trade Areas

• Industrial policy best way to create jobs, reduce poverty, & achieve inclusive growth

• Upgrade industries

• Remove growth obstacles

GOAL: Improve Competitiveness

• Create proper environment for private sector development

• Private sector: proximate source of growth

Government as Facilitator

• How to plug in regional production networks

• Move up the value chain

• Build strong regional economies

GVC-focused,

Cluster-based

Strategic Industrial Policy

Comprehensive National Industrial

Strategy Framework

• THREE IMPORTANT CHANNELS AFFECTING INDUSTRY GROWTH: COMPETITION, INNOVATION, PRODUCTIVITY

18

MANUFACTURING SERVICES

AGRICULTURE FISHING, FORESTR

YMINING

INTERNAL FACTORS: GOVERNMENT POLICIES &PROGRAMS – trade & industry policy, INSTITUTIONS, INFRASTRUCTURE, MACRO STABILITY, RULE OF LAW,

PEACE & ORDER, POLITICAL CLIMATE

EXTERNAL FACTORS: GLOBALIZATION, REGIONAL/BILATERAL/MULTILATERAL TRADING ARRANGEMENTS, GLOBAL & REGIONAL PRODUCTION NETWORKS

COMPREHENSIVE NATIONAL INDUSTRIAL STRATEGY

TOP FIVE PRIORITIES

Opportunities

Challenges

Manufacturing

Tourism

IT BPM

KPO

Agribusiness

Infrastructure

& Logistics

NEW JOBSHIGHER GDP

• N E W I N D U S T R I A L P O L I C Y

• B O L D E R T R A D E P O L I C Y

• I N T E N S E I N V E S T M E N T

P R O M O T I O N

• S K I L L S T R A I N I N G & H U M A N

R E S O U R C E D E V E L O P M E N T

• E N H A N C E I N N O VAT I O N & R & D

• M O D E R N S M E P O L I C Y

MANUFACTURING FOR STRUCTURAL CHANGE

-automotive, aerospace parts electronics, garments, food & resource-based industries, chemicals, furniture, tool & die, shipbuilding

-move to high tech transport equipment, chemicals, electrical machinery-manufacturing hubs in regional & global production networks for auto, electronics, machinery, garments, food

-high value added activities upstream industries (chemicals, iron & steel), med-tech basic & fabricated metal

Phase I 2014-2017

Phase II 2018-2021

Phase III 2022-2025

VISION: globally competitive & strongly linked with other sectors, a main growth driver

AGRIBUSINESS: CATALYST TO DRIVE

REGIONAL ECONOMIC TRANSFORMATIONTransform & upgrade agriculture from traditional farming to a globally competitive agribusiness sector

-rubber, coconut, mangoes, coffee, cacao,banana, palm oil & other high value crops; supply chain gaps: strengthen agro-processing & its linkages to production

-deepen participation in GVC -PH as agribusiness regional hub

- strengthen supply chains, upgrade commodity clusters; R&D, access to technologies, finance; regulatory & certification system

Phase I 2014-2017

Phase II 2018-2021

Phase III 2022-2025

SERVICES: GLUE THAT BINDS ALL

SECTORS TOGETHER

-labor-intensive sectors: tourism, construction, ship repair, MRO-infrastructure investments -move up ITBPM GVC

- PH as regional services hub: training - upgrade services especially manufacturing related services to sustain growth & job creation

-education, design, R&D, finance, infrastructure-engineering & services embedded in manufacturing-HRD & skills training, innovation ecosystem

Phase I 2014-2017

Phase II 2018-2021

Phase III 2022-2025

Globally competitive services, create quality jobs, move up the value chain, enable structural transformation

Major Strategies

Structural Change

Horizontal measures

Coordination mechanism

Vertical measures

• Close supply chain gaps• Expand domestic market

& exports• HRD & skills trainings• SME development• Innovation • Green growth

• Promotion• Power, smuggling, logi

stics, infrastructure• Improve

regulation, reduce cost of doing business

• Competitive exchange rate

open trade regime, sustainable macro policies, sound tax policies &administration, efficient bureaucracy, secure property rights, institutions

GRDP in Luzon (in billion Pesos :2010-2014)

Source: Philippine Statistics Authority

Part 3: Implications

2010 2011 2012 2013 2014Ave (2010-

14)

NCR 2038.18 2101.69 2250.04 2455.95 2599.97 2289.17

Region 4A 1009.39 1026.05 1097.79 1170.99 1230.93 1107.03

Region III 510.62 546.83 586.19 611.97 667.19 584.56

Region I 179.93 184.25 197.60 211.07 223.15 199.20

Region 5 114.11 116.24 126.50 136.80 142.58 127.24

CAR 120.14 121.73 118.24 124.61 128.58 122.66

Region II 99.84 105.43 113.06 120.11 127.82 113.25

Region 4B 101.84 104.99 109.26 110.66 117.88 108.93

• Cagayan Valley’s GRDP is second lowest among the

regions in Luzon

REGION 2006 2009 2012

PHILIPPINES 26.6 26.3 25.2

National Capital Region 4.7 3.6 3.9

Cordillera Administrative Region 26.0 25.1 22.8

Region I - Ilocos Region 25.9 22.0 18.5

Region II - Cagayan Valley 26.8 25.5 22.1Region III - Central Luzon 13.1 13.7 12.9

Region IV - A - CALABARZON 10.3 11.9 10.9

Region IV - B - MIMAROPA 40.6 34.5 31.0

Region V - Bicol Region 44.2 44.2 41.1

Region VI - Western Visayas 29.1 30.8 29.1

Region VII - Central Visayas 35.9 31.0 30.2

Region VIII - Eastern Visayas 41.5 42.6 45.2

Region IX - Zamboanga Peninsula 45.0 45.8 40.1

Region X - Northern Mindanao 39.0 40.1 39.5

Region XI - Davao Region 30.6 31.4 30.7

Region XII - SOCCSKSARGEN 37.9 38.3 44.7

Caraga 49.2 54.4 40.3

Autonomous Region in Muslim

Mindanao 47.1 47.4 55.8

In Cagayan Valley, more than 1 out of 5 people in the region is poor.

Regional Economic Transformation is crucialSuccessful structural change relies on the strength of regional economies

• Imbalances: NCR, Calabarzon, Central Luzon have largest share to

GDP; highest manufacturing share to GRDP

• Industrial policy efforts in the regions: improve productivity in

agriculture where half of the poor are agribusiness

NCR

CAR

ILOCOSCAGAYAN VALLEY

CENTRAL LUZON

CALABARZON

MIMAROPA BICOL

WESTERN VISAYAS

CENTRAL VISAYAS

EASTERN VISAYAS

ZAMBOANGA PENINSULA

NORTHERN MINDANAO

DAVAO REGION SOCCSKSARGEN

CARAGAARMM

-10%

0%

10%

20%

30%

40%

50%

60%

70%

-5% 0% 5% 10% 15% 20%

Average Growth Rate (’12-’14)

Man

ufa

ctu

rin

g as

% o

f G

RD

P

Region II Development Plan

• Cagayan Valley: vision is to be the Philippines’ new food basket and gateway to the North; goal is to transform the economy equitably & sustainably

• Industry Clustering Strategy: investments, exports, jobs, SME development

• Horizontal Measures: infrastructure & logistics support, incentives, marketing, financing, R&D, other government support to strengthen industry clusters

INDUSTRY STRUCTURE (%

GRDP) 2010 2011 2012 2013 2014

AGRIC, HUNTING, FORESTRY, FISHING

37.9 40.8 41.1 38.7 38.4

INDUSTRY 12.9 10.5 11.0 12.7 13.0

Manufacturing 1.3 1.4 1.3 1.4 1.5

SERVICES 49.2 48.7 48.0 48.6 48.6

Transport, Storage andCommunication

12.5 12.2 12.5 12.9 12.7

GRDP growth rate 5.6 7.2 6.2 6.4Unemployment: 3.0; Underemployment: 16.2 (Jan 2016)

Source: Philippine Statistics Authority, Current Labor Statistics

Garlic, turmeric, ginger, fish production, livestock and poultry, dairy production and processingGrains and

cereals, mushroom, vegetables, citrus, mango, banana, feeds, dairy, livestock production & processing

Miki, banana, coconut, bio-organic fertilizer, cassava, white corn, bioethanol, mushroom, pineapple, sugarcane, calamansi, mango, tomato, ampalaya, livestock and poultry, tilapia and prawn production and processing

Fishponds and hatchery, food production and processing, cutflowerproduction, industrial/commercial tree plantation, wood processing, livestock production and processing, quality seeds and seedling production

Rice and corn, fruit and vegetable production, food production, processing and trading, wine and juice production, corn flour/starch production, cereal, legumes and livestock production, processing and trading, dairy industry

Agriculture and Agri-Industry

Most Binding Constraints to UpgradingGrowing Processing

Cacao Lack of postharvest facilities, lack of

quality of planting materials, supply

gap, lack of FMR, limited GAP

Lack of supply of beans &

cacao preparations, weak

linkage (bean & grinding)

Coconut Limited access to quality planting

material, high input costs, old

technologies in harvesting

Low productivity, lack of

technology in processing

Durian High input cost, inadequate post

harvest, poor harvesting, packaging

technology, handling; diseases

High cost of investment in

processing equipment

Mango Limited access to planting

materials, limited number of

nursery operators, high cost of

inputs, absence of post harvest

facilities, poor implementation GAP

Insufficient supply of

mangoes, VHT facility

underutilized, lack of research

on high value added

processed products

Seaweed High cost of inputs, lack of post

harvest facilities at the farmers’

level, absence of testing labs,

presence of diseases

Insufficient supply of dried

seaweeds

Industry Cluster Roadmap to Transform Economy of Cagayan

Upgrade industries & move up the value chain

STEP 1: What are the existing & future growth potentials of the industry in both domestic and export markets?

STEP 2: See if private sector is already in these industries; are there existing or nascent activities? if none, seek FDI

STEP 3:What are the obstacles preventing firms from upgrading quality of their products? new firms from coming in?

STEP 4:Take action to remove constraints

• Horizontal: protection of property rights, business & investment environment, industrial clusters, eco zones

• Vertical: tax incentives for a limited time, direct credits, access to raw materials & capital equipment

• Coordination mechanisms: Regional Development Council

We cannot leapfrog industrialization, we need to

upgrade & transform our industries.

Through a new industrial policy, we can make our

industries competitive and create an environment

conducive to private sector development.

This could lead to more investments, more & better

jobs, sustainable & inclusive growth.

For more information, visit our website

industry.gov.ph

THANK YOU!