Download - Accelerating Inclusive Growth and Competitiveness through the AEC: Focus on the Manufacturing Sector
Accelerating Inclusive Growth and Competitiveness through the AEC: Focus on the Manufacturing Sector
Josef T. Yap 15 November 2013
Background
Lack of Economic Transformation
1980 1990 2000 2006 2011China 43.9 36.5 40.4 32.9 32.2Indonesia 13.5 23.0 27.7 27.5 24.3Malaysia 21.6 22.7 29.9 28.8 24.6Philippines 27.7 26.8 24.5 23.6 21.1Thailand 21.5 24.9 33.6 35.0 29.9Viet Nam 16.1 12.3 18.6 21.2 19.4Source: UN Statistics Division [http://unstats.un.org/unsd/dnlList.asp; accessed, 6 October 2013]
Share of Manufacturing in GDP (%)
Comparing Per Capita GDP
1960 1980 1984 2012Hongkong, China 2,968 10,325 12,696 32,742Indonesia 201 556 646 1,732Korea, Republic of 1,154 4,270 5,498 21,562Malaysia 813 2,318 2,713 6,765Philippines 692 1,109 1,005 1,501Singapore 2,251 9,645 11,951 33,989Thailand 321 882 1,018 3,353Source: World Bank's World Development Indicators, accessed on 7 October 2013
Table 1: Per Capita GDP (in constant 2005 USD)
Note: 1960 data are in constant 2000 prices and were accessed on 15 August 2012
Main Outcome: Poverty Situation in PH is dismal
Role of Regional Production Networks
Structure of Regional Production and Distribution Networks
Regional Economic Integration
Regional Production Networks
Manufacturing Sector
FDI
Regional Integration Anchored on Regional Production Networks
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,Ch
ina 13.2 31.8 41.7 59.2 74.0 64.2 86.1
Value of Intermediate Goods Imports of Individual East Asian Countries and Regions from East Asia as a Whole (Billions of U.S.
Dollars)
0
40
80
120
160
200
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.
Billi
ons o
f US
Dolla
rs
China
ASEAN
South Korea& Taipei,China
Japan
Note: ASEAN includes Malaysia, the Philippines, Singapore, and Thailand.Source: CEPII-CHELEM Database
Source: W. Thorbecke “Exchange Rates and Trade in East Asia”
Source: Cheewatrakoolpong, Sabhasri, and Bunditwattanawong (2013)
…Largely through FDI
1990 2000 2010 2012Indonesia 8,732 25,060 154,158 205,656Malaysia 10,318 52,747 101,510 132,400Philippines 4,528 18,156 26,319 31,027Singapore 30,468 110,570 461,417 682,396Thailand 8,242 29,915 137,191 159,125Viet Nam 1,650 20,596 65,348 72,530China 20,691 193,348 587,817 832,882Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics), accessed on 6 October 2013
FDI Inward Stock (million US$), ASEAN and ChinaFDI inward stock (million US$)
PH export performance has lagged behind that of other EA economies
1995 2000 2005 2012Japan 441,538 479,323 595,697 798,937Korea 125,058 172,268 284,419 547,870Indonesia 45,418 62,124 85,660 190,032Taipei, China 111,405 151,458 198,168 300,533Philippines 17,447 38,078 41,255 51,995Malaysia 73,865 98,229 141,595 227,334Thailand 56,444 69,152 110,360 228,141China 148,780 249,203 761,953 2,048,900Hongkong 173,753 201,855 289,325 442,775Viet Nam 5,449 14,483 32,447 114,573Source: ADB Key Indicators for Asia and the Pacific 2013
Export of Goods and Services (in million US dollars)
a. FDI vs. GVC participation
b. GVC participation growth vs. GDP per capita growth
Main argument: A more dynamic manufacturing sector would have provided more higher-paying jobs to the
less-educated workforce, thereby making poverty reduction faster and economic growth more inclusive.
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
Opportunities & constraints
• 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
Strengths Weaknesses• Good macroeconomic environment• Political stability: “Daang Matuwid”• Young, trainable, English speaking
workers• Export zones’ legal framework,
incentives
• 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
17
Potential Growth areas: Nearby
Source: Usui, N. 2012. Taking the Right road to Inclusive Growth. ADB. Manila.
19
• Can be developed with relative ease, can utilize existing capabilities (inputs, institutional/infrastructure, skills, technology) embedded in the current export structure
Criteria Leamer Nearby: Detailed Commodity Group (SITC 4 digit)
Highest level sophisticationHighest 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 materialsLabor Precious jewelry; porcelain or china house ware; pianos
Animal Fish, dried, smoked; fish fillets frozenAgriculture
Refined sugar
Cereal Flours & meals, of meat , fishHighest labor intensity
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
Clocks; watches; photographic cameras; sewing machines
Constraints to GrowthMajor Area Main Issues & ConstraintsInfrastructure & Logistics
High cost & unpredictability of powerHigh cost of domestic shipping
Governance & Regulation
Smuggling, corruption, bureaucracy & red tapeLack of streamlining/automation of business procedures
MSME development
Access to finance, technology, inability to comply with standards
Innovation Lack of innovationHRD Lack of skilled workersSupply 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
Roadmap for structural transformationVision: globally competitive manufacturing industry
-Rebuild capacity of existing industries, strengthen emerging industries, maintain competitiveness of comparative advantage industries
-Deepen participation in regional integration by serving as hubs in production networks for industries like auto, electronics, machinery, garments, food
-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
Phase I 2014-201
Phase II 2019-2023
Phase III 2024-2028
21
Targets, Strategic actions, complementary measures
22
30% value added; 15%
employment
Horizontal measures
Coordination
mechanism
Vertical measures
• Close supply chain gaps access to raw materials:
food furniture, garments integration mechanism:
copper, iron & steel, chemicals
• Expand domestic market & exports
automotive & shipping
• HRD• SME development• Technology upgrading,
innovation• Power, smuggling,
logistics & infrastructure
• Investment promotion• Competitive exchange
rate
open trade regime, sustainable macro policies, sound tax policies & administration, efficient bureaucracy, secure property rights
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/agri-business, garments, textiles, copper, pulp & paper, rubber, furniture, jewelry, iron & steel
• HORIZONTAL Programs to directly improve productivity Cluster-based intervention: increase supply of skilled workers,
encourage technology adoption, improve regulation & infrastructure
• HORIZONTAL Programs to address coordination failures 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
Step (2): Upgrading (more difficult but not impossible)
1. Upgrading in industry structure
Plugging into GVCs↓
Rising wages due to the absorption of surplus labor ↓
Necessity of upgrading and diversification in industry structure(otherwise you will be caught in the “middle-income trap”)
Upgrading in industry structure Resource and labor intensive industry → capital and technology intensive industry
Policy measures to upgrade industry structuree.g. More emphasis on tertiary education, Technological cluster development, promotion and attraction of FDI in R&D
2. Industry cluster development Attract more assemblers (FDI)→ More induced demand for parts and components (through the “backward linkage effects”)
Policy measures to support local SMEse.g. match-making, credit scheme, technology assistance, skills training, certification scheme
Policy measures to attract foreign supplierse.g. tax incentives, industrial estates for SMEs
3. Upgrading along GVCs I. Process upgradingII. Product upgradingIII. Functional upgradingIV. Chain upgrading
Government CoordinationAgency 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 roadmapsBOC smuggling, trade & customs facilitationTESDA, DOLE, PRC training of workers, skilled workers needed
(supply gap)Tariff Commission tariff distortions, anti-dumping & safeguard
measures DOF, DBM budget, temporary incentive measuresBOI, PEZA, Clark, Subic
Investment promotion
DTI-MSMED, DOST MSME developmentLGUs business permits & regulations (double taxation)DOE energy plan, policy implementation (B5
biodiesel)PPA, MARINA regulatory & port charges & domestic shipping,
RA 9295DENR environmental permits, plantations
26
• Maraming Salamat!!!• Dios ti Agngina!!!• Dios mamajes dinio!!!• Dacal a salamat!!!• Salamat tunon!!!• Saeamat kimo!!!• Daghang Salamat!!!• Thank YOU very much!!!!