Build more tractors.”
That, according to Semiconductor and Electronics Industries of the Philippines (SEIPI) President Dan Lachica, was the response of government policymakers when asked how the Philippines can work towards expanding its industrial base. It is commendable that economic planners are finally coming around to the idea that sustainable economic growth is fundamentally impossible without a solid manufacturing base.
The suggestion, however, that the Philippines pursue an industry for which it has exactly zero resources or expertise (several hundred thousand jeepneys menacing the nation’s streets and highways are something of an indictment of the Philippines’ vehicle design and construction capabilities), particularly in the presence of the man who leads the industry group of the country’s one actually successful manufacturing sector, indicates a certain lack of seriousness on the government’s part.
The lack of ambition is reflected in a much more disturbing way in the realization that only now, more than three years into the current Aquino administration’s term, responsible agencies such as the National Economic Development Authority (NEDA) and the Department of Trade and Industry are only now looking at “industry roadmaps” for the Philippines’ various economic sectors. The industry represented by Seipi, which is the single largest producer of Philippine exports (accounting for about 40 percent of the total), has completed its “roadmap,” but has not yet had the opportunity to make its presentation of it to government planners. Although that should happen fairly soon, according to Seipi’s Lachica, the consequence of administration foot-dragging means that any policy initiatives that could be generated from it—and a number should be—could not be put to Congress before next year, nor actually implemented before 2015 at the earliest. As followers of this column know, 2015 is a date circled in red on our calendars, because it is the year in which the regional economy will become a lot more open, and therefore much more competitive; if the Philippines is still playing catch-up with economic policy at that point—which unfortunately appears increasingly likely—it will take a massive effort to keep the country from falling even farther behind its neighbors in real growth.
What is especially annoying about the government’s lack of aggressiveness and apparent aversion to doing any real work beyond the production of documents and power point presentations is that, at least in the case of the electronics industry, excessive planning study is completely unnecessary. Seipi has a very clear picture of what challenges its industry faces, what areas for growth and added value it should focus on, and what results it can achieve under a variety of scenarios between now and 2030, and this is obvious because it took Mr. Lachica all of about an hour to thoroughly explain it to a group of us at The Manila Times last week; meanwhile, it’s taking the government three years (and counting) to even get around to asking about it.
The electronics industry “roadmap,” in short form, goes something like this: The basic problems faced by the industry are, in order of importance, the high cost and stability of electricity supply; lack of infrastructure; high labor costs and lack of, or perhaps more accurately, a lack of highly skilled labor; and shortcomings in government support for the industry, such as reliable investment incentive policies, and consistency in tax collection management. Corruption and security issues, which Mr. Lachica euphemistically refers to as “hidden costs,” are also a concern, one that SEIPI’s president describes as an issue that is “bigger than is generally known” outside the industry. In order to make some headway against these problems and help the industry to meet its growth targets, key policy initiatives should be undertaken in the areas of small and medium enterprise (SME) development in chemical industries, which would mitigate supply chain risks that are currently a turn-off for multinational investors; improvement of research and development capabilities (at least to the extent that the Philippines’ questionable electric power infrastructure allows); and encouraging the development of more scientists and engineers for the Philippines through improving the education curriculum and looking for technical recruits at schools outside Metro Manila. In terms of investment requirements, in order to reach a level of $38 billion to $50 billion in annual exports, the industry requires around $3.5 billion in foreign direct investment, with all that implies about the shortcomings of present government policies to attract investors.
While the electronics industry has seen its productivity decline over the past two years, its performance has been in step with the global industry as a whole, and growth of around 5 percent is expected over each of the next couple of years if present conditions persist. Even with the mild downturn, which is almost entirely attributable to external factors such as economic conditions in the big European and North American markets and the unfavorable fluctuation of the peso, the electronics industry remains one of the economy’s legitimate bright spots and sources of strength. The Aquino administration has demonstrated a certain amount of economic irresponsibility in not prioritizing support for the industry before now. Rather than building on strength, the government instead has focused on unrealistic goals and low value-added quick fixes, apparently unaware that most of the initiatives needed by the electronics industry sector are actually broad-based improvements to the entire economy.
Or they could just build more tractors. Tractors are pretty cool, right?