Philippine government blueprint seeks to create industrial clusters

Faced with a highly competitive environment in which rival markets are looking to capitalise on rapid technological progress to establish superiority in new fields of advanced manufacturing, the government has launched a multi-pronged strategy to ensure Philippine industry keeps pace. Overseen by the Department of Trade and Industry (DTI), the Inclusive Innovation Industrial Strategy – known locally as i3S – directs state support into 12 major industries in which officials have calculated the country can compete regionally and globally.

The plan comes at a time when trade liberalisation has opened opportunities for local firms to boost exports and attract foreign investment. The flipside is that lower trade barriers have exposed less efficient, and in some cases formerly protected companies to fiercer competition. As such, the sector is in need of reform. “The automotive segment needs a national roadmap promoted by the government,” Ronnie Co, CEO of PPC Asia, a domestic importer, distributor and retailer of automotive parts, told OBG. “If this cannot be achieved, the Philippines will have to perpetually import all spare parts, including completely built units.”

Strategy

Agglomeration efforts will be bolstered by the plan’s five pillars: creating new industries and clusters; human resources development; micro, small and medium-sized enterprise (MSME) growth; promoting innovation and entrepreneurship; and improving the ease of doing business. The unifying aim is to create a positive feedback loop where innovation, competition and productivity reinforce each other, as private firms – operating in a free market but with guidance from the government – forge stronger links in domestic and global supply chains. This should draw more businesses into the formal sector, promote inclusive growth, create jobs, boost state revenues and reduce poverty.

To aid the plan, the DTI solicited sector roadmaps from 35 industries. It then reviewed each blueprint with the Board of Investments and held consultations. The resulting 12 selected sectors – heavily concentrated in manufacturing, which makes up just under 25% of GDP – comprises automotive, electronics, aerospace, chemicals, iron and steel, garments, textiles, furniture, shipbuilding, agribusiness, construction, and transport and logistics. Ecosystems will be formed around the selected industries to ensure that the components and services needed to manufacture products will be within a short radius, boosting the efficiency of production and shipping. In addition, i3S highlights the need to support the growth of local parts manufacturers to reduce reliance on imports and boost in-country value. State efforts will also help increase so-called servicification: closer collaboration between elements of the service supply chain such as design, research and development, engineering and after-sales.

Challenges

There are several major obstacles to i3S, including the underinvestment in infrastructure which has resulted in considerable logistics bottlenecks, and the high cost of electrical power, combined with its unreliability. The consultations also showed red tape and rising shipping costs were top concerns, with stakeholders identifying the Bureau of Customs as having room for improvement. MSMEs also reported that the lack of access to financing hinders upgrades.

The authorities are moving ahead with i3S to reduce these challenges. In early 2018 the DTI held a Manufacturing Summit in Makati, bringing together 250 stakeholders to solicit views and discuss the strategy. Ramon Lopez, secretary for trade and industry, told local media that the next steps will focus on setting up industrial centres to enhance links across segments, establishing i3S zones where universities and industries could collaborate on innovation initiatives, investing in local producers of heavily imported goods, and fostering communication between the public and private sectors. “Our vision is for the Philippines to have creative and connected communities of different stakeholders like innovators, start-ups, MSMEs and large enterprises that will collaborate to produce new products and services.”