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Transforming the Philippine Economy Industrial Upgrading and Diversification Norio Usui Philippines Country Office, Asian Development Bank The Philippine Manufacturers and Producers Summit 24 November 2011
Transcript of Transforming the Philippine Economyfpi.ph/fpi.cms/News/Norio Usui - Presentation During the...
Transforming the Philippine Economy
Industrial Upgrading and Diversification
Norio Usui
Philippines Country Office, Asian Development Bank
The Philippine Manufacturers and Producers Summit 24 November 2011
Presentation
• Recent economic situation and observed structural weaknesses
• Why could the Philippines not be like other ASEAN countries?
• Can the recent service-led growth, particularly booming BPOs, resolve development challenges of the country?
• What is an adequate long-term development model for the country?
• What is your role? Government and entrepreneurs
Growth and Structural Change: The two sides of a coin
Growth
is not just more of the same
“A growth miracle sustained for a period of decades...must involve the continual introduction of new goods, not merely continual learning on a fixed set of goods” (Robert Lucas)
Structural change
is about the transformation of the economy by:
transferring resources from less productive activities to more productive ones
1. Diversifying production
2. Upgrading production
3. Increasing labor productivity
GDP growth in the past 5 decades (annual average, %)
4.9
5.9
1.7
2.9
4.8
0
1
2
3
4
5
6
7
1960s 1970s 1980s 1990s 2000s
Solid growth over the 2000s
7.2
19.4
-
5
10
15
20
25 1
99
0
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
Real GDP growth Unemployment Underemployment
Weak labor market indicators
Series break %
Poverty incidence (%)
33.1
24.9 26.4 26.5
28.3
20.1 21.1 20.9
0
10
20
30
40
1991 2003 2006 2009
by Population by Families
Persistent poverty
Growth and investment paradox
21.6
18.3
20.3
17
18
19
20
21
22
2000 2002 2004 2006 2008 2010
-60
-40
-20
0
20
40
60
80
100
Jan
-07
Jun
-07
Nov-0
7
Apr-
08
Sep-0
8
Feb-0
9
Jul-09
Dec-0
9
May-1
0
Oct-
10
Mar-
11
Aug-1
1
Global Semiconductor Sales
Philippines' semiconductor export
A Sharp drop of exports
Global semiconductor sales
Philippines’ semiconductor export
Philippines’ exports ($ million)
Global semiconductor sales and Philippines’ semiconductor exports
(% change, year-on-year)
0
1,000
2,000
3,000
4,000
5,000
6,000
Jan-0
7
Jun-0
7
Nov-0
7
Apr-
08
Sep-0
8
Feb
-09
Jul-09
Dec-0
9
May-1
0
Oct-
10
Mar-
11
Aug-1
1
Total exports Electoronics Semiconductors
How about your neighbors?
Total exports (3 month moving average, % change, year-on-year)
-60
-40
-20
0
20
40
60
80
Ja
n-0
7
Ma
y-0
7
Se
p-0
7
Ja
n-0
8
Ma
y-0
8
Se
p-0
8
Ja
n-0
9
Ma
y-0
9
Se
p-0
9
Ja
n-1
0
Ma
y-1
0
Se
p-1
0
Ja
n-1
1
Ma
y-1
1
Se
p-1
1
Philippines Malaysia Thailand Indonesia
Long-term growth performance
Real GDP per capita 1960 (constant 2000 $)
Real GDP per capita 1960 – 2010 (constant 2000 $)
Once upon a time……. After five decades…….
105 145
201
1,154
813
692
321
0
200
400
600
800
1,000
1,200
1,400
PR
C
Ind
ia
Ind
on
esia
Kore
a, R
ep.
Mal
aysi
a
Ph
ilip
pin
es
Thai
lan
d
0
1,000
2,000
3,000
4,000
5,000
6,000
19
60
19
65
19
70
19
75
19
80
19
85
19
90
19
95
20
00
20
05
20
10
China India Indonesia
Malaysia Philippines Thailand
Vietnam
5.6
6.5
4.0
6.5
4.6
6.2
3.8
4.6
-1.9
-2.5 -2.5
-1.9
-1.4
-2.2 -2.1
-1.0
3.7 4.0
1.5
4.6
3.6
3.9
1.8
3.6
-4
-2
0
2
4
6
8
INO MAL PHI THA INO MAL PHI THA
GDP (constant 2000 US$) Population Per capita GDP
GDP per capita growth (%, annual average)
1960 - 2008 1990 - 2008
Was it because of high population growth?
5.8 6.5 4.8
10.4 11.3
0
5
10
15
20
25
30
35
40
Indonesia Malaysia Philippines Thailand Viet Nam
1988-89 1995-96 2006-07
Krugman came and recommended trade liberalization
Tariff rate, applied, simple mean, manufactured products
%
88.0
12.3
55.4
44.0
85.7
51.0
2.0
45.0
11.5
38.0
0
20
40
60
80
100
Indonesia 1984-2007
Malaysia 1984–2009
Philippines 1985–2006
Thailand 1980–2004
Viet Nam 1993–2008
Base year Comparison year
Chronic problems
Slow poverty reduction (headcount ratio at $2 a day PPP, % of population)
High unemployment (% of total labor force)
Stagnant investment (gross fixed capital formation, % of GDP)
0
2
4
6
8
10
12
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Indonesia
Malaysia
Philippines
Thailand
Vietnam
10
20
30
40
50
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Indonesia
Malaysia
Philippines
Thailand
Viet Nam
You have depended more on services
% Contribution to GDP Growth: 1980-2008
50.1 49.4
26.3
48.3
26.5
47.4
38.5 43.5
66.6
43.2
61.9
43.3
11.4 7.2 7.1 8.6 11.7 9.3
0
20
40
60
80
100
INO MAL PHI THA IND PRC
Industry Services Agriculture
0
2,500
5,000
7,500
10,000
12,500
0
1,500
3,000
4,500
6,000
7,500
1980 1985 1990 1995 2000 2005
Indonesia Philippines Thailand
Malaysia Viet Nam
Economy-wide labor productivity (Y/L)
Constant 2000 $ Annual average growth rate, %
MAL (RHS)
THA
INO
PHI
VIE
2.5 2.7
0.3
3.6
4.4
2.2
3.4
1.1
3.6
5.7
3.4
2.1
1.8
2.5
4.8
0
1
2
3
4
5
6
Indonesia Malaysia Philippines Thailand Viet Nam
1980-2009 1990-2000 2000-2009
Centrality of structural transformation
0
2,000
4,000
6,000
8,000
10,000
12,000
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Agriculture Industry Services Manufacturing
0
2,000
4,000
6,000
8,000
10,000
12,000
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
Agriculture Industry Services Manufacturing
0
10
20
30
40
50
60
70
80
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
0
10
20
30
40
50
60
70
80
19
80
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
0
10
20
30
40
50
60
70
80
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
0
10
20
30
40
50
60
70
801
98
0
19
82
19
84
19
86
19
88
19
90
19
92
19
94
19
96
19
98
20
00
20
02
20
04
20
06
Employment by sector
Labor productivity by sector
Labor productivity by sector
0
2,000
4,000
6,000
8,000
10,000
12,000 1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
Agriculture Industry Service Manufacturing
Decomposition of labor productivity growth ASEAN 4, 1980 – 2009
23.1 10.1 8.9
66.9
71.3 105.6
-1.8
77.8 12.7
-1.1
3.3
31.4
-50
0
50
100
150
200
Indonesia Malaysia Philippines Thailand
SSRE WSPGE DSRE
9.0 -2.2 -10.7
8.4
61.0
54.0
-3.8
90.9
37.2 62.8
24.9
76.7
-50
0
50
100
150
200
Indonesia Malaysia Philippines Thailand
Agriculture Industry Services
Country
Capabilities
Products
“Lego” Theory of Development
Proximity
Nearby
Far away
oil
fishing
agriculture tropical
garments
metallurgy
textiles
agriculture animal
machineries
fruits
cereals
vehicles
electronics
chemicals
mining
products forest
Node Size (World Trade: ‘000 US$)
1.9
x 10
8
8.4
x 10
7
3.7
x 10
7
1.7
x 10
7
7.5
x 10
6
3.3
x 10
6
1.5
x 10
6
6.6
x 10
5
3.0
x 10
5
1.3
x 10
5
Φ > 0
.65
Φ < 0
.40
Φ > 0
.40
Φ > 0
.55
Link Color (Proximity)
0 1 2 4 3 Cap
ital In
ten
sive
Mach
ine
ry
Ch
em
icals
Labo
r In
ten
sive
Ce
reals
Pe
trole
um
An
imal
Agricu
lture
Trop
ical A
gricultu
re
Fore
st P
rod
ucts
Raw
M
aterials
Node Color (Leamer Classification)
THE PRODUCT SPACE (Hidalgo et al., 2007)
22
Product Space by Regions
denotes where region has RCA
THA 1975
THA 1985
THA 1995
THA 2005
THA 2008
PHL 1965
RCA≥1
PHL 1975
PHL 1985
PHL 1995
PHL 2005
PHL 2008
Diversification
36
Unexploited Products:
How far the new products?
2008
2008
2008
2008
PHI
THA
INO
MAL
37
2008
2008
2008
PRC
VIE
PHI
Business process outsourcing A new growth engine?
5,288
7,717
0
4
8
12
16
20
0
2,000
4,000
6,000
8,000
10,000
2004 2005 2006 2007 2008 2009
Contact Center
Transcription
Animation
Software Development
Other BPOs
% of total export of goods & services (RHS)
355,135
444,811
0.0
0.4
0.8
1.2
1.6
2.0
0
100,000
200,000
300,000
400,000
500,000
2004 2005 2006 2007 2008 2009
Contact Center
Transcription
Animation
Software Development
Other BPOs
% of total labor force (RHS)
Export (million $) Employment (persons)
Labor market by educational attainment
(%)
Unemployment & Underemployment rate in 2009 Labor force in 2009
0.4
1.3
1.1
3.1
2.8
1.4
9.0
10.7
8.1
0 5 10 15
Primary education
Secondary education
Tertiary education
Unemployed Underemployed Employed
3.4
8.7 10.3
24.8
19.2 13.1
0
10
20
30
Primary education
Secondary education
Tertiary education
Unemployed Underemployed
(persons)
Assessment
• The Philippines’ past growth has been largely led by services
• Lagged growth is mainly rooted in persistent productivity growth deficit due to stagnant industrialization, in particular lack of product diversification
• Limited job opportunities resulted in the slow poverty reduction
• The service-led growth did not require a relatively high investment
• Booming BPOs provide jobs, but the impact is limited given the scale of still utilized workforce, and its bias toward educated labor
• To join the growth club in the region, the country needs to “walk on two legs” instead of “leapfrogging” the development process
Taking the Right Growth Road Manufacturing and Modern Services
42
What the government can do?
• Does the government have a strategy?
• What are the priority sectors/industries/products? PDP and IPP
• What the government is doing for industrial development?
• How effective the current policies?
• What products does the country have “nearby”?
• What the government can do to empower entrepreneurs and help them to solve problems?
• Product identification (targeting) and diagnostics of binding constraints for the targeted products
How do we “choose”?
Key dimensions for “choosing”
– Easiness to jump
– Above average sophistication (direct effect)
– Opportunities for further structural change (spillover effects)
– Capacity to absorb labor
44
Unexploited products
Nearby Middle Far away
For example, Electronics…….have you fully exploited the opportunities?
RCA≥1
RCA<1
If your targets are far away…… foreign direct investment
42
51
18
71
43
0
10
20
30
40
50
60
70
80
Indonesia Malaysia Philippines Thailand Viet Nam
1970s
1980s
1990s
2000s
($ billion, cumulative)
47
What are binding constraints?
• Long-standing issues:
– Infrastructure
– Business and investment climate
• Horizontal intervention: Is that all?
• Critical importance of focusing on product-specific constraints
• Public and private dialogue (joint diagnostic exercise)
High electricity price Is it a real headache for all?
0
10
20
30
40
50
60
1 11 21 31 41 51 61 71 81 91 101 111 121 131
simple average: 5.9%
Share of electricity cost in total input cost (not include labor cost, depreciation, net tax)
Structural transformation, by its nature, is a long process.
Challenges may look overwhelming. It cannot happen
tomorrow, but in some future within our reach.
Strategic public support that embodies a long-term vision
of the economy makes it possible to change the economic
structure that drives inclusive growth in the Philippines.
Success is not always as far away as it looks.
Thank you
The findings, interpretations, and views expressed are entirely those of the author, and do not necessarily represent the views of the Asian Development Bank, its executive directors, or the countries they represent.
For further information, please contact: Norio Usui ([email protected])
Producing (& exporting) mango requires: • a certain type of soil • mechanized farming equipment • agribusinesses firms that know the market,
etc.,
but also “public goods” such as: • specific property rights • port infrastructure • road system • cold-storage facilities • phytosanitary regulations • market access agreements, etc.
Capabilities
