China

The Philippines: Resurrecting Manufacturing in a Services Economy

The Philippines: Resurrecting Manufacturing in a Services Economy

In recent years, the Philippines has ranked among the world’s fastest-growing economies but needs to adjust to the demands of a dynamic global economy.

The Philippines is at a fork in the road. Despite good results on the growth front, trends observed in trade competitiveness, Global Value Chain (GVC) integration and product space evolution, send worrisome signals. The country has solid fundamentals and remarkable human assets to leapfrog into the 4th Industrial Revolution – where the distinction between goods and services have become obsolete. Yet it does not get the most out of this growth, especially with regards to long-term development prospects. In order to do so, the government will have to make the right policy choices.


The Philippines seemingly performs well. From 2011 to 2015, the Philippines grew on average at 5.9% a year and in 2016 growth reached nearly 7%. At the same time, the manufacturing sector resurged with an average 6.9% growth from 2013 to 2015—surpassing services that posted an average 6.4% growth. However, the recent World Bank Philippines Economic Update illustrated trends in recent export performance and GVC integration which could be read as early warning signs:

  • Increasingly remote in GVCs, the Philippines has become a supplier of intermediate goods to China, exposed to demand fluctuations, and has not penetrated new markets; 
  • The Philippines has not diversified its exports basket, if only to move away from sophisticated products, with little domestic transformation;  
  • This move will make future upgrading and innovation more difficult, as illustrated by the low export survival rates (Figure), including for sophisticated products.

 
At the doorstep of the 4th Industrial revolution, because the poles of growth have moved, the country has not kept its sophistication edge. Today, it is not enough to create just more jobs, but to create better jobs. Participation in GVCs should be a path to socio-economic upgrading and facilitate transfers of technology, sustainable practices or skills. Little transformation actually takes place in the Philippines with value added captured in other countries along the value chains.

To avoid short-term growth that translates into long-term downgrading prospects, quick action would be required. The government has already initiated a number of programs (e.g., for the resurgence of industry or the support of small and medium enterprises) as part of the Presidential Socioeconomic Agenda, and launched vast consultations to design trade roadmaps in 40 different sectors. These are excellent first steps, but additional efforts will be needed, and the experience of other countries that have found themselves in the same corner could help in identifying the right solutions.

But there are preconceived ideas about trade and GVC integration that could lead to strategic mistakes. For example, governments often focus on increasing domestic value added—which is a good and legitimate objective—but attempt to do so by using inappropriate methods, e.g., by introducing import substitution or imposing more- restrictive-than-necessary rules on trade on local content. The impact could be harmful to investment attractiveness and industry competitiveness. It is about positioning the domestic industry or services providers in the right segments of the value chain: Vietnam, for instance, reduced the share of domestic value-added in its exports from 45 to 30% between 1995 and 2011, but increased the volume of its exports from $0.2 to $3.8 billion (World Bank, 2016). Other ideas include the necessity to add more incentives, when their effect is not obvious and economic development policies are more productive when focused on improving the country’s fundamentals.

A number of good solutions have been tested elsewhere that could help the Philippines move back to a more sustainable and inclusive growth path. For example, “servicification”, with the development of higher services content in goods, has become a major path to competitiveness and diversification in the 4th Industrial Revolution.

The Philippines is a services economy and a lead exporter of services; paradoxically, however, efficient linkages between services and other sectors of the industry (manufacturing and agriculture) are lacking. Clearly, the Philippines cannot compete on prices only to attract foreign investment—ending the “race to the bottom” to attract lead firms would require, for example, putting in place an environment able to reduce sustainability risks along GVCs, following the examples of countries like Vietnam or Colombia.

Flexibility, quality of labor, and innovation are key to the Philippines’ future success. While the Philippines innovates a lot, it does so in areas where there’s little impact on trade performance. In areas where chances of being competitive and surviving are lower for innovation strategies, a look at successful Philippine companies would show that they have identified the right niches (technology or skill-based) and could go around the competition of low-cost emerging countries. Support for SMEs will also be a determinant in the success of this innovation strategy. The GVC and economic complexity analyses provide some guidance on the way to go. Beyond seeing its evolution in the service and product space as a linear process, considering a third dimension—increased innovation and services content—will allow the Philippines to make a double leap in value added and technology.
 
 

by · Friday, 23 June 2017 · China, Philippines, Vietnam
The Philippines: Resurrecting Manufacturing in a Services Economy

The Philippines: Resurrecting Manufacturing in a Services Economy

In recent years, the Philippines has ranked among the world’s fastest-growing economies but needs to adjust to the demands of a dynamic global economy.

The Philippines is at a fork in the road. Despite good results on the growth front, trends observed in trade competitiveness, Global Value Chain (GVC) integration and product space evolution, send worrisome signals. The country has solid fundamentals and remarkable human assets to leapfrog into the 4th Industrial Revolution – where the distinction between goods and services have become obsolete. Yet it does not get the most out of this growth, especially with regards to long-term development prospects. In order to do so, the government will have to make the right policy choices.


The Philippines seemingly performs well. From 2011 to 2015, the Philippines grew on average at 5.9% a year and in 2016 growth reached nearly 7%. At the same time, the manufacturing sector resurged with an average 6.9% growth from 2013 to 2015—surpassing services that posted an average 6.4% growth. However, the recent World Bank Philippines Economic Update illustrated trends in recent export performance and GVC integration which could be read as early warning signs:

  • Increasingly remote in GVCs, the Philippines has become a supplier of intermediate goods to China, exposed to demand fluctuations, and has not penetrated new markets; 
  • The Philippines has not diversified its exports basket, if only to move away from sophisticated products, with little domestic transformation;  
  • This move will make future upgrading and innovation more difficult, as illustrated by the low export survival rates (Figure), including for sophisticated products.

 
At the doorstep of the 4th Industrial revolution, because the poles of growth have moved, the country has not kept its sophistication edge. Today, it is not enough to create just more jobs, but to create better jobs. Participation in GVCs should be a path to socio-economic upgrading and facilitate transfers of technology, sustainable practices or skills. Little transformation actually takes place in the Philippines with value added captured in other countries along the value chains.

To avoid short-term growth that translates into long-term downgrading prospects, quick action would be required. The government has already initiated a number of programs (e.g., for the resurgence of industry or the support of small and medium enterprises) as part of the Presidential Socioeconomic Agenda, and launched vast consultations to design trade roadmaps in 40 different sectors. These are excellent first steps, but additional efforts will be needed, and the experience of other countries that have found themselves in the same corner could help in identifying the right solutions.

But there are preconceived ideas about trade and GVC integration that could lead to strategic mistakes. For example, governments often focus on increasing domestic value added—which is a good and legitimate objective—but attempt to do so by using inappropriate methods, e.g., by introducing import substitution or imposing more- restrictive-than-necessary rules on trade on local content. The impact could be harmful to investment attractiveness and industry competitiveness. It is about positioning the domestic industry or services providers in the right segments of the value chain: Vietnam, for instance, reduced the share of domestic value-added in its exports from 45 to 30% between 1995 and 2011, but increased the volume of its exports from $0.2 to $3.8 billion (World Bank, 2016). Other ideas include the necessity to add more incentives, when their effect is not obvious and economic development policies are more productive when focused on improving the country’s fundamentals.

A number of good solutions have been tested elsewhere that could help the Philippines move back to a more sustainable and inclusive growth path. For example, “servicification”, with the development of higher services content in goods, has become a major path to competitiveness and diversification in the 4th Industrial Revolution.

The Philippines is a services economy and a lead exporter of services; paradoxically, however, efficient linkages between services and other sectors of the industry (manufacturing and agriculture) are lacking. Clearly, the Philippines cannot compete on prices only to attract foreign investment—ending the “race to the bottom” to attract lead firms would require, for example, putting in place an environment able to reduce sustainability risks along GVCs, following the examples of countries like Vietnam or Colombia.

Flexibility, quality of labor, and innovation are key to the Philippines’ future success. While the Philippines innovates a lot, it does so in areas where there’s little impact on trade performance. In areas where chances of being competitive and surviving are lower for innovation strategies, a look at successful Philippine companies would show that they have identified the right niches (technology or skill-based) and could go around the competition of low-cost emerging countries. Support for SMEs will also be a determinant in the success of this innovation strategy. The GVC and economic complexity analyses provide some guidance on the way to go. Beyond seeing its evolution in the service and product space as a linear process, considering a third dimension—increased innovation and services content—will allow the Philippines to make a double leap in value added and technology.
 
 

by · Friday, 23 June 2017 · China, Philippines, Vietnam
The Philippines: Resurrecting Manufacturing in a Services Economy

The Philippines: Resurrecting Manufacturing in a Services Economy

In recent years, the Philippines has ranked among the world’s fastest-growing economies but needs to adjust to the demands of a dynamic global economy.

The Philippines is at a fork in the road. Despite good results on the growth front, trends observed in trade competitiveness, Global Value Chain (GVC) integration and product space evolution, send worrisome signals. The country has solid fundamentals and remarkable human assets to leapfrog into the 4th Industrial Revolution – where the distinction between goods and services have become obsolete. Yet it does not get the most out of this growth, especially with regards to long-term development prospects. In order to do so, the government will have to make the right policy choices.


The Philippines seemingly performs well. From 2011 to 2015, the Philippines grew on average at 5.9% a year and in 2016 growth reached nearly 7%. At the same time, the manufacturing sector resurged with an average 6.9% growth from 2013 to 2015—surpassing services that posted an average 6.4% growth. However, the recent World Bank Philippines Economic Update illustrated trends in recent export performance and GVC integration which could be read as early warning signs:

  • Increasingly remote in GVCs, the Philippines has become a supplier of intermediate goods to China, exposed to demand fluctuations, and has not penetrated new markets; 
  • The Philippines has not diversified its exports basket, if only to move away from sophisticated products, with little domestic transformation;  
  • This move will make future upgrading and innovation more difficult, as illustrated by the low export survival rates (Figure), including for sophisticated products.

 
At the doorstep of the 4th Industrial revolution, because the poles of growth have moved, the country has not kept its sophistication edge. Today, it is not enough to create just more jobs, but to create better jobs. Participation in GVCs should be a path to socio-economic upgrading and facilitate transfers of technology, sustainable practices or skills. Little transformation actually takes place in the Philippines with value added captured in other countries along the value chains.

To avoid short-term growth that translates into long-term downgrading prospects, quick action would be required. The government has already initiated a number of programs (e.g., for the resurgence of industry or the support of small and medium enterprises) as part of the Presidential Socioeconomic Agenda, and launched vast consultations to design trade roadmaps in 40 different sectors. These are excellent first steps, but additional efforts will be needed, and the experience of other countries that have found themselves in the same corner could help in identifying the right solutions.

But there are preconceived ideas about trade and GVC integration that could lead to strategic mistakes. For example, governments often focus on increasing domestic value added—which is a good and legitimate objective—but attempt to do so by using inappropriate methods, e.g., by introducing import substitution or imposing more- restrictive-than-necessary rules on trade on local content. The impact could be harmful to investment attractiveness and industry competitiveness. It is about positioning the domestic industry or services providers in the right segments of the value chain: Vietnam, for instance, reduced the share of domestic value-added in its exports from 45 to 30% between 1995 and 2011, but increased the volume of its exports from $0.2 to $3.8 billion (World Bank, 2016). Other ideas include the necessity to add more incentives, when their effect is not obvious and economic development policies are more productive when focused on improving the country’s fundamentals.

A number of good solutions have been tested elsewhere that could help the Philippines move back to a more sustainable and inclusive growth path. For example, “servicification”, with the development of higher services content in goods, has become a major path to competitiveness and diversification in the 4th Industrial Revolution.

The Philippines is a services economy and a lead exporter of services; paradoxically, however, efficient linkages between services and other sectors of the industry (manufacturing and agriculture) are lacking. Clearly, the Philippines cannot compete on prices only to attract foreign investment—ending the “race to the bottom” to attract lead firms would require, for example, putting in place an environment able to reduce sustainability risks along GVCs, following the examples of countries like Vietnam or Colombia.

Flexibility, quality of labor, and innovation are key to the Philippines’ future success. While the Philippines innovates a lot, it does so in areas where there’s little impact on trade performance. In areas where chances of being competitive and surviving are lower for innovation strategies, a look at successful Philippine companies would show that they have identified the right niches (technology or skill-based) and could go around the competition of low-cost emerging countries. Support for SMEs will also be a determinant in the success of this innovation strategy. The GVC and economic complexity analyses provide some guidance on the way to go. Beyond seeing its evolution in the service and product space as a linear process, considering a third dimension—increased innovation and services content—will allow the Philippines to make a double leap in value added and technology.
 
 

by · Friday, 23 June 2017 · China, Philippines, Vietnam
The Philippines: Resurrecting Manufacturing in a Services Economy

The Philippines: Resurrecting Manufacturing in a Services Economy

In recent years, the Philippines has ranked among the world’s fastest-growing economies but needs to adjust to the demands of a dynamic global economy.

The Philippines is at a fork in the road. Despite good results on the growth front, trends observed in trade competitiveness, Global Value Chain (GVC) integration and product space evolution, send worrisome signals. The country has solid fundamentals and remarkable human assets to leapfrog into the 4th Industrial Revolution – where the distinction between goods and services have become obsolete. Yet it does not get the most out of this growth, especially with regards to long-term development prospects. In order to do so, the government will have to make the right policy choices.


The Philippines seemingly performs well. From 2011 to 2015, the Philippines grew on average at 5.9% a year and in 2016 growth reached nearly 7%. At the same time, the manufacturing sector resurged with an average 6.9% growth from 2013 to 2015—surpassing services that posted an average 6.4% growth. However, the recent World Bank Philippines Economic Update illustrated trends in recent export performance and GVC integration which could be read as early warning signs:

  • Increasingly remote in GVCs, the Philippines has become a supplier of intermediate goods to China, exposed to demand fluctuations, and has not penetrated new markets; 
  • The Philippines has not diversified its exports basket, if only to move away from sophisticated products, with little domestic transformation;  
  • This move will make future upgrading and innovation more difficult, as illustrated by the low export survival rates (Figure), including for sophisticated products.

 
At the doorstep of the 4th Industrial revolution, because the poles of growth have moved, the country has not kept its sophistication edge. Today, it is not enough to create just more jobs, but to create better jobs. Participation in GVCs should be a path to socio-economic upgrading and facilitate transfers of technology, sustainable practices or skills. Little transformation actually takes place in the Philippines with value added captured in other countries along the value chains.

To avoid short-term growth that translates into long-term downgrading prospects, quick action would be required. The government has already initiated a number of programs (e.g., for the resurgence of industry or the support of small and medium enterprises) as part of the Presidential Socioeconomic Agenda, and launched vast consultations to design trade roadmaps in 40 different sectors. These are excellent first steps, but additional efforts will be needed, and the experience of other countries that have found themselves in the same corner could help in identifying the right solutions.

But there are preconceived ideas about trade and GVC integration that could lead to strategic mistakes. For example, governments often focus on increasing domestic value added—which is a good and legitimate objective—but attempt to do so by using inappropriate methods, e.g., by introducing import substitution or imposing more- restrictive-than-necessary rules on trade on local content. The impact could be harmful to investment attractiveness and industry competitiveness. It is about positioning the domestic industry or services providers in the right segments of the value chain: Vietnam, for instance, reduced the share of domestic value-added in its exports from 45 to 30% between 1995 and 2011, but increased the volume of its exports from $0.2 to $3.8 billion (World Bank, 2016). Other ideas include the necessity to add more incentives, when their effect is not obvious and economic development policies are more productive when focused on improving the country’s fundamentals.

A number of good solutions have been tested elsewhere that could help the Philippines move back to a more sustainable and inclusive growth path. For example, “servicification”, with the development of higher services content in goods, has become a major path to competitiveness and diversification in the 4th Industrial Revolution.

The Philippines is a services economy and a lead exporter of services; paradoxically, however, efficient linkages between services and other sectors of the industry (manufacturing and agriculture) are lacking. Clearly, the Philippines cannot compete on prices only to attract foreign investment—ending the “race to the bottom” to attract lead firms would require, for example, putting in place an environment able to reduce sustainability risks along GVCs, following the examples of countries like Vietnam or Colombia.

Flexibility, quality of labor, and innovation are key to the Philippines’ future success. While the Philippines innovates a lot, it does so in areas where there’s little impact on trade performance. In areas where chances of being competitive and surviving are lower for innovation strategies, a look at successful Philippine companies would show that they have identified the right niches (technology or skill-based) and could go around the competition of low-cost emerging countries. Support for SMEs will also be a determinant in the success of this innovation strategy. The GVC and economic complexity analyses provide some guidance on the way to go. Beyond seeing its evolution in the service and product space as a linear process, considering a third dimension—increased innovation and services content—will allow the Philippines to make a double leap in value added and technology.
 
 

by · Friday, 23 June 2017 · China, Philippines, Vietnam
The Philippines: Resurrecting Manufacturing in a Services Economy

The Philippines: Resurrecting Manufacturing in a Services Economy

In recent years, the Philippines has ranked among the world’s fastest-growing economies but needs to adjust to the demands of a dynamic global economy.

The Philippines is at a fork in the road. Despite good results on the growth front, trends observed in trade competitiveness, Global Value Chain (GVC) integration and product space evolution, send worrisome signals. The country has solid fundamentals and remarkable human assets to leapfrog into the 4th Industrial Revolution – where the distinction between goods and services have become obsolete. Yet it does not get the most out of this growth, especially with regards to long-term development prospects. In order to do so, the government will have to make the right policy choices.


The Philippines seemingly performs well. From 2011 to 2015, the Philippines grew on average at 5.9% a year and in 2016 growth reached nearly 7%. At the same time, the manufacturing sector resurged with an average 6.9% growth from 2013 to 2015—surpassing services that posted an average 6.4% growth. However, the recent World Bank Philippines Economic Update illustrated trends in recent export performance and GVC integration which could be read as early warning signs:

  • Increasingly remote in GVCs, the Philippines has become a supplier of intermediate goods to China, exposed to demand fluctuations, and has not penetrated new markets; 
  • The Philippines has not diversified its exports basket, if only to move away from sophisticated products, with little domestic transformation;  
  • This move will make future upgrading and innovation more difficult, as illustrated by the low export survival rates (Figure), including for sophisticated products.

 
At the doorstep of the 4th Industrial revolution, because the poles of growth have moved, the country has not kept its sophistication edge. Today, it is not enough to create just more jobs, but to create better jobs. Participation in GVCs should be a path to socio-economic upgrading and facilitate transfers of technology, sustainable practices or skills. Little transformation actually takes place in the Philippines with value added captured in other countries along the value chains.

To avoid short-term growth that translates into long-term downgrading prospects, quick action would be required. The government has already initiated a number of programs (e.g., for the resurgence of industry or the support of small and medium enterprises) as part of the Presidential Socioeconomic Agenda, and launched vast consultations to design trade roadmaps in 40 different sectors. These are excellent first steps, but additional efforts will be needed, and the experience of other countries that have found themselves in the same corner could help in identifying the right solutions.

But there are preconceived ideas about trade and GVC integration that could lead to strategic mistakes. For example, governments often focus on increasing domestic value added—which is a good and legitimate objective—but attempt to do so by using inappropriate methods, e.g., by introducing import substitution or imposing more- restrictive-than-necessary rules on trade on local content. The impact could be harmful to investment attractiveness and industry competitiveness. It is about positioning the domestic industry or services providers in the right segments of the value chain: Vietnam, for instance, reduced the share of domestic value-added in its exports from 45 to 30% between 1995 and 2011, but increased the volume of its exports from $0.2 to $3.8 billion (World Bank, 2016). Other ideas include the necessity to add more incentives, when their effect is not obvious and economic development policies are more productive when focused on improving the country’s fundamentals.

A number of good solutions have been tested elsewhere that could help the Philippines move back to a more sustainable and inclusive growth path. For example, “servicification”, with the development of higher services content in goods, has become a major path to competitiveness and diversification in the 4th Industrial Revolution.

The Philippines is a services economy and a lead exporter of services; paradoxically, however, efficient linkages between services and other sectors of the industry (manufacturing and agriculture) are lacking. Clearly, the Philippines cannot compete on prices only to attract foreign investment—ending the “race to the bottom” to attract lead firms would require, for example, putting in place an environment able to reduce sustainability risks along GVCs, following the examples of countries like Vietnam or Colombia.

Flexibility, quality of labor, and innovation are key to the Philippines’ future success. While the Philippines innovates a lot, it does so in areas where there’s little impact on trade performance. In areas where chances of being competitive and surviving are lower for innovation strategies, a look at successful Philippine companies would show that they have identified the right niches (technology or skill-based) and could go around the competition of low-cost emerging countries. Support for SMEs will also be a determinant in the success of this innovation strategy. The GVC and economic complexity analyses provide some guidance on the way to go. Beyond seeing its evolution in the service and product space as a linear process, considering a third dimension—increased innovation and services content—will allow the Philippines to make a double leap in value added and technology.
 
 

by · Friday, 23 June 2017 · China, Philippines, Vietnam
The Philippines: Resurrecting Manufacturing in a Services Economy

The Philippines: Resurrecting Manufacturing in a Services Economy

In recent years, the Philippines has ranked among the world’s fastest-growing economies but needs to adjust to the demands of a dynamic global economy.

The Philippines is at a fork in the road. Despite good results on the growth front, trends observed in trade competitiveness, Global Value Chain (GVC) integration and product space evolution, send worrisome signals. The country has solid fundamentals and remarkable human assets to leapfrog into the 4th Industrial Revolution – where the distinction between goods and services have become obsolete. Yet it does not get the most out of this growth, especially with regards to long-term development prospects. In order to do so, the government will have to make the right policy choices.


The Philippines seemingly performs well. From 2011 to 2015, the Philippines grew on average at 5.9% a year and in 2016 growth reached nearly 7%. At the same time, the manufacturing sector resurged with an average 6.9% growth from 2013 to 2015—surpassing services that posted an average 6.4% growth. However, the recent World Bank Philippines Economic Update illustrated trends in recent export performance and GVC integration which could be read as early warning signs:

  • Increasingly remote in GVCs, the Philippines has become a supplier of intermediate goods to China, exposed to demand fluctuations, and has not penetrated new markets; 
  • The Philippines has not diversified its exports basket, if only to move away from sophisticated products, with little domestic transformation;  
  • This move will make future upgrading and innovation more difficult, as illustrated by the low export survival rates (Figure), including for sophisticated products.

 
At the doorstep of the 4th Industrial revolution, because the poles of growth have moved, the country has not kept its sophistication edge. Today, it is not enough to create just more jobs, but to create better jobs. Participation in GVCs should be a path to socio-economic upgrading and facilitate transfers of technology, sustainable practices or skills. Little transformation actually takes place in the Philippines with value added captured in other countries along the value chains.

To avoid short-term growth that translates into long-term downgrading prospects, quick action would be required. The government has already initiated a number of programs (e.g., for the resurgence of industry or the support of small and medium enterprises) as part of the Presidential Socioeconomic Agenda, and launched vast consultations to design trade roadmaps in 40 different sectors. These are excellent first steps, but additional efforts will be needed, and the experience of other countries that have found themselves in the same corner could help in identifying the right solutions.

But there are preconceived ideas about trade and GVC integration that could lead to strategic mistakes. For example, governments often focus on increasing domestic value added—which is a good and legitimate objective—but attempt to do so by using inappropriate methods, e.g., by introducing import substitution or imposing more- restrictive-than-necessary rules on trade on local content. The impact could be harmful to investment attractiveness and industry competitiveness. It is about positioning the domestic industry or services providers in the right segments of the value chain: Vietnam, for instance, reduced the share of domestic value-added in its exports from 45 to 30% between 1995 and 2011, but increased the volume of its exports from $0.2 to $3.8 billion (World Bank, 2016). Other ideas include the necessity to add more incentives, when their effect is not obvious and economic development policies are more productive when focused on improving the country’s fundamentals.

A number of good solutions have been tested elsewhere that could help the Philippines move back to a more sustainable and inclusive growth path. For example, “servicification”, with the development of higher services content in goods, has become a major path to competitiveness and diversification in the 4th Industrial Revolution.

The Philippines is a services economy and a lead exporter of services; paradoxically, however, efficient linkages between services and other sectors of the industry (manufacturing and agriculture) are lacking. Clearly, the Philippines cannot compete on prices only to attract foreign investment—ending the “race to the bottom” to attract lead firms would require, for example, putting in place an environment able to reduce sustainability risks along GVCs, following the examples of countries like Vietnam or Colombia.

Flexibility, quality of labor, and innovation are key to the Philippines’ future success. While the Philippines innovates a lot, it does so in areas where there’s little impact on trade performance. In areas where chances of being competitive and surviving are lower for innovation strategies, a look at successful Philippine companies would show that they have identified the right niches (technology or skill-based) and could go around the competition of low-cost emerging countries. Support for SMEs will also be a determinant in the success of this innovation strategy. The GVC and economic complexity analyses provide some guidance on the way to go. Beyond seeing its evolution in the service and product space as a linear process, considering a third dimension—increased innovation and services content—will allow the Philippines to make a double leap in value added and technology.
 
 

by · Friday, 23 June 2017 · China, Philippines, Vietnam
The Philippines: Resurrecting Manufacturing in a Services Economy

The Philippines: Resurrecting Manufacturing in a Services Economy

In recent years, the Philippines has ranked among the world’s fastest-growing economies but needs to adjust to the demands of a dynamic global economy.

The Philippines is at a fork in the road. Despite good results on the growth front, trends observed in trade competitiveness, Global Value Chain (GVC) integration and product space evolution, send worrisome signals. The country has solid fundamentals and remarkable human assets to leapfrog into the 4th Industrial Revolution – where the distinction between goods and services have become obsolete. Yet it does not get the most out of this growth, especially with regards to long-term development prospects. In order to do so, the government will have to make the right policy choices.


The Philippines seemingly performs well. From 2011 to 2015, the Philippines grew on average at 5.9% a year and in 2016 growth reached nearly 7%. At the same time, the manufacturing sector resurged with an average 6.9% growth from 2013 to 2015—surpassing services that posted an average 6.4% growth. However, the recent World Bank Philippines Economic Update illustrated trends in recent export performance and GVC integration which could be read as early warning signs:

  • Increasingly remote in GVCs, the Philippines has become a supplier of intermediate goods to China, exposed to demand fluctuations, and has not penetrated new markets; 
  • The Philippines has not diversified its exports basket, if only to move away from sophisticated products, with little domestic transformation;  
  • This move will make future upgrading and innovation more difficult, as illustrated by the low export survival rates (Figure), including for sophisticated products.

 
At the doorstep of the 4th Industrial revolution, because the poles of growth have moved, the country has not kept its sophistication edge. Today, it is not enough to create just more jobs, but to create better jobs. Participation in GVCs should be a path to socio-economic upgrading and facilitate transfers of technology, sustainable practices or skills. Little transformation actually takes place in the Philippines with value added captured in other countries along the value chains.

To avoid short-term growth that translates into long-term downgrading prospects, quick action would be required. The government has already initiated a number of programs (e.g., for the resurgence of industry or the support of small and medium enterprises) as part of the Presidential Socioeconomic Agenda, and launched vast consultations to design trade roadmaps in 40 different sectors. These are excellent first steps, but additional efforts will be needed, and the experience of other countries that have found themselves in the same corner could help in identifying the right solutions.

But there are preconceived ideas about trade and GVC integration that could lead to strategic mistakes. For example, governments often focus on increasing domestic value added—which is a good and legitimate objective—but attempt to do so by using inappropriate methods, e.g., by introducing import substitution or imposing more- restrictive-than-necessary rules on trade on local content. The impact could be harmful to investment attractiveness and industry competitiveness. It is about positioning the domestic industry or services providers in the right segments of the value chain: Vietnam, for instance, reduced the share of domestic value-added in its exports from 45 to 30% between 1995 and 2011, but increased the volume of its exports from $0.2 to $3.8 billion (World Bank, 2016). Other ideas include the necessity to add more incentives, when their effect is not obvious and economic development policies are more productive when focused on improving the country’s fundamentals.

A number of good solutions have been tested elsewhere that could help the Philippines move back to a more sustainable and inclusive growth path. For example, “servicification”, with the development of higher services content in goods, has become a major path to competitiveness and diversification in the 4th Industrial Revolution.

The Philippines is a services economy and a lead exporter of services; paradoxically, however, efficient linkages between services and other sectors of the industry (manufacturing and agriculture) are lacking. Clearly, the Philippines cannot compete on prices only to attract foreign investment—ending the “race to the bottom” to attract lead firms would require, for example, putting in place an environment able to reduce sustainability risks along GVCs, following the examples of countries like Vietnam or Colombia.

Flexibility, quality of labor, and innovation are key to the Philippines’ future success. While the Philippines innovates a lot, it does so in areas where there’s little impact on trade performance. In areas where chances of being competitive and surviving are lower for innovation strategies, a look at successful Philippine companies would show that they have identified the right niches (technology or skill-based) and could go around the competition of low-cost emerging countries. Support for SMEs will also be a determinant in the success of this innovation strategy. The GVC and economic complexity analyses provide some guidance on the way to go. Beyond seeing its evolution in the service and product space as a linear process, considering a third dimension—increased innovation and services content—will allow the Philippines to make a double leap in value added and technology.
 
 

by · Friday, 23 June 2017 · China, Philippines, Vietnam
The Philippines: Resurrecting Manufacturing in a Services Economy

The Philippines: Resurrecting Manufacturing in a Services Economy

In recent years, the Philippines has ranked among the world’s fastest-growing economies but needs to adjust to the demands of a dynamic global economy.

The Philippines is at a fork in the road. Despite good results on the growth front, trends observed in trade competitiveness, Global Value Chain (GVC) integration and product space evolution, send worrisome signals. The country has solid fundamentals and remarkable human assets to leapfrog into the 4th Industrial Revolution – where the distinction between goods and services have become obsolete. Yet it does not get the most out of this growth, especially with regards to long-term development prospects. In order to do so, the government will have to make the right policy choices.


The Philippines seemingly performs well. From 2011 to 2015, the Philippines grew on average at 5.9% a year and in 2016 growth reached nearly 7%. At the same time, the manufacturing sector resurged with an average 6.9% growth from 2013 to 2015—surpassing services that posted an average 6.4% growth. However, the recent World Bank Philippines Economic Update illustrated trends in recent export performance and GVC integration which could be read as early warning signs:

  • Increasingly remote in GVCs, the Philippines has become a supplier of intermediate goods to China, exposed to demand fluctuations, and has not penetrated new markets; 
  • The Philippines has not diversified its exports basket, if only to move away from sophisticated products, with little domestic transformation;  
  • This move will make future upgrading and innovation more difficult, as illustrated by the low export survival rates (Figure), including for sophisticated products.

 
At the doorstep of the 4th Industrial revolution, because the poles of growth have moved, the country has not kept its sophistication edge. Today, it is not enough to create just more jobs, but to create better jobs. Participation in GVCs should be a path to socio-economic upgrading and facilitate transfers of technology, sustainable practices or skills. Little transformation actually takes place in the Philippines with value added captured in other countries along the value chains.

To avoid short-term growth that translates into long-term downgrading prospects, quick action would be required. The government has already initiated a number of programs (e.g., for the resurgence of industry or the support of small and medium enterprises) as part of the Presidential Socioeconomic Agenda, and launched vast consultations to design trade roadmaps in 40 different sectors. These are excellent first steps, but additional efforts will be needed, and the experience of other countries that have found themselves in the same corner could help in identifying the right solutions.

But there are preconceived ideas about trade and GVC integration that could lead to strategic mistakes. For example, governments often focus on increasing domestic value added—which is a good and legitimate objective—but attempt to do so by using inappropriate methods, e.g., by introducing import substitution or imposing more- restrictive-than-necessary rules on trade on local content. The impact could be harmful to investment attractiveness and industry competitiveness. It is about positioning the domestic industry or services providers in the right segments of the value chain: Vietnam, for instance, reduced the share of domestic value-added in its exports from 45 to 30% between 1995 and 2011, but increased the volume of its exports from $0.2 to $3.8 billion (World Bank, 2016). Other ideas include the necessity to add more incentives, when their effect is not obvious and economic development policies are more productive when focused on improving the country’s fundamentals.

A number of good solutions have been tested elsewhere that could help the Philippines move back to a more sustainable and inclusive growth path. For example, “servicification”, with the development of higher services content in goods, has become a major path to competitiveness and diversification in the 4th Industrial Revolution.

The Philippines is a services economy and a lead exporter of services; paradoxically, however, efficient linkages between services and other sectors of the industry (manufacturing and agriculture) are lacking. Clearly, the Philippines cannot compete on prices only to attract foreign investment—ending the “race to the bottom” to attract lead firms would require, for example, putting in place an environment able to reduce sustainability risks along GVCs, following the examples of countries like Vietnam or Colombia.

Flexibility, quality of labor, and innovation are key to the Philippines’ future success. While the Philippines innovates a lot, it does so in areas where there’s little impact on trade performance. In areas where chances of being competitive and surviving are lower for innovation strategies, a look at successful Philippine companies would show that they have identified the right niches (technology or skill-based) and could go around the competition of low-cost emerging countries. Support for SMEs will also be a determinant in the success of this innovation strategy. The GVC and economic complexity analyses provide some guidance on the way to go. Beyond seeing its evolution in the service and product space as a linear process, considering a third dimension—increased innovation and services content—will allow the Philippines to make a double leap in value added and technology.
 
 

by · Friday, 23 June 2017 · China, Philippines, Vietnam

CSOs to AIIB: Address energy ‘poverty‘, invest in renewables

Philippine-based civil-society organizations (CSOs) on Thursday called on the China-led Asian Infrastructure Investment Bank (AIIB) help address …

by · Thursday, 15 June 2017 · China, Philippines
Three things to know about migrant workers and remittances in Malaysia

Three things to know about migrant workers and remittances in Malaysia


Migrants represent 15% of Malaysia’s workforce, making the country home to the fourth largest number of migrants in the East Asia Pacific region. The migrant population is diverse, made up of workers from Indonesia, Bangladesh, Nepal, Myanmar, Vietnam, China and India, among many other countries.

Migrants have become an integral part of Malaysia’s economy and support their families by sending substantial amounts of remittances to their home countries. In fact, remittance growth by migrants in Malaysia has been dramatic since 2006, with an increase in remittance outflows of more than 500% in the past ten years.

Project Greenback 2.0 Johor Bahru
 
Project Greenback 2.0 Johor Bahru is the product of a partnership between Bank Negara Malaysia (BNM) and the World Bank Group (WBG) to identify migrant workers’ financial behaviors and their prevalent practices and needs in sending money home. Johor Bahru is the first Greenback champion city in Asia after Turin, Italy, and Montreuil, France.
 
The project has been implemented with many partners including the City Council of Johor Bahru, the Malaysian Association of Money Services Business, the Embassy and Consulate General of Indonesia, the Association of Chinese Small and Medium Enterprises (SMEs) and plantation and remittance companies.
 
Since its launch in November 2015, a joint Greenback team from BNM and WBG has been engaging with migrant communities who are employed in Johor Bahru City and in plantations within a 50 kilometer radius of the city. A survey was conducted targeting migrants working in these urban areas and remote plantations.
 
Three things that came up as a result of the survey: 

1. Income, savings and bank account ownership   

Urban migrants earn 46% more than plantation workers and higher education levels are positively correlated with higher incomes. Nevertheless, beyond a secondary school education, migrant wages stabilize since the type of labor performed by migrants typically does not require higher educational levels.
 
The savings rate of plantation workers is 13% higher than that of urban workers, which can mainly be attributed to the lower cost of living in remote plantations.

The level of bank account ownership is low at 22% for plantation workers and 55% for urban workers. Certain workers cannot comply with the basic requirements to open a bank account due to a lack of proper documentation. For plantation workers, payment of wages in cash and the remoteness of their work locations most affect the level of bank account ownership. These make traveling to banks not only hazardous (cash is carried) but also a time-consuming undertaking. A quarter of plantation workers replied they had to travel at least 30 km to get to a bank or other regulated remittance channels. 

2. Remittance behavior  

Purchasing basic necessities to support dependents in the home country is the main reason for remittances which typically are sent on a monthly basis. 
 
Generally, the transaction fee is 20 Ringgit or less. However, apart from this transaction fee, workers are less aware of the other remittance costs components, such as the foreign exchange cost and costs charged to the recipient.

Non-bank remittance service providers are the most popular regulated remittance channel used by two thirds of the respondents whereas banks are only used by one third of the respondents. Basic factors when selecting a remittance channel are the same among all migrants: safety, ease of transaction, speed and reliability. Nonetheless, the first determining factor for choosing a specific (regulated or unregulated) remittance channel is the convenience of location, after price and trust.    

3. Use of information and communication technologies 
 
Among the surveyed migrants, 74% own a smart phone and 90% access the internet through it. These numbers are high and present a tremendous business opportunity for technology driven remittance service providers who invest in educating their consumer base and provide reliable and competitive remittance services.  
 
By issuing the Financial Technology (FinTech) Regulatory Sandbox Framework, BNM acknowledged FinTech as a catalyst for the development of progressive financial services. This framework allows regulatory flexibilities to be granted to financial institutions and FinTech companies to experiment with FinTech solutions in a live controlled environment for a limited period. Through this initiative BNM will ensure that the Malaysian financial services sector keeps up with the paradigm shift in the use of technology in financial services, and therefore continues to remain relevant regionally and globally.
 
Greenback 2.0 is an ongoing project in Malaysia where progress will be measured through yearly reports. Two additional reports are currently being developed – one which will measure the remittance behavior and needs of SMEs, and another focusing on migrant remittance behavior and needs between Johor Bahru and Lombok, Indonesia.
 
Last but not least, a Greenback 2.0 Pick Remit mobile application was developed which aims to create transparency in remittance prices on a global level. The app aims to help migrant workers make the best choice of services when sending money back home.
 
The impact of Greenback 2.0 in Johor Bahru has been substantial. Average remittance fees decreased by 40%, from 3.33% prior to December 2015 (Pre-Greenback 2.0) to 2.02% in December 2016. As a result, Malaysia is one of the cheapest remittance-sending corridors in the world today.
 
Thanks to this type of initiatives, the cost of sending remittances from Malaysia to neighboring countries is expected to decline further. Moreover, a growing number of migrant workers employed in plantations and other remote locations will be able to remit money home through financial institutions thanks to the use of their smartphones. Thus, a larger volume of remittance outflows will be channeled through financial institutions on a secure, efficient, and cost effective manner for both senders and recipients.