Filipino Companies, Gov’t Urged To Prepare For AEC

The Philippines faces opportunities for increased trade and economic growth as the Association of Southeast Asian Nations Economic Community (AEC) looms, but it has to improve by 2015 the capability of local firms to play in the big leagues.

Now regarded as an emerging growth market, or an emerging tiger economy to some, the Philippines posted a robust 6.6 percent economic growth last year. For 2013, the Bangko Sentral ng Pilipinas forecasts a growth of six percent to seven percent.

Dr. Rafaelita M. Aldaba of the Philippine Institute for Development Studies said that the positive outlook is boosted by the country's good macroeconomic environment, low and stable wages, young and trainable English-speaking workers, and attractive incentives for export zone locators.
But persistent weaknesses and constraints have caused it to lag behind its ASEAN neighbors, Aldaba said in a recent talk entitled "AEC 2015 & Industry Roadmaps."

Whether a local enterprise will survive the liberalized and highly competitive AEC market will depend on its productivity, export orientation, foreign equity, and company size.

Unfortunately, the manufacturing industry has been posting a slow growth over the past few decades as desired structural changes failed to take place, according to Aldaba.

From 26 percent in the 1980s, the industry's share in GDP has declined to 24 percent in the 2000s. Employment contribution has also gone down for the same period, from 9.9 percent to 9.2 percent.

Essentially, the sector is showing "premature aging," said Aldaba, the decline reflective of the failure of its long-term strategy.

She noted the "hollow" structure of the sector, where medium-size enterprises have a small share not just in manufacturing but also in the overall Philippine structure. This has led to weak linkages between the micro and small and medium MSMEs and the large enterprises, resulting in a subdued MSME performance with limited value added and employment share.

The manufacturing front today, Aldaba further said, has not kept up with technological changes, having failed to invest in state-of-the-art technology and human capital.

"To take advantage of market opportunities from a bigger market, we need to transform, upgrade, and revitalize the manufacturing industry," Aldaba stressed.

Before 2015 arrives, the government should adopt a three-pronged strategy for a more globally competitive manufacturing industry, she said.

The first step is to enhance the investment climate by removing growth obstacles and supply chain gaps, efficiently using and expanding capacity, facilitating innovation and technological catch-up, providing access to finance and technology for MSMEs, and encouraging moving into higher value-added sectors.

The second is to issue policies that correct market and government failures such as smuggling and corruption, and streamline and automate interrelated business procedures. This stage also calls for government and industry collaboration for continuous industrial and technological upgrading and sustained growth.

Taking complementary actions is the third, said Aldaba. These include promoting a competitive exchange rate, open-trade regime, sustainable macro policies, sound tax policies and administration, efficient bureaucracy, and secure property rights. There is also an urgent need to address deficiencies in infrastructure, logistics and power supply.(PNF)