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Accelerating Inclusive Growth and Competitiveness through AEC: Focus on the Manufacturing Sector Josef T. Yap
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Accelerating Inclusive Growth and Competitiveness through the AEC: Focus on the Manufacturing Sector
Josef T. Yap 21 October 2013
Background
Lack of Economic Transformation
1980 1990 2000 2006 2011China 43.9 36.5 40.4 32.9 32.2Indonesia 13.5 23.0 27.7 27.5 24.3Malaysia 21.6 22.7 29.9 28.8 24.6Philippines 27.7 26.8 24.5 23.6 21.1Thailand 21.5 24.9 33.6 35.0 29.9Viet Nam 16.1 12.3 18.6 21.2 19.4Source: UN Statistics Division [http://unstats.un.org/unsd/dnlList.asp; accessed, 6 October 2013]
Share of Manufacturing in GDP (%)
Main Outcome: Poverty Situation in PH is dismal
Population in Poverty (in percent)1/
Proportion of Population
Below $1.25 (PPP) a Day2/
Gini Coefficient3/
PRC 4.2 (2008) 11.8 (2009) 0.425 (2005)Indonesia 12.0 (2012) 16.2 (2011) 0.381 (2011)Malaysia 1.7 (2012) 0.0 (2009) 0.462 (2009)Philippines 26.5 (2009) 18.4 (2009) 0.430 (2009)Thailand 13.2 (2011) 0.4 (2010) 0.394 (2010)Viet Nam 20.7 (2010) 16.8 (2008) 0.356 (2008)Sources/Notes:1/ World Bank, WorldDevelopment Indicators accessed 6 October 20132/ Asian Development Bank, Statistical Database System accessed 6 October 20133/ http://www.adb.org/sites/default/files/pub/2013/ki2013.pdf accessed 6 October 2013
Poverty and Inequality in East Asia
Role of Regional Production Networks
Regional Economic Integration
Regional Production Networks
Manufacturing Sector
FDI
Regional Integration Anchored on Regional Production Networks
Structure of Regional Production and Distribution Networks
Region 1990 1995 2000 2005 2008 2009 2010
Japan 5.2 13.6 22.0 34.3 45.0 37.1 47.9
China 5.6 19.2 28.9 85.2 118.6 115.7 161.9
ASEAN 4 15.8 47.5 54.6 67.9 82.7 69.6 95.9
S.Korea+Taipei,China
13.2 31.8 41.7 59.2 74.0 64.2 86.1
Value of Intermediate Goods Imports of Individual East Asian Countries and Regions from East Asia as a Whole (Billions of U.S.
Dollars)
0
40
80
120
160
200
84 86 88 90 92 94 96 98 00 02 04 06 08 10
Intermediate Goods Exports from East Asia as a Whole to Individual Countries or Regions.
Bil
lion
s of
US D
olla
rs
China
ASEAN
South Korea& Taipei,China
Japan
Note: ASEAN includes Malaysia, the Philippines, Singapore, and Thailand.Source: CEPII-CHELEM Database
Source: W. Thorbecke “Exchange Rates and Trade in East Asia”
Source: Cheewatrakoolpong, Sabhasri, and Bunditwattanawong (2013)
…Largely through FDI
1990 2000 2010 2012Indonesia 8,732 25,060 154,158 205,656Malaysia 10,318 52,747 101,510 132,400Philippines 4,528 18,156 26,319 31,027Singapore 30,468 110,570 461,417 682,396Thailand 8,242 29,915 137,191 159,125Viet Nam 1,650 20,596 65,348 72,530China 20,691 193,348 587,817 832,882Source: UNCTAD, FDI/TNC database (www.unctad.org/fdistatistics), accessed on 6 October 2013
FDI Inward Stock (million US$), ASEAN and ChinaFDI inward stock (million US$)
PH export performance has lagged behind that of other EA economies
1995 2000 2005 2012Japan 441,538 479,323 595,697 798,937Korea 125,058 172,268 284,419 547,870Indonesia 45,418 62,124 85,660 190,032Taipei, China 111,405 151,458 198,168 300,533Philippines 17,447 38,078 41,255 51,995Malaysia 73,865 98,229 141,595 227,334Thailand 56,444 69,152 110,360 228,141China 148,780 249,203 761,953 2,048,900Hongkong 173,753 201,855 289,325 442,775Viet Nam 5,449 14,483 32,447 114,573Source: ADB Key Indicators for Asia and the Pacific 2013
Export of Goods and Services (in million US dollars)
Main argument: A more dynamic manufacturing sector would have provided more higher-paying jobs to the
less-educated workforce, thereby making poverty reduction faster and economic growth more inclusive.
Policy Options for Inclusive Growth
• AEC is an opportunity to attract more FDI• AEC will generate regional public goods,
especially in infrastructure• Comprehensive Roadmap for Industry:
address horizontal and vertical constraints, coordination failure
• Emphasis on facilitating involvement of SMEs in regional production networks
Opportunities & constraints
• 6.6% 2012; 7.6% H1; economic outlook remains positive; a new growth area, capitalize on this to attract FDI
• To sustain high growth, take advantage of market opportunities from a bigger market AEC 2015 transform & upgrade manufacturing
Strengths Weaknesses
• Good macroeconomic environment• Political stability: “Daang Matuwid”• Young, trainable, English speaking
workers• Export zones’ legal framework,
incentives
• Power cost• Inadequate infrastructure• Governance: smuggling• Weak industry
competitiveness
Opportunities Threats
• Calamities in Thailand & Japan disrupted supply chain driving investors to seek alternative locations
• Rising labor cost in China & increasing tension between Japan & China
• ASEAN, FTAs: market of over 600 million; regional production networks
• Strong peso• Global uncertainty,
economic slowdown in the developed world
14
• Classics: maintain long term competitiveness• Emerging Champions: need to build on these products
Classics (RCAs remain high)
Forest copper ores & copper
Raw materials
fuel wood, wood charcoal
Cereal, etc
Unmanufactured tobacco & vegetable textile fibers
Labor-intensive
Knitted men, boys, women, girls’ clothing; other textile apparel
Capital-intensive
tulle, lace, embroidery
Machinery
electric distribution equipment, nes; radio broadcast receiver; transistors, valves
Chemicals
alcohol, phenol
Classics, Emerging ChampionsEmerging Champions (low to hi)
Raw materials
scrap ferrous waste
Animal prods.
milk & cream
Cereals, etc
Manufactured tobacco
Machinery electric power machinery, parts; electric machinery apparatus nes; parts for tractors & motor vehicles
Labor-int. glass
Chemicals metal salts, inorganic acid
15
Disappearances, marginalsDisappearances (high to
low)Marginals (RCAs remain low)
Raw materials
Stone, sand, gravel; non-ferrous waste, scrap
Forest Pulp & paper*
Forest veneers, plywood Cereals cereal prep’ns*, edible prod.*
Tropical agri
sugars, molasses, cocoa, natural rubber
Capital-intensive
furskins, tanned, dressed
Animal fish, animal veg. fats, oils, nes
Machinery
ship, boat, float structures* cycles, motorcycles; aircraft, associated equipment; medical instruments; arms & ammunitions
Labor intensive
pottery, furniture, cushions, clothing accessories, fabric
Cereals animal feed stuff Chemicals
soap, cleaners, polish, etc
• Disappearances: declining competitiveness, move up the value chain, product/technology ladder to more sophisticated products
• Marginals: observe & let them grow to become exporter16
Potential Growth areas: Nearby
Source: Usui, N. 2012. Taking the Right road to Inclusive Growth. ADB. Manila.
17
• Can be developed with relative ease, can utilize existing capabilities (inputs, institutional/infrastructure, skills, technology) embedded in the current export structure
Criteria Leamer Nearby: Detailed Commodity Group (SITC 4 digit)
Highest level sophisticationHighest spillover effect
Machinery
Complete digital processing machines; watches; photographic cameras; TV, radio-broadcasting, transmitters; clocks; electrical line telephonic; portable radio receivers; microphones; calculating, accounting machines; sewing machines; domestic electromechanical appliances & parts
Capital Fabrics, woven of continuous synthetic textile materials
Labor Precious jewelry; porcelain or china house ware; pianos
Animal Fish, dried, smoked; fish fillets frozen
Agriculture
Refined sugar
Cereal Flours & meals, of meat , fish
Highest labor intensity
Labor Synthetic or reconstructed precious or semi-precious stones; pianos; pens; small wares & toilet articles; precious jewelry; porcelain
Capital Knitted not elastic nor rubberized of fibers other than synthetic; Fabrics, woven of continuous synthetic textile materials
Machinery
Clocks; watches; photographic cameras; sewing machines
Potential growth areas: Middle
Source: Usui, N. 2012. Taking the Right road to Inclusive Growth. ADB. Manila.
18
• Can be developed with some difficulties, not all required capabilities are in the country
Criteria Leamer Middle: Detailed Commodity Group (SITC 4 digit)
Highest level sophistication
Chemicals
hormones, natural, or reproduced by synthesis; other nitrogen-function compounds; modified natural resins; oxygen function amino compounds; epoxide resins; regenerated cellulose; salts of metallic acids
Metal angles, shapes, sections & sheet filing of iron or steel
Labor orthopedic appliances, heating aids; safety glass
Machinery
metal forming machine-tool; nonmechanical or electrical instruments; aircraft of unladen weight from 2000kg to 15000kg
Highest spillover effect
Machinery
cocks, valves for pipes boiler shells; air pumps, vacuum pumps & air or gas compressors; other articles of rubber; other non-electric parts & accessories of machinery, nes
Chemicals
phenoplasts; aminoplasts
Capital felts, articles of felt; coated or impregnated textile fabrics & products; bonded fiber fabrics
Highest labor intensity
Raw materials
slag, scaling, dross & similar waste; other natural abrasives; seeds, fruits, spores, nes for planting
Forest fiber building board of wood or other vegetable material
Potential growth: far-away
Source: Usui, N. 2012. Taking the Right road to Inclusive Growth. ADB. Manila.
19• Need quite different capabilities that the country has not yet
developed
Criteria Leamer Far-away: Detailed Commodity Group (SITC 4 digit)
Highest level sophistication
Chemicals
amide-function compounds exc. urea; other organo-inorganic compounds; suphonamides, sultones
Forest printing paper & writing paper
Machinery
chassis fitted with engines for vehicles; furnace burners mechanical strokers etc & parts; other non-electrical machines & parts
Highest spillover effect
Machinery
electrical insulating equipment; furnace burners, mechanical stokers; harvesting & threshing machines; engines & motors; other parts & accessories of vehicles
Forest paper & paperboard coated impregnated in rolls sheets
Chemicals
aldehyde, ketone, & quinone-function compounds; inorganic esters, salts & derivatives; polyamides
Capital special products of textile materials
Highest labor intensity
Machinery
nuclear reactors & parts; bodies for vehicles; other parts & accessories for vehicles; railway track fixtures; parts nes of aircraft hdg 792, mechanically propelled railway, tramway, trolleys
Capital linoleum & similar floor covering, special products of textile material; central heating equipment
Constraints to GrowthMajor Area Main Issues & Constraints
Infrastructure & Logistics
High cost & unpredictability of powerHigh cost of domestic shipping
Governance & Regulation
Smuggling, corruption, bureaucracy & red tapeLack of streamlining/automation of business procedures
MSME development
Access to finance, technology, inability to comply with standards
Innovation Lack of innovation
HRD Lack of skilled workers
Supply chain gaps
Absence of upstream/downstream industries; weak parts & components sector high cost of raw materials
Domestic & export expansion
Lack of scale economies due to shrinking domestic base• Liberalization competition reduce firm survival
• Crucial factors in a liberalized & highly competitive market: productivity, export-orientation, foreign equity, firm size
• How to address challenges & take advantage of opportunities arising from AEC transform & upgrade manufacturing
20
Roadmap for structural transformationVision: globally competitive manufacturing industry
-Rebuild capacity of existing industries, strengthen emerging industries, maintain competitiveness of comparative advantage industries
-Deepen participation in regional integration by serving as hubs in production networks for industries like auto, electronics, machinery, garments, food
-Shift to high value added activities,investments in upstream industries -Link & integrate industries--crucial industrial linkages bet. SMEs & LEs to set off a chain reaction of broad based industrial development
Phase I 2014-201
Phase II 2019-2023
Phase III 2024-2028
21
Targets, Strategic actions, complementary measures
22
30% value added; 15%
employment
Horizontal measures
Coordination
mechanism
Vertical measures
• Close supply chain gaps access to raw materials:
food furniture, garments integration mechanism:
copper, iron & steel, chemicals
• Expand domestic market & exports
automotive & shipping
• HRD• SME development• Technology upgrading,
innovation• Power, smuggling,
logistics & infrastructure
• Investment promotion• Competitive exchange
rate
open trade regime, sustainable macro policies, sound tax policies & administration, efficient bureaucracy, secure property rights
Industrial Upgrading & Transformation • CRITERIA for Industry Support
Strong potential to generate employment Address missing gaps & linkages & spill-over effects Level of product sophistication; Competitive market environment
• INDUSTRIES: Automotive, motorcycle, shipbuilding, chemicals & allied industries, electronics & electrical appliances, food/agri-business, garments, textiles, copper, pulp & paper, rubber, furniture, jewelry, iron & steel
• HORIZONTAL Programs to directly improve productivity Cluster-based intervention: increase supply of skilled workers,
encourage technology adoption, improve regulation & infrastructure
• HORIZONTAL Programs to address coordination failures Implementation of legislations; strict enforcement of product
quality standards; provide access to raw materials, intermediate inputs & common service facilities, R&D facilities; aggressive investment promotion & marketing to attract investment; trainings, business & academe linkages
• VERTICAL Program to attract investment in “middle” & “far-away” Temporary fiscal incentives to auto, ship-building, iron & steel
• COORDINATION MECHANISM Industry councils/institutes: Auto, chemicals, garments & textiles, electronics, food,
motorcycle, shipbuilding, iron & steel, copper, SME Institute
23
Government CoordinationAgency Area
DOLE policies on hiring & firing; new, high productivity jobs
DOST innovation strategy, R&D, common facilities for product testing & certification, incubation
NEDA Philippine Development plan, policy coordination esp. coherent trade & industrial policies, exchange rate
DA Agriculture roadmaps
BOC smuggling, trade & customs facilitation
TESDA, DOLE, PRC training of workers, skilled workers needed (supply gap)
Tariff Commission tariff distortions, anti-dumping & safeguard measures
DOF, DBM budget, temporary incentive measures
BOI, PEZA, Clark, Subic
Investment promotion
DTI-MSMED, DOST MSME development
LGUs business permits & regulations (double taxation)
DOE energy plan, policy implementation (B5 biodiesel)
PPA, MARINA regulatory & port charges & domestic shipping, RA 9295
DENR environmental permits, plantations
24
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