Diversify exports, World Bank tells Philippines

MANILA, Philippines - The World Bank said the Philippines should diversify its exports basket and market destinations and engage in more product innovation to enable a resurgence in the domestic manufacturing industry.

In a blog entry on the bank’s country website titled “The Philippines: Resurrecting Manufacturing in a Services Economy,” lead economist for the Philippines Birgit Hansl said while the Philippines remains among the fastest-growing economies in the world, it has yet to adjust its manufacturing and export strategies to meet the demands of a dynamic global economy.

She noted from 2013 to 2015, the domestic manufacturing sector grew at an average 6.9 percent, surpassing the 6.4 percent average growth in the services sector.

Factory output could have been higher, she said, had the Philippines been able to integrate its production better in the global value chain.

Hansl said the country’s failure to diversify its exports basket and penetrate new markets has exposed manufacturing and trade to demand fluctuations, threatening the survival of exports.

“This move will make future upgrading and innovation more difficult,” she said.

This, she said, is already manifested in the falling survival rate of Philippine exports in the global value chains (GVCs). From an exports survival rate of 57 percent in 2005, 52 percent in 2010 and 51 percent in 2013.

“Participation in GVCs should be a path to socio-economic upgrading and facilitate transfers of technology, sustainable practices or skills,” Hansl said. “Little transformation actually takes place in the Philippines with value added captured in other countries along the value chains.”

She noted the government has already initiated a number of programs for the resurgence of the manufacturing industry and support for small and medium enterprises. It has also 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,” Hansl said.

As the Philippines is now primarily a service-based economy, she said the country has the potential to produce higher-value products if the services sector can have stronger linkages with manufacturing and agriculture.

“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,” Hansl said.

“Flexibility, quality of labor and innovation are key to the Philippines’ future success,” she added. “Increased innovation and services content will allow the Philippines to make a double leap in value added and technology.”