KEYNOTE ADDRESS OF SECRETARY RAMON M. LOPEZ
MANUFACTURING SUMMIT 2017
29 NOVEMBER 2017, MAKATI CITY

[Acknowledgments]Usec. Rowel Barba, Usec. Nora Terrado [and other DTI officials, Asec. Aldaba, Asec. Perez…;
Mr. Kunihiko Shinoda, METI Deputy Director-General;
Mr. Susumu Ito, JICA Country Representative;
Mr. Clay Epperson, USAID Deputy Mission Director;

Distinguished speakers and panelists; participants from other government agencies; industry associations; and the academic community;

Ladies and gentlemen, good morning!

Macroeconomic performance & economic transformation
These are indeed exciting times for the Philippines. Amid the global economic volatility, the outlook for the country remains positive as we have maintained our strong macroeconomic position.

Our first-to-third-quarter growth in 2017 stood at 6.7%, securing our position as the fastest growing economy in Asia. We outpaced our ASEAN neighbors such as Vietnam, which grew by 6.3%, and Malaysia which registered 5.9%. Our country’s impressive growth has only been eclipsed by China, which grew by 6.9% for the first three quarters of 2017.

Clearly, our recent performance demonstrates remarkable economic resilience, thanks to a resurging Philippine manufacturing industry. This year, manufacturing has been the country’s main economic driver, exhibiting a Q1 to Q3 growth of 8.3%—the highest among the main economic sectors.

The Philippines is now on the verge of economic transformation. While services was the main driver of growth in the past decades, manufacturing has been contributing more substantially to the nation’s economic growth since 2013.

Consider this: from 1999 to 2012, services registered an average annual growth of 5.4%, while manufacturing was growing at an average of 4.0%. But from 2013 to 2016, the average third quarter growth of manufacturing stood at 7.8% while services posted an average of 6.8%.

Another transformation is taking shape as economic expansion is being driven by investments, with capital formation accelerating by 8.6% in the first three quarters of this year. Compare this to consumption and government spending, which rose by only 5.4 and 5.3%, respectively.

With a growth rate of 10.4% in Q1 to Q3 last year (2016), fixed capital formation has remained robust. Durable equipment grew by 11.6%, driven mainly by growth in general industrial machinery and equipment (12.0%) and transport equipment (11.4%).

Meanwhile, net FDI inflows remain strong, amounting to US$5.1B from January to August 2017. With positive investor confidence, approved investments by the Board of Investments (BOI) from January to September 2017 increased by 33% to PhP408.7B from PhP296B during the same period in 2016. Manufacturing sub-sectors covering food, motor vehicles, fabricated metal, and wood products amounted to PhP38.5B, or 9.4% of the total.

High level growth & the employment challenge

Though manufacturing growth has been contributing significantly to our country’s economic growth, its share to GDP of 23% and contribution to total employment of 8% have remained quite unchanged in the last decade.
While our unemployment rate slightly worsened to 5.9% during the first three quarters of 2017 from 5.8% during the same period in 2016, our underemployment rate declined to 15.2% from 17.4% in the same period. Meanwhile, our poverty incidence also improved to 21.6% in 2015 from 25.2% in 2012.

Still, our employment challenge remains: we have 2.5M unemployed and 6.5M million underemployed fellow Filipinos.

The mandate of “Trabaho at Negosyo”

Last year, the Department of Trade and Industry (DTI) organized the first Manufacturing Summit that brought together stakeholders from the government, industry, and academe. The aim of the Summit was to discuss policy directions and strategies to revitalize our manufacturing sector.

With the theme “Trabaho at Negosyo,” the Summit was a venue for the fruitful exchange of ideas on the opportunities and challenges in the manufacturing industry, as well as the steps we could take in shaping its future.

Based on the panel discussions and breakout sessions in the Summit, we identified the following steps to sustain the resurgence of manufacturing and further expand the sector:

  • First, as an initial step towards putting innovation and R&D at the center of our industrial strategy, we will establish innovation centers in the country. This will be done in close coordination with the Department of Science and Technology (DOST) and in collaboration with the academe and industry stakeholders.
  • Second, we will revise and update our industrial policy to consider emerging disruptive technologies, like robotics, AI, and 3D printing. We will coordinate closely with the industry, academe, and other government agencies to discuss these and refine our industry priorities and targets.
  • Third, we will continue the collaboration among government, academe, and industry. In particular, we will focus on the implementation of the priority measures recommended during the Summit’s breakout sessions.

Updates on the Manufacturing Summit 2016

Let me share with you some updates on the priority recommendations proposed in last year’s Summit:

As most of you here know, DTI is actively promoting innovation as key to the competitiveness of Philippine industries. We have modernized the BOI’s Investment Priorities Plan (IPP) towards this direction by providing for incentives for innovation and R&D economic activities.

  • Back in May, we conducted the Inclusive Innovation Conference to launch the roadmapping for innovation in the country. This has been followed by a series of regional innovation workshops conducted in Metro Manila, Cebu, CDO, and Davao. A last one is set to be conducted in December in Clark. Through these workshops, we are soliciting inputs from stakeholders from the regions and we are aiming to formally launch the roadmap in the first half of next year.  The conduct of these innovation fora and formulation of the roadmap resulted in a Memorandum of Understanding (MOU) that DTI signed with DOST to closely collaborate on our innovation initiatives. Both DTI and DOST intend to bring in the relevant national government agencies moving forward.
  • The Intellectual Property Office of the Philippines (IPOPhil) is also formulating our National Intellectual Property Strategy (NIPS), and this will be a key part of our innovation roadmap.
  • Through the Manufacturing Resurgence Program (MRP), DTI and BOI continue to promote collaborative agreements between industry associations, government, and academe in support of inclusive and innovative manufacturing.
  • We also continue to consider human resource development as an essential element of our industry development programs. Towards this, we are closely coordinating with the Commission on Higher Education (CHED) and the Technical Skills and Development Authority (TESDA) with regard to reforms and programs for human capital development.
  • We have been engaging as well various higher educational institutions from all over the country, both private and public, to do our part in bridging the industry-academe divide.
  • With regard to infrastructure, DTI and BOI have been coordinating with the Department of Public Works and Highways (DPWH) in our convergence program on road connectivity for industry and trade development. Called “Roads Leveraging Linkages for Industry and Trade (ROLL IT) Program,” the goal of this program is to prioritize and implement road access infrastructure that leads to various industries and economic zones. Through ROLL IT, we are proposing Php12.3B worth of road infrastructure across the country under the proposed 2018 budget.
  • We are actively supporting the amendment of the Public Service Act, which we hope will finally be done by Congress. And of course, we are supporting the government’s massive “Build Build Build” Program.
  • Notwithstanding the recent dip in our Ease of Doing Business (EODB) ranking, the National Competitiveness Council (NCC) remains determined to push reforms in our business environment and improve our competitiveness.
  • Regarding the development of Micro, Small, and Medium Enterprises (MSMEs), we launched earlier this year our money lending program called the Pondo sa Pagbabago at Pag-asenso (P3). President Rodrigo Duterte had also announced during the ASEAN Summit to pour as much as Php50B for SME development in the coming years.
  • With regard to incentives and other forms of government support, we are coordinating with the Department of Finance (DOF) to ensure that these are performance-based, time-bound, transparent, and easy to administer. We maintain that incentives can be effective tools for industry development and ensure our competitiveness.
  • And finally, regarding trade, we expressed our intention during the meeting between President Duterte and US President Donald Trump on the sidelines of the ASEAN Summit to negotiate and forge a free trade agreement (FTA) with the US.

The Inclusive Innovation Industrial Strategy (i3S)

After a year, we have refined our industrial strategy.

The Inclusive Innovation Industrial Strategy (or i3S) is the new industrial policy formulated by DTI-BOI that aims to grow globally competitive and innovative industries, with innovation at the front and center of industrial policies and programs.

With i3S, there are 12 sub-sectors that are top priorities for industry development, with a focus not only on manufacturing but linking together activities particularly through the servicification of manufacturing. This would connect services activities like design, R&D, engineering, and after-sales with manufacturing.

These sub-sectors and programs include:

  • Auto and auto parts: Auto electronics, CARS Program, Public Utility Vehicle Modernization;
  • Electronic manufacturing services: Auto electronics, medical devices, telecommunications equipment, power storage, civil aviation/ aerospace;
  • Semiconductor manufacturing services: Integrated circuit (IC) design;
  • Aerospace parts and aircraft Maintenance, repair, and overhaul;
  • Chemicals: Petrochemicals, acyclic alcohols & derivatives, metallic salts & peroxy salts of inorganic acids, cyclic hydrocarbons, oleo chemicals;
  • Shipbuilding & Ship-repair: Roll-On Roll-Off (RORO)m as well as small- and medium-sized vessels;
  • Furniture, garments, creative industries: Manufacturing and design;
  • Iron and steel, tool and die: Manufacturing and design;
  • Agribusiness food & resource-based processing: Cacao, coffee, mangoes, bananas, coconut, rubber, bamboo, fruits & nuts, and other high value crops;
  • Construction: Roads, railways, bridges, ports, airports, and low-cost housing;
  • IT-BPM and e-commerce: Higher-earning and more complex non-voice services BPO, Knowledge Process Outsourcing (KPO) in medical, financial, and legal services; game development; engineering services outsourcing (ESO), software development, and shared services;
  • Transport and Logistics: Land, air, and water transport, warehousing, and support facilities for transport given that huge services investments in infrastructure and logistics would boost the competitiveness of industries and improve connectivity within the country; and,
  • Tourism

Major pillars and strategic actions

From this i3S policy, we have now laid out strategic actions to help us achieve our goals. These include:

Building new industries, clusters, and agglomeration via:

  • Addressing gaps and linkages in industry supply and value chains;
  • Expanding the domestic market base to allow industries to attain economies of scale and realize their export potential;
  • Pursuing green policies in industries to make them more competitive, innovative, environment-friendly, and climate smart;
  • Implementing aggressive promotion and marketing programs to attract more foreign direct investments especially those that would bring in new technologies;
  • Addressing market failures by providing fiscal incentives that are well-targeted, performance-based, and time bound;
  • Creating industry clusters to address agglomeration, economies of scale, and coordination issues; and,
  • Promoting the establishment of domestic ecozones that would allow activities catering to both domestic and export markets.

Capacity-building and human resource development via:

  • Designing human resource development and training programs to improve skills and establish tie-ups with universities and training institutions.

MSME growth and development via:

  • Supporting SME development by boosting their growth and profitability through the 7Ms (Mindset, Mastery, Mentoring, Money, Machine, Market, and Models) as well as programs focusing on the establishment of common service facilities, and improving access to finance, technology, and skilled workers;
  • Linking MSMEs with large domestic enterprises and multinationals;
  • Promoting inter-firm and academe collaboration; and,
  • Setting up efficient storage and logistics (like handling and cold storage).

Innovation and entrepreneurship via:

  • Establishing an inclusive innovation and entrepreneurship ecosystem that would link together academe, industry, and government;
  • Strengthening industry-academe collaboration that focuses on market-oriented research,
  • Revising engineering curricula, particularly manufacturing engineering and work related to industries;
  • Equipping universities to carry out research relevant to industries,
  • Ensuring intellectual property protection;
  • Setting up R&D incentives (like tax credit and accelerated depreciation); and,
  • Setting up shared facilities for rapid prototyping and demonstration

Ease of doing business and investment environment via:

  • Continuing to strengthen our institutional and regulatory framework by addressing corruption and smuggling, and eliminating bureaucratic red tape through streamlining and automation of government procedures and regulations;
  • Establishing a single mechanism for coordinating business registration, application for permits and licenses, and investment promotion with local government units (LGUs) and other national government agencies; and,
  • Continuing the big bang infrastructure investment to cover not only the building of physical infrastructure like roads, but also power, logistics, and a modern and efficient air and sea infrastructure.

Inter-agency collaboration

Going back to the collaboration between DTI and DOST, the two agencies agreed to work together to create an inclusive innovation and entrepreneurship ecosystem in the country. Currently, we are working together in formulating and implementing our innovation roadmap.
Based on the aforementioned consultative workshops in NCR, Cagayan de Oro, Cebu, and Davao we have conducted to date, the major recommendations include:

  • The establishment of shared services facilities (like FabLabs) and creation of innovation hubs;
  • Collaboration among government, industry, and academe through joint activities and the use of physical and shared spaces;
  • Capacity-building and skills training; and,
  • Funding support.

In DTI, we are studying the possibility of transforming our 3-hectare Center for Innovation and Technology for Enterprises (or the old CITC) in Marikina as a possible innovation center (like Plug and Play).

The location is appropriate, given that Marikina is home to the footwear industry as well as woodworking and jewelry enterprises. It is also very close to education institutions like UP, Ateneo, Miriam College, and the Marikina University.

Conclusion

To conclude, our vision is for the Philippines to have creative and connected communities (3Cs) of different stakeholders like innovators, start-ups, SMEs, and large enterprises that will collaborate to produce new products and services.

Moving forward, we firmly believe that it is crucial for us to form an innovation council composed of representatives from the government, industry and academe. This would ensure that our country’s innovation policies and programs will be properly implemented leading towards the sustained resurgence of Philippine manufacturing.

Ultimately, these efforts will help us create not only employment opportunities and address income inequality throughout the country, but also ensure that the economic growth resurgence our country is experiencing will be felt by all Filipinos.

By working closely together, we can achieve our goal of generating inclusive growth and shared prosperity for our countrymen, especially for those at the bottom of the pyramid.

Thank you and mabuhay tayong lahat!

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