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  February 16, 2013: Manufacturing Solutions to Joblessness

The Social Weather Station (SWS) recently reported that the unemployment rate rose to 27.5% from 21.7% during the previous quarter. This means a total of 12.1 million jobless Filipinos, and 2.5 million Filipinos joined the ranks of the jobless between September and December last year. Secretary of Labor and Employment Linda Baldoz maintains that the jobless rate is 7.2 percent. Given at 7.2%, the unemployment rate is still practically the highest in the ASEAN. The high incidence of joblessness in the Philippines is ionic, as the economy grew the 7.2% in 2013, the second fastest growth rate after china.
Super typhoon Yolanda (HAIYAN) and other natural calamities are being blamed for the rising joblessness. A congressman also blames “labor contractualization” for the rise in joblessness. Other labor leaders blame “dependence on foreign investments, alleged failure to implement land reform and absence of national industrialization.” Economies from the Asian Development Bank and the World Bank, and a few respected Filipino economies, seem to understand the reasons.
The ADB said that our chronic problem of “high unemployment, slow poverty reduction and low investment are reflections of the sluggish industrialization.” Both banks have observed that recently, most of the economic growth in the Philippines came from the service sector in general, and in the business process outsourcing (BPO) industry in particular. Such growth, however, responsive to the need for inclusive growth, where benefits should trickle down to the masses.
Before the year 2013 ended, the Joint Foreign Chamber (JFC), together with a handful of business and industry associations, produced a policy brief on Manufacturing. The thesis is very simple, “For the Philippines to achieve inclusive growth, strengthening manufacturing is imperative.”
In each paper, the JFC observed, “No country has become a high-income economy without developing a strong industrial sector. Indonesia, Malaysia, Thailand, and Vietnam – economies exporting 2 to 4 times more than the Philippines – have each developed its industrial sector over 40% of the economy, making industry and manufacturing a development backbone.”
In the Philippines, however, the services sector accounts for more than half the economy. The recent high economic growth experienced by the Philippines was led by “consumption, construction, and public sector spending, supported by yet-increasing remittances from Filipinos abroad, the purchasing power of a growing middle class at home, and rising exports of business processing and tourism services.”
A lone bright spot is that manufacturing growth, (for the first time) in 2013. The bad news is that manufacturing still remains at small segment of the total Philippine economy.
According to the JFC, “Given its large demographic dividend, improved macro-micro economic conditions, better governance, political stability, potential new FTA markets and higher investor confident, the Philippines is positioned to reduce unemployment and underemployment.”
The idea is to “target a very significant increase in manufacturing’s contribution to GDP, from 21% in 2012 to 24% by 2016, and almost 30% by 2022, and generating as many as four (4) million new jobs from 2015-2022. The beneficiaries of this employment generation scheme 1) rural workers in low cost, labor-intensive manufacturing sectors, and 2) urban unemployed and underemployed, better educated workers in high-value added manufacturing sectors. This would increase manufacturing labor force from three million to 7.5 million by 2012, or from 8% in 2013 to 17% in 2022. Overall labor productivity will also increase in the Philippines by an average of 10% per year. In 2013 estimated labor productivity in agriculture was $3,000, in services $7,000 and in manufacturing $18,000.
In the essence, the JFC us recommending two broad approaches for growing the manufacturing sector and creating four million new jobs. The first approach is to revive low-cost, labor intensive manufacturing. The second is to expand high value-added manufacturing.
The JFC observed that the Philippines “evolved from a predominantly low-coat, labor-intensive manufacturing in 1960s and 1970s, in products such as garments, footwear, and furniture towards high value-added more complex manufacturing, such as automotive, assembled electronics, and semiconductors. A significant number of low-skilled workers lost their jobs when low-cost manufacturing left the Philippines in pursuit of even lower costs in Bangladesh, Cambodia, China, Indonesia and Vietnam.
The results of this phenomenon were two-fold – loss of jobs and shift of former manufacturing workers to the service sector. It is, therefore, critical to “regain and expand labor-intensive manufacturing subsectors” in in order to enhance inclusive growth in the Philippines. Over the years, some “high value-added manufacturing such as the semiconductor and electronic sectors , ,has flourished as highly skilled workers available at moderate labor cost enabled the country to find a significant niche in this rapidly growing sector . “One sector that did not flourish in this category is the automotive sector which, in contrast, is a robust industry in some ASEAN countries.
On several occasions, I have personally talked to three noted economist who were saying practically the same things - Drs. Norio Usui, Benjamin Diokno, and Cielito Habito.
For the Philippine economy to be globally competitive, it must learn to walk on two legs - manufacturing and services. The Philippine economy is unique in the whole world. It is perhaps the only agricultural economy that moved directly to services, without first developing the manufacturing sector.< br> A window of opportunity opens for the Phillipines, as the manufacturing landscape ASEAN and China is undergoing significant changes. As we write, millions of new job are being created in countries like Bangladish, Cambodia,Indonesia and Vietnam low-cost, labor-intensive manufacturers are moving their production base from China. Estimate place the number of jobs leaving China from this sector to rich as many as 50 million.
Unfortunately, this tremendous job creation opportunity has not stilled over to the Philippines, as foreign investors go to more investor-friendly destinations where costs, ease of doing business, energy supply, and predictable justice system are more advantageous for job creators. The Philippines can take advantage of this tremendous opportunity is its leaders leaders will have the political will to tweak some policies to attract investments that lead to job creation.Is the SWS survey is fairly accurate, there are 12.1 million unemployed. In contrast, there are only roughly 2.3 million minimum wage earners. Yet , the major preoccupation of our labor leaders legislators and policymakers seems to be that of increasing the minimum wages every year, which only aggravate the unemployment situation . I think there is a misplace sympathy for the minimum wage earners. Focus should be more on creating jobs for the many more that are unemployed.
This newspaper reported last February 12, 2014 that the Cabinet discussed the “strategy framework of human development and poverty reduction,” according to a text message from Communications Secretary Sonny Coloma. The report also says that “the action plan for poverty reduction is indispensable to the Aquino administration’s goal inclusive growth. “
Coloma was quoted as saying, “We are focusing on job creation in manufacturing and more highly remunerative sectors. “
I hope that the government seriously considers the JFC policy brief on Manufacturing, copies of which were given to government officers in December 203. I also remembered in 2010 the JFC produced the “Arangkada Phillippines 2010: A Business perspective, “a comprehensive advocacy intended to share in recommendation leading to the creation $ 75 billion in new foreign investment, 10 million jobs , and over $1 trillion in tax revenue within a decide. This can be realize, if government heeds the JFC’s 471 recommendations on policy changes.
Watch out for Third Anniversary Assessment on February 26 2014.

Source: Philippine Daily Inquirer - February 16, 2014

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