DTI Policy Briefs

 

DTI Policy Brief 2017-01 – The Philippines and Global Manufacturing Global Value Chains

• Over the last decades, the global production landscape has witnessed significant changes with global value chains or GVCs becoming a dominant feature of international trade.
• The Philippines is a relative newcomer to GVCs compared to other countries in the ASEAN region.
• PEZA EPZs have played a key role in supporting the country’s GVC participation.
• The Philippine labor force is considered by firms as one of the country’s most important assets.
• Broad policy recommendations to further drive Philippine integration in GVCs include expanding stakeholder engagement; proactively targeting foreign companies in key niche areas with focus on higher value activities in which the Philippines has potential to compete globally; further developing human capital; increasing participation of local companies, particularly small- and medium-sized businesses, in export markets; improving the business environment; and, improving transportation and energy infrastructure.

 

DTI Policy Brief 2017-02 – The Philippines in the Automotive Global Value Chain

• The Philippine automotive manufacturing capabilities are mostly oriented towards the domestic market rather than regional or global chains.
• Philippine participation in the automotive global value chain (GVC) is focused on the production of parts and components – particularly in wiring, electronic components, and aluminum components – and systems modules – specifically in the electrical and electronics system (ignition, chassis electronics and interior electronics), and in the chassis system (drive trains, rolling chassis, wheel and tire assemblies, front and rear end modules, and vibration controls.
• The potential for upgrading in the automotive GVC may be anchored on the local industry’s well-established global footprint in wire harnesses, a competitive human resource pool, an effective Export Processing Zone (EPZ) regime, CARS’ provision of incentives to lead firms, and the commitment of leading industry stakeholders.
• Opportunities for upgrading Philippine participation in the automotive GVC are in smaller, lighter products that do not incur excessive transport costs but require technical knowledge and cost-competitive labor to assemble; the prominence of the electronics and electrical cluster; the established strength in the wire harnesses and electrical wiring; and, assembly which is labor intensive and a potential niche by capitalizing on their cost advantages to attract foreign investments.

 

DTI Policy Brief 2017-03 – The Philippines in the Paper Global Value Chain

• The Philippines’ paper sector is a domestically oriented industry that provides significant indirect employment opportunities for wide swaths of workers as well as indirect exports for sectors such as electronics, food and beverage, and cosmetics.
• The country’s overall participation in the paper global value chain (GVC) is limited, with raw material constraints hindering export development.
• Abaca pulp production is the country’s most dependable export; but even with the export value of abaca pulp approaching an all-time high in 2014, the overall paper industry only generated US$127 million in export revenue, 54th among 193 countries in the world.

 

DTI Policy Brief 2017-04 – The Philippines in the Aerospace Global Value Chain

• The recent entry of the Philippines into the aerospace industry has been mainly organically driven, leveraging the country’s large qualified, English-speaking human capital pool, competitive export processing zone (EPZ) incentives and the existing manufacturing capabilities developed while serving the regional and global automotive and electronics industries.
• With global trade of over US$400 billion, the development of the country’s aerospace sector offers the potential to increase export revenues, gain access to sophisticated manufacturing technologies and create better opportunities for its highly educated workforce.
• The Philippines’ incipient participation in aerospace global value chain (GVC) is concentrated in the manufacture and assembly of a small number of components and sub-assemblies in the interiors and flight controls systems, as well as some post-sales services.
• To upgrade its presence in the aerospace GVC, the Philippines can capitalize on its strengths and advantages, these are: the country’s human resource pool has a large number of low-cost qualified English-speaking engineers; available human resource possess a wealth of experience in the automotive and electronics industry; a stable and sound policy environment for export-oriented firms; and, tariff-free access to key markets due to preferential trade arrangements.
• Efforts of other countries to upgrade in the industry have been heavily influenced and supported by government policy and support, including tax incentives, proactive regulatory changes, training programs, and a national strategy for growth. The few developing countries that have upgraded in the industry have followed a similar approach – starting with components and assembly, before expanding into production engineering, procurement and distribution. A similar strategy is proposed for the Philippines.

 

DTI Policy Brief 2017-05 – Philippine Inclusive Innovation Industrial Strategy

• Inclusive Innovation Industrial Strategy (i3S) aims at growing innovative and globally competitive manufacturing, agriculture, and services while strengthening their linkages into domestic and global value chains with innovation at the core of the country’s strategic policies and programs.
• Underpinning the i3S strategy is the competition-innovation-productivity relationship where a highly liberalized market environment leads to more competition which spurs innovation and productivity growth.
• Innovation is crucial in addressing the challenges not only from globalization and rising regional economic integration but also from automation, robotics, artificial intelligence and other new technologies.
• While the private sector is seen as the major driver of growth for i3S strategy, the government plays an important role in terms of coordinating policies and necessary support measures that will address the obstacles to the entry and growth of domestic firms.
• The i3S prioritizes the growth and development of 12 major industries covering automotive, electronics and electrical, aerospace parts, chemicals, iron and steel and tool and die, garments, textiles, and furniture, shipbuilding, tourism, IT-business process management particularly knowledge process outsourcing and E-commerce, agribusiness, construction, and infrastructure and logistics.
• To complement innovation and entrepreneurship, the other major pillars of the i3S consist of building new industries, clusters, and agglomeration; capacity building and human resource development; MSME growth and development; and ease of doing business and investment environment.
• With the creation of the proper environment and implementation of innovation-centered programs through the Philippine i3S, domestic firms and industries can unleash their full potentials to take advantage of market opportunities, overcome challenges, and act as an engine for sustained, inclusive growth, job creation, and poverty reduction.

 

DTI Policy Brief 2017-06 – The Philippines in the Chemical Global Value Chain

• The Philippine chemicals sector is growing rapidly alongside economic expansion and a revival in manufacturing.
• Exports from the Philippines, and its participation in the chemicals GVC, have been recent, with most progress occurring since the mid-1980s.
• Participation in the export market is based primarily on commodity products in the oleochemicals and petrochemicals sub-sectors.
• While the country is a small player in the global chemicals trade, accounting for just 0.2% of exports in 2014, it has generally been successful in carving out a presence in small niche products, and is one of the global leaders in most of its top product categories.

 

DTI Policy Brief 2017-07 – The Philippines in the Electronics and Electrical Global Value Chain

• Electronics and electrical (E&E) equipment remain important in Philippine economy since the 1970s, and form the foundation of the country’s export basket today.
• In 2014, these sectors accounted for 47% of total exports from the Philippines at US$28.8 billion, of which 41% was from electronics, and 6% from electrical products.
• From a global perspective, while the Philippines is not the leading exporter in any particular product category, it is known for its significant number of semiconductor assembly and test (A&T) facilities.
• The growth of the industry has significantly benefited from foreign investment and close ties with Japanese firms.

 

DTI Policy Brief 2017-08 – The Philippines in the Shipbuilding Global Value Chain

• The Philippines is in a unique position in the shipbuilding GVC as it has both demand for (smaller) vessels in the domestic market and it is an exporter of large, commercial ships for the international market.
• From a global perspective, the Philippines has been the fourth largest ship producer (based on gross tonnage) since 2010.
• The industry employs 48,000 workers and is geographically concentrated in the greater Manila area and Cebu.
• A key advantage as well as constraint for the Philippines is related to the workforce. The abundant, cost-competitive and hard-working workforce often goes overseas to earn higher wages. Meanwhile, graduates of education and training programs that match primary occupation in shipbuilding often do not mean international standards.
• Moving forward, the Philippines is in a good position to expand global market share in the export-oriented segment, by increasing global awareness and proactively targeting new foreign-owned shipbuilders and suppliers seeking more cost-effective locations.

 

DTI Policy Brief 2017-09 – The Philippines in the Cocoa-Chocolate Global Value Chain

• The Philippines’ current involvement in the cocoa-chocolate GVC is limited as it primarily acts as an importer of immediate and final products for domestic consumption.
• Despite many competitive advantages, the country’s exports remain low as it ranks 72nd in terms of exports, as its global market share of less than 0.01%.
• The primary challenges to Philippine participation in the chain are the low volumes of cocoa beans and farm-level issues, constraining upgrading into higher processing stages.
• The country’s most pronounced strengths is related to its geographic conditions that allow for growth of higher-value cocoa beans across the country, as well as its location, which is close to emerging markets.

 

DTI Policy Brief 2017-10 – The Philippines in the Coffee Global Value Chain

• While the country has a rich history as being a significant exporter of beans, a variety of impediments such as coffee rust, shifting dynamics within the global industry and insufficient government support have caused the domestic industry to atrophy in recent decades.
• The Philippines’ current coffee production levels are analogous to small-scale nations such as Guinea, Togo, and Madagascar. The value of its 2015 exports of green and roasted coffee accounted for less than 0.0004% and 0.003% of global trade, respectively.
• Despite low coffee production and exports, the Philippines has been a leading importer of instant coffee by volume since 2011 and is projected to become one of the world’s largest five consumers by 2021.
• The Philippines’ most pronounced strength in the coffee GVC relates to geographic conditions that allowed the industry to flourish and produce all four varieties of coffee namely Robusta, Arabica, Excelsa and Liberica throughout the country.

 

DTI Policy Brief 2017-11 – The Philippines in Agribusiness Global Value Chains

• Traditional global markets have been replaced with vertically coordinated market linkage systems, where local sourcing in both developed and developing countries has largely been replaced by centralized national, regional, or international supply chains with strict sets of standards, which must be met to gain access to global value chains.
• National and global lead firms now dictate how products are cultivated, harvested, transported, processed, and stored through a series of public and private standards that producers, both large and small, around the world must comply with in order to maintain access to markets.
• Over the past few decades, the orientation of the Philippines’ economy has shifted from agriculture to services, which continues to this day. Structural changes in the economy and demographics of the country have affected the sector.
• The country had a relatively strong agricultural sector. However, the last three decades saw the Philippines lagging behind other Asian countries because of the slowdown of agricultural output growth attributed to (1) land reform, (2) inadequate investment in traditional and other modern agricultural techniques by new smallholders, (3) climate disruptions, and (4) a deceleration in export potential due to the overvaluation of the peso.