Innovation For Industry DevelopmentComprehensive National Industrial Strategy

Dr. Rafaelita M. Aldaba

Assistant Secretary

Department of Trade & Industry-Board of Investments

31 May 2017, Manila Peninsula Hotel, Makati City

OutlineObjective: Given changing face of industries & IT-driven GVCs, how to position PH industries, strategies & policies to develop globally competitive & innovative industries

• Current State of Industries – Macro Performance & Structure– Productivity of PH Manufacturing Industries– Regional Economic Analysis– Poverty & Unemployment– Constraints to industry Development & Job Creation

• PH New Industrial Policy– Comprehensive National Industrial Strategy

• Need to build an innovation ecosystem– Innovation Policy Directions– Inclusive Innovation Roadmap

Part 1: Current State of IndustriesPerformance, Structure, Employment

• Amid economic & global uncertainty, PH has grown by 6.3% in the last 7 years (2010 to 2016)

• 2016: China 6.7%, Vietnam 6.2% , Philippines 6.8%• PH impressive growth: a new growth area, Asia’s new

economic tiger

-10.0

-5.0

0.0

5.0

10.0

15.0

20.0

20

09

Q1

20

09

Q2

20

09

Q3

20

09

Q4

20

10

Q1

20

10

Q2

20

10

Q3

20

10

Q4

20

11

Q1

20

11

Q2

20

11

Q3

20

11

Q4

20

12

Q1

20

12

Q2

20

12

Q3

20

12

Q4

20

13

Q1

20

13

Q2

20

13

Q3

20

13

Q4

20

14

Q1

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14

Q2

20

14

Q3

20

14

Q4

20

15

Q1

20

15

Q2

20

15

Q3

20

15

Q4

20

16

Q1

20

16

Q2

20

16

Q3

20

16

Q4

Quarterly Growth Performance: 2009-2016

AGRI., HUNTING, FORESTRY AND FISHING MANUFACTURING SERVICE SECTOR GROSS DOMESTIC PRODUCT

Manufacturing Structure

• Manufacturing has been largely dominated by food manufacturing followed by radio, TV, & communication equipment; chemical & chemical products; furniture; & beverage

• Food manufactures and radio, TV & communication equipment & apparatus have been driving manufacturing growth

Industry Sector 2015 2016 Industry Sector 2015 2016

Food manufactures 34.3 34.7 Rubber and plastic products 1.4 1.7

Beverage industries 4.1 4.2 Non-metallic mineral products 2.4 2.3

Tobacco 0.3 0.3 Basic metal industries 2.0 2.6

Textile manufactures 1.8 1.6 Fabricated metal products 1.2 1.2

Wearing apparel 1.8 1.7 Machinery except electrical 1.8 2.1

Footwear, leather 0.4 0.4 Office, accounting, computing 1.2 1.6

Wood, bamboo, cane 1.0 1.1 Electrical machinery 2.1 2.2

Paper 0.9 0.9 Radio, television, communication equipment

17.7 16.2

Publishing, printing 1.0 1.0 Transport equipment 1.8 2.1

Petroleum 2.8 2.6 Furniture & fixtures 5.1 4.7

Chemical 12.5 12.8 Miscellaneous manufactures 2.3 2.1

Agriculture, Forestry, & Fishing Performance

Source: National Income Accounts, Philippine Statistics Authority

• Food manufacturing performance has not been matched by the AFF sector• Growth in agriculture has remained low (negative in 2016); declining share to GDP • Except palay, livestock, poultry, fishing; marginal contribution of other crops despite large

potentials for high value crops (rubber, cacao, coffee, coconut, mangoes, etc)

MAJOR SECTORShare to Total GVA (%) Growth Rate (%)

2013 2014 2015 2016 2013 2014 2015 2016

Agriculture, Forestry and Fishing 10.5 10.0 9.5 8.8 1.1 1.7 0.1 -1.3Agriculture, Hunting, and Forestry 8.5 8.2 7.8 7.2 1.2 2.1 0.6 -0.7

a. Agriculture 8.5 8.1 7.7 7.2 1.0 2.1 0.8 -0.6

Palay 2.1 2.1 1.9 1.7 2.2 2.8 -4.3 -2.9

Corn 0.6 0.6 0.5 0.5 -0.4 5.1 -3.3 -4.0

Coconut including copra 0.4 0.4 0.4 0.3 -2.8 -4.6 0.1 -6.1

Sugarcane 0.2 0.2 0.2 0.2 -6.9 1.7 -7.4 -0.7

Banana 0.5 0.5 0.4 0.4 -6.3 2.7 2.3 -2.0

Mango 0.2 0.2 0.2 0.2 6.2 8.1 4.5 -10.1

Pineapple 0.2 0.2 0.2 0.2 2.8 2.2 2.7 1.2

Coffee 0.0 0.0 0.0 0.0 -11.7 -4.2 -5.3 -4.9

Cassava 0.1 0.1 0.1 0.1 6.3 7.6 6.9 1.6

Rubber 0.0 0.0 0.0 0.0 0.4 1.9 -11.3 -8.6

Other crops 0.6 0.6 0.6 0.5 0.2 0.7 0.8 -2.9

Livestock 1.4 1.3 1.3 1.3 1.8 1.0 3.8 4.6

Poultry 1.2 1.1 1.1 1.0 4.2 0.4 5.7 1.3

Agricultural activities and services 0.7 0.7 0.7 0.7 0.6 4.5 6.2 3.8

b. Forestry 0.1 0.1 0.1 0.0 39.8 2.6 -26.7 -14.7

Fishing 1.9 1.8 1.7 1.5 0.7 -0.2 -1.8 -4.0

Services Performance

Source: National Income Accounts, Current Labor Statistics. Philippine Statistics Authority

*Growth rates and value added share at constant 2000 prices

MAJOR SECTOR

Share to Total GVA (%) Growth Rate (%)

2013 2014 2015 2016 2013 2014 2015 2016

Agriculture, Forestry and Fishing 10.5 10.0 9.5 8.8 1.1 1.7 0.1 -1.3

Industry 32.9 33.3 33.4 33.8 9.2 7.8 6.0 8.0

Services 56.7 56.6 57.1 57.5 6.8 6.2 6.8 7.5

Construction 5.7 5.7 5.9 6.2 9.6 7.2 9.4 12.6

Electricity, Gas and Water Supply 3.3 3.3 3.2 3.3 4.7 3.6 5.5 9.6

Transport, Communication and Storage 7.5 7.5 7.7 7.6 4.8 6.5 8.0 5.9

Trade and Repair of Motor Vehicles, Motorcycles, Personal and Household Goods

16.6 16.5 16.7 16.8 6.2 5.8 7.1 7.3

Financial Intermediation 7.1 7.2 7.2 7.3 12.6 7.2 6.1 7.7

Real Estate, Renting & Business Activity 10.9 11.2 11.3 11.6 8.9 8.7 7.2 9.1

Public Administration & Defense, Compulsory Social Security

4.2 4.1 3.9 3.9 2.7 4.0 1.2 6.9

Other Services 10.3 10.1 10.3 10.4 4.9 4.0 7.9 7.5

Employment StructureMAJOR SECTOR

Share to Total Employment (%)

2011 2012 2013 2014 2015 2016

Agriculture, Forestry and Fishing 33.0 32.2 31.0 30.5 29.2 26.8

Industry 14.9 15.3 15.6 16.0 16.2 17.5

Manufacturing 8.3 8.3 8.3 8.3 8.3 8.3

Construction 5.6 5.9 6.2 6.7 7.0 8.3

Electricity, Gas and Water Supply 0.4 0.4 0.4 0.4 0.3 0.4

Services 52.1 52.6 53.4 53.5 54.7 55.7

Transport, Communication and Storage 7.5 7.9 8.1 7.9 8.2 8.3

Trade and Repair of Motor Vehicles, Motorcycles, Personal and Household Goods

19.9 18.3 18.6 18.8 18.9 19.7

Financial Intermediation 1.2 1.2 1.2 1.3 1.3 1.3

Real Estate, Renting & Business Activity 3.4 3.4 3.6 3.8 4.0 4.4

Public Administration & Defense… 5.0 5.2 5.2 5.1 5.4 5.3

Other Services 15.2 16.6 16.7 16.8 17.0 16.8

Source: National Income Accounts, Current Labor Statistics. Philippine Statistics Authority

• Manufacturing has large potential for creating more & better jobs • However, its contribution to total employment generation has remained quite stagnant• Biggest source of employment are still in services mainly concentrated in trade & repair

of vehicles, motorcycles, & household goods • Agriculture follows but its contribution has declined substantially

Total Factor Productivity Growth

• Manufacturing: rising TFP (output/unit of labor & capital) trend bet ‘09 & ‘12

• TFP increases: efficiency (better techniques) & increases in productive capacity of an industry that exceeds increase in supply of factors of production

-30

-20

-10

0

10

20

30

40

50

60

1997 1998 2000 2001 2003 2005 2006 2008 2009 2012

Manufacturing

0

20

40

60

1997 1998 2000 2001 2003 2005 2006 2008 2009 2012

Mach’y & equipment, nec; office, account’g & computing machinery

-50

0

50

100

150

1997 1998 2000 2001 2003 2005 2006 2008 2009 2012

Elect’l mach’y & app nes; radio, tv & comm’n equip & app; medical, precision & optical instruments

-50

0

50

100

1997 1998 2000 2001 2003 2005 2006 2008 2009 2012

Basic metals, fabricated metal products, ex mach’y & equipment

ARMMMIMAROPA

SOCCSKSARGEN

CAGAYAN VALLEY

CAR

EASTERN VISAYAS

CARAGA

CENTRAL VISAYAS

ILOCOS

CENTRAL LUZON

NORTHERN MINDANAO

CALABARZON

NCR

ZAMBOANGA PENINSULA

DAVAO REGION WESTERN VISAYAS

BICOL

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

-1.00% 1.00% 3.00% 5.00% 7.00% 9.00%

GR

DP

as

% o

f G

DP

(2

01

5, a

t co

nst

ant

pri

ces)

GRDP growth rate (2014-2015, at constant prices)

Regional AnalysisGross Regional Domestic Product

• Geographically, contribution to GDP is highly concentrated in a few regions

• NCR, CALABARZON, & Central Luzon account for 63 % of GDP• Poverty-stricken regions in Mindanao have the lowest contribution

(ARMM 0.66%, CARAGA 1.3%)

Agriculture

NCR

CAR

ILOCOS

CAGAYAN VALLEY

CENTRAL LUZON CALABARZON

MIMAROPA

BICOL

WESTERN VISAYAS

CENTRAL VISAYAS

EASTERN VISAYAS ZAMBOANGA PENINSULA

NORTHERN MINDANAO

DAVAO REGION

SOCCSKSARGEN

CARAGA

ARMM

-10.00%

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

-10.00% -8.00% -6.00% -4.00% -2.00% 0.00% 2.00% 4.00% 6.00% 8.00%

Agr

icu

ltu

re a

s %

of

GR

DP

(2

01

5, a

t co

nst

ant

pri

ces)

Agriculture growth rate (2014-2015, at constant prices)

• Except for NCR, our regional economies are still dependent on agriculture, forestry, and fishery

• In terms of size, the largest contributors are led by Central Luzon (16.3%) followed by Northern Mindanao( 9.6%,) CALABARZON (9.3%), Western Visayas (8.2%), & Cagayan Valley (7.9%)

Manufacturing

• Manufacturing activities have been largely confined in CALABARZON (40%) followed by NCR (20%) and Central Luzon (14%)

• Central Visayas (7%) and Davao (4%) trying to catch-up

NCR

CAR

ILOCOS

CAGAYAN VALLEY

CENTRAL LUZON

CALABARZON

MIMAROPA BICOL

WESTERN VISAYAS

CENTRAL VISAYAS

EASTERN VISAYAS

ZAMBOANGA PENINSULA

NORTHERN MINDANAODAVAO REGION SOCCSKSARGEN

CARAGAARMM

0.00%

10.00%

20.00%

30.00%

40.00%

50.00%

60.00%

-4.00% -2.00% 0.00% 2.00% 4.00% 6.00% 8.00% 10.00% 12.00% 14.00%

Man

ufa

ctu

rin

g as

% o

f G

RD

P (

20

15

, at

con

stan

t p

rice

s)

Manufacturing growth rate (2014-2015, at constant prices)

Services

• Huge imbalance among the regions in terms of services; services is highly concentrated in highly urbanized NCR accounting for 52% of total

• Outside NCR, services is quite high only in relatively large economic areas led by CALABARZON (9.8%) followed by Central Luzon (6.5%), & Central Visayas (6.4%)

NCR

CAR

ILOCOS

CAGAYAN VALLEY

CENTRAL LUZON CALABARZON

MIMAROPA

BICOLWESTERN VISAYAS

CENTRAL VISAYAS

EASTERN VISAYASZAMBOANGA PENINSULA NORTHERN MINDANAO

DAVAO REGION

SOCCSKSARGEN

CARAGA

ARMM

20.00%

30.00%

40.00%

50.00%

60.00%

70.00%

80.00%

90.00%

2.00% 3.00% 4.00% 5.00% 6.00% 7.00% 8.00% 9.00% 10.00%

Serv

ice

s a

s %

of

GR

DP

(2

01

5, a

t co

nst

ant

pri

ces)

Services growth rate (2014-2015, at constant prices)

RegionPoverty Incidence

(2015)Unemployment

(2015)

PHILIPPINES 21.6 6.3

NCR 3.9 8.5CAR 19.7 4.9

I - Ilocos Region 13.1 8.4

II - Cagayan Valley 15.8 3.2III - Central Luzon 11.2 7.8IVA - CALABARZON 9.1 8.0IVB - MIMAROPA 24.4 3.3V - Bicol Region 36.0 5.6VI – W.Visayas 22.4 5.4VII – C. Visayas 27.6 5.9VIII – E.Visayas 38.7 5.4

IX – Zamboanga 33.9 3.5

X – N. Mindanao 36.6 5.6

XI - Davao Region 22.0 5.8

XII - SOCCSKSARGEN 37.3 3.5

CARAGA 39.1 5.7ARMM 53.7 3.5

Poverty incidence & Unemployment

• Poverty incidence remains high in ARMM, CARAGA, Eastern Visayas, Soccsksargen, Northern Mindanao, Bicol, & Zamboanga

• Unemployment is high in regions where poverty incidence is low

• Unemployment rates are highest in NCR, Ilocos Region, Central Luzon, & CALABARZON

Challenges to Industry Development & Job Creation

Area Major Constraints

Regulation • Complex/costly business procedures • Policy consistency, transparency, predictability • 60-40% foreign equity rule

Infrastructure • High cost of power, domestic shipping• Lack of ports, airports, road infrastructure

SME • Access to finance, technology, support for start-ups,product standards, marketing, network links

HRD • Lack of skilled workers, limited standards & certifications, quality of teachers

Innovation • Industry-academe linkages, R&D facilities

Supply/value chain

• Weak linkages among manufacturing, agriculture, & services

Manufacturing • Required Components: Materials, Skills, Energy, Capital, Digital technology

Binding Constraints to Upgrading in AgricultureGrowing (Agriculture) Processing (Manufacturing)

Cacao Lack of postharvest facilities, quality of planting materials, supply gap, lack of FMR, limited GAP

Lack of supply of beans & cacao preparations, weak linkage (bean & grinding)

Coconut Limited access to quality planting material, high input costs, old technologies in harvesting

Low productivity, lack of technology in processing

Durian High input cost, inadequate post harvest, poor harvesting, packaging technology, handling; diseases

High cost of investment in processing equipment

Mango Limited access to planting materials, limited nursery operators, high cost of inputs, absence of post harvest facilities, poor implementation GAP

Insufficient supply of mangoes, VHT facility underutilized, lack of research on high value added processed products

Seaweed High cost of inputs, lack of postharvest facilities at the farmers’ level, absence of testing labs, presence of diseases

Insufficient supply of dried seaweeds

PART 2: Comprehensive National Industrial StrategyIntegrating industries, Closing value/supply chain gaps

• Overall Goal: create globally competitive & innovative industrieso Growth oriented action to upgrade

industries, move up the value chaino Remove obstacles to growth attract

more investmentso Deepen participation in regional

production networks/global value chains

• Role of Government: Enabler & facilitator to address coordination failureso Address the most binding constraints

preventing industries from growingo Create proper environment for private

sector development

Inclusive growth

Free Trade Agree-ments

Jobs, Competitiveness

• GVC-focused • FOSTERS

INNOVATION & ENTREPRENEURSHIP

• Cluster-based industrial strategy

COMPREHENSIVE NATIONAL INDUSTRIAL STRATEGY

• CNIS links together economic sectors to develop globally competitive & innovative industries with strong domestic & global linkages

o Address coordination/market failures, gaps in supply/value chain

o Promote services embedded in manufacturing

o Build strong regional economies: Regional Industrial Clusters17

MANUFACTURING SERVICES

AGRICULTURE FISHING, FORESTRY

MINING, CONSTRUCTION

INTERNAL FACTORS: GOVERNMENT POLICIES &PROGRAMS – trade & industry INSTITUTIONS, INFRASTRUCTURE, MACRO STABILITY, RULE OF LAW,

PEACE & ORDER, POLITICAL CLIMATE

EXTERNAL FACTORS: GLOBALIZATION, REGIONAL/BILATERAL/MULTILATERAL TRADING ARRANGEMENTS, GLOBAL & REGIONAL PRODUCTION NETWORKS

Underlying Frameworkcompetition, innovation, & productivity growth

• Competition affects productivity through innovation: + relationship between innovation & competition

• Less productive firms will exit the market: - relationship between productivity & firm survival

• Resources reallocated to surviving higher productivity firms that innovate at a faster rate

• With globalization & economic integration, competition increases, role of innovation is crucial

• R&D/Innovation: important ingredient for l-r growth• Innovation & entrepreneurship: at the heart of the CNIS!

COMPETITION INNOVATION PRODUCTIVITY

‹

COMPREHENSIVE NATIONAL INDUSTRIAL STRATEGY

TOP FIVE PRIORITIES

Opportunities• New high

level growth

trajectory

• Growing

middle class

• Political

stability

• Young,

English

speaking

workforce

• Rising

business

confidence

• AEC & FTAs

Challenges

• Complex

regulations

• High cost

of power

• Lack of

ports,

airports,

roads

• SMEs’

access to

finance

• Supply

chain gaps

Manufacturing

• CARS

Program

Tourism

IT BPM

KPO

From voice to

non-voice

Agribusiness

• High value

crops

Infrastructure

& Logistics

7-8% Growth 95-97%

Employment

• N E W I N D U S T R I A L P O L I C Y

• B O L D E R T R A D E P O L I C Y

• I N T E N S I F I E D P R O M O T I O N O F

I N V E S T M E N T S

• R E D U C E D R E G U L AT O R Y B U R D E N

• I N N O VAT I O N , R & D , &

E N T R E P R E N E U R S H I P

• M O D E R N M S M E & S TA R T - U P

P O L I C Y

• S K I L L S T R A I N I N G & H R D

Strategies to transform & upgrade manufacturing, agriculture, & services

7-8% GDP growth

3-5% unemployment

Horizontal measures

Coordination mechanism

Vertical measures

• Close supply chain gaps• Expand domestic

market & exports• HRD & skills trainings• SME development• Innovation,

Entrepreneurship • Green growth

• Promotion• Power, smuggling,

logistics, infrastructure

• Improve regulation, reduce cost of doing business

• Competitive exchange rate

open trade regime, sustainable macro policies, sound tax policies & administration, efficient bureaucracy, secure property rights, institutions

20

Priority Industries & Activities• Electronic manufacturing services : auto electronics, medical devices,

telecommunications equipment, power storage, civil aviation/aerospace); Semiconductor manufacturing service: IC design

• Automotive & auto parts: CARS Program

• Aerospace parts & Aircraft Maintenance, Repair, & Overhaul• Chemicals: petrochemicals, acyclic alcohols & derivatives, metallic salts &

peroxy salts of inorganic acids, cyclic hydrocarbons, oleochemicals• Shipbuilding & Ship-repair: RORO as well as small- and medium-sized vessels• Furniture, garments, GDH manufacturing and design• Tool & die manufacturing and design• Agri-business: Food & resource-based processing (cacao, coffee, mangoes,

bananas, coconut, rubber, bamboo, fruits & nuts, & other high value crops)• Construction: roads, railways, bridges, ports, airports, & low-cost housing • IT-BPM: more complex non-voice services BPO, KPO in medical, financial, &

legal services; game development; engineering services outsourcing, software development, shared services

• Transport and Logistics: land, air, & water transport, warehousing, support facilities for transport

• Tourism, Creative Industries, and E-Commerce

Part 3: INCLUSIVE INNOVATION Recommendations from 2016 Manufacturing Summit

• Foster a dynamic innovation ecosystem of government, academe, & industry

• Promote collaborative agreements between industry associations, government, & academe in support of advanced manufacturing– Joint industry-university research & student training; shared facilities for rapid

prototyping & demonstration, validation, testing equipment; manufacturing engineering fellowships & cooperation programs between universities & industries

• Provide incentives for innovative R&D; equipment for advanced manufacturing – R&D tax credit, accelerated depreciation, R&D research grants, matching grants,

innovation voucher, technology transfer offices, science parks, business incubators, fast & reliable ICT networks & communication platforms

• Forge technical collaboration with industries, both foreign and domestic– Collaborations between local industry & foreign universities, multinational

subsidiaries & local universities

• Pursue market driven research directions– Collaboration with universities increased propensity of firms to introduce new

products & to patent (Chile & Columbia); align university research agendas with market demands

Inclusive Innovation Roadmapto stimulate innovation & entrepreneurship Where are we– strengths, weaknesses, opportunities & threats from emerging trends in

advanced technologies, creation of an innovation ecosystem Where do we want to go– Formulate vision, goals, targets– Realizing emerging trends in advanced technologies & manufacturing,

determine where we want to go, where are the sweet spots How to get there– How can domestic firms participate in that innovative process & capture

sweet spots, greatest value from globally integrated process– Strategic policies and programs

• start-ups, MSMEs, large• Sectors, activities• Geographic locations

– Role of the different stakeholders: government agencies, academe, industry

– What should be the coordination mechanism: implementation and monitoring of the roadmap

– Budget allocation from government

We cannot directly copy Silicon Valley, but we must create our own, building on what we have & use this

to shape our future.

THANK YOU!

For more information, visit our website industry.gov.ph