The Philippines Industrialization: A Disaster

Summary

The Philippines, despite being labeled as a 'newly industrialized country,' has not fully industrialized. It faces challenges in infrastructure, governance, and education, and remains reliant on agriculture and remittances. Its manufacturing sector lags behind neighbors like Vietnam and Thailand, with a lower percentage of GDP from manufacturing. Historical policies and a focus on services rather than manufacturing have contributed to this lag. While the service sector, including BPO, has grown, there are concerns about over-reliance and future competition. The country's unique economic model has bypassed traditional industrialization, but there are ongoing efforts to boost manufacturing and address the trade deficit.

Takeaways

• 🌟 The Philippines is often misunderstood as fully industrialized despite being classified as a 'newly industrialized country'.
• 🏭 The country's manufacturing sector contributes only about 18% to its GDP, which is significantly lower compared to its neighbors.
• 📈 The Philippines has a unique economic trajectory, skipping the industrial phase and moving from agriculture to services.
• 💼 The service sector, particularly Business Process Outsourcing (BPO), has been a significant driver of the Philippine economy.
• 💼 The value added by the service sector to the GDP is the highest in the region, standing at 61% as of 2021.
• 🏗️ Historical policies like 'Philippine First' and protectionism have hindered the growth of a robust manufacturing sector.
• 🔍 The country's industrialization has been affected by oligarchism, lack of export-oriented subsidies, and insufficient government support.
• 💼 The reliance on remittances from Overseas Filipino Workers is a significant factor in the economy, highlighting the service sector's importance.
• 🚀 The Philippines' economic model, while unique, faces challenges from competition and technological advancements like AI.
• 🔄 There is a merchandise trade deficit, indicating a weak exportation of goods, which a stronger manufacturing sector could help address.

Q & A

What does the term 'newly industrialized countries' imply about the Philippines?

The term suggests that the Philippines has developed a significant manufacturing sector, but this is often misunderstood as the country has not fully industrialized and still faces challenges in infrastructure, governance, and education.

Why is the Philippines' industrialization phase considered lagging?

The Philippines' industrialization is lagging because its manufacturing sector contributes less to GDP compared to its neighbors, and it has not been able to develop a strong manufacturing base like some of its regional peers.

What is the Philippines' GDP percentage attributed to manufacturing as of 2021?

As of 2021, the Philippines' manufacturing sector contributes approximately 18% to its GDP, which is lower than many of its neighboring countries.

How does the Philippines' service sector compare to its manufacturing sector in terms of GDP contribution?

The service sector in the Philippines contributes a higher percentage to GDP than the manufacturing sector. As of 2021, services account for 61% of the GDP, which is the highest among its neighbors.

What historical policies have hindered the growth of the manufacturing sector in the Philippines?

Historical policies such as 'Philippine First' with high tariffs and non-tariff barriers, and various industrialization plans that were dismissed due to internal and external shocks have hindered the growth of the manufacturing sector.

Why has the Philippines been successful in the Business Process Outsourcing (BPO) industry?

The Philippines has been successful in the BPO industry due to its English-speaking workforce and the growth of this sector as an alternative to boost its economy when the manufacturing sector lagged.

What are the potential threats to the continued growth of the BPO industry in the Philippines?

Potential threats to the BPO industry include intense competition from countries like India, which offer lower wages, and the rise of Artificial Intelligence, which may automate some call center jobs.

Why is it important for the Philippines to not over-rely on its service sector?

Over-reliance on the service sector could be risky as it may not provide long-term stability. The BPO industry, for example, faces competition and technological disruption. Additionally, manufacturing often adds more value per worker and can help reduce merchandise trade deficits.

What is the merchandise trade deficit of the Philippines in 2022?

In 2022, the Philippines is projected to have a merchandise trade deficit of more than 50 billion dollars, partly due to weak exportation of goods.

What are some of the government initiatives aimed at improving the manufacturing sector in the Philippines?

Government initiatives include foreign investment-led projects and partnerships with local companies like SteelAsia Manufacturing Corporation to build steel factories and other manufacturing facilities.

What is the value added per worker in the manufacturing sector compared to the service sector in the Philippines?

As of 2019, the value added per worker in the industry sector of the Philippines is over $14,511, which is about 50 percent more than the $9,312 in the services sector.

Outlines

00:00

🏭 Understanding the Misconception of Philippine Industrialization

This paragraph explores the misconception surrounding the Philippines as a newly industrialized country. While the country is classified as such, it has not fully industrialized. Instead, it continues to rely on agriculture, services, and remittances from overseas workers. The country's industrial sector, particularly manufacturing, lags behind its neighbors like Vietnam, Thailand, and Malaysia. Data from the World Bank shows that the Philippines' manufacturing value added to GDP is lower than many of its regional peers. Historical and policy decisions are also highlighted, such as protectionist measures in the 1950s that stunted the growth of local industries.

05:02

💼 Historical and Structural Factors Behind Industrial Lag

This paragraph delves into the historical challenges and policy decisions that hindered the Philippines' industrial growth. The government's 'Philippine First' policy in the 1950s, aimed at protecting local businesses through tariffs, failed to foster competitive industries. Attempts to grow sectors like steel and electronics saw mixed results, with failures in steel privatization and reliance on low-value-added electronic manufacturing. The 1970s' industrialization projects also faltered due to internal and external issues. Scholars argue that oligarchism, protectionism, and lack of export-oriented subsidies contributed to the industrial lag, alongside prioritization of self-interest by the elites over national development.

10:05

📊 The Leapfrog Economy: Agriculture to Services

This paragraph explains how the Philippines bypassed the typical path of industrialization, jumping from an agriculture-based economy to a service-oriented one. Unlike other countries, which transition from agriculture to manufacturing before entering the service sector, the Philippines grew its service economy through business process outsourcing (BPO) and overseas remittances. As of 2021, services contributed 61% to the GDP, outperforming many neighboring countries. However, there are concerns about over-reliance on the service sector, with competition from India and the potential impact of AI on BPO jobs being significant risks.

⚠️ Addressing the Challenges and the Future of Industrialization

This paragraph highlights the potential risks of relying too heavily on the service sector, particularly the BPO industry, which faces competition from India and technological advancements like AI. Manufacturing is suggested as a critical area for the Philippines to focus on due to its higher value added per worker compared to services. Additionally, manufacturing could help reduce the country’s merchandise trade deficit, which reached over $50 billion in 2022. The paragraph ends by noting ongoing government initiatives and foreign investment projects aimed at boosting the industrial sector, although many of these projects remain unrealized.

🤔 Final Thoughts: Service vs. Industry in the Philippines

In the final paragraph, viewers are invited to reflect on the discussion about the Philippines' industrial and service sectors. The narrator encourages engagement by asking whether the country should continue to prioritize its booming service sector or focus on addressing the gaps in industrialization. The video concludes by thanking viewers for watching.

Keywords

💡Newly Industrialized Countries

This term refers to nations that have recently achieved a level of industrialization comparable to that of more developed countries. In the video, it is mentioned that the Philippines is often misunderstood to have fully industrialized, but it still faces significant challenges in infrastructure, governance, and education, which are crucial for sustainable economic development.

💡Manufacturing Prowess

This concept refers to the capability of a country to produce goods on a large scale through manufacturing processes. The video discusses how the Philippines has developed some manufacturing prowess but is still behind its neighbors in terms of the value added by manufacturing to its GDP.

💡Agriculture-based Economy

An agriculture-based economy is one that primarily relies on farming and related activities. The video explains the typical progression from an agriculture-based economy to a manufacturing-based economy and then to a service-based economy, which the Philippines has bypassed to some extent.

💡Service Sector

The service sector encompasses industries that provide intangible services rather than physical goods. The video highlights that the Philippines has a booming service sector, which is a significant part of its economy, with the highest service value added as a percentage of GDP among its neighbors.

💡Infrastructure

Infrastructure refers to the basic physical and organizational structures needed for the operation of a society or enterprise. The video mentions that the Philippines still faces tremendous challenges in terms of infrastructure, which is a crucial factor for achieving sustainable economic development.

💡Overseas Filipino Workers

This term refers to Filipinos working abroad. The video notes that the Philippines is heavily reliant on remittances from overseas Filipino workers, which is a significant factor in its economy.

💡Business Process Outsourcing (BPO)

BPO involves contracting a company to manage business processes. The video points out that the Philippines has become a leader in BPO, which has helped to boost its service-based economy.

💡Value Added

Value added refers to the increase in the value of a product at each stage of production. In the context of the video, it is used to compare the economic contributions of different sectors, such as manufacturing and services, to the GDP of the Philippines.

💡Trade Deficit

A trade deficit occurs when a country imports more goods than it exports. The video mentions that the Philippines has a merchandise trade deficit, which is partly due to its weak exportation of goods.

💡Foreign Direct Investment (FDI)

FDI is an investment made by a firm or individual in one country into business interests located in another country. The video discusses several foreign investment-led projects aimed at addressing the industrial gap in the Philippines.

💡SteelAsia Manufacturing Corporation

This is a local company in the Philippines that is mentioned in the video as continuously constructing steel-based factories around the country, indicating efforts to strengthen the manufacturing sector.

Highlights

The Philippines is recognized as a 'newly industrialized country' by international organizations.

The term 'newly industrialized country' is often misunderstood, with people assuming the Philippines has fully industrialized.

The country has developed its manufacturing sector but still faces significant challenges in infrastructure, governance, and education.

The Philippines is heavily reliant on agriculture, services, and remittances from overseas workers.

Manufacturing's contribution to GDP is only about 18%, which is lower than most of its neighbors.

Vietnam, Thailand, and Malaysia have higher manufacturing value added as a percentage of GDP compared to the Philippines.

The industry sector's value added to GDP in the Philippines is lagging behind its neighbors.

The Philippines' value added in manufacturing is significantly lower than that of Vietnam and Malaysia.

Historical policies like 'Philippine First' led to high tariffs and non-tariff barriers, hindering the growth of a strong manufacturing sector.

The Philippines failed to compete internationally and domestically in manufacturing, unlike its neighbors.

The country's few successful industries, such as steel and electronics, faced issues that hindered growth.

The Ilijan steel mill's failure due to privatization and foreign investment issues is a significant setback for the country's manufacturing sector.

Electronic manufacturing is the only sector that has helped push growth, but it is filled with low-value added work.

The Philippines skipped the industrialization phase and went straight to a service-based economy.

The service sector's value added to GDP is the highest in the Philippines, making it an intensive service-based economy.

The Philippines' unique economic model addresses its lacking manufacturing sector but should not over-rely on the service sector.

The BPO industry faces challenges such as competition from India and the threat of AI taking over some jobs.

Manufacturing is important for the Philippines to alleviate the pressures of the country's merchandise trade deficit.

There are ongoing government initiatives and foreign investment-led projects aimed at addressing the industrial gap.

Many projects aimed at boosting the manufacturing sector are still unrealized, and there is much work to be done.

Transcripts

Amongst the largest feats that make the  Philippines one of the fastest-growing  

countries globally is that it joins the  league of “newly industrialized countries”,  

which is commonly recognized by international  organizations. This term, however, is often  

misunderstood. Due to its title, people  think that the Philippines has already  

industrialized. The country has developed its  necessary manufacturing prowess. It is commonly  

known that to become an industrialized country  one would go from an agriculture-based economy,  

where people work on farms to eventually  working in factories. After jumping to a  

manufacturing-based economy, a country would  then head to the next stage of the finances and  

service sector. This is the case as what most  people think has happened in the Philippines,  

the country is now at the stage of a booming  service sector. This is what people have  

misunderstood about the Philippines. It is a  fact that the country did not become a fully  

industrialized economy. It still faces tremendous  challenges in terms of infrastructure, governance,  

and education that need to be addressed to achieve  sustainable economic development. Moreover,  

the country is still heavily reliant on other  factors such as agriculture, services, and even  

remittances from overseas Filipino workers. Which  are, unfortunately, still missing out on the high  

value contribution of the entire industry sector.  The best way to even understand how the country’s  

industrialization phase is lagging is by looking  at the data. The World Bank shows the value added  

by manufacturing by the percentage of GDP. To this  data, the Philippines as of 2021 has a value added  

to GDP of about 18 percent, which is below most  of its neighboring bloc. Vietnam, for instance,  

has a value added percentage of 25 percent,  whereas Thailand with 27 percent, Malaysia at 22  

percent, and only Indonesia which inches beside  the Philippines with 19 percent. Furthermore,  

if we take a look at the entire industry  sector, we may also see that the industry  

data as a percentage of GDP still shows that the  Philippines is lagging behind its neighboring  

bloc. Vietnam has a 37.5 industry value added  to GDP, whereas the Philippines with only 28.9  

percent. This misconception of the Philippines  is classified as a newly industrialized economy,  

therefore, is misunderstood. In the same  way, the value added to manufacturing,  

even if we don’t classify it as a percentage  of GDP, can also show how much the Philippines  

is lagging. Value added in manufacturing in the  Philippines is 69.5 billion dollars as of 2021,  

Vietnam for instance has over 90 billion dollars,  and Malaysia at 87.5 billion dollars. There is a  

reason why the Philippines has become a lagging  country when it comes to manufacturing and  

having a robust industrialized sector. A  quick historical overview can show us why.

Throughout history, there have been various cases  of why the Philippines failed to adopt a strong  

manufacturing sector. We can trace a story back  to the 1950s. The Philippine government through  

a policy called “the Philippine First” wanted to  protect its little local companies. It placed high  

tariffs and non-tariff barriers to entry. This  resulted in international products being way  

more expensive than usual, as a tariff is often a  tax on imported goods. Some economists, however,  

would probably say that this was the perfect  move. Grow out the little local companies,  

and then open up international competition.  Indeed, however, the neo-liberal economists would  

probably laugh at this, as the Philippines after  decades of trying to grow its local companies have  

failed to compete internationally, or even,  the Philippines has never had a company that  

would compete domestically. The country can’t  manufacture automobiles, whereas neighbors such  

as Thailand and Malaysia had gone ahead to become  miracle successors to these industries. The only  

few industries that the Philippines succeeded in  were both steel and electronics. These, however,  

also had their issues. Steel making had once made  the country a leader in Asia. The Ilijan steel  

mill was once regarded as one of the largest on  the entire continent. However, due to a failure  

in privatization, and foreign investments, the  steel company failed. Rendering the only monument  

the Philippines had at manufacturing to zero.  Electronic manufacturing, on the other hand,  

is the only one that has helped push growth  to the entire manufacturing sector. However,  

it is filled with low-value added work. The  Philippines does not manufacture the entire  

component, but rather, are the ones who  test and package these finished products.

Furthermore, another historical point is If we  trace back to the late 1970s, the government had  

also once announced an industrialization plan,  by introducing 11 big projects. From copper to  

aluminum smelters. However, due to a wide range  of issues led by internal and external shocks,  

many of their plans had been dismissed. These  issues through various sectors and historical  

points have led the Philippines to have a lagging  industrial sector. Some research articles and  

economists themselves argue that it was solely  because of oligarchism, protectionism, and a  

lack of export-oriented subsidies. They say that  oligarchs have become too rich to the point that  

they don’t prioritize national development, but  instead prioritize fattening their own pockets.  

A lack of government support has also failed the  industry sector, as entrepreneurs or even state  

owned enterprises have not been encouraged enough  to create a product for manufacturing purposes.  

These answers, however, may still be a narrow  answer to understanding why the Philippines'  

industrialization failed. And there is a good  argument for why it is also not an issue.

The Philippines economy to most people’s  surprise in its developing stage had leaped  

the industrialization phase. It went from an  agriculture-based economy to a service-based  

economy. This is contrary to what most developing  countries face which first goes from agriculture  

to manufacturing and then services. Arguments  laid out, however, have pointed out that this was  

necessary. The Philippines needed an alternative  option to boost its economy. It also exported its  

labor globally, which helped generate a source of  Overseas Filipino remittances. Business Process  

outsourcing has steadily grown and even made the  Philippines, the world’s biggest. These all have  

then collectively made the Philippines an  intensive service-based economy. The same  

data from the World Bank, which showcases  the service value added by a percentage of  

GDP shows that the Philippines is the highest  with 61 percent as of 2021, only to be followed  

by Thailand at 56.7 percent, whereas Vietnam at  41.2 percent. This unique factor that makes the  

Philippines one of the only few to do so, would  then make some people think that this is fine.

The Philippines is unique as they say, just like  how unique other countries are. Not everyone  

should be in the same economic standards. But  while it is good to see that the Philippines  

found its unique economic model to address  its lacking manufacturing sector, it must,  

however, not over rely on its service sector.  For the most part, there is no guarantee that  

Business Process Outsourcing will continue to  bring tremendous benefits to the Philippines.  

The BPO industry is driven by an ever-growing  intensive competition. India, for instance,  

is a very big contender. It can be argued that  India would one day surpass the Philippines and  

take much of the foreign investments placed  there, simply because India poses lower wages  

than the Philippines, and has an already strong  relationship with many multinational companies.  

Artificial Intelligence is also poised to take  some jobs away from the call center industry.  

Many economists and analysts have suggested  that these are the challenges posed to the  

BPO industry of the Philippines, which is why  manufacturing should not be dismissed. Further,  

it is also known that the value added per  worker in manufacturing is often higher than  

it is in services. The value added per worker of  industry in the Philippines as of 2019 is over  

14,511 dollars whereas in services is just 9,312  dollars, which is about 50 percent more. Lastly,  

a manufacturing-oriented economy is also important  as it can help alleviate the pressures of the  

country’s merchandise trade deficit. In 2022, the  Philippines will have incurred a merchandise trade  

deficit of more than 50 billion dollars, which  is partly due to its weak exportation of goods.

What we can say so far is that, while  the Philippines has leapfrogged from  

agriculture-based to service, there  are still luckily several government  

initiatives that are being addressed to help  fix the gap. There have been numerous foreign  

investment-led projects that are aimed to  address this opportunity. For instance,  

several Chinese-led projects have been  implemented in the past few years. There  

are also several other local-based companies such  as SteelAsia Manufacturing Corporation, which are  

continuously constructing steel-based factories  around the Philippines, and have partnered up with  

a Chinese company to potentially build another  steel factory. However, as far as we know, many  

of these projects are still unrealized. As long  as the value added of manufacturing is still low,  

we may, unfortunately, still see that the  industrialization of the Philippines is  

missing and that there is still much work that  needs to be done to address it. But anyway,  

do let us know what you think. Why do you think  the Philippines has a lagging industrial sector?  

Or do you think the Philippines should continue  its booming services? Thanks for watching!