Economic Planning Secretary
and NEDA Director-General

SEIPI’S 13th CEO’S FORUM & 118th GMM
“The Government’s Perspective: Economic Programs and Projects Towards Inclusive Growth”
28 October 2014, 8:00 AM
The Peninsula Manila, Makati City

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Members of the Semiconductor and Electronics Industry of the Philippines Foundation, Inc., colleagues from the government, friends from the private sector, ladies and gentlemen, good morning!

I would like to express my appreciation to SEIPI for inviting me to speak at this event, which provides a good avenue for us to continue strengthening the partnership between the public and private sector.

Allow me to begin this presentation by discussing the government’s strategic framework for inclusive growth as well as the recent performance of the economy based on various inclusive growth indicators. Immediately following this, I will discuss a number of issues and challenges, and identify some possible measures that we can take to address them. I will then conclude by presenting the updated targets of the Philippine Development Plan and our future development directions.

Shown in the slide [refer to slide 3] is an illustration of our framework for inclusive development, as reflected in the Philippine Development Plan Midterm Update. As you can see, attracting as many investments as possible – from both local and foreign investors – is central to our development agenda. These investments are expected to generate quality employment, which can absorb even the low-skilled workers. As you know, creating high-quality and remunerative jobs is one of the ways by which people can be lifted out of poverty.

To encourage investments, we continue to ensure macroeconomic stability; improve our business climate; provide adequate and appropriate infrastructure; enhance the quality of labor through human capital development; and harness science, technology and innovation, among others.

In the process of implementing our inclusive growth strategies for the past three years, we have seen improvements in our economic development indicators.

The Philippines currently enjoys a strong macroeconomic environment conducive to sustained and rapid growth, characterized by low and stable inflation, favorable interest rates, sustainable fiscal and external positions, and a stable financial sector. This improvement partly explains sustained optimism among consumers and investors, and also lowers our credit risk, as shown by the credit ratings upgrade issued by various international credit watchdogs.

Optimism from investors, both local and foreign, has resulted in improved investments. Net foreign direct investments (FDI) grew, on average, by 53.9 percent from 2010-2013. For the first seven months of 2014 alone, net FDI reached US$4 billion, a notable increase of 56.1 percent from US$2.6 billion in the same period last year.

Meanwhile, higher approved total investments were recorded in 2013, or higher by 8.1 percent compared to last year. However, approved investments from foreign nationals declined by 5.2 percent to PhP274 billion from PhP289.1 billion. Approved investments from Filipino nationals, on the other hand, increased by 17.5 percent to PhP480 billion.

Our GDP growth path reflects the optimism of the private sector, as well as the country’s robust macroeconomic fundamentals. In fact, the Philippines emerged as one of the best performers among Asian economies, next only to China. From 2010-2013, the economy grew, on average, by 6.3 percent in real terms. Even more encouraging is that despite the series of natural disasters that hit in the latter part of 2013, the Philippine economy managed to meet and even exceed the target growth of 6.0 to 7.0 percent. The expansion reflects the stronger manufacturing sector on the supply side, and the resurgence of investments on the demand side.

We are also seeing improvements in employment and poverty indicators.

I am pleased to note that in the latest Labor Force Survey, the country’s employment level increased by around 1.1 million, driving down the unemployment rate to 6.7 percent in July 2014 from 7.3 percent a year ago. The quality of employment remains a concern, although the underemployment rate declined to 18.3 percent from 19.2 percent in the same period in 2013.

Meanwhile, the estimated poverty incidence among Filipinos declined by 3.0 percentage points (ppts) to 24.9 percent from 27.9 percent a year ago, while individuals in extreme poverty also declined by 2.7 ppts to 10.7 percent from 13.4 percent in 2013.

While recent economic performance provides evidence that our inclusive growth strategies are gaining traction, we still recognize the need to ramp up our efforts and sustain the momentum, in order to lift even more Filipinos out of poverty.

Assessing our recent economic performance allows us to identify issues and challenges that need to be addressed. These include challenges in infrastructure; science, technology and innovation; labor and available skills; and cost of doing business. These issues, if left unresolved, could negate our gains and even adversely affect attainment of our goals, particularly our plan to attract more investments that could provide quality jobs for our people.

In the area of infrastructure, the government remains on guard to provide the necessary measures to mitigate if not prevent the effects of power supply instability as well as the slowdown in the logistics chain due to traffic and port congestion.

To address the power supply instability, the government will continue to encourage public-private sector programs to augment existing power supply and/or manage demand.

In terms of logistical bottlenecks, the government has identified various short-term measures to ease port congestion, including declaring the Batangas and Subic ports as extensions of the Port of Manila, among others.

In the area of science, technology and innovation, the challenge is the limited technological capacity of SMEs in producing a local supply of raw materials. Thus, to encourage innovation and improve the value-added of SMEs to the economy, the government is working to make available innovative, appropriate and cost-effective technologies, implement continuous learning programs to increase their competitiveness, and invest in research and development (R&D) activities. By doing so, we can help them produce goods and services that would meet requirements not only of large enterprises but also international markets, if they want to go global.

When it comes to enhancing the competitiveness of Filipino talent pool, the government is committed to expand Science and Technology (S&T) graduate scholarship programs to promote science-related professions. Meanwhile, to address the skills mismatch, we will strengthen our efforts to enhance the competencies of our labor supply through training and education as well as through academe-industry linkage. We aim to produce highly skilled Filipino workforce needed by industries, and who are competitive enough to take advantage of economic integration.

Lastly, measures to further improve our business climate will continue to be a priority. To address the loss of potential benefits due to unnecessary bureaucratic processes, the government is keen on further simplifying business regulations. To do this, we are implementing the strategies and reforms identified by the National Competitiveness Council, such as the use of Green Lane Units (express registration of corporations and partnerships) and full implementation of the Philippine Business Registry. The PDP 2011-2016 Midterm Update also supports legislative reforms, except those provided under the Constitution, that aim to liberalize investment areas to increase investments and generate employment.

Indeed, we have a lot to do, and the work is far from easy. That is why we are grateful for the support and partnership of the private sector, as we continue working to achieve the following targets:

• GDP growth within the range of 6.5 to 7.5 percent in 2014 and ultimately, 7.5 to 8.5 percent in 2016. The industry sector is projected to grow the fastest, while the services sector is expected to remain robust during the period.
• Reduction of the unemployment rate from 7.0 percent in 2012 to 6.6 percent in 2016. Consequently, we aim to improve the quality of employment, in terms of reduction of underemployment rate from the current 20 percent to about 17 percent in 2016.
• Lastly, improvement in the well-being of Filipinos, that is, reduce the income poverty to 19 percent by 2016 and the incidence of multi-dimensional poverty from 28.2 percent in 2008 to 17 percent by 2016. The latter measure recognizes that poverty is not just about income, but about being deprived of a good quality of life. In working to improve these two indicators, we reiterate our commitment to ensuring that economic growth will benefit all, and that the poor will enjoy a better quality of life.

That being said, the government is keeping an eye on the growth drivers, and on harnessing their potential to achieve our growth targets. One sector with high potentials to contribute to employment generation and poverty reduction is the manufacturing sector.

There is clear evidence that the robust growth of the manufacturing subsector can drive impressive GDP growth. Manufacturing continues to grow robustly, averaging 7.9 percent annually in the last four years, which is a clear break from only 2.9 percent from 2004 to 2009. We see that by sustaining the robust growth of the sector, we’re actually creating opportunities for quality employment for low skilled workers. Efforts such as the Manufacturing Resurgence Program will help boost the sector’s capabilities.

The electronics industry has a significant role to play, as it accounts for almost a fifth (i.e., 20.6 percent in 2013) of the country’s manufacturing gross value added (as evidenced by the red portion of the figure).

It has the biggest contribution to the growth of the manufacturing sector in recent years. As can be seen, electronics industry contributed, on average, 4.2 percentage points to the average growth of the manufacturing sector of 7.9 percent from 2010-2013.

In addition, based on the 2006 Input-Output Table of the Philippines, the output multiplier of the sector, i.e., manufacture of semi-conductor devices and other electronic components, is relatively high at 3.78, which means that an additional ₱1.00 investment in the sector would result in a ₱3.78 increase in the country’s total output.

The sector ranked 1st out of 240 sectors with the highest backward linkage because its production of output requires substantial intermediate inputs from many other industries. Meanwhile, it ranked 8th with the highest forward linkage index.

These figures only validate the significant role of the electronics industry in achieving rapid and sustained growth of the country.

Despite the downward trend of electronics exports in recent years, several indicators point to the recovery of the industry. This builds our optimism that it will contribute to stronger growth of manufacturing. The recovery of demand for automotive, communications, industrial and consumer electronics from key buyers in Europe, US and Japan as well as the surge in the worldwide sales of semiconductors are seen to boost the electronics industry’s growth potentials. These indicate that the industry will remain a major contributor of valuable export products thereby propelling further growth.

As we go hand in hand in working towards inclusive growth, we assure you that government continues its efforts to reduce transactions costs, address bottlenecks, and accelerate the roll-out of much needed infrastructure projects. We encourage the electronics industry to move up the value chain, develop new growth areas, and seize opportunities in Southeast Asia as free trade in the region is implemented in 2015.

Thank you and good day!