Socioeconomic Planning Secretary

37th Philippine-American Academy of Science and Engineering (PAASE)

Annual Meeting and Symposium

University of Arizona, Tuscon | April 06, 2018

President Robert Robbins, The University of Arizona (UA);

Dr. Joel L. Cuello, President of PAASE;

Undersecretary Rowena Guevarra, Philippines Department of Science and Technology (DOST);

(Representative, TBD) Department of Trade and Industry (DTI);

Other Philippine Government Officials;

Distinguished guests and participants;

Ladies and gentlemen;

Good morning.

On behalf of the National Economic and Development Authority (NEDA), it is an honor to be part of the 37th PAASE Annual Meeting and Symposium (APAMS).

My presentation will cover the recent performance and outlook of the Philippine economy in the context of the Philippine Development Plan 2017-2022; the domestic STI ecosystem in the country; the rise of disruptive technologies and its impact on the economy; and possible cooperation strategies between the Philippines and PAASE on building our STI ecosystem.

Allow me first to share with you the current performance of the economy and its outlook.

The Gross Domestic Product or GDP growth of the Philippines has been on a sharp monotonic uptrend over the last three and a half decades.

I am happy to note that the GDP posted 6.7 percent growth for full year 2017, slightly above the lower band of our target range of 6.5 to 7.5 percent. As a result, we remain one of the fastest-growing economies in Asia, after China’s 6.9 percent and Vietnam’s 6.8 percent.

The monotonic uptrend of the economy is a result of its going structural transformation.

This means that growth is increasingly being driven by investments vis-à-vis consumption on the demand side, and by the industry sector (especially manufacturing) relative to the service sector on the supply side. In other words, the sources of economic growth have diversified. Such qualitative change enables the economy to sustain growth and generate more stable and quality jobs.

Further to the preceding slide on sources of growth, this one shows GDP performance across the economy’s various sectors for each quarter in 2017, and full year 2017 vs 2016.

Total factor productivity (TFP) growth of the economy in recent years has been the fastest among ASEAN-6 countries – averaging 3.01 percent over the period 2010-2015, based on computations by the Asian Productivity Organization.

These three points I have mentioned namely: (1) consistently upward growth trajectory; (2) structural transformation of the economy; and (3) sharp rise in TFP–suggest that our economic growth is sustainable, thereby capable of generating more stable and gainful jobs.

Overall, the country’s external position remains favorable, characterized by strong flows of foreign investments, remittances, healthy current account, and declining external debt (23.4% in 3Q2017)

With greater fiscal space, the government has been able to increase investments in human and physical capital.

For infrastructure, we will raise spending (cash basis) from about 4% of GDP in 2017 to over 6% by 2022, or an investment of USD 130 Billion (PhP 6.8 trillion) over 6 years, making this Administration’s term the “golden age of infrastructure” in the Philippines.

For the Plan period (2017-2022), the estimated total investment target under the Public Investment Program (PIP) for the 5,636 priority programs and projects amount to USD 203 Billion (PhP10.6 trillion as of October 2017; obligation-based) . The programs and projects to be financed cover infrastructure, human capital development, agriculture & forestry, resiliency of individuals & households, safety & security of communities and governance. The lion’s share of the target spending, nonetheless, goes to infrastructure.

Based on Chapter 19: “Accelerating Infrastructure Development” in the PIP 2017-2022, a total of 4,490 infrastructure programs/activities/projects (PAPs) on transportation, water, energy, information and communications technology (ICT), social and other public infrastructure, with total investment requirements at USD 148.3 billion (PhP7.74 trillion, obligation-based), will be implemented by the government over the medium-term.

This slide shows the expected completion timeline and status of the Infrastructure Flagship Projects. Of the 75 projects, 37 projects are expected to be completed within the term of the current administration.

To date, 24 out of the 75 flagship projects have been approved by the NEDA Board and/or are ongoing/under implementation. Of the 24 NEDA Board-approved/ongoing projects, 15 projects are funded through Official Development Assistance (ODA), eight (8) through the General Appropriation Act (GAA) and one (1) through Public-Private Partnership (PPP). On the other hand, the final funding source for the remaining 51 projects in the pipeline for approval by the NEDA Board will be confirmed after further review.

Importantly, the higher pace and improved quality of economic growth has created more and better jobs.

Unemployment registered the lowest at 5.5 percent in 2016 but inched up a bit at 5.7 percent in 2017. Nonetheless, underemployment registered the lowest rates over the past decade at 16.1 percent in 2017, which signals that the quality or stability of work being generated is improving.

Recent result of the LFS continued to show a vibrant labor market, total employment increased by 6.1 percent in January 2018, reaching 41.8 million with an estimated 2.4 million net employment generation relative to January 2017. Meanwhile, unemployment rate was estimated at 5.3 percent in January 2018, the lowest unemployment rate recorded for all January rounds in the past decade, in line with the Philippine Development Plan (PDP) target of 4.7-5.3 percent for 2018. However, underemployment increased to 18.0 percent (national), although underemployment in areas outside of NCR remains within the PDP target of 17.8-19.8 percent for 2018.

Given the foregoing, we are targeting an annual 7.0-8.0 percent average GDP growth rate from 2018 through 2022. With these growth rates, the economy will expand 50 percent by 2022 from its base in 2016. Likewise, per capita income is projected to increase by 40% from US$ 3,550 in 2015 to at least US$ 5,000 in 2022. Indeed, our economy is expected to graduate from middle-income to upper middle-income country by end 2019.

The President’s thrust on science and technology and innovation is embodied in the Philippine Development Plan, 2017-2022, which is anchored on the 0 to 10 Point Socioeconomic Agenda.

Through a series of interagency consultations at the national and local levels, including consultations with the various social sectors and stakeholders across the country, the Philippine Development Plan (PDP) 2017-2022 was crafted as the Duterte Administration’s blueprint for change.

The PDP 2017-2022 is designed to be the first of four PDPs geared towards the realization of the AmBisyon Natin 2040. It will guide public programs and policies for the next five years.

Chapter 14 of the PDP, which is dedicated to STI, specifically stresses that STI plays a pivotal role in economic and social progress. It is a key driver of the long-term growth of an economy.

Technology adoption allows the country’s firms and people to benefit from innovations created in other countries, and allows it to keep up and even leapfrog obsolete technologies. This can lead to significant improvements in the productivity of firms in agriculture, industry, and services.

Admittedly, however, there are challenges in the current STI ecosystem of the country that hinder its responsiveness and adaptability to disruptive technologies. The hurdles are the following:

• Weak STI culture

• Low government spending on STI

• Inadequate S&T human resources engaged in STI R&D

• Difficulty in increasing employment opportunities and retaining S&T human capital

• Absence of a vibrant intellectual property culture

• Weak linkages among players in the STI ecosystem

• Restrictive regulations (e.g., procurement issues) that hamper the implementation of R&D programs and projects

• Inadequate STI infrastructure

• STI contribution to the Philippine Development Plan’s goal is being done by promoting and accelerating technology adoption and stimulating innovation. Increasing STI in the agriculture, industry, and services sectors, as well as investments in technology-based start-ups, enterprises and spin-offs, will result in the promotion and acceleration of technology adoption.

• On the other hand, enhancing the creative capacity for knowledge and technology generation, acquisition and adoption, and strengthening open collaboration among actors in the STI ecosystem will stimulate innovation.

• Over the next six years, the government will aim to achieve the targets indicated in Table 3.

We plan to vigorously advance science, technology, and innovation (STI) by

• Accelerating technology adoption and stimulating innovation. To achieve these, we will:

ü Increase STI utilization in agriculture, industry, and services sectors;

ü Increase investments in STI-based start-ups, enterprises and spin-offs;

ü Stimulate innovation

ü Enhance creative capacity for knowledge and technology generation, acquisition and adoption; and

ü Strengthen open collaboration among actors in the STI ecosystem.

To achieve the sectoral outcomes, the following strategies will be pursued:

Subsector Outcome 1: STI utilization in the agriculture, industry, and services sectors increased.

a. Promote commercialization and utilization of technologies from publicly funded R&D. The government will promote and accelerate the dissemination, transfer, commercialization, and utilization of knowledge, technologies, information and processes derived from publicly-funded S&T activities without prejudice to intellectual property rights. Those technologies with high commercial potential shall be given priority assistance.

b. Develop a vibrant Intellectual Property Rights (IPR) culture. The initiative to improve patent applications performance through the Patent Incentive Package will be strengthened. Likewise, the provision of the Philippine Technology Transfer Act of 2009, particularly on ownership and revenue sharing will be institutionalized. Aggressive and sustained advocacy to increase the appreciation and understanding of IPR shall be undertaken in order to leverage intellectual property protection as an essential component of the innovation ecosystem.

Subsector Outcome 2: Investments in STI-based start-ups, enterprises and spin-offs increased.

a. Encourage more innovative financing mechanisms and private sector investments. The government will create an investment environment that encourages more private sector participation, including angel investments, venture capital, and crowd fund-sourcing for STI-based startups, enterprises, and spin-offs. The government will strengthen programs that provide financing to commercially viable innovation projects to bridge the gap between R&D and commercialization.

b. Provide support mechanisms for startups and MSMEs in the regions. The government will strengthen the policy and regulatory environment, and introduce new mechanisms to support technopreneurs, start-ups, spin-off companies, and MSMEs. It will provide platforms for technology commercialization such as the establishment of new technology business incubators in the regions in partnership with the private sector and HEIs. Additionally, the Startup Ecosystem Development Program will be pursued to usher in a new breed of businesses that will thrive in an innovation economy.

Subsector Outcome 3: Creative capacity for knowledge and technology generation, acquisition and adoption enhanced.

a. Support research and development agenda. The government will invest in building an efficient system of knowledge creation and technology generation. Among others, this will include basic research that needs revitalization, promotion and development through a more rational share in the STI ecosystem budget and infrastructure.

b. Increase funding for human resource development. Increasing the number and quality of researchers, scientists, and engineers is an essential strategy for the establishment of a vibrant STI ecosystem. The target is to achieve and even surpass the UNESCO norm of 380 researchers, scientists and engineers per million population by 2025 from its current level of 270.

c. Tap the expertise of foreigners and overseas Filipinos (OFs). Mechanisms will be established to encourage overseas based experts to share their knowledge and specializations with the academe and industry through information and

communication technology (ICT), such as videoconferencing. The Balik Scientist Program and other related initiatives will be strengthened.

d. Strengthen STI infrastructure. STI infrastructure development will be undertaken across the country in order to address region-specific concerns. Niche centers for R&D will be established to equip regional academic institutions and improve industry competitiveness.

e. Establish and promote innovation hubs and other similar mechanisms. Innovation hubs will be established in strategic locations in the country to include food innovation centers, and shared service facilities, among others. The country will position itself to become the global hub for Disaster Risk Reduction and Climate Change Adaptation and Mitigation.

f. Foster an STI culture. The culture of inventiveness and creativity will be promoted in all sectors and as early as possible. Programs to boost the interest of young students to pursue STEM courses and the creative arts as viable career options will be pursued.

Sub-sector Outcome 4: Open collaboration among actors in the STI ecosystem strengthened.

a. Strengthen tri-partite collaboration. Collaboration in R&D based on the triple helix model, which involves the coordination and cooperation of university, industry, and government, will be strengthened.

b. Intensify international cooperation in STI. International cooperation will be pursued more aggressively to enhance the flow and benefit of a wide range of existing knowledge and technologies from other countries. Existing fora such as the ASEAN, Asia-Pacific Economic Cooperation and other similar platforms for dialogue and collaboration will be utilized.

The key elements in Industry 4.0 are technologies (not just the usual staple on the table); these technologies are disruptive and have huge implications for the economy.

What are disruptive technologies?

Disruptive technologies can refer to those wild and unexpected technological breakthroughs which seem to be trivial and of limited interest at first, yet ultimately they take over products and markets. It can also be defined as a new way of doing things that disrupt or overturn the traditional methods and practices of conducting business (e.g., development of internet). The late noted economist, Joseph Schumpeter called it “creative destruction”.

While these disruptive technologies offer huge benefits to the economy, equally important are its potential dangers. A disruptive technology can either bring a windfall and/or adverse impacts to the global economy, compounded by the response of each economy and the various cross-country/multilateral cooperations.

Disruptive technologies will change the way things are done, create new industries/jobs, and cause job losses such as in the case of low-skilled, repetitive jobs, assembly workers as well as jobs in the IT-BPM voice sector, banks, advertising, and research and development. The rate at which these technologies are being developed/adopted in many countries is very fast. In contrast, the country has not yet fully developed its own capabilities to produce/adopt these technologies. This constrains the country’s ability to utilize disruptive technologies to increase economic growth potential .

The country needs to develop its capabilities to harness the power of these technologies.

The National Economic and Development Authority (NEDA) thus recommends the following strategies for the challenges encountered on disruptive technologies:

• Utilize disruptive technologies and minimize its potential adverse impact.

• Formulate roadmap/s on internet of things, artificial intelligence, big data analytics, nanotechnology and blockchain.

• Include new/emerging technologies in the research areas under the Harmonized National Research and Development Agenda 2017-2022.

• Address the constraints in changing/updating curricula on Science, Technology, Agriculture and Mathematics (STEAM) to respond to disruptive technology and other advancements.

• Needless to say, in advancing STI, the government cannot do it alone, it needs all the other stakeholders in the domestic economy. The lending hand of PAASE is extremely valuable to nurture the STI ecosystem in the country.

We are hopeful that the collaboration will be further strengthened as the country is currently near midway in the first phase of its journey to reach the Filipinos’ long-term vision.

There are three cooperative strategies between the Philippines and PAASE on building our domestic STI ecosystem, which appear to be mutually beneficial:

• Promote the advancement of science, technology & innovation in research and development through scholarly and scientific undertaking.

• Support efforts of Filipino scientists and engineers that advance science & technology.

• Encourage public and private STI institutions to participate and collaborate with international partners in research platforms that seek solutions to common regional concerns such as food security, climate change, disaster risk reduction, resiliency and preparedness, and conservation of resources and biodiversity.

Similarly, PAASE can also provide their expertise and experience on the long-term priority sectors of the country.

We believe that these sectors are necessary to push further the frontiers of the economy.

We look forward to further widening and deepening our cooperation to promote the advancement of science, technology & innovation in the Philippines. We would like to assure you that NEDA — besides the Department of Science and Technology or DOST, of course — remains committed to working with you towards realizing our countries’ shared goals, and will always be open to discussing with you on how our relationship and interactions can be invigorated and productive.

Thank you. Mabuhay tayong lahat!