‘Men of steel’: PH-style industrial policy
ADDIS ABABA—“We couldn’t have asked for more,” Benjamin Yao, the chairman of SteelAsia, told me when I asked about government support during a visit to one of the company’s flagship factories. Throughout my trip to their industrial jewels, I was pleasantly surprised by SteelAsia management’s infectious optimism and world-class managerial team, from industry development head Roberto Batungbacal to cochief operating officer Pek Hoong Chong and head of steelmaking Andrea Fontana. Even more impressive was their uncompromising position on acquiring the best-available technology; their world-beating “green steel” reliance on renewable energy (RE); and the key role of former overseas Filipino workers, such as Prospero Repolona (chief project officer), who are now at the forefront of building the industrial foundations of their home country, as well as SteelAsia’s German-style technical training of marginalized youth.
What makes SteelAsia special is how surprisingly common-sensical it is: the company saw a fortuitous cocktail of massive market potential, economies of scale, and a robust return on investment curve. Thanks to advances in RE technology, chair Yao told me, the age-old energy cost complaints about industrial production are now a “myth”; the multibillion-dollar government-boosted infrastructure landscape provides immeasurable market demand; and the transportation cost of steel has made onsite production across all major islands in the country extremely cost-efficient. “You got to have long-term vision, you need to be ambitious,” the SteelAsia boss added, seemingly relishing his audacious foray into a sector that has been long-shunned by the country’s complacent taipans.
Geoeconomics has also helped: global trade protectionism and rising tensions in the West Philippine Sea have made industrial self-reliance, especially in primary inputs, a matter of national economic security. This is why Vietnam—an assertive South China Sea claimant– is leading the pack in indigenous steel production in Southeast Asia, especially because structural reliance on China is geopolitically perilous. “If we don’t produce, then others (China) will automatically dominate the market,” Mr. Yao told me.
Luckily for SteelAsia, the current government recognizes the urgency of reorienting our economic foundations. On one hand, the Department of Finance and Department of Trade and Industry are, according to insiders, de facto under the influence of “Super-Secretary” Frederick Go, a quintessential entrepreneur-technocrat, who has crystallized the Marcos Jr. administration’s grand economic strategy. The Tatak Pinoy Act, the CREATE law, and industrial policy-related mechanisms provide strategic support to our manufacturing companies.
Meanwhile, Defense Secretary Gilberto Teodoro Jr. is overseeing the establishment of a 21st-century defense industry and a more comprehensive archipelagic defense strategy for the Philippines. The viability of the Self-Reliant Defense Posture, in particular, would largely depend on the success of companies such as SteelAsia. Building ships, drones, missiles, and other key defense platforms requires steady, safe, and affordable access to primary inputs, such as steel.
Aside from appointing highly competent secretaries, President Marcos also deserves credit for not only personally supporting our emerging national champions but also recognizing the need to shift our low-quality service-oriented economy toward greater industrial self-reliance. As correctly argued by economist Edylinda Balaoing, the key challenge is implementation, namely, “how the Philippines addresses persistent fragmentation, limited monitoring tools, and weak interagency coordination.” The only thing worse than government failure, however, is giving up on the government’s indispensable role in nudging the private sector toward the national interest and nurturing the commanding heights of the economy.
Lest we forget, our conglomerates have largely enriched themselves by relying on short-term profit calculus and extractive industries. As for the civil society, it simply lacks the legal authority and resources. It’s the government that has, at least in principle, the potent combination of technical expertise, legal authority, and scale–fiscal space and implementation capacity—to steer (literal and figurative) nation-building.
With the exception of some misguided local economists, almost every sensible (let alone world-class) observer knows that the status quo is not sustainable. Even some of our conglomerates, especially Aboitiz and Ayala, have realized the importance of upgrading their business models—and shifting to higher value-added production. The advent of artificial intelligence and the rise of new economic dynamos, such as Vietnam, are already threatening our growth engines, most notably the business process outsourcing sector. Unless we reverse our decades of premature industrialization in favor of agrarian revival and manufacturing prowess, the Philippines will fail to address widespread poverty and inequality; risk falling into “lower-middle-income trap,” and, at best, remain as “the nation of the future”—without ever realizing its potential.
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richard.heydarian@inquirer.net
