Moving our economy forward
As we chart the way forward for our deeply troubled Philippine economy, two sectors stand out as critical pillars that we must reinforce and build on: agriculture and manufacturing. These need priority attention in our economic agenda, following many years of relative neglect, overshadowed by services-dominated drivers that had been favored by both our largest business conglomerates and government policymakers. This neglect led us to what I’ve long described as an economy whose growth has been narrow, shallow, and hollow.
I see at least three reasons why agriculture and manufacturing must be central to our strategy in moving forward: First, it’s in these two sectors where we have conspicuously underperformed relative to our Asean peers, particularly Vietnam, Indonesia, Malaysia, and Thailand. Second, it’s these sectors that our richest billionaires have largely shied away from. This could well be both cause and effect of the first, but it simply must change. Third, these two are arguably the most inclusive economic sectors where gross domestic product (GDP) growth would yield more and faster and wider poverty reduction than the last three decades of our growth have delivered.
Let’s examine each point more closely.
Last year, our agriculture, fishery, and forestry (AFF) sector grew by 3.1 percent, versus 4.1, 5.4, and 3.6 percent for Vietnam, Indonesia, and Thailand, respectively. While we did better than Malaysia’s 1.7 percent AFF growth last year, our average over the last three years was a measly 0.93 percent, against Malaysia’s 2.1 percent. Meanwhile, our manufacturing sector grew 2.5 percent last year, well behind Vietnam, Indonesia, and Malaysia, with 8.2, 5.5, and 4.5 percent, respectively. Thailand’s unusual -0.3-percent manufacturing slump has resulted from severe disruption in its top manufactured exports, especially motor vehicles. But it’s in exports where we are truly woefully behind. Last year, while we managed an impressive 19.4 percent growth in agricultural exports to $9.25 billion, it remains a mere fraction of Vietnam’s $68.2 billion, Indonesia’s $51.5 billion, Thailand’s $44.9 billion, and Malaysia’s $25.9 billion. Our manufacturing exports were $53.8 billion, a pittance against Vietnam’s $368.5 billion, Malaysia’s $327.4 billion, Thailand’s $220.8 billion, and Indonesia’s $201.2 billion. There’s no clearer evidence than these numbers of how stunted our agriculture and manufacturing sectors have been.
Setting aside numbers, we only need to note how our largest conglomerates and wealthiest families mostly made their billions from banking, property development, energy, and other high-value services. Their involvement in agriculture/agribusiness and manufacturing has been minimal by comparison, and I can understand why. One tycoon admitted to me that they let go of their prominent food manufacturing business long ago when agrarian reform fragmented our agricultural lands and hampered the reliability of their raw material supplies. In manufacturing, growth potential lies not in our limited domestic market, but these thrive best when also geared for exports, as is the case with the major manufacturing industries in our dynamic neighbors. But our higher costs of doing business due to governance and infrastructure inadequacies make competing in the export markets a tough call to make for Filipino and foreign investors alike.
It is in agriculture and agri-based manufacturing industries where investments would have the widest and strongest benefits, both sectorally and, especially, geographically. All our regions contribute equitably to the country’s overall agriculture output and incomes. In stark contrast, Metro Manila and Calabarzon alone already account for more than half of our GDP from services. It follows that growth driven by services provides lopsided benefits for those in the National Capital Region and surrounding provinces. It’s also important to note that labor productivity is highest in the manufacturing sector at around P708,000 per worker in 2018 prices, compared to P463,000 and P177,000 in services and agriculture, respectively. And the close interlinkage between agriculture and manufacturing makes a strategy for agri-based industrialization eminently logical, and widely beneficial.
But getting there will take a great deal of homework. The first hurdle to overcome is the scale issue, and the ideal way would be to cluster our small farmers into strong and effective cooperatives that could assure investors in agri-based manufacturing of reliable raw material supplies. An out-of-the-box interim solution would be to ease land ownership ceilings but only to serious agribusiness investors, while we wait for those cooperatives to take root. Thailand did not call its agriculture ministry the Ministry of Agriculture and Cooperatives for nothing. And it exports nearly five times more farm-based products than we do.
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