The Philippines and the rest of developing Asia must include industrialize to avoid the middle-income trap, according to a new Asian Development Bank (ADB) report.
The new report said manufacturing is essential to a highly productive service sector, technological innovation, and modernizing agriculture.
“Historically, no economy has reached high income status without reaching at least
18 percent share of manufacturing in output and employment for a sustained period,” Changyong Rhee, ADB chief economist said.
The report noted that one group of economies -- Hong Kong, Japan, Korea, Singapore and Taiwan -- rapidly industrialized to become high income countries, while another group of economies -- People’s Republic of China, Malaysia and Thailand -- are transforming more slowly.
Other developing Asian nations, such as Bangladesh, India, Pakistan or the Philippines, are changing even more slowly, have created few manufacturing jobs, and are shifting from agriculture to services.
To escape the middle-income trap, the Philippines needs to develop a deeper industrial base to complement its service sector, the report said
“Right now, as services boom in the region, it’s tempting to shun industrialization, but it will be a serious mistake if a country wants to be prosperous,” it added.
The report said the industry sector does not lead the way in Asia, as services corner the largest share of developing Asia’s output while agriculture is the largest employer, providing an income for 700 million people.
"The Philippines is also experiencing transformation from agriculture into services," the ADB said, adding that services make up the country’s largest sector in terms of economic output and employment for at least 50 percent of each.
In 2009, employment in the service sector in the Philippines was close to 500,000 workers out of the 38 million total employment, with revenues of about $7.2 billion.
The bank said the Philippines' share of manufacturing in gross domestic product (GDP) is slightly over 20 percent, while that of employment is about nine percent.
Between 1974 and 2004, the average labor productivity growth in the Philippine manufacturing industry stood at 0.29 percent, lower than Indonesia's 4.95 percent, Thailand's three percent, Singapore's 4.77 percent, Korea's 6.90 percent, Hong Kong's 7.03 percent, China's 7.91 percent, India's 3.05 percent and Japan's 3.68 percent.
Economies like the Philippines, India and Pakistan that have failed to industrialize employment and are undergoing a transition from agriculture to low-productivity services need to reassess the importance of industrialization, the report said.
"An advanced and sophisticated manufacturing sector is key for developing advanced complementary services sectors, such as logistics, transport, and finance. Such countries may wish to consider continuing to develop these more productive segments of the service sector, while not neglecting manufacturing," the ADB said.
In this sense, the Philippines needs to complete and implement successfully its manufacturing roadmap, the bank added.
The Department of Trade and Industry has commissioned state-run Philippine Institute of Development Studies to draft a manufacturing roadmap.
According to draft roadmap, the auto and motorcycle assembly, electronics, food, garments, shipbuilding, chemicals and allied businesses are among the industries that will enjoy government support.
Socioeconomic Planning Secretary Arsenio Balisacan had said the Philippines had a relatively high manufacturing-to-GDP ratio in the 1980s but has since been overtaken by other Asian countries.
From 39 percent of GDP in the 1980s, Philippine industry fell to 33 percent in 2010-2012. In contrast, Thailand's ratio peaked at 44 percent in 2010-2012 from 30 percent in the 1980s.