In the State of the Nation Address for 2023, President Marcos emphasized the importance of the Tatak Pinoy (Proudly Pinoy) bill as one of the 12 priority measures. This policy aims to promote national development by fostering world-class Filipino enterprises that produce globally competitive products and services. With a whole-nation approach, the goal is to enhance manufacturing employment, diversification, and complexity. To determine if Philippine manufacturing has the means to achieve these objectives, it’s essential to assess the current state of the sector.
When examining the numbers, it becomes evident that manufacturing is the largest industry sector in the Philippines based on gross value added (GVA). Contrary to common assumptions that place the service sector at the top, there are actually 21 sections in the Philippine Standard Industrial Classification, and the service sector consists of 15 smaller sections. Manufacturing generated P3.73 trillion, followed by wholesale and retail trading at P3.71 trillion, and the financial section at P1.99 trillion in 2022. As of 2022, manufacturing accounts for 19% of GDP, slightly lower than 20% ten years ago. It has experienced a growth rate of 4.5% per annum over the last decade. From 2010 to 2016, the sector grew at an average of 6.3% per annum. In the subsequent years, from 2017 to 2022, it slowed down to 2.6%, with a contraction during the pandemic. However, it rebounded in 2021 and achieved a growth rate of 4.9% in 2022.
Regarding international competitiveness, Philippine manufacturing ranks No. 44 out of 153 countries in the United Nations Industrial Development Organization’s (Unido) Competitive Industrial Performance Index. This represents an improvement from No. 53 in 2010. The most competitive countries in the index are Germany, China, Ireland, South Korea, and the United States. Additionally, based on Unido’s National Accounts Database, the Philippines ranks No. 29 out of 215 countries in the world when comparing the size of manufacturing industries. The GVA for Philippine manufacturing was $80 billion in 2022.
Although the Philippines has made progress in terms of complexity, as shown in the Atlas of Economic Complexity, there is still a need for diversification in the manufacturing sector. Manufacturing is currently concentrated at both ends of the spectrum, with food manufacturing representing nearly half of the industry and the high-tech electronics and semiconductor sector accounting for a significant portion of Philippine exports. However, there is a shortage of middle technology sectors that would offer a diverse and resilient manufacturing sector.
In terms of specific products, the Philippines manufactures a wide range across 21 divisions. Food manufacturing has the largest share at 47.6%, followed by chemicals at 12.5%, and computer electronics and semiconductors at 11.2%. Over the past decade, wood products experienced the fastest growth rate at 13% per annum, followed by machinery and chemicals.
To achieve further growth and improvement in the manufacturing sector, several actions can be taken. First, there is a need to increase the manufacturing share of GDP from 19% to around 24%, aligning with other ASEAN countries’ levels. Additionally, targeting the upper quantile of the Competitive Industrial Performance Index should be a goal. This can be achieved by continuously developing innovative talent to produce more complex products, revitalizing the middle-tech sector by leveraging domestic consumer demand, and promoting resourced-based products linked to the Philippines’ agriculture and marine resources to capitalize on the global demand for sustainable products in the green and blue economy.
By implementing these strategies, the Philippines can position itself as a strong player in the global manufacturing industry.
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