“The manufacturing sector is seen as a key driver in accelerating economic growth in a country that would have a population of 200 million by 2050. The goal is to create a globally competitive manufacturing sector that would contribute 30% of the Philippines’ total value added and 15% of total employment,” according to the note, which is subtitled “A Bolder and More Inclusive Decade: Towards a Globally Competitive Manufacturing Sector.”

The Philippines is the most attractive investment destination for Japan as the country offers the lowest production costs in Asia, according to the note by Arangkada, a JFC project launched in 2010 to advise on improving the Philippine investment climate.

The note said manufacturing has been performing well over the years, but could perform better in terms of generating employment.

“While the sector continues to grow since the 1990s, its contribution to total employment has been declining,” according to the policy note.

During the presentation of the policy note, manufacturing’s employment contribution was shown to have contracted from 10% in 1991-2000 to 9.1% in 2001-2010, declining further in 2011-2014 to 8%.

On average, employment in manufacturing has only grown 0.8% since 2001.

“At the level of specific industries, total employment contribution contracted the most in wood and cork products, machinery, textile manufactures, and metal,” the report said.

The Philippines must target growth in employment in which the manufacturing sector accounts for about 18% of the work force, which would translate to around 10 million people by 2030.

In order to achieve this, the government must address high electricity costs by giving power-intensive companies tax credits and discounts as the Philippines remains among the most expensive in Asia in terms of power costs.

Poor management of Philippine ports, the Manila and Cebu ports in particular, adversely affects transportation and logistics efficiency, a key concern for manufacturers, it said.

The development of infrastructure is “critical” to industry growth, as the government needs to develop access roads and railways to and from port areas, production sites, markets and farms, it said.

There must also be a “reviving” of low-cost, labor-intensive manufacturing subsectors in order to provide more opportunities for underprivileged Filipinos through a state subsidy for companies that meet the minimum number of employees or those with newly employed workers.

“Also, waiver of minimum wages for a limited number of years could be adopted as an incentive for large manufacturers in garments, footwear, and similar labor-intensive products,” it said.

Regulation must be streamlined as red tape in permits and license applications continues to hamper the growth of the sector

“Government agencies should review and streamline existing processes for licensing, permits, and certification for manufacturers,” it said.

Micro, small and medium enterprises (MSMEs) must see stronger support through the development common/shared services facilities which these companies can use for product testing and improvement as well as increase their access to technologies to facilitate innovation.

The Philippines must also conclude a free trade agreement with the European Union and seek to join the Trans-Pacific Partnership.

Establishing more economic zones will help the manufacturing sector, according to the note, as “economic zones have incentivized and support new investments — both local and foreign direct investment.”

The government must also tap industry experts and reduce taxes to near the ASEAN-6 average of 33%.

The government’s adoption of comprehensive tax reform, plans to improve the ease of doing business, develop regional industries and reduce public-private partnership bottlenecks are seen by the JFC as helping address constraints in Philippine manufacturing.

“All the other points of the new socioeconomic agenda directly or indirectly enable the long term and sustainable growth of the Philippine manufacturing industry,” it said. — Danica M. Uy