Philippines Manufacturing Sector: The Key to Asia's Economic Rise

The big difference between the Philippines and the Asian nations (South Korea, Thailand, Vietnam) that have overtaken our economy over the last 40 years is having a robust manufacturing sector. Even China was not a manufacturing giant when I first visited in 1982. A multitude of people all wearing the blue Mao jacket crowded the main avenue leading to Tiananmen Square in Beijing on their bicycles. Not too many cars. Some of our leaders, like Mar Roxas when he was trade and industry secretary, thought we could leapfrog development from agriculture to services without going through manufacturing. And our PhD-in-economics president at the time agreed with him. That seemed good for a while as we experienced success in the service sector (BPO). But many economists believe Roxas’s strategy overlooked the fundamental role of manufacturing in creating resilient, diversified economies, leading to ongoing debate about whether the country missed a vital stage of industrialization. Besides, excess farm labor cannot be absorbed by BPOs. We were never that good in our past feeble attempts at manufacturing. Filipino baby boomers like me remember our growing up years and how “Made in the Philippines” was dismissed as inferior, bad quality. Despite politicians mouthing Filipino First, Filipino consumers who can afford, chose to buy imported products because of quality concerns. Most of our rent-seeking so-called industrialists were not worried about the low quality of their products because high tariffs protected them from foreign competition. It was something like “Made in Japan” in those years being similarly considered inferior. But the Japanese worked on improving their reputation and soon after, “Made in Japan” was considered equal if not better than “Made in the USA” like cars and electronics, for example. In our case, the few pioneers who ventured into import substituting manufacturing also ended up losing their businesses to Marcos’ cronies after Martial Law was declared. Such was the experience of the late industrialist Domingo Guevara of the DMG Group. His Radiowealth which produced affordable radio, television sets and other appliances eventually lost out to Roberto Benedicto, a Marcos crony. Benedicto was allowed to import 12-inch black-and-white television sets tax free under a Letter of Instruction issued by then president Marcos Sr. DMG also lost his Volkswagen assembly business after Marcos allowed other companies to import finished cars. This undercut DMG’s operations because the imported finished vehicles competed directly with locally assembled ones, often at lower cost. The DMG experience comes to mind as my Viber Group of economists started a hot discussion of why we never had an industrial policy. That, in turn, was sparked by the news that Francisco Motors Corp. (FMC) pulled the plug on its P52.1-billion project to build an integrated electric and hydrogen vehicle manufacturing facility in a special economic zone in Bicol. Francisco Motors chairman Elmer Francisco told Bilyonaryo.com they faced hurdles from the Fiscal Incentives Review Board that made it difficult to proceed. He said their request to see BBM was also ignored. FMC will instead put up its facility in China. It is also setting up a research and development hub and a manufacturing facility in California where it is claimed, they are being offered “top- tier incentives.” They plan to export vehicles to African markets from China while California’s facility will serve Latin America. They claim they are now present in 25 African countries and will deploy about 100,000 electric jeepneys annually over the next 15 years. A Viber colleague checked with the PEZA on what really happened and was told Francisco was just trying to conjure excuses because they didn’t have enough money to launch their project. Francisco, however, told Bilyonaryo.com that they plan to increase their investment to $5 billion to cover their expanded market. Francisco also said that they “would very much want to invest in the Philippines if only our government would not give us a hard time and instead give us much needed support.” Maybe it is red tape. Maybe it is simply the inability of DOF technocrats to properly appreciate the value of the entrepreneurial venture. Or maybe FMC doesn’t have all the money it needs to launch. But the absence of an industrial policy since independence could also explain the inability of our technocrats to appreciate the entrepreneurial mindset of this pioneering Filipino family in manufacturing. Having a good industrial policy is getting a second look as dissatisfaction increases with liberalization outcomes. Dr. Toots Albert of PIDS pointed out in a response to a Facebook post, that the Philippines’ long-standing reliance on open markets alone has not delivered sustained industrial upgrading, export diversification or productivity growth. Scholars and policymakers often argue that our country lacked a sustained, coherent and strongly state-led industrial policy like those seen in many East Asian newly industrialized economies. In addition, geographic logistics challenges (island geography, congested ports) and high utilities costs have made it harder to integrate into international manufacturing supply chains compared with our neighbors. Persistent red tape and regulatory unpredictability have also frustrated investors. Dr. Albert explains that industrial policy is not a free lunch, but neither is laissez-faire. “Competition, quality education, openness, innovation, policy consistency, good governance and strong institutions, and real reforms are needed.” “The blame cannot be purely on the public sector (though it has its weaknesses). We should also be critical of conglomerates that have focused on non-tradable services rather than expanding their markets globally. These are the same conglomerates that have put up barriers to entry in collusion with regulators.” Today, we rank second to the last among 11 countries covered by Asia Manufacturing Index 2026, slipping one notch from our ninth-place finish last year, amid persistent infrastructure and governance challenges. We are only ahead of cellar-dweller Bangladesh. Without an export-oriented manufacturing sector like our neighbors, we have become big importers of almost everything. Then we export our people to earn the forex needed. So much to catch up on.