What PH needs to do to become a high-income economy

MANILA, Philippines – What will it take for the Philippines to become a high-income economy?

According to a new Asian Development Bank report, the Philippines and other developing Asian economies should boost their manufacturing sectors in order to prosper.

In a special chapter of Key Indicators for Asia and the Pacific 2013, its flagship annual statistical publication, the ADB said manufacturing is key for Asian countries to have “a high productivity service sector, technological innovation, and modernizing agriculture.”

“Historically, no economy has reached high income status without reaching at least 18% share of manufacturing in output and employment for a sustained period,” Changyong Rhee, ADB chief economist, said in a statement.

The ADB report noted if manufacturing shares in both GDP and total employment is at least 18%, there is a 41% probability of becoming a high-income economy. This falls to 5% is the manufacturing sector is small.

It also cited a group of economies, Hong Kong, China; Japan; the Republic of Korea; Singapore; and Taipei,China, which have rapidly industrialized to become high income countries.

On the other hand, another group of economies, such as China, Malaysia, and Thailand, are transforming more slowly.

Changing even more slowly are developing countries such as Bangladesh, India, Pakistan and the Philippines, having created few manufacturing jobs, and are shifting from agriculture into services.

“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,” Rhee said.

The report noted that industry does not lead the way in Asia. Services are the largest share of developing Asia’s output, while agriculture remains the largest employer.

The ADB report suggests different approaches for Asian economies to become more industrialized.

“For advanced Southeast Asian economies, the main recommendation is to focus on upgrading, as they are already quite diversified. Countries such as Malaysia and Thailand have developed institutional capacity to diversify their economies, but need to deepen and upgrade their industries to avoid being caught in the middle-income trap,” it said.

In the case of the Philippines, the ADB said, “to escape (the middle-income) trap , the Philippines needs to develop a much deeper industrial base to complement its service sector.”

In recent months, the Philippine government has been touting the gains of the manufacturing sector.

In the recent announcement of the first quarter GDP results, the performance of the manufacturing sector was singled out. Based on official data, manufacturing output rose 9.7% and accounted for nearly 23.5% of GDP in real terms for the first quarter.

There are also indications that foreign companies are moving or expanding manufacturing operations in the country. For instance, Japanese manufacturer Brother recently opened a new manufacturing facility at the First Philippine Industrial Park in Batangas. –Cathy Rose A. Garcia, ABS-CBNnews.com