ADB: Manufacturing no longer ‘silver bullet’

By Cai Ordinario, Businessmirror, 20 Jan 2020

A ROBUST manufacturing sector is no longer the “silver bullet” that developing countries can use to escape the middle-income trap, according to experts from the Asian Development Bank (ADB).

In an Asian Development Blog, ADB economist Matthias Helble, Technology and Innovation Specialist Sameer Khatiwada, and Principal of Developing Trade Consultants Ben Shepherd said the declining benefits of the manufacturing sector should be offset by higher productivity in services.

The experts said manufacturing has been on the decline and many industries in developing countries are facing tough competition from countries like China.

“With new technology, new industries and occupations are emerging, and countries need to be able to capture these new growth sectors rather than making ill-advised policy interventions to support manufacturing,” the authors said.

The authors added that the manufacturing sector has become even more capital-intensive, making it difficult for industry to absorb more workers.

Further, there are already countries that have specialized in low-skill and low-productivity operations which prevent other countries from developing a competitive advantage.

“A good example of nurturing a service sector is the IT-BPO industry in the Philippines. It has grown out of little in 2000 to one of the most important industries in the Philippines today, accounting for close to 10 percent of GDP and employing over a million workers in relatively high-paying jobs,” the authors said.

Apart from this, the authors said boosting the services sector requires countries to open the services sector to greater competition.

This will help lower prices and improve quality and availability of services. By failing to open up the services sector, the authors said, countries are unable to reap the benefits of trade in services which is currently operating below its potential in the region.

The authors also said it was important for countries to invest in “a highly skilled work force” by developing school curricula that respond to the demands of the services sector.

Countries must also invest in infrastructure to develop and grow the services sector. These infrastructure must improve access to “reliable electricity, fast Internet, and a transparent and simple regulatory framework.”

If countries are successful, one immediate effect would be increased employment. The authors said the services sector has been instrumental in boosting job generation.

Jobs in the services sector are estimated to account for two-thirds of economic activity globally and half of the world’s work force, the authors said.

“Every day, more jobs are created in services than in manufacturing and this holds equally for developed and developing countries,” the authors pointed out. “The manufacturing sector was responsible for less than 20 percent of new jobs.”