FOR the Philippines to be able to attain high sustainable economic development in the coming decades it cannot rely on natural industries such as tourism and raw-material production and on high population-consumption alone. The country has to learn how to process its natural resources into other productive use and be able to create new industries out of them.
I want to share an excerpt from the work, “The Competitive Advantage of Nations,” written by Michael Porter for the Harvard Business Review:
“In the sophisticated industries that form the backbone of any advanced economy, a nation does not inherit but instead creates the most important factors of production–such as skilled human resources or a scientific base… The most important factors of production are those that involve sustained and heavy investment and are specialized. Basic factors, such as a pool of labor or a local raw-material source, do not constitute an advantage in knowledge-intensive industries”.
If our country continues to be dependent in producing raw materials alone, the return of investment for the country abruptly stops in the earlier stages of a value chain or operations chain. In a value chain, each step is actually an industry in itself. For example, the Philippines is one of the top exporters of semi-conductors which are used for electronics, computers, and cellphones around the world. The semi-conductors are shipped to other Asian nations, and will be used as a critical component for micro-chips. During the development of micro-chips, there is simultaneous development of software-making and operating systems. On the part of manufacturing, engineers are challenged to be more innovative in speeding up assembly plants; in consequence, it funds schools and research institutions to educate better future mechanical and electrical engineers, architects, and software programmers. The final output could then be a smart television or an expensive smart phone which is worth billions of dollars in terms of profit.
The billions of dollars of profit cannot be made possible without the sourcing of raw materials. And the Philippines has an abundance of these. Our country has the capacity to become influential in the world of the electronic industry because it is a source for a critical element in micro-chip sourcing.
Despite the abundance of resources, however, the Philippines has not capitalized on the potential of taking part in the other industries of the value chain. Germany, Italy, South Korea, and Japan are more limited in terms of raw-material sourcing, yet these countries were able to venture into luxury car making, textiles, smart phones, smart televisions and other technological breakthroughs. These countries need to import important raw materials to be able to produce the world’s top branded products. According to Porter, whenever a resource is expensive or unavailable, companies in countries like Japan innovate.
What is hindering the development of the Philippines’ manufacturing and processing industries?
Land use matters
Land use determines the type of activity that can be done in a specific area or specific lot. In a bigger context, the aggregate of all land use in a city makes a city plan. The land use determines whether or not a high traffic impact building can be constructed in an area because the planned road can accommodate the volume of traffic. On the other hand, if a high traffic impact development is built along a residential road, it can well expect heavy traffic congestion in that area.
Land use is also the guide in balancing traffic generation and traffic circulation. For example, in the American Planning Association, super-regional malls should be at least nine kilometers apart. If two malls are built within proximity of each other, the city can expect massive traffic gridlocks. And it does not help if the city has an inefficient mass transportation system.
In terms of operations, land use contributes to cost-efficiency and accessibility to other intended areas. For example, the quarrying areas in the North should have dedicated truck lanes towards processing plants. If it does not have one, heavy industrial trucks will share the road with passenger vehicles causing traffic gridlocks, accidents, and will take a toll in road maintenance.
Part of land use is also policy. For example, special economic zones or special industrial zones that are created give special incentives to companies. Specific areas can have lower tax rates and tax holidays, or have better road maintenance and specialized sewage and solid waste treatment areas. These special land uses become favorable areas for companies to develop on because the cost to operate is much lower and market potentials are higher because of better planned logistic strategies.
In cities like Shanghai, China and Dublin, Ireland, the lease of land to companies lasts more than 50 years, and for some 100 years. With this kind of set-up, companies know that these will be areas for long-term development, affecting education and the kind of professions needed. In the Philippines, land use and policy are a bit more stringent and more regulatory than in other countries. This severely affects cost of operations, most especially if the ease of doing business and special land use policies are not well-implemented.
The natural strength of the Philippines is in the service industry, the tourism industry, English speaking proficiency, and production of raw materials for semi-conductors. Special land uses can be dedicated to these industries, making sure that they have special tax holidays and infrastructures. Come to think of it, the Philippines should have one of the best hotels and resorts in the world because it is part of the country’s natural strength. Again, the key is in land use. The national government should do a better job looking into its proper implementation.