By National Economic and Development Authority, January 7, 2020; National Economic and Development Authority

Image Credit to PhilStar

An industrial policy propelled by innovation is needed to drive the country’s manufacturing growth amid the bleak near-term outlook of the sector, the National Economic and Development Authority (NEDA) said.

While majority of the manufacturing subsectors grew in production volume and value, the total manufacturing index posted negative growth in November 2019, based on the latest data from Philippine Statistics Authority (PSA)’s Monthly Integrated Survey of Selected Industries (MISSI). The year-on-year Volume of Production Index (VoPI) declined by 6.1 percent while the Value of Production Index (VaPI) was 5.8 percent lower relative to the same month last year. This is the eleventh consecutive month of decline in both volume and value indices in 2019.

Nonetheless, 12 out of 20 subsectors posted positive growth, led by food manufactures and chemical products, which have significant shares in manufacturing. Food manufacturing subsector marked its fifth consecutive month in the positive territory while chemical and chemical products continued to post double-digit growth for the third consecutive month.

Moreover, for the first time since May 2018, the production value of vegetable and animal oils and fats turned positive, possibly influenced by robust import demand of palm oil, sustained demand from the biofuel sector, and ramping up of production given expectations of a tightening vegetable oil supply in 2020.

To increase the growth potential of the sector, Socioeconomic Planning Secretary Ernesto M. Pernia stressed the need for an innovation-driven industrial policy that will strengthen the manufacturing sector.

“Industries need to be encouraged to innovate and adopt efficient technologies. This is a key strategy to entice more investments, similar to the experiences of the country’s ASEAN peers such as Thailand, Malaysia and Vietnam,” said Pernia.

Pernia added that the passage of the 2020 budget is a welcome move in ensuring the continuity of critical government projects.

“The signing of the 2020 budget into law by the President ensures the continuity of projects aimed to attract local and offshore investments to boost growth and create more and quality employment opportunities for Filipinos,” Pernia said.

Furthermore, he said that the passage of the Corporate Income Tax and Incentives Rationalization Act (CITIRA) and the proposed amendments to the Foreign Investments Act, the Public Service Act, and the Retail Trade Act are critical to eliminate policy uncertainties that affect the country’s business climate.

Pernia explained that the industry sector will benefit from CITIRA as it will lower the corporate income tax from 30 percent to 20 percent over the medium term. Meanwhile, the easing of foreign ownership limitations in domestic industries will be crucial to increasing investment. This will allow for tighter integration of value and supply chain across industries and provide opportunities for technology transfer, thus boosting the manufacturing sector.

MISSI is a report that monitors the production, net sales, inventories, and capacity utilization of selected manufacturing establishments to provide flash indicators on the performance of the manufacturing sector.