The May 2009 issue of Finance Asia listed Asia’s best companies from a poll that it conducted. Among the categories included were best managed company, best corporate governance, best investor relations, best corporate social responsibility, most committed to a strong dividend policy, best mid-cap and best small-cap. Among the 16 Philippine corporations given awards, it was notable that only five are in manufacturing. These are Alaska Milk Corporation, Splash, San Miguel Corporation, Ayala Corporation (which has an electronics firm) and Petron. All the rest are in telecom, banking, logistics, real estate, electricity, and water.

It seems that manufacturing is a vanishing breed among Philippine corporations. Indeed, as more and more manufacturing activities in the Philippines are being phased out because of competition from countries like China, Vietnam and Indonesia with even lower labor costs, some of our leaders are concerned that the Philippines is "de-industrializing." This trend started in the last century with the closing down of textile, garments, shoe, plastic, and chemicals factories. More recently, we are witnessing the accelerating disappearance of electronics and semiconductor devices manufacturing, the most notable of which was the giant Intel that for 30 years waxed lyrical about the productivity of Filipino workers. Is it true that if more of these manufacturing activities disappear, the Philippines will be de-industrializing and will become an economy where services and agriculture will predominate?

Before we announce the demise of industry, let us be clear about definitions. Manufacturing is only one of the four major components of industry. The other three are mining; public utilities like energy, water and telecom; and construction.

Even assuming that manufacturing may shrink as a percentage of GDP over the next few decades, we shall continue to see the expansion of mining (the Philippines is the fourth mineralized country in the world); pubic utilities (there is tremendous room for growth in energy, water and telecom); and construction (we are light years behind in infrastructure development compared to countries like China, Taiwan, South Korea, etc.). That is why I am not worried about the Philippines de-industrializing. As we catch up with our neighbors with more efficient infrastructures by building thousands of kilometers of roads and bridges, more airports and seaports, more power plants (including nuclear), more homes, offices and school buildings for an increasingly urban population, the construction sector will increase its share in GDP. As commodities like copper and gold recover their lustre in a recovery led by the emerging markets, more of our mines will become profitable. There is no reason to fear that industry will disappear.

This false alarm also reveals an antedeluvian mentality that manufacturing is absolutely necessary for economic progress. This mentality got ingrained after the Second World War because of an understandable concern of our leaders to free ourselves from economic dependence on our former colonial master, the United States. There was the rush in the Philippines – imitating the failed Latin American model – to introduce import-substituting industries through protectionist and ultra-nationalistic policies like high import tariffs, subsidies to local industries in the form of low-interest rates and an overvalued Philippine currency. Manufacturing was so idolized by our early leaders that unwittingly agriculture was considered the very symbol of our colonial past and was completely neglected. Today, this mentality is still so ingrained among some of our leaders, both in the Government and in the private sector.

In the next 10 years or so, we shall see strong performances of companies in mining, public utilities, construction, services (like tourism, logistics and BPO). Education and health will also be growth industries.

As rural infrastructures are improved, our agricultural sector will be more globally competitive, enabling us to be a leading exporter of high-value fruits, vegetables, and aquaculture products.

The manufacturing sector will see the continuing growth of food and beverage firms like Alaska, San Miguel Corporation, Liwayway (producing the Oishi brand) and a host of SMEs in food processing that will dot the countryside. The competitive advantage of the Philippines in manufacturing is in the food and beverage sector. For comments, my e-mail is bvillegas@uap.edu.ph.