Manufacturing competitiveness

is my Trade Tripper column from the recent Friday-Saturday issue of BusinessWorld:

Amid news of massacres, fiscal and moral cliffs, and people getting worked up in a frenzy over supposedly misbehaving executives or professors caught in YouTube (without bothering first about the context of the events seen only on video), a quite significant piece of news went relatively unnoticed.

BusinessWorld reported on the second day of the year (“Weaker trade expected to continue this year) that: “Foreign trade of the Philippines and a number of other Asia-Pacific economies are expected to stay weak this year, a report from the United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) said. In its Asia-Pacific Trade and Investment Report 2012 released on Dec. 14, the UNESCAP noted the weakening economy in China, in addition to the European Union, would affect the growth of exports in developing countries in the region.” Accordingly, the “Philippines was expected to record 10.1% export growth in 2012 but only 4.3% growth in 2013, according to the report. Imports were expected to rise by 4.3% for 2012 and only 2.3% in 2013.”

Ironically, this unfortunate piece of news almost comes at the same time that the 2013 Global Manufacturing Competitiveness Index (a collaboration between Deloitte Touche Tohmatsu Ltd. and the US Council on Competitiveness; get copy at http://www.deloitte.com/assets/Dcom-Global/Local%20Assets/Documents/Manufacturing/dttl_2013%20Global%20Manufacturing%20Competitiveness%20Index_11_15_12.pdf) came out.

The irony comes from the fact that the Index details a set of insights that, for some bizarre reason and as we shall see, we seem intent on running away from. Thus, “As we enter 2013, much is up for grabs. With the recent restrained growth in China coupled with imminent leadership changes, a delicate and precarious recovery teetering in the US, a dark cloud over much of the euro zone, trade wars in South America, an ongoing malaise in Japan, and the percolating but elusive rise of India, the competitiveness of each nation’s manufacturing innovation ecosystem will continue to be a focus area for policy makers, business leaders and much of society.”

One undoubted key to economic development is manufacturing. “As goes manufacturing, so goes the nation,” so says the Index. There is a veritable “strong association between manufacturing gross domestic product (GDP) and the real (overall) GDP of a nation. The strength of the relationship appears to be especially true for emerging economy nations. Developed nations are grouped together over this time period, with slow manufacturing GDP compound annual growth rate (CAGR) and equally slow overall real GDP CAGR. While emerging economies, driving higher manufacturing GDP growth (CAGR), were experiencing much stronger growth in overall real GDP (CAGR). This association appears to hold whether manufacturing GDP as a percent of total GDP is high (i.e., over 30%) or much lower (i.e., less than 16%). In other words, higher manufacturing growth, whether representing a large or small portion of the economy, drives higher total real GDP growth overall.”

Significantly, however, an interesting driver for competitiveness is infrastructure: “Research reveals that ongoing investments in infrastructure results in long-term economic benefit. Specifically, a recent estimate by the United States Congressional Budget Office suggests that every dollar of infrastructure spending generates an additional 60 cents in economic activity (for a total increase to GDP of $1.60). This multiplier effect bodes well for India, which recently announced plans to invest $$1 trillion on infrastructure through 2017.” Unfortunately, according to the World Economic Forum World Competitiveness Report 2012, the Philippines fails dismally in terms of infrastructure. This the DPWH admits: out of 139 countries studied for public infrastructure, the Philippines ranked 113th.

Going back to the Index, other drivers of growth would be “the economic, trade, financial and tax system of a nation.” Furthermore, for a country that seems to put little value in the rule of law, this was also noted by the Index: “the legal and regulatory systems in developed nations more than twice as strong as those in emerging nations, primarily as a result of stability and clarity within their legal and regulatory environments.”

But the biggest driver of competitiveness and economic growth is, you guessed it, a country’s people: “Talent-driven innovation drives manufacturing competitiveness... executives again cited talent-driven innovation as the most important driver of a country’s ability to compete.” Thus, nothing was more important “than the quality, availability and productivity of a nation’s workforce helping them drive their innovation and growth agendas.”

If ever denseness is preventing people from acknowledging the fact that RA 10354 (or the RH Law) is a completely unintelligent idea: “Demographics, more specifically aging populations, will have a significant impact on market attractiveness over the coming decades, with some nations like Japan, and even China, despite its large population, significantly inhibited by their aging populations and others, including the US with favorable population age demographics gaining the upper hand as time passes.”

Indeed, in case we missed the point, the Index pointedly emphasizes: “the availability of high quality human talent will always remain in the top set of competitiveness drivers.”