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MANILA, Philippines - Filipino chipmakers must graduate to assembling iPads while churning out Oscar-winning animation to generate more jobs and sustain economic growth, according to experts gathered at the 45th Annual Meeting of the Asian Development Bank Board of Governors.
Jeffrey Sachs, director at Columbia University's Earth Institute, said the debate should not be between manufacturing and business process outsourcing (BPO).
"I'm sure for a country with the size and diversity of the Philippines, the need is for a diversified economy. It will not be services or manufacturing. It's gonna have to be services and manufacturing, no question," the economics professor said.
Neeraj Jain, ADB country director for the Philippines, said manufacturing shouldn't be ignored, as it remains an engine for growth.
He said the Philippines however should seize "low-hanging fruits" that have "greater value-added" to ensure economic expansion is more inclusive.
"How to increase that value-added? Look at products with value added. Producing iPad 3 in the Philippines, producing cameras, producing printers," Jain said.
To do this, the Philippines must unclog bottlenecks, such as an underdeveloped infrastructure.
Socioeconomic Planning Secretary Cayetano Paderanga said the Aquino administration recognizes these bottlenecks.
"We need to integrate the whole market to be able to bring down the cost of production. We need to work on the governance issues and we hope all the efforts that the President is doing will have an impact so that the cost of doing business will come down," he said.
Seizing opportunities
Experts said the Philippines should seize opportunities arising from global developments, such as higher labor costs in China and supply shortages in Thailand.
"As China's wages rise, which is happening now, I think it would be possible and easier a little bit to compete with China, to take some of the jobs, help with the unemployment situation in the Philippines," Sachs said.
In Thailand, a tight labor market is driving away investors, Jain said.
"After the disaster, Japan tsunami and Thailand flooding, now these companies realizing that they should diversify their regional production network. They are now looking for a new production base," he said.
While fiscal incentives have lured investments in manufacturing and in the BPO industry, the Philippine government must keep its focus on what is important in keeping the growth momentum, which is pouring the limited resources in the right areas, the ADB official said.
Not leaving core competence
Shengman Zhang, Citi chairman for Asia Pacific operations, said the BPO sector employs only a limited number of people, adding that countries like the Philippines must reconstitute their manufacturing sector.
"It provides nice jobs, nice growth engine but it's a small growth engine that not everybody can use as basic fundamental pillars for their growth strategy," he said.
Zhang said the Philippines would miss out on opportunities in building infrastructure by concentrating only on modern services.
Hiroto Arakawa, Japan International Cooperation Agency vice president, said there is much risk in putting all resources in BPOs since "services do not require much infrastructure."
The risk involves other service suppliers snatching the crown from the Philippines, since animation and graphics require no competency in English, which is the country's comparative advantage.
Social volcano
Whether the Philippines develops the two sectors or chooses one over the other, the country must invest in its people and infrastructure - be it physical or social - to close the gap between the rich and the poor, Paderanga said.
He said rising affluence alongside deepening poverty creates a "social volcano."
For Sachs, the bottom-line is to "make sure that there are good skills, good education alongside the growth of the population."
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