The Philippines must diversify and reconfigure its key export sectors if it wants to leverage the opportunities arising from the restructuring of global value chains (GVCs) due to the impact of the COVID-19 pandemic, according to a newly launched World Bank report.
Souleymane Coulibaly, co-author of the report entitled “A New Dawn for Global Value Chain Participation in the Philippines,” said during the October 6 launching that the country’s post-COVID recovery could benefit from the reconfiguration of its leading export sectors in three GVC clusters.
These are the industrial, manufacturing, and transportation (IMT) sector; technology, media, and telecommunications (TMT) sector; and health and life sciences (HLS) sector.
Coulibaly, a program leader for equitable growth at the World Bank, underscored the importance of further diversification for economic growth post-pandemic. He noted that the concentration of exports in only two sectors—the electronics and electrical goods sector and the information technology-business processing outsourcing (IT-BPO) sector—is a source of vulnerability for the country in terms of managing growing trade conflicts and supply chain risks.
To diversify exports, the IMT cluster can be reconfigured to build on the country’s strong position in electronic intermediates such as parts and components. Additionally, the switch to electric vehicles will be the main change in the automotive GVC and will provide opportunities for the Philippines to enter the electric vehicle GVC.
The TMT cluster can build on the country’s strong position in IT-BPO services. The key trend for the sector moving forward is the switch from cost saving to value addition, Coulibaly said.
The HLS cluster can build on the skills of healthcare professionals, the pharmaceutical sector and the emerging telehealth sector. With a health crisis at the root of the current global economic distress, the HLS cluster plays a strategic role in security, which opens income-generating opportunities for the Philippines.
“Addressing constraints on participation in the IMT, TMT, and HLS clusters will boost economic recovery and resilience in the post-COVID-19 world in thePhilippines,” the report said.
The book pointed out that the nation can benefit from the shifting dynamics of GVCs by attracting more investments as investors look for alternative production sources that are less sensitive to trade tensions.
“The main finding is that the crisis can help strengthen the country’s foreign direct investment attractiveness and motivate operators in GVCs to develop the skills they need to participate more advantageously in GVCs,” it said.
However, the country must choose the right policies to foster higher GVC participation in these three clusters. Coulibaly recommended the wise use of three policy instruments to operationalize the reconfiguration of these clusters with the goal of directing more foreign direct investments into the country. These instruments are institutional reforms, the infrastructure building program, and attractive incentives and timely interventions.
Meanwhile, Mona Haddad, global director for trade, investment and competitiveness at the World Bank, in her welcome remarks affirmed that the COVID-19 crisis can be turned into an opportunity for more active participation in GVCs.
“The report launched today makes the case that post-pandemic, the Philippines has opportunities to deepen its participation in GVC clusters including manufacturing, technology and health and life sciences.”
She further noted that the past 30 years has shown that participation in GVCs enables developing countries to boost growth and reduce poverty.
“Research shows that a 1% increase in GVC participation raises GDP per capita by more than 1%. Between 1990 and 2019, the growth of GVCs has helped developing countries increase their share of global exports from 16% to 31%. In that same period, extreme poverty fell from 36% to 8%,” Haddad said.
For his part, Ndiame Diop, World Bank country director for the Philippines, Malaysia, Thailand and Brunei, observed that there is a “shuffling of the cards right now,” whereby supply chain efficiency is no longer the lone driver of global trade and GVC participation, since global investors now also take into account other factors such as resilience and sustainability in their investment choices.
This provides opportunities for the Philippines to position itself better and initiate a vertical ascent in GVCs, said Diop, adding that the country’s current involvement mostly occurs in the low to middle levels of the value chains. Diop singles out the BPO sector and the electronics and semiconductor industry as having this opportunity to improve further and move up the value chain to have a bigger impact on economic growth and poverty reduction.