Instead of a shift to federalism, Doris Magsaysay-Ho, president and chief executive officer of the Magsaysay Group of Companies, recommends the creation of manufacturing and industry clusters in each region to create trade volumes, lower shipping costs, and make the country more competitive.
“Instead of a challenging shift to federalism, I believe there is an important opportunity for the leadership of each region or governor of a province to identify and pursue their respective competitive advantages to drive their economy through clustered development,” Ho said in a speech during the Arangkada Philippines Fora 2018 on September 12.
Ho said these clusters could be “a geographical concentration of companies and institutions in a particular center that the region already excels in, and would encompass linked sectors including SMES (small and medium enterprises) that form part of the supply chain.”
She said university-led research and development and vocational training for the workforce “may be part of the successful ecosystem of shared resources and costs.”
“The region would then be able to attract investments because of a clear story,” Ho pointed out.
These clusters, she noted, should be developed close to port and airport infrastructures and be designed to make handling a particular product more efficient.
She said these clusters can be like economic zones, but led by a provincial government that will identify the areas where the region or province is already doing well in.
Shipping follows trade, and small trade volumes result in smaller ships and higher costs, Ho explained. Once the economies of scale are created by these clusters, it would then drive down the cost of shipping, power, and other utilities, Ho said.
One of the reasons domestic shipping costs in the Philippines are high is because of the lack of economies of scale. Ho noted that in the domestic trade, for every 10 full containers going south, only four come back full. She added that volumes are also small because retail margins cannot cover the cost of keeping large inventories. Also, the lack of port infrastructure means only small ships with cranes, which are no longer built in the international shipping market, can call.
Ho explained that clustering is not a new idea, having been done in other countries. Ho said Silicon Valley is an example of a great cluster of start-ups and global technology companies; Hollywood a cluster of entertainment and production companies; and even Manila’s own Divisoria is one, where sellers of similar items converge in specific areas. In Japan, a car manufacturer is surrounded by manufacturers of the parts it needs to construct cars.
Other countries taking advantage of clustering include Thailand, Malaysia, and China. Thailand is creating 60 industrial estates, while Malaysia is creating a trade cluster around the Port of Tanjung Pelepas. Meanwhile China’s Pearl River Delta economic zone is a cluster of high-technology industries.
Some potential areas for cluster development in the Philippines, Ho said, include the Clark-Tarlac-Subic corridor, Batangas, Phividec Industrial Estate in Misamis Oriental, Cebu, Leyte Industrial Estate, Davao, Saranggani, and General Santos.
The Clark-Tarlac-Subic corridor can focus on high-tech innovation and artificial intelligence, selected manufacturing sectors, and mango production and processing. Ho added that the corridor already has a ship building and ship repair cluster with the presence there of three big shipbuilding companies, but that this corridor has to be improved.
Batangas caters to automotive imports and is home to a lot of Japanese manufacturers, but it needs zoning, she pointed out.
Leyte can develop a strategy for agriculture, especially coconuts, while Sarangani can be a fisheries cluster served by cold chain facilities and the port of General Santos.
Cagayan de Oro already has big manufacturers, with Bukidnon becoming a food basket, but the region would have to be supported by port expansion and other logistical services.
Ho said growing the country’s trade through clustering will also help the development of the country’s ship building and ship repair industry, which is weakened by the fact that “no ships come here because we don’t have cargo.”
She pointed out that free trade agreements (FTAs), such as those in the Association of Southeast Asian Nations (ASEAN) and Asia Pacific Economic Cooperation “make sense because you’re trying to enter their market.”
“We should be more competitive-minded because we compete with the world, we compete with the region, especially now that ASEAN is set up. We need to be producers; otherwise, we will just be consumers,” Ho remarked.
In an interview with PortCalls on the sidelines of the event, Ho said she, along with the Philippine Inter-Island Shipping Association, which her company is a member of, has been presenting the idea of clustering to government agencies and the private sector group for years. – Roumina Pablo