THE PHILIPPINES should focus on diversifying its economy to produce high-quality jobs and more competitive products, according to the United Nations in the Philippines.

In a policy brief released on Thursday, the United Nations in the Philippines said the country was among Asia’s early industrializers in the early 1900s but has since failed to respond to the fast-changing environment and has struggled to compete.

“The focus on industrial catch-up is motivated by the prolonged stagnation of Philippine industry and its profound impact on the country’s labor market,” the report read.

“Unlike developed countries whose workers have largely transitioned away from agriculture to industrial and high-skilled services employment, workers in developing countries such as the Philippines have been moving out of low-productivity agriculture towards low-skilled services jobs,” it added.

Services sector accounts for 61% of gross domestic product and six out of 10 workers, but a third in low-paying jobs.

The report emphasized the urgent need for the Philippines to create productive employment given its 75 million people at their working age and 600,000 net additional job seekers entering the labor force annually.

“If you succeed in modernizing the agriculture sector, that sector would release or liberate a vast amount of labor and would have to be deployed somewhere,” Ndiame Diop, World Bank’s country director for the Philippines, said during the virtual launch of the report on Thursday.

However, Mr. Diop said the nation also has to develop other sectors that could accommodate these transitioning workers and provide them with higher productive jobs and a more decent wage.

Khalid Hassan, country director of the International Labor Organization (ILO) for the Philippines, said the country’s labor market has been struggling with a stagnant growth in real wages, gender gap, lower employment growth, and poor quality of work.

Meanwhile, the portion of its exports sector with competitive advantage and the number of exporting companies have been declining, making the Philippines a “market of consumer goods rather than a hub for manufacturing exports,” he said.

The country’s industrial base has also been less integrated which limits firms from sourcing their materials domestically.

“The Philippines has increased the sophistication in some of the global value chains, but has languished into low-value added segments and have shown competitive advantage to labor-intensive, lower-value goods and competitive disadvantage in higher-value, capital-intensive exports,” Mr. Hassan said.

Because of the huge setback in the past decades, the economy is also finding it more difficult to catch up with industrialization and in diversifying towards more complex products, added Mr. Hassan.

The report said the country can explore three paths towards economic diversification and upgrading, which includes “leap-frogging” to high-productivity and aiming for more sophisticated goods by adopting high technology over the medium to long term.

“While staging an industrial catch-up plan can be very costly and the price of targeting errors high, the consequence of policy inaction can be higher still as the resulting stagnation of the country’s technological growth is cumulatively widening the gap between its current capabilities and those required to produce complex products,” it said.

A more practical approach is to “climb up the value-added ladder” by integrating in global value chains more with products local firms can target.

The third and last route is for the country to sustain its local industrial base and support existing sectors with a strong competitive advantage, especially small- and medium-sized firms.

“After decades of filling in the most labor-intensive and relatively simple segments of production, the imperative to upgrade is increasingly becoming acute,” the report said, noting the pandemic has disrupted the labor market.

The report said policy makers have to aim for a rapid industrialization, diversification and the goal to produce goods with higher value-added, instead of clinging to a protectionist approach.

“To enable local firms to compete, the government can no longer rely on the protectionist instruments of the past and must now muster more positive, enabling measures that would allow local firms to survive increased global competition,” it added. — BML