RAFAELITA M.

ALDABA
STRATEGIC INVESTMENT PRIORITIES PLAN DEPARTMENT OF TRADE AND
Tax Reform for Attracting Better and High-quality INDUSTRY-BOARD OF
INVESTMENTS
Opportunities (as approved on 3rd reading HB 8083)
22 November 2018 PICC
 Inclusive Growth: Need for Economic
Transformation

SIPP : Areas for Investment Promotion

Agenda
-- Evaluation Framework

-- Emerging SIPP Sectors & Activities

 Recent growth has laid foundation for inclusiveness,
but
• Unemployment & underemployment have
remained high
• Manufacturing share remained unchanged
Part 1 • Poverty & inequality persisted
Inclusive growth Inclusiveness requires high & sustained growth, poverty
needs a national reduction & social protection programs, pro-active
strategy for productive growth policies & industrial strategy to create jobs
transformation i3S: sustain manufacturing growth for job creation &
poverty reduction
• manufacturing can create labor-intensive & new
& high productivity jobs for low, medium, high-
skilled workers
• Increase skills of the poor thru greater access to
education
• Improve productivity in agriculture where half of
the poor are
inclusive innovation industrial (i3S) & Comprehensive
National Industrial Strategy
EXTERNAL FACTORS: GLOBALIZATION, REGIONAL/BILATERAL/MULTILATERAL
TRADING ARRANGEMENTS, GLOBAL & REGIONAL PRODUCTION NETWORKS

AGRIBUSINESS MANUFACTURING SERVICES

Catalyst to drive
Driver for structural Glue that binds all
regional
change sectors together
transformation

INTERNAL FACTORS: GOVERNMENT POLICIES &PROGRAMS, INSTITUTIONS,

INFRASTRUCTURE, MACRO STABILITY, RULE OF LAW,
PEACE & ORDER, POLITICAL CLIMATE

• Integrate industries, close industry supply chain gaps, address

fragmentation of production systems
4
 Why do we need an industrial policy
Lessons Learned from Countries That Had Successful
Transformation
• Most countries that successfully transformed from an agrarian to a modern
economy pursued an IP
• 7%+ average growth for 25+ years (Growth Commission 2008)
o Fully exploited the world economy
o Maintained macroeconomic stability
o High saving & investment: 25%+ national saving rate
o Allowed markets to allocate resources
o Had committed, credible, & capable governments
o Industrial policy: way to jump-start process subject to certain disciplines
• IP debate: how to design & govern industry policies; right balance between doing
too little & intervening too much
 What is the right level of government intervention

Market Non targeted SSP Targeted SSP

No intervention
enhancing

No intervention Market enhancing Non-targeted SSP Targeted SSP

1980s-1990s
Trade Liberalization
Tariff reduction program
Removal of non tariff
barriers
Privatization
Services Liberalization
Investment liberalization
The figure is adapted from Alterburg 2015.
Providing business information
systems, trouble shooting for
investors
2000-2010
Trade facilitation
Customs reforms
National Single Window
Competition Law (2015)
General export Specific activities or
promotion, incentives for technologies, clusters,
R&D value chains, skills
development, dedicated
labs
1990s-early 2000s early 2014 -present
General export Manufacturing Resurgence
promotion: PEZA, Clark, Program: CARS Program
Subic, & other IPAs (ongoing)
General industry Eco-PUV Modernization
promotion: BOI IPP
Automotive: MVDP
Program
 Industrial Policy in Thailand & Malaysia

Manufacturing Share 1981-2011 GDP/capita (current)

35.00
30.00 Country 2012 1980
25.00
PH $2,588 $685
Share, in %

20.00
15.00 TH $5,474 $683
10.00
5.00
• Thailand 1997 Industrial Restructuring
0.00
Program US$1.19 B: soft loans, technical
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
PH TH MAL INDO assistance to 13 industries (textile,
garments, furniture, auto, chemicals,
MFG GROWTH PHILS THAI EMP SHARE PHILS THAI electrical appliances, electronics)
1982-85 -4.2 4.7 1981-85 9.7 7.5
1986-90 5.1 15.1 1986-90 9.9 8.1 • Malaysia 7th Plan ‘95-’00: new industrial
1991-95 2.1 12.1 1991-95 10.3 11.1 policy to move to high-tech
manufacturing, budget allocation RM2.5B
1996-00 3.2 3.02 1996-00 10.1 13.5
(integrated steel mill, wafer fabrication,
2001-05 4.3 6.52 2001-05 9.5 14.8
aerospace, petrochemical)
2006-10 3.9 4.74 2006-10 8.7 14.9 7
i3S Policy Directions
• Late industrial latecomer, cannot copy other countries’ IP strategies
o Upgrading in GVCs offer opportunities but entry not easy
o High entry barriers in the global economy & GVCs
o Industry 4.0 & impact on our industries
• Innovation focus
o craft correct pace for reform & provide temporary support while
allowing for technological learning
• Industry support programs: no one size fits all approach, need to
understand each industry, strategic measures tailored to specific
industry circumstances
o more specific programs to support emerging industries, integration
in global value chains, linkages promotion
o create space for MSMEs, parts & components suppliers
o a more modern BOI Omnibus Investment Code
o walk on two legs to support both domestic & global markets, lower
70% export requirement in ecozones 8
 • BOI, in coordination with the OP, IPAs, and other
government agencies & industries shall formulate the SIPP
• Validity period: 3 years subject to review and amendment
• BOI: carry out an evaluation process to determine the
Part 2 suitability & potential of industry or sector in promoting
long-term growth & development and the national interest
Strategic • Include activities covered by the Philippine Development
Investments Plan & other government programs
• Identify agribusiness activities, less developed areas
Priority Plan or recovering from armed conflict or major disaster
(SIPP) • Identify services & activities that can spur regional or
global operations in the country
• Include existing registered products before effectivity
of TRABAHO Act that shall relocate from Metro Manila
to other areas of the country
 SIPP activity shall take the following into account
• substantial amount of investments;

Strategic • considerable generation of employment;

• adopt inclusive business activities and value-
Investment added production by MSMEs;

Priority Plan • use of modern or new technology;

• adoption of adequate environmental protection
Evaluation systems

Guidelines • address missing gaps in the supply/value chain or

move up the value chain or product ladder; or
• promotion of market competitiveness
Framework for Discovering New Industries
Step 1. identify existing growth potentials of industry domestic & export
trade & other economic indicators,
investment size, employment, spill-over
benchmarking, domestic & global value chain
effects/multiplier (forward & backward)
analysis, industry roadmaps

Step 2. identify obstacles preventing firms from upgrading or entering

power, shipping, logistics costs, bureaucracy, red high cost & lack of raw materials, absence of
tape, policy uncertainty, weak enforcement of laws, upstream/downstream industries, lack of scale,
etc risks

Step 3. recommend measures to overcome constraints, upgrade industry, make open markets
work
protection of property rights, improvement of time-bound, performance-based incentives, direct
overall business & investment environment, R&D, credits, access to raw materials & capital
industrial clusters, economic zones equipment, GVC participation
Hausman, Ricardo & Velasco Framework : are there market failures & will incentives
solve the problem
Low Levels of Private Investment
and Entrepreneurship

Low Return to
High Cost of Finance
Economic Activity

Low Social Low

Bad International Bad Local
Returns Appropriability
Finance Finance

Government Failures Market Failures

Poor Bad
Geography Infrastructure
Information Coordination
Low Human Externalities: Externalities Low Poor
Capital “Self-Discovery” Domestic Intermedia-
Macro Risks: Savings tion
Micro Risks:
Financial,
Property rights, Monetary, Fiscal
Corruption, Taxes Instability

• Growth diagnostics – strategy for figuring out policy priorities, develop growth
strategies based on opportunities & constraints
 FRAMEWORK FOR PRIORITIZATION OF ECONOMIC ACTIVITIES
1. Employment contribution? H, M, L
2. Potential to move up the value chain, Latent comparative advantage? H, M, L
3. Spill over effects and forward & backward linkages? H, M, L
4. Create competitive market? H, M, L

A SUPPLY GAP?
* UPSTREAM * MIDSTREAM * DOWNSTREAM * GEOGRAPHIC

MOST BINDING CONSTRAINTS

PREVENTING ENTRY AND/OR
Y N HOW TO MAINTAIN
MOVING UP VALUE CHAIN COMPETITIVENESS

HIGH PRODUCTION COST HIGH RISKS HUMAN CAPITAL

• Power • Huge Capital requirements • Skills Gap
• Logistics • New Technology • Labor mismatch
• Raw Materials
• Lack of scale
GOVERNMENT POLICIES OTHERS
GOVERNMENT REGULATIONS • Tax • Financing
• Licenses • Labor • Competition
• Smuggling • Foreign Equity Restriction • Standards, quality, etc.

POLICY RESPONSE

INCENTIVES + OTHER POLICIES

(WITHOUT INCENTIVES)
 Application of framework to the AEROSPACE PARTS Industry
1. Employment contribution? SUPPLY CHAIN GAPS in the process capability:
2013: 2,200 jobs; 2022:14,932 jobs. • High-end machine tools & metrology equipment
2. Potential to move up the value chain, Latent • Fine Machining
comparative advantage • Heat treat, surface treatment process
• Gear manufacturing
N HOW TO MAINTAIN
more aerospace mfg. activities, aside from
machining, design, aerospace electronics • Non-destructive inspection (NDI) and COMPETITIVENESS
plating/metallurgical
3. Spill over effects and forward & backward • General functional testing for compliance to
linkages? aerospace requirements
MOST BINDING
Backward : tool and die, metalworking • Chemical test/ solution test compliance to
equipment, chemicals, plastic, rubber, aerospace requirements CONTRAINTS PREVENTING
electronics, logistics, machining, special * Trade facilitation / integration of supply chain: ENTRY AND /OR MOVING
• Raw material supply/distribution (MIL/AMS
processing, chemical and metallurgical testing, UP VALUE CHAIN
fine machining
Specs)
• Transport and import/export turn-around Y
Forward : packaging, logistics • Tooling & chemical supply distribution

HIGH PRODUCTION COST HIGH RISKS •Expensive, tedious and time-consuming

• High costs of raw materials • High risk due to huge capital accreditation for potential entrants to the
• Logistics problem: import/export requirement to invest in new aerospace industry
lead times technology

POLICY RESPONSE

• Incentives for aerospace parts and components manufacturing to Support trade facilitation for imported raw materials, support training
attract major OEMs and Tier 1 suppliers. programs and certifications among suppliers, support technology
• Incentives for potential investors on process capabilities upgrade to conform to industry standards
1 Top Priorities for Both Domestic & Export Markets
Criteria: modern technology, innovation, infrastructure, regional imbalance, labor-intensity,
environmental protection, spill-over effects, value/supply chain linkages

Electrical & Electronics IT BPM, Creative Agri-business Innovation, R&D

Auto & Auto Parts Chemicals Parts, Components, Inclusive Business Social Services

Efficiency seeking or competing

Aerospace Parts & MRO Shipbuilding, ship repair in highly contestable markets Climate Change

Tool & Die, Iron & Steel Furniture, Garments, Transport, Logistics,
Sectors in transition
Textile Construction
 Regional Industry Priorities
CAR: coffee, processed vegetables, 1. coffee, cacao, processed fruits,
aerospace, electronics, tourism processed meat, tourism

4B. seaweed, tablea, rubber, coco 2. processed fruits, processed meat,

coir, tourism coffee, furniture, cacao, agribusiness

5. metal casting, coco coir, 3. bamboo, furniture, aerospace, processed

health care, agribusiness meat, shipbuilding, aerospace
4A. auto, electronics, petrochemical, IT-BPM,
6. processed meat, processed chemicals, aerospace
shrimp, tourism
8. processed meat, copper, processed marine,
7. seaweed/carrageenan, dried processed fruits, natural health, agribusiness
mangoes, furniture, IT-BPM, 9. Rubber & rubber prods, coconut & coconut
shipbuilding, tourism prods, fish & fish prods, mango & mango prods,
10. rubber, bamboo, cacao, coco seaweed & seaweed prods
coir, coffee, agribusiness, tourism
12. rubber, palm oil, processed
11. processed meat, fish/aquamarine, tourism, agribusiness
seaweed/carrageenan,
cacao/tablea, agribusiness, 13. processed marine, palm oil, rubber,
ARMM: coffee, rubber, cacao, palm oil, agribusiness
tourism
agribusiness
 Upgrading Trajectories for Selected Industries
Industry Specific Activities
Electronics & electrical R&D, IC design, expansion facilities for advanced products & technologies (IoT,
robotics, drones, AR, cognitive cloud, 3D printing), auto electronics (GPS,
infotainment, wireless communication modules, telematics, autonomous vehicle
sensors, VR systems, onboard computers, microprocessors ), aerospace
electronics, batteries, consumer electronics

Automotive Auto electronics, ADAS components, engineering services outsourcing, sensors,

motors, automatic transmission, metal casting, forging products, machining
products, electric motor powertrains like battery, charging facilities, EV assembly

Aerospace parts & MRO Flight control actuation systems, servo actuators, servo valves, galley inserts,
structures & equipment, seat parts, lavatories, interior fit-out, panel assembly,
electronics, airframes & sub-assemblies; MRO: base & line maintenance for
commercial aviation

IT-BPM & creative Engineering services outsourcing, data analytics, legal process outsourcing, health
information management (preventive health, remote), animation & game
development (3D, AR/VR), IT services, global-in-house, services embedded in
manufacturing (R&D, design), modern voice services (omnichannel delivery)

Chemicals Petrochemicals, oleo chemicals, basic chemicals, plastics

Priority Industries & Activities
Industry Sector
Agribusiness
Shipbuilding & Ship-repair
Furniture, garments, textile
Iron & steel, Tool & die
Construction, Infrastructure, Transport,
Logistics, & other infrastructure linked
with manufacturing & tourism
Innovation & R&D activities
Supplier Parts Development, inclusive
Business
Environment, climate change, energy
efficiency activities
Specific Activities
Production & processing of high value crops like mangoes, bananas, nuts, coffee,
cacao, coconut, & other resource-based industries
RORO as well as small- and medium-sized vessels
Manufacturing & design
Integrated steel manufacturing; manufacturing, design
Mass housing, land, air, & water transport, airports & seaports, LNG storage &
regasification facility, bulk water treatment, industrial waste treatment,
warehousing, support facilities for transport, infrastructure linked with tourism &
manufacturing, domestic ecozones
Commercialization of R&D investments, business incubators, accelerators, rapid
prototyping & demonstration facilities, R&D labs, science parks
Companies sourcing their raw materials, intermediate parts & components &
services especially those produced by MSMEs; manufacturers of parts &
components & services esp those that are linked with priority industries
Investments in low carbon technologies & technologies to improve energy efficiency
 Priority Industries & Activities
Industry Sector Description
Efficiency seeking activities in highly operating in highly contestable markets in both export and domestic sectors
contestable markets including those that would use the domestic market as platform to become a
future export hub
Sectors in transition (covered by special Industrial Tree Plantation (P.D. No. 705); Exploration, Mining, Quarrying and
laws) Processing of Minerals (R.A. No. 7942) (limited to capital equipment
incentives); Publication or Printing of Books Textbooks (R.A. No. 8047);
Refining, Storage, Marketing, and 5. Distribution of Petroleum Products (R.A.
No. 8479); Rehabilitation, Self-Development and Self-Reliance of Persons
with Disability (R.A. No. 7277); Renewable Energy (R.A. No. 9513); Tourism
(R.A. No. 9593) - Tourist transport , Tourism-related facilities,
Accommodation facilities, Tourism Training Centers and Institutes, Health
and Wellness, Retirement Village
Restoration/ preservation and operation of historical shrines, landmarks and
structures
Social services Healthcare services including drug rehabilitation, education, training facilities
 BOI IPP Preferred Activities
1. All Qualified Manufacturing Activities including Agro- 6. Infrastructure and Logistics including LGU-PPPs
Processing • Airports and seaports (includes RO-RO ports) for cargo
2. Agriculture, Fishery, and Forestry and passenger
3. Strategic Services • Air, land and water transport
• IC Design i. Air Transport
• Creative Industries/Knowledge-Based Services ii. Land Mass Transport
• Maintenance, Repair, and Overhaul (MRO) of iii. Water Transport
Aircraft iv. Mass Rail
• Charging/Refueling Stations for Alternative Energy • (LNG Storage and Regasification Facility
Vehicles • Pipeline for Oil and Gas
• Industrial Waste Treatment • Bulk Water Treatment and Supply
• Telecommunications • Training/Learning Facilities
• State-of-the-art Engineering, Procurement, and • Testing Laboratories
Construction • Domestic Industrial Zones
4.Healthcare Services including Drug Rehabilitation • PPP Projects
Centers • Tollways
5. Mass Housing
• Economic and Low Cost Housing
• In-City Low Cost Housing for Lease
 BOI IPP Preferred Activities
Preferred Activities (cont’d)
7. Innovation Drivers o Portable technologies
• Research and Development o Hardware or software for the prevention of disease
• Centers of Excellence (COE) outbreaks
• Innovation Centers, Business Incubation Hubs, o Remote monitoring devices or systems
Fabrication Laboratories (FabLabs)/ Co-working Spaces o Professional services for remote sensing
• Commercialization of New and Emerging Technologies o Hardware or software for the upgrading of local
o Agricultural biotechnology tools industries
o Disaster mitigation/prevention hardware or software. o Photonics
o Hardware or software for increasing agricultural o Nanotechnology.
productivity • Natural health products
o Mechanized means for natural resources conservation
8. Inclusive Business Models

9. Environment or Climate Change-Related Projects

10. Energy
Export Activities
1. Production and Manufacture of Export
Products
2. Services Exports*
3. Activities in Support of Exporters
*Contact centers and non-voice business
processing activities that will be located in Metro
Manila may no longer be qualified for incentives
availment with the Board of Investments under
Executive Order No. 226, otherwise known as the
Omnibus Investments Code of 1987, as amended,
by year 2020.
Special Laws
1. Industrial Tree Plantation (P.D. No. 705)
2. Exploration, Mining, Quarrying and Processing of Minerals
(R.A. No. 7942) (limited to capital equipment incentives)
3. Publication or Printing of Books Textbooks (R.A. No. 8047)
4. Refining, Storage, Marketing, and Distribution of Petroleum
Products (R.A. No. 8479)
5. Rehabilitation, Self-Development and Self-Reliance of Persons with
Disability (R.A. No. 7277)
6. Renewable Energy (R.A. No. 9513)
7. Tourism (R.A. No. 9593)
• Tourist transport
• Tourism-related facilities
o Accommodation facilities
o Tourism Training Centers and Institutes
o Health and Wellness
• Retirement Village
• Restoration/ preservation and operation of historical shrines,
landmarks and structures.
 What is an innovative product or service
• implementation of new or significantly improved products, services, or
processes
• introduction of a new marketing or organizational method in business
practices, workplace organization or external relations in response to
problems, challenges, or opportunities arising in the social and economic
environment (OECD 2007)
• result of new combinations of existing knowledge, capabilities, and
resources
• includes low-tech and high-tech activities occurring across all industries, as
well as in both the private and public sectors
• may not necessarily mean “new to the world,” but can also refer to
something that is new to producers or users
• does not have to be disruptive – like a product using artificial intelligence or
robotics – but may be an incremental improvement or upgrading of a
process or product, like making more energy efficient motors or engines
 • Selection Criteria & Guidelines
o Investment size
o Employment
o Spill-over effects/multiplier (forward & backward)
o Value added contribution
o Innovation: product upgrading, process upgrading -
technology
o Regional impact
SIPP Evaluation o Competition impact
Process: • Fiscal &/or non-fiscal support
Summing Up o ITH
o RCIT
o Additional deductions
o Regulatory & policy reforms, ease of doing
business, promotion & marketing, capital &
technology access for MSMEs
• Special programs for selected priority industries
especially to make them Industry 4.0 ready