Some economists are sounding the alarm that the Philippines is rapidly de-industrializing. Their basis for this observation is the increasing lower share of manufacturing as a percentage of GDP.  It is true that manufacturing as a sector is not growing as fast as some services like IT-BPM, logistics, tourism and others.  Unlike our tiger economy neighbors, our exports of manufactured goods is a lagging sector of the economy, with electronic products and semi-conductor devices accounting for 60% of our total exports. To calm these fears, however, I like to remind the alarmists that “Industry” in the National Income Accounts includes Mining, Construction and Public Utilities.    As long as these three other industrial sectors are growing faster than the average growth of GDP, there is no need to talk about “de-industrialization.”  That should be another reason why we have to get back to spending a greater and greater share of our GDP on infrastructures and fight corruption with all of our might.

            Let’s examine the data about the “industrialized” economies of East Asia.  The “industry sector” accounts for 36.8 % of GDP for Taiwan, 31.6 % for South Korea, 32.1 % for Thailand, 37.6 % for Vietnam and 39.3 % for Indonesia. Very clearly, the Philippines is not in the same league as its East Asian neighbors.  Its “industry sector” accounts for only 28.2 % of GDP.  If we try to explain the reason for the low share of “industry” in the GDP of the Philippines, it will become obvious that our underdeveloped manufacturing sector mostly accounts for it.  Manufacturing accounts for 33 % of the GDP of Taiwan, 24.3 % of South Korea, 16.7 % of Vietnam, 19.8 % of Indonesia and 27 % of Thailand.  For the Philippines, it is the lowest at 16.2 %.  The question now arises, can we still industrialize even if our manufacturing will continue to account for a low percentage of our GDP? 

            Let me answer the question in two stages.  There is still room for our manufacturing sector to reach levels comparable to Vietnam and Indonesia (17 to 20 %) as more manufacturing companies cater to the lucrative domestic market for manufactured goods related to the basic consumer demand for  food, clothing, shelter, health, education and other basic necessities. These manufacturing sectors can reach globally competitive levels without having to export, thanks to our big local markets, unlike the first East Asian tigers whose manufacturing sectors had to export or perish.  In fact, this is clearly evidenced by Singapore and Hong Kong whose manufacturing sectors have practically disappeared.  Secondly, as regards manufactured exports, the Philippines still has an opportunity to significantly expand the export of high-value chips that can be relocated from China to the Philippines as the U.S. Government addresses security concerns arising from having too large of their requirements for chips (especially related to defense goods)  concentrated in China.  This concern has reached panic proportions especially in the Trump Administration.  Thus, given these possibilities, manufacturing could be raised to at least 19 % , equivalent to that of Indonesia today.

Then, there is the mining sector. If our policy makers know how to balance the concern about the physical environment, mining can assume part of the industrialization role that manufacturing is unable to play.  With Indonesia we are among the most mineralized countries in Asia.  In 2024, mining in Indonesia constituted a high of 12 % of GDP.  Another comparable mineralized country is Chile whose mining industry accounts for as high as 13 %.  In great contrast, mining in the Philippines contributes only 1 % to GDP.  There is great room for improvement if Government, the business sector and civil society can craft a policy that balances poverty eradication with concern for the physical environment, especially in the island of Palawan.

            Mining plays a strategic but controversial role in the Philippine economy.  This part of the industrial sector contributes to exports (about 5 to 7 %), employment, and countryside development (since most mineral deposits are in economically depressed rural areas).  With the worldwide concern about protecting the physical environment (sustainable development), Philippine mining has to face criticisms for negative environmental and social (e.g. displacement of communities of indigenous people) impacts. It is, therefore, necessary that the whole of Philippine society agree on how to reap the greatest economic benefits from mining while minimizing the environmental and social costs.

Mining and quarrying contribute about 1 % to 1.5 % of the Philippine GDP (as of 2024).  Although relatively small in share, it has a high multiplier effect benefiting industries such as construction, power and manufacturing.  In 2024, minerals accounted for roughly 5 – 7% of total Philippine exports, valued at around $ 6 to 7 billion.  Top exports were nickel, gold, copper and chromite.  The Philippines is one of the world’s top producers of nickel, a key input for electric (EV) batteries and practically all digital devices indispensable to Industrial Revolution 4.0.   Mining directly employs 250,000 workers, and indirectly supports over 1.5 million jobs (transport, services, small-scale mining). It is a key source of livelihood in remote and mineral-rich regions such as Caraga, Cordillera, and Palawan.  The mining sector generates significant government revenues through excise taxes (4 % on mineral products); royalties (especially from operations in mineral reservations); and corporate income taxes and fees to local governments. In 2024, total taxes and fees from mining were estimated at P30 to P40 billion.

            It is incumbent on the Philippine Government to promote responsible and sustainable mining, with new investments in nickel processing, copper smelting, and green minerals to support global clean energy supply chains.  Recently, officials of one of the largest mining enterprises in the country, DMCI Mining Corporation, expressed satisfaction with a new fiscal regime for large-scale mining:  “We see the new fiscal framework as an opportunity to strengthen the mining sector’s role in generating long-term value for the investors, communities and the economy.”  The new law imposes royalties and profit-based levies on mining companies, boosting government revenue and sharing more of the gains with host communities.  It also introduces a windfall tax on companies whose profit margins exceed 30 % and treats each mining contractor as a separate taxable entity.”  To be continued.