The Marcos Jr administration is jumping on the “critical minerals” and “green transition” bandwagon and apparently wants to give incentives to firms in these areas to “enable us to be a participant in the electric vehicle (EV) market.” This seems to be in line with current “friendshoring” thrusts of the United States (US) national industrialization policy.
Without an understanding of what’s needed for Philippine industrialization, this so-called “participation” will just mean the country being an address for foreign companies one-sidedly benefiting from our mineral resources and cheap labor power.
Environment secretary Maria Antonia Yulo-Loyzaga reportedly said that the government is eyeing potential incentives for processing nickel and copper. She was also quoted as saying that: “Export restrictions on raw minerals are important to encourage value-added domestic processing by Filipino firms before export. Industrialization is most of all about higher-value production by Filipino enterprises.” This is only partly true.
Incentives for mineral processing will support industrialization only if they prioritize Filipino firms over foreign ones and as part of a more comprehensive industrial policy. Absent real support for domestic firms, the main beneficiaries of incentives will be foreign transnational corporations that have processing capacity and advantages to begin with.
The government really should stop confusing foreign manufacturing firms locating in the country as Philippine industrialization – getting this right will enable the great leaps forward for Filipino industry that have been elusive for so long. Philippine industrialization should be understood as creating a Filipino industrial base with Filipino firms producing goods with high-technology content.
Nationality matters critically because long-term benefits for the domestic economy in terms of developing local technologies and linkages with local enterprises, domestic capital accumulation, and employment and income multipliers are all more assured if economic activity is by domestic firms. Foreign firms will tend to not deliver these because they will prioritize their profitability and operate more according to whatever expansive global networks and opportunities they have.
These long-term benefits are aside from the need to: keep strategic land, mineral and other natural resources in Filipino hands; protect economic sectors of public service character such as basic transport, telecommunications, water and energy infrastructure; protect sectors critical for livelihoods or food security; protect cultural identities and limit undue foreign influence; and ensure national security.
The government unfortunately seems to think that attracting foreign manufacturers to locate in the Philippines in enclave special economic zones amounts to industrialization. They seem blind to how the great increase in foreign manufacturing investments in the country since the 1970s has clearly not industrialized the country. If anything, the economy has even deindustrialized not just with less Filipino manufacturers but also with manufacturing falling to its smallest share of the economy in nearly eight decades.
The administration and its close-minded neoliberal economic managers seem blind to how every industrialized country is marked by national industrial firms, not by being the address of foreign manufacturers in industrial enclaves.
A national program for developing indigenous industrial capacity in critical minerals will have to go far beyond just incentives. For instance, private domestic industrial capacity is so weak that the most expedient way to develop national processing capacity is with a state-owned enterprise. Filipino firms can however also be spurred with incentives like subsidies or tax breaks. Industrialization is most of all about higher-value production by Filipino enterprises.
The government should support research and development for processing critical minerals to develop indigenous technological capacity and reduce reliance on imported technologies.
If there are Filipino processing firms, export restraint will help ensure domestic control over critical mineral resources like nickel and copper as well as ensure maximum economic benefits for the country. Restrictions on mineral exports can include export taxes, export quotas, various licensing requirements, or outright bans.
Export taxes are the most widely used restrictions because of their simplicity and convenience. The Philippines can however also consider licensing requirements or even export bans as used for some minerals in Indonesia, Thailand and Malaysia.
Foreign firms can offer incentives but with strict conditions on technology transfer and domestic skills development, especially in the context of joint ventures. In any case, the general direction should be towards developing Filipino mineral processing capacity and not just attracting foreign firms to do this for us in-country.
Integrating environmental concerns to prioritize the use of cleaner, more efficient mining and processing technologies is easiest with state-owned firms, although support for private firms can be contingent on using green technology.
Beyond just processing, Philippine industrialization should aim for vertically integrated Filipino firms handling everything from mining to final product manufacturing to ensure that more of the value chain remains within the country and embedded in the national economy.
