A Don Quixote dream: A strong Philippine manufacturing sector

Speaking before the members of the Monday Circle Forum last February 23 was the indefatigable and never-aging long-time advocate for economic nationalism and domestic industry development, Dr. Jesus L. Arranza, chairman emeritus of the Federation of Philippine Industries (FPI).  

Like the echo — and broken record playing — for the past several decades, Dr. Arranza continues to be the “knight-errant” of the noble but sometimes already given-up vision for the local manufacturing industry as a major key player in national growth and development.  

Like Don Quixote, he is in an uphill battle in his almost personal quest in the fight to resurrect the manufacturing industry, a pursuit that some contemporary economists have dismissed totally by their derisive question as to whether there is one to speak of. 

Even Dr. Arranza may possibly concede to their argument for they are not in reality totally wrong considering how the domestic economy has evolved over the past few decades. They certainly don’t literally mean that there is no manufacturing industry to speak of — for clearly, there is one. It’s just that our manufacturing industry now “lacks the scale, depth, innovation, and domestic integration into the rest of the economy” to drive real industrial growth or create high-quality jobs.

The manufacturing industry used to be a major growth driver. This was especially true from the 1950s to the 1970s, accordingly “during the country’s import-substitution industrialization era.” But in the 1980s, the share of manufacturing industry in the country’s gross domestic product (GDP) dropped and “stagnated between 18 to 20%” while countries like Vietnam and Indonesia saw “manufacturing rising between 25–30%” of their GDP.

Dr. Arranza admits that much of our growth in recent decades came instead from services, particularly the Business Process Outsourcing (BPO), retail, and remittances-driven consumption.

State of the manufacturing industry 

Dr. Arranza was spot on in how he depicted the dire situation of our manufacturing industry today as a foundation for inclusive, sustainable economic growth with his short narratives about the textile and shoe industries.  

The Philippines was a global powerhouse in textiles in the 1970s and 80s. But rampant smuggling of cheap fabrics and “ukay-ukay” (second-hand clothing) decimated local mills. To put it in context we can appreciate, he said: “We had 1.5 million spindles before. One spindle can hire 35 people on a 24-hour shift. Today, we only have 100,000 spindles courtesy of ukay-ukay.” (READ: Illegal? What you need to know about ukay-ukay)

Ukay-ukay has become a nationwide cultural phenomenon that caters not just to low-income consumers but to bargain-hunters seeking durable, unique, or designer items at a fraction of the cost of new items.  

With rampant corruption, smuggling, and misdeclarations of importations that circumvented Republic Act No. 4653 (the law which prohibited the commercial importation of used clothing, except for charitable purposes), local garment manufacturers and textile producers found it difficult to compete under this new trend. Investors, likewise, were left with no incentive to invest more. This essentially led to the industry’s stagnation.

Marikina was also once called the “Shoe Capital of the World.” In the 1980s, Marikina had over 2,000 registered shoe manufacturers. Smuggling and cheap shoes through technical smuggling or undervaluation of imports rendered them to be sold for less than the cost of the raw materials used by Marikina shoemakers. This situation heavily affected the industry. As of late, there are roughly 300 shoe manufacturers left, with most of them surviving only as small boutique shops rather than large-scale factories.  

Today the manufacturing sector is largely regarded as an “assembly-type” industry, which literally translates into putting together imported parts rather than producing components locally. There’s little domestic value-added, meaning we don’t develop supply chains, design, or high-tech capabilities.

In contrast, Vietnam, Thailand, and Malaysia have deeper manufacturing ecosystems — producing auto parts, machinery, and electronics subcomponents domestically.

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Dr. Arranza identified high power costs, inefficient logistics, and port congestion (especially around Metro Manila) as critical factors that are making production expensive. Both bureaucratic red tape and inconsistent regulatory enforcement has also discouraged large-scale industrial investments.

Latest data also indicate that manufacturing accounts for approximately 15.7% to 16.2% of GDP. It is considered the second-largest component, next to the services sector. Electronics, food products, and beverages are the top contributors within the industry. The sector employs over 1.19 million Filipinos.

In 2023, the sector generated approximately P3.78 trillion in value. By late 2025, quarterly manufacturing GDP was estimated at roughly P1.15 trillion.

This share of the industry to GDP is lower compared to neighboring countries like Vietnam and Thailand, with respective contributions equal to 24% and 25%, respectively.

The manufacturing sector is considered crucial for long-term economic development. Along with other industrial sectors like construction, mining, and utilities, the sector contributes around 29.5% of the total Philippine GDP. 

Lastly, Dr. Arranza reported that the manufacturing sector showed a recovery in 2025, with GDP from manufacturing reaching approximately P1.15 trillion (US$19.7 billion) in constant prices by December 2025. 

Positive signs and bucket lists

Despite this current state of the manufacturing industry, Dr. Arranza is very optimistic the industry may soon do better. The stock market’s ongoing strong rebound is proof that confidence is returning and market fundamentals are reasserting themselves. This could lead to the inflow of fresh investments into the sector.  

Investors read more than headlines — as they read a leader’s posture and direction, or his body language. With no sign of panic or drift, there’s no reason to assume the political noise may unsettle the economy or dampen investors’ appetite. By staying focused on his work, Dr. Arranza is convinced the President Ferdinand Marcos Jr. is doing the right thing. Investors respond positively to this kind of leadership.

In addition, with President Marcos’ calm and steady demeanor over all the political noise surrounding the flood-control scandal and other issues that have been undermining his administration, Dr. Arranza is emboldened.  

More importantly, this general attitude of the president gives him hope that his advocacies — and that of his federation’s aspirations — will be given a better chance of being heard.  

Among these are: 

• uniting the public and private sectors to protect local manufacturers, government revenue, and Filipino jobs
• protection for consumers and legitimate industries from smuggling, counterfeit goods, and substandard products
• holding of a national summit to bring together regulators and industry leaders to coordinate campaigns against smuggling, particularly in sectors like tobacco, agriculture, and petroleum
• to classify the smuggling of industrial products (not just agricultural) as economic sabotage, making it a non-bailable offense
• encouraging consumers and the government to prioritize Filipino-made products to sustain local employment and counter the influx of smuggled goods
• the FPI to volunteer its resources to help the government identify smugglers and provides regular inputs to the Bureau of Customs (BOC) and Bureau of Internal Revenue (BIR) to close tax “loopholes”
• the full digitalization of the BOC to eliminate face-to-face transactions, which he identifies as a primary source of corruption and “technical smuggling”
• launch a strong campaign against the illegal importation of palm olein (which hurts the local coconut industry) and smuggled cigarettes, which he estimates costs the government billions in lost excise tax revenue. 

Like the novel Don Quixote de la Mancha by Miguel de Cervantes Saavedra, its storyline was regarded differently in different ages — than when first published. In the 19th century, it turned into a forceful commentary to bring social change.  

Hopefully, Dr. Arranza’s quixotic dream for the manufacturing industry may also turn into a forceful narrative to prod government action and support. – Rappler.com

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