(Part 2)
Assuming that all the countries which are part of the Luzon Economic Corridor (LEC) agreement will deliver on their commitments to help build the needed infrastructure, especially through Foreign Direct Investments (FDIs) from their respective countries, I have no doubts that if properly implemented, Pax Silica is potentially one of the most important industrial-policy opportunities for the Philippines in the next decade or so.
In addition to our attaining food security through a significant increase in the productivity of our agricultural sector and continuing struggle to improve good governance, Pax Silica, by increasing the role of manufacturing in our economy, will enable us to avoid the so-called Middle Income Trap. It is one thing for us to have attained in 2026 the status of an Upper-Middle Income Economy based on World Bank standards. It is another for us to become a High-Income Economy in the next 20 years (the target of the so-called Ambisyon Natin 2040 set by the former NEDA, now known as the Department of Economy, Planning, and Development).
A good number of the largest economies in Latin America attained Upper-Middle Income status more than 20 years ago. Most of them sadly fell into the Middle Income Trap because of mismanagement and anti-market economic policies. A few of them suffered annual inflation rates of 500% to 1,000% because of either irresponsible monetary and/or fiscal management. Fortunately, even under some of the worst political leaders, our economic technocrats have always come from the best and brightest and have over the last 30 years or so contributed to building strong institutions (e.g., the Bangko Sentral ng Pilipinas or BSP) and correcting erroneous economic policies (e.g., anti-FDI).
The merits of Pax Silica should be examined in the context of our failed industrial policy in the past. Because of ultra-nationalistic, protectionist, and inward-looking approaches to industrialization after we obtained political independence from the US, we were unable to build a strong manufacturing base at the start of our efforts to develop our economy. In contrast with our East Asian neighbors who adopted an outward-looking, export-oriented, and labor-intensive industrialization strategy, we lingered too long at the stage of import-substitution and capital-intensive industrialization (ISI). And, worse still, we completely failed to develop the countryside and the agricultural sector where poverty incidence has been the highest. This is in contrast with our ASEAN neighbors like Vietnam and Thailand that gave the highest priority to agricultural and countryside development. Very telling indicators are the single-digit poverty incidences of our ASEAN peers compared to the double-digits rates of the Philippines. Even our ability to bring down our national poverty incidence to a single-digit (9.7%) in 2025 was short-lived. The slowdown of our GDP growth rate to below 4% and acceleration of food inflation to double digit levels have brought our poverty incidence back to 15-16% in 2026.
Pax Silica has the potential of helping the Philippine economy to leapfrog to Industrial Revolution 4.0 after having failed to complete the first three stages, i.e., IR 1.0 (mechanical), IR 2.0 (electrical), and IR 3.0 (electronic). It may be too late for us to be a major manufacturer of electric vehicles, industrial machines, nuclear plants, and robots. But Pax Silica could potentially bring in activities such as advanced semiconductor manufacturing and packaging, AI computing and data center, electronics and advanced equipment, critical mineral processing, engineering and R&D, robotics and automation, supporting industries and logistics.
Pax Silica could help the Philippines finally attract the equivalent of $15 billion to $20 billion in FDI yearly, which Vietnam has been able to obtain over the last 20 years. Unless we are able to increase our Investment to GDP ratio close to the East Asia average of 30%, it will nearly be impossible for us to attain High Income economy status in the next 20 years. There is no way we can obtain that level of capital through domestic savings or through additional borrowings (we have reached our credit limit of 60-65% debt-to-GDP ratio). We just have to do more to attract FDIs.
Pax Silica could give international companies an incentive to locate production inside a trusted network of countries. If we can offer reliable energy supply, efficient infrastructure, skilled workers, competitive taxation, and predictable regulation, Pax Silica could become an important FDI magnet.
Pax Silica could create better-paying and higher-quality jobs. There will be greater demand for electrical and electronics engineers, semiconductor engineers, software developers, AI specialists, technicians, researchers, data-center specialists, and industrial managers. It can motivate government officials, industry leaders, and the academe to respond more energetically to the request made by President Ferdinand Marcos, Jr. in his second State of the Nation Address to restructure the Philippine educational system away from purely academic courses towards technical-vocational education and training (TVET). In that speech, he emphasized strengthening science, technology and innovation; developing a workforce capable of competing internationally; correcting the mismatch between jobs and workers’ skills; strengthening government-industry-labor-academe partnerships; and continuing reskilling and upskilling programs. In his words: “Science, technology and innovation will drive the quality and competitiveness of our workforce, as well as our manufacturing, export, creative and service industries.”
The most important caveat of leading economists and business leaders is that Pax Silica may just perpetuate the role of the Philippines as a mere supplier of land, minerals, electricity, water, and low-quality labor to other countries’ high-technology industries. One of the ways to avoid this is to ensure that our educational system, both formal and informal, develops world-class Filipino scientists, technicians and technologists, not merely workers who can perform basic tasks. Especially with regard to Pax Silica, if the Philippines wants to attract semiconductors, AI, and advanced manufacturing investments, the government should ensure that TESDA, universities (both public and private), and business enterprises work together to establish specialized programs in semiconductor manufacturing and testing, industrial automation and robotics, electrical power systems, data-center operations, electronics and precision engineering, water-treatment and industrial utilities, and cyber security.
So that there can be both occupational and social mobility, some of these educational institutions should cooperate to enable the students or trainees to follow a ladderized program where one can start as a technician but work their way up the academic ladder to become a top professional engineer. Some of the leading technical schools, like Dualtech Training Institute in Manila and the Center for Industrial Technology and Enterprise (CITE) in Cebu are already preparing their students, most of whom come from marginalized households, for advanced industrial training, industrial automation, precision manufacturing, CNC and robotics, electric vehicles and advanced machinery, semiconductor testing and advanced packaging, industrial digital systems and modern infrastructure and energy systems. They are doing this in close collaboration with top universities like San Carlos University in Cebu and the University of Asia and the Pacific in Metro Manila. n
(To be continued.)
Bernardo M. Villegas has a Ph.D. in Economics from Harvard, is professor emeritus at the University of Asia and the Pacific, and a visiting professor at the IESE Business School in Barcelona, Spain. He was a member of the 1986 Constitutional Commission.