Republic of the Philippines

T LE FIA GI S SER V TAE PAX A

CONGRESSIONAL COMMISSION ON SCIENCE & TECHNOLOGY & ENGINEERING (COMSTE)

1987

GOING FORWARD
How do we proceed to make Philippine S&T globally competitive?
Dr. Gregory L. Tangonan Executive Director COMSTE
The primary mission of COMSTE is to develop a strategy for the Science and Technology sector that will improve our global competitiveness as a nation. To this end COMSTE has reviewed the different sectors -Agriculture, ICT, Health, Electronics, Energy, and Science and Mathematics Education. The full review of the prioritization of projects and the critical review of the different S&T strategies are presented in the Panel reports.

Changing the way we Innovate The competitive analysis of S&T in the Philippine requires that we also evaluate the processes of Innovation in the country, asking questions like: Why is the Philippines ranked so low in scientific and engineering accomplishments, even after more the 25 years of steady investment in S&T in our major University and government laboratories? Why is the engine of Innovation elsewhere like in Japan, US, and Europe very tightly coupled with industrial development, while our processes of innovation do not result in significant technology transfer to Industry? Perhaps one very useful way of answering these questions is to appreciate that the researchers in the Universities and the government agencies that foster and do research are guided by a linear model of Innovation. Shown in Figure 1 is the linear model of technological innovation, wherein a steady flow of ideas comes from basic science - where the science is studied for the sake of science, transitioning slowly to applied research - where the finding applications of new

science, through development in industrial research and then on to commercialization and industrialization. Researchers in the Philippines are quick to impress upon funding agencies that their outputs are internationally refereed publications and since the number of PhDs in the country are so few, we are always going to be in a catch up mode. Advancement In the academe is based solely on academic metrics - papers published, number of students graduated, and international reputation. Since research takes time, society has to be patient and wait to see tangible results. Since research requires laboratories, building construction seems to dominate the strategic plans of our major University. Transitioning their technology to industry is considered very difficult because industry is considered too short sighted and too profit oriented to appreciate the long term nature of research. Industry has written off the academe as a source of new technology and investments are being made abroad instead but it is more cost effective. Funding provides the long term support for top researchers and the output will almost always international publications. The funding agencies (DOST, BAR, DOE) have no greater expectation than these publications from their researchers. Since the funding is low and the world competition in science is very costly, there is a tendency for the funding agencies to lower the expectations of researcher performance. Transition of the technology or partnering with Industry is not required and specific technical milestones are not required. Thus national R&D initiatives like the ERDT become double-billed as an effort to enhance Research for Engineering and to build the Capacity for Research of the Consortium schools. This type of dual purpose S&T programs has the effect of creating a local standard for the 'state of the art', a forgiving standard for research that is not globally competitive. Another limitation of the linear model of innovation is that major efforts to upgrade research fund projects from the bottom upward and not from a template of major challenges. The result is that major initiatives that require groups of researcher from various fields to collaborate have a difficult time merging into a coherent productive program. The linear model of innovation hinges on individual researchers to propose from within their field of expertise. Thus, in the Philippines it becomes difficult to fund the most challenging problems of our times that are highly multipledisciplinary like disaster science, telemedicine, and systems biology and genomics. Another constraint on academic researchers is their remuneration is connected to their teaching and to a research load. So the ideas generated by the most innovative Faculty members cannot be pursued with rigor (and passion) because they are not 'de-loaded' to concentrate on the research. Progress is incremental at best, in a time when major breakthrough happen worldwide. With the recent path passage of the Technology Transfer Act, the academe can commercialize technology without conflict of interest. The linear model of innovation gave way more than a generation ago in the U.S. and Europe to a nonlinear model that short circuits new ideas and take them very quickly to the marketplace. Today the transition of new scientific breakthroughs hit the marketplace extremely fast. When the leukemia wonder drug, Gleevec from Novartis, was being tested in clinical trials in UCLA, researchers found that in advanced cases the drug effective diminished. Their findings that the
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disease had mutated in the advanced state became a model for designing new cancer drug. UCLA researchers published these breakthrough results in Science, almost simultaneously with the patent application to cover the new drug design approach. Novartis was one of first companies to license the technology and to create new IP based on these insights. Apple picks the state of the art of touch pad technology for its new iPhones and whole industries pivot towards the new approach. All this happened in the span of one year. Similar quick transitions to commercialization happens in a wide variety in the top Universities and research institute. The contrast with the Philippines cannot be more stark. In universities like Stanford, Harvard, Cal Tech, and MIT it is very common for Faculty members to own their son companies. Industry participates in the research from the very beginning, running the gamut of basic, applied, commercialization and industrialization in one complete maneuver. The research is highly multiple-disciplinary on collaborative with other research Institutions worldwide. The research is a response to Grand Challenges like Human Genome Program, Nano-technology for Biomedical Applications, Super-computing for Systems Biology. Japan, for all its Industrial Research might, started to adopt a more progressive model of university research this decade, as a way to break out of the linear model of innovation. Till now the new Technology Licensing Offices in Japanese universities are not really the engines of innovation that the offices in the US and Europe are. So even if there is no doubt that Japanese believe that innovation and technology are vital to national security and wealth, they still have yet to harness their academe into the process of wealth creation as well as the US and Europe (Whittaker 2001), In contrast no such techno-nationalism can be found in the Philippines, precisely because our Institutions have yet to deliver much to the impression of the Philippines as a nation of technoinnovators. The research proposal evaluation process is highly competitive, with intense review of the project proposals and close progress monitoring. Industry participation in the research is almost guaranteed because the Faculty (and students like the Google founders) are encouraged to commercialize their work and presence of Innovation Centers on campus that attract Industry partners. Promotion of Faculty takes in the standard measures of publications and the transitioning their research into contracts and commercialization. In many Universities, full professors have come from a long tenure in Industry.

We know we need to change For the Philippines to be globally competitive in R&D, we must adopt the processes of Innovation being used by the very best. To rapidly change the mode of innovation in the country, we propose the following measures: Implement a comprehensive review of the funding of research (similar to zero based budgeting) and require proposals to include concrete milestones and deliverables, a detailed analysis of the current global state of art of the field of investigation and the state of commercialization of the technology, and a list of collaborating researchers and Institutions.
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The more fundamental the research the more collaboration is required with international partners. Align the research with national S&T programs like Food Security, Disaster Science, and Regenerative Medicine to promote multi-disciplinary collaboration locally and internationally. Sharing of equipment internationally will be encouraged as opposed to outright purchasing. Cost sharing by Public-private partnerships or international S&T programs will be highly encouraged. The funding agency must establish a rigorous scientific rigorous proposal evaluation process, a program monitoring process, and linkage to industry partners. The proposals must fit into the strategic national S&T plans. The review of proposals must be based on technical merit and probability of success of the team and should be carried within 3 months of the end of the closing date for proposals. Industry participation is required in the evaluation process to ascertain the commercial potential of the research. Here the degree of collaboration by the proponents with other researchers and industry will be an important criterion. Proposals that show substantial leveraging by S&T collaboration will be given preference.

Basic Research

Applied Research

Development

Commercialization

Repu
T LE FIA GI S SER V TAE PAX A

CONGRESSIONAL COMMISS

Figure 1. The classic Linear Model of R&D that has dominated S&T initiatives for more than a generation in the Philippines. The dynamic of slow transfer of technology to meet societal and industry needs is explained by the scholarly process of PhD driven academic research that regards paper publication as more valuable to creation of jobs and new industries. Industry does not drive the process. (after Wessner)

Basic Research

Applied Research

Development

Commercialization

Figure 2. Nonlinear model includes Innovation feedback loops where new ideas can be developed anywhere in the process and quickly transitioned to commercialization. The agents of rapid Innovation are highly entrepreneurial, professors and students becoming new company owners. World class innovation gets published in highly recognized journals, as Intellectual Property rights also get protected. (after Wessner)

S&T Programs Coupled to National Economic Plan Innovation and Science and Technology must become an integral part of the National Economic Development Plan. With the top three US companies (Exxon-Mobil, Apple, Microsoft) being technology driven companies, many countries have already recognized how technology drives prosperity. In these countries there are national projects aimed at strategic initiatives like the NIH Cancer Genome Atlas, DARPA Programs in ICT, DOE - Algae for Fuel, and NSF research thrusts. For the Philippines we need to focus our resources into a high priority national projects. This short list, properly focused on to key issues for national development, will allow us to leverage collaboration with local Industry and international research teams. Here is a list of priority research and development areas formulated by COMSTE to contribute to major economic thrusts: Disaster Science / Disaster Preparedness Health and Wellness Care Systems for Remote Areas Biotechnology for Food Security and Health

ICT for Agriculture, Health, and Governance World Class University S&T and Technician Certification By organizing the S&T projects in this way, we can align our thrusts with similar national thrusts. In our experience we have found that National Research Council of Taiwan, for instance, was very interested in our list, since it enabled them to see how our priorities aligned with theirs. This becomes the basis for international collaboration. International collaboration is crucial to creating a highly leveraged S&T program in the country because we can attain leverage of 100 time by collaborating in way. At present we are spending 0.1 % of GDP on research and this is far below the recommended levels of investment of 1 %. By leverage the international alliances in research, we can be effectively at a much higher rate of investment in the major thrusts. This is the secret of how the US and the EU is sponsoring research, by bringing together collaborative, multi-disciplinary teams of researchers to address major themes. Going it alone, using our meager funds for closed-shop innovation is a losing strategy that will not create the radical change on the way we innovate that is sorely needed. Probably the best example here is that of Disaster Science and Disaster Management and how this is Taiwans number one science priority. After the last major typhoon that killed more than 700 people, the previous government was hard pressed to explain why they were ill-prepared to prevent this major catastrophe. The present government of Taiwan was very eager to collaborate with COMSTE in Disaster Management, when we voiced this as our priority as well. A series of visits and technology exchange and scholarship programs are being programmed along this one theme. Thus we can leverage Taiwan, China, Japan, Korea, and Thailand into an Asia wide research program on disasters. Our government agencies like PHIVOLCS and PAGASA can be participants in the projects and will certainly benefit from sharing model calculations of typhoon and disaster damage predictions, as being practiced in the region. Clearly collaboration means for us leveraging of S&T investment. Throughout the region Research Institutes are sprouting. In Singapore alone there is the Genome Center, In this context we can create a listing of strategic alliances that we should target for country to country S&T collaboration. Examples are given below in the following list: Brazil for the ethanol - fuel mixtures, harvesting, plant production, and the use of hydrous ethanol in high mixtures, Taiwan for electric car electronics and batteries for our new Philippines E-Vehicle consortium, USA for algae systems, front-end research on natural species optimization for rapid algae production, given their $200 M project in Algae systems,

Japan for remote sensing technology for Food Security and Disaster Science, given the new JAXA - ADB initiative to use satellite technology for sustainable development, Japan for developing the trained personnel in Nuclear Technology and to develop a strategy for nuclear power deployment in the Philippines that is safe and economical. EU for expanding telemedicine-based medical care to remote communities, Canada and Australia for mining technology and environmental remediation of mines.

Thus a highly coordinated S&T strategy for targeted alliances can be aligned by the government as country to country technology development that will bring innovation into our national economic development. Having a coherent list of priority requests for S&T assistance is highly preferred by different countries, since they see we are also investing our own resources as matching funds (or seed money) into these projects. Leveraging the S&T coming from Foreign Direct Investment (FDI) in Technology-driven projects. When the North Sea oil was beginning to come on line, many oil companies want to join Norway in developing the off-shore oil. Norway insisted the oil companies adopt a research university and sponsor S&T projects in science and engineering. This they have done now for several years, and it has proven an invaluable boost to innovation in Norway. With this as a working example we can appreciate that our S&T Strategy ought to be tightly coupled to the FDI that have a strong technology base - Biofuels, Solar and Wind Energy Systems, Infrastructure Development, Mining, Semiconductor Manufacturing, Pharmaceutical and Alternative Medicine, and ICT Services. These new business will best be sustained if the Knowledge Capital of the country can support them with highly qualified engineers and scientists, small and medium companies that deliver technology services, and vital university expertise. Moreover Global Reporting of Sustainability requires that these investors behave with the highest ethical standards with respect to developing local expertise and guaranteeing technology transfer to the host country. The leverage for the S&T funding by way of tightly coupling the technology transfer and SME development in support of FDI is probably 1000 times. Consider one example of the Sagittarius Mining Project in Tampakan, Mindanao. This FDI represents $ 5B worth of investment in mining operations and infrastructure development like a port and a 600 MW power plant. By entering into an S%T plan with this investment we can address the following issues that directly address the viability of this new business: Where will the skilled workers come from, if not from upgraded Universities and Polytechnic training from Filipino Universities nearby the project? Where will the new laboratories for environmental monitoring come from, if not from the local Universities like MSU, AdD and Xavier University? What waste remediation technologies that are developed locally will be used and how will they be developed?
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This kind of dialogue with potential investors recognizes that local engineers, scientists, and highly trained technicians are crucial to the sustainability of technology- driven business. It also recognizes that complete laboratory testing facilities and training for technicians can (and should) be built by the Industry that requires them (with government help). Thus FDI can lead to a large leveraging of S&T investment in the Philippines.

Reference: Charles Wessner, Director, Technology and Innovation Research Council of USA, FOSTERING KNOWLEDGE AND INNOVATION IN THE USA, presented at Innovation and Competitiveness Practitioners Conference, Istanbul, Turkey, 2004. D. H. Whittaker , Director, ESRC Center for Business Research, Cambridge University, CRISIS AND INNOVATION IN JAPAN: A NEW FUTURE THROUGH TECHNO-ENTREPRENEURSHIP?, WP 193. March 2001

PANEL REPORTS
AGRICULTURE AND FOOD ENERGY AND ENVIRONMENT HEALTH SCIENCES IT AND IT-ENABLED INDUSTRIES SCIENCE, MATHEMATICS & ENGINEERING EDUCATION SEMICONDUCTORS AND ELECTRONICS

AGRICULTURE and FOOD1

OVERVIEW The Panels first report highlights the use of science and technology (S&T) to increase Philippine participation in the global food market both for fresh and processed food. Identity preservation and traceability, as well as, the compliance with product standards of the various importing markets require a robust S&T infrastructure that will provide the credible technical support and information in a timely manner. Agricultural produce have limited shelf life and have to be distributed in the most expeditious way. On the other hand, the domestic market must also see to it that global quality standards are adhered to by food products that are imported or produced locally.. The Filipino consumer must be always be assured that all the food they eat is safe regardless of its origin and mode of production. A functional research and development (R&D) infrastructure is a necessary but not sufficient requirement in new product development. A robust R&D system can easily respond to market information so that new and next generation products with the Philippine brand name can be successfully introduced into the domestic and global food market. Given the current market situation where product quality and product safety are important elements in being competitive, quality and safety assurance and the reliability of supply can spell the difference between success and failure in the market. Research and development can play a crucial role in sustaining competitiveness of Philippine food products in the highly competitive global market.

Prepared by the Agriculture and Food Panel composed of Dr. William Padolina, Dr. Jose Bacusmo, Dr. Ponciano Batugal, Dr. Nicomedes Eleazar, Dr. Raul Herrnandez, Dr. Bartolome Lapus, Dr. Luis Rey Velasco, and Dr. Arsenio Balisacan as Adviser 10

THE AGRICULTURAL SECTOR AND RESEARCH AND DEVELOPMENT Agricultural R&D is crucial in increasing productivity and competitiveness. Although the productivity of this sector has grown over the last four years at a modest pace of about 4%, this is not enough to meet the needs of the countrys growing population. A 2005 study by SEARCA2 showed that in rice, for example, a 3.5% average growth rate in production is needed just to meet rising population demands, the slight increase in per capita rice consumption, and the build up the countrys rice reservesa mean yield improvement that is 2.5 times higher than that in the 1990s. The same study shows that Philippines suffers from productivity crisis in agriculture and agricultural research, development and extension (RD&E). The Philippines agricultural research intensity ratio (to agricultural GDP) in the mid-1990s, even until now, is 0.4%, Malaysias is 1.1% and Thailands is 1.6%. This underinvestment in RD&E is thought to be one of the main reasons why the Philippines fared poorly compared with countries in the region in yield and productivity for nearly all crops except corporate-based fruits. To be competitive, the country needs to raise its current 0.4% agricultural research intensity ratio to at least 0.75% in 2010 and at least 1.5% in 2020. In terms of public R&D spending, Stads et al.3 report that the Philippines accounted for less than 3% of the Asia Pacific regions total expenditures during the 1981-2000 period. Furthermore, the growth in the number of agricultural research agencies and staff has stalled after 1996. The underinvestment to agricultural RD&E in the Philippines is quite unfortunate since a large part of the population (of whom most are rural poor) depend on the agricultural sector for employment and income. The Philippine Daily Inquirer not long ago published a column reporting that, for the last four years, roughly 40% of the countrys labor force (around 12.2M persons annually) are employed by the agricultural sector. Moreover, nearly half of the reported 1.28 Million jobs created between April 2007 and April 2008 came from the agriculture sector; however, the report also shows that more than half of the new jobs are of low quality.4

Formulation of Investment Policy Report and Indicative Investment Plan for Agriculture and Fisheries Research, Development and Extension. Presented by Dr. Ponciano Intal, Executive Director of the De La Salle Angelo King Institute at the COMSTE Agriculture and Food Panel Meeting on July 8, 2008, at the BAR Conference Room, Quezon City
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Stads G, Faylon P, Buendia L. 2007. Key Trends in Agricultural R&D Investment in the Philippines. ASTI Habito, C. Good News, Silver Linings in These Uncertain Times. Philippine Daily Inquirer. October 12. 11

Although there have been improvements in agricultural RD&E since the 1990s, much remains to be done to strengthen RD&E systems, institutions, research facilities, infrastructures, and human resources.

TWIN GOALS OF FOOD SECURITY AND COMPETITIVENESS: THE STRATEGY Issues and concerns in the Agriculture sector are numerous and multi-faceted. Given the limited resources, the Panel has come up with a model (Figure 1) to focus its initiatives to revitalize Philippine Agriculture and achieve the twin goals of Food Security and Global Competitiveness. This model focuses on the export market, with Asia and the Middle East as target destinations. Success in this market would have positive effects to the domestic market and address food security in terms of increased availability, accessibility and affordability of products. Partnership from the public and private sectors would strengthen R&D, Financing, Marketing, Infrastructure, Institutions, and Human Resources Development. Such are needed to obtain product niches in New Food Products, Marine Products, Tropical Fruits and Seasonal Produce for export. Moreover, close partnership between the two sectors would provide much-needed market intelligence.

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Figure 1. Model to revitalize the Agriculture and Food sector with focus on the export market

Focus on the Export Market For Food Security, the Panel believes that the Government has enough existing projects and programs aiming to address this matter through improving productivity to attain a certain level of self-sufficiency. The Department of Agriculture (DA), through its various bureaus and attached agencies, implements its so called Ginintuang Masaganang Ani (GMA) banner programs, which include: GMA Rice Program GMA Corn Program GMA High Value Commercial Crops Program GMA Livestock Program GMA Fisheries Program GMA Sugar Program GMA Coconut Program GMA Abaca Program GMA Tobacco Program

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More recently, the DA, after a nationwide consultation, launched its FIELDS Program which stands for Fertilizer, Irrigation, Extension, Loan, Dryers and other post-harvest facilities, and Seeds. Hence, the Panel deems it best to focus on the export market, fully aware of the significant spill-over effects such an approach may have to the domestic market. Technologies, processes, and institutions needed to improve quality, lessen costs and increase production to meet global standards could also be applied in the local market. Access to a global market would also address food security concerns by increasing income of the Filipino, therefore, access to and capacity to buy his own food requirements. In brief, the ability to compete in the export marketing of agriculture and food products can be greatly enhanced by the judicious application of science, technology and engineering (ST&E). These can help prolong the freshness and increasing the shelf life of our agricultural products, decrease the cost of inputs, develop new packaging techniques, processing procedures, and, in general, attain the capacity to develop new products and improve existing ones.

Target Market According to the Department of Trade and Industry, and as stated in the Panels earlier report, processed food exports in 2007 were valued at US$ 1.48 Billion (13.39% increase from 2006). For the period January to September of 2007, about $2.2 billion represented the share of agriculture in terms of exports. Developed nations such as the United States, Japan, the Netherlands, Taiwan, and Korea were some of the leading destinations of our products. The Panel recommends that markets in Asia and the Middle East be explored, in addition to maintaining trade relationships with established destinations. Gehlhar and Regmi5 of USDA-ERS report that although market sizes are much larger in highincome countries, market growth has generally been faster among developing countries. And with young and growing populations in Asia, such as in China and India, there exists an increasing demand for products like baby food and milk. Indeed, China displays big market potential, with over 100% increase in meat consumption of 20kg/person in 1985 to 50kg/person in 2008. There is also water shortage in 400 of 600 largest cities in China, which may affect production and its ability to meet the populations demand. Furthermore, an increase in the number of supermarkets over the last decade in Asian developing countries and rising income levels have resulted to an expansion of consumer demand for many high-value processed food products. This is an opportunity that the Philippines can tap. In 2007, processed food accounted for almost half of last years total food exports (US$ 735.03 Million, a 26% increase at US$ 583.09 Million in 2006).

New Directions in Global Food Markets, Regmi et al, February 2005 Market Access for High-Value Foods, Regmi et al, February 2005 14

The vast majority of the baby boomers population (1 Billion persons) is also located in Asia. This generation (births during 1946-1964 period, currently 42 to 60 years old) is characterized by a generally high disposable income and an increasing concern to ward off diseases and maintain a healthy and active adult lifestyle. These are potential customers of the emerging global food market of around 2 billion customers, including their children and households. 6 Meanwhile, the prospects for the Philippines to participate in the export market in the Middle East is also very high especially with a Halal certifying body in place in the country, as well as a large number of Filipinos in that region. Almost half of Filipinos working abroad in 2007 were in Saudi Arabia, Qatar and UAE7.

Product Niches In addition to the traditional exports of the Philippines, among which desiccated copra and pineapples take the lead, the Panel identified the following product categories as possessing high potential for export and meriting R&D and S&T interventions: New Food Products, Marine Products, Tropical Fruits, and Seasonal Produce. It is believed that success would come from identifying a product niche and becoming the best at that. New Food Products Market studies show that there is a growing market for Boutique Products, especially in developed countries where food sales are influenced with consumer preferences for greater product variety and possessing specific attributes like those perceived as healthier or more environment-friendly. These are products that can be considered novel, specialty, or exotic and can extend from the labor-saving, ready-to-eat meals to organic, functional, and fresh foods. Examples of these are colorful ARS-bred carrots, packed with healthy pigments to punch up nutrition level; colored potatoes with anti-oxidants; rice with less phytic acid that can enhance human absorption of minerals; and probiotic products with live cultures to aid digestion and immunity. Figure 2 shows how products offer more and more added value and benefits (McGinnis and Wood, 2008). With longer life-expectancies as well as costs associated with chronic diseases, people are now, more than ever, conscious of what they eat. This has catapulted the value of the healthy foods market into billions of dollars. The worth of the US and European natural food and drinks market was estimated at $11.7 Billion in 2005 and is expected to reach $19.2 Billion by 2010. Innovation trends and new product growth opportunities are seen in this market despite strict health claims regulations.8
6 7

Fortifying Foods for the Baby Boomer Market --- Technical Paper. 2006. Keeping Afloat. Global Source. Bernardo R, et al. July 2008. 8 www-t.decisionnewsmedia.com/nl/jsp/m.jsp?c=46e47d861482418579 Accessed 9/22/2008 www.nutraingredients.com 15

The Panel has identified coconut sugar as a potential boutique food. Also, our coconuts can be marketed to highlight the special characteristic of having high levels of medium chain triglycerides that have beneficial health effects. The high melting point of Philippine cocoa also makes it ideal for chocolate production. Mars Inc, the worlds largest confectionery company, is ready to buy when were ready to sell and has in fact extended support to the Cocoa Foundation of the Philippines Inc to increase production. The countrys cocoa bean production has averaged 5,600 metric tons since 1999 and is in fact importing 36,000 metric tons mostly from Indonesia to support its average annual consumption.9 Regional products or Ethnic Foods is also growing in popularity. It has been reported that globalization of food preferences has increased the demand for ethnic cuisine. With an initial target market of 8.5 Million Filipinos abroad, the Panel feels that the Ethnic Foods market is something the Philippines can participate and excel in. The growing demand for foreign flavor is an opportunity for the export of Philippine spices like pepper and labuyo. Spices are essential in most Asian ethnic cuisine and in the global processed food industry. Furthermore, it is predicted that the demand for spices will continually increase to make vegetarian or emerging non-traditional food, like the soy protein extract as meat substitute, more palatable. Fleur de Sal (flower of salt) is found in Bohol; it may be worth the effort to study such a higher value salt product.

Leyco, C. Mars chocolate maker eyeing RP cocoa beans. Manila Bulletin. June 13, 2007. 16

Figure 2. Benefits offered by top ten new food and beverage brands, Pacesetters, introduced February 2004 to January 2005. From IRI (2006a)

Marine Products Our top products for exports are tuna, carageenan, seaweeds, prawns/shrimps, and octopus. Export potentials for the following are worthy to be explored: mariculture of new species (abalone, sea urchins, scallops, garoupa); tilapia (fresh, frozen, fillets); mussels; octopus and squids; and milkfish preparations and dried fish products for ethnic Filipino markets. Hongkong is a big market for live fish. Also, we have developed a pearl farming industry in Palawan, which can be down-sized into family-sized activities to give bigger profit to the farmer rather than the middle men.

Tropical Fruits According to the European Commission (2007), there has been and increasing trend in the global export for fruit and vegetables, both fresh and processed. In fresh fruits, the demand has more than doubled since 1982 (Figure 3). To participate in this promising market demand, the country needs to deepen its comparative advantage, improve the quality of the stock of fruit trees, have a wider range of export-quality fruits, upgrade post-harvest systems and supply chain, and expand hectarage of fruit trees.

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Figure 3. World F&V Exports (European Union 2007)

The fresh and processed forms of pineapples and mangoes are among the leading exports of the country in 2007, amounting to more than US$ 167 Million. Aside from these, the possibility of reviving the citrus industry in Batangas can be studied. For example, mangosteen and pomelo have been identified as having high market potential. Compared to the Thailands and Chinas, the Philippine pomelo from the provinces of Davao and Cotabato is superior in taste but faces a number of disadvantages that ST&E could address. Below is a comparative evaluation for pomelo, which reflects some difficulties that may be found in most fruit export that can be addressed by ST&E.

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Table 1. Comparative Evaluation of Thailand and Philippine Pomelos (Citrus grandis)

Attribute Taste Seeds Skin Content recovery Texture Juice content Shelf life Thailand Sweet-sour, sour Plenty Very good appearance, smooth skin but thick and hard to peel Less content recovery per weight basis because of the thick skin Easily breaks apart, not ideal Thin Longer shelf life due to good harvest, post-harvest, and packaging techniques Large-scale farming It can be shipped directly to importing countries; only handling is required. Philippines Very sweet, sweet-sour Seedless (aborted seeds) Destroyed by pest/disease More content recovery from the fruit per weight basis Firm, ideal Juicy Shorter shelf life

Size of production Shipping & handling cost

Small- scale farming Agri-produce in Mindanao of Visayas has to be shipped to Manila for the export market.

Seasonal Produce Products that are not available for the entire year can bring market opportunity for the product that can act as substitute. Also, the market demand for particular products could be constantly met and taken advantage of if production would be extended even during off season. For instance, the Thai lemon that is widely used in Thai cuisine is seasonal; we can export a substitute for it or apply R&D in order to produce it even during off season. For mango, we can take advantage of the fact that the fruiting season in Mindanao is different than in Luzon, giving us yield all-year-round. Commercial/Agricultural Attaches The above-mentioned product categories are those that we might like to look at in the world market, but there is a need to develop methods for assessing the markets through market intelligence and develop product standards. There must be a feedback mechanism, or an alert system, where market intelligence and current market trends are relayed to the research community who could work on the technical requirements of the market and respond in a timely manner, making our research agenda active and market-driven instead of reactive and supply-driven. Here the role of private sector and the commercial and agricultural attaches is vital. At present, there are only four agricultural attaches posted abroad. The Panel recommends to professionalize the selection process of the agriculture/trade attachs or to diversify the commercial attachs role to include agriculture in order to meet the needs of our agricultural products abroad. Commercial attachs with specific responsibilities for agriculture can be appointed; the new attachs, trained in agriculture, will go through the same screening process, and this will be to the countrys interest. Aside from professionalizing the attachs, it is also important to study if current funding is adequate for them to carry out necessary tasks effectively. Another option to generate information on the

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export market is to tap agriculture graduates who are based abroad since they are stationed all over the world; they could be deputized as information sources.

Private-Public Partnership The Panel recognizes that a concerted effort from the different sectors is key in achieving its goals. Joint venture arrangements between the government and the private sector can be made to share the cost and returns of R&D. Research institutions should coordinate with the private sector in order to determine what technologies are needed by the industries so that R&D is geared towards addressing their markets requirements. The public sector has research skills for technology generation, and the private sector has the expertise to adapt the product to specific markets, test the product widely, and undertake market development. Hence, intermediaries who can think and perform with the speed of private business but are analytic as the academe and policy-oriented as the government must be put in place to provide a timely response to the dynamic market. It is for this reason that the Panel recommends that a Partnership Council composed of the public and private sectors be formed, with the latters rowing according to the formers steering. Aspects that both sectors can share are R&D, Marketing, Infrastructure, Institution, Human Resource Development, and Finance. Some examples of institutions with public-private partnerships are the China Consulting Association, Malaysia Palm Oil Board, and the ATSE Crawford Fund. The engagement of both sectors is illustrated by Figure 4. Both sectors have high engagement for R&D. Engagement of the public sector decreases, but does not fully stop, towards product marketing as this is best left to the private sector.

Public
Engagement

Private R&D Product

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The formation of a Partnership Council can also address the problem of unsustained R&D budgets and the waning budget of research institutes. As in the Crawford Fund, it is proposed that there should be yearly core endowment from the Government in the amount of P5 Billion, with incremental external fund. This would provide institutions an increase in their Maintenance and Other Operating Expenses; purchase of machineries and equipment; development of needed facilities and structures; incentives for R&D to even include funding for travel done to expose scientists to new technologies and upcoming trends abroad for invention or innovation. It should also have special auditing rules so that there would be immediate and timely start of initiatives/research or termination if findings are insignificant or no longer relevant. The Stakeholders and their Roles Private: 1. Farmers 2. Manufacturers, Processors, Exporters (Philfoodex) 3. Logistics providers 4. Retailers Public: 1. Department of Agriculture a. Bureau of Agricultural Research b. Bureau of Plant Industry c. Bureau of Animal Industry d. Bureau of Fisheries & Aquatic Resources 2. Department of Science & Technology 3. Department of Trade and Industry 4. Department of Foreign Affairs Production Aspect Farmers (individual, group, or corporate) does the actual production of the commodity identified or targeted for export, may also do own research Department of Agriculture facilitates in the provision of credit, inputs and technical assistance, does research on efficient production, postharvest, and processing, etc. Department of Science & Technology does advanced research on agriculture and food technology Department of Trade and Industry does export market research and intelligence (identifies potential agriculture and food products and markets), promotion of Philippine exports Department of Foreign Affairs helps in market intelligence, establishes partnerships with foreign markets

CREATING INCENTIVES

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The Panel believes that there is actually very little that Government needs to do to incentivize the private sector to be in partnership with the Government or engage in R&D. In fact, the private sector plays a relatively important role in conducting Philippine agricultural R&D. The aforementioned study by Stads et al. shows that private sector investments for the 1981-2002 period include 16% of the countrys total agricultural research staff and 18% of the total R&D spending. Industry players surely appreciate that the time it takes to identify a product consumer wants and being able to grow, process, and sell it has been shortened; success, then, is driven by the capacity to integrate and establish partnerships. Still, the Panel thinks that the following could further encourage especially the private and educational sectors: a) The Government and Industry can share R&D expenditures for projects lasting 5 to 10 years. It was reported10 that private sectors usually fund R&D projects that would bring profit in 5 years, while the Government can afford to fund longer projects because it also considers social benefits (may take longer to obtain). Hence, the Government can take part in projects that would last beyond 5 years and share in costs that the private sector cannot afford. b) Government scholarship policies, particularly of DOST, must be adjusted in that students must be allowed to get as many financial aid as possible to encourage higher learning and research. Grants should also be shared among various fields/disciplines; for example, a project grant for agriculture is shared with the fields of biotechnology or engineering. c) Perhaps foreign scientist should be brought in the country to enrich our knowledge base. This may help set a more globally competitive local environment while our PhDs are being trained abroad. Moreover, this would improve local compensation packages.

MAINTAINING COMPETITIVE FUNCTION OF VALUE CHAIN A management system composed of the following must be adopted to ensure that value chain would function competitively: Improve database. Remote sensing can be used to validate ground survey on relevant information, for example of supply for raw materials, amount of land allocated to a particular agricultural resource. Improve market intelligence Establish a Food Research Center with state-of-the-art product testing and analytical laboratories Establish regional packaging centers Improve food engineering and postharvest processing capability Increase budgets on R&D institutions Allocate financing for biocommerce ventures
10

COMSTE Meeting. October 6, 2008. Sofitel Hotel, Pasay City, Philippines. 22

Establish predictable legal environment. Bankruptcy laws must be reviewed to promote investment and entrepreneurship. Likewise IPR regime, CARP, and other regulatory structures must be reviewed.

SOURCES OF FUNDING Long-term commitment in funding is crucial to achieve and sustain positive effects. As possible source of funding, the Panel has initially identified the following: Public Law 480 of the United States (PL480), also known as Agricultural Trade Development Assistance Act Agriculture and Fisheries Modernization Act (AFMA) Kennedy Round (KR2), now known as Grant Assistance for Underprivileged Farmers under the NEDA-Productivity Enhancement Program Agricultural Competitiveness Enhancement Program Philippine Amusement and Gaming Corporation The Coconut Levy Fund Reformed Value Added Tax (RVAT) Science tax, from technology-based gambling The Marcos wealth

IMPACTS OF THE CURRENT FINANCIAL CRISIS ON THE AGRICULTURE SECTOR Global food prices have recently skyrocketed as fuel prices increased and as more grains go to biofuel production or consumed by exploding populations. The situation was certainly worsened by the troubled US economy, bringing in a global financial crisis. Expectedly, an economic slump would decrease the purchasing power of the people to avail the higher costs. The increase in the costs of inputs and the increase in demand caused by hoarders and panic buyers can drive food prices to greater heights. If we are not careful imported goods that could be cheaper than locally-produced goods would end up feeding us as people seek out cheaper alternatives. Looking positively, the expected medium to long term impact is the increased focus on raising industrial efficiency which could be viewed as an opportunity for the Philippines. Also, the economic slump may be viewed as a gestation period, providing preparatory time to sort out its strategy so that it will be ready once the economy bounces back. And while in this difficult time, it is best to put emphasis on the champions that the Panel has identified to generate revenue.

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Ultimately, the productivity crisis in the Philippines compared with its neighbors has always been there and needs to be solved, regardless of the presence of a global financial crisis.

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ENERGY AND ENVIRONMENT REPORT

Chapter 1 Introduction
1.1 Country Overview

Geography The Philippines, officially Republic of the Philippines (Republika ng Pilipinas), is an archipelago of about 7,107 islands and islets lying about 500 miles (800 km) off the southeastern coast of Asia, covering a land area of about 115,800 square miles (300,000 square km). The country spans about 1,150 miles (1,850 km) from north to south at its longest extent and about 700 miles (1,125 km) from west to east at its widest extent. It is surrounded by the Pacific Ocean, bounded by the Philippine Sea to the east, the Celebes Sea to the south, the Sulu Sea to the southwest, and the South China Sea to the west. The three principal islands of the Philippines are Luzon in the north, Mindanao in the south, and Visayas at the center.

The Philippines have a maritime tropical climate with temperature variations being almost entirely a result of elevation. Manila, its capital, has an average annual temperature of 81F (27C). The archipelago is well watered, with the western Philippines having a distinct dry season. Typhoons frequently strike the more northerly eastern coast. More than one-third of the country is forested, having a large variety of hardwoods such as lauan (Philippine mahogany) as well as softwoods, including pine.

The Philippines is rich in mineral resources. Deposits of gold, silver, iron ore, copper, lead, chromite, nickel, manganese, and limestone occur in commercial quantities. Limited petroleum reserves are located in the island of Palawan, the isolated island southwest of Luzon.

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Demography The people of the Philippines (who are called Filipinos) are predominantly of a Malay stock frequently admixed with Chinese and sometimes with American or Spanish ethnic groups. More than four-fifths of the population is Roman Catholic, and a sizeable minority is Muslim; some of the population belongs to Philippine Independent Church (Aglipayan) and others are mainline Protestant.

The estimated population in the Philippines is 97.98 million, with a population growth rate of 1.96% (CIA, 2009). Life expectancy at birth averages at a value of 71.09 years for the total population. Population density is relatively high, with nearly two-fifths younger than 15 years of age. Heavy migration from rural to urban areas has caused overcrowding, particularly in metropolitan Manila.

Economy The economy of the Philippines is based largely on agriculture, light industries, and services, with a GDP composition by sector of 14.7% agriculture, 31.6% industry and 53.7% services (CIA, 2009). The Philippine economy grew at its fastest pace in three decades in 2007 with real GDP growth exceeding 7%, but growth slowed to 4.6% in 2008 as a result of the world financial crisis. High government spending, a relatively small trade sector, a resilient service sector, and large remittances from the four- to five-million Filipinos who work abroad have helped cushion the economy from the current financial crisis.

Government The Philippine constitution of 1987 (which replaced the Constitution of 1973, as amended in 1981 and 1984) vests executive power in the president, the head of the state, who is directly elected to a single six-year term. The President appoints the Cabinet, which is responsible for the day-to-day administration of the country. Legislative power is vested in the bicameral Congress of the Philippines, consisting of a 250-member House of Representatives and a 24-member Senate. The judicial system is headed by a politically independent Supreme Court.

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1.2 Energy Overview

The Philippines local reserves of traditional energy are relatively small with only about 24 million cubic meters of crude oil, 107 billion cubic meters of natural gas and 399 million tones of coal, mainly lignite (APERC, 2009). However, the country has extensive geothermal resources that could make the economy the worlds largest producer and user of geothermal energy for power generation. In addition, there are other renewable energy sources (e.g. solar, wind, biomass, hydro and ocean) that are theoretically estimated to have a power generation potential of more than 250,000 MW.

1.2.1 Energy supply and demand

Energy security has been a major concern in the country with our strong dependence on imported sources. The country has always been and will continuously be vulnerable to international energy market situation unless this is addressed. The vulnerability illustrated is by the undue economic strains encountered by the country during the oil price shocks in 1973 and 1979, the Iran-Iraq tanker war in 1981-1988 and the gulf war in 1990. These episodes in the countrys history elicited various actions to ensure the energy supply in the country. The 1973 crisis accelerated the search for local petroleum and other indigenous energy sources including geothermal, hydro and nuclear systems. In addition, programs on renewable energy systems development were launched as well to aid in the governments thrust towards energy security. Because of these efforts the domestic energy share increased to 31% in 1982. However, the local energy share of 38% in 1987 fell short of the 50% projections primarily due to the shelving of the nuclear energy program in the mid eighties. Nevertheless, these endeavors cushioned the impact of the succeeding world oil crisis.

The most recent global energy crisis however takes a different nature. In addition to the Middle East peace and security concerns, the drastic oil price surge, to a large degree, is attributed to the diminishing levels of fossil fuel reserves in the world. Currently, the country has the highest

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electricity and fuel price per GDP in Asia. While very recent figures have shown a big drop in world oil prices, it could go up anytime again in the future. Crude oil prices behave much as any other commodity with wide price swings in times of shortage or oversupply. The crude oil price cycle may extend over several years responding to changes in demand as well as OPEC and nonOPEC supply and World Events as illustrated in Figure 2.

Figure 2 Crude Oil Prices from 1947 May 2008 (WTRG Economics, 2009)

The recent drop in prices has been attributed to deteriorating demand due to the global economic crisis. The higher than expected U.S. crude oil inventories jump is further evidence that the recession is choking the economys demand for oil. The IEA forecast for 2009 indicate that the world will consume a full 1 million barrels per day less this year than last year. OPEC however emphasizes that low world oil prices currently could choke upstream investments and could lead to another price hike in the future (Johnson, 2009). With these uncertainties, the country should strive to cut down on its dependence on foreign energy source.

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Oil utilization in 2007 accounted for 35.6% of the primary energy use of the country, 96% of which is sourced externally (see Figure 3). Renewable sources on other hand accounts for 31.9% of the energy mix and is dominated by geothermal energy followed by biomass and hydro energy. Coal, which accounts for 14.9% of the mix, was largely imported while natural gas accounts for 7.7% of the primary energy.

Figure 3. 2007 Philippine Energy Mix (DOE, 2008)

The construction of new natural gas and coal power plants are on the pipeline which is expected to increase their share in the countrys power mix. Oil however is expected to continually play a major role in the countrys primary energy requirements (see Figure 4) primarily to the continued dependence of the transport sector to fossil oil.

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Figure 4. Primary energy projections (APERC, 2006)

On the demand side, figures indicated that primary energy consumption demand declined by 4.0 % in 2005 compared to the previous year (see Figure 4). This temporary demand downtrend was attributed to the continuing increase in the prices of petroleum products, which prompted the consumers to utilize energy in more prudent ways. In 2007, the transport sector accounted for the biggest share of energy use at 34.5%, followed by the residential sector at 28.9%, industrial sector at 25.2%, commercial sector at 9.9% and the agricultural sector at a meager 1.5% (DOE, 2007).

Figure 5. Philippine energy demand projections by sector (DOE, 2007)

Despite escalating oil prices, simulations indicate that final energy consumption shall increase between 3.3 to 5.1 % on the average for the period 2005-2014 (see Figure 3). Petroleum

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products will remain a dominant fuel due to the high demand of both the transport and industrial sectors. The share of LPG fuel is expected to increase in response to the increasing liquid fuel prices making the shift to LPG more viable. Meanwhile, demand for biofuels (CME and ethanol) is seen to increase as well by 4.4 percent annually. Residential sector demand is dominated by biomass burning for cooking at 70% while the rest is accounted by LPG, kerosene and electricity use. It is projected to increase at an annual rate of 1.4%. LPG share in the sector is projected to increase which could be additional pressure on its price. The sectors electricity use is expected to increase due to the growing population. Petroleum products (gasoline, diesel, oil, LPG and CNG) on the other hand dominate and will continue to dominate the industrial energy use. Electricity and biomass also accounts for a major portion of its requirement. Energy demand annual growth for the commercial sector on the other hand is expected to increase at an annual rate of 5.7% for the next 10 years with electricity use dominating the requirements. Agriculture sector energy demand is expected to increase annually at a rate of 2.5%. Petroleum accounts for bulk of the agricultural energy demand and are principally used in crop production, commercial fishing and irrigation. Installation of new power capacities is required to support the projected growth in electricity demand. 1.2.2 Environmental impacts of energy use

Energy security efforts come in the light of ensuring a cleaner environment. Data indicates that mean atmospheric temperature in the country is rising which could be traced to global warming (see Figure 6). This trend is expected to continue unless global efforts to reduce greenhouse gas emissions are successfully realized.

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Figure 6. Observed annual temperature anomalies in the Philippines (Magturo et al., 2007)

APERC (2006) data, as shown in Figure 7, indicates that electricity generation and transport are the biggest sources of CO2 emissions from energy utilization.

Figure 7. CO2 emissions by sector (APERC, 2006)

The planned increase in coal power share could increase the countrys greenhouse house gas emissions if not properly planned and managed. The countrys vehicle reference standards continue to be lax compared with other countries (see Figure 8) slowing down the diffusion of cleaner vehicle technologies. It is encouraging to note however that the Department of Environment and Natural Resources (DENR) is set to upgrade these standards in the near future.
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In addition to global warming, energy production and transport are leading causes of atmospheric acidity. Acidification impact concerns have increased in recent years such that plans are now being explored to set-up internationally a sulfur trading program in addition to carbon trading (Klaassen, 1995).

Figure 8. Emission standards for new vehicles (light duty) in Asia (ADB, 2003)

Emissions from power generation and transport are major health concerns accounting for majority of particulate matter, volatile organic compounds and carbon monoxide emissions. It could be noted that a number of leading causes of death in the country are strongly linked with

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air pollution as shown in Table 1. Global warming related diseases such as malaria, dengue, cholera, diarrhea and typhoid are also part of the list.

Table 1. Top ten causes of morbidity in 2005 (Magturo et al., 2007)

DISEASE Acute Respiratory Tract Infection Bronchitis/Bronchiolitis Diarrhea Influenza Hypertension TB Respiratory Diseases of the Heart Malaria Chicken Pox Dengue Fever

Number 690,566 616,041 603,287 406,237 382,662 114,360 43,898 36,063 30,063 20,107

Rate/ 100,000 population 828.0 738.7 723.4 487.1 458.8 137.1 52.6 43.3 36.0 24.1

These global and local environmental concerns would have to take center stage in the countrys energy security program and plan.

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Chapter 2 Government infrastructure, policies and incentives on Clean energy

2.1 Institutional Infrastructure
This section provides an overview of the leading organizations for clean energy according to three functions: (1) policy making, planning and program coordination, (2) regulation, and (3) resource development (USAID, 2007).

2.1.1 Policy making, planning and program coordination

The Philippine Department of Energy (DOE) is the lead agency for policy making and planning body in the energy sector. It is mandated to submit an annual update of the Philippine Energy Plan, and has also taken charge of the preparation of the Power Development Plan. It is its duty to consolidate the plans and programs of the distribution utilities and the rural electric cooperatives into a Distribution Development Plan. It is also tasked to prepare the Regional Energy Profiles in coordination with local planning authorities (USAID, 2007).

The DOE also takes on a range of programs to endorse and encourage the participation of the private sector in the advance of renewable energy, alternative transport fuels and energy efficiency, primarily through the Energy Utilization and Management Bureau (EUMB). The EUMB coordinates electrification projects of government and private entities and manages funding for grid-extension and off-grid electrification.

The Philippine Council for Industry and Energy Research and Development (PCIERD), an agency under the Department of Science and Technology, coordinates policy and programs concerning scientific and technological research, development, and demonstration of new and renewable energy technologies. It functions as a channel of financial support for research institutions and

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NGOs. The government also established two inter-agency and multi-sectoral bodies to coordinate national activities on sustainable development and climate change: the Philippine Council for Sustainable Development (PCSD) and the Philippine Inter-Agency Committee on Climate Change (IACCC).

The PCSD institutionalized the participation of members of civil society as counterparts of government representatives in pursuing sustainable development initiatives in the country. Among PCSDs tasks is to evaluate and ensure the implementation of the Philippine commitments to sustainable development principles made at the 1992 United Nations Conference on Environment and Development (UNCED). The IACCC was established on 8 May 1991 as a response to the concern on global warming. According to the PAO No. 220, it is mandated to coordinate different climate change related activities and prepare the Philippine positions for the UNFCCC negotiations. IACCC is co-chaired by the secretaries of the Department of Environment and Natural Resources and the Department of Science and Technology, and has representatives from about 15 government agencies and NGOs.

With the enactment of RA 9513, a National Renewable Energy Board (NREB) was created. The NREB acts as a collegial body primarily tasked with the recommendation of policies to the DOE and the supervision of the implementation of the Act. The NREB has the following powers and functions: Evaluate and recommend to the DOE the mandated Renewable Portfolio Standards (RPS) and minimum RE generation capacities in off-grid areas; Recommend specific actions to facilitate the implementation of the National Renewable Energy Program (NREP) to be executed by DOE and/or other appropriate agencies of government and to ensure that there shall be no overlapping and redundant functions within the national government departments and agencies concerned; Monitor and review the implementation of the NREP, including compliance with the RPS and minimum RE generation capacities in off-grid areas; Oversee and monitor the utilization of the Renewable Energy Trust Fund (RETF)

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Cause the establishment of a one-stop shop facilitation scheme to accelerate implementation of RE projects; and

Perform other functions as may be necessary.

2.1.2 Regulations

Aside from its policy making and planning functions, the DOE also performs regulatory tasks. These include the administration of contracts for upstream exploration and development of oil and natural gas, coal, and geothermal resources, issuance of permits to agencies that engage in the construction and operation of projects relating to energy activities.

Another agency that has energy regulatory functions is the Energy Regulatory Commission (ERC), which is a quasi-judicial regulatory body, directly under the Office of the President, created through the Electric Power Industry Restructuring Act (EPIRA). This body replaces the Energy Regulatory Board (ERB), its responsibilities and activities, which are more focused on the power sector.

Still another agency with regulatory function is the Philippine Department of Environment and Natural Resources (DENR), which regulates the energy industry through the implementation of environmental laws and regulations. The agency is the one who issues Environmental Clearance Certificates (ECCs) to entities that wish to venture into projects, which may affect the environment in one way or another, through the Environmental Management Bureau (EMB).

Lastly, the Bureau of Product Standards (BPS) supports the industry and protects consumers' interests through the development and promulgation of standards, product testing and certification, accreditation of testing and calibration laboratories, management system certification bodies, and private emission testing centers.

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2.1.3 Resource development

The energy sector is made up of different organizations, both from the public and private sectors. Government-owned corporations are active in the development of renewable energy and clean energy sources, and at present there is an increase in the participation of the private institutions as well. In addition, there are non-government and industry associations that act as advocacy groups in the different aspects of the energy industry in the country.

The Philippine National Oil Company (PNOC) and its subsidiaries embark on various activities for the promotion of cleaner energy sources, since the 1970s. The PNOC Energy Development Corporation (PNOC-EDC) is the countrys major geothermal energy producer, and is also engaged in the development of other renewable energy technologies such as solar and wind energy. The PNOC Exploration Corporation (PNOC-EC) is the arm of PNOC that is mainly concerned with oil, gas and coal exploration. The PNOC Alternative Fuels Corporation (PNOCAFC) is actively involved in the promotion and utilization of biofuels in the country.

The Energy Council of the Philippines (ECP) is the local chapter of the World Energy Council (WEC), which is mainly composed of the CEOs of the different privately-owned energy companies. The ECP provides a venue for discussion and consolidation of the industry position on vital issues, and initiates dialogue with key energy officials. Moreover, it hosts seminars, both national and international, and roundtable discussions on important issues. Furthermore, it links the local energy industry to the regional and global energy networks, such as the ASEAN Energy Business Forum.

Other NGOs concerned with renewable energy include:

Energy Management Association of the Philippines (ENMAP) Renewable Energy Association of the Philippines (REAP) Klima-Manila Observatory Preferred Energy Investments, Inc. (PEI)

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Renewable energy investment portfolios have been bidded out to private comapanies. This have been the main prime mover in the development of renewable energy infrastructure in the country. Northwind Power Development Corportation for example commissioned a 25 MW wind power project in Ilocos Norte. Moreover, companies like Trans-Asia Renewable Energy Corporation and San Carlos Wind Power Corporation are expected to develop additional sites for wind energy systems. The privatization of the National Power Corporations generating assets has led the private sectors participation in large-scale hydropower development. First Generation Holdings Corporation (FirstGen) has acquired the 112 MW Pantabangan-Masiway Power Complex auctioned off by the Power Sector Assets and Liabilities Management Corporation (PSALM) in September 2006. FirstGen also owns and operates the two (out of three) natural gas-fired power plants in the country, with a combined capacity of 1,600 MW. Aboitiz Power Corporation in consortium with Norway's SN Power has also won the bidding for the 360 MW Magat Hydroelectric Power Plant in Ramon, Isabela. The Aboitiz Group is also the parent company of HEDCOR, which is the major developer and owner of the majority of the mini-hydro installations in the country.

2.2 Key Directions and Policies

The Philippine government, recognizing the need to address energy efficiency and selfsufficiency as well as climate change, has conceived different action plans for sustainable development, especially in the energy sector. According to the DOE (2009), current energy policies and measures include:

1. Ensure the continuous, adequate and economic supply of energy with the end-view of ultimately achieving self-reliance 2. Intensive exploration, production, management and development of the countrys indigenous energy resources 3. Judicious conservation, renewal and efficient utilization of energy to keep pace with the countrys growth and development

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4. Consideration of the active participation of the private sector in the various areas of the government towards energy self-sufficiency and enhanced productivity in power and energy without sacrificing ecological concerns.

The general framework of the countrys energy sector is defined by the Philippine Energy Plan, which is prepared by the DOE. It presents a two-point policy agenda listed as follows: Energy independence and savings It aims to achieve energy self-sufficiency of 60% beyond 2010. To realize this, resources of indigenous fossil fuel should be increased. In addition, renewable energy should be aggressively developed and the use of biofuels in the transport and industrial sector should be further promoted. Moreover, energy efficiency and conservation programs launched by the government should also be strengthened. Power sector reforms Reforms in the energy sector aim to promote fair and reasonable energy prices in a globally competitive environment. It intends to establish a transparent privatization process and create an investment atmosphere that is attractive to investors.

These strategies call for the optimized use of the countrys coal and natural gas reserves and renewable energy resources. Estimates have shown that the country has only utilized 25.2 MW of its 76,600 MW wind energy potential. It also maintains a 500 kW identified micro-hydro and 1,784 MW mini-hydro site potentials and an approximated 235 MMBFOE biomass energy potential. It enjoys an estimated 170,000 MW ocean energy resource. A review of the state of each of the indigenous energy sources mentioned is provided in the succeeding sections. More efficient processes, products and practices would also have to be developed and adopted. While renewable energy provides a large clean energy potential, its wide scale adoption could take some time due to energy inertia, technology, infrastructure and viability issues. Unless more ambitious goals and innovative programs are adopted and implemented to accelerate the deployment of renewable energy, the country is thus expected still to depend mostly on fossil fuel for the years to come. Due to limited local oil reserves, efforts have been put in place to

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reduce the share of oil in the power mix by shifting to more natural gas and coal power sources. Emissions from the increasing number of coal power plants however could be a major concern if not properly taken cared of. Biofuels for transport use has also received significant attention in the past years.

2.2.1 Key laws, decrees and policies

A number of recent legislations have been established to facilitate the realization of agenda set and ensure a cleaner environment (USAID, 2007). An overview of these is given in the following sections.

Republic Act 9136: Electric Power Industry Reform Act of 2001

The Electric Power Industry Reform Act (EPIRA) introduced extensive provisions in the power sector, with the fundamental goal of promoting competition and efficiency. This Act has led to private sector participation in large scale renewable energy based power generation, particularly hydropower and geothermal, and resulted in the privatization of transmission assets via concession.

Renewable Energy Policy Framework (2003) The Renewable Energy Policy Framework (REPF) embodies the over-all objectives, policies and strategies of the Department of Energy for promoting further development and utilization of renewable energy (DOE, 2003). The passage of the Renewable Energy Act is expected to boost its implementation.

Executive Order 462: Private Sector Participation in Ocean, Solar and Wind Energy Development

The EO 462 was enacted in 1997, enabling the private sector participation in ocean, solar and wind energy development. It provides guidelines for those who would like to venture in the
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fields of renewable energy mentioned. However, some critics said that this may cause some barriers to new renewable energy due to some legal technicalities in the power sector. Thus, EO 232 was enacted in 2000, amending the EO 462, such that renewable projects below 1 MW on private lands, public land or offshore areas of the public domain, are considered to be private power projects and not subject to production sharing requirements.

Republic Act 8749: Philippine Clean Air Act of 1999

The RA 8749 provides for a comprehensive air pollution policy. It is intended to prevent and control air pollution from mobile and stationary sources. It prohibits the incineration and burning of waste in any form which practically shut the door for waste to energy technologies. There is a need to review the provision concerned.

Republic Act 9275: Philippine Clean Water Act of 2004

The RA 9275 applies to water quality management in all water bodies, primarily the abatement and control of pollution from land-based sources. It seeks to designate specific water management areas using appropriate physiographic units such as watersheds, river basins or water resource regions. This is particularly relevant to hydro projects and power plant effluents, among other water-related energy issues.

Executive Order 290: Ensuring Effective Implementation of the Natural Gas Vehicle Program for Public Transport (2004)

The EO 290 promotes the use of CNG as a clean alternative fuel for transport and provides incentives to NGVPPT participants.

Republic Act 9367: Biofuels Act of 2006

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The RA 9367 mandates the blending of all liquid fuels for motors and engines sold in the country with locally produced biofuels. Specifically, it requires: 5 percent ethanol blending of gasoline by 2007 and 10 percent by 2010 1 percent biodiesel blending of diesel within 3 months of enactment and 2 percent by 2009. If not properly managed and implemented, this could pose energy versus food concerns.

Republic Act 9513: Renewable Act of 2008

To provide a universal policy framework on the campaign towards the development, utilization and commercialization of renewable energy sources, the Republic Act No. 9513, also known as the Renewable Energy Act of 2008, was enacted by the Senate and the House of Representatives of the Philippines in December 2008. With this law, it is expected that there will be an advance in the growth of the renewable energy industry. But even with the passing of the Act, it is still imperative that there is proper implementation of the law for the RE industry to flourish.

According to this Act, it is declared the policy of the State to: a. Accelerate the exploration and development of renewable energy resources through the adoption of sustainable energy development strategies to reduce the countrys dependence on fossil fuels b. Increase the utilization of renewable energy by institutionalizing the development of national and local capabilities in the use of renewable energy systems, and promoting its efficient and cost-effective commercial application by providing fiscal and non-fiscal incentives c. Encourage the development and utilization of renewable energy resources as tools to effectively prevent or reduce harmful emissions and thereby balance the goals of economic growth and development with the protection of health and the environment

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d. Establish necessary infrastructure and mechanisms to carry out the mandate specified in the Act and other existing laws.

USAID (2007) believes that the country has the required energy and environmental legislations to enhance and clean up energy production and use in the country. However, the implementation of these laws is weak. The same study indicated that training is needed on the identification of alternative energy technology potentials and technology assessment that should include academia to enable long-term capacity building.

2.2.2 Incentives

With the signing of the Renewable Energy Act of 2008, certain incentives are made available for developers who wish to venture into renewable energy projects and activities. In brief, these are: a. Seven year income tax holiday. b. Carbon credits generated from renewable energy sources will be free from taxes. A 10% corporate income tax, as against the regular 30%, is also provided once the income tax holiday expires. c. Energy self-sufficiency to 60% by 2010 from 56.6% in 2005, by tapping resources like solar, wind, hydropower, ocean and biomass energy. d. Renewable energy facilities will also be given a 1.5% realty tax cap on original cost of equipment and facilities to produce renewable energy. e. The bill also prioritizes the purchase, grid connection and transmission of electricity generated by companies from renewable energy sources. f. Power generated from renewable energy sources will be value added tax-exempt. g. A net metering scheme will give capable consumers the option to generate their own power. Net metering will allow renewable energy producers to earn from the power they contribute to the grid, and are also charged for electricity drawn from the grid.

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Aside from the incentives given to RE developers, incentives for farmers engaged in the cultivation of biomass resources are also made available. For ten (10) years, DOE-certified entities are entitled to duty-free importation and are VAT-exempt on all types of agricultural inputs, equipment and machinery.

2.3 Assessment
In essence, our government already has suitable legislations concerning renewable energy in the Philippines. However, there are some factors that hinder the progress of the various RE programs. One of these is the inadequate coordination among agencies and institutions in the field of renewable energy. Currently, a lot of institutions are doing RE research and development but there is no centralized entity that handles these activities concerning RE. There is insufficient knowledge sharing and coordination among these institutions, causing a lack of a holistic outlook on the current status of RE in the country and overlapping of functions in the different RE agencies, both public and private. Another concern is the lengthy and difficult process in acquiring permits and certification that allows RE developers to carry on their projects, which may also be attributed to the lack of a focal entity that will serve as a onestop-shop for RE developers. In addition, the reality in developing countries such as the Philippines is that the programs endorsed by the government greatly depend on the national budget.

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Chapter 3 Energy status, potential and research directions

Energy security has been a primary concern of the country because of our over-dependence on imported energy resource. In the past few years, crude oil prices have been very unstable, reaching high levels of over 140 USD per barrel in mid-2008. The Philippine government, recognizing the impacts of the erratic changes of prices in the oil market, has engaged in the development of suitable measures that will address the nations energy problems. Numerous initiatives have been promoted by the government, such as the utilization of indigenous materials for fuel production and the use other renewable, clean energy technologies (e.g. biofuel, geothermal, solar, hydroelectric, ocean and wind energy systems). These programs endorsed aim to address the countrys dependency on foreign fuel supply and simultaneously contribute to the preservation of our environment.

3.1 Oil and natural gas

The country is targeting to increase local petroleum exploration from 69.5 Mtoe in 2004 to 83.6 Mtoe by 2014. There is a potential for some 4,000 MW of additional gas-fired capacity and expanded use of natural gas in other sectors, including transport. The gas transmission and distribution infrastructure needs to be developed to reach these new markets and encourage new sources of gas supply. Research and development requirements in the oil and natural gas systems in the country are mostly hinged on resource identification and exploration.

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3.2 Coal

Unless more ambitious goals and innovative programs are adopted and implemented to accelerate the deployment of renewable energy, the country is still expected to depend mostly on fossil fuel for the years to come. The steep demand for energy, the highly indefinite oil price and the improving environmental impact of coal power systems provided the stimulus for active coal utilization in the country. In 2007, coal accounted for 14.9% of the primary energy use and 28% of the power mix. Latest figures indicate that about 75% of the coal production is utilized in the electrical power generation while the remaining 25% is consumed for cement making and by other industrial activities. With the planned additional coal-based power capacity, its utilization is expected to further rise at a rate of 8.8% annually. While the indigenous coal production reached record levels in 2007 posting a 47% increase from the production of the previous year, it only accounted for 37% of the total coal demand. This is largely attributed to the low quality of local coal, which makes it a less viable option for power generation unless blended with higher grade imported coal (USAID, 2007).

Increasing coal use however would cause environmental problems if not properly managed. The poor quality (high sulfur content and low heating value) of local coal adds to this challenge. Over the past decades, major progress has been made in reducing sulfur oxides, nitrogen oxides and particulates from coal combustion plants. Efforts are now focused on reducing and/or managing its CO2 emissions. This could be achieved by improving conversion efficiency, co-firing coal with biomass, and employing carbon capture and storage (CCS). The choice of mitigation strategy depends on the existing power generation stock, the price of competing fuels and the cost of alternative technologies.

The Integrated Gasification Combined Cycle (IGCC) and the Super Critical Pulverized Coal (SCPC) technologies provide the highest potential to increase combustion efficiency and best fit for CCS systems (MIT, 2007). Large scale Integrated CCS system however is yet to be demonstrated but proposals have been forwarded to implement such programs internationally. The Circulated

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Fluidized Bed Combustion (CFBC) has also been demonstrated to burn low grade coals more efficiently thus should also be considered. Development of indigenous combustion technologies or localization of these state-of-the-art clean coal technologies to fit local coal properties should be explored. Preparatory work should be initiated to facilitate the adoption of CCS should the technology becomes eventually viable. This would include the geological mapping to identify potential CCS sites and modeling of the economic, legal and environmental impacts of CCS locally. CCS is expected, though, to add cost for coal combustion and conversion. The increasing concern over global warming could possibly raise prices of CO2 emissions to levels that would be able to offset this incremental increase in generation cost in the future.

Energy inertia dictates that existing coal power plants will stay for quite some time. Thus, efforts to reduce its emissions, increase operations efficiency and allowing the use of local coal in such systems should be developed. In addition, biomass-coal co-firing provides a very high potential considering the vast biomass reserves of the country.

3.3 Geothermal Energy

The Philippines is the second largest producer of geothermal energy in the world, next to the United States, with a reserve estimate of about 4,400 MWe (DOE, 2009). The country has an installed capacity of 1,930 MW as of 2006. Plans are in place to increase geothermal energy production by 820 MW from 2009 to 2014. Two companies, The Philippine Geothermal, Inc. (PGI) and the PNOC Energy Development Corporation (PNOC EDC), are involved in developing geothermal fields in the Philippines, both of which sell their steam to the National Power Corporation.

While geothermal power technology have been well established, concerns on their sustainable operation have surfaced recently (Rybach and Mongillo, 2006). Excessive production is often pursued, mainly for economic reason, preventing reservoirs from regenerating themselves leading to geothermal depletion. Determination of the true sustainable production levels for

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the various geothermal resources and techniques for identifying at the earliest possible time should be developed. This would have to eventually translate to guidelines on the peak extraction rates allowed in the geothermal sites of the country. 3.4 New & Renewable Energy

With the enactment of the Renewable Energy Act of 2008, it is anticipated that research and development activities on the various renewable energy technologies (RETs) are to be accelerated for national energy self-reliance to be realized. Studies on the different research priority areas should be done to further the advancement of the RETs in the country. Moreover, renewable energy utilization would have to be expanded to the industrial and commercial sector for it to be sustained. In addition, rural electrification projects would have to be anchored on job and income generation.

The following section discusses the different renewable energy systems that are being promoted by the Philippine government, the state and applicability of these RETs and the needed research and directions for each. Discussions on renewable energy adoption barriers are also provided.

3.4.1 Wind Energy

Wind power is relatively a mature technology. Globally, installed capacity increased from 2500 MW in 1992 to 59,200 MW at the end of 2005. This corresponds to an annual growth of about 30%. More than 75% of this new capacity is in Europe. Wind energy generation cost in 1998 varied between 5 to 13 US cents/kWh (Qurashi and Hussain, 2005), including capital and maintenance costs, and is expected to be at 3 US cents/kWh rate by 2010 (IEA, 2005). The country intends to become the leading wind energy producer in South East Asia. The optimism is founded on the wind energy potential quantified in the Wind Energy Resource Atlas of the Philippines ( Elliot, 2000) developed in cooperation with the US-National Renewable Energy Laboratory. The study estimates that the Philippines has over 10,000 square kilometers of

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windy areas with a good to excellent wind resource potential. This translates to up to 76,600 MW of potential capacity ( see breakdown provided in Table 2). The value considered only potential in high wind speed regimes where large wind systems are viable.
Table 2 Breakdown of good to Excellent Wind Energy Potential

Wind Resource Utility Scale

Wind power W/m2

Wind Speed m/s

Total Area km2

Total Cap Installed MW

Total Power GWh/yr

Good Excellent Excellent Excellent Total

300-400 400-600 600-800 800-1200

6.4 -7.0 7.0 -8.0 8.0-8.8 8.8 10.1

5541 4304 1112 98 11055

38400 29800 7700 700 76600

85400 82400 25100 2300 195200

The Philippines has been aggressive in exploiting its wind energy potential in recent years. The 33 MW wind farm in Bangui, Ilocos Norte installed and operated by Northwind Power Development Corporation placed the country as the top wind energy producer in South East Asia. A number of other grid connected wind farm projects have been bidded out and awarded. All of these projects will most probably involve large wind systems. These developments could open a new industry for the production of replacement parts and repair and servicing of these systems.

Small wind system installations have been limited on the other hand and far from being mainstreamed. While a number of demonstration projects were implemented, none has yet to translate to thir wide scale adoption. This includes the Php 2.1 million 10 KW pilot wind set-up by the National Power Corporation in cooperation with the Philippine Council for Industry Energy Research and Development (PCIERD) in Pagudpud, Ilocos Norte (SATMP, 2002). It was in operation until recently when the battery system was damaged. Plans to replace the batteries

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have been on hold in consideration of the possibility of connecting the system to the grid. A 3 kW stand-alone system located in Bantay, Ilocos Sur, has also been in operation since 1994 in tandem with a diesel generator and utilized by the Philippine Telegraph and Telecommunications Corporation (PT&T) as a power supply for its relay station. A 25 kW standalone system was commissioned in the Picnic Grove, Tagaytay City in 1997. An 11.5 kW hybrid wind and solar PV power facility in Atulayan Island in Camarines Sur was installed and operated by the Camarines Sur IV Electric Cooperative Inc. (AWEA, 2001). Recent developments though saw Smart Telecommunications Inc. adopting the technology to power some of their cell sites in remote areas11. To date, it has about 68 cell sites powered by renewable energy, 41 are run by small wind energy while 27 are hybrids using both wind and solar.

The slow uptake of small wind systems relative to large wind installations could be traced to their higher installation cost. Investment for small wind turbine costs between Php 180,000.00 to Php 900,000.0012 per kWp compared to the Php 125,000.002 per kWp for grid connected large wind turbines. Nevertheless, small wind systems have a strategic importance in the countrys energy program. Unlike large systems, they are able to operate at low to moderate wind speed regimes and could expand the extractable wind energy potential to as much as 97,000 MW. Research would have to focus on the development of low cost small wind systems designed to operate efficiently in these wind speed regimes ( 3 to 5 m/s ). Some countries have showed interest in working with local partners in the development and localization of such technologies. Japan, through the International Center for Environmental Technology Transfer (ICETT), pursued a pilot demonstration project of an innovative small wind energy technology with the end view of localizing the technology. Similar partnerships should be pursued to accelerate research and development efforts and results. Such programs could also position the country as a key supplier of small wind technology in South East Asia.

Wind pump potential applications in the country are estimated to be at 133,858,798.00 MMBFOE and 327,481,503.00 MMBFOE for domestic water and irrigation purposes respectively
11
12

http://smart.com.ph/corporate/newsroom/GreenMobile.htm Based from various price quotations from local suppliers

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by 2015. There are seven (7) local manufacturers and suppliers currently carrying out local production of multi-bladed systems. These manufacturers however require technical assistance, particularly research and development support from the government, and lowinterest financing to improve their production capability. A number of local invertors cum fabricators of wind turbines have also attempted to enter the market but has failed for the same deficiencies. The competencies to identify and assess the potential applicability of wind pumps among concerned LGUs, NIA branches and IAs also needs to be developed to aid the adoption of wind pumps. It is also critical to have installations to demonstrate the applicability and benefits of the system.

3.4.2 Solar Energy

Situated just above the equator, the Philippines have a great potential for solar energy applications. According to the Philippine Energy Security Plan, nationwide solar radiation has an annual potential average of 5.0 - 5.1 kWh/m2/day. Solar potential is greatest during the summer months of May to July when the sun is positioned in the northern hemisphere, while weakest insolation occurs in November to January. Recent studies by the Manila Observatory indicated that Mindanao will be drier in the years to come. Considering that the area holds the most percentage of un-electrified baranggays in the country, solar energy holds a big application potential in the area. Discussions below are broken down into solar photovoltaic systems, solar thermal systems and solar cooling systems.

Solar photovoltaic systems

Solar photovoltaic (PV) systems are the most popular solar energy technology choice in the country. Applications of PV systems include water pumping, refrigeration, lighting, battery charging, domestic electric consumption, and grid-connection applications. Cost of solar PVs is likely to decrease with increasing production over time. Currently, prices are still high and commercial use is still not expected in the mass market, unless there is a significant price
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reduction. Nevertheless, solar PV technology is fast growing and hopefully it will gain more acceptance in the energy market. General projections indicate that it will start to gain more recognition between 2010 and 2015, as illustrated in figure. 9.

Figure 9 Projected solar PV cost (Stone, 2007)

Local solar PV experience has been limited to community demonstration and/or donor driven projects and telecommunication applications primarily due to high upfront cost. As of 2005, a total of 894 solar home systems were installed through the solar home distribution project of PNOC. Meanwhile, the USAID funded AMORE project has energized 224 rural villages suing PV systems. The countrys first on-grid solar PV installation, and the biggest so far, is the 1 MW plant using polycrystalline silicon solar panels on a 2-hectare area, connected to the distribution network of Cagayan Electric Power and Light Co., Inc. (CEPALCO) and is hybridized with a hydropower plant. Gaining from the experience, CEPALCO intends to expand its operations from its current production of 1,261.40 MWh to a larger solar park with a 10 MW plant on a 30 hectare lot, which is expected to be commissioned by 2012 (DOE, 2008). Its application however would have to be expanded to industrial, commercial and urban applications if the technology is to gain ground.

India has demonstrated that a strong R and D program could open up and accelerate the adoption of such systems in developing countries like the Philippines. Indias R and D program

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have resulted in a strong indigenously developed solar industry greatly bringing down the technology cost. There are 9 solar cells, 22 solar PV modules and 50 PV system manufacturers in India utilizing either indigenous or imported technologies through joint ventures or technology transfer (WEC, 2000). So far, about 278,300 solar lanterns, 116,800 home lighting systems and 39,000 street lighting systems, about 1 MW aggregate capacity of small and standalone power plants and over 3,300 solar pumping systems have been installed in India. Roughly 50 percent of installed solar PV cost is embedded in the cost of the PV modules, and the remainder is in the balance-of-system (BOS) costs (ESMAP, 2001). The BOS components include the physical structures, wiring and interconnects, and power electronics and control system. BOS cost reduction plays an important role in the cost reduction road map of the solar PV industry as shown in Figure 10.

Figure 10 Sunpower solar PV cost reduction road map (Stone, 2007)

Considering the advance state and high cost of solar PV development, local R and D efforts should focus on BOS integration and cost reduction. These efforts coupled with the projected costs reductions in Solar PV cells are expected to significantly lower down cost of PV systems.

Solar thermal systems

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Solar water heaters are fully commercialized locally but market penetration has been minimal. Having a tropical climate, hot water does not come under the primary need of most of the medium or low income households and it is considered as a luxury service thus the limited demand. It could however find wide applications in commercial facilities such as hotels, high end condominiums and hospitals. It has been demonstrated to be financially feasible in a number of local projects. The adoption of solar water collectors for process heating in Bayer Crops Phils. Inc.13 for example yielded a payback period of a little less than two years. While solar thermal collector technologies have been well developed, there is an inadequate number of technical people locally to identify and assess the applicability, plan out, design and install the system. In addition, there is also an absence of updated and high resolution solar insolation data to aid these activities.

Solar drying is a mature technology with applications and viability been demonstrated in a number of areas. Local applications for ceramic, fish and fruit drying have been developed and adopted (Del Mundo, 2000; Elepano and Satairapan, 2001; Elepano and Gratuito, 2003). Alsons Aquaculture Corporation has demonstrated the feasibility of large scale solar fish drying in the country. It is interesting to note that the facility was designed and installed in partnership with the Planters Energy Network14 of India. A three component approach is needed to facilitate the adoption of the solar drying technology. First, a study should be launched to assess the solar drying technology application potential in the country. This will provide information on the business potential of solar drying systems design and installation in the country to attract potential local and foreign technology providers. Second, an information and education campaign should be launched to inform medium to large fish and crop processing companies on the applicability and benefits of solar drying in their businesses. Third, interaction between fish and crop processing companies and solar drying technology providers needs to be facilitated. A local crop of solar thermal design specialists needs to be developed to support the program.
13 14

Based on interview with Mrs.Tes Cayton, former Plant Manager-Bayer Crops Philippines Inc.

See http://pen.net.in

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Solar cooling systems

The service for comfort air-conditioning requires a major part of the consumed energy in buildings. In the Philippines, air-conditioning load accounts for 45% of the electricity utilized by office buildings (Loewen et al, 1992). This figure is a lot higher (60%) in Malaysia. This is becoming a growing problem with resulting electricity shortages at high grid loads in regions with cooling dominated climates. This underlines the necessity of new solutions with lower electricity consumption and in particular reduced consumption at electricity peak load conditions. The use of solar thermal energy in combination with thermally driven cooling systems can be a possible solution among others. It is logical to apply solar energy for cooling purposes since in many applications, such as air-conditioning, cooling loads and solar gains occur at more or less the same time.

Currently, there are a number of solar driven cooling technologies available including solar electric cooling technologies, thermo-mechanical systems, sorption systems, dessicant dehumidification cooling and some newly developed technologies and solar thermal based cooling systems. The first two systems are basically conventional systems powered by either solar PV or solar rankine power systems. The viability of these systems thus highly depends on the cost of its power source.

While to date, no market penetration exist, significant strides to mainstream solar thermal driven systems have been observed in recent years. These systems may be classified as absorption, adsorption and dessicant cooling systems. There is currently 200 to 300 solar thermal cooling installations worldwide mostly installed in Spain and China. The European Commission ( Hening, 2002 ) indicated that the major barriers to its diffusion are as follows:

Technical Barriers
Lack of package solutions for residential and commercial applications

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Few available solar collectors for medium temperatures ( 100 125 C ) to facilitate the use of double effect absorption chillers which provides higher COPs than single effect systems. Lack of skills for the planning, design, installation and maintenance of solar sorption cooling systems Lack of standards and design tools ( ex. Softwares, etc. ) for planners and designers

Economic and Other Barriers ( Rivero, 2009)

Higher initial investment compared with conventional systems Not cost efficient from a business point of view Lack of financial incentives for solar thermal systems Lack of awareness among consumers, planners and HVAC professionals

A program15 has been put in place by the European Commission to address these issues consisting of a combination of fundamental and applied research activities, demonstration projects, information and education campaign, financial incentives and regulatory measures. Considering the projected benefits of solar cooling technology in the country, the possibility of partnering with key European solar cooling R and D institutions such as the Fraunhofer Institute for Solar Energy Systems of Germany should be explored to develop locally customized ( based on local climatic conditions and usage patterns ) systems. One of the key research challenge is the development of medium temperature solar collectors based on local solar and climatic conditions. Considering that solar energy sources are intermittent, solar cooling systems are mostly hybridized with other thermal sources. The development of hybrid solar and biomass heat generation systems for solar cooling should also be pursued. The utilization of local biomass absorbers in dessicant cooling system could also potentially open a new local industry.

Recently, a new solar assisted vapor compression systems was introduced locally by Edward Marcs Philippines Inc. 16. The technology claims to cut down cooling power consumption by 30 to 50% and may be retrofitted easily to existing vapor compression systems. It also claims a 12

15 16

http://www.solair-project.eu www.edwardmarcs.com

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to 24 month payback period. Very limited scientific literature exists though on the technology. A critical look at the theoretical basis and performance of the technology is thus recommended to validate these claims which would also provide the basis for whatever support that could be extended for the diffusion of the technology locally.

3.4.3 Biomass Energy

Latest estimates from the Department of Agriculture (DA) and the Department of Environment and Natural Resources (DENR) reveal that the country's agriculture sector can potentially produce 277 million barrels of fuel oil equivalent (MMBFOE) of biomass in 2004. By 2012, biomass supply potential is expected to reach 323.1 MMBFOE as seen in figure 11.

The supply and use of potentially available biomass energy resources depend on many considerations such as available handling technologies, collection logistics and infrastructure. Biomass energy resources have been widely used in the country even before the first energy crisis in the 70s contributing significantly to the countrys energy mix. They have been used for non-power applications such as crop drying, cooking and heating.

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Figure 11 Biomass Supply Potential (in MMBFOE)17

This section only took into account stationary biomass based technologies. Discussions on biofuels are provided in the sustainable transport section.

Biomass as Solid Fuels

Being an agricultural economy, the Philippines have an abundant biomass resource that may be used for energy generation and other native products. The use of these local resources, predominantly in the form of residues from agricultural production and processing (ex. bagasse, rice husk and straw, coconut husk and shell), forest biomass resources (ex. woodfuels) and animal wastes, has a great potential in aiding our country towards the production of cleaner fuel substitutes, which is very much dependent on imported oil, and for power generation, particularly for the off-grid areas in our country.

Biomass energy application accounted for 14.1% of the primary energy use of the country in 2007. While this is the case, it could be said that our biomass resources however are yet to be maximized considering our available resource. Bagasse, rice hull and coconut waste accounts for a major portion of biomass residue production of the country (Baconguis, 2007). Data indicates that utilization factors for bagasse, rice hull and coconut waste in the country are limited only to 60-70%, 10-20% and 40-50% respectively (Elauria, undated). Key application of biomass fuels in the country includes:
Cooking Process heating Power generation

Cooking Applications

17

Source : Renewable Energy Policy Framework, DOE

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Seventy three percent (73%) of biomass utilization in the country are traced to cooking requirements of the residential sector while industrial and commercial applications accounts for the rest. The indoor use however of poorly designed cook stoves with inadequate ventilation lead to negative health effects ( Hilario et al, 2004). The continued development and promotion of high efficiency biomass cookstoves should thus be implemented. The rice hull gasifier cookstove developed by Belonio (2005) is of a particular interest and should be promoted in rice growing areas in the country. In addition, its design could serve as a model for the development of gasifier cookstoves for other biomass resource. The increasing cost of liquefied petroleum gas could facilitate the use of high efficiency and smokeless charcoal briquettes for cooking. Performance and safety standards for biomass cook stoves however should be set and enforced.

Process Heating

The development of biomass energy systems has a very great potential in reducing the effect of unstable and increasing cost of traditional fuels in the industrial sector. While the industrial sector accounts for 27% of biomass utilization in the country, only 8% of this is channeled to process heating. The bulk of this resource is used for power generation. Among the more popular biomass process heating applications in the country includes fish and crop drying, ceramic processing and metal production, commercial baking and cooking applications.

Power Generation
Biomass power generation may be done in various scale. Bagasse has been used for power generation in the sugar mills and has been the target for biomass cogeneration involving high pressure steam boilers to generate power for use in the sugar mill and for export to the grid. Rice hull was also used for power generation in Iloilo in the late 80s. A 2.1 MW rice hull fueled power plant was installed at the National Food Authority (NFA) in Iloilo and started commercial operations in January 1987. This supplied power to the NFA 10-ton/hour capacity rice mill and selling its excess to the local electric cooperative.

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Operation was stopped due to the damage to the 13.2 kV switch gear which serves as a tapping point of the NFA and the electric cooperative. By the time the switch gear was repaired, technical problems due to long stoppage were encountered. Wood-based power generation or dendro-thermal power has also been tried in the country in the early 80s when the National Electrification Administration (NEA) launched the Dendro-Thermal Power (DTP) program which aimed to generate power for local communities in the rural areas. NEA procured a total of 15 dendro-thermal power plants and out of these, only a few have been utilized before political instability forced the program to fold up.

At present, there is no existing biomass fired power plant in the country. In the Philippine Energy Plan Update (DOE, 2007), several biomass energy projects have been included under the list of committed and indicative projects (Table 3).

Table 3 List of Committed and Indicative Biomass Energy Projects PROJECT NAME CAPACITY, MW COMMISSIONING LOCATION

Committed Projects: Talisay Bionergy Bais Bioenergy Sub-total 30 25 55 2007 2008 Negros Negros

Indicative Projects: Tarlac Bioenergy Victorias Bioenergy Bogo Bioenergy 40 50 (net 32) 25 2008 2008 2008 Tarlac Negros Bogo, Cebu

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Sub-total

97

Small biomass power generation systems on the other hand have a very big potential in off-grid areas which normally are also blessed with abundant biomass resource. The Philippines have several years of research experience with small to medium biomass gasifier systems in the late 1970s. Over-all, the experience was negative as their operation and maintenance proved too difficult. In the last decade however, significant technology advancement have been obtained resulting to the development of commercial systems outside the country. Power generation cost of these smaller systems however are usually higher thus poses another technological challenge. Considering that local resource and potential market of the technology is large, the country should keep abreast of the commercial developments, test and localize them whenever possible. Hybridization of these systems with small wind and solar PV systems could provide a reliable de-centralized power source.

Biomass energy feedstocks are usually converted to electricity either through direct combustion boiler-steam turbine technologies (either dedicated or co-fired) or through combined-cycle gas turbines. In direct combustion facilities, the biomass feedstock can either be 100% biomass (dedicated) or co-fired with other solid fuel such as coal. Dedicated biopower capacity uses mature, direct combustion boiler-steam turbine technology. The average energy conversion efficiency is approximately 20% for the industry with an average plant size of 20 MW, with the largest approaching 75 MW.

In co-fired operations, biomass of up to 15% is burned together with other solid fuels, especially coal. Co-firing can be practiced in a variety of coal boiler types including pulverized coal boilers, stokers, cyclones, and bubbling and circulating fluidized beds. Co-firing, a relatively low-cost option for the use of biomass, is also employed as an acid rain and greenhouse gas emissions control strategy. Co-firing should be strongly considered in the existing coal power plants in the

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country. Considering that the country imports most of its coal requirements, this strategy could lessen its dependence on foreign energy supply.

Biomass can also be burned in combined-cycle gas turbines (CCGT). It is first devolatilized and converted into a low- or medium-heating value gaseous fuel (producer gas). The producer gas is then used as fuel in a CCGT, which involves a gas turbine topping cycle and a steam turbine bottoming cycle. The first generation of biomass gasification systems could achieve efficiencies that almost double those of the existing dedicated direct combustion technologies. In a cogeneration application, efficiencies of biomass CCGT systems could reach over 80%. However, this technology is currently expensive relative to the other two conversion technology options Maximizing the biomass resource of the country requires a pool of technical people that could facilitate biomass energy project assessments, system design and operation. It must be noted however that most of the local biomass experts in the country has already either retired or left the country thus the need for a new crop of biomass experts. In addition, the development and dissemination of assessment and design tools greatly aid and facilitate the adoption of the technology. While deemed abundant, the location of the biomass resource also poses another challenge. Viability of biomass systems are highly sensitive to resource collection cost. The adoption of biomass systems is thus highly site specific. A more detailed and high resolution biomass resource mapping is thus highly recommended. Projected climatic variations and future area development plans would have to be taken into consideration in these maps.

Biomass for biogas production Biogas technology is a mature technology that presents so much CDM potential. More than 653 biogas systems are installed in the Philippines since the 1970s. Such plants are equally attractive for their pollution mitigation abilities as they are for their energy production potential. The adoption of the technology in large livestock farms is already commercialized. Livestock production in the Philippines, in general however, has continued to be the domain of
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smallholders. In the hog industry for example, 77 percent of hog inventories remain in backyard production systems (Delgado et al., 2001). Biogas application in smaller farms and its compression and transport to fuel small scale gas powered generators could provide a reliable and low cost source of power in rural areas (Baron et al, 2008). Therefore, research and demonstration efforts would have to be put in place for its viable adoption in smaller farms. In addition, municipal solid waste disposal is a growing problem in the country which could open the doors to land fill gas generation and incineration technology options

3.4.4 Hydropower

Available hydropower potential is estimated at 13,097 MW, where 85% are classified as large hydros and the remaining 15% are shared by mini-, micro- and pico-hydros (ADB, 2003). Currently there are 134 hydropower plants broken down into 21 large hydropower plants, 52 mini-hydro and 61 micro-hydro power systems. In addition, the untapped potential however still remains at 2,603.5 MW. With the countrys huge hydropower potential, more than 10% of the electricity requirements are supplied by hydropower generation (DOE, 2009). Hydropower technologies are already established, need minimal R&D involvement, and there are available design concepts that may be adapted for local utilization.

The Japan International Cooperation Agency (JICA) has financed several projects in 2003 complementing the DOEs Expanded Electrification Program. These include, among others, micro-hydropower projects, the Grassroots Grant Aid Program which involves the construction of the 35-kW Cagaluan micro-hydropower and the 18-kW Pantikian micro-hydropower plants in Kalinga Province; Development Study Program in Northern Luzon which identifies 40 microhydropower sites for possible inclusion in the DOEs micro-hydropower database; and the Construction of Micro-hydro Plants for Electrification of Upland Dwellers in Northern Luzon which will install 14 micro-hydropower units costing P296 million for the benefit of 19 off-grid unenergized villages. These projects were mostly implemented in cooperation with universities and non-government organizations. The projects implemented have, to some degree,

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developed the local capability to fabricate and install such systems. Coupled with the incentives provided by the just approved RA 9513, further localization of advance micro- hydro and picohydro technologies could lead to the commercial viability of the technology and lowering of costs. The development of off the shelves pico hydro systems is of a particular interest. These types of system are widely used in Vietnam and China where they are available at affordable cost. There is an estimated 100,000 to 150,000 pico hydro systems installed in Vietnam (Bao, 2004). In the Philippines, a number of private sector initiative have been launched to popularize the technology but the initiative has been mostly confined to testing and has yet to translate to massive adoption of the technology. Most of these initiatives involve the use of Vietnam made equipments (Roaring, 2008; Howey, 2009). Potential demand for such systems has been estimated to be more than 24,000 units (Mariyappan et al., 2004). Rather than depend on the Vietnamese systems, it would be more beneficially for the Philippines to come up with and popularize its own off-the-shelves pico-hydro systems. Having learned from the Vietnamese and Chinese systems, locally designed system could possibly be cheaper and provide better performance. The local production of such would mean more available jobs locally.

The initial capital cost of hydropower technologies is considerably high, thus impeding the expansion of hydropower in the country. However, small hydropower projects are relatively less expensive because of its less complicated and lower cost technology, making it more attractive than their large-scale counterparts. Moreover, because of the incentives provided by the RA 9513, local utilization and adaptation of these small hydropower systems may lead to commercial viability and further lowering of costs of this RE technology.

Most hydropower energy projects in the country involve revisions of existing technology and systems design to adapt them to specific user or site requirements and are not solely R & D in nature. Majority of these are demonstration activities that show the viability and applicability of these RE systems. R & D endeavors are still in the pre-development stage and feasibility studies are still being undertaken for most projects.

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3.4.5 Ocean Energy

Due to its archipelagic nature, the Philippines ocean resource area consists of 1,000 km 2, with a potential theoretical capacity equivalent to about 170,000 MW, based on a study done by the Mindanao State University (2005). In view of this, the ocean technology option is a priority

research area for renewable energy and may well be considered in the long term energy security plan of the country.

The International Energy Agency Ocean Energy Systems (IEA-OES) cooperation project (Polaski and Melo, 2006) consider ocean energy technology as a nascent technology and could take some more time before it becomes commercially practicable. The present status of tidal and marine renewable technologies is given in Table 4. Efforts have been limited to a number of short-term demonstrations. Ocean energy conversion technologies currently are still in the pre-commercial technical demonstration phase. A number of cooperative programs have been launched such as the International Energy Agency ocean energy system cooperative project.

It could be noted that its generation and installation cost is far higher than grid cost. Of particular interest is the Ocean Thermal Energy Conversion (OTEC) technology where some efforts are being planned locally. While it provides lots of potential, it is still in the infancy age with unclear capital operational cost requirements. Any development work on this area should be carefully evaluated and pursued only in cooperation with other countries. Pursuing the program under the international collaboration research framework of the International Energy Agency Ocean Energy System (IEA-OES) project should be explored. The country could possibly offer to host demonstration projects under the program.

Table 4 Ocean Energy Technologies (Qurashi and Hussain, 2005)

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3.4.6 Barriers to Renewable Energy Adoption

The Philippine government has long been interested in the utilization and development of renewable energy, with the DOE as the leading agency in the promotion of the various programs and projects on RETs. Although there are a lot of efforts being done, there are still some concerns that need to be addressed. Some of the barriers to the implementation and utilization of renewable energy are: Technical barriers Financial barriers Market barriers Information and training barriers Social barriers

Institutional issues were discussed earlier in Chapters 2.

Technical barriers

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Another difficulty in the development of renewable energy in the Philippines is the lack of local technical expertise in the field of RE. We have limited technical capacity to design, install, operate, manage and maintain RE-based systems that may be implemented in the country. Acknowledging this deficiency, there should be a thrust for more research studies and collaborations with foreign experts and agencies to improve our knowledge on these new and renewable energy technologies. For instance, we can partner with Brazil for the development of the bioethanol industry in the county. We familiarize with the existing technologies that they have and gain information on how these are operated. Another technical barrier is the sitespecific nature of RE resources. This requires a detailed analysis of specific local conditions that should be considered in adopting foreign RE technologies. With the acquisition of more data on RETs and the knowledge of the local settings, then we can modify and adjust these technologies to suit our needs and purpose. Yet another factor is the lack of domestic manufacturing of RETs, because most of these technologies are still produced in other countries. Moreover, there is a lack of standards for the different renewable energy areas that are being explored in the country. Financial barriers

In any endeavor, there are always financial difficulties that arise, and the implementation of renewable energy projects is no exception. One of the main finance issues in RE is the high initial capital costs of RE products, thus hindering the promotion and utilization of RETs especially in the rural areas of the country where lack of funds exist. Another is the higher perceived risks in RETs. Because of the lack of technical knowledge on the implementation of RE, venturing into renewable energy projects are considered very uncertain, whether they are economically practicable or not. This causes investors to be very careful in financing RE activities in the Philippines. This lack of knowledge in RETs also extends to the financial institutions, which may provide loans to RE developers, and the inadequacy of appropriate funding poses a hindrance to RE promotion and utilization. To address this concern, different financial support mechanisms should be implemented and made available for RE project developers to assist in the development of RETs. Moreover, the existence of these financial
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support systems should also be made known to potential RE project developers that may have interest in engaging in activities that promote RE use in the country. Market barriers Another hindrance to RE development in the Philippines is the limited knowledge of the potential RE market and the non-availability of up-to-date and comprehensive RE data. Project developers who wish to venture into business in RE do not have enough information that can aid them in the assessment of potential RE enterprise, thus holding back the growth of the RE industry. In addition, market distortions exist by way of subsidies or grant-based installation programs, and there is limited allocation for RET subsidies. Moreover, the high upfront costs of RETs and the absence of dedicated financing for RETs also add to the delay in the promotion of renewable energy in the market. Information and training barriers The unavailability of current facts and figures on RE in the country is a key factor that impedes the promotion of RETs. There is inadequate information on RE potential, technical and economic information on RETs, equipment suppliers and potential financiers. A thorough collection of up-to-date information is imperative to establish a comprehensive database that may be used by stakeholders such as potential investors, project developers and policy makers.

Moreover, there is a lack of awareness about renewable energy in various sectors of our society (e.g. the public, the industry, financial institutions, etc.). The public does not have enough understanding on the long-term benefits of RETs, particularly the life-cycle costs and environmental trade-offs of such technologies. Information and education campaigns must be implemented to raise appreciation and recognition of the potential these RE systems have in achieving national energy security.

In addition, training programs regarding the installation of RE technologies must also be implemented to aid in the promotion and utilization of RE systems. This addresses the capacity building needs of the different stakeholders and thus promotes the commercialization of RETs. Human resource barriers
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A further barrier to the advance of renewable energy systems in the country is the inadequate human resource in the field of renewable energy. There is limited number of experts who are knowledgeable in various aspects of the RE industry. One of these aspects is in business management and marketing skills with respect to RETs, which may also be considered as market barriers in RE promotion. There is also a lack of expertise and services in system design, installation and maintenance of these new and renewable energy systems. Moreover, because of the lack of human resource, there is limited capacity for RE data collection and analysis that is needed for RE project development.

Therefore, there is a need for capacity building in the different sectors concerned in the field of renewable energy. Training programs should be done to increase the number of persons who may work on the equipment and machinery involved in these RETs. In addition, linkages with countries and institutions that are well-learned in RE systems should be made and maintained. This will allow for knowledge sharing and transfer of technologies to be realized and thus thrust the development of renewable energy utilization in the country.

Social barriers

The Republic Act No. 8371, or the Indigenous Peoples Rights Act of 1997, promotes, protects and recognizes the rights of cultural communities and indigenous peoples to their domains to ensure their economic, social and cultural well being. It also recognizes the applicability of customary laws governing property rights or relations in determining the ownership and extent of ancestral domains. The enactment of this law poses a significant barrier to the access of potential locations that may be explored for RE applications.

In addition, local conflict situations may exist that make some areas unsafe, especially in the rugged mountainous countryside and very remote locations in the rural regions. This may also pose as a hindrance to the implementation of RE programs in potential areas in the country.

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3.5 The Nuclear Energy Option

Today, nuclear power is faced with a negative public perception traced to safety, proliferation and waste management concerns. It should however be retained as an option because it is an important carbon-free source of electricity. Major steps have been implemented to make such systems safer including the development of new light water reactor systems that has increased safety levels five times. Experts have concluded that geologic depositories could safely isolate these wastes from the biosphere. The process, however, is yet to be demonstrated and tested due to some policy barriers. With all the uncertainties mentioned, the adoption and/or expansion of nuclear based power generation is not only a local issue but has become the focus of debates worldwide. Experts have proposed to launch an international cooperative program to initiate and implement a Nuclear System Modeling Project (MIT, 2003). Asian countries have varying nuclear energy directions. Just like Thailand and Vietnam, the Philippines dont see immediate role for Nuclear Power in the near future but should maintain it as a possible energy source in the future; thus, information dissemination, education, feasibility and risk assessment studies must be undertaken to enable future generations to make intelligent decisions on nuclear power. The country can also launch a geological mapping program to identify potential sites for geological repositories that would be capable to isolate nuclear waste from the biosphere. 3.6 Sustainable Transport Program

Estimates indicated that road transport accounts for a major portion of air emissions in Metro Manila (Ajero, 2002) thus needs to be controlled should the country want to reduce greenhouse gas emissions. Climate change and fuel cost issues brought a lot of attention to efficient and cleaner vehicle and fuel technologies. Fuel efficiency has now taken precedence over comfort and form in development priority. Car manufacturers have been racing to provide commercially viable hybrid and electric vehicles to the market. The high gasoline cost has catalyzed the shift of taxis to LPG fuel. LPG systems for diesel run vehicles are also now being

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introduced in the market together with waste cooking oil systems. The number of fuel additives and gadgets claiming to increase efficiency and improve vehicle emissions has also multiplied.

Trends indicate that technology improvements in the private vehicle industry has mostly been promoted by global vehicles technology development and has been mostly technology pushed. Public transport technology mutations on the other hand were mostly developed out of the need to cut down on operational cost to increase the income of the drivers and operators. The public transport sector accounts for majority of transport requirements of the country In Metro Manila for example, it provides 41.20% and 67.8% of the total vehicle trips and vehicle-person trips respectively ( NCTS, 1997). Public utility jeepneys accounts for 68.5% of the public transport vehicle travel ( JICA, 1999 ) in metropolis. Its could to note that efforts are on-going to rationalize jeepney routes, population and operation to improve the operational efficiency of the sector and traffic flow. Cleaner and more efficient public transport technologies though is expected to play a very important role in reducing the fossil energy demand from this sector. A number of technologies have been introduced locally ranging from a wide range of fuel additives, engine retrofit systems and modern drive trains such as electric systems.Very few of these technologies and products however are thoroughly tested and evaluated. While technology suppliers provide performance data, test procedures utilized are not standardized preventing valid comparisons and further verification. It is thus important to set-up a vehicles technology verification program to aid technology suppliers evaluate their technologies and also provide the public transport sector the required information to make informed technology adoption decisions. The program would also provide valuable inputs in policy and standards development.

The past year saw the unveiling of electric jeepneys and trikes in some streets of the metropolis. Current initiatives however are mostly demonstration in nature as these vehicle still needs to address a number of technology issues. A program to assist the electric vehicles industry is also proposed.

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Biofuels is one of the countrys key strategy in cutting down fossil fuel importation and greenhouse gas emissions. This has received a boost in with the signing of the Biofuels Act of 2006. To this date however, the country remains a net ethanol importer negating projected economic benefits from the program. Local biodiesel supply in the country is dominated by the top two providers. This indicates that the potential socio-economic benefits of community based biodiesel processing are not realized. The issues cited and proposed interventions are detailed in the succeeding sections.

3.6.1 Public Transport Vehicle Technology

As mentioned earlier, institutionalizing a program to evaluate vehicle technologies being offered to the public transport sector is needed.

Currently, the Department of Science and Technology runs an Environmental Technology Verification (ETV) program under its cleaner production technology section. The program however is voluntary and highly flexible evaluation coverage. It is thus recommended to modify the current ETV program and make it mandatory for all vehicles technology or product offered to the public transport sector. Evaluation scope and methodology will be standardized for the various product or technology. Technology updates will be prepared for public dissemination annually on the results of the evaluation conducted.

Jeepney and tricycle technologies are of particular interest. Jeepneys are run by second hand indirect injection diesel engines and are major air polluters throughout the country. They are considered heavy fuel consumers eating up 15 to 30 liters of diesel per day. While tricycles consume much fewer fuel, they are still mostly run by two stroke engines. Fuel short circuiting in two stroke tricycles is the main cause of their elevated hydrocarbon emissions.

3.6.2 Electric Vehicles Program

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The introduction of electric jeepneys in the country has been lauded by a number of global organizations as a major step towards a low carbon economy. A number of these vehicles are now plying routes in the Makati City Central Business District (CBD) as part of a demonstration project. Considering the infancy of the technology, these vehicles are far from being perfect and still needs a lot of technological interventions before they could be mainstreamed. The main challenge is to formulate designs that will be able to provide comparable performance and life cycle cost with conventional jeepneys. Obtaining this will involve a combination of technological, financial, policy and social interventions.

The key technological challenges maybe summarized as follows:

Development of low cost but high performance batteries specifically customized to Philippine jeepney operation Optimization of the structural and mechanical designs Development of flood-safe designs Development of customized electric motors based on jeepney drive cycle and loading Development and integration of low cost electronic and controls system to provide relevant features present in electric vehicles produced by major vehicle companies. This includes flood safe design features and regenerative braking capabilities among others.

Currently, there are two major suppliers of electric vehicles in the country, E-Save Transport Systems, Inc. and PHuV, Inc. Vehicles produced by these organizations are basically assembled systems from China. Local contributions in the vehicle design are mostly limited only to the body and aesthetic aspects. Owing to the nature of their operation, these organizations maintain a very lean technical team. Extending the following support to these companies would greatly facilitate the improvement of their vehicles:

Setting up of a program for the characterization and evaluation of electric vehicle components ( motor, battery, controllers, mechanical systems and materials ) available in the global market and providing them the results;

Development and dissemination of electric vehicle design and modeling softwares; and

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Matching of foreign graduate scholars which they can partly fund to focus on their specific vehicle design concerns for their thesis or dissertation work.

The on-going scholarship agreements with the Government of Taiwan could be the jumping board for the last point.

The establishment of a battery research consortium between local technology players and foreign partners is also proposed to developed batteries specifically designed for local public vehicles. The battery cycle life limitations and low energy density is major concern. Research on this area should be pursued through this consortium. This could, among other,s include work on hybrid battery-super capacitor systems.

3.6.3 Biofuels Development

The Biofuels Act was a major step in reducing the dependence of transport sector on oil. Ensuring the adequate supply of bio-fuels however is another challenge. Currently, the major feedstock for local biodiesel production is coconut and palm oil while sugarcane provides the countrys ethanol supply. To date, local bio-diesel plants have a surplus production capacity of about 255 million liters annually in contrast to the estimated 170 million liters annual deficit of existing bio-ethanol facilities ( Corpuz, 2009 ). According to the Bio-ethanol Update from SRA, at a rated capacity of 100,000 liters per day and an overall efficiency of 85 percent, around nine (9) bio-ethanol distilleries should be operational to comply with the 2009 mandated requirement, and a total of 18 distilleries to meet the 10 percent mandated blend by 2011. To date, there are only 2 ethanol production facilities in commercial operation, however. The San Carlos Bio-energy facility and Leyte Agri-Corp. plant both started ethanol-extraction operations this year. Both have a combined annual production capacity of 39 million liters.

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The high cost of sugar cane is a major hindrance in expanding local ethanol production. While this is expected to ease out to some degree once sugar tariff is abolished by 2015, a number of technology based initiatives may be explored to address this issue. First, integrating technology to increase yields of sugar cane plantations in the country and bring down cost of production should be pursued. The use of genetic engineering technologies in accelerating sugar cane growth and increasing sugar contents should be explored. Second, the use of hydrous ethanol in local vehicles should be evaluated and explored. The use of hydrous ethanol have been demonstrated and proven to be safe in Brazil and Netherlands. Infact in Rotterdam the objectives have moved from E5 and E10 to EH15 (Ethanol Hydrous 15) ( Lofvenberg, 2007; Brewster et al, 2007). Instead of blending 10 percentage anhydrous ethanol with petrol they use 15 percentage hydrous ethanol in the fuel blend. A co-operation work together with the Dutch company Process Design Centre PDC, SenterNovem, TNO and a large oil company found that E15 is a better and more stable blend than E5 and E10. Among the mixtures tested by PDC researchers, it was concluded that the mid-level hydrous ethanol blend (with 96% ethanol and 4% water) does not phase separate and can absorb five times more water than the anhydrous ethanol blends. This means that this ethanol-water mixture is even less corrosive because it can absorb the water content better. Removing the last 5% of the moisture content of ethanol accounts for 15% of its total processing cost. In Europe, processing cost savings is between 0.05 to 0.10 Euro per liter of ethanol (Gotschak et al, 2006 ). This reduction in ethanol processing cost could contribute in the financial attractiveness of the business and facilitate investments in ethanol production. The use of hydrous ethanol requires extensive testing on our local vehicles and revisiting the current ethanol standards of the country. Sustaining ethanol production however would have to eventually shift to non-food based feedstocks more particularly cellulosic materials and algae.

The main biodiesel feedstock in the country is coconut. While coconut oil production volume has been found to be adequate as mentioned earlier, viability for their use in biodiesel production strongly depends on external factors. The Philippines is the leading source of coconut oil in the world. About half of exports goes to the US market, and more than 40

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percent is shipped to Europe18. However, it is a price-taker in a global vegetable fats and oils market to which it contributes only 5 percent. This means that the price of copra, the raw material from which coconut oil is extracted, is largely dictated by the international market for vegetable oils. It could be noted that the countrys coconut export value in the past years have been highly volatile. . It could be noted that there is a positive trend in the value of matured coconuts in recent years, as shown in Figure 12. The demand and price volatility in the global market could affect biodiesel production viability as experienced by the Romtron biodiesel facility in Romblon

Figure 12 Philippine Coconut Oil Export Value19

Research on other feedstocks should thus be pursued as outlined in the countrys Biofuels roadmap. Jatropha has received a lot of attention and hype in the past years.

18 19

http://www.bworldonline.com/main/content.php?id=2280 Philippine Coconut Authority

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Figure 13 Annual Farmgate Price of Coconut ( 1998-2004)

Jatropha was initially thought to be hardy and will survive anywhere and requires very little or no care at all. Invistigations by Espiritu et al (2008) however indicated that productivity inputs are work on the plant are needed to optimize its growth and yield. This translates to negative effects on their technical and economic viability. Currently, studies are on-going to look at the agronomic and processing interventions to address its viability. The Jatropha research program however has focused mostly on its use as a biodiesel feedstock. It is advised though that a wider paradigm is adopted. The program would have to focus on the optimum energy utilization pathway for this resource.

While the current supply of biodiesel is adequate, it is interesting to note that its is dominated by the two biggest suppliers Chemrez, Inc. and Senbel Fine Chemicals, Inc. This indicates that the biofuels program has not significantly benefit smaller players unlike in the other countries where community based biodiesel processing has thrived. In fact, community based biodiesel players Romtron and RapCo has temporarily stopped production for their inability to be competitive. A number of other small players are also planning to follow suit (Balangue, Fernan and Tanchuling, 2009). This could be traced to a number of factors. The oversupply of biodiesel in the market has put a lot pressure on biodiesel prices. Based on the economies of scale and
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with better processing facilities, the bigger players are able to obtain lower processing cost that could not be matched by the smaller players. Support is thus needed to bring down the processing cost and yield of smaller biodiesel players for them to survive in the industry. This would require also reviewing the current biodiesel standards to determine possibility easing out the requirements for some parameters which could possibly have an impact in processing cost.

Table 5 Biodiesel Suppliers in the Philippines (Balangue, Fernan and Tanchuling, 2009)

It is also important to put their real benefits and challenges in the right perspective. The countrys biofuels program would have to be properly supported by modeling efforts to assess their net environmental and economic benefits and optimize its resources. Of particular interest are their effects on the water and land resources and CO2 terrestrial absorption of the country, as well as the potential adverse effects on food security and its social impacts.

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3.7 Waste to Energy Systems

Waste to energy systems exist but may not be applied locally due to the Clean Air Act of 1999. Such systems have mostly been run using dry waste as in Europe and United States until recently when India put up its own. Waste in India is mostly wet similar to that in the Philippines. Their experience could be a basis for the decision to allow similar technologies locally.

3.8 Increasing Energy Efficiency Use

The benefits of a higher indigenous energy supply could be minimized by significant increases in energy demand. Improvement in energy efficiency and conservation thus is indispensable in the countrys energy security program. While the Philippine primary energy intensity per GDP (i.e. the amount of energy utilized to per unit GDP generated) in 2004 is lower compared to its neighbors, it lags behind developed countries. In addition, it is projected that the countrys primary energy intensity will eventually be surpassed by its ASEAN neighbors by 2030 (Nagayama, 2008). The Department of Energy initiated various energy efficiency and conservation programs through its National Energy Efficiency and Conservation Program (NEECP). It consists of five sub-programs namely: a) information, education and communication campaign, b) voluntary agreement programs, c) energy labeling and efficiency standards, d) energy management programs, and, (e) alternative fuels program. Private sector participation is voluntary except for the energy labeling program.

Despite the inroads in energy efficiency technologies, adoption has been limited due a number of factors including human resource limitations, high initial cost and uncertainties and lack of industry confidence in their net benefits (Ablaza, 2004). The energy efficiency industry has been mostly dominated by foreign technology thus the high cost. Localization of these technologies and development of indigenous approaches could reduce technology cost.

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The small and medium scale industry needs technology assistance in identifying opportunities and strategies to increase their energy utilization efficiency. In addition, they would have to be continuously updated and exposed to modern energy saving strategies.

The rapid real estate growth in the country needs to be accompanied with building energy efficiency standards and program to ensure that it does not drastically bring up energy demand. Data in Malaysia indicated that lighting and air-conditioning, on the average, accounts for 34.5% and 35.8% of electricity utilized by residential and commercial buildings. Considering that the residential and commercial sector accounts for a combined 38.8% of the countrys energy requirements, efficiency improvements in these buildings would provide significant benefits. Passive and active green building technologies need to be popularized with the end view of eventually becoming the norm.

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Chapter 4 Governance and resource issues in the Philippine Energy R &D

Ensuring an energy secured and sustainable future requires a wide range of interventions including research and development ( R and D ) programs. Structures and key elements would have to be put in place to ensure the success of the research and development program including funding, technical expertise, infrastructure, responsive institutional set-up, venture capital and information access and exchange among others.

4.1 Governance
4.1.1 Institutional Analysis

Initially, the national research and development programs and activities in the energy sector were handled by the Energy Research and Development Bureau (ERDB) of the Department of Energy (DOE). However, there was reorganization in the DOE in the year 1993, and the Energy Utilization Management Bureau was formed (EUMB), replacing the ERDB. Under the umbrella of this bureau are three main divisions: the Energy Efficiency and Conservation Division (EECD), the Alternative Fuels and Energy Technology Division (AFETD), and the Renewable Energy Management Division (REMD). With the signing of the Republic Act 9513, a Renewable Energy Management Bureau (REMB) was established under the DOE, thereby dissolving the existing REMD. This bureau is mandated to effectively implement the provisions of the Renewable Energy Act of 2008 and it also manages the various R & D activities with regards to the field of renewable energy, together with the various Affiliated Renewable Energy Centers (ARECs) in the country. ARECs were initially called Affiliated Non-conventional Energy centers ( ANECs), are predominantly academic institutions who are involved in research and development projects and activities in the field of renewable energy. ARECs function as an extension arm of the Department of Energy Renewable Energy Management Bureau (REMB), serving as a link to the rural areas for the promotion of the use of new and renewable energy technologies. While ARECs have been important in the implementation of DOEs renewable energy programs, very
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view of their efforts can be classified as research and development. Their activities have mostly focused on resource assessment, design and installation of the renewable energy systems on site.

Other universities have been active also in energy research as well as other government agencies such as the Department of Science and Technology (DOST) and Department of Agriculture (DA). The Renewable Energy Association of the Philippines (REAP) on the other hand has also been involved in renewable energy programs in the country.

The current energy research structure has yielded very minimal returns. Unlike in other countries where research projects are bidded out, studies are mostly implemented by government in-house researchers. This practice has not helped in the formation of a local research industry which is a very important component in infusing dynamism to the program. While energy research roadmaps have been established, specific research projects have been mostly bottom-up and highly uncoordinated. This has particularly true in the ERDT program of DOST where research proposals received have not been particularly impressive. While academic researchers have the required competency to implement research programs, guidance would have to be extended in ensuring that they work on the right projects. It is important to complement the current practice with flagship top-down research programs. In addition, government agency efforts should mostly focus on the identification, formulation, financing and coordination of key research programs rather than implementing the research themselves.

Currently, a lot of institutions are doing RE research and development but there is no centralized entity that handles these activities concerning RE. There is insufficient knowledge sharing and coordination among these institutions, causing a lack of a holistic outlook on the current status of RE in the country and overlapping of functions in the different RE agencies, both public and private.

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In line with the previous discussion, it is recommended that an Energy Research and Development Institute (ERDI) is established to facilitate this process. The main focus of the institution is to identify and formulate research programs with clear outputs and milestones to be bidded out to local or international research consortiums. Bidding guidelines could be introduced to involve at least one local university in the consortium. Involvement could either be institutional in nature or just limited to tapping researchers from the university. This practice will greatly help in uplifting research capability and change paradigms in local universities. Key research facilities and equipments could be set-up in a network of universities to facilitate implementation of these programs.

4.1.2 Technology Commercialization Program

Technology development efforts will always remain missionary unless successfully commercialized. They should be anchored on the derivation of clear economic benefits to continue supporting itself (human resource, equipments, research funds, etc.). Though, initially, the programs would have to rely on grant and government funding, mechanisms should be put in place to attract venture capitalist to support their commercialization and further development.

The government has established several programs to support the commercialization of research outputs. DOST established the Inventors Fund under its Technology Assistance and Promotion Institute in 1992. The purpose of this fund is to grant incentives and financial assistance to the inventors provided a project proposal is submitted. The Development Bank of the Philippines (DBP) also has a window to support the commercialization of mature technologies including venture capital for projects that are viable. The then National Science Development Board (NSDB), now the Department of Science and Technology (DOST) worked out with the Development Bank of the Philippines an Inventors Guarantee Loan wherein NSDB has to guarantee up to 85% of the loan. This loan fund program is still open for use by the inventor. A number of inventors took advantage of the funding window while none from the academe did.
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Venture Financing Program was also established by some private group with the objective to assist and accelerate the commercialization of new technologies by providing the necessary funding support for start-up projects. Private inventors however were more inclined to avail of government resources rather than tap these programs.

A new program of the Department of Science and Technology that was initiated in February 2003 is known as Technology Incubation for Commercialization (TECHNICOM). The initiative was designed as a technology transfer program that seeks to identify key technological breakthroughs that have excellent commercial potential. The program follows the principle of laboratory to shelf approach in providing support for the commercialization of research output and innovations. Jointly, the university researcher and the industry adopting the technology can request for financial grant from the DOST. It may also extend assistance in protecting and processing the intellectual property rights of the technology.

The academe, general, has not maximized these programs. This could be partly attributed to a number of factors including: Most research activities in the universities are viewed as academic exercises rather than a wealth creation endeavor; Lack of awareness of priority market and technology needs; Lack of information about the available commercialization assistance programs; and Lack of technology commercialization experts that could facilitate the process.

Unlike in other countries, industry has not tapped universities to provide their product development and other R and D needs. This has mostly been due to the lack of awareness of the said service that universities could offer and, in some cases, due to lack of trust and confidence. It could be noted also that most government R and D support funding comes only in the later stages of technology development efforts. Significant support however is needed in the early stages of the endeavor where the risk is high and where industries are usually

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reluctant to support. Most industry involvement in the early stages of the innovation process will be limited to needs identification and some technical assistance but would rarely cover funding.

The following are proposed to address these issues: Revise the university research program evaluation indicators to give importance to the number of products developed and have been successfully commercialized and the number of technology business incubated. To a higher level, this indicator could include degree of contribution to economy as introduced by Tamai and Nishimura (2004); Provide government support programs in the early stages of the innovation process; Provide fiscal incentives for industry to tap and support R and D services of universities to facilitate greater collaboration; Benchmark models and strategies adopted by other universities that have successfully facilitated industry R and D collaboration such as those at Graz University of Technology (Admetz and Hofe, 2004) and University of Tokyo (Tamai and Nishimura). Provide scholarship programs to university staff to pursue further studies and training on R and D commercialization and management.
4.1.3 Cooperative Work and Technology Acquisition

Considering the longer life cycle of energy and transport systems, energy research programs should continuously seek and adapt strategies to cut-down technology development cost and time. Cooperative work and technology acquisition should be viewed as a strategic tool and should be deliberately pursued whenever possible. No data however is available summarizing energy research cooperative work in the country. Joint programs should be pursued particularly with other ASEAN neighbors on areas of common interest. The country could also play active roles in research work on emerging energy technologies under the international collaboration program of the International Energy Agency and other similar institutions (Polaski and Melo, 2006). Cooperative work should not only be limited to foreign research institutions but among local institutions (academic, government agency, private sector) as well. Foreign researchers

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and experts may also be hired to train and assist local researchers on certain projects. Whenever applicable, foreign technology products maybe re-engineered to facilitate adaptation of the technologies locally.

4.2 Resources
4.2.1 Human Resources

Energy research enjoyed strong support in the late 70s and early 80s in response to the oil crisis of 1973. The country then pursued a massive energy human resource and research facility upgrading program to search for alternative sources of energy. While efforts have continued to strengthen energy research in the country, they failed to sustain the program as other national concerns took precedent. Science and technology took a boost again in the early 90s with the implementation of the Engineering and Science Education Program (ESEP) which saw scholars sent for further studies locally and abroad. The program was successful in increasing R and D capability in the country as shown in the increase of R and D manpower from 1992 to 1996.
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Table 2 Comparative number of total R & D personnel in the Philippines by sector

Sectors All Sectors Government Higher Education Public HEIs Private HEIs Private Non-Profit

1992 15.610 6.065 6.929 5,720 1,209 922

1996 15,837 6,591 8.030 7.508 522 510

2002 8,692 3,054 4,096 3.147 949 242

It could be noted however that generally the number of researchers significantly dropped in 2002. This could be attributed to the migration of a big number of science and technology workers abroad. This is particularly true in public higher education institutions (HEI) where the R&D manpower decreased drastically in 2002 by 46 %. The figure also covered the transfer of

20

Source: Department of Science and Technology

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people from public HEIs to private HEIs. The 45% increase in R and D manpower in private HEI from 1996 to 2002 has indicated that the sector were able to hold on to their people better than in the public sector where salaries and benefits are usually lower. Of those who stayed behind, a big portion however were assigned administrative positions immediately upon return from their studies and currently spend very minimal time on research. Nevertheless, the ESEP project have facilitated the establishment and strengthening of local engineering graduate programs, considered a key to strengthening the local science and technology capability.

Recently, the DOST launched the Engineering Research and Development for Technology (ERDT) program which made available a significant number of graduate scholarships to the countrys research and development priority areas including energy. While the scholarship benefits are quite modest, the available slots are yet to be maximized. There might be a need to reorient undergraduate students to pursue research and development careers and view it as a viable option for the future. This could be obtained through the establishment of viable and progressive research institutes and programs locally.

In reference to the strategic technology development potentials discussed, an assessment of the energy R and D human resource development requirements and recommendations are as follows:

Energy Technology Oil and Gas

Technical Human Resource Development Assessment Concern is more on producing the technical manpower required by the industry rather than on R and D. Over the years, local fuel and combustion R and D people have dwindled due to retirement and migration. A new crop of fuel and combustion experts would have to be developed by sending a pool of researchers in foreign universities to pursue graduate research studies the characterization of local coal and evaluation of its appropriateness with modern coal combustion technologies. The DOE or DOST could consider funding this program.
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Coal Energy

Geothermal

Human resource requirement is more on site assessment, operation and maintenance rather than on R and D. Localization of high performance and low cost small wind energy systems requires high level expertise in materials engineering, fluid mechanics and power electronics. While expertise in these areas exists locally, the number is small. They have to be identified and pooled together to work on the project.

Wind

Solar PV

While there is enough fundamental expertise (power electronics, instrumentation, physics, etc.) to support Balance of System (BOS) R and D work, the number of people actually working on these programs is very few. It is thus recommended that ERDT develop and implement a long term and coordinated program on the localization of Solar PV system components (charge controllers, inverters, net meters, etc.) and development of innovative control systems. As mentioned earlier, major barriers of the wide spread adoption of solar thermal applications ( solar water heaters, solar thermal driers, etc. ) include the lack of solar thermal design engineers, high initial cost and limited industry knowledge on the potential benefits and application of the technology. It is thus recommended that a pool of researchers from the academe and engineers from the industry be identified and trained by DOST on solar thermal system design. Solar cooling and dehumidification research requires high level of expertise. While the country has very minimal capability and almost nil effort on this area, the potential benefits of the technology is very high that it would be worth pursuing. It is thus recommended that ERDT develop and implement a long term and coordinated program on the localization of solar cooling technologies in cooperation with leading institutes and
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Solar Thermal

Solar Cooling

organizations outside the country (ex. Hong Kong University, etc.). Hydro-energy Expertise to purse localization of off-the shelves picohydro systems exist. Accelerating the adoption of microhydro systems on the other hand requires the training of more engineers and institutions on micro-hydro system design, fabrication and construction. Training could be facilitated by local lead institutions such as DLSU and DOST. Local expertise on Ocean energy research is nonexistent. As mentioned earlier, though still in the infancy stage, this area provides a lot of potential benefits for the country. While not formally starting an independent research program on Ocean energy, the country could start building up expertise by sending local researchers abroad for graduate studies and research.

Ocean

Biomass Combustion and Gasification

While the number of fuels and combustion experts have dwindled in the past years, there are still a number of experts and institutions proactively pursuing biomass combustion and gasification research particularly ITDI DOST and UPLB. Efforts of these two institutions however wont be enough to accelerate the adoption and popularize biomass combustion and gasification applications. It is thus recommended that a pool of researchers from the academe and engineers from the industry be identified and trained by these institutions on these technology areas. As discussed earlier, biogas technology is a mature technology and needs very minimal research. The technology could be popularized by training more technologists and institutions that could assist interested parties design and set-up biogas systems. The trainings could be spearheaded by UPLB, CLSU and DOST. Efforts on energy efficiency system have mostly been
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Biogas

Energy Efficiency

limited to the adoption of existing technologies and very rarely involve the development of new strategies and devices. The fundamental expertise to pursue localization of and development of new energy efficiency devices are present locally but is rarely tapped due to the absence of a structured and deliberate effort. It is thus recommended that ERDT develop and implement a long term and coordinated program on the localization of and development of new energy efficiency devices. Expertise on passive energy systems development and adoption on the other hand is quite limited and needs to be beefed up by sending a pool of researchers from the academe and engineers/architects from the industry to pursue graduate level study on these areas with special focus on tropical climates. Energy efficiency auditing plays a critical role in improving energy use performance. While expertise exist, the number of energy efficiency experts and auditors are not enough to support the needs of the industry. The energy efficiency audit training programs of DOE should be further popularized and accelerated. In addition, Universities should consider offering a Masters in Engineering Program (applied and nonthesis) with specialization on energy efficiency. Vehicle Technology Development The adoption and development of modern technologies to public utility vehicles could be best pursued through the implementation of a structure and coordinated ERDT program on this area.

Bio-fuels Development

The country has the expertise to pursue Bio-diesel conversion and testing research. There is already a network of government agencies (DOST, DOE, DTI, DA) and academic institutions engaged in coordinated research on jatropha biodiesel. While the country is fairly strong in biotechnology, limited local efforts have focused on the development of cellulosic ethanol technologies. Expertise on this area could be best obtained through research partnerships between DOST and UPLB, being lead biotech institution locally, and institutions leading these research programs in the US and Brazil.
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Nuclear Engineering

The expertise gained by the country on nuclear engineering in preparation for the operation of the Bataan Nuclear Power Plant has now dwindled if not non-existent. This could be traced to retirement and migration. While the country is not pursuing nuclear energy as a research area, considering the potential application of nuclear engineering, it is highly advisable to start building up again this expertise by sending local researchers for graduate research and studies abroad particularly in Japan.

4.2.2 Funding

The energy R and D of the country share have been considered very minimal. DOST data (DOST R&D survey, 2002) indicate that only 1.29% of the countrys R and D expenditure or 22.93 million pesos in 2002 went to energy related studies. The government accounted for the 20.89 million while the rest were supported by the academe. The study was not able to cover industry energy R and D efforts. The figure is dwarfed by the 4.8 and 3 billion USD 1995 energy R and D spending of Japan and the United States respectively (Mangilis and Kammen, 2000).

Support mechanisms have put in place to strengthen local research and development such as the Grant-In-Aid (GIA) of DOST. GIA applications received however have generally been few including those in energy related programs. This indicates lack of research and development people in the country. In addition, the whole technological development framework would have to be reviewed. Technological innovation is normally pursued through a number of stages and industry cooperation usually comes only in the Development stage where the risk is low enough for them. It could be noted that GIA research proposals requires industry partnerships which means that earlier stages (Idea Generation and initial experimentations, Concept Definition, Market Analysis, Technical Analysis and Business Planning) would have to be mostly shouldered by the proponent.

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Figure 14 Technology innovation process (Ettlie, 2000)

Unfortunately, most individuals, academic and research institutions have very minimal financial capacity to work on these components. Idea generation requires seamless access to scientific information and constant networking with the scientific community. Very few institutions have access to scientific journals and regularly fund attendance and presentations to international conferences, and foreign research visits. In addition, the DOST study on Industry-Academe linkage indicated that industry is unlikely to support financially basic and developmental research (Tansinsin, 2006). The industries in the Philippines apparently look at research and development as an expense and not as an investment or insurance that may result to bountiful benefits in the future. The same study indicated that the industry research involvement is mostly limited to equipment donation or usage. The industry mostly view the academic sector as training centers to provide their manpower needs and seldom as research institutions that they could tap to address their technology develop needs. It would take a lot effort to turn around this industry perception. It could thus be expected that the government and the institutions would have to take the initial bulk of R and D funding requirements to demonstrate capability and potentials academic and local research institutions until industry trust is

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established. While the support for basic research should be provided, it should only be limited on a number of areas with very high local resource and application potential preferably through an international collaboration program.

The Commission on Higher Education (CHED) has also been active in strengthening research in the academe sector. Centers of Excellence (COEs) and Centers of Development (CODs) were identified to spearhead research in higher education. The COEs are units in the universities that have the qualified manpower, facilities, infrastructure and other requirements to undertake research and development and received a P 9 million support per year for 3 years. CODs on the other hand received P 3 million per year for 3 years. The latest assessment of the program indicated that it have generally improved instruction in all the recipient institutions in terms of teaching facility, equipment and reference material enhancements, curriculum development and innovations and board exam performance improvements (Magpantay, 2007). Generally, it also improved research activities in recipient institutions as measured by research publication production, research programs initiated and improvements in research facilities. Despite these improvements, so much effort and support however would be required to lift up research programs in local universities to international norms.

Foreign grants for cooperative, joint projects and other modes of research arrangements are also available provided the project proposal is in line with the priority area of the funding foreign country. One program that has benefited from this scheme is the Center for MicroHydro Technology for Rural Electrification (CeMTRE) of De La Salle University-Manila. The current global crisis however is expected to make foreign grant sourcing more competitive such that support would have to be extended to institutions during grant proposal development. Support could be in the form of technical assistance and / or funding to cover networking and manpower cost during proposal development.

Considering the pressing socio-economic concerns of the country, R and D funding would have to be efficiently utilized and directed to strategic areas that could provide the maximum

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benefits. Technological maturity and energy inertia would have to be considered in the identification of these areas. The country should deliberately pursue research on energy technologies nearing or has reached commercial maturity for higher R and D cost efficiency. The government however should refrain from providing grants to mass demonstration and adoption of commercially mature renewable energy technologies as this could compete with the private sector. The end-user should be made aware of, recognize, accept and bear the true cost of the technology to stimulate commercialization. Funding in such cases should instead be channeled to training and research to further improve and reduce the cost of the technology.

The high up front cost and uncertainty on the benefits and reliability of renewable energy and energy efficiency systems prevents its wide scale adoption by the industry. It is recommended that a Build, Operate and Transfer (BOT) Fund be set-up to provide soft loans to the local RE and energy efficiency industry in implementing BOT schemes. The fund will be made available until industry confidence on the technology increased and up-front cost decreased to attractive levels.
4.2.3 Infrastructure

To have a responsive and effective energy research and development program, the following infrastructures would have to be ensured: Availability of functional and well equipped research facilities Availability of energy related data gathering facilities and database (ex. climatic data, resource, etc.) Access to scientific information

Availability of local experimental facilities and equipment is a major concern. Basic fuel testing procedures such as ultimate analysis would have to be done elsewhere due to the absence of functional testing equipment. It is encouraging to note that increased realization of the importance of test and experimental facilities have exhibited with the establishment recently of the vehicle research and testing laboratory (VRTL) at the University of the Philippines. It is being recommended that lead universities and institutions be identified in the various strategic
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energy research areas where state of the art and complete research equipments will be stationed. Deterioration and decreased reliability of instruments due to high maintenance and calibration cost has always traditionally been a major issue. Interventions should thus be put in place to safeguard the facility from this concern. These facilities should be maximized by providing researchers from other agencies and institutions equal and affordable access to them.

Availability of reliable, complete and conveniently accessible climatic, geographical, energy resource and energy system statistical databases has always been an issue in the country. High resolution and complete solar insolation, wind velocities, ambient air temperature and humidity level data for example are non-existent due to non-functional data gathering stations and equipments. Historical databases are also mostly not digitized and not accessible through the web. The same is true for accurate and complete vehicle type and age data which are very important inputs in transport planning and simulation. It is thus recommended that a review and modernization of the climatic, geographical, energy resource and energy system statistics data gathering, storage and dissemination system be implemented.

One of reasons behind the seemingly lack of innovative ideas and poor energy research proposals from the scientific community is the lack of access to up to date scientific information and poor linkage with the international community. It is thus being proposed that a scientific information highway to be stationed either in the National Library or NERI be established to provide local researchers seamless access to top rated scientific journals. It is also recommended that a Scientific Linkage Fund be set-up by the government to be made available to the local scientific community by application to fund presentation in international conferences and meetings with their counterpart institutions abroad.

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Chapter 5 Proposed Research Programs and Interventions

9.1 Recommendations The following recommendations are put forward to address the issues cited earlier:

Institutional Recommendation

Establish an Energy Research and Development Institute (ERDI) to manage energy research in the country with National Energy Research Laboratories (NERL) for specific technologies based in selected universities and research institutions to serve as focal centers and one stop center for energy research, linkages and energy data bank for the universities, research institutions, industries and other national and international energy organizations. Each Laboratory will be equipped with state of the art research facilities. This would involve establishment of the following among others: Biomass and Combustion Laboratory Solar Energy Laboratory Biofuels Laboratory Wind Energy Laboratory Micro-hydro Laboratory Energy Efficiency Laboratory Vehicle Technology Laboratory Clean Coal Laboratory

The main role of ERDI is to identify and organize key research and development programs to be either bidded out to private research institutions or implemented by a pre-identified consortium of research institutions including universities. In coordination with CHED and DOST, these researches may also be implemented through a highly coordinated graduate scholarship programs. It will also seek to establish partnerships with foreign research institutions and programs to complement its activities. It will be guided by a board of advisers with representatives not only from the scientific

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community but from the business sector and civil society to facilitate needs identification and commercial adoption of the technologies.

Human Resource Development

Set-up a fund that could be accessed by local researchers from the government, academe and private institutions to support attendance in international conferences or meetings to set-up partnerships with foreign counterparts. This will be limited only to the priority areas detailed below.

Establish science and engineering information hubs per region to provide the scientific community a wider access to up to date scientific information; e.g. research journal on-line access, international networking, international research partnerships, etc.. (Currently, only a small number of universities and research institutions have access to scientific research journals due to high cost).

Channel existing scholarship programs and international scholarship grants to highly coordinated and structured graduate research in support of the priority areas detailed below.

Technology Priority Programs

Based on the discussions provided in chapter 3, the following priority programs are provided below. It is strongly suggested that instead of just assigning these projects to government research sections and academic institutions, the following modes of implementation should be considered:

Research Bidding Research contracts will be prepared and announced for bidding by research consortiums. Research Awards

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Similar with research bidding except that project may be awarded to a number of groups. This applicable when there could possibly be more than one acceptable solution to the research problem such as design of systems and products. Coordinated Graduate Scholarship Program The research program will be broken down into research building blocks to be worked on by graduate scholars both locally and abroad.

Priority Programs

Technology Area : Nuclear Energy In lieu of the depleting fossil energy resource and issues on climate change, countries has strongly looked at the possibility of going nuclear in the future. The current generation of nuclear energy systems are considered to be very safe and much cheaper compared the previous systems. The gestation time required to adopt this technology is usually long specially for countries with a very weak technical capability like the Philippines. It is thus proposed that nuclear energy human resource capability building program is started as soon as possible.

Technology Area : Bio-fuels The main issue with the current implementation of the bio-fuels act includes the lack of supply of ethanol due to raw material and processing cost and the identification of a lower cost biodiesel feedstock. The following programs are thus proposed:
1. Hydrous ethanol evaluation, testing and ethanol standards review 2. Cellulosic ethanol research 3. Algae for bio-diesel and ethanol research 4. Jatropha energy pathways modeling and evaluation

Linkage with the BioEthanol for Sustainable Transport (BEST) program of the European Union and ethanol research institutions from Brazil and United States could greatly help in the implementation of these directions. .

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Technology Area : Electric Vehicles Electric vehicles are viewed as the vehicles technology of the future. Being one of the first to actually adopt the technology, this industry could open up a big export market for the country. A number of technical challenges however still needs to be. The following programs are thus put forward:
1. Electric Vehicles Technology Forum 2. Electric vehicles component testing and evaluation 3. Electric vehicles energy storage technology development 4. Development and dissemination of e-vehicles modeling and design optimization software

Technology Area : Public Transport Jeepneys and tricycles are consumers of fossil fuels and are considered major emitters. A number of technologies to improve the efficiency and reduce emissions of these vehicles but very few has undergone comprehensive and unbiased evaluation to the detriment of these transport sector. The establishment of a jeepney and tricycle technology verification and evaluation program is thus being recommended that would require all technologies be first test and evaluated before they could be offered to the sector.

Technology Area : Solar Photo-voltaic Mindanao holds the most percentage of un-electrified barangays in the country. Recent climate simulations have indicated that the area will be driers in the future which means that it enjoy more sunlight. This opens up a match with solar energy. Missionary electrification program however would have to be more than providing lighting but would have to include other higher value services such as water purification and education related purposes. The practical application and development of solar photo-voltaic systems in Mindanao is thus recommended.

Technology Area : Geothermal We need to ensure that the country will be able to continuously benefit from the its geothermal energy resources. This would require limiting extraction rates to levels just enough
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to replenish whatever is extracted. It is recommended that the modeling and determination of true sustainable steam extraction rates of the various geothermal sites of the country be launched. The development of appropriate legislation to ensure that they are observed would have to follow.

Technology Area : Coal While the country has stopped building coal power plants, existing ones will still stay for some time. One of the challenge thus is how to minimize their impacts and reduce dependence their dependence from imported coal. The country should take into consideration cleaner coal technology developments and thus should not altogether close its doors from coal. The following programs are thus proposed: 1. Characterization of local coal vis a vis cleaner coal combustion technologies. 2. Explore feasibility of co-firing coal with biomass in existing coal power plants 3. Geological mapping to identify possible CCS sites in the country.

With the abundance of coal reserves in South East Asia, most of our Asian neighbors have also focused their research efforts on clean coal technology (Balce et al., 2000). Whenever applicable, cooperative research programs with these countries are expected to be beneficial. Experts from the clean coal research program of the International Energy Agency (IEA) and the Massachusetts Institute of Technology (MIT) may also be tapped to assist in the countrys clean coal program.

Technology Area : Energy Efficiency Active and passive energy efficiency technology are well established and waiting to be adopted in local facilities and structures. There is however a need to popularize these techniques both for the architects and engineers. There is also a need to develop building energy efficiency optimization and environmental evaluation softwares customized to local conditions and materials. These directions would also be a big support in the implementation of the Philippines green building rating system known as BERDE. The following is thus proposed:

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1. Mass training of engineers and architects on green building technologies and techniques; and 2. Development and dissemination of an energy and environmental simulation and design software tools for local structures

Considering climatic similarity, these efforts could be best facilitated in partnership with other South East Asian Countries.

Technology Area : Biomass Biomass based combustion and heating technologies are well established. The country however is not able to maximize its biomass resource for heating applications due to the limited number of technical people that could facilitate the system design and adoption of the technology. Certain guidelines also need to be set-up to ensure the safe use of thus resource. The following programs are thus put forward:
1. Mass training of engineers on the design and adaptation of biomass combustion and gasification for process heating; and 2. Cookstoves promotion and development of product standards

Technology Area : Biogas Biogas technology is a well established technology that could potentially benefit rural communities. Projects have been implemented showing the viable adoption of the technology even in small farms. The challenge is not so much on research but on the promotion of the technology. The mass training of technical people and dissemination of best practices on the design and operation of biogas systems is thus proposed.

Technology Area : Hydro-Energy Continuous operation of hydro-energy systems are highly dependent on water supply. With the highly unpredictable climate nowadays, there is a need for more flexible energy systems. The pico-hydro system holds the advantage of requiring very minimal civil works and could be transferred from one location to another very easily. While this could be easily imported from China or Vietnam, producing our own will open up a big industry providing jobs in various areas

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of the country. The challenge is re-engineering and commercialization of the foreign designs to fit local viability requirements.

Technology Area : Solar Cooling Cooling accounts for 30% to 50% of the electricity consumption of buildings and houses in temperate countries thus solar cooling holds a lot of promise in the Philippines. The country however has very minimal experience on this area. Before the country finally commits to pursue this direction, it is advised that it first do some preparatory work including the following:
1. Solar Cooling International Conference 2. Demonstration and assessment of solar cooling energy technologies

Hong Kong University and LIMSI-CNRS of France are lead institutions in Solar Cooling research. Collaboration with these institutions should be strongly considered.

Technology Area : Ocean Energy As mentioned earlier, the country is not advised to start an independent research program on ocean energy due to its limited resources and the level of maturity of the technology. It could however take an active part in international research cooperations such as the Ocean Energy Systems Cooperation Project of the International Energy Agency (Polaski and Melo, 2006). This would provide the country up to date information on the development and status of the technology and contribute in the development of expertise required should the country finally decide to pursue deliberate ocean energy system development programs.

Legislations While not reopening the broader debate on the environmental and health impacts of incineration technologies, it is recommended that a team be formed to revisit the Clean Air Act of 1999 in lieu of developments on incineration technology. The experience of India could provide vital inputs in the study.

Cross-cutting Areas of Collaboration Among The Panels

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Creating an Environment for Commercialization of Technologies (e.g. startup / incubation environment); Public-Private-Partnerships for R&D all the way to Commercialization; Creating a Critical Mass of R&D Workers; Strengthening the Brain Gain and Balik Scientist Program; ITRI-type Research Organization; Priority / Niche / Products Services; Government as a Major Market for Technology and Innovation-based Products; Identification of International Collaborative Linkages (e.g. Spain-Philippines on Wind Energy); and Productivity, Innovation and Competitiveness Studies in Universities at the Graduate Level (similar to those undertaken by the MIT Sloan School).

9.2 Conclusions Technological innovation plays an important role in the countrys sustainable energy program. Each stage of the energy innovation chain, consisting of R and D, demonstration, early deployment and full commercialization has various human resources, support, infrastructures and program pre-requisites. Currently, the country has weaknesses relative to these requirements. It does not have the required mass of scientist and technologist to support energy R and D to maximize its indigenous energy resources. The existing research facilities are inadequate to respond to these technology development challenges. There is inadequate access for most local energy R and D community to up to date scientific information, research equipment and facilities and international research exposure and linkages. In addition, local energy R and D efforts have been project based and short term thus lacks continuity and fails to

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build on its gains. Energy research projects have been mostly based in the academe and government agencies and has traditionally been bottom-up. This model have yielded minimal benefits. Maximizing energy research funds require a paradigm change in research management. First, the current programs would have to complemented by a top-down research management approach including long term deployment plans. In addition, implementation of research programs should consider bidding out the projects to private research groups and consortiums. The current government scholarship programs should also be revised to support highly coordinated research programs.

There is also a lack of cooperative efforts across the various sectors to guide and support energy technology development in the country. It must be stressed that for research programs to be truly and continuously beneficial, they should be dynamic and eventually lead to wealth creation.

This is best ensured through a multi-stakeholder research management approach involving the private sector, government and the academe. This will ensure that the right research problems area addressed, relevant products are developed, the required policy instruments are put in place to maximize benefits of the research, outputs are translated to products and/or adopted by the industry, contribute to the development of the country and eventually funds are flowed back again to the program to sustain future efforts.

The government would have to play a key role in supporting these efforts and catalyzing this cooperation. In general, it could stimulate R and D activity through the formulation of priority R and D areas, provide direct funding, set technology forcing standards, facilitate corporate or international technology development agreements and initiate linkage among key players. Policy instruments can also play a leading role in the early deployment and commercialization phase by setting targets and standards, conducting resource assessment, setting technology standards, providing financial support and fiscal incentives.

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Tamai K.. and Nishimura Y. (2004). Successful Model of Technology Transfer from University to Industry in Japan. In proceedings of the IAMOT 2004, Washington D.C.

Tansinsin (2006). Development of University-Industry Partnerships for the Promotion of Innovation and Transfer of Technology: Philippines.

US Agency for International Development (2007). From Ideas to Action: Clean Energy Solutions for Asia to Address Climate Change.

US Central Intelligence Agency (2009). The world factbook - east and southeast asia: Philippines. Available online at https://www.cia.gov/library/publications/the-worldfactbook/geos/rp.html. Accessed July 2009.

World Energy Council (2000). Renewable energy status in South Asia: status and prospects. World Energy Council. London.

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WTRG Economics (2009). Oil price history and analysis. Available online at http://www.wtrg.com/prices.htm. Accessed July 2009.

.World Energy Council (2009). Survey of energy resources: interim update 2009. Available online at http://www.worldenergy.org/documents/ser_interim_update_2009_final.pdf. Accessed August 2009.

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HEALTH SCIENCES
INTRODUCTION By way of Joint Resolution No. 1, Senate and the House of Representatives created a Congressional Commission on Science and Technology and Engineering (COMSTE) to review and assess the state of competitiveness of science and technology and engineering research and development sector in the country. This was signed on April 25, 2007 and COMSTE was organized seven months later, on November 20, 2007. Committed to COMSTEs mandate, its goals are the following: (1) Enhance the systems internal capability to satisfactorily implement the constitutional provisions on science and technology (2) Provide the system with the necessary funding requirement and other infrastructure support (3) Assist the sector in achieving its goals and targets through policies and approaches that are consistent with the nations development perspective These are COMSTEs six priority areas of concern: Electronics and Telecoms Information Technology (IT) and IT-enabled Industries Agriculture and Food Health Sciences Energy and Environment Science, Mathematics and Engineering Education

In each priority area, an expert panel was formed. The Health Panel consists of five areas of work: Policies Governing the Practice of the Health Professions and Health Care Delivery Health Human Resource Development Research and Development Financing of Health Care Health Service Delivery

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The Health Panel is headed by Dr. Ramon L. Arcadio, Chancellor of the University of the Philippines Manila as Chair and a Subpanel Chair heads an area of work. In order for the Health Panel to pursue the COMSTE goals, it organized a National Conference on Health to formulate a legislative agenda for the development of the health system. Specifically, the conference aimed to: (1) Establish a vision of the health system in terms of the laws governing the practice of the health professions, higher education programs for production of health professions, generation of funds for R & D in the health sciences, financing of medical care of the nation and health service delivery; (2) Make an analysis of the present situation and identify strategies that require legislative action; and (3) Identify provisions in the present health laws that need amendment and new laws. With Chancellor Arcadio as head, an Organizing Committee was put up with eight other persons from various health disciplines and universities together with the COMSTE Health Sciences Panel. A three-day conference, which was split to two separate sessions, was conducted at the Century Park Hotel in Manila. The first session was held on April 29 to 30 and the second on May 23. During the first session, a series of presentations were given during the morning of April 29. Each presenter gave a succinct situational analysis for their theme of expertise as well as identified issues that the group discussions could cover. The rest of the day was devoted to group activities where each group focused on identifying the specific issues and problems faced in each theme. They also focused on formulating their recommendations and identifying both a short-term and long-term legislative agenda. Each group then presented their outputs to the body during the second day. Comments and suggestions were also discussed in an open forum after each presentation. A consolidate report on the outputs of two-day workshop was presented to a bigger audience on May 23. Further discussions on the five themes and reactions from selected legislators were conducted after each presentation.

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All of the above plans were written on the document/manual entitled The 2008 National Conference on Health (Annex 1).

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SESSION 1 29-30 April 2008

Theme Presentations The 2008 National Conference on Health kicked off with an Opening Ceremony with the DOST Secretary Estella Alabastro as the Keynote Speaker. She was represented by the Undersecretary for Science and Technology Services, Prof. Fortunato de la Pea. He thanked COMSTE for calling the meeting to assess health research and health, in general and determine what are holding us back from where we want to go. He traced the history of public health in the country from the post-war establishment of the World Health Organization office in Manila until 50 years later, when we realize how much we have lagged behind in health and health research (Annex 2). He cited the global concern for S & T, specifically its being a critical issue in the coming US presidential elections. Finally, he quoted President John F. Kennedy on the present challenge of making the future. Hon. Joseph Emilio Abaya gave the Welcome Remarks (Annex 3). He mentioned that it is the beginning of establishing a vision for the Philippine Health System, a blueprint that will lead to improving the human development of Filipinos and achieving the goal of a healthy Filipino nation. It is expected that a legislative agenda will come out in support of the health system covering the five themes. He expressed the hope that the conference will be very productive. Undersecretary of Health Mario C. Villaverde also expressed DOHs appreciation of the COMSTE in starting his talk on the Health Reform Agenda (Annex 4). To him, competitiveness may be viewed as how the health sector is meeting its mandates and the needs of the people, i.e., financing, facilities, pharmaceuticals and human resource. The reform in health which began in 1998 continues with the Fourmula One for Health (F1) in 2005. Dr. Villaverde stated that the DOH has the Health Executive Agenda for Legislation (HEAL) proposed for the current Congress. He added that health reform also calls for the effective implementation of existing laws and policies. Chancellor Arcadio gave an overview of the Conference, the content of which is in the manual (Annex 1). Furthermore, he referred to a past legislative effort in health: the Healthcom and its 7-point agenda of 1993; and the DOHs Health Sector Reform Agenda of 1999-2004.

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Health Research and Development (Annex 5) Dr. Jaime Montoya, Executive Director of the DOST-PCHRD began by giving evidences (e.g., less than 30% of the population have regular access to drugs) of the current state of health in the country. He proceeded to discuss the Philippine National Health Research System (PNHRS) as a tool for development including the presence of 12 Regional Health Research and Development Committees. He cited the National Unified Health Research Agenda with its seven priority areas for research as a product of the PNHRS in consultation with other government and nongovernment organizations. While, there is already a Presidential Proclamation on the PNHRS declaring every second week of August as PNHRS Week, a bill to institutionalize PNHRS and create a PNHR Fund is now pending in Congress. Lastly, he stated the roles of the various stakeholders in R & D specifically as regards the NUHRA and the proposed PNHRS Act.

Human Resources for Health (Annex 6) Dr. Dorie Lynn O. Balanoba of the DOH-Health Human Resource Development Bureau presented the DOHs vision and goal with regard to human resources for health (HRH) in the Philippines. She mentioned the HRH Master Plan as an inter-agency effort to rationalize the countrys development and management of the health workforce. She spoke of the issues (e.g., the pressure to produce adequate number of competent HRH to balance the effects of migration) as well as the policy goals and alternatives (e.g. HRH retention and management of migration) that will address them.

Policies Governing the Practice of the Professions (Annex 7) Hon. Leonor Rosero, Chair of the Professional Regulation Commission discussed RA 8981 that created the PRC including its powers and functions. She explained the Systems of Examination and Registration in the country and how PRC maintains the standards in the practice of professions through inspection (e.g., clinics, schools).

Financing of Health Care (Annex 8) Prof. Mario Taguiwalo, President of the National Institute for Policy Studies dealt with the concerns of the major players in health financing (i.e., patients, providers and public health managers), how financing affects health care and health, and the state of health financing in

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the Philippines. He said that there is a need for health financing reform including how to spend for health (among others, to decrease the out-of-pocket expenses) and possible legislations to rationalize sourcing and utilization of funds for health.

Health Sevice Delivery Dr. Alberto Romualdez, Dean of the Graduate School for Arts, Science, Education and Nursing of the Pamantasan ng Lungsod ng Maynila and former Secretary of Health, started by saying that health is a right and that government has a duty in the provision of this right. With regard to competitiveness, he asked: Who are the competitors? What are they competing for? He presented a matrix showing the art/expertise, global perspective, perspective of clients and the legislative agenda as against the promotive, preventive, curative and rehabilitative services.

The Millennium Development Goals 4 and 5 (Annex 9) Dr. David Lozada, Undersecretary of Health showed the slides on Countdown 2015 Maternal, Newborn & Child Survival based on a conference he attended in South Africa. The countdown gives priority on the progress of 68 countries, which account for 97% of the maternal, newborn and child mortality every year, in reaching their MDGs 4 and 5. Health care packages at different levels of care were presented including how to close the gap by targeting the poorest. Dr. Lozada enumerated what parliamentarians, donors, civil society and governments can do to improve the situation.

Theme Outputs There were 138 participants (Annex 10) who attended the first day of the conference. They were divided into five groups, each corresponding to a theme. Every group had a moderator, a facilitator and a recorder. Each group was guided by some questions (Annex 1) including the following questions common to all groups: (1) Where are we now? (2) What have we done? What are the issues, challenges and opportunities? (3) Where do we go? In what areas can the Philippines be competitive? What are the barriers and facilitating factors to be competitive (4) How do we want to do it (legislative agenda)?

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The outputs were presented and discussed in plenary on the second day, April 30. There were 115 participants. Summary matrices of the different outputs are contained in Annex 11.

Vision Statements/Competitive Matrix From out of the different group reports, Dr. Fernando Sanchez drafted Vision Statements. These were discussed during the meeting of the Health Sciences Panel and Organizing Committee at the UP Manila Board Room on May 9, 2008. Suggestions were given to finalize it and be included in the hand-outs for the third day of the Conference on May 23, 2008 (Annex 12). Also to be included as hand-out for May 23 was the Competitive Matrix (Annex 13), a summary of the discussions by the three groups (i.e., Policies Governing the Practice of the Health Professions and Health Care Delivery, Research and Development, and Health Service Delivery) which spent some time deliberating on competitiveness as well as the facilitating factors. These have been incorporated in the following executive summaries.

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THEME SUMMARIES
Theme 1: Policies Governing the Practice of the Health Professions and Health Care Delivery Situation Training and certification standards in the Philippines are still the highest in the Asian region, as long as they are done correctly. The countrys curricular programs are known to be globally competitive with competent trainors and instructors. But this has been tainted by incidents of professional board leakages (i.e. June 2006 NLE leakage), sprouting of schools offering health profession programs without sufficient trained faculty and facilities as well as weak implementation of the regulation of non-performing schools. In the past few years, the number of nursing schools has exploded (Figure 1).

Figure 1. Number of Nursing Schools in the Philippines, 1998-2006 Consequently, the number of nursing enrollees and graduates has been rising as well. But the graduation rate has not been as high as the rate of enrolment (Figure 2). This high attrition rate is an indicator of the quality of students as well as the more predatory style of promoting students from one year level to the next.

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Figure 2. Number of BSN Enrollees and Graduates, 1997-2006 But the performance of these graduates in the nursing board exams over the same period has been deteriorating as well. On the average, the NLE passing rate for the past 10 years is 49% which reflects the quality of nursing graduates being produced by the schools (Figure 3). Although this is only one health profession, this trend has been seen in different health professions over the past few years as well.

Figure 3. Trend in Nursing Licensure Examination Performance, 1999-2007

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When it comes to the practice of health professions, most of the laws regulating practice is are outdated and needs to be amended. The Philippine Medical Act of 1959 has not been updated since its promulgation almost 4 decades ago. Some practice acts are currently being studied in order to update them (Table 1). Table 1. Practice Acts of Selected Health Professions and their Respective Year of Promulgation. PROFESSION PRACTICE ACT YEAR PROMULGATED Medicine Republic Act 2382 1959 Physical Therapy Republic Act 5680 1969 Occupational Therapy Republic Act 5680 1969 Medical Technology Republic Act 6138 1969 Pharmacy Republic Act 5921 1987 Radiologic Technology Republic Act 7431 1992 Midwifery Republic Act 7392 1992 Nursing Republic Act 9173 2002 The lack of updated practice acts has made the practice of each health profession unresponsive to the needs of the population, the current health care delivery system as well as the current state of the art/technology. Contemporary examples include the conflict between the functions of nurses and midwives in the light of the global movement towards facility-based maternal care as well as the emergence of nurse-anesthetists in response to the declining number of anesthesiologists. Another important context that underlies the unresponsiveness of the practice of health professions is the domestic and global trends in the production and demand for Filipino health professionals. This can be seen in the shifting of health professionals to different health fields. Over the past years, the second-courser phenomenon has emerged. But an interesting aspect to this is the shifting of health professionals to the nursing field. This was felt in the declining enrollment in other health-related academic programs to the decreasing number of licensed professionals who are still actively practicing their first profession. Ultimately, these trends have trickled down to the local health systems and has affected the delivery of health care services.

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Issues and Challenges There are a number of issues and challenges to making the practice of the health professions and health care delivery more responsive to the demands of the health care system. There is a need to harmonize the structure or scope of practice of the various professions taking into consideration the independent and interdependent relationships across the professions. It is in this light that current practice laws need to be amended. Ladderization and program curricula need to be rationalized to reflect this harmonization. The code of ethics of all health professions be should also be redefined to reflect the scope of practice. Ethical practice guidelines need to be drawn up and forcefully implemented. An important component to regulating the scope of health practice is the practice of foreign nationals in the country, in the light of the push for medical tourism and the creation of health zones. In the light of harmonization, the role of PRC as a regulating body needs to be rationalized. Should it continue to regulate the different professions or should the professional organizations take over? This is a fundamental question that calls attention to the mandate of PRC and its relevance and effectiveness in implementing its mandate. The country is faced by a disproportionate distribution of health professionals with a great majority of them flocking to the countrys urban areas and metropolitan centers. A system of utilization and deployment should be in place to address this problem. A program is needed to compliment this system so as to provide health professionals with an additional incentive to serve in underserved areas. This is to actively encourage health professionals to work in these areas. An important truth that the health professions are facing is that health professionals are leaving, at faster rates than before. Dealing with external factors that impinge on the practice is a daunting challenge. Competitiveness Health professionals in the Philippines are globally competitive. They are skilled and knowledgeable due to the high standards of training and certification as well as being fluent in English. In terms of practicing their professions, they are people-centered or people-oriented as manifested in the care they give and the industriousness they exhibit in the workplace. Filipinos are also resilient and creative amid trying situations. This has been honed by the numerous crises that they have gone through both in their personal lives and as being Filipinos. They are also driven by a strong sense of community (Bayanihan spirit) and volunteerism.

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Factors that facilitate the increased competitiveness of health professions include the implementation of the monitoring function of particular agencies and professional bodies to ensure compliance to policies. This is particularly true for dentists, medical technologists and pharmacists. Another factor is the high quality of educational standards. This has allowed their graduates to be globally competitive and highly demanded domestically and abroad. Lastly, the training given to the health professionals has allowed them to have a high level of professionalism and self-discipline. They are adaptable and flexible. On the other hand, there are also significant barriers to competitiveness. These can be classified into three categories: (1) demand barriers, (2) supply barriers, and (3) environmental barriers. Demand barriers are taken from the perspective of clients (i.e. patients). Utilization factors play a significant barrier to accessing health care services. These include business-controlling practices, fake health professionals working at the barangay level as well as the absence of health services at the barangay level. There is also a significant level of misinformation among patients so they are unable to make the right decisions regarding their health. Supply barriers, on the other hand, are from the perspective of suppliers or health providers. A major hindrance to the provision of adequate and timely health services is related to human resource development. This includes the absence of plantilla items in government units and inadequate compensation and benefits. There is also a lack of support, including financial, moral and technical training, particularly in community practice. This has resulted in the maldistribution and underutilization of health professionals. Another significant barrier to the supply of health services is the labor-export policy of the government. There are also outdated regulatory laws as well as the criminalization of violations by health professionals. Lastly, the very restrictive cost of materials and supplies is also an important barrier. Lastly, there are also identified environment barriers that pose as hindrance to competitiveness. These include poverty, the commercialization of health education, misguided priorities of patients that are shaped by their environment and culture, the culture of puwedepuwede na that makes half-baked health professionals acceptable. The politics at the LGU level has also adversely affected the competitiveness of health professionals that has resulted in the least prioritization of health care at the LGU level. Recommendations/Legislative Agenda The recommendations and legislative agenda reflect a multi-prong effort aimed at making the policies governing the practice of health professionals competitive, harmonious and responsive

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to the needs of the health care system. Professional organizations must (1) work towards selfregulation through active deputization, (2) identify alternative mechanisms to improve monitoring for health care professions and delivery of health care services, (3) work on amending or repealing their respective regulatory laws, (4) engage health workers in the policy development process, and (5) support and educate lawmakers from the barangay to the national level to help them achieve their goals. National agencies play a vital role in the practice of the professions. The Department of Labor and Employment (DOLE) must review the implications of labor-export policies, GATT/ WTO Agreements and other trade agreements on health. The Department of Health (DOH) should work towards strengthening the regulation of health related advertisement. The Congress and Senate must be tapped to work hand in hand to: (1) amend or repeal regulatory laws for the health professions, (2) increase government budget spending for health, including upgrading the salary, compensation and incentives and benefits for all health professions, (3) reduce tax obligations of health providers and importers of equipment and supplies, (4) create dis/incentives for those who encroach on the practice of other health professionals, (5) design an advocacy law providing incentives to maintain basic wellness and health promotion, and (6) pass a good citizenry act. The Local Government Units (LGUs) are encouraged to create government plantilla items for all professions regulated by the PRC (those with board exams).

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Theme 2: Health Human Resource Development Situation The Health Human Resources or Human Resources on Health (HRH) include the health professionals who are [1] graduates of formal degree programs and practicing as health care professionals and [2] the non-health professionals who are graduates of vocational and technical schools. The former are products of higher education institutions accredited and supervised by the Commission on Higher Education (CHED) while the latter are under the Technical Education and Skills Development Authority (TESDA). The Health Human Resource Development can be divided into Planning, Production and Management. Planning is facilitated by having a central databank of statistics that takes stock of a countrys HRH and enables one to do workforce projections. The Department of Health (DOH), however, has completed the stock survey and workforce projection validation of two regions and will hopefully finish the rest of the country before the year ends. In the government service, unfilled positions exist. In the Department of Budget and Management (DBM) data of 2004, for example, 42.3 % occupational therapy, 8.6 % physical therapy, 8.2 % medical and 5.5% nursing positions were vacant. In an International Labour Office (ILO) study, the reason given was the rapid turnover and other administrative and political factors. In some areas, casual or contractual personnel were hired instead of full-time health employees. Production is concerned with the enrollment and graduation of students by the schools and licensing of the graduates by the Professional Regulations Commission (PRC). Trend data is available in some programs such as nursing. Because of the demand abroad, nursing schools, as previously mentioned, have sprouted from 125 to 128 schools between 1981 to 1988, to 350 schools in 2004, and to more than 460 presently. In 2001-2002, there were 53, 391 nursing students and five years later, there were 405,288 students. There is an opposite trend in other professions. There were 13,925 medical students in 2001-2002. Five years later, there were 10,735 students or a decrease of 23%. There were more or less 30 medical schools from 2002 to 2006. The quality of graduates can be gleaned from the following data. The passing rate in the medical board examinations between 1976 and 1981 was 73 % yearly. From 2002 to 2006, it was 56 %. In the nursing board examinations between 1981 and 1988, the passing rate was 62 % per year. Between 2002 and 2006, it sharply declined to 48 %. Management involves the retention, support and development of the workforce. In one data, many health professionals were going abroad since the 1960s such that by 1982, 14,000

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physicians (mainly to the US) and 89,000 nurses had left. A DOH data (2005) shows (Table 2) that a physician working in the country earns PhP 18,134 per month while one who is abroad gets PhP 138,549. A nurse in the Philippines receives PhP 8,944 a month while one who is employed outside the country gets Php 17,196-35,126. Within the country, there is a difference between one nurse who works in a private hospital and one employed in a government facility. The former takes PhP 5,000 to 8,000 per month while the latter receives PhP 9,000-15,000. A physician in a private hospital earns Php 9,785 to 16,000 a month while his counterpart in a public facility gets PhP 15,000 to 20,000. Across professions, too, there are compensation differentials (Table 3). Table 2. Monthly compensation of physicians and nurses, Philippines and Abroad (PhP) Health Professionals Compensation Philippines Abroad Physicians 18,134.00 138,549.00 Nurses 8,944.00 17,196 to 38,166 Table 3. Compensation differentials in entry level wages across professions (PhP) Professions Compensation differentials Physicians 12,971.00 Nurses 9,829.00 Accountants and Engineers 14,000 to 23,000 Computer Operators 24,000

Issues/Challenges In planning, the number of health sciences graduates does not adequately match what society needs in terms of number, distribution, and areas of specialization. Thus, there is an oversupply of nurses, physical therapists, occupational therapists and optometrists, an undersupply of physicians, dentists, speech pathologists, medical technologist and pharmacists, and an adequate supply of nutritionists and dietitians. Generally, the health professionals are found in the urban areas rather than in the rural areas. This is especially so for physical and occupational therapists. Physicians, nurses and dentists are found in both areas while midwives, and medical technologists and barangay health workers are mostly in the rural areas. Although they are present in both urban and rural areas, there is still maldistribution; for MDs, some specialties like anesthesiologists, radiologists, are very limited in the rural areas of the South thus affecting hospital services. With the recent trend of doctors shifting to nursing, this problem is exacerbated.

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There is no centralized and reliable databank that can be used as baseline for planning directions and supply of HRH although the DOH is in the process of establishing one. Data generated can be shared and used in sharing resources. In production, there is a decreasing trend in some programs such as medicine and an increasing trend in others like in nursing. For nursing, however, there is indication that the number of applicants is now going down with some schools that used to accept as much as 10 sections now only having 2 sections for School Year 2008-09. This is attributed to the increasing unemployment of nurses and the inadequate number of employment abroad, particularly USA with the current retrogression since the end of 2006. As already cited before, there is also a decreasing quality of nurses and physicians as evidenced by the lower passing rates among the more recent graduates. An increasing proportion of health professionals choose to be in other areas such as contact centers and there is shifting in the degree programs. Of great significance is the trend of both beginning and established physicians taking up nursing and going abroad as nurses. This has affected enrollment in medical schools and in the decreasing number of applicants for medical resident training in hospitals. Only the University of the Philippines and University of Santo Tomas have adequate pool of applicants. Curricula tend to focus on instruction and not the same attention is given to research, extension and post-graduate programs. Many of the schools are not yet equipped with basic information and communication technology facilities. There is a lack of regulation in some professions such as speech pathology and postgraduate programs/specialty certifications in dentistry. CHED is not consistent and lacks political will in its implementation of policies related to accreditation, regulation and granting of autonomous status to state universities, and those run by local governments and private schools. Of particular note is the inability of CHED to implement the closure of non-performing schools and the continued opening of nursing schools despite the moratorium established. Not all licensure examinations are competency-based. Some existing laws regulating the professions, as previously stated, are no longer relevant such as the Medical Act of 1959 and the Medical Technology Act. The Philippine Nursing Act of 2002, though more recent, has not been fully enforced with regard to the entry compensation for nurses due to lack of a provision resource of funds. In management, health professionals work in hazardous environment and are not given competitive compensation packages. There is a wide disparity in pay and compensation

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package between local and foreign employment. There is limited to no benefits among the employees especially in the private sector. In nursing, for example, the oversupply of nurses and desire to acquire more credentials for application for abroad has led to the phenomenon of hospitals not filling up their regular positions for nurses and supplementing their nursing service requirement with nurse volunteers and trainees.

Recommendations/Legislative Agenda In the short term, there should be Executive Orders, Presidential Proclamations, and Memoranda of Agreement between agencies to institutionalize HRD, organize and strengthen higher education institutions and promote stronger collaborations among and between higher education institutions and lead agencies such as CHED, PRC and others. In the area of migration management, there should be government-to-government partnership in order to protect the welfare of health personnel based abroad. It is vital that local health services are not compromised in the light of migration of health professionals. Another component raised was a policy on ethical recruitment at the government-to-government level wherein the Philippines will benefit not only through the actual individuals who work abroad and remittances but also through technical and actual support for HRD, facilities improvement, and others. Right now, it is being done institution-toinstitution. This requires even more an HRH plan not only in number and distribution but a plan for HRH development. This is particularly true for nursing today. In the long term, there must be a declaration of a national policy on HRH and advocacy that includes an HRH Plan to guide the opening of new schools and programs, an office tasked to monitor its implementation, ethical requirement, and the return of service of health science graduates particularly those in SUCS and LUCS. In the latter, it was noted during the discussion that although this may be a logical expectation of government-subsidized graduates, there are not enough positions for them. There is still a need to regulate more closely the number of schools and enrollments.

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Theme 3: Health Research and Development Situation The Philippines has an active health research environment where government agencies, nongovernment organizations, public and private hospitals, academic institutions and private agencies have some form of research activities as observed by the DOH in 2005. A closer look, however, would reveal that these researches are uncoordinated, fragmented and duplicated which precludes the optimal use of time, effort and resources according to Acuin in 2001 (DOHNOH 2005-2010). Four pillars in health research have initiated the move to coordinate, synergize and provide directions for health research in the country. With the Philippine Council for Health Research and Development of the Department of Science and Technology (PCHRD-DOST) as lead and in collaboration with the Department of Health (DOH), Commission on Higher Education (CHED), and National Institutes of Health of UP Manila (UP-NIH), the Philippine National Health Research System (PNHRS) was established in 2004. One of its vital outputs is the National Unified Health Research Agenda (NUHRA), which was drawn from a series of sub-national and national level consultations from various stakeholders from the social services, health delivery, environmental and labor sectors, academe, non-government and people organizations including civil society. The NUHRA provides directions and areas for research investments for 2006-2010. Research and development in the health sector is faced with numerous interdependent challenges. There is a lack of investment into health R & D. At the same time, there is also a lack of research culture that would create demand to push for significant investments. In a study conducted by the Center for Economic and Policy Research (CEPR) in 1996, it was found that only 17% of the total allocation for research and development was allocated for health research and development. This was only 0.57% of the total health allocation. Figure 4 shows the total appropriations for DOST-PCHRD from 2005-2008 and its proportion to the agencys total allocation for this time period.

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Not Available

Source: General Appropriations Act, 2005-2008 Figure 4. Total PCHRD Appropriation and its Proportion to the Total DOST Appropriation, 2005-2008 This shows that the public investment in health research and development has been increasing in absolute terms. The total budget for PCHRD has increased by 40% from 2005 to 2008. But its proportion to the total budget allocation for the countrys lead agency on Research and Development has been declining during the same period. It has been hovering around 1% which is half of the recommended level of expenditure on health research. In 2006, there were 40 health researches conducted under the auspices of the DOST-PCHRD (Figure 5). These include the PCHRD-monitored and assisted projects as well as other regional projects. This is a 43% decrease from the previous year. The number of new health researches has dipped to zero from a high of 21 new researches in 2004. This is indicative that there is less support available for new health researches.

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Source: General Appropriations Act, 2005-2008 Figure 5. Number of PCHRD-assisted and Monitored Projects and PCHRD Regional Projects, 2004-2006

Issues and Challenges Among emerging health professions such as medical technology and occupational therapy, there is very minimal research output. Although there is an increased recognition for the importance of research, there is still very low participation among practitioners. Few faculty and practitioners are actively involved in research. There is no clear career path for researchers in the health sciences, compounded by the lack of a critical mass of experts and mentors to nurture budding researchers. Across the different health-related curricular programs, most student-led researches are done to comply with graduation requirements. There is a also lack of interest among students to do research. Upon finishing school, graduates rarely pursue a career in health research. It is not seen as an attractive field or the in thing to be involved in. Faculty members who wish to be more involved in researches also face significant challenges. The academic credentials of faculty-researchers pose a particular challenge. Balancing their time spent on teaching, extension and research is also a challenge. For health professionals, there is also an added load of practicing their own professions. This situation makes it particularly difficult for faculty members in the health professions focus on research.

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The lack of investments and support in health research and development spans the whole continuum of research training to support for research projects. Research trainings, both degree and non-degree courses, are necessary to build capacity among junior researchers. Another important facet to this issue is the lack of support in terms of institutional infrastructure (offices for research). Access to resources such as funding and knowledge databases are considerable constraints to strengthening research endeavors at various institutions. Research has become a means to an end where it is done only to comply with requirements for accreditation rather than as an investment. On the other hand, there is also a low utilization and dissemination of research outputs. Publications are few and far between. Most researches stop when the final report is written. There is minimal transformation of the research outputs to knowledge-based policies and programs.

Competitiveness There are a number of Health Research & Development (HRD) areas where the Philippines can be competitive. One are includes the fields identified under the National Unified Health Research Agenda (NUHRA). Another is the development R&D in the study of the top 10 diseases of the country. The study of infectious diseases, particularly vaccine manufacturing, as well as R&D in development of generic drugs are avenues for the country to develop competitiveness. Research and development in the effects of early intervention on children as well as studies on lifestyle diseases are also opportunities for the country. Facilitating factors to create greater competitiveness include capacity building, strong mentoring across different disciplines and implementation of twinning strategies. The active participation of institutions in doing research as well as creating avenues for multidisciplinary trainings encourages more people to engage in research. The lack of funds is a significant barrier to the increased competitiveness of HRD. One significant outcome to this is that the Philippines' deferment to the ASEAN harmonization efforts to standardize the pharmaceutical industry. The lack of extensive research experience among practitioners as well as cultural factors forms a significant barrier to the countrys active participation in the regions harmonization process. This supports the assertion of experts that there is a lack in the know-how for conducting collaborative researches. But there are opportunities that health researchers can take advantage of. There are abundant data sets that are currently available but are not fully utilized. There are also opportunities for

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collaborations with foreign schools. There are a number of government funds available for thesis and dissertation grants as well as research grants through DOST-PCHRD. Recommendations/Legislative Agenda In the short-term, there is an urgent need to push for the ratification and promulgation of the Philippine National Health Research System (PNHRS) Act, which is aimed to institutionalize the PNHRS and create the Philippine National Health Research Fund (PNHRF). The passage of this Act will provide for a more conducive environment for research, which, in turn, will translate to: a) lower cost of health care because of the infusion of locally-made and produced medicines, health technologies and services, resulting to direct benefits to the Filipino people, especially the underprivileged; b) reduction in child and maternal mortality, which is consistent with the Millennium Development Goals; and, c) prompt and early response to disaster situations as well as to emerging infections, such as avian flu and SARS. An integral part of the PNHRS Act is the creation of the Philippine National Health Research Fund, which will provide sustained financial support for knowledge management and its translation into efficient and effective health policies and service delivery, a strengthened health care system and improved health for all Filipinos. Figure 6 shows the projected (from 2007 to 2028) uses of PNHRS funds as well as the ideal situation where 2% of health expenditures are used for R&D.

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Figure 6. Projected Fund Requirement for PNHRS, 2007-2028 In the long-term, a policy agenda that ultimately adds utility to research and development initiatives in health sciences must be explored and implemented. This agenda should include policies that will ensure institutional advocacy/promotion of health research and support for national/regional health research priorities; institutionalize incentive systems for researchers; establish strategic alliances for R&D within national and sub-national units, and with other countries; and advocacy of evidence-informed health-related policies and actions. The integration of research-focused courses should also be actively pursued. Seasoned research institutions could mentor other schools in developing their research competencies and infrastructure.

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Theme 4: Financing of Health Care Situation The thrust and direction of our health financing, basically answering who pays for health care to have the maximum positive impact on the health status of our people, must necessarily depend on how we as a society view health and health care: whether we still uphold that health is a right, as enshrined in our constitution and the international covenants to which we are state signatories, or we view health as a privilege, dependent on ones capability to pay for the health services, and for cost efficiency, are better left to market forces for its provision. Health as a right has major implications: one of which is that it is primarily governments responsibility to ensure the fulfillment of that right, and therefore financing should reflect this, and that no Filipino should be deprived of health care necessary to keep him healthy, because of inability to pay for these services. In the context of a Filipino population, 30% of whom have no significant savings (latest FIES) and at least 11 million Filipinos earning less than PhP 50 a day, universal insurance coverage is no longer enough unless universal insurance coverage is accompanied by universal access and universal utilization. Health financing helps individuals and communities improve their health by paying the right cost of capacity and providing the right goods and services used right at the right time, i.e., the money outcome of interaction satisfies both provider and beneficiary, and there is evidence of health benefit that is generated (Taguiwalo). Each major stakeholder in the health system has a concern as regards health financing. For the patient, the concern is how to pay for the costs of care needed. For the provider, the concern is how to get paid for costs of care provided. For the public health manager, the concern is how to get funding for the required interventions. How these concerns are addressed determine the health status of individuals and communities. There are two aspects of financing: sources or where money comes from (e.g., from government, insurance, households) and uses or where it goes (e.g., for drugs, professional fees, hospitals). In the Philippines, the sources of financing in 2005 (Figure 7) came mostly from out-of-pocket payment (including private insurance, HMOs, employers) or 59 % of the total health expenditure; PhilHealth benefit payment made up 11 %; national government budget (DOH and ODA) was only 16 %; and LGU budget was 13 %. The health expenditures in 2003 were used primarily for personal health care (75.7 %), while public health care was a poor second (12.3 %), and others (12.0 %). The same pattern has persisted up to the latest NHA data (2005)

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Source: National Health Accounts, 2005 Figure7. Sources of Philippine Health Financing, 2005 Issues and Challenges Several gaps have been identified in the countrys health care financing. The country is not spending enough on health care. While the WHO recommends that 5% of the GNP should be used for health care, the Philippines spends about 3%. From 2000 to 2005, the share of health expenditure to GNP has hovered around the 3% mark (Figure 8).
3.5
3.4

3.3 3.2 3.1 3.0 2.9

2.8

3.2 3.0

3.2

3.1

2.9 2.8

2.7 2.6 2.5 2000 2001

2002

2003

2004

2005

Source: National Health Accounts, 2005 Figure 8. Share of Health Expenditure to GNP, 2000-2005

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Corollary to this, the government is also not spending enough. In 2005, the National Government share to National health expenditure is only 16% while the local governments share in only 13%. On the other hand, Social Health Insurance share is still small (12%) Consequently, National Health Expenditures are primarily privately financed (60%) with about 47% from Out-of-Pocket. But, for the past 5 years, the share of both national and local governments to health financing has been declining (Figure 9). In 2000, the combined share of both national and governments to the countrys health care financing needs was 40%. Five years later, this share has shrunk to only 29%. On the other hand, private financing share has increased from 51% in 2000 to 60% in 2005. These trends indicate that the share of health financing has been shifting from public sources to more private sources, particularly from out-of-pocket sources.
100% 90%

1.27

1.29

1.39

1.21

1.18

1.27

OTHERS

80%
70%
Percent Share

51.16

54.54

59.37

57.92

58.52

60.32

60%

Private Sources Social Insurance

50%
40% 30% 20% 10% 0% 2000 2001 2002 2003 2004 2005 7.01 19.32 7.94 19.09 8.92 9.03 15.77 16.07 9.66 14.40 16.23 12.06

14.75 21.24 17.14

15.57

13.68 15.87

Local Government National Government

Source: National Health Accounts, 2005 Figure 9. Sources of Philippine Health Financing, 2000-2005 Another identified gap is that government and individuals are not spending on the right things (Figure 10). More are spent for personal health care or curative services (76%) and less for public health (about 12%). This has been the trend for the past 5 years where around threefourths of government expenditure on health has been invested in curative services compared to public health (Figure 11).

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Others 12%

Public Health care 12%

Personal Health Care 76%

Source: National Health Accounts, 2005 Figure10. Philippine Government Health Expenditure by Use of Funds, 2005

12.6 14.4

12.3
14.0

11.9 10.8

12.4
11.6

11.4 10.3

12.0 12.4

73.0

73.6

77.3

76.0

78.3

75.6

2000

2001 Personal

2002

2003 Public

2004 Others

2005

Source: National Health Accounts, 2005 Figure11. Philippine Health Expenditure, 2000-2005 Both government and individuals are spending too much on the wrong things. In 2003, about 70% of the DOH budget was used for its 72 retained hospitals. In terms of medicines, people spend too much for vitamins and expectorants. There is fragmentation in the provision and financing of health services. There is a fragmentation between Public Health and Personal care, between the DOH National direction and the LGU health budgeting and

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utilization of this health budget, between the Public and Private health sector, between the DOH and PhilHealth. Recommendations/Legislative Agenda In the short-term, the following are recommended. (1) 3-5% of the PDAF should be earmarked for health care. (2) 50% of the sin taxes should be allocated for health care. (3) 3% of the LGU IRA should be used for indigent enrolment in the PhilHealth. (4) There should be zero copayment for all PhilHealth-sponsored members. (5) The NHIP reimbursement should be used as a leverage to make accredited service providers and facilities available. (6) RA 7875 should be reviewed, specifically the reserve fund provision. The reserve funds should be reduced. (7) Increase the PhilHealth premium payments. (8) There should be education of health care providers, public health managers, patients and the general public on PhilHealth services. (9) Include dental surgery such as maxillo-pharyngeal care, construction of prostheses such as nasopharngealplasty, and root canal operation such as apicoectomy in the general health care financing (10) Implement RA 7277 with its new IRR so that PhilHealth benefits are made available to the disabled.. (11) Increase the budget for primary care for continuing, comprehensive and high quality health care. (12) Provide budget for education campaigns on pediatric, geriatric, neurological, orthopedic and rehabilitation services. (13) Provide budget for education campaigns on service provision, primary versus specialist care. (14) Provide budget for training of BHWs for rehabilitation services. (15) There should be control over (or ban) advertisements of over-the-counter medicines. (16) Strictly implement the use of formulary drugs in government and private hospitals. (17) Implement the Generics Act such that medicines are efficacious and affordable. (18) Police the ranks of the health service providers in terms of procedures, professional fees and choice of prescribed medicines. (19) Delineate of the roles of DOH and PhilHealth. Additional short-term recommendations on health human resource: negotiation of funding from countries hiring Filipino HRH, implementation of Magna Carta for Public Health Workers, and increased compensation for government health professionals. For HMOs, define their roles and legislate their regulation. Government should support institutions that provide pro bono health services and families with disabilities and diseases through tax exemptions. In the long term, the following are recommended: (1) Increase the DOH budget through automatic appropriations. (2) Renegotiate the national debt for health services. (3) Enhanced PhilHealth benefits within the framework of an agreed National Health Finance Master Plan to consider:

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(a) PhilHealth reimbursement to include out-patient drugs not currently covered to benefit all. (b) Expand PhilHealth accreditation and reimbursement of services of health professionals like nurses, therapists and pharmacists. (c) Provide state funding for early intervention for children born with disabilities. (d) Provide funding for facilities and staffing of day care centers for the aged. The above proposed additional benefits must be within the framework of a National Health Finance Master Plan which identifies what must be financed and by whom: DOH, LGU, PhilHealth and the private sector. Otherwise we will have competing proposals from the different professions, exacerbating the fragmentation of our health services and health financing. (4) Expand the authority of the DOH to direct health budget utilization of LGUs; or Amend the Local Government Code to nationalize health care. (5) Create a new legal framework for area-wide health provider organizations. (6) Provide positions for therapists and allied health professionals in LGUs. Legislative agenda in health financing would include the following: 1. Addressing the fragmentation of the Health System and Health Financing: (Immediate) From Mario Taguiwalo presentation: Ideas for Legislation (4) (not from Workshop output) New expanded authority of DOH to direct and influence health care financing reform possibly with budgetary mechanisms that use its annual budget to affect changes in the health care financing system, such as a capital financing mechanism; standards setting in budget levels and priorities of LGU spending for health; policy setting for PhilHealth benefit spending This presumes the articulation of a National Health Plan and a National Health Finance Master plan agreed upon by the stakeholders: DOH, PhilHealth, LGUs, Service Providers and Representatives of the end users or Community. 2. Increase spending on Health: a. Sin Tax there is a provision on this in the PhilHealth Law that has not been implemented yet b. 3% of LGU IRA for PhilHealth sponsored enrolment c. 3% of PDAF for Health 3. Amend PhilHealth Law RA 7875 as amended by RA 9241 a. Provision on reserve fund reduce reserve fund to one year after setting aside the projected expenses for that year. b. Automatic allocation of 1% of Investment earnings for Validation studies of PhilHealth performance as mandated by RA 9241

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4. National Health Research Fund 5. Ban of advertisements of over-the-counter drugs and food supplements with no proven therapeutic value 6. Picture Based Health Warning Bill (anti smoking) 7. Amend Magna Carta Law to remove subject to availability provision 8. Law to regulate HMOs 9. Negotiate Debt for Health & Social services; Debt for Equity

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Theme 5: Health Services Delivery Situation A most important and unanimous premise in health services delivery is that health is a right, not a privilege. This is also espoused by the World Health Organization and is enshrined in the Philippine Constitution. Furthermore, health services should be viable, affordable, accessible and available. There is a need to clarify the definition of being competitive as not only benchmarked against other nations but rather the capacity for the Philippines to be able to achieve set targets for health nationally. Health services can be categorized into promotive, preventive, curative and rehabilitative interventions. Promotive activities advocate prolonging life through healthy lifestyle (e.g., correct nutrition). Preventive activities keep individuals and communities from getting ill (e.g., vaccination). Curative activities treat sick people and prevent complications (e.g., confinement in a hospital for a certain period of time and the use of pharmaceutical products). Rehabilitative activities restore the normal functions of people who developed problems of complications from diseases (e.g., therapy for those who get paralyzed due to stroke). Issues/Challenges The current health promotion programs in the country appear to be skewed depending on the socio-economic class of the population and thus result in inefficient service. Furthermore, there is an observation that health human resource assignments and health information access are asymmetrical. This is evidenced by internal maldistribution of health care professionals favoring the urban areas and the lack of health and medical information access by the poorer sectors of society in the rural communities. In some ways, the promotive health services are influenced by economics and the market. Preventive care is undertaken in an inequitable manner favoring access by the rich and marginalizing the poor. These are exemplified by access to immunization and cancer detection procedures as benefiting those who can pay for these services. As a result of this, poor people receiving inefficient local health services do not benefit from early screening and become more seriously and critically sick where medical costs are consequently higher but unattainable. Moreover, there again is inequity in the areas of curative care as observed between the rich and the poor. The urbanized health facilities will have better services and access to drugs favoring those who can afford. Philhealth contribution to the total health care expense is only partial, as evidenced by out of pocket expenditures.

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There is no vertical or horizontal integration of the various levels of care that will promote efficiency to health services delivery and access. Another significant issue is that marketing practices of industry selling health products do not have a deep sense and level of scientific evidence and hence taking advantage of the ignorance of population. This is exemplified by the promotion of over-the-counter products and their irrational indications. Lastly, private practitioners work only along the lines of limited practice of specialty rather than to manage patients in a more holistic and integrated fashion. This is largely a product of schooling, hospital exposure and driven by better economic returns. Competitiveness Vis-a-vis other countries, the competitiveness of the Philippines can be measured using the Human Development Index as an indicator. Its investment in health research as compared with other countries can be used as another indicator. Another measure is the attainment of basic health for all Filipinos as against nationalities of their respective countries. Within the Philippines (or perhaps as compared with other nations, too), competitiveness can be determined by how well the government health personnel are compensated and are retained as against those in the private sector. The health budget of the DOH can be compared with the budgets of the other departments. Recommendations/Legislative Agenda The recommendations are categorized according to the 4 levels of intervention found within healthcare service delivery systems. Promotive Because major decisions made by local government executives in a devolved health system are important, there is an urgent need for elected officials to be versed in the language and concepts of health. This might be accomplished through a law mandating newly elected LGU officials to undergo public health seminars to better enlighten them. Funds to develop local health and scientific talents with incentives to stay and serve the country can be undertaken. Allocation of 5 % of the GNP to health services and systems, with emphasis on preventive and promotive health was also proposed.

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A clear Population Control Program with practical mechanisms for implementation was also suggested as a legislative item for consideration. In order to retain good health workers, the following were recommended: provide incentives to trainors of health services delivery and similarly, provide tax breaks for individuals or entities undertaking relevant public health service. Preventive The diagnosis of diseases is a complex process and needs infrastructure and latest technology, and hence the allocation of more funds in these areas was proposed. Because the cornerstone of healthy society is preventive medicine, the need to retain public health workers is important and a call for increase in the salary of health workers was made. On this same line, perhaps legislation or revised legislation of the PHIC law towards a more preventive intervention is necessary (ie. PhilHealth to do 80% out-patient and 20% in-patient coverage), and with a provision of a mechanism for PhilHealth to fund public health programs and training of personnel. All these are meant to strengthen the national health insurance system. Because of the confusion in the market about false advertising leading to consumer hoax and wastage of resources, there is need to provide teeth to the regulation of advertisements of medicines and food supplements. Curative The Magna Carta bill of Public Health Workers must be amended by deleting the subject to availability of funds clause in the Magna Carta which weakens the implementation of the bill and subject to arbitrary heterogeneous implementation. Again, in PhilHealth, coverage of Ambulatory Care including the accreditation of Primary Health Care Clinics would probably free up the congestion and waste of resources invested in the curative side of treatment. Recognizing that private HMOs are important part of the health care service delivery system, they must be regulated towards quality assurance. Legislation towards a socialized medical practice as seen in some developed countries was called for. This includes the regulation of medical missions because the latter do not contribute to the substantial efforts for health sector reforms or institutional capacity building but merely a band-aid solution to health problems. Because of the challenges in access to medicine, call for the regulation of the pharmaceutical industry to produce essential medicines only to promote rational drug use was made, and this will further ensure that low-cost medicines will be made available. And because of some problems encountered in access to medicines in government centers, a review of drug procurement and distribution policies (e.g., Botika ng Bayan) was suggested.

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Rehabilitative Since these are not widely covered, an improved access to rehabilitative services including PhilHealth, HMOs and private insurance coverage was recommended. Other legislative measures: A call for support for the following Health Executive Legislative Agenda (HEAL): Amendment of the Disease Notification Act of 1929 to include oral diseases Amendment of the Midwifery Act (RA 7392) to intensify disease prevention and control provided by unsung heroes like the midwives House Bill 3364 (An Act to effectively instill health consciousness through picture-based health warnings on tobacco products) Senate Bill 1698 (An Act expanding the promotion of breast feeding, amending the proposed RA 7600, otherwise known as an Act providing incentives to all government and private institutions and rooming-in breastfeeding practices) House Bill 1427 (An Act to promote and support breast feeding as an essential component of family planning and responsible parenthood and for other purposes)

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SESSION 2 23 May 2008

Consolidated Presentation and Further Discussion On May 23, a conference was held to consolidate the reports of the five groups, subject each theme outputs to further discussion by a larger group, and obtain reactions from invited legislators. There were 175 participants. Chancellor Ramon L. Arcadio gave a brief explanation on the COMSTE and the processes that were done on April 29 and 30. Dr. Ruben N. Caragay of the UP Manila-National Institutes of Health and College of Public Health gave a consolidated presentation of the reports on the five themes (Annex 14). He made use of a problem tree to present the issues and problems giving available data as explained them. He also gave a list of the groups recommendations and proposed legislative agenda. Dr. Enrique Ona moderated the discussions on the points raised during the presentation of the consolidated outputs. The points raised during the open forum for each theme are as follows. Policies Governing the Health Professions and Health Care Delivery Dr. Anita Villarta of the PRC said that there is an undersupply of optometrists. It is now one optometrist per 100,000 population when it should be one per 15,000 since people 40 years and above have problems of refraction. She added that there is a need to regulate the practice of foreign nationals in our country. Also, the PRC Board cannot be a complainant but it decides whether to revoke or suspend the license. Ms. Cecile Santos, head of a midwives association, stated that there are three organizations of midwives working together for the amendment of their professions law. One issue is allowing them to do immunization. Others include compensating them under the Magna Carta for Public Health Workers, catchment area (some midwives cover 10,000 to 15,000 population when it should be one midwife per 5,000 population), deployment, security of tenure especially those under the local government units, and plantilla positions in hospitals. Mr. Froilan Bagabaldo reiterated the need to upgrade wages and compensation especially for those from the provinces down to the barangays.

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Ms. Pat Gomez of the Integrated Midwives Association of the Philippines mentioned that there are 223 midwifery schools with a production of 2,000 to 3,000 midwives yearly. There are 17,000 working under the government. There is an undersupply and a need to have more schools. There is no overlapping of functions in the rural areas where there are no doctors and nurses. The midwives do not get fees beyond 40 hours a week and 8 hours a day of service. Atty. Zaldy Docena of UP Manila said that patent application (intellectual property rights) has been reduced from 10 to 2 years and copyrights to 2 months. He asked if the Philippines is ready to allow foreign professionals to practice here. He is strongly pushing for the use of traditional medicine as advocated by the WHO. Mr. Marcelino Valera of the University of Perpetual Help declared that there is a Respiratory Therapy Bill in Congress since 1992. There is no board exam yet for RTs but we are exporting them already. Health Human Resource Development Dr. Abundio Balgos of the UPM College of Medicine (UPCM) and CHED pointed out that developed countries, notably Canada, have the responsibility of financing the education (e.g., masters programs) of health workers from source countries. There is a need for a policy regarding this matter where there is an agreement between governments for the recipient countries to reduce the deficiencies of health workers from donor countries by providing training for them. Dean Alberto Roxas of the UPCM added that it is unethical for a first world country to get health professionals from a third world country. There is also a need to have a centralized and directed databank to guide policy initiatives; to have information in making good decisions. Former Secretary of Health Alberto Romualdez, Jr. noted there is schizophrenia on the issue of government intervention. On one hand, there is a need to pass laws but on the other, there is a need for self-regulation. There are nursing schools almost completely regulated but violating CHED requirements. Does CHED have a market policy where there are many nursing schools but producing incompetent graduates? Dr. Ramon Paterno agreed with Sec. Romualdez. There is a need for a health human resource plan where there should be more medical schools in the regions than in Manila to address the maldistribution of health professionals in the country.

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Ms. Elsa Florendo of CHED said that schools that have attained autonomous status are free from government supervision and curriculum regulation. While an autonomous school can operate without a license, it has to abide by the standards of CHED. It also declared a moratorium on opening more nursing schools. There are technical committees that assist the Commission in implementing IRRs and it also gets support from the public and private sectors in the development of policies. Dr. Fernando Sanchez pushed for the vision of the educational institutions being autonomous and deregulated by upgrading themselves. He mentioned that they should aim for excellence so that there will be less intervention from authorities. Dean Cynthia Isaac of the UPM College of Allied and Medical Professions averred that there is an oversupply of PTs and OTs but they are underutilized in the country. Dr. Carmelita Divinagracia of the Association of Deans of Philippine Colleges of Nursing spoke about the importance of quality graduates and professionals. While there are policies and guidelines such as faculty to clientele ratio, she asked if there is really a move towards quality. There are 450 nursing schools but only 100 training hospitals. Dr. Kenneth Ronquillo of the Department of Health explained that there is an Integrated HRH Master Plan since 2005 which can be seen at the DOH website. The workforce projection is in the master plan but it needs validation due to changes in the assumptions. Those for Regions 2 and 11 are completed. On the Magna Carta for Public health Workers, there is a need for a separate item under the GAA. The BHWs, with the MWs are the frontline workers but the country needs MWs more than it needs BHWs. Mr. Nilo Villanueva of the Philippine Heart Center, speaking as a representative of the Philippine Association of Radiology Technologists, mentioned that the hazard pay is not being given in some institutions. An unidentified participant talked about the need for specialization in nursing (e.g., telemetry, phlebotomy) pointing out that NKTI has an Institute of Advanced Nursing. Nurses can apply abroad as specialists in certain fields. Mr. Marco Sto. Tomas of the PRC Board of Nursing declared that the current nursing law recognizes nursing specialization. CHED is also looking into specialization as part of the nursing curriculum.

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Research and Development Dr. Ona began the third theme discussion by saying that while the WHO recommends that a certain fraction of the health budget be allocated for research and development, the Philippines does not do so. The country is far behind its neighbors in this regard. Dr. Ellen Galvez of the Pamantasan ng Lungsod ng Maynila emphasized the role of the faculty in research. There is a need for nurturing on research in the school. It is also necessary to strengthen the curriculum in terms of research. Later in the discussion, she mentioned the importance of the utilizability of research (i.e., should benefit the people). Dr. Ona added that research should be faculty-driven but there is a lack of faculty in research. The faculty as well as the professionals should be enticed to do research. There is also a need to publish researches, infuse intellectual property rights to research products, demand quality research outputs, and make research as a prerequisite to graduation. Dr. Erlinda Palaganas of the Philippine Nurses Association (PNA) and UP Baguio stated that research is used by the university to tenure its faculty and usually it should come out in an international publication. That which contributes to the development of the people is not recognized. Dr. Ma. Teresa Amador of the PRC Board of Dentistry commented that one incentive is for research to be presented in contests abroad. Dr. Albert Roxas (UPCM) said that the government should put emphasis on research and cited Taiwan and Korea as examples. There is a need to develop a research culture where research is internationally acclaimed as well as socially relevant (i.e., utilizable by the people). The university should be at the forefront. However, one can not live on research alone. Dr. Ronald Matias of the United Laboratories and St. Lukes Medical Center reiterated that traditional medicine research should be emphasized. He pointed out that health research is equipment-intensive which makes it expensive and local engineers can not repair them. Also, there is a need for locally-manufactured equipment (e.g., water bath) including chemicals and

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reagents. He recommended that government create science/biotechnology parks and that local journals be supported so they can be converted into international journals. Dr. Lulu Bravo of the UPM-NIH declared that we need to prioritize (i.e., no need to do research on products that are already low-priced). The researchers should be given incentives (i.e., highly compensated, provided with research grants) so as not to lose them to high-paying institutions. Dr. Natividad Gervasio of CHED batted for the recognition of locally-published research. Even an appointment as Professor Emeritus in UP requires international publication. Ms. Pat Gomez said that the county is far behind the rest of the world. Their midwifery course is for six years already but here it is just two years. She is pushing for a four-year midwifery program that includes research in the curriculum. There is a need for quality researchers and teachers that will motivate the midwives. Financing of Health Care Earlier at the start of the discussion on Policies Governing the Health Professions and Health care Delivery, Dr. Benny Reverente of the PhilHeath pointed out that health financing is the key. Both the national and local government units are unable to pay on time the contributions for indigents and disadvantaged individuals. He advocated for an increase in spending for health. He is also in favor of incentives for health providers such as tax deductions. Dr. Shirley Domingo, also from PhilHealth, also mentioned in the discussion on Policies, that there is still a need to convince local governments to enroll their indigents. She is in favor of the recommendation that 3% of the IRA be used as premiums for indigents. She also agrees that 80% and 20% be allotted for preventive and personal care, respectively. Later, she asked where the increase in DOH budget will go. Also in the discussion on Policies, Dr. Marilen Danguilan questioned the solid foundation on which the statements in the matrix of theme outputs were based. As an example, she stated that the latest NHA data was in 2005. She wants to know how much we are spending now for health, where it is going and who benefits from it. She added that if we do not know these, we will not know where to go. Dr. Johnny Nanagas of the UPCM also asked where funds go and the basis for such.

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Dr. Ramon Paterno (UPM-NIH) averred that if health is a basic right, then government should spend for it. There is a need for a Master Health Finance Plan, approved by all sectors, that will indicate who will spend what for what. Furthermore, he said that if the underground economy can be enrolled by PhilHealth, more money can be put for health. There should also be a debate on the allocation government funds among the different sectors. On the informal sector, he added later that requirement of proof of PhilHealth membership be made in all government transactions (e.g., getting a drivers license). Dr. Posadas of the Virgen Milagrosa Educational Institute commented that insufficient funding is a barrier to efficient service delivery. He is for the removal of the clause subject to availability of funds which is being used as an excuse in the non-implementation of the Magna Carta for Public Health Workers. Dr. Madz Valera of PhilHealth declared that it will take ten years to lower the out-of-pocket expenses. Although she believes that the allocation for hospitalization should be higher than that for preventive care, there is a need to find the right public health-hospitalization mix that will maximize return on investment. She emphasized three things: (1) make sure that PhilHealth does its job in terms of the benefits; (2) if there is an increase in benefits, there is also an increase in health provider fees; should providers, therefore be paid other than by feefor-service; (3) and premiums should be increased. Health Service Delivery During the discussion on Policies Governing Health, Dr. Johnny Nanagas (UPCM) noted that many of the Conference participants are providers, none are from the clientele sector and the local health managers (i.e., governors, mayors). Mr. Dennis Posadas replied that during the public hearings of COMSTE, representatives of the other sectors will be invited. Dr. Roland Capito (Philippine Society of Anesthesiologists) said that anesthesiologists need not be replaced by nurse anesthetists if the former will stay. Incentives and benefits are needed for health professionals, in general, to stay. Mr. Jossel Ebisate of the Philippine General Hospital emphasized the need to prioritize preventive services. Dr. Lulu Bravo cited the finding that the Philippines as one of 55 developing countries with delivery of health services. However, there is inequity (i.e., there is discrepancy) between the services for the rich and the poor. Later, in connection with primary health care (see below),

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she enumerated the three requirements: trained health care workers, availability of health care structure, and family and community practices. Dr. Zorayda Leopando of the UP Manila shared the finding that countries which focus on primary health care have better health outcomes. Primary health care provides for comprehensive, continuous, full and accessible services at point of entry. The health workers should also be well-trained. Ms. Ada Silvero of the National League of Government Nurses urged that fragmentation of health services be addressed. An example is politicians establishing tertiary hospitals to serve as base hospitals for the nursing schools. Ms. Betty Merritt of the Board of Nursing informed the audience that there is now a Governance body of the nursing profession as an offshoot of the nursing board examination scandal. Ms. Leonora Hilario (PNA, National League of Government Nurse, and Malabon Health Office) reiterated the need to implement the provisions of the Magna Carta for Public Health Workers. Mr. Florendo of the Medical Technology Association mentioned that there are areas where the medical technologists are under the barangay health workers. Prof. Lydia Siega-Sur of the UPM School of Health Sciences stressed three things as far as health workers are concerned: they should be able to respond to peoples needs; need to rationalize the planning, training and deployment of health workers; and legislate the return of service of graduates of government schools and those which are government-subsidized institutions (also to give more subsidy to those schools whose graduates stay in the country). Dr. Lilen Sarol of the UPM College of Public Health suggested the creation of a law for elected local government executives to undergo public health orientation-seminar.

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Legislators Reactions Three legislators, two from the House of Representatives and one from the Senate, gave their views on the outputs of the conference and the current state of the health sector in the country. Hon. Mariano Piamonte, a Party-list representative, stated that the focus of a legislative agenda is more developmental (i.e., promotive) and less regulatory (i.e., restrictive). He noticed that the executive summaries of the five themes are more regulatory than developmental and should thus be referred to the legal unit of COMSTE. Hon. Magtanggol Gunigundo I (Second District of Valenzuela City) believed that the vision of a health system should be accessible and affordable services for all Filipinos at all levels of economic strata. He is for the picture-based health warnings on tobacco products (HB 3364) and the ban on trans fat (HB 2232). He said there is a need to clarify what incentives are needed. In the Medical Act of 1959, he asked what sections should be changed. Sen. Edgardo J. Angara started by saying that something is wrong with the health service delivery of a country which has a high child mortality and maternal mortality. One criterion in looking into a civilized society is its health service delivery. Among the recommendations given, he asked if we are ready for socialized medicine. He observed that some of the recommendations are contradictory. In increasing the budget for health, he pointed out that we must learn how to spend. He declared that it is not possible to return the local health professionals to the national government. One thing that he wants to consider is the rethinking of the geographic service area where infrastructure and information communication technology will be developed. For example, health care delivery should be integrated in contiguous provinces (e.g., provinces of Panay Island). PhilHealth should concentrate on the curative aspects while DOH should focus on the preventive and promotive aspects of health care. He emphasized the need for a plan with supporting data (rather than just exhorting for an increase in budget). Thus, there should be more time given to distill the plan that will be proposed. In closing the Conference, Dr. Fernando Sanchez stated that after this, the recommendations will be translated into bills and other forms of policies.

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IT AND IT-ENABLED INDUSTRIES

Part 1. ICT-ENABLED PROJECTS

RATIONALE The work of the Congressional Commission on Science & Technology and Engineering (COMSTE) recognizes the significance of information and communication technologies (ICTs) in delivering basic services at a wider scope, at a fraction of the cost of actual delivery. The Commissions IT and IT-Enabled Industries Panel immediately identified the IT sector as an important enabler in many other sectors in society, especially in delivering science and technology (S&T) to the people. These ICT-enabled services include general and specialized health care to the far-flung areas, decision and market support systems for the agricultural and rural sectors, and building resilience during times of disasters through accurate forecasting and well-coordinated mitigation and management efforts. Moreover, the March 2009 report of the United Nations Economic and Social Councils Commission on Science and Technology for Development21 acknowledges that ICTs play an important role in implementing wide-spread government services. The Philippines archipelagic nature and its current situationwidespread commercial telecommunications infrastructure and excellence in ICT services, limited government services delivery, even povertyopens new opportunities to be innovative in solutions-making, and necessitates leveraging our ICT infrastructure in providing countrywide services in order to upgrade our global competitiveness.

ICT FOR HEALTH / TELEMEDICINE Telemedicine is a game changing technology that has several strategic payoffs for the Philippines, which is why Sen. Edgardo J. Angara has set aside PhP100M in the 2009 General Appropriations Act for this project. Telemedicine can improve health care services and delivery to remote areas, where it is estimated that 40% of our people have never seen a doctor, that pregnant women seldom receive prenatal testing, and where millions of Filipinos go without diabetes and heart disease screening.
21

UN Economic and Social Council. Science, technology and engineering for innovation and capacitybuilding in education and research: Report of the Secretary-General, Commission on Science and Technology for Development. Distributed 11 March 2009.

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Telemedicine can give a start in the booming field of digital medical records. As we collect the ECG, urinalysis tests, and blood tests of people in the remote areas, we will be switching to a digital medical record system that will radically change how medicine is practiced in the Philippines. But this very same technology can be the basis for an improved IT front end for medical tourism. We can use the same information and communications technology for remote consultations and patient interfacing. This will give the Philippines a powerful competitive edge in the emerging market of medical tourism. This project can also jumpstart the creation of a centralized information systems for the PhilHealth and help it keep track of its members and assure their continued membership in the PHIC. If coupled together with the Telemedicine clinics, not only will there be sustained membership, but these two projects can also ensure that PhilHealth members get the services they deserve.

ICT FOR AGRICULTURE In the face of global climate change, being competitive in agriculture and aquaculture will mean modern information technologies that will become the decision support system for agriculture. Today, competitive agriculture means efficiently growing high value crops, using remote sensing to anticipate heavy rains or drought, understanding the effects of climate change and pollution on productivity, and having an integrated view of the logistics of produce delivery to the market. In short, modern agriculture requires information technology to help our farmers be more responsive to the local and global food markets, as well as in limiting the devastating effects of climate change on crops and marine products. It is crucial for our global competitiveness that Philippine agriculture improves its performance, thus COMSTE is focusing on ICT for Agriculture as one of its major projects. Hence, leveraging our technical expertise and wide telecommunications infrastructure in creating an information systems that will provide our farmers with the latest market data, and move our agriculture sector into a market-driven enterprise will help us limit food crises and help us achieve food security for the nation. The possible deliverables of using remote sensing technologies for an agriculture and aquaculture decision support systems are: A multi-disciplinary program to make our agriculture/aquaculture systems more resilient to climate change; Provide decision support to farmers and fisher folk; Extensive cooperation in remote sensing and ground truthing, logistics, and modeling; and Educating the people on the effects of climate change. The reasons for ICTs in the agricultural sector are: (1) most poverty-related problems in the country occur in the far-flung rural/agricultural areas; (2) the health of the sector also relies on
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the health of each individual farmer; and (3) the importance of accuracy and timeliness of information delivery to farmers. The possible uses of remote sensing in agriculture: Land Use Cropping Intensity Rice studies (which has already being started at IRRI) Detection and Early Warning and Detection for Pest and Diseases Weather Forecast Climate Change Pollution Natural Disaster Mitigation Human Disease Epidemics

ICT FOR DISASTER MANAGEMENT The need for disaster risk reduction and management, came to the fore when typhoon Ondoy hit Metro Manila September 26, 2009. The extent of the disaster, and the revelation that the capital, much less the entire country, was unprepared for such an event, and the subsequent finger-pointing that happened months after the disaster struck, became the impetus to assess the current capabilities of government and private institutions to forecast weather, send out reliable warnings, and to ultimately prepare and rehabilitate the country and the populace upon the onset and on the aftermath of such events. This entire project on disaster mitigation began as an offshoot of another project on using information and communication technologies (ICTs) in agriculture, hinged on the hope of moving our agriculture sector into a market-driven enterprise will help us limit food crises and help us achieve food security for the nation. Since most of the ICTs needed to for the project is also similar to the ones needed for agriculture (remote sensing and modeling technologies), it is logical to extend these decision support systems for agriculture to supplement resilience in the agriculture and other sectors of society, during times of disaster. Albeit disasters of such a scale as Ondoy or Pepeng are more irregular, their ability to paralyze an unprepared nation can no longer be questioned. As such, using the same existing infrastructure that can disperse information across the country in real-time, partnered with collaborations for satellite data, and our own local expertise in analysis and modeling, the initial project for agriculture can definitely be used in the same scheme as for disaster preparedness. All these have coalesced into the need for our government to have science-driven and sciencebased decision making and policy support. This is why in the 2010 General Appropriations Act, Senator Edgardo J. Angara, chair of the Congressional Commission on Science & Technology and Engineering (COMSTE), provided for 100 Million Pesos to build the Philippine Disaster Science Center, and almost 40 million for the Disaster Management Training Center in Aurora Province. The new institution seeks to be the two-pronged strategy not only to provide accurate science

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for forecasting and modeling, but also to provide training to local governments and private institutions for disaster response and management.

SATELLITE DATA AND ANALYSES The Philippines has recently acquired a Moderate Resolution Imaging Spectroradiometer (MODIS) receiver, which is currently under the Philippine Atmospheric, Geophysical, and Astronomical Services Administration (PAGASA). Some pertinent analyses possible with data from the MODIS are land-vegetation index, oceanic parameters such as sea surface temperature, ocean color, fluorescence, etc., and atmospheric parameters such as cloud classification and cloud masking capabilities, aerosol concentration, and others. He emphasized that further analyses of MODIS data can reveal some real-time data sets to predict or model the following: Vulnerable areas for early-warning systems (such as landslide development); Water body color reading (for pollution); Cloud masking (noteworthy as the Philippines experiences significant cloud cover); Plankton distribution (which can aid in predicting fish feeding grounds); Validation of forest classification; Land classification (with the use of PALSAR, a Japanese satellite); Tropical Rainfall Measuring Mission (TRMM); and Super typhoon observation. Furthermore, when data from a train of satellites are acquired, more information and accuracy is obtained for any analysis. More importantly, satellite data is free, and that if data storage is the problem, only Philippine or regional data from the Terra (A.M.) and Aqua (P.M.) satellites can be stored once these are transmitted to the receiver. PROPOSED ARCHITECTURE OF THE PROJECTS The ICT-enabled projects aims to take advantage of structures already in place, specifically the far-reaching private telecommunications infrastructure all over the country, and the MODIS receiver currently with the PAGASA. Given that satellite data from NASA through MODIS is free, and the means for distributions is already in place, then the challenge of setting up the project is in information processing. In the case of the ICT for Agriculture and Disaster Management projects, the main challenge is translating scientific, even numerical data, from satellite for the use of farmers and fishermen. The work of translation comes in two general steps: (1) analysis of numerical data from satellite, and with field data for calibration and confirmation, translate these into maps and models; (2) translation and simplification of scientific data and its
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implications into relevant information that regular folk, such as farmers and fishermen can understand and use.

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Part 2. RECOMMENDATIONS FOR THE PHILIPPINE BPO SECTOR

INTRODUCTION Vision for the Philippines a USD12 billion industry by 2010 The Philippines has grown impressively from about USD 1.4 billion in 2004 to USD 4.9 billion in 2007, an almost four-fold increase in industry value over the last three years. At the same time, the country has become a leading destination for ICT (Information and Communications Technology, which include IT22 and IT-Enabled Services23) investments and a preferred source of ICT-enabled services. In 2009, the industry was pegged at USD 7.2 billion, and 21% of the global market share24. Despite these achievements, the Philippines has recently fallen behind other countries. The countrys 2009 ranking in AT Kearneys Global Services Location Index25 fell to 7th place from the 4th place it enjoyed back in 2005. Even though the Philippines is improving, many other countries are simply improving faster. In spite of this challenge, however, the Philippine ICT industry is still poised to become a USD12 billion industry by 2010, employing 1 million workers, accounting for at least 10% of the global market in ICT. To achieve this, the country has to implement a plan that center around three key action points. These action points are based on the three major criteria that are important to acquiring a desirable rating in AT Kearneys Global Services Location Index namely, Financial Attractiveness, People and Skills Availability, and Business Environment. Acquiring a desirable rating in A.T. Keaneys Index is important, as it is widely considered as a global standard that influences businesses and governments on who to do business with, and where to invest, in ICT. Scoring high on A.T. Kearney, thus, is crucial to elevating the countrys global competitiveness in ICT.
22 23

IT businesses include software development, software design, and IT facilities/process management In turn, IT-Enabled Services or ITES include Business Process Outsourcing (BPO) and Knowledge Process Outsourcing (KPO). KPO covers higher-valued business services that require knowledge-based professional and technical skills in such areas as legal, healthcare/medical, financial, engineering, architectural, graphic arts, film-making, music, and entertainment specializations. 24 Trestle Group Consulting, 2009. Sourcing Destination Snapshot: The Philippine Value Proposition. Accessed 09 July 2010 at http://www.bpap.org/bpap/publications/TG_SDS_PhilippineValueProposition_March2010[1](2).pdf 25 Considered a global standard in measuring a countrys attractiveness for receiving ICT investments and contracts. A.T. Kearney, 2009. The Shifting Geography of Offshoring: The 2009 A.T. Kearney Global Services Location Index. Accessed 09 July 2010 at http://www.atkearney.com/images/global/pdf/Global_Services_Location_Index_2009.pdf 164

FINANCIAL ATTRACTIVENESS Building up the Philippines attractiveness In terms of Financial Attractiveness, the Philippine ICT industry reportedly received less than USD 1.13 billion in foreign direct investments (FDI) in 2005. In comparison, China received USD 72.4 billion in US investments in the same year, while India received USD 6.6 billion26. The Philippines has a long way to go in attracting more FDI into the local ICT industry. Of foremost importance is the lack of worthwhile ICT projects in the Philippines that could attract venture capital funds and other direct foreign capital27. Extensive industry analysis has determined that there is currently very little asset creation happening in the industry assets that can be seen as worthwhile projects to invest in. Seventy-four percent of the USD 4.88 billion earned by the Philippine ICT industry in 2007 came from contact centers, a relatively low-skills sector28. In order to improve upon cost and value competitiveness, asset creation within the industry is an urgent need. Many in the local ICT industry recognize the call for capital investments in high-skills services such as software design and knowledge process outsourcing (KPO). The framework of shared risk and shared reward that venture capital input affords the industry can encourage higher-value projects, specialization and niche-based positioning. These, together with skilled management, will ensure the long-term competitiveness of the Philippines in global services sourcing. Therefore, for long-term competitiveness, the Philippine ICT industry must go up the value chain29 in terms of attracting higher-value projects and not being limited to just providing services. To move this along, the government must devise a new role for itself to encourage this upward growth. Turning things around: changing the role of government In spite of this emerging widespread interest among top ICT companies (such as Headstrong, Accenture and Hewlett Packard) to invest in high-valued projects in the Philippines such as on software design and knowledge process outsourcing (KPO), there is a consensus among these
26 27

World Investment Report, UNCTAD 2006 Where VCs Are Placing Their Bets, Presentation to Innovation Forum 2008, Paco Sandejas. 28 BPAP (Business Process Association of the Philippines), 2008 29 A value chain is a concept in business involving a chain of activities that increase in value and profits as a company moves up in the chain. Lower-valued businesses such as the mining of raw materials belong in the lower part of the chain. Higher-valued businesses such as the manufacture of aircraft belong in the upper part of the chain. 165

companies that the governments role needs to be expanded. This expanded role can be described in five aspects. First, government needs to adopt an industry policy for ICT that balances the need to attract and keep our software scientists in the country vis--vis exporting talents abroad to increase foreign currency remittances. It has been cited in various anecdotes that among the Filipino professionals emigrating abroad include the most highly trained ICT workers currently being relied on to grow the local homegrown companies and to attract foreign contracts that are serviced locally. Second, government should adopt a long-term policy and strategy that involves investing in software development in order to create local demand and help create the pool of experienced software professionals. The government is admittedly the largest organization with the most diverse range of processes that require automation and systemization activities that rely a lot on software products and services. Thirdly, the government needs to implement reform programs designed to further make it easier for industry to do business with government. The Philippines is currently rated by the World Bank as 133rd out of 178 economies in terms of ease of doing business. This is appalling, considering that Indonesia is rated 123rd and Timor is one of the few countries rated lower than the Philippines30. Fourth, the government should adopt a policy of increasing government commitment to invest in education. The Philippines currently invests 3.1% of its GDP (Gross Domestic Product, a measure of a countrys total economic output31) on education32, compared to 4.1% for India, 8.1% for Malaysia, and 5.2% for Thailand. It is no wonder, then, that the quality of todays graduates is increasingly being regarded as deteriorating. Fifth and last, the government should adopt a policy and strategy for catalyzing government/industry/academe collaboration and linkages. Many in the business community expect the government to take the lead in handholding academe and industry, due to the wide chasm that exist between both worlds. Handholding is an important activity in bridging this gap, since it requires an entity of sufficient authority and resources to accelerate the process. Changing the face of the Philippine government is intimidating at best, and it is no easy task to quickly influence this change. Thus, a more moderate solution is hereby proposed to focus on
30 31

Doing Business 2008 Philippines, The World Bank Group. 2007. The GDP also indirectly measures the financial resources available to a country and its population for spending on goods, products and services, as well as for investing in worthwhile activities such as on savings, and on reinvesting in human resources (training and development), to grow existing businesses, and for starting up new businesses. 32 These and other education statistics were obtained from Nationmaster.com, retrieved 1 October 2008, as well as based on the United Nations Human Development Programme and on World Bank statistics 166

an action plan that is both manageable and achievable, even if it still remains a long-term solution. There is currently a perceived lack of worthwhile projects and businesses to invest in for ICT. This was in spite of confirmations from leading ICT companies that the country can accept highvalued ICT projects and businesses. It has been mentioned that the creation of a Silicon Valley type hub33 will create an environment for nurturing the creation of these worthwhile ICT projects. Currently, at least one incubation program has been initiated to nurture the start-up of new ICT businesses but this is increasingly becoming an exception rather than the rule.

ACTION POINT #1 Making ICT more financially attractive (Government as financial catalyst) The common thread being espoused in initiatives such as those by the Ayala Group is for the Philippines to move up the ICT value chain in order to make local businesses more financially attractive. To achieve this, local ICT companies should change the way they currently do business in three ways. First, they should not be content with just delivering services, but should create their own unique IP (Intellectual Property) and produce groundbreaking new products34. Second, they should concentrate on high-value projects focusing on software development (including game development), software design and animation. Third, they should encourage the creation of assets35 that are crucial to producing new products. These assets can be built up over time by installing systems for technology incubation36, and for fair access to venture capital that startup and young companies can utilize. It is therefore recommended that action should be taken to both improve access to capital for local software development, software design, and animation companies, and ensure that government incentive programs benefit local and foreign firms equally.

33

A hub is a self-sustaining, nearly autonomous community composed of business, academe, government and residents. Silicon Valley is an area in the southern part of San Francisco, California (USA) that was named after the large number of silicon chip companies that were set up there in the 1960s. The area has since become the most preferred location for setting up high technology businesses in the US and is now used synonymously to anything that involves high technology. 34 Which can then be protected via IP (Intellectual Property) registration. 35 Assets in this regard include highly-trained employees, equipment, and facilities such as laboratories and libraries. 36 Technology incubation refers to the process of designing, testing and prototyping a new technology (either a product or a service) before it is introduced commercially into the market. Prototyping, in turn, refers to the process of constructing a smaller-scale version of the actual product in order to test it in extreme conditions before a full-scale version is constructed. Prototyping is practiced in order to identify and correct design flaws before a full-scale product is manufactured, in order to prevent huge losses from failure in design during manufacturing. 167

Of these two, the critical step is on providing fair access to capital for companies in software development, software design, and animation to encourage them to develop groundbreaking new products and allow them to acquire the technologies needed to produce these products. The solution is in formulating a Fair Access to Capital Bill, a legislative plan to provide access to affordable capital that will allow local ICT firms to grow their business to at least PHP1 billion in annual revenue or employ and make productive use of at least 1,000 S&T37 jobs per company. The Fair Access to Capital Bill must have three key provisions in order to be effective and achieve its objective. First, there should be a way to securitize IP and other intangible assets (e.g., software products). Almost all local software development companies, particularly start-ups, have no fixed assets to talk about. And this prevents them from presenting collaterals to banks in order to gain access to loans and guarantees. Most foreign companies are not disadvantaged by this requirement as they are typically of multi-national scale capable of presenting hard assets in property and equipment. Second, credit guarantees and financial services must be provided that allow ICT companies to access long-term loans of up to PHP50 million. It has been cited that obtaining loans from banks in denominations above P50 million is not a challenge due to prevailing practices where it is the norm. Amounts below P50 million are another matter, however, and is shunned away by most banks. Micro-financing institutions such as Land Bank, which provide access to smaller loan amounts, are few and far between, and typically suffer from shortage of funds for SMEs (Smalland Medium-sized Enterprises). On the other hand, the Development Bank of the Philippines (DBP) has been known to have access to, and provide facilities for, higher loan denominations. However, a majority of the projects financed by DBP so far has been in infrastructure development such as in mass housing and road infrastructure38. For there to be truly fair access to capital for local ICT companies, these lending institutions should be reconfigured to make available their resources to the companies at the appropriate moment in their growth. Lastly, local laws on bankruptcy must be enhanced to protect creditors and investors of ICT companies from the risk of never recovering from business failure. High-value IP generation is a very risky business, and typically suffer from at least 90% probability of failure. By not allowing enterprising individuals and corporations to recover quickly from such business failures, there will be less and less companies that will have enough opportunities to try out business ideas and discover the one idea that truly works and is successful.

37 38

Science and Technology Based on news archives citing projects funded by the DBP, contained in the DBP website www.devbankphil.com.ph retrieved 2008 October 1. 168

Alternately, there may even be a need to expand the Corporation Law to allow for the existence of Limited Liability Companies (or LLCs39), which is regarded as an ideally flexible business structure for start-ups that enter high-risk businesses such as in ICT. LLCs provide the same benefits of pass-through taxation (i.e., no double taxation) as that of single proprietorships, while protecting the business owner from undue risk via limited liability from the actions and debt of the company as in a corporation. By providing these provisions, a Fair Access to Capital Bill can create the system and process that reduces the risk faced by enterprising individuals and companies from being unable to quickly recover from failed business ideas. Another action plan being proposed is to reform the current inventory of investment incentive laws to equally provide the incentives to both local and foreign companies. An example of such a law that favors foreign businesses is the Incentives Act for RHQ and ROHQ. 40 Through the Fair Access to Capital Bill and related action plans, investors can more actively participate in the Philippine ICT industry and provide the much-needed capital at the right moment to bring local software development, software design and animation companies into high-valued IP creation.

PEOPLE AND SKILLS AVAILABILITY Addressing the scarcity of top quality ICT workers in the Philippines By the end of 2005, approximately 79,000 graduates of IT and IT-related courses were employed as IT professionals. However, it was noted that around 233,000 graduates of IT and IT-related courses were employed in other types of jobs.41 Out of the 79,000 IT professionals about 17,800 are employed directly in ICT companies.42 It is not certain how many more employed IT professionals (in addition to the 79,000) were graduates of non-IT courses.
39

LLCs are a hybrid between single proprietorships and corporations. It provides the advantages of a single proprietorship by allowing for single taxation (instead of double taxation for the company and the companys owners) while providing the gains of a full corporation, by protecting the owners of the company from full liability on the companys action and debt. The flexibility offered by an LLC is ideal for small companies that typically have a single owner, but whose founder has plans of eventually growing into a full corporation. New venture start-ups, particularly in high-risk businesses such as ICT, have been noted as benefiting from the availability of an LLC as an option in setting up a company. 40 Referring to Regional Headquarters and Regional Operating Headquarters, both of which can enjoy exemption from income tax and VAT (Value-Added Tax) payment by virtue of the said law (RA 8756) even if the RHQ and ROHQ are not necessarily export-oriented businesses (to the disadvantage of local ICT businesses which have to be export-oriented before being able to avail of similar tax incentives via the BOI and the PEZA Law), excerpted from http://www.dti.gov.ph/Investment_EstablishingBusinesses_Incentives.php retrieved 2008 October 1. 41 Study on Software Developers in the Philippines conducted by XMG Asia-Pacific, 2006. 42 BSP survey in 2006 (as cited by JETRO Philippine IT Industry Update 2007 no. 4) and 2005 study by ITAP (IT Association of the Philippines). 169

These data show that only 25% of the graduates of IT and IT-related courses were employed as IT professionals, and only 5.7% are employed in IT and ITES companies. The large number of IT graduates that were not employed as IT professionals was due to the skills gap that ICT employers observed, as mentioned in various reports made by ITAP (IT Association of the Philippines), JETRO and PSIA. A recent CHED (Commission on Higher Education) study conducted among IT graduates confirmed the existence of the skills gap.43 It is not certain how many IT professionals currently employed in the ICT industry hold non-IT degrees. However, the PSIA reported that 28,000 IT professionals were employed in the ICT industry as of 2007.44 Assuming an insignificant change in the number of IT and IT-related graduates produced in the succeeding years, as well as in the number employed as IT professionals in the ICT industry, then it can be extrapolated that more than one-third or as many as 10,200 IT professionals without degrees in IT and IT-related courses, are working in the ICT industry.45 Brain Drain: Stopping the exodus of what little exists of top quality ICT professionals Around 8,700 graduates of IT and IT-related courses were cited to have emigrated to other countries at the end of 2005.46 Although not significant when compared to the total pool of IT graduates, this volume of emigrated IT professionals become alarming when considered against the possibility that these migrant workers must be of the same quality (if not better) as the 17,800 employed in the country's ICT industry. If these assumptions are correct, this means that the ICT industry loses one qualified IT professional for every two it employs. This indicates that the Philippines is losing more than 30% of its skilled IT graduates to other countries. This, and the presence of a gap between the skills of IT graduates and skills required by the ICT industry, could explain why most employers find it difficult to find quality IT recruits. A study conducted by XMG Asia-Pacific in 2006 indicated that the top reason why potentially high-quality IT professionals are emigrating is due to the large gap between foreign and local compensation. This reason was further validated by reports of continuing recruitment of Filipino IT professionals by foreign recruiters.47 As such, the problem of brain drain continues to persist in the IT industry.

43

Aligning Competency Skills in ICT Graduates vis--vis Competency Skills Needed by the Workplace, Religioso, Teresita et al., 2008. 44 About Us, PSIA website. www.psia.org.ph/ABOUTUS/WHOWEARE/tabid/65/Default.aspx retrieved 2008 April 15. 45 28,000 total IT professionals in the ICT industry less 17,800 IT professionals in the ICT industry who graduated with an IT or IT-related course. 46 Based on the Study on Software Developers in the Philippines, conducted by XMG Asia-Pacific, 2006. 47 RP software group slams poaching by Singapore recruiters, http://newsinfo.inquirer.net/breakingnews/infotech/view_article.php?article_id=79090 retrieved 2008 April 15. 170

The industry currently recognizes the issues of brain drain, where the highest quality workers are pursuing work outside the country. This issue has made it difficult for existing companies, particularly in the software development, animation, and engineering design sectors from sustaining the growth of their business due to the resulting shortage in trained, quality manpower. It has been accepted in some sectors that the trend of professionals going abroad is an indispensable part of growth in the ICT industry. Therefore, there are many who believe the supply of qualified IT graduates should be expanded to fill the requirement of both the domestic demand and the demand from abroad. In order to achieve this, the capabilities of todays IT educators should be improved in order to increase the output of quality IT graduates. While the issue of expanding the supply pool for quality IT graduates is being addressed, however, the ICT industry is hoping remedial action can be taken to minimize the impact of brain drain on the ability of local companies to retain their top personnel, to sustain the growth of their organization, and o remain competitive versus other companies worldwide. Reversing the brain drain could involve programs for keeping the current professionals as well as attracting talented and skilled overseas Filipinos to return. Scarcity and Brain Drain: Curing a lethal combination That offshoring and outsourcing (O&O) services is based upon low-cost advantage does not mean it employs low skills. Currently, the country's ICT industry is constrained by the limited number of highly-skilled IT workers. There are also limited resources in domain expertise, solutions engineering and funding that are essential for handling higher-valued 'concept-tomarket R&D and business engineering' services. As a result, the scale of the skilled workforce and resources is unable to elevate the country into becoming a world-class service provider. Coupled with the brain drain issue, the dearth of specific and specialized skills has cost the industry billions in missed opportunities and investments. Providing for high-level skills will naturally attract high-value work, which can then provide for better prospects for careers for our graduates, and ultimately create an industry that might even attract talented Filipinos back to work for the country. Wherefore art thou, R&D? On another aspect of a healthy ICT community, it has been noted that there is currently no R&D culture in the Philippine ICT industry. This situation affects the ability of companies to innovate and come up with new products and services that will not only bring growth to companies but also attract ICT professionals from companies overseas. To put this into perspective, patent records in the country (considered a good indicator of a country's technological innovation capacity and performance48) indicated that there were only

48

Cited by IP Philippines Director General Adrian Cristobal (in the article IT industry among top industries filing for IPR protection, from 171

43 applications made from 1995 to 2005, and only 21 approvals from 1948 to 2006, that came from local universities and local research and development institutes. Local patents comprised only 3% of the total patents granted at the IP Philippines office, the rest belonging to foreign applicants. As a result, it was not surprising that the Philippines ranked low (71 st out of 131 countries) in the 2007-2008 Global Competitiveness Report of the World Economic Forum. Medication for an emerging culture of complacency The good news, the Philippines currently has programs promoting academic excellence at the primary (Special Education or SPED49), secondary (science high school programs) and tertiary (DOST50 scholarships and Grant-In-Aid programs for post-graduate research and development). On the down side, these programs have not been utilized effectively, due to reported inefficiencies in implementation. As an example, RA 9036 (described as An Act Strengthening the Governance and defining the Scope of the PSHS System, Amending for the Purpose RA8496 and passed into law in 199951) mandates the establishment of 17 Philippine Science High School campuses, one in each of the administrative regions of the country. To date, only 9 campuses have been established, with one more expected to go online within the year. Access to more resources was attributed as a condition necessary to speed up the attainment of 17 campuses. Replicating the PSHS system is crucial to expanding the community of excellence in the ICT community, as a significant portion of todays ICT workforce could eventually be traced back to a PSHS campus. The PSHS System has been known for its 97% passing rate to colleges, with at least 70% of its graduates eventually pursuing a career in Science and Technology, particularly on Engineering52.

Bridging the chasm of the Skills Gap The recent CHED study conducted on the gap between skills of IT graduates and the IT skill requirements of employers mentioned that there is a need to improve the quality of IT education in the Philippines, particularly on core IT skills, such as mathematics, project management, structured and object-oriented programming, business systems life cycle, use of productivity tools, technical report preparation, network and technical support tools, logic
http://newsinfo.inquirer.net/breakingnews/infotech/view/20080521-137949/IT-industry-among-topindustries-filing-for-IPR-protection) retrieved 2008 May 23. 49 SPED here describes the accelerated education programs offered at the last three years of primary education, which are taken in just two years. This is differentiated from the SPED programs offered to students with learning disabilities which are also under the same program of the Department of Education (DepEd). 50 Department of Science and Technology 51 http://en.wikipedia.org/wiki/Philippine_Science_High_School_Ilocos_Region_Campus, retrieved on 2008 October 1. 52 Data obtained from DOST, 2008 172

formulation, and even professional workplace behavior. Introducing skill quality standards, but with more focus on internationally-accredited professional certification than on licensure, is important in supporting efforts by the academe to improve the IT curriculum, and as a means of addressing the skills gap. Another evidence on the existence of a skills gap between IT graduates and industry requirements was noted in a 2004 study conducted by the IT Association of the Philippines (ITAP). In that study, it was indicated that out of every 100 applicants for IT jobs only 3.3% were eventually accepted. The rest end up taking jobs not related to IT. Lack of job skill qualification was the major reason why the remaining 96.7% did not get hired. Private-sector initiatives such as the SSME (Service Science, Management and Engineering) program recently introduced by IBM Philippines, and the continuing advocacy for educational reform promoted by Philippine Business for Education (PBEd) are intended as bridge programs for addressing the skills gap. Reforms such as re-training teachers on managing learning environments and on curriculum design and management also offer opportunities for bridging the gap. Teacher training efforts such as that between some IT companies and COCOPEA are designed to make sure graduates meet the minimum employment standards. At the same time, ongoing reforms in IT curriculum design are being spearheaded by the Commission on Higher Education (CHED) through programs under its Technical Panel for IT Education. Improving people and skills availability for ICT The combination of a shrinking supply of quality ICT human resources, brought about by a deteriorating academic machinery and the continuing departure of the best people to greener pastures, will eventually wear down the ability of the Philippine ICT industry to move up the quality value chain as prescribed in Chapter 1. An appropriate intervention at this point would be to stop the existing system dead on its tracks and re-tune the engine that drives the supply train for ICT human resources. To do so would eventually require upgrading the machinery itself, and replacing it with a more effective design that rely on best practices and world-class approaches. And in a world that is increasingly valuing its human resources as a source of competitive advantage and as a change agent, it makes sense for the Philippines to start making a sound investment on its people.

ACTION POINT #2 Improving ICT human capital (Investing in our people) The best way forward, then, is for the Philippines to invest more on its human capital. Developing the ICT human capital means both investing to elevate the quality of our S&T (Science and Technology) workforce (and not just in ICT), by providing worthwhile incentives for
173

S&T workers to develop their skills, as well as by creating a cohesive community of S&T practitioners, starting as early as during high school. Action should thus be taken to support human capital development in S&T, a plan that involves encouraging all sectors involved to invest in high-value skills training for identified S&T tracks that can improve the countrys competitiveness and elevate the skill level of S&T practitioners, and ensuring that high-value S&T skills training starts as early as in high school. With this in mind, it is recommended that two legislative solutions be formulated as part of this action plan. Human Capital Development Bill First, a proposed Human Capital Development (or HCD) Bill designed to encourage investments in high-value S&T training. To ensure its effectiveness, this HCD Bill should define the set of jobs that fall under the category of Philippine Strategic S&T (PSST) jobs.53 Furthermore, for a job to qualify as a PSST job, it must be globally certifiable through an international accrediting body such as the IEEE (the Institute of Electrical and Electronics Engineers54). Incentives provided should also be based on results (e.g. incentives can only be availed of if the individual is certified for a PSST-relevant skill). Business owners and employers can then avail of tax credits against their training expenses provided their employees pursue training in, and work towards getting certification for, a PSST-relevant skill. This give-to-get incentive scheme is expected to be a more productive alternative to the straight income tax holiday that is the crux of the governments current incentive program. Furthermore, an individual who qualifies as a PSST worker may avail of personal income tax credit (equivalent to a preferential rate of 10%) provided he/she continues to practice and work in the country. In addition to the tax credit incentives to employers and employees, the proposed HCD Bill should allow industries and companies (including those coming from Special Economic Zones) to donate S&T equipment tax-free to colleges and universities. Supporting the efforts of industries and companies to donate their equipment to academic communities is crucial to ensuring that the future ICT workforce is able to access newer technologies and equipment while they are still in training so that they are not left behind to become obsolescent by the time they join the ICT industry.

53

Considered priority jobs that are needed in producing high-valued ICT work, particularly in software development (including game development) and animation. 54 Institute of Electrical and Electronics Engineers, widely regarded as world's leading professional association for the advancement of the theory and practice of electrical, electronics, and computer engineering and science. (as cited in www.ieee.org/about, retrieved on 2008 October 1). 174

To expand it further, industries and companies should also be able to avail of tax credits against S&T grants and endowments to colleges, particularly on other types of donations such as student scholarships and professorial chairs. The proposed HCD Bill should also reward those who teach and train for PSST jobs, by providing tax-free professorial chairs and grants for as long as they teach in the Philippines. This step is critical to keeping the much-valued trainers from migrating to greener shores. Lastly, the DOST (Department of Science and Technology) should be provided an annual budget of P1.2 Billion for sustaining its S&T Scholarships at the tertiary level55. This program has been cited as one of the few reasons why the country is still able to produce a top quality ICT workforce in spite of the challenges that face the industry and academe. National Science High School System Bill A second legislative solution being proposed is a National Science High School System (or NSHS) Bill designed to build a single, sustainable, and integrated public science high school system in the country that will produce the country's best S&T high school graduates. This bill is intended to integrate the existing nine campuses of the Philippine Science High School (PSHS) System56 and the 54 campuses of the Regional Science High Schools (RSHS) under the Department of Education (DepEd) into one National Science High School (NSHS) System. By doing so, it is hoped that the NSHS System will better be able to replicate the success of the PSHS system into other campuses under the NSHS (particularly the ones coming from DepEd) and build the same standards of excellence that has been noted as the source of many of todays top quality ICT workers. This will mean that all science high schools will eventually be managed, funded, and overseen by the DOST. An annual budget of P2 Billion is being considered for this bill in support of the NSHS System. Through a combination of the Human Capital Development Bill and the National Science High School System Bill, the Philippines will have a sustainable system and process in place that will build up a supply and pool of high-value S&T workforce that supports the countrys ICT Vision.

BUSINESS ENVIRONMENT
55

By virtue of RA 7687 which provides scholarships to students taking selected S&T BS degree courses in college otherwise known as the DOST-SEI scholarship program. In 2008, an estimated 927 scholarship slots were made available by SEI at an estimated P320,000 scholarship cash value per scholar. The annual budget could thus reach as high as P297 million per year. Quadrupling the number of scholars to as much as 3,700 per year might need almost P1.2 Billion in annual budget for the DOST-SEI scholarships. 56 With a tenth campus expected to go online by the end of 2008. All PSHS campuses are currently administered by the DOST (Department of Science and Technology). 175

Data security and IP protection, or lack thereof The Philippines is a signatory to the WIPO Copyright Treaty and WIPO Performances and Phonographs Treaty and is required to pass implementing legislations on IP protection. Furthermore, the global business community is increasingly recognizing the need to protect the personal and confidential data of both companies and individuals, what with the increasing incidence of identity theft and hacking57. It has been reported by several IT/ITES companies, particularly those in O&O services, that the absence of strong legislation protecting the privacy of personal confidential data discourages many large companies from sourcing their service requirements to Philippine companies. This was mirrored in the poor rating given by AT Kearney on the Philippines with regard to security of intellectual property.58 Gartner also recently assigned a Fair rating to the Philippines59 in its 2008 Top 30 Locations for Offshore Services relating to Data and IP security and to Privacy. This was in spite of the country receiving Good to Very Good ratings in most other criteria. Both reports confirm the critical need to pass the necessary implementing laws on IP protection and data security. To this end, two bills had been formulated by the Philippines and are currently pending in the Senate. The first is Senate Bill Number 880. This is an act to amend to the Intellectual Property Code of the Philippines, a bill re-defining the scope and limitations of intellectual property. This bill seeks to meet the needs of the expanding global environment. As the Philippines is immensely involved in transnational transactions especially in outsourcing industries, it is imperative to protect an individuals right to privacy through the protection of his personal data. The measures provided for by this proposed law are also found in data protection laws of other countries and are in conformity with established international standards on data protection. The second legislation is Senate Bill Number 1180. If ratified, this act will be called the Data Protection Act of 2005, a bill defining personal confidential data and establishing the legal rules for the protection of such personal confidential data. The present IP Code does not completely address the issue on the use of technological measures to protect copyright such as through digital rights management and circumvention of these technological measures. The proposed amendments will address this issue as well as address the use of the Internet environment in the distribution and licensing of intellectual property. The end goal of the

57

The most celebrated case being instances of identity theft in 2004 and 2005 involving Citibank customer, where electronic thieves used fake e-mail notices requesting for the confidential personal information of customers, and using the stolen information in making unauthorized transactions. As cited in http://www.consumerfraudreporting.org/phishinglog.php retrieved on 1 October 2008 58 Offshoring for Long-Term Advantage, AT Kearney, 2007. 59 In its 2008 Top 30 Locations for Offshore Services report. 176

proposed law is to ensure that safeguards are provided to right-holders in the distribution and usage of their intellectual property online or through other means. Both bills have been treated in the past as being ironclad. Recent analysis and examination of their content, however, has shown that the lack of a proposed set of implementing standards could derail their effective implementation. In its current form, Senate Bill Number 1180 utilizes the standards set forth by the EU Data Protection Directive. However, the prevailing experience of EU countries has shown that these set of data protection standards are too restrictive. It is proposed that a more robust yet flexible set of standards, particularly the APEC Privacy Principles, be adopted in place of the EU standards60.

ACTION POINT #3 Producing an ICT-friendly business environment A business environment must exist that values and supports the creation and protection of IP yet remain relevant to Philippine ICT businesses. This involves taking action to ensure that IP is properly recognized and protected from the context of Philippine ICT businesses, and that data and IP security is equally protected in the Philippines as it is so in the countries we do business with. To this end, it is recommended that the current forms of Senate Bill Number 880 (amending the Intellectual Property Code of the Philippines) and Senate Bill Number 1180 (the Data Protection Act of 2005) be reformulated into a possible single piece of legislation. Furthermore, it is recommended that the resulting law should be more in line with a model that is more relevant to the Philippine ICT industry and to the countries it does business with. More specifically, that the standards to be adopted for example in data protection should follow more the APEC Privacy Principles instead of the EU Data Protection Directive as stipulated in the current version of Senate Bill Number 1180.

POSTSCRIPT Big Hairy Audacious Goals (BHAG) for ICT: Stepping through the looking-glass With the legislative machinery firmly in place, as prescribed in the body of this paper, it is believed that the creativity and ingenuity of the Filipino worker will be unleashed into the
60

Based on an article of Mr. Oscar Saez, President of the Business Process Association of the Philippines (BPAP) in Computerworld, October 2008 edition. 177

world, and groundbreaking projects will be launched that will catalyze social change and development. Among the ICT-driven projects being envisioned include a national environment management system, a national health and wellness electronic records management system, and the creation of a global market positioning strategy for the Philippines as a Creativity and Innovation Hub. N-EMS The national environment management system (N-EMS) is intended to allow for an economical yet effective means of managing the Philippines natural resources towards a balanced and sustainable portfolio-framed utilization strategy of such resources, serving both the energy and food requirements of the country. This system allows for an economical, best-use approach to the utilization of limited land and agri/marine assets. The crucial element that will be responsible for the success of the N-EMS system is the flexibility and speed provided to it by the ICT-enabled infrastructure and processes that support it. The front-end of N-EMS are the mobile access applications that can be downloaded or installed on mobile phones, and that run on the affordable SMS (or texting) system thats already pervasive in the Philippines. These applications include information retrieval and sending capabilities on the ground in any part of the archipelago godsend to the millions of farmers and growers who desperately require information on the market, supply chain, and weather to guide them in the planning of their livelihood. Another set of applications track the progress of shipments and the processing of produce and harvests at any step of the supply/value chain supported by an RFID system we are currently using effectively for todays ePass systems. The RFID devices also retain key information on source of produce, processing/production method, storage information, BFAD status, volume/weight/value data, producer info, etc. Yet another set of applications allow for satellite-based mapping and monitoring of land areas (similar in principle to Google Earth and Google Maps) to provide guidance on a national level in managing harvest times, methods, and crop combinations - information sent via SMS to the ground and received by farmer groups, local governments, government agencies, and private-sector manufacturers. The same mapping and monitoring system can also be used for to monitor the health/status of energy sources, both renewables and fossil fuel sources - to operationalize globally accepted standards and systems for energy portfolio management, and result in more economical energy utilization. To ensure flexibility of access, the N-EMS service will also be designed to be accessible via the web in the absence of SMS-enabled mobile devices. The back-end of N-EMS include the mobile communication infrastructure already in place and which already provide a nearly 100% coverage of all 7,107 islands. SMS communications move

178

with ease through this infrastructure, and has already been tested through rigorous traffic conditions61 - sufficient to support the heavy requirements of N-EMS. Also supporting N-EMS are the high-capacity broadband backbones (PLDTs Domestic Fibre Optic Network or DFON, and TelicPhils National Digital Transmission Network or NDTN), both of which are critical facilities for pushing and pulling vital information to and from the information databases stored in servers maintained by the National Institute for Scientific Discovery and Innovation (NISDI) a proposed spin-off of the DOST that is more akin to Taiwans ITRI (Institute of Technology Research and Innovation) but will be geared more towards purpose-driven scientific discovery and innovation (to be inspired towards solving the problems of society today and in the future), rather than just simply R&D. The broadband backbone will be responsible for ensuring there is sufficient bandwidth available for the smooth flow of information to the mobile devices Lastly, the N-EMS engine stored in the NISDI servers will be revealed to be a complex information archiving, database management, data analysis/mining, and decision-support tool an application software that builds upon current technologies for enterprise management systems (systems that are already being developed and maintained by the countrys leading software development companies). But instead of helping an enterprise manage its operations and resources efficiently, this engine will be providing a similar service to the country for managing its energy/food utilization operations and energy/food resources. N-HWERMS The national health and wellness electronic records management system (N-HWERMS) is intended to allow for a convenient and timely flow of information on the state of health and wellness for every member of the populace. This electronic record management system can either replace or augment the combined SSS/GSIS/PhilHealth system, and can be implemented either as a hosted solution that is accessible via kiosks and with applications installed in mobile devices (mobile phones, PDAs, laptops, etc. - a la web-based banking solutions and services) and deployable to even the farthest communities via the nationwide coverage for mobile phone services, or as a Smart card system similar to the proposed LTO smart card system currently being worked on by Stradcom. N-HWERMS will provide information on the health and wellness of Filipinos that are accumulated over time. By allowing the government to manage such a huge amount of data (possibly also stored in the data servers of NISDI) healthcare providers can focus on the delivery of services and medication, thereby reducing the cost of healthcare itself.

61

The existing mobile communication infrastructure in the Philippines has been rated to handle 400 million text messages a day with relative ease (as cited in http://www.marketresearch.com/product/display.asp?productid=1491243&g=1 and http://salaswildthoughts.blogspot.com/2006/08/plague-for-philippines-texting-capital.html referring to 2006 statistics, retrieved 2008 October 1). 179

Philippines as a Creativity and Innovation Hub Leveraging on the rich culture and heritage of the country, the Philippines has the capability of becoming a Creativity and Innovation Hub, both regionally and globally. The countrys rich history has shown that the existing culture is a synergistic mix of both Western (Spanish, American, etc.) and Eastern (Arabic, Chinese, Malay, etc.) cultures. This plan calls for the development of a national strategy on the country's global competitive positioning on IT-enabled creative services (animation, game development, filmmaking, music, etc.), both in terms of producing unique IP that are based on the rich multi-cultural heritage of the country (a mixing pot of East and West), as well as taking advantage of the innate artistic talent of the Filipino (as a competent, and high quality service provider in the global delivery network for creative products - software, books, entertainment content, etc.). Once established as a Creativity and Innovation Hub, the Philippines can both pursue the creation of new, unique products, as well as participate as a competent, high-quality service provider in the emerging global delivery network for entertainment services (similar to the global service delivery networks already being used by multinationals in banking and finance, as well as in IT).

ICT as the enabler of these BHAG In all three BHAGs, ICT is the enabler and catalyst for converting ideas into practicable projects. Without the necessary support system in legislation for nurturing the creation and evolution of these ideas, as well as the acceptance and wholehearted participation of the ICT community, these BHAGs will remain as dreams illusions trapped on the other side of the looking-glass. It is hoped that, with the realization of the recommendations enumerated in this paper, such dreams will become reality and more trailblazing ideas will emerge.

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Science, Mathematics and Engineering Education

Assessment Framework I. Introduction

The Science and Technology Education Program (STEP), an inter-government agency program aimed as a modest contribution to the national efforts towards enhancing the technological development and global competitiveness of the nation, once declared that for real progress to happen, three things are needed: science, technology, and education. This perspective aptly captures the essence of the national concern for the countrys state of S&T literacy and the need to mainstream science and technology into all levels of the Philippine education system to globally competitive levels, with the end goal of producing an S&T human resource backbone that would be responsive to the countrys present and future requirements for sustainable economic and social development. A major mandate of this thrust would necessarily focus on the state of science, mathematics and engineering education in the country. As such, the basis for its assessment will be encapsulated within a framework that is basically an improvement to the traditional inputprocess-output system of analysis. Within this framework, all the factors for analysis will be considered as part of either one of five basic building blocks of a competitive equation, the equation being the state of the nations science, mathematics and engineering educational system. The main determinants of the effectiveness of this educational system, namely, the teacher, the learner, and the delivery mode, will constitute the factors for analysis. II. The Framework The five building blocks that form the equation are, namely, and in the order of succession: natural resources and raw materials (input), products and process technology (process), products and services (output), integrator/applier/systems technology (process), and final customer (output). Starting with the first building block, natural resources and raw materials would basically constitute the human resources involved in math, science and engineering education, namely, the students and the teachers, at all levels from elementary to post-graduate. Thus, qualitatively speaking, some of the factors to be inputted here would be the lack of qualified math and science teachers (as evidenced by the low supply of BSE graduates, among others), the tendency for education graduates to teach in the private rather than public sector, the choice of education as among the least preferred tertiary courses by NSAT passers with high scores, the continuous flight of qualified secondary math and science teachers to work abroad,

181

the faulty system of promoting math and science teachers to administrative instead of teaching positions, the poor performance of elementary to tertiary students in science and math, etc. The next two building blocks, products and process technology, and products and services, factors in the means by which these human resources in the math, science and engineering educational system are being enhanced to attain their intended goals or to produce their outputs, i.e., how to enable producing elementary graduates to go to high school, secondary graduates to go to college, tertiary graduates to become professionals, or those who finished postgraduate education to produce more knowledge and breakthroughs. These would therefore cover an assessment of current improvement projects and programs aimed at manpower development, curriculum and instructional materials development, physical facilities and equipment, research and development, institution-building, and alternative learning systems. Products and services would also require an evaluation of enrolment and graduation trends at all levels, and other related statistics and information. The fourth and probably most important building block, the integrator/applier/systems technology block, factors in the critical technologies or technological systems that help to produce the targeted level and quality educational manpower. Given the context of the current state of math, science and engineering education, these technologies would be those used on crucial strategies that would have a measurable impact on major concerns and issues within the educational system, such as, technologies to: upgrade teacher capabilities, enhancing the learning environment, reengineering the assessment procedures for teachers and learners, establishing a quality assurance system, establishing an advocacy agenda and a research agenda, pursuing a proactive legislative agenda with policymakers and legislators. And finally, the fifth building block for the competitive equation framework, the final customer, would be the end-users of the human resource products of the math, science, and engineering education system, i.e., for secondary graduates, these would be the tertiary schools or postsecondary (vocational/trade) schools; for tertiary graduates, these would private industry or the government sector; and for postgraduate finishers, these would be either the academe, government or private sector. Assessment would require the kind of professions and industries entered into by math, science, and engineering tertiary graduates, tertiary degrees enrolled in by secondary graduates, number of science and math teachers with postgraduate degrees, and other similar statistics and information. This assessment will be used to compare the Philippines with its Asian neighbors/countries to have a grasp of the Philippines competitiveness.

182

Natural Resources & Raw Materials

Products & Services

Final Customer

III. Results Competitive Block 1- Natural Resources/Human Resources Definition Constitutes the human resources involved in math, science and engineering education, namely, the students and the teachers, at all levels from elementary to post-graduate. Highlights/trends/ patterns

Education Supply: Basic Education to Higher Education: Enrollment Data

183

Elementary

Secondary

Tertiary

49.85%

50.15%

61.24%

38.76%

Non-S&T S&T 56.08% 43.92%

N= 2.43 M*

*% Assumed from 2004 Data

Source: DEpEd, CHED, DOST-SEI (2005) A. Basic Education Pre-School, Elementary and High School Data on education supply on enrollment data for basic education shows a decreasing trend of enrollees towards a science oriented education. B. Tertiary Education Trends in the Enrolment and Graduates in S&T Related Courses, 1994-2004

1,750,000 1,500,000 1,250,000 1,000,000 750,000 500,000 250,000 0

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Source: AY 2004-05 Statistical Bulletin, CHED

184

For the tertiary level it is observed that less than half of the enrollees in the country are in S & T courses/fields. Data on the trends in the enrolment in S & T related courses show as increasing patterns. However graduates from these fields shows only a minimal or incremental increase.

Enrolment and Graduates (BS) Source: AY 2004-05 Statistical Bulletin, CHED by Field, AY 2004-05 and 2003-04
1,200,000 1,000,000 800,000 600,000 400,000 194,020 200,000 0 Nat Sci Math/Comp Sci Engg & Tech Med & Allied 22,194 4,042 25,172 39,632 26,403 59,624 10,269 284,751 349,060

1,136,587

Enrolment

Graduates

210,410

Agri/Fish/ Vet Others (NonMed S&T)

Looking at the fields of enrollment in the S & T, medicine and its allied courses leads followed by engineering and technology . Mathematics and computer related course (IT) comes in third. Agriculture/Fisheries/Vetemed comes in fourth and the natural sciences comes in last. The trend in these are is that it follows the growing trend of medical professionals which are in demand worldwide. C. Post-Graduate Level Data on the profile of science and mathematics teachers shows that out of 49,420 there are only 8.6 % who holds masteral degrees. Data also shows that 36.4 % are currently taking up their master. These trend shows that the masters level of science and math education is not taking off that fast as related to the 8% of educators who holds masters degree. For the doctorate level the situation shows that the pursuit of doctoral education in math and science is not that attractive. Out of the 49,520 only 1.5 % are pursuing their doctoral studies. The 0.45 % supply of doctoral degree holders warrants this phenomenon. For the engineering status data on the post-graduate level activities needs to be examined also to show the attractiveness of these science and technology pathway.

185

Age 3

10

11

12

13

14

15

16

17

18

19

20

21

Age may vary

Baccalaureate

P r e S c h o o l

Post-Secondary Middle Education/ Vocational Technology

Higher Education Compulsory Primary/Elementary Secondary

Pre-baccalaureate

Graduate Education Post-Doctorate

4-year Degree Program

Master's Doctorate Post-Baccalaureate

5-year Degree Program (Architecture and Engineering and Technology Programs) 6-year Degree Program (Some Medical Allied Programs)

Pre-School Education Length of Year

Primary/ElementaryEducation Secondary Education

Tertiary Education

10

11

12

13

14

15

16

17

18

19

20

21

22

Key competitive factors Comparison Competitive Block 2- Products and Process technology Definition These building block, products and process technology, factors in the means by which these human resources in the math, science and engineering educational system are being enhanced to attain their intended goals or to produce their outputs, i.e., how to enable producing elementary graduates to go to high school, secondary graduates to go to college, tertiary graduates to become professionals, or those who finished postgraduate education to produce more knowledge and breakthroughs. These would therefore cover an assessment of current improvement projects and programs aimed at manpower development, curriculum and instructional materials development, physical facilities and equipment, research and development, institution-building, and alternative learning systems. Products and services would also require an evaluation of enrolment and graduation trends at all levels, and other related statistics and information. In this block the DepEd S & T , the CHED S & T and Engineering System and CHEDs postgraduate S & T Sytem will be analyzed. These systems intervention and programs would comprise this block to assess the competitiveness.

Highlights/Trends/Patterns Basic education

186

The Production System

Inputs

Process

Outputs/ Products

Entering Students

Production System

Graduates

Curriculum Faculty Facilities Favorable Environment Management

Source: DOST-SEI In the Philippines the supply of students from basic education for the SME education follows this pattern of production system. The basic elements of the process includes the curriculum, faculty, facilities, favorable environment and management. The system emphasizes on quality of the SM education. It also highlights strong linkages between the process and outcomes as well as the structure of the outcome. The outcome being the students/graduates in their chosen science, mathematics or engineering profession/industry. Focusing on quality of the process, the system has t the following characteristics. 1. 2. 3. 4. 5. 6. 7. Teacher-student interaction Hands-on activities in science Mentoring program for student research Cooperative learning Science and math competitions Interaction with experts, and Emphasis on HOTS (higher order thinking Skills)

Here are other trends on some elements of the SM education system: 1. Quality of Science and Mathematics Teachers

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Specialization in Science and mathematics rank low ( 5th and 6th ) for BSE students Low passing rate in the LET in science and mathematics majors ( DOST-SEI , 20012003) Science and math teachers passers have increased from 2001 to 2004. Mathematics rank first followed by physical sciences and biology. There is a growing trend of passers in mathematics, a key resource in quantitative areas of applications for future scientists ands engineers.

From this data we can say that the technological system of the Dep Ed to produce a critical mass of science and math educators is working and making progress. The Science and Math faculty as a component of the system seems to be increasing in number. 2. Teacher Education Curriculum in Science and mathematics

Tertiary Education Emphasis on the tertiary education Who are teaching these S & M E students What kind of learning systems are in place

Post-graduate Education Key Competitive factors Comparison Competitive Block 3 Products and Services Definition Products and services would also require an evaluation of the enrolment and graduation trends at all levels, and other related statistics and information.like performance and rankings in national and international assessments and competitions. This with also include products or services ( patents and breakthrough or could be even radical or incremental innovations) in each of the level can offer to society. Focus could be at the graduates of basic-secondary level, the graduates of the tertiary level and the post-graduate level.

Highlights/trends/Patterns
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Basic-secondary level, At this level, the competitiveness of the students can be assessed based on DOST-SEIs parameters or measures of quality which are the students output: 1. 2. 3. 4. 5. National Assessments TIMSS- 1995, 199, 2003 International Math Olympiad DOST-SEI Examinations S & T Oriented vs. Regular HS

Comparative Student Performance: Public Schools

60 50 40 30 20 10 0
NSAT (1999) NSAT (2000) NAT -Y4 (2004) NAT -Y4 (2005) NAT-Y5 (2006) Mathematics 47.47 50.17 46.2 50.7 47.7 Science 44.53 44.5 36.8 39.49 38 English 47.22 48.75 50.08 51.33 47.8

NSAT (1999) NSAT (2000) NAT -Y4 (2004) NAT -Y4 (2005) NAT-Y5 (2006)

Looking at the comparative performance of public school students in mathematics and science thru national achievement tests, performance in mathematics is higher than science. Their performance however never went down below 30 points from a 60 point examination. The

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highest points students got was 50 points for math and around 45 points for science. There is a decreasing trend in science scores from 1999 to 2006. In math there is an leveling off trend.

Philippine Performance in TIMSS

Field/Year Science Grade 4 Grade 8

1995

1999

2003

41st (42) Mathematics Grade 4 Grade 8 40th (42)

36th (38)

23rd (25) 42nd (45)

36th (38)

23rd (25) 41st (45)

The Philippines performance in TIMSS shows an increasing trend for the basic-elementary level both for math and science. In science we rose from 41 st to 23rd from 1995 to 2003. For mathematics we rose from 40th to 23rd from 1995 to 2003. For the basic-high school level the trend shows an improvement after 1995, from 41st to 36th place in science and from 40th to 36th place in math. However after 1999 our ranking fell to 42nd in science and 41st in mathematics rd in 2003.

Overall Achievement-Science Grade 4

450 409 400 399 398 450 409 400 399 398 360 358 355 350 340 400 360 358 355 350341 341 340334 333 324 400 341 341 334 333 324308 307 304 350 350 308 307 304 300 300 250 250 200 200 150 150 100 100 50

Average Score Average Score

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Overall Achievement-Science Grade 8

Overall Achievement-Science Grade 8

Average Score Average Score

500 459 500 459419 412 407 406 419 412 389 377 407 406 389 377372 365 357 372 356 356 346 335 331 365 357 400 356 356 346 335 331 400 309 300 309 300 300 300 200 200
100 100 00
XXII II I IVVA A III CCa r III ar a ag ga a I IVVB B IIII VI VI II II VV NC NC RR NNa t I I a t io io n n a al l VVII II VVI I CCA ARR XXI I IX IX XX

significantly higher than national mean at 0.05. significantly higher than national mean at 0.05. significantly lower than national mean at 0.05. significantly lower than national mean at 0.05.

Region Region

Figure 11. Average Science Achievement Comparison (for Second Year High School) of Students by Region in TIMSS 2003 (for Second Year High School) in TIMSS 2003

Figure 11. Average Science Achievement of Students by Region

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Mean Raw Math Scores of Special Science Classes, Sample HSs and Selected Countries
35 30 25 20 15 10 5 0

Mean Raw Score

29 30 31 31 32 21 22 22 18 21 6 7 10 11 14 24

Mean Raw Math Scores of Special Science Classes, Sample HSs and Selected Countries
Mean Raw Score

Figure 11. Mean Raw Score in Science of Special Science Class vs Sample Students PHL and Selected Countries

Gh Sa an m Bo ple Sp a tsw ec St ia l S ude ana cie nts -P nc HL e Cl as se Int er Indo s na ne tio sia na lM ea n M ala ys Au i a str ali a US A Ja pa En n gla nd Ko Ho rea ng ko Si ng ng ap or e Ta iw an

So

uth A

fri ca

G ha na Sa Af r m Bo ica pl e ts St wa ud en na ts -P H In te Indo L rn ne at s io na ia lM ea Au n st ra lia U S Sp En A ec gl ia a lS M nd ci al en a ce ysi a C la ss es Ja pa n Ta iw an Ko re H on a gk Si ong ng ap or e

30 25 20 15 10 5 0 8 8 10 12 12 14 18 21 22

So

Figure 10. Mean Raw Score in Mathematics of Special Science Class vs Sample Students PHL and Selected Countries.

ut h

24

25

25

25

25

27

27

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35 30 25 20 15 10 5 0

Mean Raw Score

29 30 31 31 32 21 22 22 18 21 6 7 10 11 14 24

Tertiary level At this level, the competitiveness of the graduates can be assessed based on BSE Students ranking for areas of Specialization Licensure Examination Passers Percentage of Qualified Teachers Post-graduate level. At this level, the competitiveness of these professionals/experts can be assessed based on Total Researchers Intellectual Property Rights Application from Local Inventors who have post-graduate degrees in that field of invention Key Competitive factors Comparison Competitive Block 4- Integrator /Applier systems Technology Definition The fourth and probably most important building block, the integrator/applier/systems technology block, factors in the critical technologies or technological systems that help to

G h ou ana th S A am fri ca B pl ot e sw S tu de ana nt sP In In HL te do rn ne at s io na ia lM ea n A us tra lia U S S E A pe ng ci la al S M nd ci en ala ce ysi a C la ss es Ja pa n Ta iw an K o H rea on gk o S in ng ga po re S

Figure 10. Mean Raw Score in Mathematics of Special Science Class vs Sample Students PHL and Selected Countries.

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produce the targeted level and quality educational manpower. Given the context of the current state of math, science and engineering education, these technologies would be those used on crucial strategies that would have a measurable impact on major concerns and issues within the educational system, such as, technologies to: upgrade teacher capabilities, enhancing the learning environment, reengineering the assessment procedures for teachers and learners, establishing a quality assurance system, establishing an advocacy agenda and a research agenda, pursuing a proactive legislative agenda with policymakers and legislators. Highlights/trends/patterns A. Basic Education It is very important for the students of basic education ( elementary and high school) reach their objective to graduate and go on to the next level of higher learning. The skills and tacit knowledge they have developed through the years will ensure them at least they can enter college. This assessment looks into these integrator/applier systems technology (IAST) which the government has developed and implemented and how successful they have made an impact. These includes the following: 1. 2. 3. 4. 5. 6. 7. 8. Science High Schools and Special Science High Schools ( Public and Private) Computer/Information technology Environmental education Instructional materials Technology based curriculum for engineering Science labs development and upgrades Tech-Voc educational offerings Learning resource centers

B. Tertiary Education It is very important for the students of tertiary education to reach their objective to graduate and get employed in different sectors: industry, government, private organizations and overseas or go on to the next level of higher learning. The skills and tacit knowledge they have developed through the years will ensure them at least they can be employed as math, science and engineering professionals to industries which are science, mathematics and technology driven.

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This assessment looks into these integrator/applier systems technology (IAST) which the government has developed and implemented for this level and how successful they have made an impact. These includes the following: 1. 2. 3. 4. Information and Communications Technology Training Science, Mathematics, Engineering and Technology Laboratories Curriculum Etc.

C. Post-graduate This assessment looks into these integrator/applier systems technology (IAST) which the government and private institutions have developed and implemented and how successful they have made an impact. These IAST will at least ensure the entry of these professionals to industries and give them opportunities to develop, invent or innovate products and processes of industries which have economic and social impacts. These includes the following: 1. 2. 3. 4. 5. 6. 7. 8. Research and Development Systems ICT training Industry training Industry-University-Government Networks Industrial Clusters Special training centers Innovation Centers Etc.

Research and Development Systems According to DOST from 2002 to 2005 there is an increase in R & D personnel in the Philippine. If we examine the from science, math and engineering vantage through the HEI, the R & D personnel in these areas increase from 4,093 to 5,211.

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Sector of Performance All Sectors Government* Higher Education* a. Public HEIs b. Private HEIs Private Non-Profit* Private Industry**

R&D Personnel (Headcount) 2002 9,325 3,054 4,093 3,134 959 242 1,936 2003 13,488 3,425 4,423 3,399 1,024 293 5,347 2005 13,907 3,537 5,211 3,591 1,620 229 4,930

Sources: *DOST R&D Surveys; ** NSO-ASPBI Note: 2005 data is preliminary result of R&D survey as of April 4, 2008

If we examine the HEIs private and public R & D personnel, there is a decline from 43% to 37%. The public HEIs decreased from 33% to 26% and the private HEIs increased from 10% to 12 % from 2002 to 2205.

This data shows that the growth of SME education professionals, the growth of R & D professionals contribuite to these areas growth. R & D systems spur knowledge and innovation and human resources in these field is important for the growth in the SME.

Figure 1 - National R&D Personnel by Sector of Performance, 2002

Pr ivat e In d u st r y 21% Pr ivat e No n Pr o f it 3%

Hig h er Ed u cat io n 43%

Pu b lic HEIs 33%

Pr ivat e HEIs 10% Go ver n m en t 33%

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Figure 2 - National R&D Personnel by Sector of Performance, 2003

Private Industry 40%

Higher Education 33%

Public HEIs 25%

Private Non-Profit 2%

Private HEIs 8%

Governm ent 25%

F ig u re 3 - Estima te d Na tio n a l R& D Pe rso n n e l b y Se c to r o f Pe rfo rma n c e , 2 0 0 5

Private Industry 35% Public HEIs 26%

Private NonProfit 2%

Higher Education Inst (HEI) 37%

Private HEIs 12%

Government 25%

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The integrator/applier systems technology (IAST) helped increased the number of scientists and engineers from 2002 to 2005.

Position Category (headcount) TOTAL Scientist & Engineers Technicians Auxiliary Personnel Not Classified

2002 9,325 7,203 956 1,086 80

2003 13,488 8,866 1,245 3,265 112

2005 13,907 10,579 1,137 1,869 322

Source: DOST R&D Surveys; NSO-ASPBI Note: 2005 data are preliminary results of R&D survey as of April 4, 2008

If we look at the HEIs researchers keep on increasing from 2002 to 2005. We can say that the R 7 D system contributes to the growth of human resources in higher education.

R & D as an IAST needs funds to be spent. The national R & D spending from 2002 to 2005 increased.

R & D opportunities for the SME professionals in HEIs shows an increase for private and public.

Sector of Performance

Scientists and Engineers (Researchers)

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2002 All Sectors Government* Higher Education* Private Non-Profit* Private Industry** 7,203 2,339 3,513 131 1,220

2003 8,866 2,557 3,712 169 2,428

2005 10,579 2,825 4,559 148 3,047

Sources: *DOST R&D Surveys; ** NSO-ASPBI Note: 2005 data is preliminary result of R&D survey as of April 4, 2008

Figure 5 Scie ntists and Engine e rs Engage d in R&D

5,000

Government Higher Education Private NonProfit Private Industry

4,500

4,000

3,500

3,000

2,500

2,000

1 ,500

1 ,000

500

0 2002 2003 2005

There was an increasing trend in financing R & D for the public and private HEIs from 2002 to 2005. For the public it was from 11% to 17%. This is still bigger than the private HEIs with an increase from 2% to 4 %. Looking at the bigger picture, the HEIs only spends 21% of the national R & D spending. The HEI which has an R & D system and considered as a competitive block IAST only spent around 21% of the national R & d expenditure. HEIs are supposed to be sources of knowledge and innovation. HEIs to contribute to the growth of SME professionals to be engaged in
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research and development in the future should have a bigger piece of the National R & D expenditure. This R & D system is crucial for the SME professionals to be linked to the market or their customers. An analysis of the R & D system being an IAST needs to be done to support the increase in R & D expenditure so that they could be linked to industry and customers.

ICT training

Industry training

Industry-University-Government Networks Industrial Clusters Special training centers

Innovation Centers

Key competitive factors Comparison Competitive Block 5 Final Customer

Definition And finally, the fifth building block for the competitive equation framework, the final customer, would be the end-users of the human resource products of the math, science, and engineering education system, i.e., for secondary graduates, these would be the tertiary schools or post200

secondary (vocational/trade) schools; for tertiary graduates, these would private industry or the government sector; and for postgraduate finishers, these would be either the academe, government or private sector. Assessment would require the kind of professions and industries entered into by math, science, and engineering tertiary graduates, tertiary degrees enrolled in by secondary graduates, number of science and math teachers with postgraduate degrees, and other similar statistics and information.

Highlights/trends/patterns

1. Basic education

2. Tertiary education Employment of S and T teachers

Employment of Engineers

Employment of Scientists

Deployment of S and T teachers

Deployment of Engineers

Deployment of Scientists

3. Post-graduate Education Employment of S and T teachers

Employment of Engineers
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Employment of Scientists Deployment of S and T teachers

Deployment of Engineers

Deployment of Scientists

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Indicators 2004 1 Philippines Ranking in S&T Competitiveness in 40th the World Competitiveness Report 2 Philippines Ranking in Technology 43th Achievement Index 3 No. of Patents Granted to Residents 30 4 % of Private Sector R&D Expenditures to Total 25% National R&D Expenditures 5 % of Total R&D Expenditures to GDP 0.30% 6 No. of R&D Personnel per Million Population 200 7 No. of World- Class Science and Technology 3 Universities 8 Value Added in Leading High Technology 27th Exports 9 Philippines Ranking in Global Technology 27th Exports 10 Philippines Ranking in Knowledge Jobs 3rd 11 Philippine Ranking in the Transformation to a 34th Digital Economy

2010 35th 40th 50 30%

2020 25th 35th 200 40%

1.00% 2.00% 250 350 9 15 20th 20th 2nd 30th 15th 15th 1st 20th

Key competitive factors Comparison IV. Discussion

1. Relate everything to world competitiveness and relate key competitive factors for each block to world competitiveness. 2. Discuss possible implications or strategies for each competitive factors for each block and its effects or impact to world competitiveness.

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V. Conclusion Key Points: 1. Show that by using the competitive equation the Philippines SME education has been assessed and the assessment could warrant its place in the world competitive rankings. 2. Show that form the first block to the 5th block linkages should be established to come up with strategies to harmonize and optimize each competitive block to reach some major objectives like going up the rank in the worlds competitive ranking and increase in employment and deployment of the mathematics, sciences and engineering professionals and experts.

References Annual Report on Science and Technology, 2004 National Science and Technology Plan 2002-2020 Website of DOST: www.dost.gov.ph

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SEMICONDUCTORS AND ELECTRONICS

Introduction

Electronics is everywhere and in everything. In todays modern world, consumer electronics in the form of personal communicators, computers, microprocessors, appliances, and power systems drive a Trillion dollar economy. With so many major players competing heavily in the electronics sector and with new technologies fresh out of research laboratories becoming hot new products in months, one needs to ask: what major challenges do the players face in as they try to maintain their present market position? How precarious is a companys position if they are weak in technology and innovation? And for the Philippines, which is not a major leader in the industry: what is our strategic plan for the industry? The industry must re-invent itself every quarter because of the intense competition and the seemingly constant influx of disruptive technologies. Standing still or maintaining the status quo is becoming extremely difficult for leaders, more so for followers in the industry. It is important to remember that the globalization of economic activity does not reduce the need for low-wage economies to become competitive. Technology erodes the competitive advantage of cheap and unskilled labor; hence, the quality of domestic capabilities becomes the prime determinant in attracting and in effectively using foreign resources. This is the current challenge we face today with the possible pull-out of one of the major semiconductor companies in the world, Intel, from the country. Electronics companies in the Philippines and worldwide must be able to meet these key make-or-break challenges: Develop innovative products and services that capture the imagination of consumers and partners in order to retain existing customers and attract new ones Bring new ideas to market ahead of the competition to grow revenue and market share Achieve global development excellence and efficiency by leveraging core competencies of the value chain to increase profit margins. Integrate regulatory compliance into product lifecycle processes to reduce business risk and sell products in global markets. Effectively manage the global manufacturing supply chain to ensure on-time, on-cost and quality product delivery.

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Continuously develop a competent talent pool of engineers and skilled workers and narrow the gap between the professional training provided by the education system and that required by the industry

In order to address these challenges, the Electronics Panel presents these initial recommendations: Increase investment in R&D

Establish an Industrial Technology Group

Encourage innovative public-private partnerships Improve the competitiveness and education of the modern Filipino engineer

Facilitate equipment donation to universities and technical schools

Invest in new service companies that support the infrastructure of the electronic industry

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A Snapshot of the Global Electronics Industry

The total worldwide electronics equipment revenue is USD $1.49 trillion, according to market research firm Suppli Corp.

Between 2002 and 2006, world exports of electronic components grew at an average annual rate of 17.1 percent. Exports from emerging economies are growing at a higher rate. Their share of world exports increased from 21.5 percent in 2002 to 26.4 percent in 2006. The chart below suggests that LCCs are slightly more important as source countries for electronic devices (active components) than for electrical elements (passive components).

Figure XI. LCC Share of Exports per Product Group

Asia is the dominant low-cost source region for electronic components. Moreover, Asia's share of world low-cost exports has increased over time, approaching 95 percent in 2006. Refer to Figure II.

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Figure XII. Low-cost Country Exports per Country of Origin

Figure III lists the leading low-cost source countries for electronic components. With world export shares of 18.6 and 16.0 percent respectively Taiwan and China are the leading source countries, followed by South Korea (11.3), Malaysia (8.9), and the Philippines (6.7). Since 2002, the share of the Top-5 source countries in world low-cost exports increased by 3.2 percentage points to 89.8 percent in 2006. What this implies is that these emerging countries are favored in terms of electronic components exports.

Figure XIII. Top 10 Source Countries, 2006 (in % of World Exports)

The above statistics give us a current view of the global market but globalization and technological development have been constantly bringing about new paradigms. This in turn, causes drastic changes in market conditions and intensifies competition among major and even minor players.

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One major trend that pervades the market nowadays is the growing practice of collaboration. Together with rapid technological development, it facilitates the convergence of technologies and industries, resulting to the birth of innovative new products. This fuels the growth of the electronics industry but also makes it difficult to correctly predict the shape of the industry in the future.

Another key trend is the gradual shift from industrial countries such as Japan and the United States to newly emerging economies such as China and India. These economies show that competitive factors are being redefined. In the past, technological superiority defined the major players. Today, design, price competitiveness, and a differentiating strategy that reflect the characteristics of the export markets have to be equally in place.

These are just among of the key considerations we have to be cognizant of as we try to define a strategy that will make the Philippines a global player in the electronics sector.

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The Philippine Electronics Industry

Electronics Sector Export Data and Coverage The Philippine Electronics Sector has consistently been a major contributor to the Philippine economy. In 2007, 62% or $31 billion worth of exports is derived from the electronics sector whereas in 1976, electronics accounted only for 3% of total Philippine exports.

Table 3. Electronics Export Data from 2004-2007

Source: http://www.census.gov.ph 2007 Total Electronic Products a) Components/Devices (Semiconductors) b) Electronic Data Processing c) Office Equipment d) Consumer Electronics e) Telecommunication f) Communication/Radar g) Control and Instrumentation h) Medical/Industrial Instrumentation i) Automotive Electronics 50,276,149,776 31,023,035,434 23,622,423,353 5,448,277,073 335,142,092 583,665,853 73,962,609 276,201,101 39,008,376 33,330,226 611,024,751 2006 47,410,117,340 29,683,046,794 22,317,910,824 5,745,078,021 268,073,631 458,814,689 213,556,530 233,904,446 16,650,840 13,099,122 415,958,691 2005 41,223,531,922 27,304,064,268 20,218,756,948 5,499,307,776 194,510,990 566,275,279 136,898,083 268,956,912 15,556,298 6,435,692 397,366,290 2004 39,680,520,480 26,726,077,443 18,706,782,541 6,193,101,999 209,960,369 612,028,160 177,685,667 449,180,580 10,238,806 4,038,916 363,060,405

Below is a table outlining the coverage of the countrys electronics sector. The biggest sub-sector and contributor to the countrys total exports is the semiconductor sub-sector, with 76% of the total electronics exports derived from
Table 4. Electronics Sector Coverage
Sub-sector Semiconductors (microelectronics) and other components Products Covered integrated circuits (ICs), transistors, diodes, resistors, capacitors, coils, transformers, PCBs and other components computers, peripheral storage and input/output devices. Products include laptops, desktop PCs, printers, computer monitors, drives: hard disk, optical, ZIP, CDROM photocopiers, fax machines, and electronic calculators Major Players Philippine subsidiaries of Intel, Texas Instruments, Philips, Amkor, Fairchild Semiconductors, etc Toshiba, Acer, Epson, Fujitsu, Ionics, and Sampo Technology.

Electronic Data Processing (EDP) Equipment

Office Equipment Telecommunication Equipment telephone sets, modems, copper communication cables, and fiber optic cables cellular phones, pagers, closed circuit television (CCTV), CB transceivers, radar detectors, marine and land mobile radios test and measuring instruments such as oscilloscopes, signal generators, ammeters, voltmeters, ohmmeters, cross talk meters, etc.; Philippine-based companies

Matsushita Business Machines, Sharp and Seiyo Electronics ETSI Technologies, Eupen Cable; and NEC Technologies Matsushita Communication, Uniden, Casio and Euro CB

Communications and Radar

Control and Instrumentation

Precision Microcircuits, Sara Digital Network, Phil Makoto Corp., and Insung Phils. Electronics

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Medical and Industrial

includes manufacturers of PCB assemblies for instrumentation / testing equipment, digital thermometers, microscope of PCB assemblies for instrumentation / testing equipment, digital thermometers, microscope, automotive test equipment and multitesters equipment used for X-ray and other medical applications, railway signaling, security and fire alarms; Philippine-based companies are involved in the production of spiro analyzers and smoke detectors. Comprised mainly of manufacturers of car stereos, antiskid brake systems (ABS), and car body electronics (CBE) TV sets, VCD players, electronic games, radio cassette players and karaoke machines

P. Imes Corporation

Automotive Electronics

Temic Automotive, Fujitsu Ten, Muramoto Audio-Visuals Phils., and Clarion Mfg Matsushita Electric (Panasonic), Sony, Sharp, LG-Collins and JVC.

Consumers Electronics

Source: http://www.dti.gov.ph

Industry companies in the Philippines are essentially engaged in assembly and test manufacturing with highly technical & labor intensive activities. The existing capabilities of the Philippine electronics industry can be summarized as follows:
1. Packaging of ICs and Special Products Plastic Dual-in-Line Packages (PDIPs) Plastic Leadless Chip Carriers (PLCC) Flat Quad Pack Small Outline ICs (SOICS) Transistors Ceramic Dual-in-Line Packages Fine Pitch Side Braze 2. Other Electronic Components Transistors Photo-diodes/Photo-transistor Diodes Integrated Circuits (Plastic/Ceramic) Opto Devices Light Emitting Diodes (LED) Transformers Metal Can Opto-coupler Rectifier Magnetic Head Printed Circuit Boards (PCBs) 3. Product Assembly Radios Clock Radios Heads and Components Music Centers Brushless Motor Boards Alarm Controllers DOT Matrix Display Board Stuffing

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Electronic ID cards Radio Cassettes Toys Hard Disk Devices Computer Modules Clock Modules Computers Module Boards Opto-coupler ICs Proprietary Automotive Devices

In the past 10 years, electronics exports increased by over 550% while non-electronics exports as a whole have remained relatively at .

Figure XIV. Philippine Exports, Contributions by Sector (1976 vs 2004)

However, although the electronics sector still comprise majority of the countrys total exports, its growth, over the last few years has not grown significantly (refer to Figure V)

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Philippine Exports, Electronics and Non-Electronic Exports, 2002-2007

35.00 30.00
In $US Billions

25.00 20.00 15.00 10.00 5.00 2002 2003 2004 Non-Electronics 2005 2006 2007

Electronics

Figure XV. Electronics and Non-Electronics Exports

Year to year electronics export growth is erratic but the trend is generally declining. Last year,

electronics exports climbed 4.51 percent, driving a weak 6.05 percent growth for overall merchandise exports but the government had hoped exports would grow 11 percent last year.

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Figure XVI. Electronics Exports Growth

Although the Philippines remains to be one of the low cost export countries of electronic components, between 2002 and 2006, the share of the Philippines declined by 2.7 percentage points to 9.8 percent in 2006. Total share of the Philippines in 2006 is 6.2% out of the total world export of $USD 1.49 trillion. Malaysias share is 8.9%, Taiwans is 18.6%.

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Legend:

Philippines' share of world low-cost exports

Figure XVII. Philippine export performance, 2002 - 2006

Moreover, if one takes a look at the industrys factors of production raw materials, intermediate goods, and components inputs, what stands out is the fact that very few of these goods are being sourced locally. We can surmise that the total value of imported raw materials and intermediate goods significantly offsets the total value of the countrys exports. The issue of developing more local suppliers to counter this effect is certainly one aspect of the sector requiring attention and critical improvements. Below is a table outlining the raw materials typically used in the electronics sector. It has to be well noted that most of these materials are being imported from other countries

Table 5. Raw Materials Sourced Locally and Imported

Local Imported

Porcelain Enamel Cold Rolled Sheets Cast Irons Tape Heads Pressed Metal Parts Wires Speakers Plastic Parts Cabinets

Gold wire Aluminum wire Ceramics Plastic Packaging Lead Frame Fiberglass High Quality Screws Moulding Compound Capacitors Resistors Printed Circuit Board (PCB) Transformers Transistors

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Semiconductors Quartz crystals antennas Optical pick-ups Digital tuners Remote controls Coils Readouts Compressors Precision Metal Parts/Plastic Parts/Molds and Dies Oher Electronic Components

Global Production Share

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Below is a table containing the production numbers for 2005 of the top 16 electronics-producing countries. The US ranked 1st, Japan 2nd, and South Korea 3rd followed by Singapore, Malaysia, Taiwan, and Thailand. The Philippines ranked 9th following Brazil who is at 8th place. Once again, it can be seen here that semiconductors (under components) comprise the bulk (57.1%) of Philippine electronics production. The US is the highestproducing country in all categories except for consumer electronics and components where it only ranked second to Japan

Source: Reeds Electronic Researchs Yearbook of World Electronics Data 2007 An Overview of Electronics Production & Markets in the Americas, Japan and Asia Pacific

Figure XVIII. Consolidated Summary of Electronics Production, 2005

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Figure XIX. Percentage Share Relative to Total Production of Top Asian Electronics Producers

The table above gives the percentage share of the Philippines relative to the total production of the 16 countries. These percentages range from 0.14 to 2.79%. The tables also give the percentage share of the countrys asian neighbors. These numbers tell us that there is a lot of room for growth and that part of the strategy for the Philippine electronics industry should be a series of action steps to increase this market share. Industry Profile According to a PEZA report, there are 311 enterprises operating under the electronics / semiconductor sector. Sixty-seven of these enterprises are 100% Japanese-owned, 11 are 100% American-owned, 17 are 100% Koreanowned, 6 of these are 100% Taiwanese-owned, 7 are 100% German-owned, and 35 of these enterprises are 100% Filipino-owned. A considerable number of these enterprises are jointly owned by Filipinos and other nationalities. The panel has no data on the number of local technology suppliers but everybody is in agreement that we have not really developed significant suppliers in the country.

Investments

According to a Reuters report, the Philippine electronics industry expects investments in the country's top export sector to remain over $1 billion this year after hitting a seven-year high of $1.4 billion in 2007. In 2006, investment in the electronics industry surged 87 percent, mainly due to Texas Instruments starting construction of a $1 billion semiconductor plant north of Manila. The last time annual electronics investments exceeded $1 billion was in 2000 when $1.24 billion was spent on the local sector, which supplies about 10 percent of the world's semiconductor manufacturing services, including mobile phone chips and micro processors.

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Employment In 1999, the industry employed nearly 280,000 of which approximately 98,000 are employed in semiconductor manufacturing. Currently, according to a SEIPI report, the industry has a direct employment figure of 450,000. This is a significant number of jobs. If the current status of the industry is not sustained or further improved, it could place these jobs in jeopardy.

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Philippine Competitiveness and the Challenges of the Electronics Sector

World Competitiveness The World Economic Forums 2007-2008 Global Competitiveness Report ranks the Philippines 71st out of 131 countries. The WEF report ranks countries according to what it refers to as the 12 competitiveness pillars categorized under three sub-groups: 1) basic requirements, 2) efficiency enhancers, and 3) innovation and sophistication factors.

Figure XX. Twelve Competitiveness Pillars of the 2007-2008 World Economic Forums Global Competitiveness Report

According to the report, the Philippines derives competitive advantage from its market size, where it ranks 24th in domestic market size and 25th in foreign market size. Compared with last year, the Philippines rose four places in the rankings, driven largely by gains in the macroeconomic stability pillar, with a measured decrease in the inflation rate and interest rate spread, and lower government deficit and debt.

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Figure XXI. The Philippines National Competitiveness Balance Sheet

However, the countrys overall competitive performance is dragged down by its position in four key pillars: labor market efficiency, institutions, infrastructure, and health and primary education. On labor markets, the country is ranked 100th, with a severe brain drain problem, little flexibility for firms in wage determination, and excessively high firing costs, reducing the incentive for hiring.

Figure XXII. Labor Market Efficiency Disadvantages of the Philippines

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The country also received poor assessments on the quality of its public and private institutions (ranked 95th), with high business costs of terrorism, low public trust of politicians, excessive red tape, and concerns related to the diversion of public funds and the wastefulness of government spending.

F Figure XXIII. Notable Philippine Competitive Disadvantages

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The quality of infrastructure is another major source of disadvantage, as the country receives poor marks for its transportation and communication infrastructure.

The above findings are reinforced by the 2007-2008 World Economic Forum Global Information Technology Report. The table below highlights the countrys major strengths and weaknesses. The Philippines number 1 ranking in High-tech exports is due to the high percentage of exports derived from the Electronics sector. Institutions (burden of govt regulation, government prioritization of ICT, etc), infrastructure (business monthly telephone subscription, etc.), and market efficiency (number of procedures and time required to start a business, etc) remain as major weaknesses of the country

Figure XXIV. 2007-2008 World Economic Forum Global Information Technology Report: Philippine Highlights

All elements comprising the abovementioned pillars factor into the countrys attractiveness towards foreign direct investment. The total foreign direct investment for Southeast Asia in 2006 was $US52.06 billion. Only 3.07% of that total amount was invested in the Philippines. (See Figure XV)

Foreign Direct Investment (in $US Million)

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Source: World Economic Forums Global Information Technology Report

Figure XXV. Foreign Direct Investment Data for Southeast Asia (2002-2006)

Education and R&D A key challenge for the Philippines is the declining standard of education. The WEF Report cites education as one of the major competitive disadvantages of the country. The quality of math and science education, for instance, was ranked 109 out of 131 countries. Considering that 62% of the countrys total exports are derived from a highly technical sector; this is a serious risk worthy of the governments attention.

Figure XXVI. Philippine Education Rankings from WEF Global Competitiveness Report

Related to the above figure is the availability of scientific research institutions. Out of 131 countries, the Philippines ranked 83rd. Next to its peers, Malaysia (ranked 17th) and Thailand (44th), the country is significantly behind. It has been frequently suggested that the quality of scientific research institutions have been instrumental in propelling Korea, Taiwan and Singapore to their status as major players in electronics industry. The same factor has been instrumental in these countries abilities to sustain global leadership in the sector.

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Table 6. Comparison of Countries based on Quality of Scientific Research Institutions Rank Country Score Korea 11 5.56 Japan 12 5.56 Singapore 13 5.54 Malaysia 17 5.31 India 22 5.06 Taiwan, China 23 4.97 Hong Kong SAR 25 4.8 Indonesia 28 4.7 Thailand 44 4.22 China 55 3.98 Philippines 83 3.48 Vietnam 92 3.37
Scientific research institutions in your country (e.g. university laboratories government laboratories) are (1 = nonexistent 7 = the best in their fields internationally)> Source: World Economic Forum Executive Opinion Survey 2006 2007

Related to the quality of research institutions is the number of researchers the country has. In 2005, the World Bank reported that the Philippines had 48 researchers per 1 million Filipinos. A stark contrast is Singapore who has 4,999 researchers per 1 million of its population. If we are serious about attaining global leadership and maintaining or market share for electronics and the other high tech industries, we have to build our capability for R&D.
Table 7. Researchers in R&D (per million of population) Country Japan Singapore Korea (Republic of) Hong Kong, China (SAR) Malaysia Thailand Indonesia India Viet Nam Philippines 2005 5,287 4,999 3,187 1,564 299 287 207 119 115 48

Source: World Bank. 2007b. World Development Indicators 2007. CD-ROM. Washington, D.C.; aggregates calculated for HDRO by the World Bank.

As far as R&D as a percentage of GDP is concerned, the Philippines is well behind of its Asian neighbors (see table below). In 2005, R&D expenditure comprised only 0.19% of the countrys GDP. It increased to 0.43 percent

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this year but it is still too low compared to the 1% to 1.5% recommended for developing countries. If the country wants to continue attracting investors for high-tech industries or would like to have its technical workforce move up the value chain, then R&D spending must be closely examined.
Table 8. Research and development expenditure (% of GDP) Country 2005.00 Japan 3.15 Korea (Republic of) 2.64 Singapore 2.25 China 1.44 India 0.85 Malaysia 0.69 Hong Kong, China (SAR) 0.60 Thailand 0.26 Viet Nam 0.19 Philippines 0.11
Source: World Bank. 2007b. World Development Indicators 2007. CD-ROM. Washington, D.C.; aggregates calculated for HDRO by the World Bank.

Industry and university interactions in the Philippines are also minimal. The country ranked 65th (see Table 7) in terms of collaboration between universities and business for R&D. This is indicative of the lack of collaborative culture and alignment between businesses and universities. It is important to note that a series of collaborative efforts between the private sector and universities has been key in building the foundation for a dynamic and globally-responsive electronics sector.

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Table 9. Comparison of Countries based on University-Industry Research Collaboration Rank

5 7 9 14 16 21 25 28 43 62 65 76

Country Korea Singapore Taiwan, China Japan Malaysia Hong Kong SAR China Thailand India Indonesia Philippines Vietnam

Score
5.37 5.28 5.1 4.88 4.86 4.62 4.13 4.07 3.51 3.13 3.08 2.9

In its R&D activity business collaboration with local universities is (1 = minimal or nonexistent 7 = intensive and ongoing) Source: World Economic Forum Executive Opinion Survey 2006 2007

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Electricity Cost

The Philippines electricity cost is perennially cited as one of highest in Asia. As of recent date, the Philippines is the second highest in Asia after Japan.

The primary driver of the high cost of electricity in the Philippines is the Purchase Power Agreement (PPA), where the industry is paying for the unused electrical capacity. As a result of the PPA, a large percent of the electronics industrys manufacturing cost is electrical.

The Deloitte Report on the Competitive Landscape for Philippines Semiconductor & Electronics Industries states that 41% of Intels operating budget is for electricity while Texas Instruments is at 25%. This is significantly higher when compared to Malaysia where the percentage sums up to only less than 10%

Water 0% Taxes 2%

Waste WaterConstruction 17% 1% Salaries Training 37% 0%

Figure XXVII. Intel Philippines Operating Budget

Electricity 41%

Transportation 2%

Figure XXVIII. Texas Instruments Operating Budget

Telecom Water 1%Construction Taxes 1% 2% Training 6% 1% Salaries Services 45% 5%

Transportatio Source: Deloitte Report on the Competitive Landscape for Philippines Semiconductor & Electronics Industries n Taxes & Incentives 14% Electricity

Tax is recognized as one of the most important factors on where to invest. Currently, the Philippines is at a 25% disadvantage as it has one of the highest corporate income taxes in Asia.
Table 10. Table of Statutory Corporate Tax Rates in Asia Country China Hong Kong India Philippines Taiwan Statutory Corporate Tax Rate (%) 25 17.5 30/40 35 25

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Vietnam Indonesia Japan Malaysia Singapore Thailand Korea (R.O.K.)

28 30 30 26 18 30 25

To encourage investors, a number of incentives are put in place. For instance, enterprises formed under the Philippine Economic Zone Authority (PEZA) enjoy an Income Tax Holiday (ITH) or exemption from payment of Corporate Income Tax for four (4) years, extendable to a maximum of eight (8) years. After the ITH period, companies have the option to pay a special 5% Tax on Gross Income, in lieu of all national and local taxes.

Companies under PEZA are also exempted payment of duties and taxes on imported capital equipment, spare parts, supplies, raw materials as well as exempted from wharfage dues and export taxes.

Some legislators want to impose a time limit on the 5% tax but considering the competitive tax structures and other incentives provided by neighboring countries, this move may be fatal. For instance, in Singapore, a comprehensive assistance scheme is also provided to companies for equipment, business development, R&D, etc. Chinas individual economic zones and industrial parks are offering extra incentives such as free land use, etc. The table below highlights China, Malaysia, and Thailands tax-based incentives versus that of the Philippines.
Table 11. Comparison of Countries Corporate Tax Rates and Other Tax Incentives
Philippines China Malaysia Effective year of assessment 2007: 27% (paid-up capital of more than RM2.5m); 20% on the first RM500,000 of chargeable income and 27% in excess of RM500,000 (paidup capital of RM2.5m or less) Thailand 30% standard rate corporate income tax; 10% for banks incorporated in Thailand on profits derived from lending to non-Thai residents from foreign currency funds from non-Thai sources; reduced rates for listed companies under certain conditions. See below

Statutory Corporate Tax (CT) Rate

32%

33%. Effective year of assessment ("YOA") 2008: 25%, with various tax rate reductions for different industries, activities and geographic locations.

CT Provisions High Technology

PEZA: 5%

15%

See below

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Tax Holidays

- BOI & PEZA: 6-years for newly registered pioneer firms, 4-years non-pioneer & 3-years for expanding firms - BOI: 6-years for P/NP on LDAs, 3-years modernization projects. Special cases another 3years but not exceeding 8-years total

- No CT for 2-years after becoming beneficial - Advanced technologies: 2 additional exempted years & 50% reduction for next 6-years (7.5%)

Pioneer status: 5~10-years Zone based from Production Start - Zone 1 (Bangkok area): 3-year Date (30% capacity) exempt if 80% export Varying rules of - Zone 2: 3-years exempt & compliance. expandable to 7-years - Zone 3: 8-years exempt and 50% reduction after exemption period - Priority projects: 8-years regardless of location - Investment Tax Allowance: 60~100% of qualifying capital expenditure - Reinvestment Allowance (RA): 60% allowance for 15year period - Accelerated Capital Allowance for 3-years after RA eligibility - Export Incentives - Various tax incentive programs, including incentives for R&D activities, operating headquarters, small and medium enterprises, companies registered with the Securities and Exchange Commission, and enterprises located in investment promotion zones and free zones

Other Key Tax Incentives -

100% Tax refund for export oriented enterprises (70% export) Holiday for manufacturing foreign investment enterprises ("FIEs") reduced rates in certain areas refund for foreigner reinvesting at least 5 years Effective YOA 2008: 15% tax for certain high/new tech ventures; 20% for small firms; R&D "super deduction" reduced taxable income for investment in encouraged industries accelerated depreciation for certain assets reduction for revenue from products made with certain resources; credit for certain environmental protection, conservation, and production safety machinery expenditures

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Key Questions for the Philippine Electronics sector In view of the abovementioned statistics, the key questions confronting the Philippines are:

Can we maintain our current level of exports over the next four years? How do we stay competitive as a service provider in this highly competitive and dynamic field? Can we compete on price alone for the next five years? How does a follower ensure survival, when even the leaders face huge obstacles? How can we double the level of exports? What are the pre-conditions for this radically improved picture? Do we focus on developing more competent electronics engineers and scientists and enhance R&D? Should we invest in improving tech-transfer from universities to industry or from companies abroad to firms in the domestic market? Concurrently, what do we need to develop in terms of the high tech supplier infrastructure? How do we focus venture capital investments in high growth areas and leverage their growth? What is the role of public policy in furthering the goals of the Electronics Sector? How can the government best enable the infrastructure that supports this critical industry? How can the government boost new electronic service companies or help start new companies with the help of venture capital investments? How can the government encourage foreign investments that have been the driving force for technology transfer throughout SE Asia? Near-term success in maintaining or growing the electronics services sector will require a major upgrade of the competence of our engineers and scientists in the industry. It will also entail improved strategic planning and investment in R&D. And lastly, it will also take close collaboration with international partners as well as considerable investment in infrastructures which will encourage the growth of support systems. Long-term success, on the other hand, depends on the companies ability to rapidly bring new and innovative products. It also depends on the companies offering innovative services to manufacturers enhancing their profitability and aiding them in beating the competition. However, to achieve and maintain the competitive edge, companies must apply innovative thinking to all critical business operations not just product development. In the next section, we will focus on getting a snapshot of the innovation and technology policies of Singapore, Taiwan, Korea, and Vietnam with the mindset that there may be strategies we can adopt and align with our local requirements.

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A Survey of the Innovation and Technology Policies of Singapore, Taiwan, Korea, and Vietnam

Singapore

Singapore has 10% of the global market share for semiconductor foundry wafer output. It is home to the world's top 3 wafer foundry companies, to the world's top 3 sub-contract assembly-and-test companies, and to 4 of the world's top 10 fabless IC design companies. How was Singapore able to achieve these feats?

The answer lay in skill creation, advanced infrastructure, strategic policy-making and efficient administration. The government used incentives and moral suasion extensively, but this would not have worked without the underlying factors that made it a desirable and efficient base for manufacturing and services by transnational companies (TNCs). According to the World Bank report, Doing Business 2007: How to Reform, Singapore ranked number 1 in the world as the easiest place to do business in. In BERI's 2007 Labor Force Evaluation Measure (LFEM) report, it ranked number 1 for having the Best Labor Force in the world. In addition, the Global Competitiveness Report 2006-2007 also named it the 2nd most technology-ready country in Asia.

Singapores policies for attracting FDI were based on liberal entry and ownership conditions, easy access to expatriate skills, and generous incentives for the activities that it was seeking to promote. They were set within a clear strategic framework and managed by an agency, the Economic Development Board (EDB), which had the vision and the authority to devise and implement industrial policy. Singapore also invested heavily in education, training and in physical infrastructure. It transformed its inherited education system into one that was very industrially targeted able to provide the higher technical skills as well as the worker training needed for high-tech production.

For instance, the university system was expanded and directed towards the needs of its industrial policy. Its specialization changed from social studies to technology and science. In the process, the Government exercised tight control over curriculum content and quality and ensured its relevance to the activities being promoted. Apart from formal education, the Government also directed considerable effort towards developing the industrial training system, now considered one of the best in the world for high-technology production.

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Specifically, Singapore set up the Skill Development Fund in 1979, along with a Skill Development Fund Levy, which collected a levy of 1 percent of payroll from employers to subsidize the training of low-paid workers. The SDF levy is disbursed to firms that send low-paid employees to approved training courses.

The Economic Development Board (EDB) also assesses emerging skill needs continuously and designs specialized courses, in consultation with leading enterprises in the economy. For instance, in 1998, it offered courses on wafer fabrication, process operation and control, precision engineering, high-end digital media production, and computer networking. The EDB also started an International Manpower Program in 1991 to help companies based in Singapore to attract skilled personnel from around the world. In 1997, around 2,500 professionals and 10,400 skilled workers and technicians were recruited with EDB assistance. Recently, a blueprint called Manpower 21 was drawn up to give a further boost to manpower planning in Singapore. Building on past efforts at skill accumulation, Manpower 21 aims to develop Singapore into a Talent Capital that will support the transition into a knowledge economy.

As for infrastructure, the country houses wafer fabrication facilities in wafer fabrication parks, which has special and dedicated infrastructural support and services. Over the years, Singapore has also built over 160 local and multinational companies offering equipment parts, components, materials, gases, chemicals and technical services for semiconductor manufacturing operations.

Further, the EDB encouraged subcontracting to local firms through its Local Industries Upgrading Program, under which TNCs were encouraged to source components locally by "adopting" particular SMEs as subcontractors. In return for a commitment by the TNCs to provide on-the-job training and technical assistance to subcontractors, the Government provided a package of assistance to the latter, including cost-sharing grants and loans for the purchase of equipment or consultancy, and the provision of training.

By the end of 1990, 27 TNCs and 116 SMEs had joined this program. During 19761988, the total value of financial assistance by the Singapore Government to SMEs amounted to S$ 1.5 billion, of which 88 per cent was in the Small Industries Financing Scheme. Grants of various kinds amounted to S$ 23.4 million and the Skills Development Fund amounted to S$ 48.6 million.

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Looking at the four phases of Singapore s technological evolution outlined in UNCTADs 2003 Technology for Development Series on Investment and Technology Policies, will give us a view of Singapores high level roadmap. The four phases are:

(a) Industrial take-off: The period from the early 1960s to the mid-1970s, characterized by high dependence on technology transfer from foreign TNCs;

(b) Local technological deepening: the mid-1970s to the late1980s, characterized by the rapid growth of local process technological development within TNCs and the development of local supporting industries;

(c) Applied R&D expansion: the late1980s to the late1990s, characterized by the rapid expansion of applied R&D by TNCs, public R&D institutions and later local firms;

(d) High-tech entrepreneurship and basic R&D development: from the late1990s onwards, characterized by the emerging emphasis on high-tech start-ups and the shift towards technology-creation capabilities.

It is important to note that this evolution started at the same time that Singapores EDB (Economic Development Board) was established. The Board is the primary government agency responsible for planning and executing Singapores economic strategies. As such, the Board has been key to Singapores economic success.

Taiwan A quick look at Taiwans semiconductor industry reveals a growth of 24.6% in 2006. It outpaced the worldwide average of 8.9% due to the dramatic growth (30.5%) of its manufacturing sector. More specifically, Taiwan had a 17.2% increase in foundry and 52.8% increase in DRAM. By the end of 2006, Taiwan semiconductor industry consisted of 262 IC fables design houses, 8 wafer suppliers, 4 mask makers, 13 fabrication companies, 34 packaging houses, 36 testing houses, 15 substrate suppliers, and 19 chemical suppliers, as well as other supporting companies. Taiwan's early strategy was to become the "Asia-Pacific Regional Operations Center (APROC)." This was announced on January 1995. The strategy sought to transform the Taiwanese economy by fostering freer flow of goods, services, human capital, funds, and information. The plan called for Taiwan to become the hub for regional manufacturing, sea transportation, air transportation, and financial, telecommunications, and media activities.

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To further the plan, government funds were used to support industry development. These were directed through ministries and various councils to research institutes like the Industrial Technology Research Institute (ITRI), university research programs, and industry to stimulate technology development and facilitate its diffusion in order to encourage economic growth. Currently, ITRI has played and still plays a key role in technology policy. It has provided the basic support for developing high-tech industries like semiconductors. ITRI also provides technical assistance, coordinates international cooperation, and provides information to the industry. Taiwan's government contracted with ITRI to identify ten emerging growth industries that should receive incentives and support. The priority emerging industries ITRI identified are: 1. 2. 3. 4. 5. 6. 7. 8. 9. communications information consumer electronics semiconductors precision machinery and automation equipment aerospace advanced materials specialty chemicals and pharmaceuticals medical and health care

10. pollution control and treatment industries. For these priority industries, the government's strategy includes the following: 1. 2. 3. 4. Provide R&D and plant investment assistance for selected products Encourage R&D and technology transfer to ensure self-reliance in key technologies Create a favorable climate for high-value-added and low-cost R&D, production, and marketing Strengthen upstream industries to support middle- and downstream development systems and

vertical industry integration 5. 6. 7. Utilize government purchasing projects to obtain foreign expertise and technology Encourage fair competition in the domestic market with updated laws and regulations Coordinate agencies to establish development plans for top ten key industries; develop five-year plans

designed to stimulate industrial automation, industrial design capabilities, quality programs, product image, satellite factories, technology diffusion, high-technology workforce, and cooperative efforts in emerging industries

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In addition to identifying priority areas, in 1980, the government established the science-based industrial park in Hsinchu to encourage high-tech industries. The park has over 1,500 developed acres and is close to the international airport and harbors, two national universities, and ITRI. A total of 384 high-tech companies had been established in the park by the end of 2004. 335 of the 384 Park companies were domestic companies while 49 were foreign. The park had 115,477 employees by the end of 2004. Two-thirds of this has completed a tertiary education. The park employees include over 4,500 Taiwanese scholars who returned from overseas. These returnees not only contributed to the park directly by establishing 116 companies in the ark, but also have been critical players in the evolution of the park during the past 24 years. High-tech companies that are located in the science and industrial park are provided one-stop special incentives, including a 5-year corporate income tax exemption, low-interest loans, and tax credits for investments in R&D, factory automation, and human resource development support. In addition, no duties are levied on imported equipment, components, and materials. In a more recent move in 2002, Taiwan launched Challenge 2008, its six-year national development plan. This plan serves to mainly foster the creativity and talent Taiwan needs to transform itself into a "green silicon island." Within this plan, the Executive Yuan has formulated three major reforms and four major investments. The three major reforms include reforms in government, banking, and finance. The four major investments include cultivating talent; research, development and innovation; international logistics; and a high-quality living environment. This six-year plan was estimated to cost NT$2.6 trillion (approximately US$75 billion). The objectives of the plan include: 1. expanding the number of products and technologies which meet the world's highest standard 2. doubling the number of foreign visitors 3. increasing R&D expenditures to 3 percent of the GDP 4. reducing the average unemployment rate of the next 6 years to less than 4 percent 5. increasing the average economic growth rate of the next 6 years to over 5 percent 6. increasing the number of broadband internet users to over 6 million 7. creating approximately 700,000 jobs. In order to develop an international base for research, development, and innovation, the government sought to encourage national R&D expenditures to reach 3 percent of the GDP by 2008. It also sought to adopt vigorous measures to encourage businesses and the academics to increase research, development, and innovation, while introducing R&D resources from overseas.

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According to the plan, the government will ensure that businesses receive sufficient technological support for globalization strategies and high value-added production. It will fully support supply, demand, and environmental policies. In view of the shortage of science and technology professionals, the government seeks to recruit international R&D personnel. It will also integrate resources of the industry, the government, and the academic sectors to satisfy the needs for interdisciplinary professionals in a knowledge-based economy. Specific to furthering its support of the electronics industry, the government seeks establish an IC design academy and a digital content academy. Moreover, it seeks to encourage domestic and international businesses and research institutes to establish industrial research centers in Taiwan. Concurrently, the government will promote science and technology development plans on the national level, as well as special research programs to develop core technologies for key industries, including biotechnology, nanotechnology, system-on-chip (SoC) design, and telecommunications. Challenge 2008 will mark its completion this year. It is too early to tell whether Taiwan has achieved its objectives but it is apparent that it is moving in the right direction with its consistently rising GDP and specifically, the dramatic growth of its semiconductor industry. Attributing a part of this growth to the governments commitment to earlier initiatives and more recently, to Challenge 2008, is not a farfetched idea. To conclude, there certainly are numerous factors which contributed to Taiwans success but research has underscored the following key factors: the effective guidance of government policy measures the vision and support of leaders in government human resources the adoption improvement of foreign technology the industry cluster effect the support of up-, mid- and down-stream industries

These are just some of the things that we should be mindful of in coming up with a Philippine strategy.

South Korea In the 1960s, Korea was a resource-pour, densely populated country with a small domestic market and a weak technological base. Human resource was the only asset for economic development; so, Korea opted for an outward-looking development strategy based on human resources and technology. Today, South Korea conducts state-of-the-art R&D projects, establishes foreign ventures, and supports world-class university science and technology (S&T) programs. How did the country to get to this stage?

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In the 1960s, in order to promote local R&D capabilities and establish an international image for its exports, the Government promoted the growth of giant local private firms called chaebols, to spearhead industrialization. One of the pillars of South Koreas technological strategy, and one that marks it off from the other NIEs, was the deliberate creation of these large private conglomerates. The chaebol were handpicked from successful exporters and were given a range of subsidies and privileges, including restrictions in TNC entry, in return for furthering a strategy of setting up capital and technology-intensive activities geared to export markets.

The industry in Korea built up an impressive R&D capability by drawing extensively on foreign technology in forms that promoted local control. The government encouraged its firms to obtain the latest equipment and also encouraged the hiring of foreign experts. In particular, the country used a lot of engineers from Japan to resolve technical problems.

FDI was allowed only where considered necessary, and the Government sought to keep control firmly in local hands. Foreign majority ownership was not permitted unless it was a condition of having access to closely held technologies, or to promote exports in internationally integrated activities.

The Government supported technological effort in Republic of Korea in several ways. The Government intervened in major technology contracts to strengthen domestic buyers, and sought to maximize the participation of local consultants in engineering contracts to develop basic process capabilities. In 1973, it enacted the Engineering Service Promotion Law to protect and strengthened the domestic engineering services sector. It also enacted the Law for the Development of Specially Designated Research Institutes to provide legal, financial and tax incentives for private and public institutes involved in selected technological activities.

In 1982, Korea launched its National Research and Development Plan (NRDP) which included a comprehensive set of policy incentives for industrial R&D. R&D was directly promoted by a number of incentives and other forms of assistance: Tax-exempt TDR (Technology Development Reserve) funds Tax credits for R&D expenditures Upgrade of human capital related to research Setting up of industry research institutes Accelerated depreciation for investments in R&D facilities

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Tax exemption for 10 per cent of cost of relevant equipment Reduced import duties for imported research equipment Reduced excise tax for technology-intensive products. The KTAC (Korea Technology Advancement Corporation) helped firms to commercialize research results Income from technology consulting is tax-exempt (foreign engineers are exempted from income tax)

In addition, the Government also gave grants and long-term low-interest loans to participants in "National Projects", which gave tax privileges and official funds to private and government R&D institutes to carry out these projects. Technology finance was provided by the Republic of Korea Technology Development Corporation. A variety of institutions, such as venture capital companies, banks, credit guarantee companies and others were used to channel funds to a variety of users in a variety of forms.

However, the main stimulus to the tremendous growth of industrial R&D came less from the specific incentives to R&D than from the overall incentive regime that created the chaebols. The regime gave these companies a protected market to master complex technologies, minimized reliance on FDI, and forced them into international markets where competition ensured that they would have to invest in their own research capabilities.

In the field of plant and process engineering, the Government stipulated that foreign contractors transfer their design knowledge to local firms, which quickly absorbed design technologies in some process industries. Even more so than Taiwan, South Korea was able to use imported technology to develop its domestic base of capabilities in advanced activities, rather than remaining passively dependent on inflows of foreign skills and innovations.

The Korean government also invested in a considerable number of technology infrastructure institutions. In 1966, it established KIST (Korea Institute of Science and Technology) to conduct applied research. KIST focused on solving simple problems of technology transfer and absorption.

The chaebol soon developed sufficient international presence to manage their technology imports. However, SMEs were also given continued assistance to search for and buy technologies overseas. Like Taiwan (and Japan), South Korea compiled a database on sources and prices of technology supply. This was linked to similar databases overseas and provided on-line in major industrial centers. There were also programs to increase the

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SMEs technological linkages with large firms, but unlike in the case of Taiwan, this was directed mainly at local large firms rather than at TNCs.

Laws have also been passed to promote SMEs. These laws covered tax incentives, subsidized rates for using support services, credit guarantees, and the setting up of a specialized bank to finance SMEs. Other institutions were also put up to provide technical and training assistance to SMEs. Generous financial and fiscal support was provided to subcontracting SMEs to support their operations and process and product development. In addition, subcontracting SMEs were exempted from stamp tax and were granted tax deductions for their technical consultancy expenses and for a certain percentage of their investments in laboratory and inspection equipment. Subcontracting promotion councils were also set up to help SMEs in contractual relationships, arbitrate disputes and monitor contract implementation.

To promote subcontracting to SMEs, the Government enacted a law designating parts and components that had to be procured through them. By 1987 about 1,200 items had been designated, involving 337 principal firms and some 2,200 subcontractors, mainly in the machinery, electrical, electronic and shipbuilding fields.

Vietnam The Law on Science and Technology promulgated in 2000 serves as the backbone for the innovation in Vietnam. But before 2000, a number of laws have already been in place. These laws are: 1987- Removal of the state monopoly on S&T. 1988 Decree on foreign technology transfer 1992- Decree on organization and individuals rights to enter into contracts or to cooperate in S&T activities 1994 Decree on external grants in support of S&T 1995 A civil law included copyright protection and IPR; a legal framework governing technology transfer; a foreign investment law governing S&T activities in economic projects

In 1997 the government launched an initial program of rationalization to address the problem of R&D funding. This program involves three main components: 1. The assignment of specific research structures to a related corporate structures (e.g. telecommunications research to fall under the National Telecommunications Industry and oil and gas research to fall under the National Oil Company). The rationale behind the move was to make

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Vietnamese research much more demand-driven and to generate new and more diversified sources of funding for national R&D. 2. The phase-out of a significant number of institutions through a gradual process of reducing subsidies, mergers or integration into larger government structures 3. The increase in autonomy of R&D organizations This permits and encourages R&D organizations to generate revenues through contract research, to open their own bank accounts and to seek credit lines from banks. In addition to the above laws and initiatives, a considerable number of regulations which implicitly support S&T have also been promulgated. These relate to the contracting and procurement of technologies; to domestic and non-domestic financial requirements, to ownership, and to specific technological requirements of a sectoral nature. Saigon Hi-Tech Park (SHTP) is one of two hi-tech parks in Vietnam (the other is Hoa Lac Hi-Tech Park). SHTP is a 900-hectare park set up as a technology-based economic zone. It was established by the order of the Prime Minister in October 2002. Currently, the park houses 30 tenants, including multinationals Intel and Nidec. In an interview with VentureOutsource.com, SHTPs President, Nguyen Dinh Mai, talked about SHTPs strategies. In order to attract global electronic companies, SHTP ensures the readiness of five key things: 1. Land and utilities, which include power; water supply, wastewater treatment, telecommunication and related infrastructure. 2. Information. This covers information about Vietnam's investment environment; licensing, admissions criteria, zoning regulations and construction specifications, the supplier base, and accommodations. SHTP also collaborates with local and regional investment promotion agencies such as the American Chamber of Commerce (AmCham), the European Chamber of Commerce (EuroCham), the Korea Trade-Investment Promotion Agency (KOTRA), the Japan External Trade Organization (JETRO), and with overseas Vietnamese networks such as the Vietnamese Silicon Valley Network, to help ensure information reaches interested parties. 3. Incentives. SHTP is authorized to offer incentive packages that include tax incentives (corporate income tax, VAT, import and export duty) and competitive land rental arrangements and fees to make sure park tenants have low start-up and production costs. 4. A simple licensing procedure. SHTP ensures that is a one-stop shop. The park is authorized to provide application guidance; review and issue of business licenses, construction permits, and other related post-licensing services to help fast-track tenants toward becoming operational. SHTP also helps guide

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higher value capital and related technology investment projects through their review and approval process when central government approval is required. 5. Workforce. SHTP is in close proximity to many educational institutions and has good relationships with local universities; thereby, allowing tenants to gain access to a competent workforce On top of those five key things, the park is also working with tenants to build a database of local suppliers. This information will then be made available to park tenants. SHTP also offers onsite and electronics customs clearance. The local Customs office ensures that Customs clearance for high-tech project shipments does not exceed four hours. SHTP is also working with Intel Products Vietnam to develop an electronic data interface (EDI) system to help streamline customs procedure electronically. SHTP is also developing R&D facilities, including five specialized laboratorieslaboratories for nanotechnology, precision mechanics, information technology, semi-conductors and biotechnology. SHTP is also working with Intel Products Vietnam to invite US technology universities and training institutions to open branches or set up facilities inside the Park. These institutions will join hands with the SHTP Training Centre to develop a quality workforce and supply research expertise for park tenants. To further its commitment to the growth of the industry, Vietnam established the Integrated Circuit Design Research & Education Center (ICDREC) in August 2005. ICDREC is located in the Vietnam National University Information Technology Park (VNU-IT Park) in Ho Chi Minh City. ICDREC is the first center in Vietnam which specifically targets the IC industry. Its objectives include the training of human resources for the IC industry, implementing technology transfer and outsourcing contracts and executing R&D. Further, the Master Plan for Vietnams Electronic Industry Development was signed by the Prime Minister last May 2007. According to the plan, by 2010, Vietnams electronics industry would strive for a target range $4-6 in production value, USD$3-5 billion of export revenues and a growth rate of 20%-30% per year. The master plan forecasts that Vietnam's industry will generate around 300,000 new jobs by 2010 and become a main driver of the nation's socioeconomic development by 2020, employing 500,000 workers qualified up to international standards. The government said it would introduce policy measures to encourage investment and raise skills in the sector, including lucrative taxation policies to attract assembly and production operations. Authorities will also finalize by 2010 a good legal system to improve and protect the investment climate, and protect the industrial rights of the electronic industry. At the same time, domestic enterprises will be developed to specialize in electronics production, particularly in finished products, spare parts, tools, and other related products used in IT, telecommunication, health, measurement and automation. Investments in the electronics industry and processing zones will be the focal point of the government.

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All of these efforts have been fairly recent and it is a bit difficult to tell whether all these initiatives will bring Vietnam to the same state of innovation that Singapore, South Korea, and Taiwan is currently in. However, one cannot undermine Vietnams early successes. Intels impending flight from the Philippines and its $USD 1 billion investment in Vietnam is big enough for the world to take notice. There is also news of Taiwan's Foxconn planning to spend US $5 billion to build at least three plants in Vietnam.

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Key Lessons from Singapore, Taiwan, South Korea, and Vietnam

Each of the countries that were studied were latecomers to industrialization in the 1960s and 70s. The experiences of these countries surrounding policy and practice have been varying. Each country has a distinct history, geography and natural resources as well as a different set of economic opportunities and problems. As such, there is not one inclusive strategy which can be derived from these countries. There is no single blueprint or roadmap. However, there certainly are basic principles which can be of value to the formulation of a Philippine strategy. These basic principles are: FDI contributed disproportionately to technological advance. Besides Singapore, FDI represented a relatively modest proportion of investment in the countries studied. The governments of South Korea and Taiwan exercised very strict controls over the size and direction of foreign investments. The relative amount of FDI may have been quite small but its effects were disproportionately large. FDI initiated the production of a great number of goods. Moreover, multinational companies often acted as role models for local companies. They were also responsible for extensive training of engineers and managers. FDI was also the primary factor in opening up export markets to these countries economies. Furthermore, there are numerous cases where engineers trained by multinational companies leave their firms to set up their own companies (often to become suppliers to their parent firms). What this suggests for the Philippines is that it is crucial that we work on establishing conditions that are conducive to FDI largely because we want to leverage the multiplier effect it has on technological learning. SMEs took the lead in diffusing technology, creating jobs and stimulating economic growth but required assistance to do so. A considerable number of small and medium enterprises took advantage of the learning gained from multinationals and moved quickly up the value chain. SMEs were the key driver of economic growth, particularly in Taiwan, and this is because of the technological learning accomplished by the SMES. The success of the SMEs was driven by credit guarantees and direct venture capital facilities established and managed by government. Another key factor that has to be taken into consideration is the fact that the Taiwanese government has formally recognized the importance of the SMEs and their contribution to economic growth. The government has continually expressed strong public support for their establishment. This experience is significant in coming up with a strategy for the Philippines.
Table 12. Summary of Policies Implemented to Promote Local SMEs Policies that Reward Multinationals for Sourcing Locally Policies that Encourage Technopreneurial Ventures

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- Subsidized rates for using support services - To promote subcontracting to SMEs, the Government enacted a law designating parts and components that had to be procured through them. By 1987 about 1,200 items had been designated, involving 337 principal firms and some 2,200 subcontractors, mainly in the machinery, electrical, electronic and shipbuilding fields.

South Korea

Singapore

The EDB (Economic Development Board) encouraged subcontracting to local firms through its Local Industries Upgrading Program, under which TNCs were encouraged to source components locally by "adopting" particular SMEs as subcontractors. In return for a commitment by the TNCs to provide on-the-job training and technical assistance to subcontractors, the Government provided a package of assistance to the latter, including cost-sharing grants and loans for the purchase of equipment or consultancy and the provision of training.

- Institutions were put up to provide technical and training assistance to SMEs - set up a specialized bank to finance SMEs - subcontracting SMEs were exempted from stamp tax and were granted tax deductions for their technical consultancy expenses and for a certain percentage of their investments in laboratory and inspection equipment - Subcontracting promotion councils were also set up to help SMEs in contractual relationships, arbitrate disputes and monitor contract implementation. - The Korea Technology Credit Guarantee Fund (KTCGF) offers credit guarantees for loans made to help firms develop or commercialize new technology. It concentrates on firms with fewer than 1,000 employees in new technology industries, as well as research institutes that need funds for technology development. The total value of its guarantees between 1990 and 1994 was about $8 billion. The fee charged is 1 per cent of the value guaranteed for SMEs and 1.5 per cent for larger companies. - In 1962 the EDB launched a programme to help SMEs modernize their equipment with funds provided by the United Nations Development Programme (UNDP). - In the mid-1970s several other schemes for financial assistance were added; of these, the most significant was the Small Industries Finance Scheme to encourage technological upgrading. - In 1985, Venture Capital Fund was set up to help SMEs acquire capital through low-interest loans and equity. - A Small Enterprises Bureau was established in 1986 to act as a one-stop consultancy agency; this helped SMEs with management and training, finance and grants, and coordinating assistance from other agencies. - In 1987, a US$ 519 million scheme was launched to cover eight programmes to help SMEs, including product development assistance, technical assistance to import foreign consultancy, venture capital to help technology start-ups, robot leasing, training, and technology tie-ups with foreign companies. - The Singapore Institute of Standards and Industrial Research (SISIR) disseminated technology to SMEs, and helped their exports by providing information on foreign technical requirements and how to meet them. -The National Productivity Board provided management advice and consultancy to SMEs. The Technology Development Centre (TDC) helped local firms to identify their technology requirements and purchase technologies; it also designed technology-upgrading strategies. Since its foundation in 1989, the TDC has provided over 130 firms with various forms of technical assistance. It has also administered the Small Industry Technical Assistance Scheme (SITAS) and Product

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Development Assistance Scheme to help firms develop their design and development capabilities. It has provided grants of over $1 million for 29 SITAS in the past five years, mainly to local enterprises. Its earnings have risen to a level where its cost-recoverable activities are selffinancing. - During 19761988, the total value of financial assistance by the Singapore Government to SMEs amounted to S$ 1.5 billion, of which 88 per cent was in the Small Industries Financing Scheme. Grants of various kinds amounted to S$ 23.4 million and the Skills Development Fund for S$ 48.6 million.

Taiwan

-In 1981 the Government set up the Medium and Small Business Administration to support SME development and coordinate the several agencies that provided financial, management, accounting, technological and marketing assistance to SMEs. - Financial assistance was provided by the Taiwan Medium Business Bank, the Bank of Taiwan, the Small and Medium Business Credit Guarantee Fund and the Small Business Integrated Assistance Centre. Management and technology assistance was provided by the China Productivity Centre, the Industrial Technology Research Institute and a number of industrial technology centers (for metal industry, textiles, biotechnology, food and information). -The Government covered up to 5070 per cent of consultation fees for management and technical consultancy services for SMEs. -The Medium and Small Business Administration established a fund for SME promotion of NT$ 10 billion. The Centre-Satellite Factory Promotion Programme of the Ministry of Economic Affairs integrated smaller factories around a principal one, supported by vendor assistance and productivity-raising efforts. - By 1989 there were 60 networks with 1,186 satellite factories in operation, mainly in the electronics industry.

Imitation led to innovation. The countries studied began by learning mature manufacturing processes and then made their way back to basic R&D. Some of these countries refer to the process as reverse engineering. What this implies for a Philippine technology strategy is that while low-cost labor provides an initial comparative advantage to learning technologies, the greater challenge is to establish a means to rapidly transform from simple assembly to process adaptation and innovation.

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Leapfrogging did not occur. None of the countries studied experienced leapfrogging from basic technologies to high tech areas. All of them engaged in a long, cumulative process of technological learning. In the electronics sector, the route to technological advantage was via a long and difficult learning process through the assembly of goods for export to software and advanced information technology. The strategy therefore should be focused on the area of human resource development. For instance, to compete in the global electronics industry, the primary requirements would be an adequate supply of competent human resources who are educated and trained in a range of basic, technical and engineering skills people who can manage the process of transformation and subsequently, innovation. Beyond imitation, there is continuous incremental innovation. All of the countries studied demonstrated continuous incremental innovation. The innovation that occurred, however, was not radical or driven by R&D but was incremental and driven by the needs of competitive manufacturing. This innovation included organizational (managerial) innovations and innovations of technical processes. What this implies for a Philippine strategy is that investments and policies would have to be made targeting the build-up of the problem-solving and innovative qualities of the countrys human resources. An educational curriculum designed to inculcate and nurture these qualities is crucial. Implicit policies of S&T are as important as explicit policies. Policies that are not specifically directed at S&T but which determines its performance (economic policies, environmental policies, labor laws, etc.) are as important as those that are explicitly directed to S&T. The success of companies is determined both by the technology policies and strategies adopted by the country and the countrys fiscal, trade and education policies. An explicit S&T strategy is of little value on its own.

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Initial Panel Recommendations

Increase Investment in R&D In an industry characterized by complex and rapid-developing technologies, R&D is very critical. It is a vital means of keeping track of emerging technologies. A growing base of R&D capabilities also allows better and faster diffusion of new technologies within the economy. It lowers the cost of technology transfer and captures more of the spillover benefits created by the operation of foreign firms.

All countries that have significantly improved their economies in the recent past made substantial investment in R&D. For instance, South Koreas R&D spending has more than quadrupled over the last decade. Some 20 years ago, the R&D expenditure of the South Korea was 0.2 per cent of GDP, with 80 per cent of that coming from the public sector. Today, total R&D is 7% of Koreas budget. In Japan, R&D is 3.12% of the national budget while in Singapore, it is 2.15%. Taiwans R&D expenditure increased from US$388 million in 1978 to US$2.4 billion in 1990 to $US14.9 billion in 2004.

This year, the Philippines R&D allocation is 0.43% of the national budget. It has been argued that developing countries should increase their R&D expenditure to at least 1 per cent of GDP or preferably close to 1.5 percent. There is therefore a need for us to grow our investment in R&D if we seriously want to compete in the global arena.

More than advocating an increase in investment in R&D, the panel would like to see a clear strategy of administering this investment. A careful study ought to be done on maximizing whatever resources we have. In line with this, the panel will work on identifying the kind of R&D we ought to support.

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Establish an Industrial Technology Group The existence of a focused group which focuses on driving the industry forward has been a recurring theme among the most successful countries. The panel recognizes the criticality of having a dedicated and committed group which will serve as stewards of the industry. Here are they key elements of the proposed group. Industry led The support and more importantly, the industrys collective knowledge is key. This group will be responsible for defining the priorities for improving the competitiveness of the different sectors of the Electronics Industry. A Strategic Leader - In consultation with Industry leaders, investment companies and government agencies, the group will set the agenda for R&D in the industry, technology transfer from the universities and from foreign companies, development of new business opportunities, technology roadmaps and strategic international alliances. The Group will be responsible for achieving set goals for improvement of competitiveness. DOST, BOI, and other agencies will coordinate investments with the Group to make success possible. The panel is looking at Taiwans ITRI to serve as a model for this group. Like ITRI, the panel expects the Group to come up with strategies and directions for technology in our country.

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Encourage Innovative Public-Private Partnerships Various forms of innovative public/private partnerships have enabled universities in developing countries to successfully incubate and commercialize products. For example, SunSpace is a South African company that has made micro-satellites for the US space agency NASA, for Australia's micro-satellite program and for Germany and the Republic of Korea. Sunspace was created in 1999, out of a project by the University of Stellenbosch, to build the country's first micro-satellite. Partly owned by the University, the company is now a multi-million-rand space technology business. It has positioned South Africa as a world leader in the field, and has helped lure back some of the countrys top scientists. The initial project was developed in partnership with universities in the United Kingdom and received funding from the Government and the university.

Another example is the University of Campinas (UNICAMP) in Brazil. It established the CPqDFITEC (Centro de Pesquisa e DesenvolvimentoFundao para Inovaes Tecnolgicas), the main technology center in Brazil, where university experts connect a companys needs for research with the expertise of UNICAMPs institutes, professors, and researchers. More than 250 partnership agreements with private companies and 60 agreements with public companies have been established at UNICAMP. The companies include major global corporations with significant foreign direct investment in Brazil, such as Aventis, Bayer, Bristol, Compaq, Ericsson, Glaxo, HP, IBM, Monsanto, Motorola, Novartis, Roche, Syngentha, and Tetra Pak.

And of course, there is ERSO of ITRI. It facilitated the technology transfer from RCA (a US company). With funds from the Taiwanese governments science and technology projects, ERSO laid a crucial part of the foundation of the Taiwan semiconductor industry. The RCA technology transfer project covered all aspects of the companys experience including product planning, design, photo-masking, manufacturing, and packaging and testing. All of these key skills were imported by Taiwan and became part of ITRIs development project. As these ITRI projects mature, company after company spun off them.

The Electronics Commission mentioned above and the universities (discussed below) will be key in energizing similar partnerships in the country.

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Implement a Portfolio Strategy for University R&D Investment with a Focus on Technology Transfer A strategic portfolio strategy for R&D investments in the universities and research institutes for electronics applications must be implemented. These priorities will be set by an industry and investment panel of experts that define high payoff areas for R&D in electronics. R&D projects in Universities must be focused on those with considerable potential for patenting, technology transfer to industry, and for creation of new businesses. DOST must facilitate sponsorship of these projects. The industry and the investment community must also be encouraged to match the funds invested by the government. A survey of successful economies would reveal that cooperation between industry and public research institutions (government laboratories and universities) have been a major policy target in recent years.

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Improve the Competitiveness and Education of the Modern Engineer The education preparation of the Modern Electronics Engineer is in serious decline in the Philippines. New graduates, even if they majored in related fields, require a certain period of pre-occupational training before they can be individually assigned tasks.

The PRC licensing process, which has a major effect on the curriculum for training engineers, is not recognized as adequate for preparation for the Electronics Industry. PRC should not continue to monitor the competency of graduate engineers and should not limit the courses taught to engineering students or limit the type of instructors who can teach these courses.

A new curriculum is needed for engineering graduates entering the Electronics Industry. Specifically we recommend that the DOST, CHED, and the major Universities create an intensive course of study in Semiconductor Electronics, Semiconductor processing, Reliability and Testing, and Advanced Materials for Electronics Packaging.

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Facilitate Equipment Donation to Universities and Technical Schools Building the capability of our engineering students entails a corresponding build-up of our universitys capabilities. Every year, tens of million of dollars worth of equipment is destroyed by the Electronics industry because of tax limitations. This must be eliminated in favor of donations to universities. These equipment must be used to build capacity in R&D; particularly, for teaching semiconductor Electronics and Materials Processing. DOST must provide matching funds for capacity building and to maintain and operate these equipment for five years. These equipment may also be donated to build capacity in incubators. This can defray a big percentage of the capital expenses incurred by start-ups and make them more competitive in the marketplace.

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Invest in New Service Companies that Support the Infrastructure of the Electronics Industry The Electronics Industry needs a highly competent service sector that can provide local support for a wide variety of businesses. Without this infrastructure of suppliers, new companies will hesitate to locate in the Philippines. The government must invest in this supportive infrastructure by using innovative techniques for positioning these companies in the critical path of industry. This will stimulate new Filipino companies that can export their services abroad. To encourage local entrepreneurship and entry of local players into the electronics industry, the government could take elements of the Small Business Technology Transfer Program (STTP) and Small Business Innovation Research Program (SBIR) in the US. Under STTP and SBIR, selected US Departments allocate a portion of their R&D funds for awards to small businesses and promote technology transfer. Inevitably, a new set of laws relating to service companies that support the Electronics Industry must be legislated. Tax incentives, at the very least, should be provided the Industry to cultivate these new suppliers. We can draw on Singapore, Taiwan, and Koreas experiences to develop some strategies.

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Other Recommendations Promote further technology transfer through FDI - Foreign affiliates may bring new opportunities and challenges that may encourage suppliers to innovate. They may provide direct training to suppliers and retailers of their products and services. In addition, the movement of manpower between different firms could transfer management and marketing techniques. Consistent focus must therefore be given to making the Philippines a key destination for foreign investments.

Collaborate with other countries and institutions to facilitate matchmaking and provision of information on technologies - One of the main challenges faced by developing countries is to identify the most suitable technology from out of several alternative technologies and multiple sources of technologies. Matching those who possess the necessary technologies with those that need them may be difficult and costly for developing countries with limited sources of information.

Improve access to venture capital- Venture capital plays a central role in facilitating technology development and transfer through provision of support for product development and commercialization. Venture capitalists also provide management support, business and marketing strategies, and match making services, among others, that improve the success of commercializing technologies and expansion of businesses.

Participate in and drive international alliances - These networks are designed to reduce the risks and share the costs associated with the development of new products. Some of these alliances may involve developed and developing country institutions that may share key technologies.

Partner with developed countries and international institutions to improve technical standards and certification systems- This may be done through access to and provision of testing equipment for standard setting and quality assessment.

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2.

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19. UNDP. Human Development Report 2007/2008. Retrieved from http://hdr.undp.org/en/reports/global/hdr20072008/ on May 7, 2008.

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20. Philippines Electricity Governance Initiative. Assessment Report. Electricity Governance in the Philippines. Retrieved from http://electricitygovernance.wri.org/files/egi_philippines_report_0.pdf on May 23, 2008.

21. Diaz, Jess and Porcalla, Delon. The Philippine Star. ERC blames Congress for high electricity cost. Published May 22, 2008. Retrieved from http://www.abs-cbnnews.com/storypage.aspx?StoryID=119049 on May 30, 2008.

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