Carlo's Think Pieces

Reflections of a Filipino in the Netherlands

Promoting Overseas Filipino Investments in Small and Medium Scale Businesses

Posted by butalidnl on 10 February 2008

When Overseas Filipinos (OFs) invest money in the Philippines, it is usually spent on real estate or on micro-business ventures e.g. sari-sari store or tricycle. Why aren’t they more entrepreneurial? why don’t they invest in bigger businesses?

One reason is that OFs in general were not entrepreneurs before leaving the Philippines. Because if they were, they would then have had a thriving business, and then there would not be a need to go find a job abroad. Of course, there are OFs who became entrepreneurs while abroad, and these have set up their own businesses where they live. The gap is when we expect OFs to set up Philippine -based businesses while they are abroad. For OFs this is a rather risky proposition. Who will manage these businesses? their close relatives? If their close relatives were good at running businesses in the first place, there would probably have been no great need to have a family member go abroad and remit them money. Let us just say, then, that relatives of OFs are generally not the best managers of any businesses that remittance money could be invested in.

Then there is the question of scale. Why set up only micro-businesses? e.g. sari-sari stores and tricycles? Well, for one, these small ventures need a minimum of management skills, and thus could be entrusted to relatives (or rather, the OF could take the risk to entrust their relatives with the relatively small amounts of money needed for these ventures). If the OF wanted to invest bigger amounts, this is usually accompanied by a decision to base themselves in the Philippines, so that they would manage the business themselves.
Also, the funds available to one OF is usually limited to their personal savings, plus perhaps what they could borrow. This makes it logical that the investment could not be that big.

If we want to promote OF investments into small and medium scale businesses, we need to address the following problems, which are:

– how do we get OF to pool their investment money together to be able to set up businesses of a larger scale?

– how would these businesses be managed? or rather, who will manage them?

– how could we minimize business risk for the OF investor? or in other words, why should they invest in a (relatively risky) Philippine venture, when returns on investment in their host country may be quite attractive (or at least, more secure)?

The Philippine government could do a lot to address the questions listed above; and in so doing, also help to promote OF investments in small and medium sized businesses. There are various ways in which to induce OFs to invest more. One is to find ways by which they could pool their resources. Another is to offer a satisfactory solution to the question of good management. Also, more areas of the economy should be opened for investments by OFs.

I suggest a number of steps the government could take:

1. Pass a law which would recognize all OF investments as Filipino. This means that when OFs who are citizens of their host countries invest in the Philippines, that business will be treated as 100% Filipino and thus be entitled to all the rights that entail. At present, there are many sectors of the economy which are closed to non-Filipinos (and unfortunately also to a lot of OFs), e.g. publishing, retailing (above the sari-sari store level), etc. These sectors would then be open to OF investments. Also, recognizing OF investments as 100% Filipino would entitle these to assistance from a whole range of government agencies.

This approach would be much better than trying to pass an “Overseas Filipino Investments Incentive Law” or something like that.¬† Passing such a law would be too complicated and tedious; it will also probably omit many things. Simply recognizing OF investments as 100% Filipino is simple, straightforward, and is dignifying and fair to OFs. They are willing to risk their hard-earned savings in a Philippine venture; in return they deserve to be recognized as full-fledged participants in the Philippine economy.

2. As an extension of the 1st point, OF-owned businesses established abroad, and cooperatives of OFs abroad should also be recognized as Filipino.

3. Promote OF investments in existing small and medium sized enterprises (SMEs) through the buying of shares in these companies. With a good method of certifying which businesses would be qualified for this program; this would mean that OFs would no longer have to bear the risk and difficulty of building a business from scratch, and will solve the problem of having a good management of the business.
OFs with money to invest would no longer be forced to have their relatives manage their business. And SMEs would be able to tap on to a source of needed funds.

4. Facilitate the setting up of mutual funds that are owned by OFs, and run for them by professional fund managers.

5. Facilitate the setting up of companies which would administer OF-owned properties. The management of real estate could be more professionally done by such companies than by the relatives of the OFs themselves.

6. Encourage a system in which OF-relatives who want to set up micro or small scale businesses (e.g. buy a jeepney, establish a grocery, etc.) would get a loan from a bank, which would use as collateral a combination of the businesses’ assets (e.g. the jeepney) and a guarantee from the relative abroad. The bank would be in a good position to determine the feasibility of the proposed business, and help to ensure its good financial management. This not only reduces the risk to the OF, it would potentially make it possible for the OF to support bigger investments by their relatives.

With measures such as the ones enumerated here, it should be possible to realize more completely the big potential for OF investments.

4 Responses to “Promoting Overseas Filipino Investments in Small and Medium Scale Businesses”

  1. remitter said

    I have been maintaining a blog http://remitter.wordpress.com/ on the issue of remittances and I wonder why this never crossed my mind? Yes, the Filipinos lack the business acumen and are better at unskilled jobs and professional careers. This I think has caused a problem in the country which has failed to put the remittances to good practice and attract foreign investors. Take India for instance, it’s globalisation mantra has helped it to trap the Foreign Direct Investment which in turn has turned the country into an investment friendly region. The SME model is best suited for the developing countries and can put brakes on both brain drain and economic stagnation.

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