Philippine Investment “Myths”

The Philippines needs investments in order to develop. Where should these investments come from? What do we need to do to get them? There are a number of ‘myths’ about investments in the Philippines, and these ‘myths’ either distract us from the real issues, or are even counterproductive.

National Patrimony Provision
There are many who want to amend the Constitution’s national patrimony provision, which reserves the ownership and exploitation of land and national resources to Filipinos. The idea was that if foreign ownership is allowed, foreigners will want to buy land and invest in the Philippines.

This issue is overrated. Foreign companies these days no longer really need to own land for agriculture or mining. All they have to do is to make long-term lease arrangements, or get guarantees to a steady supply of a given product. Take the pineapple plantations in Mindanao – they plant pineapple based on contractual arrangement, and end up supplying foreign companies.  But the land is owned by Filipinos. As for mining companies, the present Mining Act, with its provision for “Financial and Technical Assistance Agreements” which last 25 years allow foreign mining companies to operate in the country without having to technically “own” the land.

A danger of allowing foreigners to simply own land in the Philippines as a right – and no longer requiring them to go through all kinds of agreements and regulations is that they could use the land irresponsibly. In Africa, Chinese companies own land, they bring in their own workers and supplies, and export all production to China. The host country gains little in the process. I don’t see how this kind of foreign land ownership could benefit the Philippine economy.

Cheap Labor
This is a very old concept. Economic policymakers seem to have this idea that the Philippines is a country with cheap labor; and that keeping labor cheap is a very important part of attracting foreign investors.

I have news for these policymakers – Philippine labor is not cheap, and it hasn’t been so for a while. Instead of recognizing and adapting to this fact, the government has been implementing a cheap labor policy, to the detriment to Filipinos and the nation’s development.

If we recognize that labor is not cheap, the first thing the government should do is to prioritize the education and training of our workforce so that it could fit into the kinds of jobs that fit the level of our wages. The government should take steps to reduce other costs of doing business in the country, such as electricity, transport, taxes etc.

If anything, what the country needs is to raise the wage levels of a whole range of workers. This way, we could retain many workers who now prefer to work abroad. And a pool of skilled workers is another thing that is very good in attracting investments.

Need for Capital
One reason put forward for wanting more foreign investments is that the Philippines would otherwise not have enough capital to build its industries.  While it is true that foreign investors do bring in money, I think that the Philippines is perfectly able to raise the a substantial amount of the money domestically.

The Philippines has a lot of capital sitting at the sidelines. People invest them in things like real estate because the conditions for making investments are not too favorable. The investment climate has to improve – in things like less taxes and administration, lower power rates, better enforcement by the justice system of contracts etc – for Filipinos themselves to invest in new industries, agriculture etc. Things are so bad that the richest Filipinos, who would otherwise be pouring money into industrial investments, invest instead in building condominiums and malls, or in conspicuous consumption, or they salt their money abroad.

Local investments are a vital ingredient in attracting foreign investments. They provide a link to the local economy, and also to local policymakers and regulators. They are an assurance that the sector has a long term staying power in the country. The electronics industry has a growing number of Filipino investors, and it is booming. The BPO industry is now starting to get more Filipino investors.

Developing a Business “Ecosystem”

Here in the Netherlands (and I think, most OECD countries) there are a lot of companies in the “Business Services” sector. This sector includes services such as: payroll administration, janitorial, security guards, as well as Human Resources, warehousing, transport, internet, etc.  I would like to call this network of businesses as a “business ecosystem”. In effect, business functions are broken up, redistributed, and recombined in new ways; and all this, in the interest of lowering costs and increasing efficiency.

I believe the higher efficiency of businesses in these countries has a lot to do with business services, and less with the specific efficiency of individual workers. It is thus good to take a look at how this kind of ecosystem is built, and how we can learn what we can from this.

In the Philippines, there are some aspects of business services. There are security agencies (for security guards), IT, and even some warehouse services; but not too many others.  I believe that there are things that hinder the setting up of business services, and that this is keeping Philippine businesses from being more efficient and cost-effective.

Kinds of Services
Let us take a look at what kinds of services there can be. First, the general services:
Transport/Logistics. Transporting goods from one point to another does not need to be done by the main company. Especially when shipments are not that constant. Logistics services make better use of trucks and transport (even storage) infrastructure. Trucks don’t have to stay idle for days, or warehouses unused most of the time (or having too much extra capacity).

Payroll Administration. They not only compute the salaries (with all the deductions, allowances, refunds..) every month; they also pay out these salaries, and send the premiums to the specific agencies. Smaller companies don’t need to employ people specifically to do this task anymore. Even bigger companies use external payroll administration services.

Collections. The collecting of payment is often done by banks, in the form of “periodic payment orders”. Banks get authorized by people to make payments every month or so, for their rental, insurances, newspaper subscription, water, electricity, etc.  And, if the customer doesn’t pay on time, the company then hires another company to collect the overdue payments.

Human Resources, Recruitment. This would range from those that recruit people for temporary jobs, to those who “headhunt” for highly skilled people.  These bureaus advertise for qualified personnel, they do the intake interview, tests, etc. for the company. They then either turn over the employee to their client company, or simply “detach” them to work there (while they remain as employees of the HR/Temp company).

Facility Management. Does the setting up of everything in the office, from the dividing walls, to desks, computers, filing cabinets, etc.  This is an occasional task that actually is quite a hassle for the regular employees to do, so why not hire a specialist company to do this?

Waste Disposal. There are companies that “destroy” files (these need to be done correctly, for security reasons), dispose of waste oil from restaurants, or other special waste disposal needs.

Printing/Photocopying/Scanning. They do the often tedious task of producing your printed materials. Some even offer to do the layout for you.

And then, there are those business services which are specialized per sector.
“Fairs” for Retailers. For every kind of retailer, there is a regular “fair” which brings together all the suppliers for that sector (e.g. fashion accessories) so that buyers could simply place their orders at the fair. Through this system, all the retailers are assured of products from a wide selection of suppliers.

Special Stores for Businesses. For other sectors, there is a big store dedicated to the needs of the sector. There are big stores, for example, for restaurants and snack bars. Everything that operators of restaurants and snack bars could need is there: from various kinds of snacks, to waiter’s uniforms, napkins, utensils, etc.

Construction. The construction sector is really full of business services and subcontracting companies. It seems like a whole web of companies cooperate to make a single building.  First, there is a company that does the ground preparation, then another that does the structural work, then those which supply specific pre-fabricated units (e.g. re-bar frames, stairs, wall slabs, etc.), and cement is delivered by another company.  There is a company that leases out cranes, and another that supplies the crane operators. And then there are others who do the brickwork, painting, electrical wiring, flooring, etc. There are even specialist companies in the UK that sets-up the scaffolding.

It might look complicated, but it is indeed a very efficient way of doing the work. It is also more flexible than having a single contracting company doing everything. It is as if the project coordinator doesn’t have to pay individual workers, but that things are done by companies on a pakyaw basis.

“External” Conditions Needed
In order to have a fully developed business ecosystem, certain conditions are needed. First among this is that it should be easy to set up a business. And the operating costs of a business should be relatively low, so that the efficiency gain from subdividing the work is not lost because of high business operating costs.

In the Philippines, it takes a long time to start a business, and the process is tedious and expensive. Then, there are a lot of troublesome administration and tax requirements (e.g. a documentary stamp tax for each receipt). For some industries, though, especially those classified as “pioneering” or export-oriented, administrative and tax requirements are less tedious.

Second, there should be a level playing field for labor, work conditions, safety regulations, etc. In the Netherlands, salaries and labor conditions are regulated under national Collective Bargaining Agreements, which cover workers in a whole sector. For example, construction workers of various kinds pay the same salaries, and have the same safety standards.

Third, there should be a favorable bank and insurance system.

Fourth, a lot of things need to be standardized. Business forms and formats need to be standard throughout the economy, or at least the particular business sector. Even the specifications for things like window sizes or paint color need to be universal.

Why Efficient?
Dividing up the work into definite tasks for specialized companies, if done properly, greatly improves the efficiency of production. Take the case of the prefabricated concrete stairs. This has a lot of advantages. The company specializing in producing them makes use of the efficiencies of producing in scale, since it makes lots of prefabricated concrete stairs. Employees are fully utilized – and their skills in making prefab concrete stairs  improve with scale. They are able to save on materials cost and on equipment. This all adds up to a lower cost for producing the prefab concrete stairs. Now, multiply this for all the components that go into the final product (2x per floor of a building), and you will come up with a tremendous cost savings.

The other point of efficiency is that competition – through competitive bidding – means that the most efficient companies win out. And that, if outside sourcing of certain components or services do not result in lower costs, then the company could decide to do the task themselves.

In the Philippines?
Setting up integrated industries and a whole business ecosystem across industrial branches is not something only for advanced countries. The Philippines could also do it; it needs to work hard towards it.

The fact that the country is divided into many islands sets limits on the extent of business specialization, especially in the case of the smaller islands. There would simply be not enough scale for specialized companies to be set up in smaller islands. And, in dividing up the work, companies face large expenses in placing their workers in many job sites. But these limitations are not present for those businesses that operate in and around Metro Manila.

The electronics industry is well on its way to operating as a business ecosystem, with its many specialized companies making components for each other. And the government goes out of its way to simplify their administrative requirements.

The government should stimulate the development of business ecosystems, first for specific industries, and then to the overall economy. It should reduce the costs of setting up and running businesses, by reducing tax regulation and reporting requirements. At the same time, it should be stricter in enforcing technical, labor and safety standards.

For CBCP, sex education or abortion?

(This post was published in BusinessWorld on  5 June 2011, as an opinion column. )

The Catholics Bishops’ Conference of the Philippines (CBCP) objects to sex education because they say that it encourages promiscuity. In other words, if teenagers don’t have sex education, they won’t engage in sex before marriage.

In this era of speedy communication, mass media and Internet, it is naive to think that we can “shelter” teenagers from sexual knowledge by not teaching it at school. As things are, teenagers will learn about sex from the mass media, Internet, or peers — and this information is often incomplete and incorrect. It is better to teach teenagers about sexuality in schools to ensure that the information that they get is more balanced and complete.

The argument that sex education is mainly the parents’ task is also wrong. In the first place, parents find it quite awkward to teach their children about sex. And there is the question of what they will teach them. There would need to be sex education courses for parents for this to work. I think that parents have a role in sex education, but this will be secondary to the role of schools.

I believe that an information campaign on human sexuality for adults would also need to be undertaken, as part of the sex education campaign, since there are so many married adults who know too little about sexuality, especially on how to prevent pregnancies.

The CBCP says that the government proposal for sex education is more about the technical aspects of sexual behavior. They want sex education to teach “values” instead. They would rather have something similar to the US “abstinence-based” sex education program — which teaches about the ideal of abstinence before marriage, and which does NOT teach about how to avoid pregnancy in case you don’t abstain.

The US abstinence-based sex education and movements like “Say No to Sex” and “True Love Waits” and abstinence pledges simply don’t work. They may have the short-term effect of delaying the age of first sexual encounter, but when these teenagers do have sex, they won’t know how to avoid pregnancy or sexually transmitted diseases. Studies show that their sexual behavior is the same as that of teenagers who have not had sex education. The US government poured $15 billion in the last 10 years to promote abstinence-based sex education; and as a result, the US has the highest rate among developed countries of teen pregnancies and abortions (combined rate is 86 per 1,000 teens), which is up to four times the rate of other countries.

It is all quite logical. If people are taught about sexuality, including how to avoid pregnancy and sexually transmitted diseases, there will be less unplanned pregnancies, and consequently, there will be less need for abortion.

Estimates of illegal abortion in the Philippines vary from 400,000 to 550,000 per year. And 1,000 women die every year while having abortions. Compare this with the Netherlands’ abortion rate (note that abortions are legal in the Netherlands) of 28,000 per year. If we correct for population size (and taking the figure of 400,000 Philippine abortions/year), the Netherlands’ figure is about 1/3 that of the Philippines. Comprehensive sex education is given in the Netherlands, and not in the Philippines.

If the Philippines had a comprehensive sex education program (but retains the abortion ban), there could be up to 270,000 less abortions, and that the number of deaths will drop to 330 from the present 1,000.

The Dutch system also teaches “values” together with the technical aspects of sex education. They promote the value of love and commitment in relationships, that teenagers who become mothers are ruining their lives, and that children should grow up in loving families. The Dutch have one of the lowest rates of teen pregnancies in the world, and have low rates for HIV and sexually transmitted diseases.

The question then comes: if the CBCP is really against abortions, they would be well-advised to promote comprehensive sex education. It would radically reduce the number of unwanted pregnancies, and thus the number of abortions. If the CBCP is against comprehensive sex education, then they have to accept that this would result in more abortions, and more deaths of mothers during those abortions. There is no middle ground, the church needs to choose.

I suggest that they agree to a program of comprehensive sex education. This way, they would indeed be decreasing the number of abortions. And if this is not being “pro-life,” what is?

Protecting Philippine Corals

Save Philippine Seas

(This blog post is my contribution to the Blog Action Day to Save our Coral Reefs and Seas.)

The Philippines is blessed with having a lot of coral reefs, which are not only nice to look at; they’re also sanctuaries for fish and other marine animals. The problem is that there are people who are actively destroying these reefs – people who harvest the reefs, for sale abroad;  and fishermen using methods that destroy reefs.

Coral Harvesting
The harvesting of corals is a direct way of destroying the reefs. If we note that corals are actually tiny animals which grow about 1 cm/year, it takes a long time before they are able to form reefs of any size. And the harvester just takes these away, undoing decades of growth. It will take a very long time to rebuild corals in these same locations.

With the corals gone, the many fish and other animals who take refuge at reefs are exposed and will disappear. Reefs are very important especially for recently hatched fish and the like, since they are able to avoid being eaten while still very young and vulnerable. Thus, the presence of reefs means that these fish are able to grow to maturity. Fishermen have everything to gain from reefs – less reefs mean less fish to catch.

Fishing
Dynamite Fishing. There are fishing methods that are destructive for coral reefs. The most obvious of these is dynamite fishing.  In this, the fisherman throws dynamite in the water, and this explodes stunning the fish, which then floats. Often, the shock of the explosion also destroys coral reefs.

Cyanide and Electricity. Another destructive way of fishing is by the use of cyanide. Cyanide stuns fish, making them easier to catch. The fisherman squirts cyanide inside coral reefs to stun the fish hiding there. Then he opens up the reef with a crowbar to get at the fish that is stunned. The cyanide itself also poisons the coral polyps, killing them.

Electricity is also used to stun fish, in a manner similar to that of cyanide. It also has detrimental effects on the reef.

Muro-Ami (kayakas).   Muro-ami is a method of fishing where the nets reach the sea floor, and where divers are sent down to smash the reef, forcing the fish to get trapped in the net.  A variation of this is when heavy sinkers are attached to the net, and these sinkers smash the coral. This kind of fishing is a very short-sighted method; after one run of catching coral fish,  the reef is destroyed, and could not produce fish anymore.
While Muro-Ami is no longer as widespread as before, it is still done in some remote seas off Mindanao.

“Traditional Fishing”. Even some forms of traditional fishing at coral reefs could prove destructive to the reef.
Wrasses and Triggerfish eat “Crown of Thorns” Starfishes (as well as other ocean dwelling invertebrates). Traditional fishing at reefs may harvest too many of these fish that the “Crown of Thorns” Starfish will start multiplying, and then they will eat up all the corals.

Other Destructive Activities
Human Contact. Even casual human contact can damage reefs. Divers who look at reefs should refrain from touching them. They should also not “stand” on the reef. The coral polyps are so sensitive, that they will die with this kind of contact.

Boats that go out to reef areas should refrain from dropping anchor. Anchors can also destroy coral reefs.

Pollution. Pollution is also another way by which people damage coral reefs. Mine tailings very often get dumped at sea, and often in coral reefs. If there is too much organic waste dumped into the sea, these would result in plankton multiplying so much that they use up all the oxygen in that part of the sea, resulting in fish dying en masse and also corals dying.

Fishpond owners sometimes use poison to clean their fishponds. If the fishpond is near a reef, the corals may die because of the poison.

Responding to Coral Reef Damage
There needs to be a comprehensive approach to preventing damage to our coral reefs. This mostly involve have stricter laws against damaging corals, and stricter enforcement of these laws. At the same time, steps should be taken towards regional cooperation, as well as coral recovery.

Stricter Laws. There are laws against the harvesting of corals e.g. (particularly in RA 8550: Fisheries Code of 1998). However, the penalties are extremely low (e.g. 6 months to 2 years imprisonment, up to P 20,ooo fine, and confiscation for harvesting corals). In the face of the enormous profits that are made in this business, the penalty for violating these laws are puny. Congress should stiffen the fines and imprisonment for direct coral harvesting.

While it is prohibited to pollute the sea with mine tailings and other pollutants, there are no real penalties for these offenses. Thus, companies can go about polluting with impunity. Stricter laws and penalties need to be made against marine pollution.

Better Enforcement. Fisherfolk communities should be encouraged to form Bantay Dagat, one of whose tasks is to protect corals. They should be backed by their municipal governments, especially the police force. The Coast Guard should also be beefed up to help to enforce the law.

Coral Rehabilitation. Local government units should initiate coral rehabilitation activities and even help designate protected zones.  Where possible, those who are found guilty of harvesting or destroying corals should be mobilized to help rehabilitate corals, as part of their punishment.

Divorce Law for the Philippines

The Philippines is now the only country in the world without a divorce law. Well, technically, the Vatican also doesn’t have one; but they don’t have married couples either! Malta had a referendum on 28 May about divorce, and they approved the law, we are now the only country left.

Should the Philippines follow the rest of the world? Well, why not? It is a good idea to have divorce as a way out for people trapped in failed marriages.

Annulment?
Some people think that annulment is the same as divorce. It is not, and it does not address the question of failed marriages as well as divorce does. Why? In the first place, only a few people could avail of annulment. In 2010, a little over 7000 couples were granted annulment; most of these are well-to-do, because it takes a lot of money to have an annulment (an estimated P300K).  Most people would just simply leave their marriage partner, and then live together with a new one, without resorting to any of the legalities.

But the main problem with annulment is in the basis for having one. Annulment is not granted for physical abuse, attempt on one’s life, sexual infidelity or abandonment. However, one can still sue for legal separation on these bases. But legal separation still means that you remain married, and that you supposedly still share in conjugal property and obligations, even if you live separately. And that you can’t remarry.

Divorce Bill
Gabriela (women’s party list group) has filed a divorce bill (HB 1799) in the House of Representatives. In it, they propose that divorce may be filed “when the couple have been estranged for at least five years, or legally separated for at least two years, with little hope of reconciliation; when any of the grounds for legal separation has caused the irreparable breakdown of the marriage; when either or both people are psychologically incapable of complying with the essential marital obligations; and when the spouses suffer from irreconcilable differences which cause the breakdown of the marriage.”

Gabriela’s proposal doesn’t make divorce “easy”. It only makes the logical conclusion: that if a couple have been legally separated for at least two years (meaning that there was enough basis, in the first place, for a legal separation) and that all attempts at reconciliation have failed, that they be granted divorce. Or, alternatively, that the couple had been estranged for at least 5 years.

End of the Family?
The church claims that a divorce law will spell the end of the Filipino family. This is obviously alarmist and not based on fact. Divorce has been around for some time in many countries; and the family still seems to be going strong.  On the contrary, divorce may actually promote marriage and the family.  Now, without divorce, many people simply “rearrange” their familial relations without legal sanction. So, even though they may be technically married to someone else, they live together with new partners, whom they couldn’t marry. If divorce was possible, this people would simply divorce their old partners and marry their new ones.

When a couple is divorced, the children will still have both parents, who will both have an opportunity to participate in their life. The ex-couple become co-parents, and they have a new set of shared responsibilities. If they arrange things well, the children will feel at home in both their parent’s homes. They will be much better off than when they were in one home and their parents were always fighting. When a couple’s marriage is annulled, the parent who doesn’t have custody to the children has less rights to participate in their upbringing.

The family and marriages will also gain from divorce since partners will be discouraged from straying by the threat of divorce, and the need to make alimony or child support payments.

Gay marriage, Abortion Next?
Another thing that the church says is that approving the RH and Divorce Bills will open the flood gates to all sorts of laws, such as gay marriage or abortion. I beg to disagree: there is a wide consensus in the Philippines in favor of both the RH and Divorce bills, but none for abortion or gay marriage.

The RH and Divorce bills address pressing social problems, and need to be passed immediately. There is no such urgency for either an abortion bill or the legalization of gay marriage. Perhaps their time will come, but not for a couple of decades at least.

I would imagine, that after these two bills get passed, one thing that the government could do will be to tax church properties (of all churches, of course). The likelihood of this happening is probably more than having an abortion bill or legalizing gay marriage. And this should be more interesting. Of course, from the church’s point of view, this will be “demonic” or something similar.