Carlo's Think Pieces

Reflections of a Filipino in the Netherlands

Archive for June 24th, 2011

Philippine Investment “Myths”

Posted by butalidnl on 24 June 2011

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.

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