Friday, January 21, 2011

Throwing our doors open to foreign investment when we can't even get tourists to visit

Everytime I walk by the local Flight Centre (an airline ticket booking chain that offers McDonalds-like travel agency services) in the city, I note the posters and fliers displaying sweetened holiday deals to various Southeast Asian cities beckoning Aussies shopping for their next overseas getaway "adventure". You can't help but notice the ridiculously low fares to "exotic" cities like Bangkok, Ho Chi Minh City, Kuala Lumpur, Singapore, and even Phnom Penh - a city just fresh out of the Stone Age. With the Aussie Dollar flying above the rest of the developed world's deppressed currencies, and winter fast approaching in the southern hemisphere, our credit cards are locked and loaded.

Where is Manila in Flight Centre's strategic marketing scheme of things? I don't know. I don't work there. But just on the basis of the Philippine capital's consistent absence in Australian travel marketing paraphernalia over the last ten years, one can tell this teeming megalopolis of more than 11 million is a non-entity here -- not even an afterthought.

The Philippines' doors to travellers awash with cash and wide-eyed for "adventure" are not only wide-open, they are practically begging to be entered. Yet tourist arrival figures in the Philippines are utterly dwarfed by those of Malaysia, Thailand, and Indonesia. In the wake of the global financial meltdown of 2008, tourism was seen as the industry of last resort (no pun intended) as the remittances of our army of overseas foreign workers (OFWs) came to be seen as being under threat.

I wrote at the time how our entire way of life at its very core simply did not exhibit any serious alignment with our aspirations in that much-touted industry of "hope"...
[...] considering that Filipinos have for the last several decades systematically destroyed the very natural wonders it now desperately hawks to anyone out there with foreign exchange to spare for leisure.
Indeed, evidence of Filipino habitation is next-to-impossible to ignore in these named-after-a-Spanish-king islands. No less than 3.4 million hectares of forest cover has disappeared from 1990 to 2005. Primary forest cover now accounts for just 2.8% of total land area in these islands. Add to that the human excrement we regularly dump into our rivers and stormwater drains. Years ago, I took a helicopter flight over Manila and the thing I remember the most is looking down upon the port area of Manila Bay and seeing a huge blot of black water at the mouth of the Pasig River contrasting sharply with the green-bluish water further out to sea.

That's "just" our forests and our water supply. But it reflects our society's regard and respect for the land we inhabit and now rely on desperately for our future survival as part of the global economy in the face of this "crisis". It makes the pitch of the "natural wonders" of our land that dominates our tourist brochures sound rather phoney and utterly out-of-sync with our collective character.

Seriously, our tourist industry is a shell of glossy false advertising.

Questioning the if-you-open-it-they-will-enter notion we apply to foreign direct investment (FDI)

If your house looks and smells like shit, even burglars won't enter it.

Even as Western Europe and North America lurch painfully into the New Year under the weight of highly-leveraged non-performing assets, Southeast Asia is sucking up the world's capital like a sponge -- except the Philippines. BusinessWorld Online, in fact, reports that investors are bypassing the Philippines...
FDI flows into Malaysia, Indonesia and Singapore in 2010 were estimated to have surged by triple-digit rates from yearago levels as Southeast Asia was among the regions that led the global economic recovery, the UN Commission on Trade and Development (UNCTAD) said in its Global Investment Trends Monitor.

Malaysia was projected to have grown its FDI by 410% to $7 billion while Indonesia similarly enjoyed a 163% rise to $12.8 billion, the UN agency said, annualizing available data for the three quarters of 2010.

Singapore, meanwhile, likely saw FDI levels grow by 123% to 16.8 billion.

These improvements allowed inflows to South, East and Southeast Asia to rise by 17.8% to $274.6 billion while the global average flattened to $1.122 trillion in the same year, the UNCTAD said.

Full-year estimates for the Philippines were not included in the report but the country, according to latest central bank data, recorded an annual 36.5% decline in FDI as of October.

Like the tourist industry, with its wide open doors and meagre arrivals the question we need to ask is whether overly restrictive regulation of foreign ownership of Philippine business assets -- specifically the 60/40 foreign/local ownership rules -- is the primary issue at work here. In that BusinessWorld Online report, the only excuses reported for our pathetic performance in attracting FDIs were around infrastructure deficiency...
Long-proposed moves to improve infrastructure have just started, European Chamber of Commerce of the Philippines Executive Director Henry J. Schumacher said in a text message.

... and disruptions caused by our political circuses...
The disparity was likely caused by last year’s elections, University of the Philippines economist Benjamin C. Diokno said in a text message yesterday.

"Investors adopted a wait-and-see attitude given the change in political leadership," Mr. Diokno said.

...that is, of course, if "expert" opinion can even be trusted nowadays.

Note however how access to foreign capital was not mentioned at all. It raises the embarrassing possibility that even with doors thrown open to full foreign ownership and a "Buy us, PLEASE!" sign displayed, we will still be bypassed by the industrialists of the world.

Of course, cash not flowing into the country is not something any of us would like to see. But consider how OFW cash currently flows into the economy to the tune of more than 10% of its value. The really hard question with regard to this embarrassingly large elephant in the room is quite simple:

Where has all that cash been used?

The OFW remittances black hole illustrates how Filipinos remain clueless about the productive and sustainable use of money. A number of issues could be at work there -- lack of skills, lack of attitude, lack of imagination, lack of information, lack of infrastructure, whatever. The point is, in the case of this consistently moronic use of otherwise abundant cash, access to it certainly is not an issue.

Multiply the possibility of that sort of misrepresentation of what really is the fundamental problem behind our chronic inability to prosper as a people, and we begin to worry about whether we truly understand what we want to get out of certain initiatives being pushed, the advocacies being organised around them, and the momentum these are gathering.

In the case of our tourist industry, it was momentum that ultimately did in Enteng Romano and his ill-fated "Pilipinas Kay Ganda" sloganeering project. The volumes of action and the very little thinking that underpinned them is quite easy to see in hindsight there. At least that time, only a few odd-millions pesos and a bit of face was lost.

7 comments:

  1. that's why we are opening to foreign investments - the locals can't do it.

    thus, let someone who can do it, do the job. if it takes foreign investments to do the job, then so be it.

    some locals will fold some will thrive. new industries will be created. so over-all - yes foreign investors will make the profits instead of the locals - but the filipino consumers win, and the government still collects the revenues which it can spend).

    ReplyDelete
  2. Perhaps then it should be the nature of the capital flowing in that should be regulated. We want capital coming in that expands capacity for sustained gains in productivity and equity creation.

    Increased consumption as a result of more options, more competition and therefore reduced costs provide short-term job creation and cost-of-living mitigation. But there should be measures in place to ensure that a good chunk of the aggregate freed-up cash resulting from consumers benefiting from lower prices (and gaining more employment) gets re-channeled into investment (or back into the financial system) rather than get pissed away on non-added-value consumption (e.g. celphone trinkets, beer, mistresses and motels, borloloy on onher-type jeeps, etc.).

    In short there needs to be either or both (1) an increase in savings rate and (2) increased predisposition to invest. In either case, free cash is conserved (capitalised) instead of pissed away (expensed). At the very least, depositing cash in a savings account, puts that cash in circulation in the financial system which, in principle, is most efficient at channelling it to who needs it the most in the industrial community. But spend that cash on celphone load, and what could've been capitalised dissolves into digital oblivion in a single conversation with one's girlfriend.

    Get that ethic rolling, and dependence on foreign capital gets steadily petered down over the years as domestic capital (and the capacity to create it indigenously) ramps up.

    As you can see, all roads lead back to the way Da Pinoy mind is wired.

    ReplyDelete
  3. Pilipinas is known worldwide for breaking contracts and not enforcing contracts. The Constitution as a Social Contract -the supreme law of the land and the basis of other laws is not enforced, if it does, only for the elites. It looks good on paper whose only function is for visiting the bathroom. Then that cursed restrictive wall that deprives them of hard capital, it also stop science from flowing in free of charge together with other resources; one of these important innovations is in the field of Environmental Science. One may ask a typical student about Easter Island and not be surprised if the answer is "Itlog Na Maalat." I wii not trade a lush green forest land with the oil rich land of the Middle East. This people doesn't know what it's like to live in the desert although many of their relatives work in Hell's kitchen. Many students who have access to the net are much more interested in garbage and viral same to social network. The touring world knows what PH Welcome Mat "Let Us Hospitalize You" and at best they will cure you but all indications not; no mas take a chance. Pinheads reject everything even ideas beneficial to them; in their fecal thinking dwells it is an assault to their person. In defensive mode, dialogue ends in "Bakit ba kayo mga pakealamero at mas marunong pa sa amin!" It is tempting to respond "You are god damn right" for once. The restrictivenes effect everything even their minds are close. To their credit, the choices they make in the context of absolutism de facto full of shit.

    ReplyDelete
  4. Perhaps the question of "will they enter if you open the doors" has to be juxtaposed with another question: if that doesn't work, what is the alternative? If the alternative doesn't work, what then? Do nothing? Maybe this is best asked to politicians.

    An example of what Anonymous said is Fraport... among others. The Fraport-Piatco fiasco likely would not have happened with a more open economy.

    ReplyDelete
  5. Good article. You accurately point at some very serious problems with attracting foreigners to spend their hard earned cash in your country. First of all it is hard earned cash and that means that many are very picky about where to invest of spend their money. There is much choice and the Philippines have to compete with a lot of capable competitors nearby.

    The problems can be as follows:
    The legal system is not transparent and some might claim that is more illegal than legal. Even for major investors such as the German Fraport it is not possible to get a resolution on an 8 year old claim concerning the new terminal that stands mostly idle. This is very big smear on the welcome mat because many Europeans know this history and many potential investors are scared away because of this issue.

    Infrastructure is poor and not improving much. We all know that a major part of all the money that is allocated for infrastructure is being diverted to the pockets of all those that are involved. The result is decrepit roads and public transportation. This is certainly an issue that will make a lot of investors (and tourists) wary of going there.

    Many activities are off limits for foreigners. This means no investments in real estate no (or very difficult) investment for 100 % foreign ownership in companies. Some sectors are so protected against foreigners that my only conclusion can only be that local interests wield their political influence to close the markets for competitors. This is to their own benefit but a clear disadvantage for the locals. Local retailing is almost closed for foreigners I think that Filipinos would enjoy Wallmart and Ikea. Retailing is perhaps the first sector that you can open up for competition.

    Filipinos should learn to deal with foreigners and then they can learn a lot from them. The Filipinos should not get worried too much about getting ripped off by foreigners. Until today they have been ripped off by their own elite. The elite is very much against foreign investment because they stand to lose much. They abuse their privileged position in order to make money at the expense of ordinary people. An example is that you pay too much for medicine because it is distributed by a monopoly such as Mercury Drug.

    There is no alternative but to open the market to foreigners but this should be done with care and planning. To give an example:
    Around 50% of the Philippine economy is agriculture (this is not sign of strength of agriculture but a sign of weakness of the rest of the economy) and this sector is vulnerable. The farmers have almost no access to financing and I believe many still work as sharecropper. Before opening this sector there needs to be first a dramatic increase in schooling for farmers. Farm productivity which is very low compared to neighboring countries should be improved. Local farmers should have more access to capital. They should form pools to buy production equipment in the form of cooperatives and should organize themselves so that they can have access to the markets without the use of too many smart traders that pay them too little and consequentially make big profits and leave the farmers in ignorant poverty. If you do not invest in these things before you open up the market you will ruin what little that is left of the rural economy.

    What you write about too many actions underpinned by very little thinking is very true.

    Let me finish with the wise words of a German economist who didn’t think very highly of Keynes theories:

    The propensity to work, and not the propensity to spend, is the foundation of national income and wealth.
    (L. Albert Hahn 1956)

    Sorry that my comments are so long. I appreciate this blog very much. Good work. I think that the only way to move forward is that many more people gain knowledge and are critical towards their own ruling class.

    ReplyDelete
  6. Thanks, and apologies for the delayed publishing of your comment as it showed ended up in the Spam queue for some reason.

    Indeed, there are many challenges that need to be considered, each one with a complex of contributions to the problem of chronic impoverishment and failure to prosper that has gripped Filipino society for decades. These encompass entire governments and entire framework domains (whether legal, ecoomic, social, or cultural).

    ReplyDelete
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