Driving investors out

Michael Alan Hamlin

Posted on June 11, 2008

Asia’s least competitive nation tells investors to take a hike…

About a month ago, I wrote that, “according to the IMD World Competitiveness Report (Subscription required.), the Philippines ranks a distant last in FDI (foreign direct investment) inflows to Asia Pacific nations. In Southeast Asia, only Cambodia, Laos, and Burma attract less investment.” Just so we’re clear, the Philippines not only attracts less investment, it attracts substantially – and embarrassingly – less investment than its neighbors.

I won’t repeat those sad statistics now. I will, however, allow myself to perversely marvel that national and local government leaders in the Philippines seem determined to keep the Philippines in or near last place in the increasingly intense competition for foreign investment. To understand why, consider a joint statement issued by the Philippines’ most respected management and financial associations last week.

The Financial Executives Institute of the Philippines (FINEX), the Makati Business Club (MBC), and the Management Association of the Philippines (MAP) lamented not only chronically low foreign investment in the Philippines, but also that, “Capital investment by Filipinos in their own country has also seen little growth outside of the property market.”

FINEX, MBC, and MAP attribute low foreign investment to caution among investors due to “policy flip-flops and unnecessary interventions into business” both on the national and local level. For example, the three associations say that national government “promised companies that establish their regional headquarters here that they would be exempted from local business taxes. Yet Makati applies the taxes.

“More recently, Hanjin Heavy Industries and Construction, while bringing in huge investment and employment, was threatened with closure by the local mayor who withheld its ECC (Environmental Clearance Certificate) for questionable reasons.” The associations didn’t add that the episode with Hanjin was exacerbated by a full-blown media circus apparently meant to increase pressure on the investor for those questionable reasons.

They also cite the decision by the Manila City Council to rezone the Pandacan oil depot from industrial to commercial as “a glaring example of dysfunctional local autonomy,” explaining that, “the Council failed to acknowledge that the depots were built in Pandacan first when it was classified as an industrial zone and that the neighboring community should not be there if the City had enforced the zoning laws.”

Apparently, since the oil companies that own the Pandacan depots are the only entities involved in this episode that will respect the law, the law is being modified so that someone or something will observe it. In the meantime, the community that ignored the law is getting its way with the Council. But you have to wonder how the community will fare when the oil companies leave town.

The same could be said of the Bataan Economic Zone (BEZ), another recent focus of this column. Two weeks ago I noted that Congressman Albert S. Garcia filed House Bill 1425, which would place the BEZ under the jurisdiction of the provincial government and the congressman’s father, Bataan Governor Enrique T. Garcia, Jr. Investors who signed contracts with the Philippine Economic Zone Authority, which currently oversees BEZ, and employ thousands of Filipinos have objected to the bill.

Yet the bill has passed the House. The Senate version, filed by Senator Loren B. Legarda, is pending. I suggested that before the bill is deliberated, the senators should perhaps hear from the BEZ investors. And I’m told a meeting was arranged last week between investors and Legarda and her colleague, Senator Richard Gordon. With investors awaiting their arrival at the BEZ administration building, the high-profile senators flew by helicopter to Bataan last Friday.

It’s not clear who arranged the flight, but the helicopter never arrived at BEZ. Eventually the waiting investors were informed that the meeting had already started – at the Mariveles City Hall, the municipality where BEZ is located. According to one investor, the group rushed to what turned out to be a “well orchestrated” formal meeting, where they were studiously ignored. They left without having the opportunity to speak to either Legarda or Gordon. And just one of those disappointed investors employs almost 4,000 Filipinos.

When representatives of the Joint Foreign Chambers of Commerce in the Philippines wrote to President Gloria Macapagal-Arroyo to urge her to oppose moves to amend the Electric Power Industry Reform Act (Epira) and to evaluate it once it comes into full force, they were called “predators,” by an administration senator and then told to leave the country during a Senate hearing, also on Friday.

Perhaps the senators were frustrated over fuel and power rate increases that the Philippines has little or no influence over or angered by perceived disrespect of the Senate by the investors. Of course, investors do have flaws that can be more than annoying. But these frustrations do not provide reason to publicly humiliate representatives of investors that employ over one million Filipinos – who vote in elections – and who don’t want their jobs to disappear. Just ask the thousands of Intel employees who will be out of work in a year because their jobs will be performed by that time in Vietnam and China.

If investors are treated unfairly, make no mistake – they will leave, or never arrive at all. But we know that, don’t we?

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