Wrong Arroyo tells truth on investments

The wrong Arroyo told the truth last week on the state of foreign direct investments (FDIs) in the country. NEDA Director Dennis Arroyo said government must do more to attract investors by doing the basic things which investors look for and would also improve quality of life for the locals.

“We have to work double time in addressing the negatives, that is, why investors do not easily pick the Philippines,” the NEDA official said. “We have to deal with concerns such as ease of doing business, corruption and governance, high cost of utilities like power, infrastructure, peace and order, as well as ‘shockwaves’ or shocking events or news. These factors turn off investors and dampen their interest so we must address all of them,” he explained.

Isn’t that the truth! That’s exactly what we have been saying for the almost decade long misrule of the other Arroyo. Unfortunately, it is the other Arroyo who has the power to do something about it. As a NEDA technocrat, Dennis Arroyo can only make his observations ever so carefully.

This Arroyo, the good one, is worried that unless the other Arroyo (supposedly described by former NEDA Director General Romy Neri as “evil”) gives high importance to this matter of attending to the basics, the world economic crisis will continue to suppress foreign direct investments (FDIs) to this country. The “good” Arroyo, who is the director of NEDA’s National Policy and Planning Staff (NPPS) spoke during the press launch of the World Investment Report (WIR) 2009 of the United Nations Conference on Trade and Development (UNCTAD).

The “good” Arroyo’s concern about investments and our economy was echoed by Dr. Michael Spencer, Chief Economist of Deutsche Bank for Asia, in a briefing to a private sector conglomerate I attended last week. Speaking on our prospects after the world economies start a recovery, Dr. Spencer said the Philippines, which did not suffer as much as their Asian neighbors during the recession, is expected to post a “more muted recovery.”

Remember how the other Arroyo otherwise known as Ate Glue used to gloat over the fact that our economy was not as devastated by the crisis? She and her economically illiterate spokesmen kept on pointing out the large declines in the GDP of Singapore and our other tiger economy neighbors trying to make it look as if our lower decline had something to do with her wise management of our economy. The real reason is actually an indictment of her nine year rule’s failure to make our economy more vibrant.

Our economy was not as affected by the world economic crisis because the export sector contributes a smaller part of our GDP compared to that of the tiger economies. Dr. Ciel Habito of Ateneo observes “our net exports-to-GDP ratio has been a tiny 0.4 percent, making it no surprise why our domestic economy was largely shielded from the drying up of the export markets.”

In comparison, Dr. Habito noted “Singapore’s net exports (exports minus imports) have amounted to 29 percent of its GDP, while the corresponding figures for Malaysia and Thailand are 20.3 and 7.6 percent.” However, these “export-dependent economies in Asia such as Singapore, Taiwan, Hong Kong, Malaysia and Korea, which experienced probably their worst recession in history, are expected to rebound sharply with a rapid recovery in exports to the US and the EU.” Our recovery on the other hand, as Dr. Spencer predicted, will be “more muted.”

Indeed, our neighbors have performed well in the past and are expected to perform better than us in the future. Greg Rushford of the Rushford Report (http://www.rushfordreport.com) in a blog posted last Monday reports that Vietnam attracted an impressive $8 billion in foreign direct investments last year, according to a report that was released on Sept. 17 by the UN’s Conference on Trade and Development.

The UNCTAD report revealed that overseas investors saw Vietnam as a more attractive investment opportunity than all of its ten Southeast Asian neighbors, save only Malaysia (also $8 billion), Singapore ($22.7 billion, and Thailand ($10 billion). Mr Rushford reports that in his most recent visit to Vietnam “the signs of rising prosperity were visible everywhere, most notably on the faces of ordinary Vietnamese people going about their work peaceably on those ubiquitous motorbikes.”

Attracting FDIs in normal times have been difficult for us because of those “negatives” NEDA’s Arroyo cited. One can imagine how attracting FDIs can be during a period of risk aversion by investors worldwide. NEDA’s Arroyo reported that “global FDI flows have been severely affected worldwide by the economic and financial crisis. After falling 14 percent in 2008 to $1.7 trillion, they are expected to fall further to below $1.2 trillion in 2009, recover slowly in 2010 and gain momentum in 2011,” he said.

Let us not forget Filipinos with funds to invest. Right now, Pinoys with excess cash are parking their money on government securities. That explains the oversubscription of the recent Retail Treasury Bond (RTB) offering. There is so much excess liquidity in the system. If Ate Glue can fix things so that we become attractive to FDIs, money hidden in local mattresses will come out into the system too and do the economy some good.

Neda’s Arroyo underscored how important it is to make our country attractive to investors. FDIs, he said, can help fill the investment gaps in agriculture as well as supply technology and other resources.

Contract farming, according to the 2009 World Investment Report, is a significant component of transnational corporations’ (TNCs) participation in agricultural production that could benefit both the TNCs and small farmers. This kind of farming, the report added, provides inputs and transfers skills to a large number of small farmers, eases financial and technological constraints facing the farmers, and links them to global markets.

Two other areas where significant FDIs can make a difference include the BPO sector and tourism. The new Tourism Investment Incentives Law should help attract investors in this sector if it is implemented by a Tourism Secretary who is more interested in delivering results than gaining a Senate seat.

Just our luck the wrong Arroyo is saying the right things which the other Arroyo should have been working on all these years. Just too bad…

Tax soft drinks

I got this e-mail from PhilStar reader Mike A. (No, not Arroyo!)

The email from your brother in law is very informative and enlightening. No wonder Buko juice is a very good diuretic.

Regarding sugar drinks, I don’t know which is worst here or in the U.S. In almost all restaurants in the Philippines you will notice its either Pepsi/ Lipton or Coke/Nestea. Since Lipton food service has merged with Pepsi’s and Nestea with Coke these two companies dominate the beverages served in the food service industry.

It’s wise business for restaurants to accept exclusivity contracts with any of the two due to incentives, trade assets and cash offered in terms called Marketing Support Funds (MSF). What’s very unfortunate is that the restaurants will have a hard time getting there customers to order healthy beverage alternatives even if they offer this. This is because choice percentage wise is of a higher probability for advertised products in tv, print, billboard ads, menu’s, tent cards and posters. Unfortunately those who are more susceptible to this strategy are the younger generation.

With this current structure and dominance what will happen to the next generation? Are we a generation aware of wellness but have difficulty enforcing this to our children because most of what’s offered out there is driven by marketing, advertising funds and price wars rather then a products content with real health benefits.

Yes, I agree tax high sugar beverages and incentivize healthy alternatives so that cost can be reduced to benefit the consumers.

Villar running mate

News reports have it that Manny Villar, the frontrunner in the presidential race reputed to have spent the most thus far, is said to be having difficulty naming a running mate.

One political blog (http://professionalheckler.wordpress.com/) offers a reason for the delay… Villar is reportedly looking for a running mate who has the most experience, and the least asking price.

Boo Chanco’s e-mail address is [email protected]. This and some past columns can also be viewed at www.boochanco.com