Are we serious about investors?

Two things caught my attention last weekend that made me wonder if we are really interested in getting foreign investors to create jobs in this country. We issue press releases and spend millions of pesos in foreign newspaper supplements and send trade missions abroad that seem to indicate we do want investors to come here. But do we really?

Malacañang announced that P-Noy signed EO 98 which expands the so called negative list of industries and activities non-Filipinos cannot go into. This EO updates an earlier EO from the previous administration.

By way of background, Republic Act 7042, also known as the Foreign Investments Act of 1991, is the basic law that governs foreign investments in the Philippines. This law created the Foreign Investment Negative List or FINL or a list of investment areas reserved for Filipinos. There are two such lists as follows:

List A – activities reserved for Philippine nationals where foreign equity participation in any domestic or export enterprise engaged in any activity listed shall be limited to a maximum of 40 percent as prescribed by the Constitution and other specific laws.

List B – consists of areas of activities where foreign ownership is limited such as defense or law enforcement-related activities, which have negative implications on public health and morals, and small and medium-scale enterprises.

Apparently, Congress continually passes laws that limit foreign investor participation in an increasing number of activities. For this latest EO, Malacanang is merely updating the negative list based on a series of laws passed by Congress over the years, 2007 and 2009. In a sense, the issuance of the EO is ministerial on Malacanang’s part.

It is not right to say P-Noy imposed new restrictions on foreign investments. Congress did. If we think some industries in the list shouldn’t be there, we can ask Congress to pass remedial legislation. These prohibitions mostly benefit rent-seeking politicians and their cronies so it won’t be easy.

Then again, P-Noy has to carry some of the blame too. Some industries are on that list because of constitutional prohibitions no longer relevant today. The Senate President and the Speaker did propose a solution to quickly amend just these provisions but P-Noy is yet to be convinced that is necessary.

What we need to do in the meantime is to have NEDA lead an interagency task force to consider whether each and every restriction in the FINL remains in the national interest. The negative list is such a downer to a potential investor right at the start.

The other discouraging news is the report that Foxconn, the manufacturer of Apple’s i-phones and i-pads, has supposedly bypassed the Philippines in its search for an alternative to China. It has chosen Indonesia instead. It is also going to Brazil. This had been buzzing in industry circles for a while. There was even a Washington Post story on this move to Indonesia.

Maybe Indonesia won because they have a bigger market. They sell 500,000 new cars each year suggesting a strong consumer buying power. Their larger middle class must be capable of buying a whole lot of cell phones too. Maybe we lost because of our smaller market which can be served through Indonesia anyway via the Asean Free Trade Area.

Still, I wondered if this was a missed investment opportunity for us. It will be good to analyze what made Foxconn decide to rule out the Philippines. Other potential investors may have the same misgivings.

I checked this out with sources in the foreign chambers who are well informed on regional investor movements. My source confirms that Foxconn will set up a $1-billion cell phone assembly plant in West Java. I understand the $10 billion is an indicative investment number over a number of years.

It is not however true that one of the things that went against us is our prohibition of foreign ownership of land. As far as my source could ascertain, foreign ownership of land is not allowed in Indonesia and neither is that allowed in China where Foxconn is heavily invested.

It is also not true that labor unrest is a consideration because the labor scene in the Philippines had been very peaceful in recent years, which is not the case in Indonesia or China.

As for high power costs, our government has made concessions on power rates for strategic FDI. Besides, power is not a major component in the cost structure of so called “finishers” like Foxconn.

Where we have a disadvantage with Indonesia, my source said, is labor cost (higher minimum wage plus more holidays) and an uncertain fiscal incentive regime resulting from the never ending debate between DOF and DTI over investment incentives.

Perhaps it is time for P-Noy to take a direct hand and get the two agencies to agree on something. For so long as we are debating what to do with incentives, potential investors will see that as an uncertain regulatory environment and discourage them from coming here. Calling the process rationalization does not make it rational.

Because we need to create a lot of jobs (to absorb our unemployed, underemployed and bring back some of our OFWs) we need to revive our manufacturing sector. To do that, we need foreign investors to help us. P-Noy should put up a no nonsense task force whose mission is to get all those companies who are thinking of moving out of China due to rising costs and increasing social instability.

Other than investors in China, many manufacturers are looking to diversify manufacturing bases away from Japan (due to strong yen) and Thailand (due to flood experience). As my source puts it, it is important for our leadership in the public and private sector to understand why we cannot afford to lose again such a golden opportunity to get hundreds of thousands of jobs over several years.

“Such an understanding could lead to us becoming more competitive with Indonesia in capturing some of the Taiwanese investment which is relocating from South China to Indonesia and Vietnam but seems to be skipping the Philippines,” my source said.

It would make sense for our trade and investment officials to also go back to some of the previous investors in Subic like Acer that went to China. Because conditions in China have changed, this may just be the right time to attract them to go back to Subic or consider some other economic zone here.

Long term, it also makes sense to be more flexible with some of our labor laws if only to create more employment where it is most needed. The proposal for labor economic zones made by economist Gerry Sicat should be considered for such labor intensive industries like garments. Setting these up in the more economically depressed provinces may be just the tonic they need to get their local economies humming.

Sometimes I wonder if we are just too good for our own good. We debate things forever probably because we have too many lawyers and politicians with special interests to protect. And they are lording it over the formulation of economic policies.

I hope P-Noy is not starting to get too euphoric about all the good news in our financial sector as if that’s the objective. There is still so much work to be done in the real economy. The financial sector of stocks, bonds, forex, etc is not the real economy… at least not the one meaningful to Juan dela Cruz. SWS’s survey on incidence of hunger is the more relevant measure of a government’s success or failure.

Alex Aquino, a Facebook friend of Sylvia M, posted this reaction on Sylvia’s wall to a Reuters story entitled “Philippines grapples with the cost of economic success.” I thought he captures our situation well:

“The country has money, no doubting that. With more than $20 billion in remittances projected for 2012, for one thing, which feeds into an economy that is led by consumer spending - all 75 percent of it. New investment mostly in construction and housing… Ayala Land estimates that up to 70 percent of its demand for middle and lower cost housing comes from overseas.

“The BSP has 11.5 months’ worth of imports in foreign reserves. (We also got a credit rating upgrade.) That’s the financial side of it. But finance is not the economy.

“Here, we look at the level of unemployment, the levels of income, the productive capacity of industry, of self-sufficiency (or otherwise) in basic food necessities.

“So, how does a healthy financial sector not go hand in hand with a healthy economy? If I may rephrase the title: Philippines grapples with the economic cost of financial success.”

Success

 Artemio S.  Tipon shares these words of wisdom.

Success Is Relative.

The more The Success,

The more The Relatives.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco