Raising the alarm vs import dependence

Rolando Narciso, a steel industry veteran who led the government-owned National Steel Corp. (NSC) from 1989 to 1995 and was also the president and chief operating officer of Steel Corp. of the Philippines from 1998 to 2000, and is currently an independent director at Wilcon Depot, Inc., is raising the alarm against the country’s increasing reliance on imports for almost all of our needs.

In an open letter, Narciso expressed concern over the term “extreme import dependence” to describe the state of the Philippine economy and his fear of “the dangers that lurk along the trail up ahead.”

He warns that as “we turn to foreign sources, instead of local sources to fill our supply chains for finished goods, we are in effect converting many controllable factors therein to uncontrollable ones,” noting that “these uncontrollable factors better be foreseeable in order to have enough time to cushion their possible adverse effects when they inevitably arise.”

He asks, “In a world that is progressively in turmoil and constantly in crisis (such as natural calamities, trade wars, military conflicts, geopolitical tensions, territorial disputes, cross-border migrations, pandemics, exchange rate fluctuations), is import dependence a prudent economic policy for a country aspiring for continuous growth and progress for its ever-rising, but poverty-mired population? If the answer is in the negative, then all the more so for extreme import dependence – which unfortunately is where we are today.”

He points out that our main sources of foreign exchange are OFW remittances, BPO business revenues and electronics re-export, “which are also our vulnerabilities to global upheavals, since these volatile inflows are a major source of funds for payment of our gigantic import bills.”

Our needs, he enumerates, include fuels (oil and gas), food (rice, meat, sugar, fish, vegetables), construction materials (steel), textiles for low-cost clothes of common use, medicines for the usual ailments (coughs, colds, aches, fever). Petrochemicals, which are related to the processing/refining of crude oil. The wants refer to cars, alcoholic drinks, beauty products, expensive designer clothes, jewelry and similar such items that are postponable or even cancellable.

He acknowledges that we import oil and gas because we don’t have sufficient natural resources for these. But, he argues, “it is incomprehensible why there is a shortage of agricultural goods (which are primarily for food consumption) when we have abundant lands or seas, and labor for this purpose – especially for rice, sugar and fish, which historically have produced ample harvests to satisfy consumer demand.”

Steel, he says, “is differently situated – we can use domestic raw materials provided we resort to newer technologies for its upstream processes. On medicines, we can locally produce many organic medicines and manufacture others under licensing agreements with pharmaceutical companies.”

Unfortunately, he observes, “As we rely on substantial imports to fill our supply-demand gaps, we are unwittingly creating virtual monsters in the middle (between producers on one side and consumers on the other side) due to our weak and inconsistent enforcement of applicable rules. As a consequence, import-traders eventually become smugglers, tax-evaders, hoarders, price manipulators and peddlers of substandard products. And because of their nefarious activities, they tend to bribe the government’s regulatory officials to look the other way as they carry on their get-rich-quick operations.”

He points out that unlike “domestic producers and manufacturers, import-traders don’t have huge permanent investments in their businesses. They only have comparatively small short-term stakes tied up in multi-purpose warehouses, inventories and receivables. When apprehended, they quickly liquidate these assets and close their corporate entities. Then, at the proper future time ‘when the weather is again fine,’ they reorganize/re-incorporate to do their thing all over again.”

Narciso argues that passing new stricter laws and tighter rules/regulations “don’t work at all. The good guys obey and pay all the rightful costs inherent in their compliant ways, but the bad guys will continue to evade and violate these new laws and rules, thus giving themselves an undue competitive advantage that in the long run tends to kill the legitimate businesses of the good guys.”

As such, he laments, investments in domestic production capabilities are discouraged, more so for foreign investors who are further handicapped in meeting nationality requirements and in coping with such unfair trade practices, making it nearly impossible to expect new additional investments to enhance local production capacities that also create employment opportunities in the affected sectors – most notably in agriculture where unemployment and poverty levels are highest.

He admits though that we should not aim for full self-sufficiency, but at least attain supply security of just around 60 to 80 percent. Supply shortages, he says, can also be addressed through intervention as the remaining portion of around 20 to 40 percent usually includes a soft component which may be considered as postponable or cancellable, or replaceable by substitute products.

Through the Department of Economy, Planning and Development or DEPDev, Narciso suggests, we should “come up with a comprehensive all-of-country master plan to extricate ourselves from extreme import dependence, especially on sectors where this can be viable – meaning, we can satisfy the norms of sufficient quantities, suitable quality, competitive cost and environmentally sustainable. Although we recognize the overall economic policy that the private sector is the main engine of growth...we should push government to take a major stake in these undertakings that involve vital projects with a high impact on the national interest,” suggesting that the “National Development Company (NDC), whose charter gives it a developmental mandate, can be mobilized for this purpose.

The necessary funding can be carved out from savings in the extravagant budgetary appropriations, such as the unnecessary pork barrel provisions, the redundant ayuda programs, and the much-abused confidential funds. Or should we count too on the funding support of the much-publicized Maharlika Fund?”