An outlier taipan

Over the past weeks, I have been writing about how our economic elites have preferred to invest in protected and rent-seeking industries rather than in basic industries that will make our economy internationally competitive.

But I’ll give credit where it is deserved. There was one outlier taipan driven by a bold, patriotic vision for the country’s industrialization. That was the late John Gokongwei Jr., a risk-taker in a way most of our economic elite are not. He placed his money where his sentiments for our country are.

Gokongwei deeply believed that the Philippines could not rely solely on agriculture or services. It required heavy industry.

Mr. John started his business empire thinking and behaving like all the others. He built the consumer-oriented Universal Robina into a powerhouse. His Robinsons Land built the usual condos and hotels. His Cebu Pacific broke the monopoly of PAL and made air travel affordable to more people. And like the late Henry Sy, Lucio Tan and the Zobel family, Mr. John invested capital earned in the Philippines in China and Vietnam among other countries.

Mr. John also did the usual philanthropy or social responsibility stuff, providing scholarships and helping universities improve their teaching capacities.

But once he was comfortable his conglomerate was strong enough, he started thinking like a nation-builder. He wanted to give back to this country that gave him so much.

So, Mr. John decided to build the country’s first and only naphtha cracker plant, one key infrastructure necessary for a modern manufacturing ecosystem.

No one among our economic elite is as gutsy as Mr. John. He was willing to risk the massive, long-term capital needed to carry out what he considered a fundamental “national mission.”

In short, Mr. John viewed the Batangas petrochemical complex as a legacy asset — a testament to what Filipino engineering and corporate capital could achieve. Indeed, not even the dictatorial government under Marcos Sr was able to get its version of a petrochemical complex beyond the saliva stage.

It took almost three decades to fully realize Mr. John’s vision of an integrated petrochemical complex. It was finally inaugurated by his son, Lance, only to be shuttered shortly thereafter.

Due to decades-long bureaucratic logjams, high electricity costs and policy shifts, the construction of the cracker was repeatedly delayed. The cracker plant finally came online in 2014, and a final $1.3-billion facility expansion was completed in 2023.

Mr. John’s primary goal was to serve the domestic market to drive Philippine industrialization. But he knew that the petrochemical business relies on massive economies of scale to survive.

Because the Philippine domestic market was too small to absorb the massive output of a globally competitive plant on its own, exporting was always part of his plans.

Mr. John assumed that the domestic market would be a highly profitable “safe haven” while exports absorbed the excess volume. The Philippine government bashed these assumptions.

China, South Korea and Japan heavily supported and subsidized their basic heavy industries when they were starting out. Because petrochemicals provide the foundational building blocks for modern economies — such as plastics, synthetic rubber, fibers and fertilizers — these governments viewed domestic chemical independence as a matter of national economic survival.

It was the opposite here. The Philippine government launched an open-market policy that gave zero protective tariffs to Mr. John’s petrochemical venture. Heavily subsidized plants in China and the Middle East were allowed to dump dirt-cheap polymers here.

With the domestic market flooded with cheaper imports, Mr. John’s plant lost its local advantage and was left exposed to the brutal global price war that ultimately forced its shutdown. He spent decades fighting a multifront war to keep his petrochemical dream alive, with no government support.

Why did Mr. John’s dream fail?

Before Mr. John’s complex could start operations, a global surplus of petrochemical products emerged, intensified by overproduction in China. This slashed margins to unsustainable levels.

High domestic costs for electricity and labor in the Philippines made local production uncompetitive against cheap regional imports.

Accumulated losses and heavy debt servicing severely dragged down the profitability of the parent company, leading to a massive P114.3-billion impairment charge. His son Lance, had the painful task of declaring a permanent exit.

The Philippine government that supposedly wanted a petrochemical complex failed to give Mr. John the support he needed. It wasn’t until late 2022, long after Mr. John had died, when the government finally granted a temporary three-year safeguard duty on imported high-density polyethylene pellets.

But the relief was flawed and insufficient. The Philippine government concurrently rejected the company’s petition for import protection on linear low-density polyethylene, leaving a major portion of its product portfolio entirely exposed to foreign dumping.

By that time, China had already built a massive oversupply of petrochemicals. Chinese and regional manufacturers were willing to absorb the tariff costs just to dump their excess inventory into the Philippine market, effectively neutralizing the protection.

Then there was rampant technical and outright smuggling.

Our economic elite will likely point to the lessons Mr. John learned in his bold investment for the country’s industrialization as reasons why they stay within the safe areas of retail, property and banking. That’s why real economic growth eludes us.

Mr. John caused his children’s inheritance to lose a total hit exceeding P150 billion (approximately $2.5 billion), but it still seems money well spent in terms of the legacy he left behind. It showed where his heart was.

To me, that makes him a national hero for our times. He had a sense of nation and tangible love of country that our economic elite, Tsinoy, Kastilaloy or Pinoy lacks. He was ready to put his money to help get our country industrialized and out of its economic rut.

Maybe the next one, if there will be another brave soul among our taipans, will get better government support.

Boo Chanco’s email address is [email protected]. Follow him on X @boochanco