Competing for FDI

In 1992, foreign investors left the country because of the crippling daily blackouts in Metro Manila and other parts of Luzon lasting from 8 to 12 hours.

Already among the most expensive in Asia, electricity in this country was so inadequate at the time that it wreaked havoc on productivity and business planning.

The unstable power supply – a crucial production component – was compounded by the sheer discomfort of working in office buildings designed to keep out the tropical heat and polluted air. Without air conditioning, these buildings turn into ovens. Many investors took Harry Truman’s advice: they couldn’t stand the heat so they got out of the kitchen.

Twenty-one years later, power supply is much improved in Metro Manila and the rest of Luzon, but the crisis has moved to Mindanao, where many areas now suffer daily blackouts lasting two to six hours.

This is unfortunate because Mindanao has a lot of resources to offer and could use more job-generating investments. The problem has become a chicken-and-egg thing: power suppliers don’t want to make the required large investments unless sufficient demand can be guaranteed, but demand won’t pick up until sufficient investments outside the energy sector come in and economic activity intensifies.

In Metro Manila, a key player in energy distribution advised us to invest in a good generator starting this year, but so far the only worrisome power outage to hit the capital in recent months was the one shortly before the May elections.

There’s a problem, however, that has worsened exponentially in this rainy season, whose adverse impact is approaching that of the 1992 blackouts: traffic.

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A report released last week by the National Center for Transportation Studies estimated that traffic jams in Metro Manila in the decade until 2012 cost P1.513 trillion in lost productivity and added fuel costs.

In the past two weeks I thought the traffic jams had become unusually worse, considering that we haven’t even been hit yet by a powerful typhoon. I thought it was just growing impatience in my old age, until I heard many other horror stories about getting stuck for hours in traffic after a brief downpour, from many sources including primetime news.

On Monday last week, for example, Vietnamese Ambassador Nguyen Vu Tu left his embassy on Vito Cruz street in Malate, Manila at 6 p.m. for a 7 p.m. dinner hosted by Australian Ambassador Bill Twedell at Aubergine in Bonifacio Global City. By past 8 p.m. half the seats at the dinner remained empty. The Vietnamese made it to the dinner… at 10 p.m.

Last Friday it took Swiss Ambassador Ivo Sieber an hour and a half to reach Century Park Sheraton from his embassy in Makati’s central business district for a farewell dinner hosted by taipan Lucio Tan’s daughter-in-law Nancy for Austrian Ambassador Wilhelm Donko and wife Yan.

On the same afternoon I was stuck in traffic myself along Gil Puyat Avenue and failed to make it to the opening of a photo exhibit on the earthquake in Christchurch, New Zealand, taken by Kiwi children and organized by its embassy together with UNICEF. You can still catch the exhibit, “See Through My Eyes,” and listen to talks on disaster preparedness at the Yuchengco Museum at the RCBC Plaza on Ayala corner Gil Puyat in Makati.

New Zealand Ambassador Reuben Levermore said his government hoped the event “will encourage people to reflect on how best to prepare for disasters, including here in the Philippines.”

If we can’t handle traffic jams, I don’t see how we can handle massive earthquakes.

Traffic jams torment Pinoys and foreigners alike, but I am mentioning the foreign diplomats because they are reporting to their capitals the situation in this host country, and what prospective investors and travelers might expect to encounter.

Like blackouts, traffic jams are messing up business, education, government services – everything. Someone being rushed to a hospital in an ambulance may not make it in Manila’s traffic.

Horrendous traffic jams can only aggravate the minuses of Metro Manila for business and travel. Sure, most of Asia’s megalopolises are choked with traffic. But I always thought Jakarta was far worse than Manila – and now I think we’re getting there. We should be improving, not the other way around.

We have to think of our neighbors if we’re competing for foreign direct investment (FDI) and travelers. Right now, despite a severe inadequacy of infrastructure and a less skilled workforce, Myanmar is becoming the apple of even the Pinoy investor’s eye.

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Agriculture and certain other economic activities, especially those reserved for marginalized sectors are off-limits to foreigners in Myanmar.

But the incentives can be irresistible in the free areas, which include banking, telecommunications, property development, public works, education, energy, transportation, and manufacturing especially those geared for exports.

I didn’t come across ownership restrictions in these areas, and foreign land lease is allowed up to 50 years from when a business becomes operational.

Consider the incentives: no income tax for FDI for the first five years of operation, tax exemption on reinvested profits, 50 percent tax cut and no commercial tax for export goods, tax-deductible R&D expenses. No customs duties on materials for initial construction, and no taxes on imported materials in the first three years.

As of 2012, average unskilled blue-collar monthly salary in Yangon was $100; it was $150 for semi-skilled, and from $300 to $500 for computer-literate and English-speaking university graduates. Office space as of last year was going at $150 per square meter; for future business districts, property price has skyrocketed to $4,000 per square meter, so there’s a mad dash to be there ahead of the rest.

The Eurozone crisis shut down many enterprises, but Europeans told me that a number of the survivors are looking overseas for more cost-effective places for doing business. Costs in China have soared, and bickering with its neighbors is making foreigners, particularly the Japanese, look for other investment sites. We should be positioning ourselves aggressively to attract these investments.

Sure, luxury carmakers Rolls-Royce and Bentley recently set up shop in Manila. But these businesses mainly feed our consumer-led economic growth.

We need more job-generating FDI, beyond BPOs – the type that’s not spooked by the absence of the rule of law, weak regulation, an uneven playing field, poor contract enforcement and whimsical policy making.

Add four-hour daily traffic to that list of woes, and we could lose out to the stiff competition.