The Booming Philippines Missing Link-Foreigner Investors

[Okieboy]

MANILA (Reuters) - The gathering had the air of a post-mortem. About 100 executives and government officials listened quietly as Guillermo Luz poked holes in the Philippines' fairytale economic revival.

Luz, head of the Philippines' National Competitiveness Council, projected a deck of slides onto two pull-down screens that showed the fast-growing Philippine economy slipping in the World's Bank's "Ease of Doing Business" index to 138 out of 185 countries, near Tajikistan and Sudan.

"It's a lousy neighborhood," he said of the two-notch fall this year. "I do not want to live with that ranking."

As the Philippines gallops ahead with the strongest economic growth in Southeast Asia and one of the world's best-performing stock markets, its shortcomings are being laid bare, including stubborn problems that have already started to undermine its economic renaissance.

While foreign funds have poured into Philippine assets this year, driving the main stock index (.PSI) up around 30 percent to a succession of record highs and lifting the peso currency about 7 percent, foreign direct investment (FDI) remains embarrassingly low.

Total FDI is on course to hit around $1.5 billion this year -- about half its level in 2007 and less than the average $1.7 billion received every month in remittances from Filipinos overseas.

That is only about 3 percent of the total that flowed last year to a group of five peer economies including the Philippines in the 10-member Association of Southeast Asian Nations (ASEAN).

In his presentation in Manila's Makati business district, Luz highlighted the Philippines' lowly ranking in a range of categories, from "paying taxes" (143rd), to "starting a business" (161st) and "resolving insolvency" (165th).

Since coming to power in 2010, President Benigno Aquino has made headway against long-standing problems of corruption, shaky public finances and low infrastructure investment that earned the country the unwanted sobriquet of the "sick man" of Asia.

But he has yet to show his government can translate the torrent of hot money and improved market confidence that is also fuelling a property boom into real gains such as an expansion of higher-paying jobs and better transport links.

Calls by congressional leaders to loosen constitutional restrictions on foreign ownership have met with a lukewarm response from Aquino, a scion of an elite family whose mother, democracy icon Corazon Aquino, passed the 1987 constitution as president.

"I do not believe that foreigners would be that foolish to come here and put their money in business," Juan Ponce Enrile, the Senate president who is calling for the constitution to be revised, told Reuters. "They are at the mercy of local people who are not quite familiar to them. That is to me the reason why we lag in investment attractiveness in Asia."

"SALESMAN IN CHIEF"

The absence of FDI is a missing link that raises doubts over how much has really changed in the nation of 96 million people, where many an investor has been stung by copious red tape, unpredictable policymaking and graft.

Aquino has vowed to change the country's tarnished reputation among foreign investors, billing himself as the country's "salesman in chief". But to do so he needs to tackle vested business interests who benefit from a protected domestic market. So far, there are few signs he is doing so.

The constitution and current rules allow foreign investors to own no more than 40 percent in most industries and bars foreigners entirely in areas such as media and the practice of licensed professions such as engineering, law and medicine.

From 2000 to 2011, net FDI to the Philippines totaled $18.9 billion, according to United Nations Conference on Trade and Development, less than a third of what Singapore attracted in 2011 alone. As a proportion of the economy, the Philippines' net FDI stood at 0.6 percent last year, compared with 2.2 percent in Indonesia and 6.2 percent in Vietnam.

Strong foreign investment has been a vital ingredient in the rise of better-off Asian neighbors like Malaysia and Thailand, boosting job creation and deepening technological capabilities.

Foreign executives here are quick to complain there has been little concrete improvement on the ground, despite a surge of money into financial markets and credit rating upgrades on the back of improving fiscal health and lower borrowing costs.

"For me it's extremely frustrating," said Hubert D'Aboville, former head of the European Chamber of Commerce.

"We should welcome foreign investment, giving them the majority of 51 percent or 100 percent. What is important is to create jobs. We are not creating jobs."

EXODUS OF WORKERS

The Philippines has among the highest jobless rates in Southeast Asia at around 7 percent, helping to fuel an exodus of about 10 million Filipino workers in total that has yet to reverse course or even slow significantly.

Officials close to Aquino say he recognizes the need to attract more foreign investment, but is wary of broaching a reform of the constitution that could open up a complex, messy and energy-sapping political process.

"I don't think it's going to be touched for now," Budget Secretary Florencio Abad, who is also vice president of Aquino's party and one of his close advisers, told Reuters.

"You create another uncertainty. Investments are coming in anyway, predominantly by local guys."

Combined investment by the public and private sector grew an annual 7.9 percent in the first nine months against just 1.1 percent a year earlier, with more than half made up of investments in machinery and equipment.

While policy transparency is widely seen as improving under Aquino, the Philippines' volatile political and legal systems regularly throw up unpleasant surprises for foreigners.

Aquino's government has halted new mining projects, stalling development of an estimated $850 billion in mineral reserves, until Congress approves a mining tax reform -- a vote that is unlikely to take place before May 2013 mid-term elections.

In October, Manila added to restrictions on ownership of real estate, lending firms and professions.

Meanwhile, the Securities and Exchange Commission is looking at expanding the 40 percent foreign ownership limit to apply to all classes of shares in a company, rather than just common or voting shares, following a Supreme Court ruling last year that telecoms firm PLDT (PHS:TEL) had breached the cap.

"The Philippines will be shooting itself in the foot because it will severely restrict the available shares for foreigners," said Francis Ed Lim, managing partner of the Accra law firm and a former head of the stock exchange.

TWO PHILIPPINES

While service sectors such as call centers, retail and tourism are growing strongly, the manufacturing sector - an engine of development in countries like Vietnam and Thailand - struggles to compete with neighbors and attract investment.

Ford Motor Co (NYS:F) announced in June it was closing its Philippine production factory, citing an inadequate supply network and a lack of economies of scale.

Foreign executives here tell a tale of two Philippines. One is the country's special export zones, where companies can set up wholly owned units easily and receive incentives and efficient services as long as they ship their output abroad.

Total investments by local and foreign firms in economic zones totaled nearly 660 billion pesos ($16 billion) by the end of 2011, more than doubling since Aquino took office in 2010.

The other Philippines is encountered when companies try to tap the domestic market, running a gauntlet of heavy bureaucracy, local government corruption and sometimes troublesome partnerships with Filipino firms.

Companies have to go through 16 separate procedures to start a business in the Philippines, compared with three in Singapore and nine in Indonesia, according to the World Bank report.

Japanese firms have rekindled their long-dormant interest in the Philippines this year, prompted by rising wages in China and Beijing's territorial dispute with Japan. Still, a potential flood of money has been slowed by ownership limits and other restrictions, said Takashi Ishigami, president of Japanese trading house Marubeni Corp in the Philippines.

Marubeni is teaming up with a local firm to bid for a $1 billion railway project, among at least eight major Public-Private Partnerships (PPPs) that make up Aquino's flagship plan to improve infrastructure.

But Ishigami said Marubeni was only supplying equipment as part of the bid, and had been deterred from taking an operational role by the government's refusal to guarantee rail fares. That shortcoming would likely deter Japanese firms from bidding for other PPPs, he said.

"The Filipino PPP is far away from our standard."

[Call me bubba]

OKIEBOY 2 outstanding posts in 1 day, :icon_GreatJobKao:

:AddEmoticons04230: thanks :AddEmoticons04230:

"I do not believe that foreigners would be that foolish to come here and put their money in business," Juan Ponce Enrile, the Senate president who is calling for the constitution to be revised, told Reuters.

"They are at the mercy of local people who are not quite familiar to them.

So very true,"at the mercy" of others

But to do so he needs to tackle vested business interests who benefit from a protected domestic market.

You create another uncertainty. Investments are coming in anyway, predominantly by local guys." .

While policy transparency is widely seen as improving under Aquino,

the Philippines' volatile political and legal systems regularly :th_hu:

throw up unpleasant surprises for foreigners.

I just quoted 3 parts, but these 3 parts sums it up.

can a change occur? will the Vested powers allow a change?

"volatile political& legal systems" :as-if:

I have limited my comments in the past on the system here, but that quote,,

If i was a businessman considering investment here,

would make me consider not once nor twice but many times before i make a firm decision.

:444: even if the women here are truly a gift from heaven

[i am bob]

Like most news in the Philippines, the piece above was an obvious skewing of facts against the current government. Sure, the Philippines slipped 2 spots in "Ease of Doing Business" but that was because they are putting into place ways to prevent the proverbial "paper bag" payments for corrupt officials. At the same time, they have risen to 87th for Business World's "Best for Business" countries. If you want to see what the NCC really feels about the Philippines without the political slant (ok, with less political slant), check out their website at http://www.competitive.org.ph/news .

I have to admit that I am kind of political myself... I am very pro anybody who can make the Philippines a better place to live, work and play - for everybody! Yes, there is a very long way to go but it is getting better. And, sure, some things for some companies didn't work out the way they were expected. An example? Ford only had a production ceiling of 30,000 vehicles - not enough to support the plant. So they are closing - for their second time. Yes, Ford has pulled out of the Philippines before and only open a very small plant here just for the benefits the government will allow them. And now another car manufacturer is moving into the Philippines with a much larger target production. They are coming to the Philippines because of the economic benefits of opening there rather than other countries. I believe it is Kia (or parent company Hyundai?) but I am going by memory for which one. There is also a new automotive company that may be opening a production plant soon in the Philippines. The owner of the company is also the owner of the F1 Lotus team and is looking at bringing some of the F1 technology into everyday car use. So while it wasn't working out for Ford, there are other things happening that aren't being reported - just to make that political slant.

I know many of us don't see the good that is happening in the country right now because it is up too high in the economic chain to be obvious. But this is the part that has to be changed first before that which will affect us daily can be corrected. To change things the other way around would result in only chaos and having the Philippines slip back into obscurity and economic disaster.

Want the Philippines to clean themselves up? IMHO, rebuild the press and then the government or nobody will ever know what is what.

[Curley]

Like most news in the Philippines, the piece above was an obvious skewing of facts against the current government. Sure, the Philippines slipped 2 spots in "Ease of Doing Business" but that was because they are putting into place ways to prevent the proverbial "paper bag" payments for corrupt officials. At the same time, they have risen to 87th for Business World's "Best for Business" countries. If you want to see what the NCC really feels about the Philippines without the political slant (ok, with less political slant), check out their website at http://www.competitive.org.ph/news .

I have to admit that I am kind of political myself... I am very pro anybody who can make the Philippines a better place to live, work and play - for everybody! Yes, there is a very long way to go but it is getting better. And, sure, some things for some companies didn't work out the way they were expected. An example? Ford only had a production ceiling of 30,000 vehicles - not enough to support the plant. So they are closing - for their second time. Yes, Ford has pulled out of the Philippines before and only open a very small plant here just for the benefits the government will allow them. And now another car manufacturer is moving into the Philippines with a much larger target production. They are coming to the Philippines because of the economic benefits of opening there rather than other countries. I believe it is Kia (or parent company Hyundai?) but I am going by memory for which one. There is also a new automotive company that may be opening a production plant soon in the Philippines. The owner of the company is also the owner of the F1 Lotus team and is looking at bringing some of the F1 technology into everyday car use. So while it wasn't working out for Ford, there are other things happening that aren't being reported - just to make that political slant.

I know many of us don't see the good that is happening in the country right now because it is up too high in the economic chain to be obvious. But this is the part that has to be changed first before that which will affect us daily can be corrected. To change things the other way around would result in only chaos and having the Philippines slip back into obscurity and economic disaster.

Want the Philippines to clean themselves up? IMHO, rebuild the press and then the government or nobody will ever know what is what.

I suspect your new car company investors are going to be in the PEZA (just guessing) which is a very different kettle of fish to a straight forward Philippines company

[Thomas]

While policy transparency is widely seen as improving under Aquino, the Philippines' volatile political and legal systems regularly throw up unpleasant surprises for foreigners.

I don't know if they are true, but I have heared

/several stories where foreign businessmen have EASY been prisoned/deported on (false) accuisations even when they could show the "missing" documents! Accused by competitor or spouce to grab things, or by business competitors to kill the business...

/And custom stop for LONG TIME export container just because something small isn't corect in the documents, both don't get the income and add high storing fees and container rent costs, instead of let adjusting the failing document!!! This make I can't dare to start the probably best business ideas* of them I think of, because the start cost is high and get the first container stucked in the custom would kill my company :Mad:123

*Of them allready tested. Hard to know what the result would be of my never done ideas :santa_smiley:

Companies have to go through 16 separate procedures to start a business in the Philippines, compared with three in Singapore and nine in Indonesia, according to the World Bank report.

In Sweden it's 2 for a citizen. I believe only 1 extra for not citizens = totaly 3...

I guess they have that many to get more chances to grab extra fees and bribes... :Mad:123

Have anyone heared Filipins officials saying any REASON for having such many?

I agree it's a need of demand yearly updates of permits for businesses, which can damage health as e g food and chemicals,

BUT it's realy CRAP to demand local permits YEARLY for ALL businesses With the Filipin corruption it's easy for a local powerful businessman to kill the bussines for an opponent by making so the permit isn't extended... I'm not scared easily :santa_smiley: but mainly this and the custom problem make me scared of put in any big part of my money in the Philippines... :23_11_62[1]:

Corruption is hard to solve any fast, but it wouldn't be hard to change the demands of a big part of the 16 procedures..., I can change it if they make me Filipin dictator or :santa3: for a day :santa_smiley:

Edited December 20, 2012 by Thomas

[Thomas]

the Philippines slipped 2 spots in "Ease of Doing Business" but that was because they are putting into place ways to prevent the proverbial "paper bag" payments for corrupt officials.

How do you mean that could give minus??

[i am bob]

the Philippines slipped 2 spots in "Ease of Doing Business" but that was because they are putting into place ways to prevent the proverbial "paper bag" payments for corrupt officials.

How do you mean that could give minus??

By putting in place the steps for making it harder for corruption to take place, they have also made it just a little bit harder to to do business in the Philippines. Many of the complaints could actually be attributed to those who are used to paying for anything they wanted previously.

[i am bob]

I suspect your new car company investors are going to be in the PEZA (just guessing) which is a very different kettle of fish to a straight forward Philippines company

Any major manufacturer coming to the Philippines is going to be in a PEZA. Same way Cannon got in... Same way Dole Philippines got in... Wells Fargo... IBM... and so many others. If you look closely, there aren't that many companies that come in now without PEZA. The ones that don't are usually smaller companies that form a partnered corporation.

[Thomas]

check out their website at http://www.competitive.org.ph/news .

Several interesting articles in that link.

[Thomas]

the Philippines slipped 2 spots in "Ease of Doing Business" but that was because they are putting into place ways to prevent the proverbial "paper bag" payments for corrupt officials.

How do you mean that could give minus??

By putting in place the steps for making it harder for corruption to take place, they have also made it just a little bit harder to to do business in the Philippines. Many of the complaints could actually be attributed to those who are used to paying for anything they wanted previously.

But that's "Filipin logic" ! :no:

Why have 16 steps and need to pay much to START business???

If they REDUCE the demands of start STEPS, then they would REDUCE CORRUPTION TOO, because it would make less situations where there can be corruption.... :no: