How LGUs shoo away investors

While discussing how Charter change can attract investors, my Viber group colleagues wondered if problems with LGU corruption are a bigger turnoff to investors than Constitutional restrictions on foreign investments. The kind of investors we want to attract are mostly covered by foreign corrupt practices laws in their home countries. In other words, they are legally liable if they bribed a foreign government official.

On the other hand, there are countries that don’t care what their companies do abroad. This gives rise to firms with no qualms about engaging with corrupt foreign government officials. So, honest firms or foreign firms subject to Foreign Corrupt Practices Act (FCPA) in their home countries stay away, and we get mostly corrupt firms in bed with corrupt officials including those in our LGUs. Chinese POGOs come to mind.

My Viber friends zeroed in on corrupt LGU officials including barangay officials who use our rules and regulations as opportunities to squeeze business investors any way they can. It starts with something as basic as getting business permits.

Our government requires a deluge of permits a potential investor must secure. I recall someone telling me that an investor for a major power plant which we badly need must secure no less than 600 signatures. This involves securing clearances from national agency offices and permits from municipal and provincial offices.

There are local environmental, sanitation, electrical rules and regulations. Lagay bawat pirma. A Filipino entrepreneur who wanted to put up a piggery was required by the munisipyo to purchase a fire extinguisher system costing over a million pesos from a favored supplier. The common practice in most cities is for the local fire department to require businesses to buy those portable fire extinguishers from their supplier.

Then there is the barangay captain and the kagawads. There was a barangay that imposed a tax on the day-old chicks that must be paid before allowing a poultry investor to deliver the chicks to his farm. Then one has to pay road tolls for delivery trucks and vans.

The workers hired by an investor must secure clearance from the barangay before being allowed to work. The investor must also accommodate requests from the congressman, mayor or barangay captain to hire workers that they endorse who are their relatives or loyal political supporters.

Said one of my colleagues… “Just look at the provinces surrounding NCR and have a quick assessment of how they treat potential investors. I have entrepreneur friends whose businesses are located in Batangas and Quezon provinces. They speak ill of their LGU officials. I encountered an expat married to a Filipina wanting to start dairy farming in Tayabas. The barangay official is asking for a million to secure a permit to operate!”

We should probably have an anonymous channel where investors can tell horror stories about their experiences dealing with LGU officials so that we can learn the extent of the problem. Or maybe the Board of Investments and the Anti-Red Tape Authority can publish a Good Housekeeping kind of list of LGUs that are investor friendly and corruption-free to guide potential investors. Any LGU not on this “good” list can be presumed corrupt and must be avoided.

The point was then made that maybe our LGU officials behave badly toward investors because of the system we have. To win elections, they have to accumulate money and favors while in office for just three years. The priority agenda of most officials is to get elected and perpetuate themselves or their clans in power. The local politician has to efficiently hold on to power through political patronage. With oversight institutions weak, corruption offers the best short-term means of generating cash.

There is also something wrong with the devolution framework which gave absolute powers to LGUs to grant permits, approve cell sites, etc. They should somehow be disempowered and balanced with a national development perspective.

We do not reward local officials for doing a good job in terms of improving the economy in their localities.

Contrast this to China, where promotion to the higher ranks of the CCP is related to economic performance. Same is true in Vietnam where heads of their provinces are held accountable in attaining certain growth targets given the resources allotted to their province/area. Failure to do so will either lead to demotion or assignment in isolated and backward areas of the country.

The dramatic reduction of poverty in China was the result of the bureaucratic reforms introduced by Deng Xiaoping consisting of partial limits on power, accountability, and competition. LGUs were given economic performance scorecards on attracting investments etc. which were published, spurring competition among provinces. I personally witnessed how officials from different provinces rolled out the red carpet for Carlos Chan of Oishi as they tried to convince him to put one of the Liwayway factories in their area. Liwayway has 16 Oishi factories all over China, all grown from scratch with incentives from Chinese provincial governments.

Ironically, Vietnam and China before Xi Jinping have adopted an approach similar to what corporations have. Corporate managers have targets to reach which are the basis for compensation and promotion.

In our case, our national government leaders do not care whether LGUs deliver growth in their respective areas so long as they deliver votes. So, if we want better LGUs, either fix corruption at the LGU level or create incentives from the national government so that LGU economic growth has political benefits.

Corruption must also be punished. The ARMM was the poorest region in the country. National leaders kept on pouring funds for various programs only to make the ruling clan very rich. For as long as votes were delivered by the clan to the administration’s candidates in the senatorial and congressional elections, national leaders did not care about rampant corruption… until the Maguindanao massacre happened!

I don’t think Charter change can fix this LGU corruption problem which is a big disincentive for investors. Good governance starts from the top with a sincere and effective program. Simple as that.

Boo Chanco’s email address is bchanco@gmail.com. Follow him on X or Twitter @boochanco