A new mindset is needed

First of 2 parts

HAVING studied the Philippine economy for the past 48 years and watched as we fell below all our Association of Southeast Asian Nations (Asean) neighbors from where we were second to Japan when I came here, it has to make you wonder as to what went wrong. Obviously, since then something has gone wrong. I put it down, principally, to two things: leadership and a bahala na culture. We are not driven to achieve. I moved here in 1975, so let me focus here on just one where change is needed: foreign direct investment (FDI). I came as this was the best place to build a factory, which I did in Sucat.

I believe that what this history has shown us is that if we want to truly attract much greater levels of FDI, we need to make fundamental changes in the way we address how to do it. The House’s passage of an ill-conceived constitutional change initiative is not one of those fundamental changes. My suggestion in my last column would be: Just remove all restrictions in the Constitution and replace them with a general statement of policy. Then introduce laws to impose restrictions where Congress thinks they’re necessary. Laws that can be changed as the world changes.

I’ve been through six administrations and watched as each of them made plans, made promises and effected some change. But it hasn’t worked. The gross domestic product (GDP) per capita tells you that. The numbers in poverty tell you that. Our ranking near the bottom on almost every international or even Asian comparison tells you that. The numbers on FDI tell you that. And that’s what I’ll talk about today.

Government after government introduces change or, much too often, promises to make a change, but the promised improvement doesn’t occur to the substantial degree necessary to make this the middle-income country it could have been. Or bring us near to the top in the Asean pack where we should be. In 1975, we had a GDP per capita of $398, Vietnam’s was $83. Today, Vietnam is $4,126, we’re a thoroughly miserable $3,624. Vietnam grew by 50 times. We grew by nine. Everyone in Asean did better than us. By a significant factor. In the 1970s, we were top of the Asean pack, today we’re at the bottom.

We’ve been doing modestly well under this administration. And the promises and plans made look good. But as history has shown far too often those promises don’t happen. So I see little reason to believe we’ll see the fundamental change in mindset that is needed by this administration either. What those fundamental changes should be need a much more in-depth analysis than a column will allow.

With companies leaving China, and shifts in corporate strategic thinking, I believe there’s an urgent need to reexamine what we offer foreign investors in a fundamental way. There are many major constraints to investing in the Philippines if you’re a foreigner. But, in a column with limited space, let me list just what I consider 10 of the more important ones.

10 major constraints

First is the cost of doing business. You go to where you can produce a quality product or service at the lowest cost. You’d think that was blindingly obvious, wouldn’t you? But it seems not. We see policies coming out of Congress, and the administration that are based on domestic thinking, with too little thought to what other countries offer. Look at the absurd effort to give Filipinos priority over foreigners when both bid.

What foreigner is going to bid when a Filipino is given a price advantage? Just so being a Filipino. US companies are leaving China and going to Vietnam, Mexico, etc., because they’re looking for lower-cost, lower (political) risk alternatives. Has the government done research on our costs vs others? We exist in a highly competitive world. If we want foreign investment, which we surely do, we have to be competitive. Reducing much of that cost is going to take a lot of time as much of the high cost is due to inadequate infrastructure.

Building world-class airports and seaports, roads and bridges takes lots of time. Together with that, moving to lower-cost electricity has to be a high priority. Cost should be a major determinant of what sort of power to produce. But it must take days, not months, to get government approvals. Privatizing NAIA (Ninoy Aquino International Airport) is the kind of initiative we need more of. I’m going to be controversial here, but we should put cost ahead of the environment.

If coal-fired plants are cheapest, then keep them for now. Our impact on the world’s environment is negligible. Cleaning up can wait. Mind you, I’m a keen environmentalist (my daughter is an environmental scientist). But I’m also a pragmatist. For me, for now pragmatism must win.

Taxes, our taxes have to match others in the region: They don’t. On corporate tax alone, we charge 25 percent. The Asean countries range from 17 percent to 20 percent. If you know anything about numbers, you’ll know that makes us the worst.

Second is the inconsistency of policies. Every six years, a new government thinks it must introduce its “much better” ideas into the business arena. The result is change, and not always for the better. As the above highlights. Foreigners invest hundreds of millions of dollars into a project that they expect will give them a return over the next six decades, not six years.

This government can start to address this issue by not changing anything unless it’s clearly for the better, and guaranteeing that only beneficial change will be made and confirm it’s desirable by the foreign business community. Putting positive changes into law can help give some permanence. But they must be positive. Introducing a revision in the BOT (Build-Operate-Transfer) Law that requires investors in a PPP (public-private partnership) project that builds public infrastructure or services to remit any revenue obtained in excess of a “reasonable rate of return” to the government is about as stupid as you can get. No company will invest under that condition. What on earth was Congress thinking? They must remove it.

Third, it must be easy to invest. Like in any human activity, you must feel welcome. We have a bureaucratic system that is designed to thwart your efforts. Get the government out of business. Have non-lawyers, experts in running a business, review all bureaucratic regulations to decide: 1) Are they really necessary, if so, why?; 2) Are they as simple as possible; 3) How can they be effected in the fastest possible time, with the least requirement from the applicant?; 4) Will they be what business will benefit from. We must not try to protect from every possible corporate violation, but introduce what is the minimum necessary to provide sufficient protection. Don’t make everyone suffer for the failings of a few.

The most unbelievable recent action is protection. If violations are minor and few, live with them. Don’t make everyone suffer for the failings of a few and give approval to build power facilities, and everything else in days, not months, like it is now. Give the Anti-Red Tape Authority (ARTA) penalizing powers. The Ombudsman too often does not act on cases brought by ARTA before it. ARTA should be developed as a full department, with all the powers that grants. The aim must be, the less bureaucracy the better.

Part of the delay is caused by the shortage of knowledgeable people in government to develop the terms of reference (TOR) and request for proposals (RFPs) for a project. So an action the government can take is to get independent consultants with foreign experience to join Filipino export companies to help rapidly develop the TORs and RFPs that will attract foreigners as well as Filipinos.