Will Duterte have business cronies?

SAN FRANCISCO – President Duterte had some harsh words for local big business last week. He said he owes them nothing so he is free to reform the economic system as he sees fit.

The President said these in the context of his plan to open up many areas of local business to foreign competition. Duterte told a news conference:

“The only way for the deliverance of this country is to remove it from the clutches of the few people who hold the power and money. I do not owe you anything, that’s precisely why I was avoiding you during the last election. I am not trying to destroy you. You have the advantage, you’re here already, be content with that. But let us open everything.”

I cheer the President for delivering in very clear language his intention to stop a system that has created a rapacious rent-seeking elite. I just hope the President will not create his own.

The rise of some Davao businessmen to national prominence since he took power, buying every business they fancy, seem to indicate a Duterte business elite is rising, with or without his express consent. Some old characters with colorful backgrounds also appear to have managed to creep into large business deals with China being shepherded by the Duterte administration.

A Filipino graduate student in Canada with the research help of PCIJ has written an article dissecting the China deals of the Duterte administration. It pointed out that “these 27 business-to-business deals along with several proposed government-to-government projects cover some $9 billion in loans and $15 billion in investment pledges, for everything from power plants, steel mills, and banana plantations to ambitious reclamation projects and inter-island bridge systems.”

Because of the enormity of the amounts involved, it is important that the deals are examined to avoid scandalous cases of crony corruption we experienced in the past. Kenneth Cardenas, the PhD graduate student from Canada’s York University, observed that applying these lessons should be easy enough.

“Who are the Filipino parties to these deals, and how did they build their wealth? How did they manage to secure these deals? From what we know about their track record, can we trust them to deliver?”

He found out that most of the companies are invisible, inexperienced, undercapitalized. That can only mean they are in the running solely on political connections, if not with the President himself, with those close to him.

“Many do not have a substantial public profile. Some have never been covered by the Philippine media, neither have they disclosed anything publicly about their ownership, management, or their past deals.”

Cardenas and PCIJ checked the database of the Securities and Exchange Commission (SEC) and found out that among the Filipino parties to business-to-business deals with China “are firms with no track record in major infrastructure projects, no recent operating profit, and alarmingly small asset bases.

“Of the 22 firms that returned from China with agreements, eight had a paid-up capitalization of less than P15 million. At least three firms report their annual results under accounting rules for small and medium enterprises. Seven had not turned a profit over the past two years. With a few exceptions, the reported value of their deals dwarfs the firms’ asset bases and turnovers by two or three orders of magnitude.”

In one case, SEC “does not have any records for the entity… Two firms in Duterte’s entourage were registered with the SEC only after coming back from China and one filed its papers almost three months after Duterte’s China trip.

Four of the firms “are party to some $7 billion in deals, including an ambitious inter-island bridge system for the Visayas, and several infrastructure projects for Metro Manila. How did virtually unknown firms with no track record in bidding for—much less completing—major infrastructure projects, rise to billion-dollar prominence with the change of the administration?

“For the firms that have no records with the SEC: if they aren’t registered to do business in the Philippines, how could they be party to billion-dollar deals on our behalf?

“Take One Whitebeach Development Corp., one of the smaller companies in Duterte’s entourage. It is the Philippine counterpart to a deal for a $325-million flood-control project in the Ambal-Simuay sub-basin of the Rio Grande de Mindanao, identified as a priority project by the Mindanao Development Authority.

“In 2013, the last year for which an annual report for it is available, One Whitebeach reported a mere P1.3 million in assets and P19,640 in losses. Its registration papers describe its business as “resorts, hotel inns, all adjuncts, and accessories thereto.”

Cardenas and PCIJ found out that those behind One Whitebeach’s registration papers are related to a congressman who was behind the controversial “bridges” program of the Arroyo administration. The congressman acted as the Philippine agent for Mabey & Johnson, a British firm that supplies modular structures for the bridges.

A Senate investigation in 2012 alleged that not only were the contracts overpriced, the bridges themselves were underutilized. In at least one case, only a third of a bridge’s span had been built; in other cases, they were literally “bridges to nowhere,” with no roads leading to and from the structures.

An investigation by the UK-based Guardian found that Mabey & Johnson charged substantially higher for, and earned an “exceptionally high rate of profit” from their Philippine contracts. Mabey & Johnson had since been convicted by a British court for bribing politicians in Ghana, Madagascar, Jamaica, Angola, Mozambique and Bangladesh.

“Does this mean the Duterte administration is willing to consort with contractors with colorful histories, as well as contractors with zero histories?” Cardenas asked.

I want to believe the President is unaware of the details of all these contracts and contractors. But he has to start asking the hard questions if he is to protect his anti-corruption claim.
Is Duterte creating his own set of cronies?

In the rush to Build Build Build, hopefully our tax money will not be wasted on corruption the way it had always been wasted in the past.

Boo Chanco’s e-mail address is [email protected]. Follow him on Twitter @boochanco.