Philippine investments abroad

The news about Jollibee investing $99 million to acquire 40 percent of Smashburger, a US-based burger chain came at about the same time there was news about disappointing figures on our Foreign Direct Investments or FDI. The reactions on social media were interesting.

There was the expected feeling of national pride in a local company buying into a foreign one operating abroad. It is the same kind of pride a Pinoy feels knowing Del Monte US is now owned by a Filipino enterprise... or the Natori line of female garments is owned by a Pinay.

But there were those who lamented domestic capital outflow at a time when the country badly needs investments to create jobs. Indeed, some comments bordered on the racist with the observation the Chinoys lack patriotism by investing money earned here abroad, many in China.

Such reactions are amusing. It shows a lack of understanding of the nature of capital. Indeed, capital is not patriotic as much as it seeks the best return.

Domestic capital goes abroad for a variety of reasons that revolve on perception of potential returns. Some of these investments should also be seen as a kind of export because the investor potentially earns foreign exchange in their overseas operations.

Jollibee branched out overseas in many countries particularly where there are a lot of Filipinos like the UAE, Singapore and the US West Coast. By doing this, Jollibee recaptures Filipino buying power that would otherwise not be remitted back. That should be good for our economy on the whole.

Jollibee also bought established fast food operations in China, and now in the US because the food business is what Jollibee does best. It would be good for a Filipino company like Jollibee to gain a foothold abroad, learning how to flourish in different markets and exposing Filipino executives to world class competitive conditions.

Sometimes a Filipino company is forced by circumstances to try its luck abroad because of local conditions. That’s the case for Oishi snacks, now a major brand in China. It needed to grow from its original business, Liwayway Gawgaw, prawn crackers or kropec and flakes.

When Carlos Chan ventured into China in the early ‘90s, he did so because he saw the promise of a frontier market. Besides, he was not a major brand here for snacks and the leading brands were tough competitors. If he didn’t go to China, he wouldn’t have built his snack food empire into what it is now. Today, 90 percent of Oishi sales are from overseas.

It is the same story for ICTSI. Ricky Razon knows port operations best and there are limits to what he can do here. The way to grow the business is to invest abroad… manage foreign ports. Ricky is using the same principle for gaming, his other big interest, by investing a billion dollars in South Korea.

A recent announcement of DMCI Homes that it will venture abroad is also good news along the same lines as ICTSI. DMCI plans to invest P6 billion in a 45 percent  stake in a joint venture in an undisclosed country. 

The local partner will provide the land, while DMCI will develop it into a master planned community. That means jobs will be created for Filipino architects, engineers and other workers. Earnings from the venture will eventually filter back to the Philippine economy.

Another big investor abroad is SM. They have this really fantastic looking mall in Xiamen that would make a Filipino burst in pride. True, it must have been funded by money earned in the Philippines but in time the flow of cash should reverse to benefit our country.

For San Miguel, it made the bold move to buy Exxon in Malaysia. Now the familiar Petron logo is proudly displayed in hundreds of gasoline stations all over Malaysia. Ramon Ang once remarked he makes better margins per liter in Malaysia.

Then there is Andrew Tan who has bought the largest vineyard in Spain that specializes in wine grapes for brandy distillation. His Emperador subsidiary also struck a P31.72-billion deal to buy out Scotch distiller Whyte and Mackay, the fifth largest maker of Scotch whisky in the world.

But there are times when domestic investors go abroad because they feel they are not appreciated here. That seems to be the story in the power industry. Meralco invested in a power plant in Singapore and in another one in Nigeria. When they made the investments, they were mired in a controversy over a power plant they were trying to build in Subic.

Sure, they would have loved to invest more here as they are indeed doing that too. We need massive investments in the power sector, but government has to make the investment climate friendlier. The regulatory environment is often frustrating. And the communities can also sometimes be rather unreasonable.

It is unfortunate too that some bureaucrats just want to make it difficult, if not impossible, for domestic capital to remain here. That is probably what led Metro Pacific to explore investing in tollways in Vietnam. They have this very sad and unfortunate experience with government on SCTEX, in the connector road proposal and Cavitex.

Government needs to understand it costs a lot of money to prepare PPP proposals. It is also expensive waiting for government to make decisions and making their decisions stick.

So, the tollway subsidiary of Metro Pacific is now buying into toll roads in Indonesia, and is scouting for more deals in Thailand and Vietnam. MetroPac has a 29.45 percent economic interest in Thai operator Don Muang Tollway Public Co. Ltd.

Metro Pacific also announced it is buying a 45 percent stake in a Vietnamese infrastructure company, marking its second toll road investment outside the Philippines.

Why is MetroPac going abroad? A MetroPac official told Business World the toll road projects in those Asian countries are “reachable,” adding that “a lot of challenges we encounter in the local environment are not present in other countries…To mitigate some of the challenges here, we are going outside where we believe projects are more reachable.”

Capital, foreign or local, will go where it is welcome. There are after all, many other alternative projects just waiting to be funded.

It could be the same thing with Aboitiz Power. The company recently informed the Philippine Stock Exchange it plans to invest as much as $500 million over the next five years in Southeast Asia.

Their main focus is Indonesia, but they are also interested in projects in Vietnam and Myanmar. Aboitiz Power has recently agreed to take part in the feasibility studies with Indonesian firms, SN Power AS and PT Energi Infranusantara, for a hydropower generation project along the Lariang River in Central Sulawesi.

Because most of the funds Aboitiz will use will come from the company’s internal cash flows from its existing business in the Philippines, there are those who feel something isn’t right.

But that’s because many of us are so insular in our thinking. That’s why even our Constitution is restrictive. This kind of thinking is shutting us out of the TPP which will dramatically reduce our competitiveness in many major markets. We need to realize there is a world out there and we must compete for every dollar available for investment, domestic or foreign.

Having placed into perspective this “flight” of domestic capital abroad, it will also do us well to examine why, despite all the press releases, we are unable to get our FDI numbers comparable to our regional peers.   

DTI officials like to say comparing ourselves with our Asean peers like Vietnam, which attracted upwards of $80 billion in FDI, at some point is apples and oranges. Vietnam, they explained, is sort of virgin territory for FDI while we have had foreign companies invested here for decades.

Partly true, but when we started losing investments already here as in the case of Intel that moved to Vietnam with a billion dollar operation, there has to be more to it. Our restrictive investment laws starting from the Constitution, the lack of ease in doing business and lousy governance standards could be better explanations.

The administration loves pointing to our investment grade rating but how has that really helped us? As a recent newspaper report observed, “Filipinos still make much less money, on the average, compared to people in the countries rated at the same level as the Philippines...”

 In other words, even if we outperformed most of our Asia-Pacific neighbors, the Philippines is still uncompetitive because “weak governance indicators remain a credit negative for the Philippines,” Fitch rating agency observed.

What is good for foreign investors is also good for local investors. What attracts FDI here also keeps local investors here. Capital seeks the best return on investment, it is as simple as that.

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