Scaring investors
DEMAND AND SUPPLY - Boo Chanco (The Philippine Star) - January 22, 2020 - 12:00am

Many times, we seem to think we are the center of the universe... a self-sufficient paradise of 7000 islands. Our leaders love to say things that give the impression we can do without the rest of the world.

In rejecting EU aid because of its human rights concerns, Duterte said: “Maski magkahirap dito (Even if we face hardships), we will survive. I’ll be the first one to go hungry, I’ll be the first one to die of hunger, huwag kayo mag-alala (don’t worry).”

In recent weeks, dire warnings are being aired about how Duterte is scaring investors away with the harsh words and cavalier treatment the water concessionaires are getting.

The concessionaires thought they had an iron-clad contract drafted by government when water services in NCR was privatized. But Duterte thinks some provisions are onerous and declared the original contract, with just two more years to go, null and void from the start.

Observers say the rule of law and sanctity of contracts just went out the window. What investor will now feel confident to risk capital here after the President bullied the water concessionaires into giving up victories in international arbitration courts?

President Duterte is unfazed by threats that some investors might leave the country. Duterte said he does not mind losing investors’ confidence as long as the contracts are right.

“You thought they will be getting out of the Philippines? Fine, go out, be my guest. I will not be intimidated or even fear the possibility of reduced investment in this country,” he said.

Who needs foreign or for that matter local investments? Our economy does.

Last week, the Bangko Sentral reported that net inflows of foreign direct investments (FDI) plunged 32.8 percent from January to October last year despite a surge in October.

Data released by the central bank showed FDI inflows amounted to $5.79 billion during the 10-month period last year or $2.82 billion lower than the $8.61 billion recorded in the same period in 2018. Note that even that 2018 investment figure is small compared to our regional peers.

“The lower FDI net inflows reflect subdued investor sentiment due to the continued sluggish global economic activity,” the BSP said in a statement.

Equity placements dropped 44.9 percent to $1.32 billion from January to October compared to the previous year’s $2.39 billion, while withdrawals jumped 58.8 percent to $629 million from $396 million. Equity infusions fell 28 percent to $80 million in October last year from $112 million in the same month in 2018, while withdrawals surged by 62.1 percent to $22 million from $14 million.

Equity capital came from the US, South Korea and Japan. Nothing much is showing up from China. Even in terms of trade, we are buying a lot more from China than they are from us. Duterte’s charm offensive with China isn’t giving us any advantage.

The BSP has lowered the projected net FDI inflows for 2019 to $6.8 billion instead of $9 billion. For 2020, the central bank sees net FDI inflows recovering to $8.8 billion.

Our problem attracting foreign investors didn’t start with Duterte’s rants. Duterte only made the problem worse. There are other things wrong with our rules that enabled countries like Vietnam to overtake us in attracting foreign direct investments.

Santandertrade.com noted that “the Philippines continues to lag behind regional peers, in part because the Philippines’ constitution limits foreign investment, and also due to the threat of terrorism in some parts of the country.

“This can be partially explained by the fact that the country is evolving into a service society with low capital strength, which means that it needs only minimal equipment. In addition, the government favors subcontracting agreements between foreign companies and local enterprises rather than FDI in the strict sense of the term.

“Lastly, factors such as corruption, instability, and inadequate infrastructure, high power costs, lack of juridical security, tax regulations and foreign ownership restrictions discourage investment.

“As such, the country is only ranked 124th out of 190 economies in the Doing Business 2019 ranking of the World Bank, losing 11 ranking points compared to 2018.”

Our $6.45-billion FDI in 2018 constituted only four percent of the total received by all Southeast Asian nations amounting to $148.69 billion.  Our FDI went down by 26 percent from 2017 at a time when the total FDI for Southeast Asia went up by three percent.

In comparison, Indonesia had $22 billion in foreign investments in 2018, more than three times that of the Philippines. Thailand had $10 billion.

“Nonetheless, the country offers many comparative advantages, including an English-speaking and well-skilled workforce, a strong cultural proximity to the US and a geographical location in a dynamic region.”

Santander cited our main weaknesses: political instability; poor quality of its infrastructure; restrictions on foreign investment in certain sectors; legal uncertainty and a lack of transparency of procedures (total banking secrecy favoring money laundering) generating tensions and a lack of confidence of the business community towards the legal system; high level of corruption in the administration and various state agencies; strong disparities in development according to the regions: income and security inequalities (problematic security situation in the Muslim regions of the South).    

That is quite a list.

Manila Bulletin editorialized: “All nations welcome foreign investments as these are additional resources that create or enhance economic activities. Even the United States, the world’s most advanced economy today, welcomed $253.2 billion in FDIs in 2017. China today rivals the US in getting FDIs from investors around the world.”

Oh well… we will know soon enough as investors, foreign and local, move capital elsewhere. The impact on employment and livelihood should be visibly felt. Repairing the damage to the economy of Duterte’s anti investor attitude will take years… well beyond his term.

Tragedy is, his massive support base refuses to realize this danger. We deserve what happens next.

Boo Chanco’s e-mail address is bchanco@gmail.com. Follow him on Twitter @boochanco

 

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